Home to 11 unicorns, 221 accelerators, and 134 innovation centers, South Korea is Asia’s best-kept startup secret and has one of the most vibrant tech ecosystems in the world. The country’s active and well-designed startup ecosystem has gained the attention of global investors, accelerators, and incubators.
Ranked second on the Bloomberg Global Innovation Index 2020 (ranked first the previous four years), South Korea has been focused on becoming a startup hub to help drive innovation. Government programs and funding are cultivating startups to be the new engines of economic growth and it has become an increasingly attractive destination for foreign startups.
Here are some of the key reasons why South Korea should be on the radar for German startups looking to expand internationally:
A Tech-Driven Powerhouse
South Korea’s internet and mobile penetrability are one of the best worldwide, with 96% of its population having access to the Internet, and its technology infrastructure is futuristic compared to other developed markets. South Korea also is the first country to launch 5G commercially.
South Koreans are known to be tech-savvy and early adopters of new technologies and are highly connected. 94% of South Korea’s 51.6 million population owns a smartphone, and this large pool of smartphone users presents a great market to perform consumer testing on new mobile services and products.
Home of Innovative Industries
South Korea truly is the home of innovative industries, with the South Korean government and the country’s largest companies such as Samsung, Hyundai, LG, and The Shinhan Group investing in artificial intelligence, big data, virtual reality, and renewable energies. The country spends 4.5% of its GDP on research and development (R&D), the highest globally, and also has the highest robot density worldwide.
An early adopter of the smart city concept, South Korea has developed smart city initiatives not only at a city level, with the development of areas like Songdo International Business District (its smart city is based some 19 kilometers southwest from the capital Seoul), but also at a national level, integrating smart mobility, smart waste and energy, smart citizenry and smart public spaces into its country infrastructure.
It’s unsurprising then that the country has fast become a testbed for smart city technologies, making it an exciting prospect for German startups operating in the space.
Government Support for Foreign Startups
South Korea’s startup ecosystem has been rising since 2015. This growth is being driven by the South Korean government, which according to Forbes, has provided US$4 billion to startups in the country since 2015, the biggest government backing of startups per capita in the world.
It also has plans to continue to improve the country’s infrastructure, budgeting US$4.5 billion for data-related industries for 2020, with a suggested US$12 billion investment pipeline over the next four years. In addition, many Korean government agencies have outlined plans to support new and creative ideas, especially from foreigners and other sectors of the economy.
Over the last few years, the South Korean government has rolled out several programs to support foreign entrepreneurs looking to do business in South Korea. One such initiative is the K-Startup Grand Challenge organized by South Korea’s National IT Industry Promotion Agency (NIPA). It is one of the main platforms promoting and encouraging diversity in the local startup ecosystem. Since 2016, 41 startups have successfully incorporated in South Korea.
In addition, Invest Seoul, part of Seoul Business Agency and set up by the Seoul Metropolitan Government, provides crucial support for foreign startups in the city. They offer support when setting up a business and provide guidance on areas such as navigating the South Korean culture and language barrier as well as connecting startups with local businesses and entrepreneurs.
Keen to know how to prepare your entry into South Korea? Here are some of our top tips to help you:
Find the Right Local Partner
One top tip in launching your business in South Korea is to find the right partner. Spend time finding a strong local partner who can help you navigate the local dynamics, business norms, and ensure you avoid costly mistakes and minimize the risk when establishing a legal entity in South Korea.
Your partner should be local and can speak Korean. This will go a long way as communication is key and can play a huge role in how successful you are in getting your business off the ground in South Korea.
Do Your Research on Local Market and Potential Market Entry Barriers
Every startup considering to start their business in South Korea should already have traction in their home country and must do their homework before entering this market. For South Korea, it is particularly important to understand the entry barriers, regulations, and business requirements as well as doing background research on any local partners or customers.
An essential factor in starting your business in South Korea is to thoroughly research the business sector you are planning to enter to ensure that there is an opportunity for your product or service.
Take Time to Build Long-Term Relationships
Establishing and maintaining strong business relationships is more than just ‘important’. Spend time fostering these relationships before launching your business. South Koreans like working with those that they already know and have a history with. It’s important when networking to try and develop a relationship with potential partners first before diving into business.
Another important tip is ‘don’t be too aggressive’ in your approach as this might intimidate local counterparts and cause them to walk away from a potential partnership.
Get Familiar With the Culture of South Korea
It is important to familiarize yourself with a few cultural practices in South Korea. It would be helpful to learn about the traditions and culture of the country and their practices when it comes to everyday interactions and communication. A few things to remember are South Korean holidays, special occasions, and special cultural practices South Koreans do.
In a business setting, remember business etiquette such as always maintaining a level of respect for elders, don’t be too casual in meetings, and common courtesy is key.
Knowing the fundamentals of South Korean culture will help you show respect to your South Korea business partners and show that you are aware of their culture.
Collaborate With Smaller Businesses Before Moving to Larger Conglomerates
Doing business in South Korea takes time. Due to the hierarchical structure of companies and the presence of several stakeholders in the decision-making process, engaging with large conglomerates can take a lot of time. To shorten the time of entry, engage with smaller businesses where the decision-making process is much faster. In addition, as you establish your credibility and gain traction in South Korea over time, South Korean corporates would be more open to doing business with you.
With our trusted network of mentors and industry experts, we will help you validate your business suitability for the market, and offer you a deep-dive into South Korea’s thriving ecosystem. If your startup is considering South Korea in your expansion journey, learn more about how we can help you via our Next Step program.