1. Introduction
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1. Introduction The Korean economy, which used to exhibit little venture start-up activity, is now working to build an economic and social mechanism that makes the creation and development of venture businesses possible, as the pre-existing economic system was clearly discredited by the economic crisis of 1997-1998. This is also partly due to the fact that venture businesses that are currently operating have been judged to have beneficial effects on the economy and the nation’s social structure. Indeed, venture businesses, as the leaders of the new economic paradigm of the knowledge-based economy, are expected to play a major role in the economy’s shift from a conventional industry orientation to a knowledge-based industry orientation. However, it is clear that national competitiveness will only truly improve when the capacities of all industries and regions are enhanced, rather than only those of specific industries or regions. Along these lines then, given the recent tendency of venture businesses to set-up shop in specific regions (mostly metropolitan areas, especially Seoul), the establishment of an economic system that activates venture businesses in more industries and more regions is necessary. In this study, adopting the view that the environment for the start-up and development of ventures must be improved on a national scale, the regional distribution of venture businesses is examined, along with the current investment conditions for venture capital in each region. Then, related suggestions to improve the environment for venture businesses are offered. 2. Regional Distribution of Venture Businesses (1) The Current Regional Distribution of Recognized Venture Businesses As of the end of November 2001, among the 11,365 recognized venture businesses, 8,296 businesses (73.0%) were located in the Seoul metropolitan area (comprised of Seoul, Incheon, and Gyeonggi), while the 3,069 remaining businesses (27.0%) were located outside the area. In the Seoul metropolitan area, 5,295 (46.6%) of all venture businesses were concentrated in Seoul, 3,001 (26.4%) of them in Incheon, and the remainder in Gyeonggi. Outside the metropolitan area, 1,504 (13.2%) venture businesses operated in the Yeongnam area, 1,128 (9.9%) in the middle region, and 437 (3.8%) in the Honam area. Taking a closer look at each region, while recognized venture businesses were distributed mostly in Seoul and Gyeonggi, there were a fair number of venture businesses in Daejeon-Chungnam, Daegu-Gyeongbuk, Incheon, and Busan-Ulsan. However, Seoul (5,295 businesses, 46.6%) and Gyeonggi (2,431 businesses, 21.4%) each held more than 10% of the total number of recognized venture businesses. Source : Small and Medium Business Administration. Areas that held 5-10% of the nation’s total include: Daejeon-Chungnam (775 businesses, 6.8%), Daegu-Gyeongbuk (571 businesses, 5.0%), Incheon (570 businesses, 5.0%), and Busan-Ulsan (556 businesses, 4.9%). Areas with less than 5% were : Gyeongnam (377 businesses, 3.3%), Gwangju-Jeonnam (273 businesses, 2.4%), Chungbuk (252 businesses, 2.2%), Jeonbuk (142 businesses, 1.2%), Gangwon (101, 0.9%), and Jeju (22 businesses, 0.2%). This unbalanced regional distribution of recognized venture businesses is caused not by a difference in those companies’economic activities, but by the varying regional advantages of those areas for venture businesses. In order to calculate the degree of venture companies’regional imbalance, it is necessary to examine the overall economic activities in those regions. Thus, the regional distribution of recognized venture businesses is compared in the following with the regional distribution of small and medium enterprises of overall industries and of manufacturing industries. To accomplish this, the whole country is divided into 4 areas: the Seoul metropolitan area, and the provinces of the middle region, Honam, and Yeongnam. <Table 1> presents the results subdivided by region. In the Seoul metropolitan area, in 1999, the proportion of small and medium enterprises of overall industries and manufacturing industries reached 44.5% and 55.8%, respectively, while that of recognized venture businesses hit 73.0%. In fact, the Seoul metropolitan area was the only region where the proportion of recognized venture businesses was larger than those of small and medium enterprises of overall industries and manufacturing industries. Within Seoul itself, the percentages of small and medium enterprises of overall industries and manufacturing industries were 24.0% and 19.3%, respectively, while that of venture businesses was 46.6%. By comparison, in Incheon and Gyeonggi, the regional share of venture businesses was lower than that of small and medium enterprises of manufacturing industries, but higher than that of small and medium enterprises of overall industries. Specifically, in Incheon, the share of venture businesses was 5.0%, which was higher than the 4.7% of small and medium-sized enterprises of overall industries, but lower than the 8.0% of Source : Korea National Statistical Office, The report on basic statistics for businesses in 1999, 2000. Korea National Statistical Office, The statistical report on mining and manufacturing industries in 1999 (nationwide), 2000. Small and Medium Business Administration,“ The Present Condition of Venture Businesses (at the end of November, 2001)”, 2001. Note : The number of recognized venture businesses are based on figures from the end of November, 2001. The number of small and medium businesses in manufacturing industries and overall industries are based on data from the end of 1999. those of manufacturing industries. In the case of Gyeonggi, venture businesses there made up 21.4% of all recognized venture businesses in the nation, a higher proportion than the 15.8% of small and medium enterprises of overall industries, but lower than the 28.4% of those of manufacturing industries. On the other hand, the regional share of recognized venture businesses in the Daejeon-Chungnam area was 6.8%, which was lower than the 6.9% of small and medium enterprises of overall industries but higher than the 4.3% of those of manufacturing industries. Regarding Seoul, the number of recognized venture businesses in Seoul at the end of November 2001 had reached 5,295. Among them, non-manufacturing ventures accounted for 65.7% or 3,477 companies, around two-fold the number of manufacturing venture businesses. On the other side, the number of recognized venture businesses outside of Seoul totaled 6,040 companies, with manufacturing ventures accounting for 83.7% of them (5,078 companies) and non-manufacturing ventures for the rest (992 companies or 13.3%), showing that an overwhelming weight of manufacturing ventures operated outside of Seoul. Given the above, the distribution of the types of venture businesses in Incheon and Gyeonggi may reveal important implications since these two areas are included in the Seoul metropolitan area, and are normally seen as having much in common with Seoul in terms of their environment for venture businesses. In fact, looking at the types of venture businesses in Incheon and Gyeonggi, their percentages of manufacturing ventures were much higher than any other area’s. Namely, about 87.7% and 87.6% of recognized venture businesses in Incheon and Gyeonggi, respectively, were manufacturing ventures. These figures are higher than the average for areas outside of Seoul, which is 83.7%. And they suggest that the regional disparity in the start-up and development of non-manufacturing venture businesses is not due to differences between the Seoul metropolitan area and other regions, but to differences between Seoul and areas outside of Seoul. Source : Small and Medium Business Administration. To help explain the disparity, it should be noted that most non-manufacturing ventures are computer-related companies. For instance, among the 3,477 non-manufacturing ventures in Seoul, 2,955 companies are involved in computer-related activities, and about 757 out of the 992 non-manufacturing ventures outside of Seoul are as well. It seems then that the reason for the concentration of overall venture businesses in Seoul is that most non-manufacturing ventures, especially those related to Information Technology (IT) services, are located in Seoul. While there are many venture businesses in Incheon and Gyeonggi. most of them are manufacturing related. (2) Changes in the regional distribution of recognized venture businesses As just mentioned, it is clear that venture businesses are concentrated in the Seoul metropolitan area, and especially in Seoul itself. In order to see how this situation came about, changes in venture companies’regional distribution from June 1999 to November 2001 are examined in the following. First of all, the percentage of venture businesses in Seoul increased gradually, showing no dramatic changes in 2001. In June 1999, the percentage of ventures in Seoul stood at 35.5%. In March 2000, the figure exceeded 40% and then rose to 46 - 47% entering 2001. Second, there were no large shifts in the percentage of venture businesses in the Gyeonggi area. Although the figure had decreased a little until 2000, it started to increase entering 2001. In June 1999, it recorded 22.5%. Later, it dropped to 20.2% in December 2000, before turning upwards to mark 21.4% in November 2001. Third, while the percentage of venture businesses located in Incheon had been falling, more recently, it has been stagnating. The percentage of ventures in Incheon marked 8.6% in June 1999, decreased to 7% in December 2000, and then remained around 5% from July to November 2001. Fourth, though the percentage of ventures in the Daejeon·Chungnam area, which is somewhat famed as a venture hotbed, increased previously, the figure has exhibited a declining tendency lately. The percentage of ventures in the area was 5.9% in June 1999 and 7.6% in March 2000. However, the figure dropped to less than 7% in the second half of 2001.