Acqui-hire practices increase in S.Korea’s startup ecosystem

Jobis & Villains, the operator of artificial intelligence-powered accounting platform 3.3, announced that it recently acquired video messenger startup Smoothy. 

Industry insiders describe the latest acquisition as an acqui-hire.

Acqui-hiring, sometimes known as acqui-hiring, is the process of acquiring a company primarily to recruit its employees. The neologism is a detour from the traditional M&As that focused on gaining control of its products or services. 

Until recently, the trend was not so common in South Korea and was widely thought to be specific to the Silicon Valley startup ecosystem.

Jobis & Villains is hoping that the graduates of the prestigious Korea Advanced Institute of Science and Technology (KAIST) at Smoothy, especially its founder and CEO Jo Hyun-geun, will improve its user interface.

Krafton Inc. acquired interactive content production company thingsflow Inc. last June. The deal was also an acqui-hire aimed at recruiting the core members of thingsflow including its CEO Lee Suji.

Lee’s company is best known for Hellobot, an AI-powered content platform that allows users to engage in tarot reading, dating advice and more. At the time of the acquisition, Hellobot had more than four million users throughout South Korea and Japan.

Less than two months ago, Kurly Inc. acquired Plannery. The latter operates HeyJoyce, a platform that specializes in women's career building.

The acquisition comes on the back of Kurly’s favorable evaluation of the Plannery executives’ ability in dealing with the press. Plannery’s founder and CEO Lee Naree is a former journalist and currently in charge of Market Kurly's communication department.

Acqui-hiring takes place when there is fierce competition to hire top talents; and widely considered as one of the most costly forms of recruitment. 

The rate of employment in South Korea’s startup scene rose 9.4% year-on-year in 2021, according to the Ministry of SMEs and Startups. The figure is more than a three-fold jump from the average 3.1% hike in the employment rate across all industries. 

“South Korea’s startup ecosystem has now reached a point where a company must pour in money when the time is right – in order to rise quickly to the top,” an industry insider told The Korea Economic Daily.

The expert added, “That means securing the top talents has now gotten so expensive that companies are willing to go through M&As just for the human resources.”

PAY HIKES 

In the intensifying race to secure the best talents, companies are also offering record high raises. With that, concerns rise on how the generous compensations could hamper the tech industry’s overall revenue.

Tech giant Kakao Corp. is leading the rapid rate hikes in the fintech industry. 

Last week, Kakao Pay Corp. announced it will raise every employee’s annual salary by 10 million won ($8,227). Separate from the salary increase, it also raised the money it provides its employees for meal expenses by 300 thousand won per head per month. 

Another Kakao Corp. subsidiary named KakaoBank Corp. raised every employee’s annual salary by at least 10 million won and offered stock options worth 30% of each employee’s pay. 

In the gaming industry, Krafton led the rate increases last year. 

Last Tuesday, the game developer went a step further to keep its talents. Krafton founder and chairman Chang Byung-gyu transferred stocks worth 40 billion won to its employees, which used to belong to his family members. 

Webtoon and web novel startup RIDI, for its part, promised it would offer a 30% on-year annual salary increase for experienced hires that will join the company in the first half of this year. 

South Korea’s top food delivery app operator Woowa Brothers Corp. incorporated a new program to offer stock options to its full-time employees, as part of its efforts to hire some 300 new developers this year.

Bucketplace, the operator of home interior app OHouse, announced this month that it will recruit more than 100 developers for the first time and that it plans to provide the industry’s most attractive customized benefits. 

PROFIT MARGIN WOES

Hit by the second year of steady pay hikes, South Korea’s tech giants and startups could see reduced profits.

In Q3 last year, a full time employee’s average monthly pay increase reached 5%, the highest such figure since the 7.9% jump seen in Q1 2018, according to the Ministry of Employment and Labor.

The gaming companies such as Nexon Co., NCSoft Corp. Netmarble Corp., and Krafton Inc. that led the salary hikes in South Korea's tech industry last year are already seeing narrowing profit margins. 

Kim Seung-beom, an analyst with management consulting firm Korea Ratings, analyzed last year’s performance of eight leading game developers in South Korea. The analyst expalined: “While the cost of labor increased on the back of higher salaries, their sales either remained stagnant or decreased".

Write to Tae-Ho Lee at thlee@hankyung.com
Jee Abbey Lee edited this article.