Can South Korea’s Start-Ups Compete?

At 27, Kim Ka-young is already the CEO of a technology startup. The young South Korean is the brains behind HOTELnow, a mobile app for finding and booking discounted hotel rooms on short notice. Since its launch two years ago, the app has been downloaded more than 600,000 times. 

“Right now, we are in the middle of expanding our business. At the moment we are only operating in the domestic market, but in the future we are planning a launch for Chinese who visit Korea,” Kim told The Diplomat recently at beGLOBAL SEOUL, billed as Asia’s largest startup conference. 

Kim’s was just one of some 150 new tech startups showcased at the exhibition, which was held at the futuristic-looking Dongdaemun Design Plaza on May 14-15.

The attendees represent a new generation of ambitious tech-focused entrepreneurs hoping to make their mark in a country long dominated by the chaebol, the massive, family-run conglomerates that include Samsung, Hyundai, and LG. 

“In terms of financial power it is hard to compete with conglomerates,” said Min Hye-won, whose company Melephant developed Funch, an app for producing short videos to challenge friends to various tasks. “But I think that with a small team we can really communicate with each other if any issue comes up, and take care of it right away with everyone in the meeting.”

The sheer size of the chaebol make them intimidating competitors. In 2012, the sales of the 10 largest chaebol accounted for almost 80 percent of South Korea’s GDP. Samsung Group alone is responsible for about a fifth of the economy. 

While widely credited with fueling the country’s rapid economic rise after the Korean War, the conglomerates have been increasingly accused of crowding out smaller players. Critics now accuse the business giants of actually stifling innovation, not nurturing it. 

The government has taken notice of the criticism. Since coming to power in 2012, President Park Geun-hye has staked her economic policy on the “creative economy.” In laying out her vision, the president championed the fusion of IT and creative industries, signaling a preference for innovation over manufacturing might alone. 

“We can define the creative economy as a new way of existence, a new way of growth in a new environment,” first vice minister of science, ITC and future planning Lee Seok-joon told beGLOBAL SEOUL in a typically aspirational but vague pronouncement.

He also addressed the fear of failure in a culture where a stable chaebol job is still seen by many as the ultimate mark of success. 

“We can’t let people think that starting a business is just difficult, it can be fun and exciting,” he said.

The government’s practical strategy to spur bravado in business has been to push deregulation and facilitate new funding channels. On paper at least, fledging businesses appear to have secured considerable support in recent years. According to The Korea Herald, the government-funded Growth Ladder Fund, which matches venture capital with promising startups, has overseen investments of almost $2.5 billion since 2013.

Most of the startups The Diplomat spoke to said that the government’s financial support is either adequate or has increased noticeably.

“We’ve already received a lot of support from the government, so if this expands more it will be a really great opportunity for startups,” said Won.

But there was also evident frustration with how support is administered.

“The support isn’t insufficient, but there are too many criteria demanded by the government,” said Kim. “There are many points that don’t match with reality. If you receive government support, you have to spend a lot of time to constantly protect that, so it becomes very worrying.”

Yang Jin-ho, a business consultant for Jandi, an office communication platform described as a mix between WhatsApp and Dropbox, said the government should do more than just throw money at upcoming firms.

“I mean there are a couple of recent start-up space-sharing offices or accelerators, but I feel like right now the government is giving the money and then [thinking] ‘let them handle it’...They have to actually review their performances, go in and take initiative,” he said. “They should really engage, get involved in the process. Actually they have to review the startups at the same time.”

Yang also singled out South Korea’s notoriously complicated online security procedures as a problem.

“In order to do one transaction, it’s really a pain,” he said. “You have to download like 10 special programs. So those are kind of the difficult issues.”

On the other hand, Yang praised the recent passage of a law encouraging firms to use cloud computing, which he said had a bad image in Korea until recently.

Others complained of the government getting in the way with its immigration policy.

Johnny Oh, who developed video editing app Alive Story, said he is considering relocating his business to the United States. Due to Korea’s rules on hiring foreign talent, he feels restricted in expanding the company.

“It would be very helpful to hire...from other countries,” he said.