To get started, what are the factors pushing South Korea to become greener and more sustainable?
Kelly Hyunjung Shin: South Korea has always been an innovation powerhouse, ranking as the world’s most innovative country seven out of nine times in Bloomberg’s Innovation Index since 2014. The country’s consistent increase in patent activity and strong performance in R&D and manufacturing emphasizes the critical role innovation plays in its progress towards a more productive and sustainable economy.
Although South Korea developed its economy quickly, it still struggles with a high youth unemployment rate of almost 10%. Unfortunately, home-grown conglomerates like Samsung, LG, and Hyundai don’t create enough new jobs for the country’s large population of young graduates. To improve the employment situation, the government strongly supports startups and social ventures and encourages entrepreneurship in high-growth sectors like green industries to create job opportunities for its youth.
The country has faced several environmental problems over the years, ranging from extreme weather to waste management crises. South Koreans have taken heed to these issues, raised their overall awareness of sustainability, and urged their government to take active action in preventing further damage to the ecosystem. In response to its citizens’ demands, the government has started various initiatives like the Green New Deal.
These are some of the key socio-economic factors impacting South Korea’s “green” transition.
What are some of the initiatives from the Korean government to support companies or consumers to adopt renewable energy?
Johnson Penn: Like many other countries conscious about promoting clean and sustainable energy, South Korea hopes to transition to a greener nation swiftly. There are several key initiatives and market trends supporting renewable energy.
As Kelly mentioned, one such nationwide initiative is the Green New Deal, to propel the country towards a low-carbon and eco-friendly economy. It aims to create 659,000 jobs by 2025 by investing KRW 73.4T ($65B) in climate change response, green infrastructure, renewable energy, green industries, and anything else related to ICT integration that helps drive the clean and sustainable industry.
The Green New Deal also pushes towards the development of more energy-efficient solutions for buildings. The government intends to implement a policy in which buildings beyond a certain size are required to have solar systems installed.
Starting this year (2021), power companies must produce at least 25% of the energy from renewable sources such as waste, solar, wind, etc. This new regulation will be a massive opportunity for all renewable energy developers. The RE 3020 plan aims to add 30.8 GW of solar PV and 16.5 GW of wind capacity into the grid within the next ten years.
The recently introduced indirect Power Purchase Structure (PPS) plan enables any company to sell power through the main grid, increasing the number of companies purchasing renewable energy.
The Korean government plans to introduce 1.13M Electric Vehicles (EV), 200,000 hydrogen fuel cell calls, and increase the country’s EV charging stations. Along this growth path, Hyundai, one of the leading companies in the EV market, has also developed an EV with solar panels integrated into the metallic frame of the car to make such solutions economically feasible.
Any German company interested in testing new technology in South Korea can utilize Jeju Island, a deregulated zone in the Korean Peninsula, as a test-bed for energy innovation.
As a German renewable energy startup currently in South Korea, what are the opportunities you observed in the country and the support you received?
Maik Reder: The renewable energy market in South Korea is growing quite quickly, opening up opportunities for startups from Germany or any other country. There are several government incentives from the Green New Deal and subsidies for companies that expand into the country. The government is actively engaging with startups like ours (ANNEA GmbH) by funding local acceleration programs. We had the opportunity to connect with several companies and got introduced to important market players despite not having any experience in the country.
What type of sustainability and impact technology are South Korean companies interested in?
Anna Kang: Compared to the past, there’s a big difference in how corporations currently view sustainability. This change is due to one of the recently introduced initiatives to transition South Korea into a greener and more sustainable country. By 2025, companies listed on the Korea Exchange with assets of at least $2B will be required to publicize environment, social, and governance (ESG) reports to showcase their positive impact. This reporting aims to encourage sustainable business operations and financing.
From the stakeholder aspect, millennials strongly believe that companies should take responsibility for their adverse outcomes. This outlook might push all Korean industries to adopt ESG practices too. It already seems to be in motion; for example, one of Korea’s largest steelmakers and shipbuilders, POSCO, has committed to investing a large amount of capital in developing eco-friendly fuel and technology over the next four years. Hyundai Motor Group has also shifted its focus to electric vehicles and EV batteries. Such business model shifts offer more opportunities for local and foreign startups in the sustainability sector.
SK Group, one of the country’s largest energy conglomerates, launched the 101 Startup Korea program to look for promising, impactful startups in Europe in the energy and environment sectors. My company (MYSC) worked together with SK Group to identify similar startups in Korea and helped them raise $4M, a perfect example of significant impact through corporation-startup partnerships.
Local conglomerates like LG also encourage sustainability innovation by running acceleration programs in the country and have identified almost 300 high-potential startups to date. So, if your business tackles sustainability issues, you have an excellent opportunity in Korea.
How open are Korean companies to working with foreign startups?
Anna Kang: While Korean corporations are currently investing mainly in Korean impact and sustainability startups, there is still a huge opportunity for foreign startups as these corporations have also started their startup investment arms in other countries such as Germany. As recent numbers show, overall capital investment has drastically increased for Korean startups. In turn, it will also increase foreign startup investments across industries such as energy, healthcare, energy, AI, gaming, and mobility.
Foreign startups need to build their presence in the South Korean startup scene and find local partners. It is also a good time to be in the market as South Korean startups seek to expand to new markets across Southeast Asia, Europe, and the U.S. and are eager to form partnerships with foreign startups. This is where Market Discovery programs such as German Accelerator’s are essential as they help foreign startups build relationships and find suitable partners in the local ecosystem.
Kelly Hyunjung Shin: If the foreign startup has a strong presence outside of Korea or has a unique technology that Korean startups currently do not have, they stand a good chance of entering the Korean market.
Foreign startups have two ways of exploring expansion opportunities in South Korea. They can enter the market, learn about the current landscape, and build relevant stakeholder relationships, or reach out to the Korean cooperation office in their respective countries as a first point of contact to explore opportunities.
Being foreigners, what were some of the challenges you faced when setting up your business in South Korea?
Maik Reder: It initially was a bit of culture shock as we didn’t have any experience in the country. When one of our employees went to South Korea, it took time to get used to the local business culture and market dynamics. There was also a significant language barrier as none of us knew Korean. We noticed the need to have a local employee because it was much easier for somebody who speaks Korean and knows the business culture to help us in the market.
Johnson Penn: For me, it was easier as I had spent a few years in Korea studying and working with local companies before launching my business. If you’re trying to get into the Korean market as a foreigner, you will face several issues, from language to visa restrictions. However, the government has initiated several programs to help foreigners start their businesses here. An overseas education program provides insightful information on the Korean lifestyle and business culture, helps establish your business locally, and even covers certain fees. It’s helpful to have good partnerships in place and sponsors who will support you through this process.
With these challenges of entering the South Korean market, what are the counter arguments for German startups to expand to South Korea and how should German startups tackle these challenges?
Kelly Hyunjung Shin: Like what Maik and Johnson said, foreign startups entering South Korea will face a language barrier, as they prefer the local language for business communication. However, the younger generation in Korea is fluent in English and Korean and has experience living, studying, or traveling abroad. It’s a good idea to hire a suitable local representative who would be crucial in your expansion journey into the market.
The market is also relatively small compared to markets like Japan and China, and German startups may wonder if this is the correct first step for internationalization. However, the market is quite mature and filled with early adopters, making it a great test market in Asia.
Technology-wise, if startups tackle issues like air pollution, South Korea is a suitable expansion market as it faces a pollution crisis almost every year, every season.
Another growth area is sustainable FoodTech; while smaller than Germany’s vegan market, it is quickly picking up pace. Zikooin (지구인 컴퍼니), a Korean startup, recently raised received $9M to produce a meat alternative, “Unlimeat”. Several opportunities are also available for German startups that tackle waste management and eco-friendly packaging.
Joint ventures could be a good alternative to entering the Korean market, where local partners can import, launch, market, and distribute solutions; several companies have gained success following this method.
What are your key recommendations for startups keen to enter South Korea?
Anna Kang: Become a part of the broad network in Korea by joining communities like Seoul Startups. You can easily sign up online to become a partner in this community, through which you can virtually connect with different stakeholders in Korea, like venture capitalists, investors, startups, corporates, and government officials.
Maik Reder: Get a local representative who can speak Korean and engage with the customers. It’s equally important to understand the business culture and market dynamics.
There are also several opportunities to collaborate with universities, wherein universities and the government work together quite a lot. Such channels are also good ways to establish yourself in South Korea.
Johnson Penn: Test your technology in Korea by forming a partnership with a local company and work on pilot projects to create references in the market.
Watch the full webinar recording: https://youtu.be/WzJZXUPo5ik
If you’d like to get started on your expansion journey into South Korea, check out our Next Step market discovery program or speak to Matthias, our company scout!
