President’s start-ups claim scorned by experts

Korea’s success in nurturing innovative start-ups came under fire after some analysts expressed skepticism over President Park Geun-hye, who claimed her government had excelled in the area.

The Small and Medium Business Administration (SMBA) released a report at the end of December saying the number of start-ups in Korea exceeded 30,000 as of 2014 and their sales totaled 215 trillion won ($176.73 billion), which is smaller than sales of Samsung Group but bigger than the sales of the nation’s No. 2 conglomerate, Hyundai Motor Group.

Each start-up was estimated to have average sales of 7.2 billion won in 2014, up 11.2 percent compared to a year earlier.

The report concluded that this business performance was “more exceptional” than that of the chaebol - whose sales shrunk by 0.4 percent that year - and that of Korea’s small and midsize companies, which grew 4.4 percent year on year.

The statistics were jointly compiled by the SMBA and the Korea Venture Business Association (KVBA). The report was submitted to President Park after being screened by Minister of Science, ICT and Future Planning Choi Yang-hee.

Park cited the statistics in a press conference last Wednesday as proof of the success of her signature “creative economy” policy slogan.

“Another start-up boom has arisen in Korea,” Park announced, “as the number of start-ups in Korea totaled 30,000 last year and investments in them surpassed 2 trillion won.”

But a statistics professor at a Seoul-based university who requested anonymity argued the report was overblown. He suggests the sample group was based on large start-ups and ignored much smaller ones.

Local start-ups numbered 29,844 at the end of 2014, the report said. As it is difficult to investigate every single company, the two institutions decided to pick some 2,227 sample start-ups, about 10 percent of the total, that best represent the industry.

The crucial factor was to make balanced selections in order not to distort trends in the raw data, the professor said.

“The breakup of sample start-ups by annual sales was very different from the group as a whole,” the professor told the JoongAng Ilbo. “The statistics must either have been mistakenly botched or intentionally modified.”

Some 15,164 start-ups, or 48.4 percent of total, had 1 billion won or less in sales in 2014, according to the raw data compiled by the KVBA. Those with more than 10 billion won a year accounted for 10.4 percent.

The sample data, which was based on some 2,227 companies selected by the SMBA, showed that those start-ups earning 1 billion won or less accounted for only 20.1 percent. Large start-ups with an annual sale of 10 billion won or higher took up 26.9 percent of the total.

The portion of small start-ups was slashed in half in the sample group and that of large companies doubled.

Both the SMBA and the KVBA denied data manipulation, and claimed they may have made mistakes.

“I think we failed to keep the same proportion in annual sale between the raw data and the sample group. We focused too much on keeping the proportions the same for numbers of employees, types of business and region,” said an SMBA official who also asked not to be named. “We didn’t overblow it on purpose. We didn’t even realize it before [you asked us].”

“We have carried out this research since 2009 and maintained the same research method for the past seven years,” said Heo Young-koo, head of the policy research division at the KVBA.

“We actually worried because too many large start-ups were included in the sample study, but we’ve never modified the data itself. Almost 23.4 percent of local start-ups were extremely small ones that didn’t even have annual sales data, according to the SMBA. Four out of 10 local start-ups had annual sales of less than 500 million won and fewer than 10 employees.

In comparison, there were only 460 start-ups with annual sales of 100 billion won in 2014, accounting for only 1.5 percent of total. Their sales totalled 100 trillion won, about half of the total.

Because of such a gap, analysts say the government’s claim that start-ups’ average sales reached 7.2 billion won could be wrong.

“If the bosses pressure [the employees] for good numbers,” said Oh Dong-yoon, an economics professor at Dong-A University, “the junior officials cannot but create the best performance.”

“Creating a healthy business environment for a creative economy takes a long time,” Oh added. “The government should not try to prove immediate successes before President Park’s term ends.”

BY KIM TAE-YOON, CHANG WON-SEOK [kim.jiyoon@joongang.co.kr]