Blue House chaos causes blackout at centers
“Other than the big conglomerates that drew crowds, there are hardly any visitors,” the official said. “This is our third year [in participating in the exhibition], but it’s the worst.”
More than 1,600 institutions and major companies and 718 SMEs including start-ups participated in this year’s event, in which the Ministry of Science, ICT and Future Planning invested 3.3 billion won ($2.8 million), twice the size of the budget the government spent last year.
By the sheer number of participants and the budget that was spent, the exhibition is the largest since it first kicked off four years ago.
However, it was clear that the mood at the exhibition was different compared to the previous events.
There were no keynote speeches or celebrations at this year’s iteration. President Park Geun-hye, who participated at the opening ceremonies twice in the past, was absent this year.
It was clear that the shadow of the Choi Soon-sil scandal weighed heavily on the exhibition.
Although there were visitors, most of them flocked to tech behemoths like Samsung Electronics, Naver and Kakao, which were offering virtual reality rides and augmented reality experiences.
“Would people be interested at a time like this?” a start-up official asked. “People like us are here hoping [for a cost-effective] promotion.”
Even large companies complained, saying they only participated because of government pressure.
“Participating in the exhibition is a burden, but we couldn’t show it,” a conglomerate official said.
The expo isn’t the only area that has seen a significant drop of public support in the so-called creative economy campaign championed by Park Geun-hye’s government as a result of the political scandal.
A 990-square-meter (10,000-square-foot) office in Naju, South Jeolla, was empty except for just a few sofas and tables. The room was supposed to be the office for South Jeolla’s second Center for Creative Economy and Innovation and the opening ceremony was scheduled for Nov. 4. The event was postponed indefinitely and so was the move-in, since the president couldn’t participate. This is just one of the creative economy centers hit by the Choi scandal.
“There are rumors that the plan for the creative economy centers itself will be flipped,” said a spokesman for the Korea Electric Power Corporation, which supported the center aimed at promoting energy-related start-ups.
During the opening ceremony for South Gyeongsang’s Center for Creative Economy and Innovation in April 2015, President Park said it would be “the country’s southeast hub for mecotronics [combining mechanical and electrical engineering].” Contrary to her statement, the center, composed of four floors of 2,247 square meters in total, only had three visitors at the center on Nov. 14. The number of companies that moved in was said to be 16, but only one had employees currently going in and out.
The centers are slowly fading. Officially known as the Center for Creative Economy and Innovation, these facilities were built to invigorate local start-ups with the help of major companies. They were the base camps of Park’s grand plan to promote a “creative economy.” According to the Ministry of Science, ICT and Future Planning, the size of funds that major private companies poured into such centers reached 722.7 billion won in total: 348.7 billion won in the form of investment, 348 billion won in loans and 26 billion won in guarantees. The figure exceeds 1 trillion won if the count is expanded to money offered for building and operating the centers.
Since the beginning of implementation, there were concerns that the project might turn out to be one of those administrative “displays” that are made for the purpose of leaving a legacy behind for the ruling government. These concerns are already becoming reality in several regions. Traces of corrupt figures, including Choi, having wielded influence on the creative economy project have dealt a blow to the centers. Next year’s budget for Seoul’s center was cut back. The Gyeonggi center will only receive half of its original budget of 1.5 billion won, and the North Jeolla center will be given 1 billion won instead of 2.3 billion won.
All 17 centers visited by the reporting team had heavy atmospheres. Centers in the southern Yeongnam and Honam regions were almost devoid of entrepreneurs.
Insiders from the venture industry say the model itself was difficult to succeed in the first place. “The idea of dividing venture support centers across the country was more of a political decision than an economic one,” said Prof. Lee Byung-tae at the Korea Advanced Institute of Science and Technology.
There are others who say the start-up boom shown in some centers shouldn’t be discouraged by the Choi Soon-sil scandal. “Disapproving the government is one thing, but putting a stop to the ‘creative economy’ and invigorating start-ups is another,” said Lim Jung-wook, managing director at Startup Alliance Korea.
The gap between centers in the capital region and those situated elsewhere was significant. Apart from a few in Gyeonggi and Daejeon, most of them were technically “off from work.”
The emptiness became more stark as one moved further from the capital. Such was the Jeonju center in North Jeolla. Its one-stop service center, which is the first booth that greets visitors inside the building, was completely empty. The atmosphere inside the building felt heavier, as it was not long after the regional government suggested cutting the budget reserved for the center from its original 2.3 billion won to 1 billion won. “Planned businesses such as opening a portal site for venture support have been held off continuously one after the other,” said Kim Jin-soo, head of the Jeonju center. “I’m worried the entire business may cool off.”
There is a clear explanation for why regional centers are much emptier than those around the country’s capital: First and foremost, such areas lack software developers, which are the core asset for start-up ventures.
“There’s a saying that the southern limit line for developers is Pangyo,” said a source working in the information and communications technology industry referring to a suburb just south of Seoul. “Developers value networking and high-quality working environment - they simply won’t go all the way down to Yeongnam or Honam just because you tell them to do business there.”
“It’s hard to expect a creative center built in an area with no infrastructure to be operated properly,” said Lim Jung-wook, CEO of Startup Alliance Korea. “I heard there are even companies that registered local creative centers with the purpose of receiving center support but actually work in Seoul.”
“This is the downside of creating centers by geographical region instead of building it based on local demand and established infrastructure for start-up support,” said Professor Lee. In order to vitalize start-ups, there needs to be a financial firm that makes investments, as well as organizations and institutes that provide consulting services and human resources. “There is a reason why even the United States, which has much more land than us, has only a few cities thrive as venture hubs like Boston and Silicon Valley,” he added.
Some have criticized the government for forcefully squeezing major companies into helping them invigorate the start-up industry instead of leaving the job to the private sector. “We already have a lot of start-up support programs set up by private organizations,” said Lee Min-hwa, a director at the Korea Creative Economy Research Network. “The government is conducting a business that overlaps with what was already being done before them.”
Another practice condemned as just for show is calling in resident companies at centers to public events held to promote the effectiveness of the “creative economy” initiative. “For August’s Creative Economy Festival, I heard there were orders to bring in 100 entrepreneurs per center as the president was expected to take part,” said a spokesman for a private start-up support center. “One company even voluntarily left the center, citing the lack of time to do business because of frequent summons to exhibitions and conferences.”
Poor management was revealed when a majority of employees turned out to be temporary contract workers. At the Incheon center, only three out of 35 workers are permanent employees. The rest are in temporary positions or are part of the work force dispatched from sponsoring companies, which in this case are Hanjin and KT.
“Once the government support is cut off, the only centers left in the end will be those who have the strength and ability to survive on their own,” said Shin Dong-yeop, a professor of business administration at Yonsei University.
Zhongguancun’s “high-tech zone” in Beijing is a Chinese version of the creative economy center, built on governmental support. Needless to say, the complex is much bigger than Korea’s. But the most important difference is the atmosphere. The Chinese government offers a wide array of advantages to those who enter the zone straight out of college with a degree in science technology. Residence permits for Beijing, medical insurance and residential support are among the benefits. More than 10 venture support centers offer support in the form of funding, legislation and prototype production. Universities cooperate, too, by providing human resources and facilities. This is the backdrop that spurred China’s biggest tech companies such as Lenovo, Baidu and Xiaomi.
“Although the verification process is tough, a company that enters Zhongguancun will get support in every way to help survive in the market,” said Kim Young-saeng, a senior researcher at the Korea Research Institute for Vocational Education and Training who conducted studies on Zhongguancun. “The core principle is ‘select and concentrate.’”
This is exactly what Korea’s centers are criticized for lacking, having all been built in similar models at 17 places around the country.
“It’s only natural that the business environment in Seoul and South Jeolla, or Pangyo and Sejong are not the same. However, realistically speaking, we can’t continue to push through all 17, so we have to start making choices,” said CEO Hwang Byung-sun of Bigbang Angels. The head of the Daejeon center, Lim Jong-tae, said, “We need to eliminate overlapping functions between centers.”
Some say that the starting point of elevating the capacity of creative centers should be bringing in professionals that have the ability to cultivate and offer realistic advice to start-ups, implying that the current system of sending people from the government and companies is not enough to meet the needs of start-up entrepreneurs.
“It was hard to find professionalism in the education or consulting sessions held at the center,” said one entrepreneur who joined a local creative center. “We say that it takes 60 steps to make an idea into a business, and it’s the people who can offer actual advice in every part of the steps that we need.”
There are also people who are saying the start-up support programs should now be handed over to the private sector, even if did start with the government’s lead a few years ago when the start-up ecosystem in Korea was even poorer. “The government’s role should be limited to priming the water in areas with zero base and clearing obstacles for start-ups to develop their own paths,” said Kim Gwang-hyeon, head of D.Camp, a nonprofit that helps young start-ups.
Start-up entrepreneurs advise people to take it slow and wait for outcomes. “A lot of start-ups fail to cross over the ‘death valley’ - the period of time between when a company receives funding from a venture capital firm and when it starts generating revenue on its own - but I saw a lot of them lose center support before their first anniversary,” said Lee Sung-ho, CEO of the start-up Cmes which manufactures 3-D applications. “It takes a minimum five years to properly evaluate the performance of a start-up.”
BY SPECIAL REPORTING TEAM [email@example.com]