South Korea's Startup Ecosystem Shows Great Promise
October 23rd, 2023
In East Asia, one country has shown promising results, with South Korea seeing exponential growth in its startups. In the last decade alone, funding into the startup industry has been on the rise, culminating in an investment of approximately $6.4 billion into startups in the nation in 2021 - reflecting a growth rate of 78% more than the previous year.
South Korea’s Evolving Startup Scene
South Korea was not always so receptive to the startup industry. The country's economy once relied on exports from renowned family-owned conglomerates (chaebol). Now, chaebols are losing prominence. This outcome has, in turn, ushered in a new era for small businesses and tech startups in the last decade.
Public recognition for these businesses surged for several reasons. High-speed internet connectivity in the country led to an increased usage of products and services from these startups, as 98% of families have access to the Internet, and 85% of the population use smartphones. This accessibility resulted in more mobile-friendly tech innovations, increasing convenience and ease of access.
South Korea ranks 10th in the world's list of countries with the most unicorn startups, reporting 18 unicorns by the end of 2021. SMEs comprise 99% of the country's businesses, creating most employment opportunities and bringing in approximately 49% of the country's revenue in the last year.
There is a growing list of tech startups receiving heightened interest from users. E-commerce is an especially relevant industry in South Korea, with services such as travel, fashion, electronics, food and beverages, and beauty among the top consumer services in the industry.
Additionally, the video gaming market is prevalent in South Korea. Its accessibility through mobile phones and PCs has made it popular with most youth to the working-age demographic who have stated that they play video games.
Both industries bring in significant revenue, with e-commerce reportedly worth $148 billion last year. The video game industry racked up $15 billion in 2021, and these numbers are expected to grow in the next few years.
In the last two years, two prominent startups have gone public due to the vast usage of content and services in these industries. Coupang, an e-commerce site worth $9 billion in 2018, known as the "Amazon of South Korea," went public on the New York Stock Exchange (NYSE) last year. Another example is Krafton, a video game developer valued at $19 billion. The company went public in the same year and is known for the mobile phone and PC game “PlayerUnknown’s Battlegrounds (PUBG).”
Other tech startups are on their way to becoming unicorns and showing promising results. These startups cover various industries and services, from autonomous transportation, payment processing platforms, food delivery services, healthcare, financial services, retail, and education.
Strong Support for South Korea’s Startups
Strong government support plays a significant role in the nation's startup ecosystem.
In 2018, the government established the Ministry of SMEs and Startups (MSS) to oversee the industry and assist small to medium-sized enterprises and startups in the country.
The program awards promising tech startups with one year's worth of funding for R&D with the expectation of the ecosystem's advancement. Moreover, the Ministry also provides additional support for R&D that has received funding from private investors, ensuring a follow-through system.
Last year, the MSS partnered with the National IT Industry Promotion for the K-Startup Grand Challenge 2021 (KSGC 2021). The program is a way to promote the country's "open entrepreneurship ecosystem" and its expansion into the international market. The MSS has also provided opportunities for overseas startups to connect with businesses from various industries.
Furthermore, the government created a separate organization, the Korea Institute of Startup & Entrepreneurship Development (KISED), to generate employment and support budding tech startups. Their objectives include offering education and training to the youth, potential business owners, and other demographics. They also cover financing ventures, aiding in scaling startups, policymaking, and developing data-driven trend analysis and insights on startups.
Laws Protecting Startups in South Korea
At present, 21 laws support SMEs and tech startups. Five acts revolve around promoting, protecting, supporting, and financing innovation and tech startups. The Ministry of SMEs and Startups (MSS) restructured its targets through the "Policy of the Year," which comprises several policy directions.
These policy directions address support for manufacturing and intelligent factory expansion, promoting and accelerating the startup boom, supporting micro-enterprises and the self-employed, and laying the foundation for an open innovation ecosystem by fostering cooperation between large businesses and SMEs.
The MSS has also devised programs supporting innovation and tech startups. Policies such as "Startup Leader Universities" and "Smart Venture Startup Schools" promote business growth by providing support through university infrastructure and education on knowledge-based industries.
Moreover, the Ministry worked to make the tech startup environment in the country more favorable by lowering taxes and regulations for businesses through various reforms.
One of the most well-known policies in South Korea is the Tech Incubator Program for Startups (TIPS). Established in 2013, TIPS was modeled after Israel's incubator program. Through the incubator, ventures with the most potential can receive mentoring and funding support from private investors, while failed ventures do not have to reimburse funds.
The government also provides funding, covering the cost of equipment, manufacturing prototypes, and IP rights and test certifications. It also includes global marketing and follow-up support. As of 2019, TIPS has aided over 679 startup companies, and this number has continued to grow over the last three years.
The Future of South Korean Startups
South Korean startups have a bright future ahead of them, thanks to various factors such as connectivity, ease of access, public interest, and government and private investments. With consistent government support and private investments, the tech startup industry in South Korea is expected to continue its rise in the global ranks, creating more opportunities for tech innovations and ventures.