[Lee Jong-woo's Economic Reading] Well-Nurtured 'Unicorn'... The Economy Will Change in 10 Years

Growth Decline in Traditional Industries like Automotive, Shipbuilding, Chemical, and Steel
South Korea Ranks 5th with 11 Unlisted Startups Valued Over $1 Billion
KOSDAQ Market to Provide Funding... Experience of Success through Technology and Ideas Creates a Favorable Environment for Growing Companies

It happened in 2018. The market capitalization of the bio company Celltrion surpassed that of Hyundai Motor. For those who already viewed the rise in bio stocks as speculative, it was a good example of how irrational the market could be. A few years earlier, it was said that it made no sense for a company whose major shareholder used shares as collateral to borrow money from securities firms to be valued higher than Hyundai Motor. Although the bio stock rankings slipped back a few months later as prices fell, they still remain within the top 10 today. Samsung Biologics joined in as well. As a result, there are now two bio companies in the top 10 by market capitalization, making it the third sector after semiconductors and automobiles.

When the face value is converted to 5,000 won, the first Korean company whose stock price exceeded 100,000 won was Taekwang Industrial. SK Telecom took the 1,000,000 won mark. Then what about 10,000,000 won? No company has surpassed that yet, but Naver (NAVER) is the closest, with its stock price already exceeding 9,000,000 won. A small company that started as an in-house venture of Samsung SDS in March 1997 has become the third largest company in the stock market in just 22 years. In comparison, POSCO has slipped to the bottom of the top 10, and Korea Electric Power Corporation (KEPCO) and KT have dropped out entirely. Considering that when these companies entered the stock market, their size was so large that the market alone could not handle it and subscription opportunities were given to the entire nation, this is an unimaginable change.

The weakening of traditional companies is not limited to POSCO or KEPCO. It is a problem faced by all industries that form the backbone of our economy, including automobiles, shipbuilding, chemicals, and steel. Although they still hold a significant share in our economy, their growth potential continues to decline, failing to inject new energy into the economy. Over the past two to three years, there have been talks that the long slump in shipbuilding has ended and orders will now increase in earnest, or that the restructuring of the automobile industry has been completed, but these have not felt real. This is because the industry cycles peaked in the 2000s and even if recovery occurs now, it is so slight that it is hard to feel. From the perspective of our economy, we have no choice but to find new growth engines elsewhere.

A privately held startup company valued at over 1 billion dollars (about 1.2 trillion won) is called a unicorn company. There are 11 such companies in Korea. The country with the most unicorn companies in the world is the United States with 210 companies, followed by China with 102, the UK with 22, and India with 18. Korea and Germany are tied for fifth place with 11 companies each. Unicorn companies are one step beyond ventures. They have passed tests proving their growth potential and have grown beyond a certain scale with high development potential. While listed companies currently drive the economy, in the future, the economy is likely to be driven by large-scale unicorn companies and smaller venture companies. In that regard, it is desirable that our unicorn companies span diverse sectors including bio, IT, delivery apps, e-commerce, gaming, and cosmetics.

We have several advantages over other advanced countries in fostering growth companies. First, there is the KOSDAQ market, which provides funding for growth companies. Many countries have tried to create markets modeled after NASDAQ, but few have succeeded besides KOSDAQ. For a market to establish itself, people must recognize that the market plays a role. Although the IT boom and bubble burst occurred in the KOSDAQ market in 2000, and speculative practices still remain, no one doubts the existence of the market.

The experience of succeeding solely through technology and ideas is also an asset for our companies. Although there were overlapping investments and speculation after 2000, this process helped build our IT foundation. Thanks to this, during the first growth boom?the IT expansion period?we were able to achieve global competitiveness. This experience will be a solid foundation for the upcoming second growth boom.

What the government and market must do to nurture growth companies is clear. The government should provide seed money to growth industries through research and development support, and the market should serve as a channel to supply the necessary funds. Large corporations need to redefine their roles. Like people, companies find it difficult to break away from the structures in which they have grown, as their thinking and behavior are aligned with those structures. Growth companies, represented by ventures, have different structures from large corporations. The fast follower strategy that our large corporations have employed does not work in this context. The model where companies grow by creating small markets through creative ideas and expanding those markets is unfamiliar to large corporations centered on heavy and chemical industries. 'Cyworld' illustrates this well. It started as a small adventurous company and established itself, but after being acquired by a large corporation, it failed to keep up with changes and disappeared. Large corporations should move toward a strategy of providing capital to adventurous companies' ideas and sharing the fruits. Venture capital has handled this role so far, but large corporations need to actively participate, as they have the capacity to deploy more funds than any other economic entity.

Changing corporate nature does not happen overnight. To change a company's nature, costs must be borne until the change takes root. It is necessary to consider other ways to combine money and ideas.

In the early 1970s, when the oil shock occurred, concerns grew that growth had reached its limit. The solution that emerged in the U.S. to overcome this limit was "Small is Beautiful." It meant that the future of the U.S. economy no longer depended on giant companies like IBM, Boeing, and Ford. For a while, this was cited as an example of how foolish people are at forecasting the future, as mega-corporations continued to dominate the U.S. economy for a long time after the prediction. The prediction was realized only as it approached 2000. Today, the U.S. economy is driven by companies like Amazon and Netflix, which either did not exist or were small 30 years ago. Will we be different? If we do not nurture growth companies now, there will be no future in 10 years. The stock market is already showing this reality.

This content was produced with the assistance of AI translation services.