South Korea's Economic and Business Ecosystem

Building an Economic Powerhouse:

After the Korean War, South Korea was one of the most impoverished countries in the world. Today, it is one of the most prosperous countries in the world. Its people have been the main reason for its rapid development. The country's education system was the focus of its efforts following the war, and within 10 years after the Korean War ended, the percentage of students who were not proficient in reading and writing had dropped from 78% to 4%.

In addition, the government has been working to maximize the country's export products. As the country's economy started to grow, it started to focus on developing more sophisticated hardware products for heavy manufacturing sectors such as steel, automotive, and televisions. Through the government's efforts, the country has been able to create large industrial conglomerates, which are known as Chaeobols. These companies are run by family members and are known for their innovative and technological capabilities. Despite the country's success, its choice of a highly successful economy has also caused some issues. For instance, the distribution of wealth and power has been uneven. South Korea has risen to become one of the world's 11th largest economies and the fifth-largest exporters of goods and services.

Due to its technological prowess, South Korea has become a major player in the global display industry. Samsung and LG have become the world's top two display producers. In July 2021, the UN upgraded the country's status to developed. South Korea has been able to become an economic powerhouse. However, it is still striving to use startups to develop new innovative products and services in order to maintain its competitive advantage. This is because during the Fourth Industrial Revolution, companies that are known for their disruptive innovation can still challenge the established players.

After being an ideal location for tech companies, South Korea was not always regarded as a startup friendly country. However, in the last few years, this has changed due to the country's government support programs for startups. One of these is the TIPS (Tech Incubator Program For Startups), which is a government-backed program that provides financial assistance to promising tech companies. In 2017, the government established a Ministry of SMEs and Startups to oversee the various startup support programs. Through venture investments, South Korea has been able to attract over 7 trillion won in venture capital investment in 2021. And in 2021, the number of new jobs that were created by startups exceeded the number of jobs that were created by the country's four major conglomerates.

Aside from being established in the country, many of South Korea's startup companies have also been able to gain international recognition. Some of these include webtoon platforms such as Pinkfong, which was named after its song "Baby Shark."

Focusing on Startups:

Aside from being established in the country, many of South Korea's startup companies have also been able to gain international recognition. Some of these include webtoon platforms such as Pinkfong, which was named after its song "Baby Shark." Being the country's success, startups do not see conglomerates as a threat.

They believe that they can create synergies by combining their resources. This is why many corporates in South Korea have started to actively participate in the country's startup scene. They are able to provide their companies with the necessary resources and support to grow their businesses. Over the years, corporate venture capital firms have been able to successfully return on their investments in startups. Unlike traditional venture capital firms, which mainly focus on financial transactions, corporate venture capital firms are more likely to invest in startups that are looking to leverage corporates for their growth. The increasing number of entrepreneurs who leave their jobs to start their own businesses is also attributed to the shift in mindsets toward risk. According to a survey, over a third of the founders of successful startups previously worked for major companies such as Samsung and Hyundai. In the past, university graduates who were looking to become medical doctors or lawyers were more likely to find jobs with large corporations. However, the Gen-Z mindset is different. Instead of focusing on organizational efficiency, they are more likely to find a startup that offers a more flexible work environment and is able to provide them with a sense of belonging. Due to the increasing number of startups, the gap between the compensation of corporations and their employees has lessened over the years. After being ranked as one of the most promising startup ecosystems in the world, South Korea still has a long way to go to be considered a leader in the global startup community. One of the main reasons why it is still reluctant to embrace foreigners is due to its lack of diversity. Most of the country's startup support programs are focused on helping domestic companies go global.

South Korea is pushing for the most significant change in corporate governance in the country's history. It would allow investors to see how top executives of large companies are made. South Korea's large conglomerates, known as chaebols, have been instrumental in the country's rapid emergence from the pandemic. Their products, such as cars and semiconductors, have helped the country emerge from the crisis faster than other economies.

Critics argue that the dominance of chaebols has hindered the country's economic growth and prevented it from developing a more competitive environment. They also believe that the companies' ability to transfer wealth and power to their families can hamper the country's development. This year, the ruling party pushed for the passage of a bill that would make it harder for companies to appoint their own auditors and increase the scrutiny of firms that give preferential treatment to their affiliates. Supporters of the proposed reforms refer to the measures as "fair economy acts." However, opponents of the changes claim that they are over-regulation. The proposed corporate governance reforms are expected to help boost the country's long-term growth. They would also prevent costly business mistakes. The goal of the fair economy is to make companies more competitive and to attract foreign funds. It's not about restricting the companies' operations. It's about improving the market economy and making it more prosperous.

Due to the outbreak of the coronavirus, many businesses have expressed their concerns about the proposed changes. They said they would create uncertainty and negatively affect the country's business environment. A coalition of business groups has also called the proposed legislation an outdated and inefficient regulation. Private equity firms could also use their position on the board to exert pressure on the companies. They could also threaten the management's authority and take issue with the decisions they are made. The proposed legislation would require companies to have an external auditor instead of relying on the approval of the corporate board. It would also limit the power of the largest shareholders. Currently, the law allows companies to select an auditor from within their own ranks. The legislation would also make it harder for companies to establish an affiliate that has large stakes in their parent companies. It would also expand the range of individuals and groups that can file complaints against them for violating fair trade rules. Despite the various concerns about the proposed legislation, there is still a consensus that the country needs to improve the governance of its major corporations. Many believe that the current growth model of chaebols is hindering the country's ability to develop new businesses. Poor corporate governance is also one of the factors that contributes to the inefficient capital management of South Korea's major companies. Large-scale expansions and the lack of commercial logic are some of the factors that have been identified as contributing to this issue.

Conclusion:

The Republic of Korea has been able to achieve rapid economic growth and significant poverty reduction through its policies. From 1988 to 2019, the country's real gross domestic product has increased by over 5% annually. The growth was mainly due to the country's export growth, which has increased by over 9% annually. In 2009, South Korea became the first former aid recipient to join the development assistance committee of an international organization. Its gross national income per capita has increased significantly from around 1967 to about $33,000 in 2019. South Korea is a key contributor to the development of other countries through its participation in international organizations such as the World Bank. It has also been able to inspire other developing nations through its experience in developing a sustainable development framework. Through its experience, the country has also been able to improve the lives of its citizens. In 2020, the country's official development assistance budget was valued at US$2 billion, which is equivalent to 0.14% of the country's gross national income. The government has also pledged to double the ODA budget to US$6 billion by 2030. In line with its growing international presence, the government of South Korea has also been able to increase its IDA contributions and establish multiple trust funds. It also partnered with the World Bank to establish a new office in the country. The World Bank Korea Office, which is currently in its third phase, is focused on providing innovative and sustainable development solutions. As the world struggles to contain the spread of the coronavirus, the Korea Office of the World Bank and the government have partnered to share their expertise and experience in responding to the pandemic. Through this partnership, the two organizations have been able to develop effective and innovative solutions to help countries respond to the outbreak. Through a collaboration between the World Bank and the Ministry of Finance, the countries of South Korea and Malaysia have been able to jointly develop a program that aims to enhance the country's pandemic preparedness. The five countries will share their lessons learned from the past pandemics to help inform the future responses.

Over the years, corporate venture capital has been able to successfully invest in startups. Unlike traditional venture capital firms, which mainly focus on financial transactions, corporate venture capital is now becoming a major player in the investing scene. This is because, unlike traditional venture capital, corporates are more likely to partner with entrepreneurs who are looking to scale their businesses. The increasing number of people who are taking risks is also contributing to the shift in mindsets in the workforce. According to a survey, over a third of startup founders have left their jobs to work for major corporations such as Samsung and Hyundai. Despite the positive news about the country's startup ecosystem, South Korea still has a long way to go to be considered one of the top startup nations in the world. One of the main factors that prevents it from being a leader in the startup ecosystem is its lack of diversity. Most startup support programs in Korea are focused on helping domestic companies expand their operations. However, inbound programs such as the K-Startup Grand Challenge are required to be expanded to allow more foreign companies to come to Korea. There are also various visa programs that are designed to make the process easier for foreign workers. Due to the outbreak of COVID-19, the government has also increased the evaluation measures for certain visa applicants. These measures are also expected to affect the country's startup ecosystem. Besides cultural differences, other factors such as the language and mindsets of the applicants are also factors that can prevent South Korea from becoming a successful startup nation.

Pic Courtesy-Valery Rabchenyuk at unsplash.com

(The views expressed are those of the author and do not represent views of CESCUBE.)