While South Korea is now the 12th largest economy in the world despite only having the 26th largest population globally, like ourselves in Ireland, it had a difficult economic past – this is how they made lemonade out of lemons.
I was in South Korea in November representing Ireland at the Startup Nations Summit, which was hosted at the Banks Foundation’s D.Camp startup facility. The Chairman of the board of the Banks Foundation said in his opening speech to the summit that their hosting of the Startup Nations Global Conference, the first global conference in Asia to focus on startup ecosystems, was very much to underpin the national strategy of South Korea’s ambition to become the startup hub of Asia.
A short history lesson on South Korea’s economy – don’t waste a crisis
While South Korea is now the 12th largest economy in the world despite only having the 26th largest population globally, like ourselves in Ireland, it had a difficult economic past. With very few natural resources and suffering from overpopulation in its small territory, South Korea adapted an export-oriented economic strategy to fuel its economy. Following the Korean War, South Korea remained one of the poorest countries in the world for over a decade.
A key component in South Korea’s economic transformation were the big family-owned conglomerates, known as the Chaebols. Government loans offered under attractive terms and restrictions on imports, which gave a head start to some of these firms. Several of them, such as Samsung, LG, and Hyundai (which together contribute 16% of the economy’s GDP), emerged as truly global brands in the ’90s.
In the 1997 Asian financial crisis, the South Korean economy suffered a liquidity crisis and relied on the bailout by the IMF that restructured and modernized the South Korean economy. By January 1998, the government had shut down a third of Korea’s merchant banks. Factory automation systems were introduced to reduce dependence on labor, to boost productivity with a much smaller work force, and to improve competitiveness. Government initiatives played an important role in this process.
After the bounce back from the crisis of the late nineties, the economy continued strong growth despite the recent international recession.
Deep system-wide commitment to the startup sector
While the South Korean Chaebols focus on exporting and manufacturing, there is a clear recognition in government that South Korea needs to have a more diverse economy. There is an increasing shift towards supporting smaller businesses and promoting entrepreneurship. Indeed some of the sponsors of the Startup Nations Summit and World Startup Competition (which I was a judge on) included Chaebols and multinationals such as Huawei, Foxconn and Hyundai.
In 2013, South Korean President Park Geun-Hye announced the drive for a more “creative economy” and launched the new Ministry of Science, ICT and Future Planning. For 2014, the ministry’s budget increased to more than $12 billion, with over two billion going directly into fostering growth for the startup ecosystem along with elimination of many restrictions on the venture industry’s activities. While in Seoul, I attended an opening presentation given by the South Korean President at the Creative Economy Fair, where she spoke of her personal commitment to supporting the role of startups in creating value to our societies.
Big valuations ignite new interest in startups in South Korea
Google has taken an active role in nurturing South Korean startups, introducing their favorites into the U.S. to help them build a global profile. Google is launching its first Campus in Asia, after the search giant announced plans to bring the entrepreneur and startup-focused initiative to Seoul, South Korea. The program — which has bases in London, Tel Aviv, and beyond — is designed to let the local startup ecosystem tap into the experience, resources and support that Google’s local and global teams can offer.
According to an article in TechCrunch Seoul, a city nearly five times as dense as New York, the startup scene is still nascent. Ask anyone on the street about startups though, and you’ll find that an increasing number of young professionals are working on something startup-related. There are whispers of an IPO on the horizon for Coupang, and another, Kakao, recently announced a merger with the nation’s second largest internet portal Daum Communications. Consider these, along with the companies like Nexon and Naver, that have achieved a $1 billion-plus valuation.
This level of activity has attracted the attention of capital sources with growing interest from overseas VCs such as SoftBank Ventures, Rakuten Ventures, GlobalBrain, and the rise of angel groups, accelerators, event organizations, and press promote and support entrepreneurship. TechCrunch indentifies key programmes as K Cube Ventures, Sparklabs, D.CAMP and beSUCCESS.
The Banks Foundation for Young Entrepreneurs – South Korea’s role model for what could be done in Ireland
The Banks Foundation for Young Entrepreneurs of Korea were our hosts for the week of the Startup Nations Summit and are primary backers for Startup Korea. The Korea Federation of Banks established the Banks Foundation for Young Entrepreneurs in 2012, and is often referred to as one of the largest foundations in Korea to support startup activities, with an asset base of approximately $470M.
The foundation launched a startup hub D.CAMP near Seolleung. D.CAMP serves as a local startup hub for the most talented and passionate startup entrepreneurs and professionals with a 30,000 square-foot big space that includes a co-working space, lounge, dedicated offices for selected startups, lecture rooms and event hall. Since its opening on March 27, and after having hosted about 180 startup-related events in less than half a year, it now marks 1,317 core members, 2,579 general members.
To fund early stage companies, the foundation partnered with Google Korea, SK Planet and KStartup to provide seed fundings of $20K to the companies accelerated by KStartup, matching the same amount with the investment partner SK Planet.
Build International Networks with Innovation Leaders
According to the Times of Israel, South Korea has been busy building international networks that complement their ambition to be a global startup hub of Asia, including the first-ever Korea-Israel Creative Economy Forum. Korean ambassador to Israel, Kim Il-soo, told The Times of Israel that Israel “has special strengths and capabilities that, when joined together with the strengths of the Korean economy, can create an economic powerhouse.”
The Times of Israel piece outlines the typical entry strategy. Electronics giant Samsung, which has been operating in Israel for about six years, first acquired Ramat Gan-based Transchip. It was the company’s first foreign acquisition in a decade. As of now, Samsung’s two Israeli facilities, employing upwards of 50 engineers between the two of them, are the only Samsung R&D centers outside of South Korea.
This post was originally published on Startup Ireland.