Growth without Innovation
South Korean venture companies achieved substantial growth in terms of sales and employment last year but failed to create momentum for innovative growth as their performance was lackluster in terms of net profit and technical innovation. In particular, they are still having difficulty in securing funds and workforce despite the government’s efforts to build a venture ecosystem.
According to the “2018 survey on venture firms” released by the Ministry of SMEs and Startups (MSS) and the Korea Venture Business Association (KOVA) on Dec. 27, the combined sales of the nation’s venture companies came to 225.2 trillion won (US$200.71 billion) as of 2017, up 8.9 percent from 206.9 trillion won (US$184.4 billion) a year earlier. For reference, Samsung Electronics posted 258 trillion won (US$229.95 billion) in sales in 2017.
The average amount of sales per company increased by 700 million won (US$623,886) to 6.4 billion won (US$5.71 million) from 5.88 billion won (US$5.24 million) a year ago. This was largely due to an upswing in exports of major items fueled by an unprecedented boom in the semiconductor sector and a global economic recovery.
Along with the growth in sales, the average amount of operating profit reached 267 million won (US$237,968), up 2.6 percent from 260 million won (US$231,729) in the previous year. However, the average amount of net profit decreased by 8.9 percent to 160 million won (US$142,603) from 178 million won (US$158,645) in 2016.
Unlike conglomerates which recorded sales growth without an increase in employment, venture companies created a great number of jobs. The number of employees at venture firms totaled 762,000 last year, exceeding the workforce of Korea’s top five business groups, including the Samsung Group which has 750,600 on its payroll. The average number of employees grew by 4.3 percent to 21.7 from 20.8 in 2016 and the figure grew by 31,000 as a whole, creating a considerable number of jobs despite the sluggish market in some industries, including shipbuilding.
Venture companies made large investments in technical innovation. The ratio of R&D investment to sales stood at 3.5 percent, up from 2.9 percent a year ago. The figure was higher than that of general small and mid-sized companies at 0.7 percent and conglomerates at 1.5 percent.
The average number of industrial property rights owned by a venture company grew from 8.1 to 8.7. It showed that venture firms were strengthening their technology competitiveness by expanding R&D investment.
In contrast, only 5.9 percent of venture companies responded that the technology level of their main products and services is world-class or higher. The figure dropped a whopping 13 percentage points from 18.6 percent a year earlier, indicating the need for continuous efforts towards technology innovation.
The biggest difficulty venture firms were suffering was financing (74.6 percent), followed by securing workforce (63.1 percent) and opening up the domestic market (51.8 percent). For financing, venture companies were heavily dependent on the government’s policy funds (60.5 percent), while the ratio of financing through investment and IPO stood at only 0.2 percent.
Meanwhile, the number of venture companies increased by 5.7 percent to 33,289 last year.