An IT Powerhouse Without Any Global IT Firm

U.S. technology firms such as Microsoft, Apple, Google, Yahoo, Hewlett-Packard and Sun Microsystems have grown enough to be leaders in the global economy.

However, there is no such Korean technology firm. Why does Korea lack global IT firms? The answers are the lack of entrepreneurship and the passive attitude of venture capital firms, which have deteriorated an ‘ecosystem of technology firms’ that normally combines new ideas and capital to develop new products or businesses.

According to the Korea Association of Information & Telecommunication, the number of IT startups decreased from 7,563 in 2005 to 5,945, last year. Similarly, the number of venture capital firms also recently tumbled from around 170 in the early 2000s to 100.

Yu Seung-un of Softbank Ventures, a venture capital firm, said, “Since the IT bubble burst in the early 2000s, few youths in Korea have set up their own businesses, even when they have good ideas.” This shows how much Koreans avoid risks associated with establishing a new business.

Venture capital firms have their own problems in making investment decisions. Recently, the nation’s venture capital firms have shown much interest in long-standing, mid-sized firms or companies preparing to list on the stock exchange, from which venture capitalists can draw easy profits, instead of through risky technology startups.

The Korea Venture Capital Association said the share of Korean venture capital firms’ investment in companies younger than three years accounted for a mere 36.8 percent of their total investment last year. On the other hand, 38 percent of their investment went to middle-sized companies between three and seven years old and 25.2 percent of their investment went to stable firms over seven years old.

Han Kim, a partner of Alto Ventures, a venture capital firm in Silicon Valley, said, “Venture capital firms have played a critical role in nurturing technology startups in the United States. They closely watch the management of firms they invest in and even suggest business strategies.”

It is true that the probability of success among technology startups is very low. However, if they succeed, they contribute significantly to the economy.

In the United States, only 10 out of 100 business ideas deserve investment and only 1 percent of total business ideas successfully gets funding. Nevertheless, technology firms financially supported by venture capital firms accounted for 17.6 percent of the U.S. GDP in 2006. Also, they created a whopping 104 million new jobs and generated sales of 2.3 trillion dollars for the year.

Ahn Chul-soo, chairman of the Board of Directors of AhnLab Inc., one of Korea’s first-generation IT startups, emphasized, “In Korea, founders take complete responsibility when firms collapse because of the practice of joint liabilities on guarantees. Until founders of technology firms are given new opportunities after they learn from earlier failures, a Korean ‘Google’ or ‘Apple’ will not appear.”

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