This growing AI landscape is an often overlooked industry for German startups considering South Korea, despite the Asian nation being a highly digitized society. In this article, we explore the AI ecosystem in the South Korea market and internationalization opportunities for German AI startups into Asia.

The South Korea Startup Scene

Despite its small size within Asia, South Korea is home to over 25 startup unicorns. In addition, a number of venture-backed startups have either recently experienced an initial public offering (IPO) or are planning to IPO in the near future.

Korea is still catching up with the rest of the world in terms of its AI ecosystem, especially when compared to tech giants like the U.S. or China. However, its growth curve is quite steep with an estimated CAGR of 24% (and up to 15% through 2025).

“South Korea is also a leader when it comes to AI-related patents,” said Marta Allina, country representative for South Korea with German Accelerator and founder of Seoul Startups. “However, the quality of those patents is still coming up to par with the U.S .”

With Silicon Valley serving as the benchmark, South Korea is only about 70% as developed as the U.S. in terms of its AI ecosystem, especially when it comes to startups. This fact has pushed the Korea government to invest resources into the development of this industry.

Government Support for AI Startups in South Korea

For the past half-century, the South Korea economy relied on large corporations like Samsung or LG for jobs and growth, but the national government has realized that’s not a sustainable long-term strategy.

So in recent years, the government of South Korea has focused on supporting startups – locally called “venture businesses” – in order to create jobs and economic growth. As a result, there are a lot of programs and grants to support startups in Korea with R&D and business development.

“The government has established an AI investment fund worth US$311 million (393 billion KRW) to implement its national AI strategy,” said Allina. “There’s even a government program called ‘Baby Unicorn Development Project.’ As you can see, they’re very serious about developing and rearing up new startup unicorns.”

Since 2018, there’s been a series of policies to drive increased research and development in AI. The government’s focus has mostly been on building AI support infrastructure and to foster future high-tech talent. One goal for the Korea government is to foster over 100,000 AI engineers by 2025, hence there’s been a lot of cooperation with local universities and research centers to encourage young people to choose AI engineering or research as a career.

The three largest government ministries with AI support initiatives include:
• Ministry of Science & ICT
• Ministry of Land Infrastructure & Transport
• Ministry of Trade, Industry & Energy

“These three ministries really work together to develop and execute various AI initiatives, including national AI industry hubs and big data centers for AI research,” said Allina.

The government is currently developing an AI complex in Gwangju where it wants to create Korea’s national hub for artificial intelligence. The complex would be a free economic zone to encourage foreign initiatives and projects to collaborate with Korea AI researchers.

While Gwangju is the biggest international complex in Korea, there are also regional AI hubs in Seoul, Pohang, and other cities that focus on specific industries. These hubs encourage cooperation between corporates and startups to develop innovative AI solutions to industry-specific challenges.

Startup-Corporate Collaboration on AI

South Korea’s flagship corporations have heavily invested in AI research – and they often collaborate with startups to bring various technologies to market.

“Besides setting up AI research centers, these big corporations in South Korea have also been recruiting and acquiring top talent from around the world to help them develop new AI products and services,” said Allina.

For example, Samsung Electronics has seven global AI research centers around the world and has recently developed an AI bot called Samantha. Likewise, LG has set up multiple AI research centers focusing on appliances, telecommunications, electronics, and biotechnology. Its spinoff company, LGU+, has been implementing AI on IPTV in Korea.

Hyundai Motors also has its own AI research initiatives focusing on automotive tech, voice agents, mobility service platforms, and smart factories to make its production processes more efficient.

Korea’s local search engine, Naver, recently opened a global AI R&D center in France, and another Korea tech giant, Kakao, has developed an AI personal assistant called Casper that excels at text-to-speech, speech-to-text, language translation, and image recognition.

AI Investment Trends in South Korea

“Everyone wants to know where AI is going to go next,” said Allina. “In South Korea, there are a number of key industries on the rise that need AI solutions in the next few years.”

Entertainment
Culture, entertainment, and media are popular industries in Korea. Webtoons – the Korea version of animated cartoons – are on the rise and have attracted a lot of investment funding recently. Both Naver and Kakao have AI-related investments in the area of media and entertainment.

Autonomous Vehicles (AVs) & Mobility Services
The development of autonomous vehicles (AVs) is another popular area for AI in Korea. Beyond Hyundai, there are a number of startups working on level-four AVs, and level-three AVs are already being sold in South Korea. The government has funded a test bed in Gunsan City – about a hundred kilometers from Seoul – where both startups and corporations can test AVs and various mobility solutions. Kakao has also established an autonomous driving alliance program that allows startups to test their solutions on Kakao T (a taxi hailing app similar to Uber).

Digital Healthcare
The application of AI to healthcare is also a rising trend in Korea with an increasing number of AI medical devices approved in the past two years. Within the Korea healthcare system, patient postoperative care is a persistent weak point, and the government has identified digital healthcare offered by AI startups as a potential solution.

Fintech
South Korea is a huge hub for fintech. While Korea is famous for cryptocurrency, there’s a growing need for various AI solutions across financial services. Local financial institutions and investors have both been investing in AI startups and in co-developing solutions. One huge market need is the growing number of people in Korea with retirement pensions that need financial advice, and another the need for more robust, AI-powered fraud detection across the entire finance sector.

Smart Factory
The Korea government has created an ambitious goal to have 2000 AI-based smart factories in Korea by 2023. Hyundai and other manufacturing corporates are heavily investing in the smart factory model. However, this migration is slow because of the fear of industrial data leakage – presenting an opportunity for AI-enhanced cybersecurity for such factories. There are also key opportunities for AI startups in the areas of optimizing production processes, energy usage, and predictive maintenance.

Other hot trends that are getting early traction amongst AI startups in South Korea include:
• AI assistants
• Autonomous machinery
• Semiconductors
• Shipbuilding
• Autonomous agriculture
• Smart cities
• Autonomous public services

Opportunities for German AI Startups to Enter the South Korea Market

While South Korea does have traditional VCs, the main leaders in AI development are the large corporations and associated corporate venture capital (CVC). That’s because they invest in and support startups either to later acquire them or to cooperate with them to co-create AI solutions. This presents a great opportunity for German startups to enter the South Korea market via startup-corporate collaboration opportunities.

“For instance, Samsung Ventures has been strongly investing in voice interfacing, graphic recognition for photos, facial recognition, and AI-accelerator chips because all of their affiliated companies will need these technologies in their everyday operations,” said Allina. “This same pattern plays out among other corporate investment arms, whether that’s Naver, Kakao, KT, or SK.”

The biggest challenge for many Korea startups is global scalability. While they might do well in the Korea market due to strong government support, they often struggle to make the next step into becoming a global company. Again, German startups have the opportunity to collaborate with these up-and-coming Korea startups and unlock global opportunities for both companies.

“I would say there are a lot of options for collaborating with Korea startups and corporations through joint ventures, pilot projects, and more,” said Allina. “But it’s not easy. The key is to have local connections with Korea organizations.”

According to Allina, there are a lot of government-backed R&D grants that encourage Korea organizations to partner with European startups and institutions. German startups shouldn’t overlook these potential projects.

“It’s definitely worth looking into these opportunities,” said Allina. “There are some barriers, but it’s doable. The key is in networking and finding the right partner.”

Conclusion

Given the growing need for AI solutions in South Korea, your AI startup should carefully consider the Korea market as a destination for international expansion.

“Doing business in Korea is not the easiest,” said Allina. “But if you get over those hurdles and work with the right partner to help you enter the market, then it’s very exciting and it’s a great test bed for the rest of the Asian markets and beyond.”

Whether it’s digital healthcare, autonomous vehicles, fintech, or smart factories, your startup might find a perfect fit in the Korea market, so don’t miss the opportunity to grow your business in this hidden gem of East Asia.

Ready to see if South Korea is the right fit for your startup’s international expansion? Sign up for the South Korea Market Discovery program and join other German Entrepreneurs in exploring this high-tech innovation hub.