South Korea’s Relentless Quest for Innovation and Competitiveness

23 November 2015 Author: Claudio Murri, EIF Asia Advisor

When it comes to technology, South Korea is widely regarded as a leader in the Asia Pacific region and as one of the most advanced countries in the world. It is, for example, one of the most-wired nations on earth.

It has the sixth-highest number of fixed broadband subscribers per 100 people among OECD nations and the fastest Internet download speed. Yet, the country’s government is not complacent about these records and it constantly explores means to continue to climb positions in a very competitive world.

More than 50 years after former South Korean ruler Mr. Park Chung-hee championed an industrial plan, which gave rise to the family-run conglomerates (known in the country as “chaebols”) that still dominate the economy, his daughter and present president Ms. Park Geun-hye is trying to roll back their influence and encourage high-tech entrepreneurs to create a “second miracle on the Han river.”

The nation is investing in small start-ups with the objective to enable young Koreans with creative ideas to freely take on the challenge of starting a business. As a result, the number of newly established business entities exceeded 80,000 for the first time last year, when venture investments reached the highest level.

South Korea is not the only developed country trying to replicate Silicon Valley’s cauldron of innovation, but the efforts of successive presidents to boost science and technology give it an unusual edge. The country has raised spending on research and development every year since 1991, lifting it 20- fold to US$15 billion, and putting it first in the 2015 Bloomberg Innovation Index, with particular emphasis on post-secondary education, R&D and patents.

One of the biggest challenges for South Korean start-ups is the one that bedevils entrepreneurs everywhere: funding. Finding investors in South Korea isn’t easy. Mergers and acquisitions account for only 2 percent of how investors make a profit on backing start-ups, deterring them from looking for the next YouTube or WhatsApp. And it takes an average 12 years for a South Korean venture to list on the stock exchange. To help solving this problem, the Government has created seventeen of “creative economy centers”, start-up incubators that operate in collaboration with major companies, including the chaebols and major foreign multinationals and offer workspace, funding and advice to budding entrepreneurs.

Along with a new ministry of future planning, these centers are the most visible manifestation of President Park Geun-hye’s creative economy agenda. Critics of the scheme, however, question whether the influence and control that the chaebols still exercise on the centers, and their traditional business culture, makes them best placed to nurture the sort of creative, dynamic start-ups able to compete with those emerging from Silicon Valley. They are afraid that the network could end up undermining its stated goal by hardening the grip of large industrial groups on the South Korean economy.

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