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Sluggish economy discourages start of new companies, causes more firms to fail: data

By 신현희

Published : Dec. 24, 2014 - 16:05

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SEJONG (Yonhap) -- Sluggish economic condition in the 2012-2013 period hindered the creation of new companies and caused more existing firms to shut down, government data showed Wednesday.

Analysis by Statistics Korea revealed 749,000 new companies were formed in 2013, down 21,000 from the year before. The business birth and death report said 741,000 businesses closed in 2012, 58,000 more than the previous year.

The report showed 1.2 million people were working for newly created companies in 2013, down 54,000, while the number of people who worked for failed companies was up 91,000 to 1.06 million.

"Sluggish economic conditions in 2012 and 2013 influenced corporate births and hastened the fall of struggling companies," said Moon Kwon-soon, director of economic planning at the statistical agency.

Such conditions also affected high-growth enterprises and so-called gazelles, he said.

High-growth enterprises are companies that have more than 10 people on their payrolls and reported 20 percent annual growth in the past three years. Gazelles, a term used by the Organization for Economic Cooperation and Development, are newly founded high-growth companies that have been in operation for less than five years.

"The number of high-growth firms stood at 4,581 last year, down 10.2 percent, or 522, from the year before," the official said. The number of gazelles, by comparison, reached 1,076, down 71, or 6.2 percent, from the year before.

The latest data showed that of the companies set up in 2007, 59.8 percent survived at least one year, although numbers improved to 73 percent for companies in the transportation sector and 68.8 percent in the manufacturing sector.

The five-year survival rate for companies founded in 2007 fell to 30.9 percent overall, with a higher percentage of transportation and rental businesses having survived.

Data showed a steady downward dip in the first year survival rate, standing at 61.8 percent in 2008 but falling to 60.1 percent in 2010 and 60 percent in 2011.

By age, the statistical office said people in their 50s and 60s were most likely to close down operations than open them.

Companies with less than 50 million won in sales were most likely to close, with one-person businesses more vulnerable to closure than those with more employees, data showed.