More start-ups creating fewer jobs, says study

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More start-ups creating fewer jobs, says study


While Korea’s start-ups have been growing in number over the past 15 years, their contribution to job creation has been retreating, a report from Hyundai Research Institute shows.

The private think tank’s report, published on Tuesday, says the number of start-ups nearly quadrupled from 8,798 in 2000 to 31,260 in 2015, but the annual growth rate in the number has slowed to below 10 percent since 2010.

The average revenue also fell from 7.22 billion won ($6.14 million) in 2010 to 7.19 billion in 2014, and the average number of employees at each start-up also fell from 27.3 to 24 over the same period.

The institute’s research also showed that only 2.5 percent of all start-ups in Korea in 2014 felt their key products were top quality, down from 4.2 percent in 2010. Some 30.1 percent considered their technological level “inferior” in 2014, up from 19.7 percent four years earlier.

The statistics go against general expectations that the start-ups would be boosted by the launch of Park Geun-hye’s administration in 2012, which identified the “creative economy” as one of its top policy agendas.

The government’s support served as a “poison chalice,” the think tank points out. Korean start-ups tend to be heavily dependent on government funds, and the role of venture capital has been marginal. Government funding for start-ups in 2014 accounted for 46.1 percent of total support, followed by loans from banks and other financial institutions at 36.6 percent. Venture capital made up a mere 0.4 percent the same year.

New investments made by venture capitalists surged from 1.9 trillion won in 2010 to as much as 2.9 trillion won in 2015, and the number of benefiting start-ups nearly doubled from 560 to 1,045 over the same period.

Still, the number of start-ups that said they have received or are scheduled to receive funding from venture capital slumped from 10.5 percent in 2010 to a mere 2.3 percent in 2014, while the actual number of start-ups increased over the same period.

By comparison, start-ups worldwide saw 24.8 percent of their funding come from venture capital in 2015. Start-ups in China and India, in particular, have been sucking up capital from investors worldwide.

The ratio of funds that went to Chinese start-ups tripled to 16.2 percent between 2011 and 2015, whereas India saw the figure rise from 2.5 percent to 5.4 percent over the same time span.

“Start-ups in advanced economies tend to prefer attracting capital from venture capitalists, which guarantee more freedom,” said Jeon Hae-young, a senior researcher at the institute.

The researcher stressed the importance of Korean start-ups grabbing leadership in the mobile, medical and health fields - leading industries in the future. She proposed that the government come up with measures and policies to boost private sector-led revitalization of the start-up community.

The government is also advised to ramp up tax incentives for venture capitalists and angel investors so they can invest more in start-ups, and to ease various regulations that impede start-ups’ technological advancement, such as the location information protection act.


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