For decades, the country has relied on an outdated growth model that focuses on large exporters like Hyundai and Samsung rather than opening itself up to new and emerging companies. This practice has hindered companies such as Uber and Airbnb from launching in South Korea.
According to entrepreneurs, investors, and executives across the nation, the government has been slow to remove regulations for startups, aware of the risk of upsetting labor unions and overhauling the country’s economy. This comes despite the fact that President Moon Jae-in’s administration created a new ministry for startups last year and increased funding into new technologies.
A study by Google Campus Seoul and the Asan Nanum Foundation recently concluded that South Korean laws would entirely or partially block 70 per cent of the world’s largest 100 startups by investment size from operating locally.
In 2017, Hyundai purchased a 12 per cent stake in up-and-coming car-sharing company Luxi for $5 million. However, before Luxi could launch, Hyundai sold its stake claiming that the investment “did not fit a business model the company pursued.” The automaker has since hedged its bets on Grab, a Singaporean ride-hailing company, with a massive investment of $275 million.
South Korean giants like Samsung are actively pursuing startups, but according to co-founder of South Korean artificial intelligence startup Fluenty, Hwang Sungjae, they aren’t doing so at the required pace.
“The Korean success has been built on a fast-follower strategy, but Chinese rivals are catching up very fast.
“Companies now have no choice but to innovate and work with start-ups, but they are not investing quickly enough. I think Korean companies are at a great risk of falling behind,” he said.
According to an official at the Ministry of SMEs and Startups in South Korea, the nation must move towards innovation. However, he acknowledges that doing so is difficult as it must “mediate existing interests.”