Korean Start-Ups : Starting the New Wave
“10 years ago, everyone on the street was doing a start-up,” says Sean Park of Seoul Space. Like much of the world, after the tech bubble burst in the early 2000’s, many Korean tech start-ups retreated from the market. But now Korea is experiencing a new resurgence in start-ups.
I recently travelled to Seoul to scope out the start-up eco-system there. I was only there for a few days, I thought that the Korean tech start-up scene was still relatively nascent, but the right elements are starting to form.
To better understand the position of Korean entrepreneurialism and the direction it is heading, I talked with a few locals about their perceptions.
Conglomerates rule, start-ups are too risky
Korea, an Asian Tiger economy has been one of the most impressive, fastest growing economies since the 1960’s. Hit very hard during the Asian Financial Crisis of 1997, the country experienced a phoenix like rebirth to achieve the world’s 15th highest nominal GDP.
Like its neighbour, Taiwan, much of this explosive growth is due to the industrial manufacturing sector. Interestingly Korea is the leading ship building producer, driven by conglomerates like Hyundai and Daewoo, which are better known for making automobiles. But by far the most well known Korean multi-national is Samsung. Samsung is the world’s largest technology company by sales and the world’s second largest ship builder. Samsung also accounts for an astounding 20% of Korea’s total exports. The power of these large conglomerates is impressive but this also means that they suck up a big proportion of the Korean talent pool.
In line with the traditional Asian mentality, young workers are forced to study extremely hard and aim for the prestige and stability of a large conglomerate to appease their parents. I’ve even heard stories of 5 year old kids who end up crying at 2am because they don’t want to finish their homework. Additionally, an observer, Mario Garcia, believes that this “education system does not reward creativity and risk-taking. Most students are expected to simply sit, listen, and memorize for tests.” The pressure to conform and gain a name like Samsung or LG on your resume and be a ‘salary worker’ is intense. This social and cultural pressure has acted as a barrier to entrepreneurship in Korea.
Entrepreneurs are marginalized
In general, students are not encouraged to entertain different thoughts or challenge the status quo. “Independently-minded students can sometimes alienate their professors. It is actually quite difficult for people with the temperament of an entrepreneur to receive proper mentorship”, says Garcia. In a country where respect for elders is so engrained in society, it is difficult for young, bright people to challenge elders or those in positions of authority.
Another key element of the start-up eco-system is the investors. Garcia points out that “It is difficult for investors, especially older ones, to understand non-manufacturing start-ups. Korea went from agricultural to technological society in less than half a century and therefore the generational gap in Korea is huge. Even when they are open-minded, the education that investors received when they were older is radically different from the one being imparted today.” This lack of investment support hinders start-up growth, forcing many to look to America.
Things are starting to change – the rise of the little guys
Richard Min, GM of Seoul Space, a start-up incubator, says Korea has a ‘Galapagos Island’ effect similar to China, in the sense that big international companies that fail to adapt to the cultural nuances of Korea’s culturally homogenous society get killed. Although Korea is indeed the most wired country in the world (highest number of internet users per capita – 81%) but even so, “no one really knows what’s going on here. Nokia came and gave up, Walmart got bought out by a local Korean company, Yahoo and Google have been beaten by Naver and everyone was getting their butt kicked.” Then, the iPhone entered and “ it has been like a Trojan horse, where all of a sudden small Korean developers can access outside Korea,” says Min. Apple’s successful penetration is one of the triggers for small developers to try new things.
Entrepreneurs by necessity
An Economist article reported that 346,000 graduates in Korea are currently out of work, up from 268,000 two years ago. Some of them have become entrepreneurs out of necessity: almost 30,000 young South Koreans say they want to launch their own companies. And according to the government, the number of “one-man creative enterprises” in the country has risen by 15% in the past year, to 235,000.
The Korean Government wants their own Mark Zuckerberg – but needs help
South Korea’s President, Lee Myung-bak, announced that Korea needs its own Mark Zuckerberg. So in an effort to spur entrepreneurialism and risk taking, they have started to set up government incubators and funds that provide resources and incentive structures such as tax-breaks. The city has launched a “Youth 1,000 CEO Project” to provide young entrepreneurs with free office space and grants of up to 1m won per month.
“But the problem is that they are approaching it in a very academic way. What they are missing is the actual guts of it and asking ‘what does it really mean to grow a company?’ The government even has a seven month program that only allows a start-up to apply for an incubation program after completion. Most start-ups would be using those seven months to build a product! But to their credit the government has taken the right first step in deciding to support start-ups, it’s the right intention but not yet the right execution.” says Min.
Since the government is aware of its lack of know-how when developing start-ups, they have turned to organizations, like Seoul Space who have experienced entrepreneurs to help drive the process.
Too focused within Korea
Based on his own start-up experience in America, Min knows that Koreans are extremely talented and able to compete with the smartest people in America. But the problem he sees them having their limited thinking. He thinks they think too small by focusing only on Korea. For those that do try to push outside the boundaries of Korea, they will inevitably struggle with scale. He sees language as an additional, natural barrier to Koreans scaling globally.
The need for an innovative halo effect
Traditionally, much like China, Korea is known to use a bench-mark model which means taking proven business models and bringing them to Korea. But gradually, people are trying to move away from this and be truly innovative.
“Conglomerates are acting a bit selfishly by trying to buy start-ups to add to their portfolio. But when they become less conservative, less self-serving and things become an equal platform, thereby allowing start-ups to grow, I think it will create a halo effect for the young generation of entrepreneurs to take their ideas and go global with the right amount of backing. When doing start-ups becomes a normal option, it’s going to be a huge push for other support structures like incubators, accelerators, investors”, says Min.
A perfect storm for the new wave of start-ups
Despite all the issues Korea faces with its heavy conglomerate driven society, the lack of true understanding on the part of the government to foster start-ups and entrepreneurs, Korea is definitely on the right path for a start-up revolution. With elements of the eco-system starting to come together and agents of change such as Seoul Space and start-up tech blogs like Venture Square, Korea will be a very interesting market to watch.