Entrepreneurs’ focus is on livelihood

Four out of 10 new businesses in Korea are started as a means to make a living, according to a 2013 report released by the Global Entrepreneurship Monitor (GEM) yesterday.

While the government has been encouraging entrepreneurs to dive into the information and communication technology sectors in line with its creative economy initiative, the domestic economy is dominated by what the report calls “low-value entrepreneurship.”

The report examined companies that had been functioning for less than 42 months.

Among the 26 innovation-driven countries that GEM identified, Korea was the only one with necessity-driven entrepreneurs accounting for more than 30 percent, far above the average 18.2 percent.

According to the report, 36.5 percent of new businesses such as small restaurants and shops were started as a way to make an income.

The report explained that necessity could be the result of economic conditions. For instance, a person may be pushed to start a business because there is an insufficient supply of jobs or the available jobs have few social security benefits.

Improvement-driven start-ups in which the entrepreneur was looking to make more money accounted for 51.1 percent in Korea and were mostly ICT related.

According to the report, innovative companies were less dependent on the economic environment as the individual believed their idea would increase their income.

Compared to a year earlier, necessity-driven entrepreneurship increased 1.5 percentage points and improvement-driven start-ups increased 5.1 percentage points, but the percentage of necessity-driven start-ups for maintaining livelihood is much higher than in other major developed economies.

The data shows that entrepreneurs in Korea are mostly people who retired early due to a lack of quality jobs and without a social safety net, and are forced to create a low-value business as a last resort.

The proportion of necessity-driven entrepreneurship was also high in Spain (29.2 percent), Taiwan (28.7 percent), Japan (25 percent), Greece (23.5 percent), the Czech Republic (22.7 percent), Portugal (21.4 percent) and the United States (21.2 percent).

Western European countries such as Germany, with 18.7 percent necessity-driven start-ups, and France, with 15.7 percent, proved that their entrepreneurial systems were well-established. Israel, which Korea set as a role model for its creative economy, had 17.4 percent necessity-driven entrepreneurs.

Countries with a strong economy and welfare systems such as Norway, Switzerland, the Netherlands and Sweden were among the best with less than 10 percent low-value businesses.

“The reason why Korean people jump into low value-added entrepreneurship is because a social safety net and quality jobs are lacking when they leave their current workplaces,” said an official in the start-up industry.

“In order for the government to increase high value-added entrepreneurship, it must support entrepreneurs with policies that provide adequate infrastructure and vocational education, not only for young entrepreneurs but also for early retirees.”

BY KIM JUNG-YOON [kjy@joongang.co.kr]