1. Introduction
The Korean economy has seen a prolonged low-growth trend since 2000, and the employ- ment elasticity of growth is slowing down as the industrial structure advances. As a result, the existing companies are not creating suffi- cient jobs while their restructuring has become
frequent. There is a prominent need for more start-ups in order to absorb job seekers arising from this trend, but the reality is that most start-ups are low-capital and low-technology businesses such as restaurants whose objective is to make a living.
This type of start-ups is highly likely to be short-lived, and there is a structural limitation that prevents them from creating jobs con- tinuously. To create jobs, therefore, it is very important to enable companies with a certain level of technology to start their business and endure lasting stability and high growth.
In this respect, this study separated technol- ogy-based start-ups with strong technical skills and other start-ups, and compared these two groups in terms of key elements of start-ups such as location, human resources and employ- ment, tangible and intangible assets, technology and commercialization through conducting
a survey. Through the survey, this study at- tempted to examine the contributing factors for job creation by company type (whether it is a technology-based start-up) and regional characteristics (whether it is located in the capital area), and suggest policy measures.
The companies surveyed are technolo- gy-based start-ups and other start-ups less than
five years old as of 2012, when Statistics Ko- rea’s latest official data was collected. The sur- vey was conducted from April 22 to June 30, 2014. Among the total valid sample of 514, a total of 422 start-ups were surveyed excluding companies whose type of business is irrelevant to this study, that do not have capital, that did not reveal or know the amount invested in R&D, or whose sales are too high.
2. A Comparison of Surveyed Companies’ Quantitative Characteristics
Out of the 422 companies that responded, there were 250 technology-based start-ups and 172 other start-ups, with the ratio of six to four.
However, the ratio of start-ups in the capital area to companies in the non-capital area was almost five to five in each group.
A Survey of Locations and Initial Conditions of
Technology-based Start-ups
Current Issues
First, with regard to when companies started their business (see Table 1), the average age of all companies surveyed was 3.7, showing little difference in age by company type. Next, as for capital distribution, other start-ups had quite larger capital than technology-based start-ups since other start-ups included some large start- ups in the capital area. However, the total capi-
tal increase rate between the founding year and 2012 was 229.2% for technology-based start- ups, which was much higher than other start- ups at 138.9%.
The average sales when companies were founded were 850 million won, which increased by 180.4% to 2.37 billion won in 2012 while the average operating profits grew by 225.9% from
Table 2. Trends of Firm Sales and Operating Profit
Unit : number of firm, %, million won Number of
companies
Average sales
Number of companies
Average operating profit Founding
year 2012
Total growth
rate
Founding year 2012
Total growth
rate
Total 418 845.0 2,369.4 180.4 395 69.0 225.0 225.9
Company type
Technology-
based 250 773.2 2,314.9 199.4 243 68.7 239.8 248.8
Other start-
ups 168 954.6 2,450.6 156.7 152 69.5 201.3 189.5
Technology- based start-ups
Capital 127 958.0 2,365.2 146.9 124 86.4 239.0 176.7 Non-capital 123 594.5 2,263.0 280.7 119 51.7 240.5 365.3 Other start-ups Capital 76 1,050.9 2,890.0 175.0 68 57.0 242.0 324.4 Non-capital 92 876.3 2,087.6 138.2 84 79.4 168.4 112.1
Table 1. Trends of Firm Age and Capital From the Survey
Unit : number of firm, %, million won Company Type Number Distribution
ratio Average age
Average capital
Founding year Year 2012 Total growth rate
Total 422 100.0 3.7 270.6 408.3 192.7
Company type
Technology-
based 250 59.2 3.7 171.7 336.9 229.2
Other start-ups 172 40.8 3.6 416.2 511.9 138.9
Technology- based start-ups
Capital 127 30.1 3.6 182.0 325.8 233.0
Non-capital 123 29.1 3.8 161.5 348.4 225.3
Other start-ups Capital 80 19.0 3.5 689.0 742.3 84.2
Non-capital 92 21.8 3.6 188.3 311.6 184.7
Note : The founding year is the actual year when each company started their business between 2007 and 2012.
70 to 230 million won in the same period (see Table 2). By company type, the 2012 sales volume for both technology-based start-ups and other start-ups was almost the same, but the growth rate of total sales compared to the founding year was much higher for technol- ogy-based start-ups, and the growth rate of total operating profit was even higher. Among technology-based start-ups, these two indica- tors showed higher growth rates for compa- nies in the non-capital area than those in the capital area, indicating that a technology-based start-up is highly likely to be successful even in non-capital area.
The average R&D personnel of the compa- nies surveyed doubled from 1.4 at the time of foundation to 2.8 in 2012 (see Table 3). During the same period, however, the average num- ber of R&D personnel in technology-based
start-ups increased by 2.4, particularly by 2.8 in technology-based start-ups in the capital area, whereas other start-ups had no R&D person- nel regardless of location.
Next, regarding changes in R&D invest- ment (see Table 4), technology-based start- ups tripled their R&D investment from about 100 million won in the beginning to about 300 million won, while other start-ups showed vir- tually no R&D investment. Technology-based start-ups in the non-capital area, in particular, invested more in R&D than those in the cap- ital area, showing that this factor contributed to higher business performance in sales and operating profits (see Table 2). Additionally, intellectual property rights such as patents were very scarce in general with only technol- ogy-based start-ups having an average of two patents.
Table 3. Trend of R&D Personnel
Unit : number of firm, person, %
Number of companies
Ave. number of R&D personnel
Permanent R&D personnel
Temporary R&D personnel Founding
year 2012 Total growth
Founding
year 2012 Founding year 2012
Total 422 1.4 2.8 1.4 1.3 2.7 0.0 0.1
Company type
Technology-based 250 2.3 4.7 2.4 2.2 4.6 0.0 0.1
Other start-ups 172 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Technology- based start-ups
Capital 127 2.2 4.3 2.1 2.2 4.2 0.0 0.1
Non-capital 123 2.3 5.1 2.8 2.3 4.9 0.1 0.2
Other start-ups
Capital 80 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Non-capital 92 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Current Issues
Table 4. The Trend of Firms’ R&D Investment and Patents
Unit : number of firm, %, million won Number of
companies
Average R&D investment
Number of companies
Average number of patents Founding
year 2012 Total growth rate
Founding
year 2012 Total growth
Total 348 55.6 165.3 197.3 422 0.3 1.4 1.1
Company type
Technology-
based 182 96.7 280.0 189.6 250 0.5 2.3 1.8
Other start-ups 166 0 0.2 - 172 0 0.1 -
Technology- based start-ups
Capital 97 83.7 255.3 205.0 127 0.4 2.2 1.8
Non-capital 85 110.2 305.6 177.3 123 0.5 2.5 2.0
Other start-ups Capital 79 0 0 - 80 0 0 -
Non-capital 87 0 0.4 - 92 0 0.1 -
3. A Comparison of Surveyed Companies’ Qualitative Characteristics
(1) Business Start-up and Location Characteristics
1) Entrepreneurship
As for entrepreneurship of the surveyed companies’ CEOs, technology-based start- ups scored 82.9, 4.9 points higher than other
start-ups at 78.0, as expected (see Figure 1). The difference in the scores for entre- preneurship was larger between technolo- gy-based start-ups and other start-ups than between companies in the capital area and those in the non-capital area. Particularly, in the case of companies in the capital area, the difference in the scores for entrepreneurship between technology-based start-ups (83.8) and other start-ups (77.9) was relatively high at 5.9.
Assessment of Entrepreneurship Figure 1.
Unit : score 83.8
77.9 81.9
78.1
Capital area Non-capital area Capital area Non-capital area
Technology-based start-ups Other start-ups
2) Preference for Risk-taking
All types of start-ups rated low at less than 50 points for their preference for risk-taking in doing business (see Figure 2). This shows that Korea’s start-ups aim for stability whether they are technology-based start-ups or not. How- ever, technology-based start-ups’ preference for risk-taking scored 7.9 points higher at 47.9 than other start-ups at 40.1, and in the case of companies in the non-capital area, the differ-
ence between technology-based start-ups and other start-ups was very large at 13.5.
3) Initial Difficulties
With regard to the largest difficulties the com- panies surveyed faced when they started their business (see Table 5), more than half of the respondents said financing (52.1%), followed by securing workforce (20.1%), marketing and securing the market (13.7%). The proportion
Assessment of Preference for Risk-taking Figure 2.
Unit : score
46.3 49.6 44.6
36.1
Capital area Non-capital area Capital area Non-capital area
Technology-based start-ups Other start-ups
Table 5. Assessment of the Difficulties in Starting a Business
Unit : number of firm, % Number of
companies Financing Workforce
Marketing and securing
market
R&D Securing land and building
Others
Total 422 52.1 20.1 13.7 3.8 3.1 7.2
Company type
Technology-
based 250 56.0 17.2 12.8 5.2 2.0 6.8
Other start-ups 172 46.5 24.4 15.1 1.7 4.7 7.6
Technology- based start-ups
Capital 127 56.7 18.9 12.6 5.5 0.0 6.3
Non-capital 123 55.3 15.4 13.0 4.9 4.1 7.3
Other start-ups Capital 80 41.3 22.5 23.8 2.5 3.8 6.1
Non-capital 92 51.1 26.1 7.6 1.1 5.4 8.7
Current Issues
of technology-based start-ups that selected financing as the largest difficulty was much higher at 56.0% than that of other start-ups at 46.5%. The reason for this result seems to be that technology-based start-ups require much more initial funds than other start-ups in terms of human resources, facility and equipment as well as R&D investment.
(2) Workforce and Employment Characteristics
1) Job Positions that are Difficult to Fill As for the job positions that are urgently need- ed but difficult to fill, more than half of the respondents said highly skilled engineers who graduated from university (51.7%), followed by engineers who graduated from commu- nity college (17.8%), and production / field /
technical workers (6.4%) (see Table 6). 58.4%
of technology-based start-ups said they had difficulties in hiring university graduates in en- gineering, 16.5 percentage points higher than other start-ups at 41.9%. Technology-based start-ups in the capital area had a larger de- mand for university graduates in engineering than those in the non-capital area, whereas other start-ups in the non-capital area had a bigger demand than their counterparts in the capital area.
2) Mismatch between Supply and Demand of Manpower
The score for the mismatch between the workforce that start-ups needed and man- power supplied in the region was 50.1, which indicated quite a serious situation. Technolo-
Table 6. Industries with Difficulties of Filling Employees
Unit : number of firm, % Number of
companies
University graduates in eng.
Community college graduates
in eng.
Production/
field/
technical workers
College graduate
office workers
Day
workers Administrative positions Others
Total 422 51.7 17.8 6.4 5.9 5.0 4.5 8.7
Company type
Technology-
based 250 58.4 20.0 4.8 3.2 2.4 4.8 6.4
Other start-
ups 172 41.9 14.5 8.7 9.9 8.7 4.1 12.2
Technology- based start-
ups
Capital 127 60.6 18.9 6.3 2.4 0.8 3.1 7.9
Non-capital 123 56.1 21.1 3.3 4.1 4.1 6.5 4.8
Other start- ups
Capital 80 37.5 18.8 3.8 16.3 3.8 2.5 17.3
Non-capital 92 45.7 10.9 13.0 4.3 13.0 5.4 7.7
gy-based start-ups scored 6.6 points lower at 47.4 than other start-ups at 54.0, showing a more serious manpower mismatch, and com- panies in the non-capital area scored 47.4, 5.4 points lower than start-ups in the capital area at 52.8. Start-ups with more than 50 employees recorded the lowest score at 47.7, followed by small companies with less than five employees at 48.1. The result shows that the manpower mismatch was more severe among technol- ogy-based start-ups and companies in the non-capital area, and both very large and very small start-ups had difficulties in finding the talent they needed.
(3) Characteristics of Tangible, Intangible and Financial Assets
In general, Korea’s start-ups lacked assets ex- cept for some tangible assets, and particularly, they were found to have insufficient financial assets rather than intangible assets at the initial period.
1) Tangible Assets
The degree to which the start-ups surveyed had tangible assets such as equipment and fa- cilities were moderate at 57.9, and it was sim- ilar regardless of company type or location
57.7
56.1
58.7 58.8
Assessment of Securing Tangible Assets Figure 4.
Unit : score
Capital area Non-capital area Capital area Non-capital area
Technology-based start-ups Other start-ups
49.8 57.7
44.9 50.8
Assessment of Manpower Mismatch Figure 3.
Unit : score
Capital area Non-capital area Capital area Non-capital area
Technology-based start-ups Other start-ups
Current Issues
(see Figure 4). Rather, it was found that small companies with less than five employees (51.3) and start-ups in knowledge-based manufac- turing (53.9) had more difficulties in securing tangible assets.
2) Intangible Assets
The degree to which the surveyed start-ups had intangible assets such as patents and trade- marks was relatively lower than other factors at 48.2 (see Figure 5). Technology-based start- ups were 8.2 points higher at 51.5 than other
start-ups at 43.3, but the score was lower than the other assessment criteria, indicating that even technology-based start-ups are not satis- fied with their level of intangible assets.
The degree to which the companies sur- veyed had intangible assets was similar regard- less of location but different by company size.
Companies with more than 50 employees (40.9) and small companies with less than five employees (43.7) recorded the lowest scores in this category. This shows that not just small but large start-ups do not have intangible assets commensurate with the size of the company.
46.5 47.8
45.3
51.4
Assessment of Securing Financial Assets Figure 6.
Unit : score
Capital area Non-capital area Capital area Non-capital area
Technology-based start-ups Other start-ups 51.8
42.2 51.2
44.2
Assessment of Securing Intangible Assets Figure 5.
Unit : score
Capital area Non-capital area Capital area Non-capital area
Technology-based start-ups Other start-ups
3) Financial Assets
The level of necessary financial assets of the surveyed start-ups was 47.5, which was the lowest score among the three types of assets (see Figure 6). Technology-based start-ups re- corded 45.9 while other start-ups scored 49.7, but location did not make a difference. The reason seems to be that technology-based start-ups do not have sufficient funds to com- mercialize their technologies. However, small- er companies showed a lower level of finan- cial assets, indicating that small start-ups have
huge difficulty in financing their business.
(4) Characteristics of Technology
Development and Commercialization 1) The Ability to Develop Technology
The surveyed companies’ ability to develop technology was satisfactory at 63.4 points (see Figure 7), and technology-based start-ups scored more than ten points higher at 67.8 than the other start-ups at 57.0. Yet, location did not make a big difference in this category.
62.6
53.9 61.0
51.7
Assessment of the Ability to Develop Prototypes Figure 8.
Unit : score
Capital area Non-capital area Capital area Non-capital area
Technology-based start-ups Other start-ups 68.3
57.9 67.3
56.3
Assessment of the Ability to Develop Technology Figure 7.
Unit : score
Capital area Non-capital area Capital area Non-capital area
Technology-based start-ups Other start-ups
Current Issues
2) The Ability to Develop Prototypes
The surveyed companies’ ability to devel- op prototypes scored 58.1, with technolo- gy-based start-ups at 61.8, which was more than nine points higher than other start-ups at 52.7 (see Figure 8). Start-ups in the capital area rated higher than those in the non-capi- tal area, and companies in knowledge-based manufacturing (65.6) were 6.8 points higher than those in other manufacturing sectors (58.8).
3) The Ability to Commercialize
The surveyed start-ups’ ability to commer- cialize such as marketing scored 57.3, and company type or location did not make a difference (see Figure 9). However, smaller companies had lower ability to commercial- ize, where start-ups with more than 50 em- ployees scored 61.4, whereas companies with less than five employees recorded 7.3 points lower at 54.1.
4. Summary and Policy Implications (1) Quantitative Characteristics
By analyzing quantitative indicators of start- ups, it was found that the size of capital, av- erage sales and operating profits were similar regardless of company type and location.
However, the total increase rates of these three indicators were all higher for technology-based start-ups than other start-ups. First, the total growth rate of capital in terms of cash invest- ment was higher among technology-based start-ups than other start-ups regardless of location. This means that technology-based start-ups require more funds than other start- ups as time passes. Second, the increase rates of sales and operating profits were the high- est among technology-based start-ups in the non-capital area. This shows that it is easier to secure land in non-capital area and perfor- mance can be further enhanced when tech- nical skills are added by quality inputs. During the period, technology-based start-ups in the
56.7 58.1 57.8
56.5
Assessment of the Ability to Commercialize (e.g., Marketing) Figure 9.
Unit : score
Capital area Non-capital area Capital area Non-capital area
Technology-based start-ups Other start-ups
non-capital area showed the largest numbers of average employees, R&D workforce, R&D investment and patents.
(2) Qualitative Characteristics
Assessment of entrepreneurship rated quite high at more than 78 points regardless of company type, but preference for risk-tak- ing scored less than 50. It seems that the respondents viewed entrepreneurship as the leadership of CEOs since the concept of en- trepreneurship is somewhat comprehensive, but overall, the willingness to confront risks in management was very low in all company types.
According to the manpower mismatch, it was found that both large start-ups with more than 50 employees and small compa- nies with less than five employees had serious mismatch problems. Technology-based start- ups responded that they had a more serious mismatch problem than other start-ups, and particularly technology-based start-ups in the non-capital area scored 44.9, about 13 points lower than other start-ups in the capital area at 57.7.
Tangible assets were assessed as moderate for all company types, while intangible assets
made a big difference of about eight points between technology-based start-ups (51.5) and other start-ups (43.3). Moreover, even tech- nology-based start-ups scored 51.5 in the level of securing intangible assets. Which means that they think the amount of their intangible assets is insufficient. Still, it was found that technology-based start-ups (45.9), which need more funds to develop technology, had less financial assets than other start-ups (49.7).
The initial level of technology, or the starting point, was similar for both technology-based start-ups and other start-ups, but at the next phase, technology-based start-ups were found to have much greater potential directly related to technology such as abilities to develop tech- nology and prototypes. The reason for this seems that technology-based start-ups con- tinue to strengthen their capacity to innovate by R&D investment, research manpower and intangible assets. However, technology-based start-ups and other start-ups did not show any differences in terms of the ability to commer- cialize, which is significant for start-ups, such as marketing and acquiring buyers.
Jeonghong Kim Research Fellow Research Center for Regional Development [email protected]
