Venture business is currently a term synonymous with recovery in Korea. The government is drastically implementing restructuring programs to re-organize Korea's economic structure focused overwhelmingly on large conglomerates, and at the same time attempting to foster the growth of some 20,000 venture businesses while highlighting the importance of such business as the means to achieve another economic take-off. With this encouragement, and the towering example of Bill Gates, a host of people have declared themselves ready to establish venture businesses, and Korea might profit substantially if they did. The venture businesses sector, which has grown enormously during the 1990s is mostly based on technology-intensive industry, and requires knowledge and information as a source of competitiveness. Thus, computers, information and communications, as well as bio-engineering are the lead industries in this area of the economy. The concept of venture business is different in Korea from that in other countries. Overseas, venture business usually refers to a commercial activity which seeks to create or exploit niche markets with innovative and outstanding technological capabilities or leading products, and is usually financed by risk, or "venture," capital. In Korea, however, most venture business strategies are set by the government. Venture Capital in Korea The venture capital market, which all but evaporated during the financial crisis following a wave of bankruptcies among venture businesses is in the process of revitalization. Signs of recovery in the economy plus low market interest rates have provided both a stimulus and stability to the venture business sector. In addition, the government's pro-active policies toward venture business and venture capital have helped foster a favorable environment for future growth. The Ministry of Informations & Communications, the Ministry of Culture and Tourism, and the Small & Medium Business Administration (SMBA) have also contributed to the galvanization of the venture capital market. Given the nature of venture capital which seeks greater than average returns in exchange for braving the incipient risks of venture business, the role of the public sector is extremely important in inducing investment into the sector since most investors tend to distribute investment risks and avoid investment in new areas. The history of the venture business is replete with examples of the public sector's contribution to the advancement of the sector. The Ministry of Science & Technology (MOST) selected the Korea Technology Banking Corporation to form a task force on establishing the "MOST Series 1" investment cooperative with 30 billion won in capital, and now expected to form "MOST Series 2" with 40 billion won in July. The ministry has mandated the Korea Development Bank Capital to form a task force to locate suitable investments in the basic science area of the venture business sectors from the second half of this year. The Ministry of Informations & Communications formed the Specialized Information & Communications Cooperative together with LG Venture Capital under a 45:55 equity split this year, and contributed 20 billion won to form three venture capital funds worth a total of 40 billion won in order to begin an intensive program of investment in information and communications technology driven venture businesses. It is planned to expand the fund to 400 billion won by 2002. The SMBA(Small and Medium Business Administration), the leading support body for venture business has earmarked 100 million won from its budget for the formation of a matching fund to provide support to the lending activities of venture capital companies at a ratio of 7:3. Other initiatives include the establishment of the "Korean Venture Co-operative," a public venture capital fund formed with 50 billion won from the government coffer, and 50 million won from foreign investors. The result will be the world's largest venture capital co-operative with a total capitalization of 100 billion won. In the meantime, the Ministry of Culture is expected to invest 50 to 60 billion won in the film industry via the Cultural Industry Promotion Fund by forming six specialized film investment co-operatives and providing the necessary seed money up to 20 percent of the total financing of co-operative projects. Also, the Small & Medium Enterprise Promotion Corporation has been pursuing a full-scale investment program aimed at venture businesses since last year through the "People's Venture Investment," its own public venture capital fund. In response to stimulation from the public sector, the private sector is at last recovering from its protracted downturn. The amount invested by some companies in the first quarter of 1999 is equal to their total investment in 1998, while some venture capital companies are seeking to introduce large-scale foreign investment. The reinvigoration of the once frozen venture capital market signals an increasingly positive mood, however, numerous challenges still lie ahead for the venture capital market to enable it to develop on a large scale. The primary task is the expansion of credit guarantees toward the venture capital companies, and strong support for the formation of venture capital co-operatives. In the case of credit guarantees, the corporate bond issuance guarantee capital application should be systemized to provide broader access to applying companies. In addition, the relevant regulations should be eased to support the formation of cooperatives so that investment in various funds could be promoted. Expanding tax benefits for co-operatives is another urgent issue. In this regard, corporations should also be granted the benefit of the no-tax clause for margins gained on stock transfers which is now granted only to individual and institutional investors. Industry observers strongly argue that the venture capital industry as well as venture businesses can survive only when various strategic supports are provided. They include: expanding the allocation of the government's strategic fund to venture capital companies; eliminating restrictions against venture capital companies; and enacting laws to allow the promotion of venture capital investment. Fostering the KOSDAQ The KOSDAQ, modelled on the NASDAQ of the United States, is one of major markets for the direct raising of capital for domestic companies along with the country's senior exchange, the Korea Stock Exchange (KSE), and the over-the-counter market. The KOSDAQ is an independent and competitive market where prospective
small- and medium-sized enterprises and venture businesses
with high growth potential can be registered and their securities
traded. In this way, the KOSDAQ plays a supplementary role to the
KSE. Once companies are registered in KOSDAQ,
they may easily raise capital by stock subscriptions and increases
of capital and also by the issue of convertible, warrant,
no-guarantee, exchange, and participating bonds. As of June 15th, the number of companies registered on KOSDAQ totaled 344 with a combined capital equivalent of 22.93 trillion won. Among them, venture businesses amounted to 114 companies in 114 sectors, while ordinary companies accounted for 212 firms in 210 sectors. The remainder were mutual funds, numbering 18 in all. Although the number of KOSDAQ listed companies increased by thirteen over the same period last year, the total amount of capitalization increased by 15.04 trillion won. Companies in the advanced sectors such as electrical and electronics, IT and medical instruments numbered 94, accounting for 28 percent of total KOSDAQ registered companies. KOSDAQ-listed Hanaro Communications, which enjoys high recognition as a local calls and IT service provider, almost dictates the market by accounting for 23 percent of total transactions, and 35.9 percent of total transaction volume. Within the advanced sectors are 57 venture businesses (60 percent of the sector total), the remaining 37 being ordinary firms. Perhaps noteworthy by their absence from the KOSDAQ market are venture businesses from the film and entertainment industry including software, game and animation companies. However, in the software sector, Handisoft, Picosoft and Nextel are certain to form another nexus of activity within KOSDAQ after achieving registration, and a raft of game program providers are also aiming to be listed on the same market over the long term. The support lent to the investment co-operatives by public agencies are encouraging the bullish mood in the KOSDAQ market. In addition, the announcement by the Ministry of Finance & Economy on its KOSDAQ market activation policy also served to boost investor sentiment. Prodded by these favorable market developments, more venture capital companies are forming investment co-operatives, increasing their investments, and hastening the registration of their target companies on the KOSDAQ. KOSDAQ MOVERS AND SHAKERS Overwhelmingly, the leading stocks on the KOSDAQ in the venture area are the IT companies. Among them are Internet-related firms such as Goldbank, which is often a chief contributor to rises on the KOSDAQ index. They are followed by computer and PC peripheral providers, specifically, Kasan Electronics, Dooin Electronics, Dongho Electricity, Terra, and BCT IT. Significant traders are communications device providers such as Interlink Systems (networks), Janett Systems (modems), Ace Technology (communications devices), Turbo Tech (controllers), mobile communications device providers such as Standard Telecom, Telson Electronics, and software companies such as Hangul & Computer and Beat Computer. The KOSDAQ's big movers also include electronics parts providers to the electronics and IT sectors. They include: Kukje Electricity Industry (crystal devices); Wooyoung (connectors); Moretech (small-sized monitors); Hankook Sungsan (cores); Daesung Electric Industry (switches); Dongil Industry (EMI filters); Doogo Electronics (DYs); Samkyung Precisions (cores); Prochips (microcontrollers); Pilco Electronics (condensers); Keukwang Electricity (condensers); Aluminium Korea Tech (etchings); CTI Semi-con (chemical semiconductors); Wonick Quartz (quartz for semi-conductors); and Korea Dry Cell (batteries). Other major KOSDAQ players include: Kyungduk Electronics (card reader providers); Keeryung Electronics (satellite broadcasting receiver provider); Boam Industry (humax, transformers and cores); Bosung Heavy Electricity (heavy electrical components); Samhwa Industry (electronic excess current meter provider); Jungil E&C (clean room device provider for semiconductors); CAPS (security device provider); and CAS (electronic scale provider). IN A CLASS OF THEIR OWN Below is just a sample of the hi-tech, growth-oriented companies which comprise Korea's dynamic venture sector Medison Co. Ltd. " A sound and healthy medium-sized firm which has achieved a turnover of 250 billion won within 14 years of its establishment." "A specialized medical device company which can join ranks with high-profile multinational corporates such as GE, Hitachi, and Siemens." These are typical accolades which Medison has garnered, indicative of the position it has secured as a leader in Korea's venture business sector. As of 1999, Medison had captured 7 percent of the ultrasonic diagnosis market, 20 percent of the diagnosis equipment market in the Obstetrics/ Gynecology sector, enjoying a total share of more than 80 percent in the domestic medical equipment market During the past 14 years, it has maintained an average annual rate of growth of 50 percent. Moreover, when the economic crisis resulted in a wave of bankruptcies of companies in the same sector, it still achieved a growth of more than 35 percent against the previous year. In June last year, it issued $300 million of convertible bonds overseas under the most favorable conditions recently encountered by a Korean company, an indication of the value overseas investors recognized in Medison despite the turmoil in the foreign currency and securities markets at the time. Medison makes it a rule to earmark 10 to12 percent of its annual turnover for R&D. Of its 300 staff members, one third of them are researchers. Continuous investment into R&D enables Medison to proclaim that it needs only half the time to develop the same product than its competitors. The company's investment into R&D almost immediately produced benefits in terms of top quality technologies and products. The digital 3D ultrasonic diagnosis equipment first introduced by Medison in 1997 won worldwide recognition because it was far more advanced than any of its competitors in the field of medical equipment in such developed markets as the United States and Japan. The device was innovative in that it allowed diagnosis in a three-dimensional image, compared to the two-dimensional images offered by existing ultrasonic diagnosis devices. Another element of Medison's competitiveness lies in its spin-off of divisions, which resulted in the formation of the "Medison Family" of companies. It presently encompasses "Meridian," an electronic medical device provider in the oriental medicine sector, "Medidas," a medical software developer, and "Biosys," a soma signal detector provider. For Medison, which rose to the world-class level in the ultrasonic diagnosis device market, the next goal is to emerge as the world's largest specialized medical equipment provider in the upcoming 21st century. Medison Co. Ltd. Ace Technology No one in the electronic parts business of the venture sector would lodge any objection to putting Ace Technology first when it comes to antennae. Ace Technology has an unchallenged position in the antenna sector in the local market. The company which conquered the antenna sector 10 years after its establishment also penetrated the RF parts market in 1990, and will begin its 10th year of handling RF parts next year. The company's "Success within 10 Years" strategy has been realized. It has secured the top position in the domestic filter market, as well as a leading position in the isolator and power device sector. In the process, it has become a model of achievement to younger venture business people by growing into a solid company worth 3.7 billion won in capital, 76 billion in assets, 50 billion won in annual sales, and 250 employees, all within 20 years of its establishment. Ace Technologies first started business as an agent for antennas under the name of Myung Sung Trading in 1980, partly because the founder and company president majored in electronics engineering and was involved in the antenna sector while serving as a communication officer in the army. It was in 1984 that Ace Technology first drew popular attention when it developed antennae for car phones. From then on, it recorded double-digit growth every year. The company underwent a name change to Ace Antenna in 1986, then to Ace Technology right before its registration on the KOSDAQ in 1997. During this period, the company has developed numerous RF parts including mobile phone antennae, and Korea's first isolators and combiners for base stations. Ace Technology YTC Telecom Industry insiders often refer to YTC Telecom as a "venture business which makes a lot of money." In fact, YTC Telecom operated out of a small office until 1997. Now it has turned into the most promising venture business in the country. Still small in size, the company will celebrate its third anniversary this year. The company's core products include information systems for education and various idea products. YTC is often cited for its extremely innovative and creative products, typified by its "My Phone," popularly nicknamed the Saojung Phone. My Phone, the ultra small-sized hands-free phone, has become a hit product with sales of more than one million units within one year of its launch. The multi-layered PCB built into the phone developed with YTC's own technology to reduce size and weight is now under patent applications in Korea. the United States, Japan, China and Taiwan. It is now engaged in negotiations on providing My Phone to the leading domestic conglomerates. In addition, a specialized fast food chain and a beverage company in U.S. have shown keen interest in the product and are ready to begin export negotiations. Soon, a new product, featuring a bell sound editing function in the basic My Phone will be introduced to the market. The company is actively preparing for the development of various innovative communication devices and machines including image cards to expand the business. YTC Telecom by Samuel Bae
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