Mr. Yoon Suk-Min is exemplary of the new breed of Korean entrepreneur. Three years ago, he maxed out two credit cards to raise the $12,000 he needed to start his Internet communications software company, Web International. In May of this year, Yoon took the company public on the over-the-counter KOSDAQ exchange and found himself suddenly worth $11 million. Shares that were originally listed at $28, shot up to $50, and now Yoon is looking at putting the stock on the NASDAQ market in the U.S.

As a young man starting high school, Yoon badgered his parents to buy an 8-bit Apple computer. That was the beginning of his obsession. His subsequent devotion to computer-programming led not only to several prizes, but also prompted him to leave high school to concentrate his time on programming. One year later, he single-handedly developed a software and compiler technology through trial and error but found that university teaching materials presented a more systematic approach. Limited in what he felt he could learn on his own, Yoon studied computer programming at the university level. A better education in hand, he established Web International with three junior classmates in 1994. Taking no holidays and averaging more than 12 working hours a day, Yoon and his colleagues built a company with a turnover of $4.5 million in 1996, expected to reach $9 million this year.

Such success stories told by young entrepreneurs dreaming of being the "Korean Bill Gates" are becoming more and more common these days. And the vitality they bring to the economy is well recognized by the powers-that-be, who are making the way easier for the young gold-rushers.

The term "venture business" has recently become popular in Korea, with the business newspapers and magazines devoting a large amount of space to articles concerning this new type of enterprise. It appears that a "heat wave of venture business" is upon us.

In Korea, venture businesses are usually defined by a new idea or technology that they are commercializing. Among the many small and medium enterprises, the venture firms are those with new creative products and new services. Mr. Suh Kap-soo, president of the Korea Technology Investment Corporation, one of Korea's leading venture capital firms, presents a somewhat comprehensive definition of the term venture business by saying, "I regard venture businesses as those that come up with new services or products and maintain the spirit of challenge."

With that concept as a definition, venture businesses are nothing new to Korea, but have not collectively been a driving force or gained many headlines in an economy dominated by the giant chaebols. So what has led the venture business to the center of public attention now? The turning point was probably March 31st, when the government announced a plan to furnish the companies with a variety of assistance programs in a bid to revive the sluggish economy.

The Korean government, in fact, had been seeking any measures at their disposal to cope with the nagging economic slowdown characterized by a widening trade imbalance, rise in unemployment and less rapid economic growth. Judging that the high-cost, low-efficiency structure that had evolved was one of the main causes of the economic difficulties, the administration introduced measures to address that problem, starting with a new labor law designed to add flexibility to the labor market and raise competitiveness, in defiance of strong opposition from both the labor unions and management.

As part of a more deliberate means to realign the national economy and enhance competitiveness, the Korean government submitted measures designed to assist the venture businesses and inject a breath of fresh air through these new "sprouts" of the economy. The measures also came about because of a dire need to readjust the national economic structure which tended to limit growth and job creation. According to statistics, the share of the small and medium enterprises in the total number of companies was far behind other countries, like Taiwan's 97.9 percent in 1993. And the ratio of export from the small firms stood at 42.4 percent, compared with 57.8 percent for Taiwan. The high rate of small companies in Taiwan is believed to have contributed significantly to the country's stable economic growth.

"The government's steps for the expansion of assistance to the venture businesses is an expression of its strong will to raise the small- and medium-sized technology-intensive enterprises as the mainstay of the national economy, turning from the old policies focused on large industries. This means changing the core of national competitiveness," says Hong Kee-doo, an official in charge of small and medium-sized companies at the Ministry of Trade, Industry and Energy (MOTIE).

He went on to say that "Korea has been suffering from high costs in the fields of transportation, wage and land use, which has been the main factor in the weakening national competitiveness. But the effort to save costs is confined to some extent and the government has decided to concentrate also on development of the high value-added sectors like venture business."

Regarding the current "heat wave" of venture business, Korea Technology Investment's Suh says, "The Korean government appears to have judged that unilateral assistance for the large companies should be curbed in view of the series of collapses of large firms like Hanbo and Woosung Construction, for example. And the administration has begun to show great interest in the venture businesses, because some of them, like CTI Semiconductors, for example, began to reap huge rewards in terms of stock prices. In addition, interest in the venture businesses has also grown with the increasing number of people who left their jobs under the new lay-off system, which also prompted concern for job security among the general employees."

Says Lyou Yong-ho, director of the Korean Venture Business Association with a membership of some 250 venture companies, "There had been virtually no concept of the venture business before the current boom. But the recent bankruptcy of large companies and economic slowdown has forced a consensus that it is necessary for the nation to pursue new technology and knowledge-intensive industries like those created through the venture businesses."

The Korean government, for its part, is attempting to raise the venture business as part of effort to resolve the lack of job creation which has become the most urgent national task. The recent emergence of venture businesses in Korea-which aim at becoming world-class firms based on technology-has brightened the prospects for the Korean economy.

"It is expected that there will be more than 40,000 venture companies by the year 2005, up from 1,500 last year, and considering that the venture firms have rapid growth rates in high value-added industries, they may indeed play the leading role in the nation's economic growth. While many of Korea's large companies have gone in the red, these venture companies have marked 30- to 40-fold growth and their increase in employment reaches 19 percent. Take the company Medison for instance. This maker of state-of-the-art medical equipment marked sales of $50 million in 1995, increased its turnover to $100 million last year and is expected to see $150 million in this respect this year. About 50 percent of the company's products are exported. In the case of C&S Technology, production of goods has yet to take place, but research and development activities are well underway. Annual turnover is expected to amount to $125 million by 2000. Recognizing the possibility for growth of the company, Korea Tech-nology Banking has purchased 1,000 shares of the firm at 5 million won per share, although they were originally priced at only 5,000 won. In Korea, there has been an increasing number of promising venture businesses," explained Lyou.

The world's economy has turned toward an era of small production of various kinds, under which only venture businesses capable of producing commodities meeting the rapidly changing environment and technology have become able to survive the harsh competition. Economic experts cite the need for a larger number of venture businesses as a means to maintain the nation's high economic growth through resolving the export-oriented only economic structure centered around the large companies and by creating more jobs. In this vein, the government's decision to focus on the venture businesses is very desirable and timely, they say.

The profitability of the Korean venture firms is eight times higher than that recorded by the nation's conglomerates and the ratio of manpower in the research and development sector stands at some 35 percent while in manufacturing companies it reaches only 4.9 percent. The ratio of investment in the research and development sector in the total turnover also amounts to 15 percent.

Lyou says, "Prompted by the success of the venture businesses in the United States, developing nations like Egypt, India and Malaysia as well as developed ones like the United Kingdom, France and Japan have also concentrated efforts on their promotion. Israel, for its part, has invested in the venture businesses at the state level and their stocks have been listed in the NASDAQ exchange in the United States. The Malaysian government has also embarked on efforts to bolster the venture firms, by, for example, initiating the formation of a technopark." He calls for the government to expand assistance to the venture businesses.

Through the government's measures designed to promote the venture businesses, many positive side effects can be expected for the national economy.

First, the industrial structure can be turned toward high value-added sectors. The Korean economy, which has seen remarkable growth based on the introduction of highly cultivated technology from abroad has been faced with difficulties in its bid to continue the growth at such high levels because of the close chase by the next wave of fast developing nations. Said Dr. Song Jang-June of the Korea Small Business Institute, "The structure of the Korean economy has been out-dated. The production system under which small and medium-sized firms manufacture parts and the large companies assemble them will no longer match the ever harsh competition in the international market, mainly edged by the developing nations which have outperformed Korea with their relatively cheaper wages. Now the Korean economy urgently needs to cope with the difficulties by finding other types of businesses."

Under the circumstances, the venture businesses have emerged as the alternative to the weak economic structure. Economic experts expect that the venture business will be able to help Korea expand its technology basis and transform its industrial structure toward high value-added industry.

Korea has depended heavily upon foreign nations in terms of procurement of resources and materials, which has become the main factor in the widening trade deficit. Korea's exports in 1996 reached $129.7 billion while its imports amounted to $150.3 billion, leaving the trade imbalance at $20.6 billion. The main cause of the increasing trade deficit has been the steady rise in the import of capital goods. Should the venture businesses develop and supply the capital goods, it will greatly contribute to narrowing the trade imbalance. And invigorating the venture business will also help increase the technology cooperation with leading foreign companies in the cutting-edge technology sector through expanded joint-venture projects with them.

The promotion of venture business is also expected to prompt the high development of the structure of the labor market. In the United States the rate of employment at the venture companies increased by 19 percent during 1988-1992. The average income for firms in Silicon Valley is 1.5 times that for the average American company. Raising of venture businesses in the United States has not only increased employment but also enhanced the income standards, which is expected to translate well to Korea, should the venture businesses be promoted effectively. Venture companies, because they are mainly centered on high technology and knowledge areas will need high-quality manpower, expediting the quality improvement of the labor force.

And the development of the venture businesses will also raise the need for the appropriate division of role between the large and small/medium industries, enabling the latter to cope with the subordinate relations with the former. The weight the large companies take in the whole Korean economy is still very heavy. This is because Korea has pursued chaebol-centered economic policies in its attempt to make efficient use of limited resources and focused on mass production by advancing the heavy and chemical industry, which had been possible under the former dictatorial regimes. This has also weakened the basis of the small and medium businesses and resulted in various side effects in the process of rapid economic development such as collusion between government and big business and in a lack of a basis for stable growth in the long-term. But once the venture businesses are developed, they will be able to compete with the large firms on an equal footing with their advanced technology and bring about a synergy effect in the area of research and development, thus strengthening the foundation of the national economy.

In the high-technology area, the chaebol, or conglomerates, alone will not be able to effectively do business as change occurs so rapidly and widely in the sector. The large firms can save time and energy and won't have to take risks in the area of research and development if they closely cooperate with the venture businesses. The venture companies, for their part, will also be able to utilize the sales and after-sales service networks already set up by the large firms. The cooperation will thus mitigate the imbalance in relations between them as a result.

In the process of developing the venture business, the so-called "spin-off" phenomenon will surely take place under which business people with new ideas will found new firms by bolting from existing ones, thus increasing the numbers and expediting the development of the venture businesses.

One essential factor in the formation of venture business is the "Business Angel" and the financial assistance in the form of venture capital.

A representative success story in Korea came when the Korea Technology Investment Corporation invested in Korea's leading venture business, Medison. KTIC saw a profit of over $15 million by selling 110,000 shares of Medison at about $150 in 1995 and 1996 after it bought them at about $11.25 on average. Recently, Bo Kwang Investment Corporation enjoyed an over $11 million profit in the transaction of shares of CTI Semiconductor, only one year after it invested into the venture firm. Bokwang earned a 9-fold increase in profit in one year by selling the shares, which it bought in the form of convertible bonds at 7,500 won per share. A "Business Angel" may pour money into the venture businesses at the stage of their research and development when they most urgently need financial assistance. And the Korean government has extended a package of steps to enhance the activities of the business angels. Referring to the financial difficulties facing the small- and medium-sized companies, MOTIE's Hong says, "The main cause of the Korean small and medium firms lies in the fact that they have mainly depended upon `indirect financing' which calls for relatively higher interest rates and it has been difficult for the firms to get it. In order to improve the situation, the ministry plans to change the current loaning system for the small and medium firms toward a more direct one, namely, by enabling them to get the financial aid through the stock markets. To this end, the ministry plans to positively promote venture capital and business angels.

Experts cite the need to form an environment for invigorating capital investment under which investment resources are formed easily and used efficiently. In addition, the return on capital investment should be made without particular difficulties. Says Shin Dong-Ju, president of Hana System, "It is a common phenomenon both in Korea and the United States that venture companies with high-degree technology lack money and marketing abilities. In the United States, they can easily secure money utilizing their technology and the investors have been able to extract what they invested in a relatively short period. But in Korea, they haven't been able to do so."

Hong of MOTIE added, "The ministry is planning to offer a variety of favors for the venture businesses in terms of investment and tax. And the investment by foreigners into the venture businesses will be guaranteed 100 percent and will be regarded as a direct investment, not as a commercial loan."

Korea's venture business, which began with Qnix Computer in 1982 started to sprout from mid-1980s when Hangul & Computer, Mi Rae, and Medison began to engage in high-tech areas like medical equipment, computers, information and communications, and software. It is estimated that there were some 1500 venture firms as of the end of 1996 and some 60 of them have been listed on the KOSDAQ. The business result of the listed firms has been fairly good on average. The net profit rate over total turnover for the 12 firms designated by MOTIE as successful venture companies stood at 9.9 percent, three-fold that of general manufacturing firms and eight times that of the thirty largest groups. And no firm of the 120 companies registered with the Korea Venture Business Association went broke although the rate of bankruptcy for all small and medium firms in 1996 amounted to 3.8 percent.

There has been an increasing number of venture companies with the goal of becoming world-class firms. Medison, as an example, is now taking 80 percent and 20 percent of the domestic and foreign markets for ultra-sonic diagnosis equipment, respectively, since it began production of the goods in 1985. The company's turnover increased to $100 million last year, up by 40 percent from a year earlier when it began business with $62.5 million in capital and seven employees. Since its foundation, the firm has invested some 20 percent of the total turnover in research and development. In order to encourage the morale of the employees, the company has introduced an employee stock ownership system and has referred the right of decision to working level officials.

Mi Rae, which has seen more than 200 percent annual growth since 1993, has emerged as the leading firm in the domestic production of semiconductor-related equipment. Last year, it marked $57.5 million in turnover and is aiming to increase it by 74 percent to $100 million. The firm's main production item is the "memory test handler," which is used in the final process of making semiconductors. The memory test handler's ratio to total sales amounted to 70 percent last year. Domestic companies had to import all such equipment until 1992 when Mi Rae first developed the handlers.

Kasan Electronics, for its part, has also emerged as a leading firm in the sector of VGA boards, a core component of computers, which it developed in 1990. It was founded that year as a technology development firm with eleven researchers. The current number of employees reaches 230, including 75 researchers. The company's turnover, which stood at $ 15 million in 1994, rose to $ 24 million in 1995 and again increased to $50 million last year. It is targeting $ 108 million in sales this year.

As the nation's first-class mechatronics specialized firm, Turbo Tech has seen an annual growth rate at more than 140 percent on average. Since the firm marked $23.7 million in turnover last year, the company is targeting $43.7 million in sales this year. It has obtained five patents in related technologies like CNC controllers and also developed the three-dimensional CAM system for molding manufacturing. Forty of the 176 employees are technocrats with an average age of only 26.7 years.

KonIn is also a venture business, specializing in digital satellite broadcasting equipment. Since its foundation in 1989 by six colleagues from the same university, the firm developed related technology for the first time in Asia by investing 150 percent of the total sales. KonIn, which has focused on exports to the European Union, in particular, expects overseas sales to reach $25 million this year. More than half the total employees are researchers of whom twenty have PhDs.

Suh of the Korea Technology Investment Corporation says, "There has been harsh competition to invest into the venture businesses recently compared with the past trend where the problem was finding investors. The number of firms in charge of investing into the venture businesses, which currently stands at 60, is expected to increase to 100 by the end of this year. And the government has come up with various steps to help the venture capital firms. Now what is needed is only ideas."

But Lyou of the association says, "Now manpower in the field of research and development is in demand, which is expected to be resolved to some extent once the stock option system is introduced. Business angels may initiate the investment into the venture companies, followed by venture capital companies and the venture firms may get the money supply through the stock market after that. In the United States, the amount of financing through business angels reaches five-fold that gained through venture capital. But the business angel concept has yet to be introduced in Korea, because of the government's concern for illegal capital influx. Under the circumstances, it has been very difficult for the venture firms to get seed money. The government is asked to prepare steps to compensate for the problems in this respect. In the United States, 30 percent of the capital for venture businesses comes from funds or allowances."

Hong at MOTIE also explains, "The Korean government has been preparing measures designed to separately operate the stock market for its own invigoration. In addition, it is also planning to lower the face value of stocks from 5,000 won to 100 won to facilitate the money supply for the venture firms."

In addition to venture business financing, the importance of advanced technology and manpower cannot be overemphasized. "The ministry plans to take measures to provide researchers and appropriate professors with favors like allowing long-time leave when they attempt to enter into venture businesses in a bid to enable the venture firms to secure a high-quality labor force. In addition, financial aids will also be extended to those seeking to found venture companies," Hong says. He goes on to say that the ministry has taken steps designed to mitigate regulation, especially in relation to land uses. It has offered tax exemption for the venture businesses attempting to set up plants in the Seoul metropolitan area. "So far, those seeking to set up plants in the greater Seoul area have been subject to five-fold local tax burden and have had to pay a ongestion tax," which will not be imposed upon the venture firms. For example, the venture business buildings located in the Kuro Industrial Complex will be free from the $ 37 million local tax and $ 7.7 million in congestion fee that other firms would be subject to."

Lyou of the Korea Venture Business Association says, "Korea's venture businesses are in need of money, technology and manpower in the area of research and development. Most of the high-quality labor force is concentrated in large companies with relatively better working conditions. But the introduction of the stock option system is expected to make things better because employees of the venture companies may be able to expect profits through stock takeover once they work hard for the venture firms."

As previously stated, the government plans to increase the number of venture businesses from the current 1,500 to 40,000 by 2005 and the ratio of the firms in the total small- and medium-sized companies to 20 percent from the current 2.7 percent. To this end, the government is preparing various measures like introduction of a stock option system, a technology mortgage system for the firms, and activating the KOSDAQ market. A special law on the promotion of the new knowledge- and technology-intensive firms is scheduled to take effect from October 1, which will pave the way for the progress of the venture companies.

Korea Technology Investment Corporation president Suh says, "In order to raise the prospects for the small and medium sized firms, it is necessary for high quality manpower to rush to them. But so far that labor sector has mainly opted for the large companies. But it is expected that an increasing number of superior workers will choose the venture businesses as their work place due to the government's assistance designed to promote them. In particular, the introduction of a stock option system will help greatly to induce the manpower needed by the venture businesses. The venture business employees will also be encouraged to work harder as the development of the firms will eventually bring about more profits for them."

by Soo-Deuk Sohn

Reason for the Proposition
The mass production method--which has supported the Korean economy's quantitative growth--centered around the conglomerates is hitting an obstacle in terms of sustaining economic development, so there is an urgent need to precipitate the smooth restructuring of the nation's industries and enhance competitiveness through the encouragement of new technology and knowledge-integrated businesses.

To this end, the purpose of the new law shall be to nurture effectively the new technology, knowledge-integrated businesses (hereinafter referred to as "the new-tech businesses") by ensuring the smooth supply of production factors such as direct financing, labor force, technological development, land, etc. to the new-tech businesses and deregulating the sector.

Main Points
A. The new-tech businesses, which are subject to this act, are as follows; businesses in which venture capital firms, like the "small and medium sized business establishment investment firms," invest more than the designated rate of equity; businesses whose R&D investment compared with the gross sales of the recent two years is over the set rate; businesses which specialize in commercializing the patented and utility design technologies; and other new-tech businesses designated by the Presidential decree. (Draft article 2-1)

B. To ensure the smooth direct financing to the new-tech businesses, the public pension and funds are allowed to invest in the new-tech businesses or "small and medium sized business establishment investment associations" and "new technology businesses investment associations" without specific approval, and investment trust firms and insurance firms are allowed to invest in the new-tech businesses or "small and medium sized business establishment investment associations" and "new technology businesses investment associations." (Draft article 3)

C. The face value of the new-tech businesses' shares shall be lowered to 500 won from the current set price of 5,000 won, and the foreigners' stock acquisition ceiling shall be eliminated. (Draft articles 8, 9)

D. The "small and medium sized business establishment investment firms" which operate and manage the "small and medium sized businesses establishment investment association," according to the contract with the association, shall be allowed to entrust all or part of the association's business to a party besides the "small and medium sized business establishment investment firms" to prepare the basis for introduction of the individual investment system (Angel Capital) through the investment association. (Draft article 10)

E. To help the new-tech businesses to develop technology smoothly, a "small and medium sized businesses technology development support system classified by institution," which applied to the central administration and government investment institution designated by the Presidential decree, shall be introduced and the public institutions are asked to decide how to create the demand of the technology products developed by the new-tech businesses. (Draft articles 12, 13)

F. The "military duty exception researcher system" shall be renovated; to precipitate the supply of technology labor force to the new-tech businesses, it has become easier for a "military duty preference researcher" to transfer into the new-tech businesses and researchers are allowed to establish the new-tech businesses. And professors at national/public universities and researchers in national/public institutions shall be permitted to have temporary retirement within three years when they establish the new-tech businesses to expand the job opportunities in the high technology labor pool. (Draft articles 14, 15)

G. The government or the head of the local government shall be allowed to sell or lend national/public properties to organizers by contract ad libitum to create a new-tech business complex or integrated new-tech business facilities. And it shall be possible to create construction such as the new-tech business integrated facilities within the national/public universities to precipitate educational-industrial cooperation between the new-tech businesses and the universities. (Draft article 18)

H. Preferences in terms of facility construction shall be applied to the new-tech business complexes, and financial charges such as development, farmland shift, and overdensity charges shall be exempted. (Draft articles 20, 21)

I. To deliberate and decide upon major policy factors for the new-tech businesses, the new-tech business vitalization committee, which consists of the ministries of the economic departments and of which the Ministry of Finance and Economy is in charge, shall be organized and operated. A special committee consisting of private experts under the new-tech business vitalization committee to reflect opinions from every expert on the new-tech business policy shall be organized to ensure the committee's specialization and efficiency. (Draft articles 22-25)

C&S Technology is a four-year-old multimedia and telecommunications semiconductor company that is getting more than its fair share of attention from other companies in the field, venture capital financing institutions, and the press. The reason is that they have been able to secure superb technologies in spite of making a go of it with just $63,000 and 45 employees.

Until recently, C&S Technology had been focusing on designing semiconductors, but starting this year, they have decided to add to their responsibilities by supplying their own proprietary semiconductors for multimedia and telecommunication systems.

Even though C&S Technology is already in possession of state-of-the-art technologies, the company's sales performance has not lived up to its potential. Sales in 1995 reached $2.5 million and doubled in 1996 to $5 million. While that kind of growth wouldn't seem too shabby to most of us, the situation is expected to change much more dramatically, as Mr. Seung Mo Seo, CEO of C&S Technology, expects sales of $14 million dollars this year and $125 million for 1998--tenfold the 1997 figure.

Everybody at C&S Technology is very confident that these goals are within reach. The entire company staff consists of engineers from various fields and their past accomplishments have reflected their ability to do what they set out to do.

C&S Technology has a variety of development experience; a 16-bit low voltage, low power consumption Digital Signal Processor (DSP), a 32-bit Reduced Instruction Set Computer (RISC) processor, and an ISDN digital terminal chip for military usage.

As their first proprietary product, this company developed the world's first integrated chip for pager applications which combines four chip sets into one. Currently, they are striving to produce the world's first H.324 video phone processor which allows video and voice data to be transmitted through existing public telephone lines. They also have plans for producing chip sets for wide band CDMA, LMCS, and IMT-2000.

Recently, C&S Technology surprised the world by developing the world's first Wireless Local Loop (WLL) chip (2.3 GHz, 10 MHz bandwidth, 144Kbps), which would be used on a commercial basis. The WLL was developed through cooperation with the Ministry of Telecommunications and the Electronics and Telecommunications Research Institute (ETRI) for protocol development, DACOM and Korea Telecom for commercial specification development, a systems company for system development, and C&S Technology for semiconductor development. "The WLL is evaluated as the first full accomplishment of Korean technology and the leading technology in the world," says Mr. Seo proudly.

When WLL soon becomes commercialized, it will be possible to transmit clear and natural picture data, because transmission speed will be enhanced to 144 Kbps/sec.

"As every president with an engineering background, I haven't paid much attention to managing the company in respect to finance and sales. But from now on, I will put equal effort in both technology and management," said Mr. Seo. He originally thought that technology was all he needed to gain success and was reluctant to use venture capital. And he was stubborn enough to turn down several proposals from various financial institutions.

Now, his thoughts have changed. He is willing to accept venture capital and list the company on the Korea Secu-rities Dealers Association Automated Quotation (KOSDAQ). "Our company has found the right venture capital that values our technology. I am going to utilize all the funds to develop high-tech chips," said Mr. Seo who also emphasizes the importance of bringing in special institutes and organizations that can correctly value a venture company's technology. He points out that this is the most important issue in terms of promoting venture companies as an essential part of Korean industry.

C&S Technology Co., Ltd. 135-010, Haejoo Bldg 175-4, Nonhyun-Dong, Kangnam-Ku, Seoul, Korea Tel: 82-2-515-4468 Fax: 82-2-515-4469