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Management Report

Management reports, briefs issued by Samsung Economic Research Institute

Restoring the Health of Korea's Venture Industry

Restoring the Health of Korea's Venture Industry


Oct. 16, 2004

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Korea's venture industry began losing investor confidence and got mired in financial difficulty with the bursting of the bubble in 2000. After a four-year journey into the tunnel of darkness, signs are surfacing of a cautious recovery in the industry. The main question analysts raise is whether the ecosystem that once supported a thriving venture industry can now be fully restored. The answer is it could be done, provided appropriate steps were taken to improve the system.

Hopes for a recovery began surfacing in the fourth quarter of last year as the US NASDAQ market began a steady rally. Reinforcing this trend, Yahoo! produced record-high net profits in the first half of this year. Another huge success was the sensational listing of the global Internet search engine Google on the NASDAQ with a capitalization of US$23 billion.

These surges in the US markets have now reached Korea, prompting people to entertain hopes that the long-awaited recovery of their venture industry may have arrived. Signs are emerging that this may be true. In 2003, Korea's venture companies (a venture company, according to Korea's Small and Medium Business Administration, is a start-up company with high technology content or a new business model) demonstrated growth rates and profit levels higher than those of large business groups or small and medium sized enterprises (SMEs).

In the first half of 2004, venture company sales rose 21.7% year-on-year; their operating profits and return on equity increased by 1.0 and 3.8 percentage points respectively. The Internet game sector especially recorded high earnings as some Korean companies began acquiring competitiveness on the international markets. Companies on the Internet portals, on-line community and shopping business have shown strong earnings. Examining the positive business performance of venture manufacturers and dot-com companies, it now appears certain that the venture industry is finally on the path towards recovery.

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