Korea losing dynamism as corporate lifecycle stagnates: KCCI

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Korea losing dynamism as corporate lifecycle stagnates: KCCI

Korean industry is changing less and becoming more static, and innovative measures are needed to bring it back to life, the Korea Chamber of Commerce and Industry (KCCI) said on Monday.
 
Fewer companies are born and dying in Korea, and that's leading to the economy losing its overall industrial dynamism, according to a report published by the Sustainable Growth Initiative (SGI) division of the KCCI.
 
According to the report, 15.3 percent of Korean companies were newly established in 2019, 2.6 percentage points lower than in 2007 when 17.9 percent were new. The percentage of dying companies, which was 13 percent in 2007, fell by 1.9 percentage points to 11.1 percent in 2018.
 
In terms of companies being born, the biggest decline was in high-tech manufacturers and higher value-added service providers. In 2011, 11.9 percent of companies in high-tech manufacturing were new, compared to 7.7 percent in 2019.
 
The percent of newly-established higher value-added service providers — such as those in telecoms, finance, insurance and science — dropped from 20.7 percent in 2011 to 17.1 percent in 2019.
 
“New service providers have recently fled to categories with lower entry barriers, such as retail, food, restaurant or real estate,” the report said.
 
Existing companies have struggled to make breakthroughs.
 
The percentage of fast-growing companies, which are companies with revenue growing by more than 20 percent in three years, decreased from 13.1 percent in 2009 to 8.6 percent in 2019.
 
“This means that the growth ladder of starting a business then gradually becoming a conglomerate is weakening,” the report explained.
 
Not having new-born or fast-growing companies means that existing companies become complacent due to the lack of competition. And if a company that should be liquidated is not immediately removed from the industry, it leads to the inefficient distribution of resources. This again lowers the potential growth rate.
 
“Companies then start to use the money for stability rather than investing in innovative technology,” the report said.
 
Social conflict is also possible. Fewer new companies mean fewer new jobs. That leads to people fighting over the existing seats, especially among people of different ages.
 
“Younger people have less experience and will struggle to get jobs, while older people will hold tightly onto their positions because they find it hard to find better opportunities elsewhere,” the report said.
 
The government needs to encourage more people to open new businesses and provide support, while businesses must restructure themselves for long-term development.
 
“In order for an economy to dynamically thrive, the three keys all need to fall into place: birth of innovative companies, efficient growth of companies and the liquidation of marginal businesses,” said Kim Cheon-koo, a research fellow at the SGI division.
 
“Companies must go through productive destruction, where they break down the old with technological innovations and make something new out of it.”

BY YOON SO-YEON [yoon.soyeon@joongang.co.kr]
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