1. Financial resource for IT companies - KOSDAQ
KOSDAQ,(1) benchmarking NASDAQ in US, opened on July 1, 1996. KOSDAQ imposes less restrictions and lower barriers for the entry/exit than standard Korean Stock Market Exchange so is used for the IPO (initial public offering) of high-tech startup companies. Therefore, KOSDAQ functions as a capital market where high-tech startup can get direct financing and where venture capital and other investors are able to collect returns on their investment, as well as to find high-risk, high-return investment opportunities.
Since 1999, the share of High-tech firm (so-called venture firms) listed on the KOSDAQ has increased and especially the number of IT companies accounted 30% of the total number of companies on the KOSDAQ. (2)
KOSDAQ Status
(Source: Korea Information Society Development Institute)(3)
Number of Listed Firms/ Venture Firms
(Source: Korea Information Society Development Institute)
2. Financial resource for IT companies - Venture capital
Venture capital is an institutional investor that invests in startup before IPO and has played an important role in the success of IT startup.
In Korea, the venture capital industry was formed by policy initiatives starting in the early 1980s and served the role of carrying out government policy of providing funds for small and medium sized firm, focusing more on loans than investments. However, the opening the KOSDAQ opened up new opportunity for investments when the venture boom of IT industry and led to remarkable growth in the venture capital industry. At the end of December 2001, there were 145 venture capital firms which were newly established between 1999 and mid-2000. However, the Korean venture capital industry went through a steep decline after a period of enormous growth (so-called venture boom). The IT industry is by far the most active sector for venture capitals and the investment in the IT industry has accounted for close to two third of total investment
Korean government has tried to lead investors to newly formed venture investment funds to facilitate the supply of Funds during the period of economic recession since the second half of 2000 by reducing income & capital gain taxes for fund investments. Currently the government agencies involved in venture investment funds including the Small & Medium Business Administration, Ministry of Information and Communication, and other central government ministries and regional government offices
3. Financial resource for IT companies - Foreign Direct Investment (FDI)
The role of FDI in Korea has been relatively minor. After the financial crisis in 1997, the Korean government initiated tax reduction measures for high-tech business, business in foreign investment zone and service business to cope with economic recession. Rent reduction policy also underway in industrial complex for foreign companies (Kwang-ju, Chan-an), 25 national industrial complexes and foreign investment zones (100% exemption for high-tech business, 75% exemption for manufacturing industries). M&A activities also has been allowed since May 1998.
Limitation on foreign investment in the telecommunication service market has been reduced. Currently, there is no limitation on foreign ownership of special and value-added telecommunication service provider. The ceiling on single-person ownership on facilities-based service providers has been abolished except Korea Telecom. Foreign aggregated ownership of facilities-based service providers is allowed up to 49%. Acquisition by a non-telecom company ahs also been allowed. There is no foreign ownership limitation on IT equipment and software business. Such liberalization policies have given rise to increase in the inflow of foreign capital to the domestic IT market.
Korean government has also encouraged the joint-ventures with foreign company in IT industry and joint R&D projects with foreign research institute.
Direct Foreign Investment in the IT Industry (1997~2000)
(Source: Ministry of Information and Communication)
(1) Official Website of KOSDAQ at http://english.kosdaq.com/ : detailed information of KOSDAQ is available.
(2) "Korea's IT Policy" from Ministry of Information and Communication at www.mic.go.kr
(3) "IT Industry Overlook of Korea 2002" from Korea Information Society Development Institute
Whole text download available at www.kisdi.re.kr/eng_kisdi/pdf/total.pdf
This site was developed for the class,
"Impact of National Information Technology Environments on Business"
at Kogod School of Business, American University, Washington DC
Created by Jung Im Won & Hyun Sang Park
Last updated : December 18, 2002