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'Chaebol will become even larger' vs. 'growth momentum needed'
By Lee Kyung-min
Corporate venture capital (CVC) will be a double-edged sword that could both galvanize the flagging economy and exacerbate polarization of wealth based on the principle of "economies of scale," experts said.
The issue came to the fore after the government decided to "restrictively allow" holding firms to own CVC, as part of directives for the second half of 2020. The government and both ruling and opposition parties in unison have since sought a swift passage of a revision to facilitate the initiative.
Experts say conglomerates with large capital investing in CVC could bring the much-needed vibrancy in the industry, providing a major growth momentum for the economy in dire straits due mostly to the drawn-out U.S.-China feud compounded by the pandemic.
Yet allowing only a handful of top industry leaders own the much-coveted "key growth booster" that will inevitably result in far greater power and control of the few.
This in their view will undermine fair trade practice and accelerate deterioration of equality, a value rarely upheld with "cut-throat competition" more the norm despite anti-trust laws.
Also renewed is a debate over whether the country should allow large firms to own non-financial entities, a rule that long buffered extreme polarization of corporate wealth augmented more easily by large corporations compared to small- and medium-sized enterprises.
Under the law, CVCs are considered as financial firms with new technologies and non-financial conglomerates and as such are not allowed to own them. This means revision of related laws is prerequisite to advancing the initiative.
"This could be an opportunity but will certainly come at a cost," said Kwon Oh-in, economic policy director of the Citizens' Coalition for Economic Justice (CCEJ).
The government and lawmakers claim the large conglomerates can use their resources to nurture venture startups via stable financing of long-term high-risk capital. They view the initiative will be of mutual benefit to both, because large conglomerates will be able to seek greater business opportunity and startups will be able to share corporate growth strategies including technological development and overall management from the capital provider.
Yet the rosy outlook in his view deliberately neglects the highly likely and inevitable scenario entailing an "immense blowback."
"The government and lawmakers try to frame this issue by saying having capital will solve everything, which is a highly concerning approach if you overlook possible consequences," Kwon said.
The slowdown of innovation and corporate venture investments are attributable not to a lack of capital available, but to the current business environment where new, latecomers find it almost always impossible to overcome the entry barrier set up by a few, well-established large players, not to mention technology theft prevalent in the market, he said.
The more valid discussion therefore should involve ways to "level the playing field," thereby preventing new firms with great potential from being railroaded and demoralized by the status quo competition rules.
"The ample liquidity in the market provides enough capital to firms that need it. Injecting capital is meaningless unless there is a market where fair competition is guaranteed regardless of or despite the size of each firm," he said.
Soongsil University professor Yoo Hyo-sang said a broader approach is needed to help outline a long-term business growth model.
"The topic of the issues should not be limited to whether the size of certain CVCs should be the only factor in acquisitions. It should be about ways to foster small CVCs to enrich entrepreneurship and to create a better corporate ecosystem, a key to reinvigorate the market and the economy in need of new sources of sustainable growth."
Also needing improvement is a clear lack in the overall business mindset of Korean people who consider failure an end instead of a chance to begin again with valuable lessons learned, according to Seoul National University economist Kim So-young.
"The U.S. and many advanced economies have institutional support to encourage creating and managing businesses backed by robust rules for bankruptcy, for example," he said.
"This means people can do what they think has great potential and challenge themselves, a sprit that does not seem to be popular among young people here given many of them want to be public servants. They will stay so if government policies keep punishing failure without giving them a second chance."
