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South Korea Innovation Opportunities

by: Tatjana Guznajeva, Technopolis Group

 

Why should I read this document?  

 

When confronted with the differences between your own market and the market of South Korea you will likely feel that you have to adapt your product/service significantly to make it fit the preferences and expendable income of local people. While many may see this as a challenge this can also proof to be a great opportunity for your company! Adapting to a new market, like Korea, will allow your company to innovate. Not only will operating in Korea lead to new insights to be more successful in South Korea, you will most likely also pick up on ideas to be more successful in your home market. 
This document provides a short overview of innovation aspects, business opportunities and challenges in South Korea. It will also give advice on best practices for starting and developing an innovative business venture, considering Korea’s country context. May it help you to explore South Korea and lead you to innovation and success.

 

Opportunities and tips for innovation and doing business in Korea

 
  • South Korea’s enormous consumer base and dynamic market make the country an ideal place for testing novel products and ideas.
  • The country has a world-class IT industry infrastructure and excellent human resources for the high tech and IT sectors
  • Due to EU-South Korea Free Trade Agreement (2011), many non-tariff trade barriers have been addressed, particularly in automotive, medical, pharmaceutical and electronics sectors. In addition, South Korea is a great location for doing business in East Asia, in particular with China and Japan. 
  • The South Korean government attracts foreign investment through incentives (specified in the Foreign Investment Promotion Act), such as tax support, cash grants and industrial site support.
  • In 2013, the South Korean government introduced an initiative “Creative economy”, which links public research institutions and private sector, focuses on innovative technological ideas and digital economy. Thus, entrepreneurs can enjoy a favourable climate for innovation development and gain various benefits from the initiative. 
  • The growing aging population of South Korea creates a demand for health care services, expansion of the insurance and financial sectors.
  • South Korea is one of the largest automobile innovators and producers in the world. The companies which develop innovative solutions in the automotive industry, such as low carbon vehicles and driverless technology, could get many novel ideas in South Korea. An eco-friendly vehicle programme has been created by the Korean government to support the development of advanced automotive technologies. South Korea aims to be among the global top 4 nations for low carbon and green vehicles.
  • The South Korean government is leading the way in the Asia-Pacific region on green energy with an ambitious low carbon strategy, which offers opportunities for green energy companies. 
  • The South Korean government is currently easing regulations, which hinder the growth of financial technology, and eliminates barriers for e-commerce. As a result, the fin-tech sector is providing favourable conditions for innovators/entrepreneurs.
  • Since the country undergoes rapid industrialisation the agricultural sector has been declining in the last decade. Hence, South Koreans strongly rely on food import, particularly for meat products (especially, pork), oils, chocolate, fruits, nuts and cheese. In addition, ready meals are becoming increasing popular for many South Koreans.

 

On Level 2 you can find information about innovation climate in Korea, while Level 3 will tell you more about business activities in Korea.
 

 

This page will tell you about innovation ecosystem, major technology sectors, innovation and business practices in Korea.

 

Innovation ecosystem 

 

South Korea provides a good environment for innovation and it is rated No.1 in R&D, according to Bloomberg Innovation Index. Its innovation climate can be characterized by four things: (1) high quality processes to produce high quality products, (2) leadership in manufacturing, (3) significant investments in R&D and (4) openness for international collaborations. Limited natural resources triggered the country to look at its human capital as its biggest endowment. Thus, it has invested heavily in education, science and technology.

 

The South Korean government has developed a robust science and technology capacity, and assisted industries to get links with leading research institutions. As a result, innovation in the South Korean economy is primarily driven by the private sector, which accounts for about 70% of the nation’s spending on R&D. 

 

Innovation sectors and technology

 

South Korea’s historical focus on manufacturing has shifted to services and investment in research and development (R&D) of technologies. Technologies within environmental, machinery and health sectors are one of most developed in the world. 

 

The future drivers of South Korea’s economy are expected to be health care and life sciences, energy and environment technologies, and ICT. Significant resources are dedicated to expanding the highly developed health care and life science industry which should support a population that is ageing rapidly. Green energy seems to be a solution to overcome the country’s high dependency on energy import, due to limited natural resources. South Korea aims to hold its position as a global leader in information technology by further expanding its innovativeness and R&D efforts within the area.

 

Innovation culture and practices

 

Most private companies in South Korea are small, family businesses. However, the Korean economy is driven by chaebols, which have played a pivotal role in the nation’s industrialization. Chaebols’ dominance makes it difficult for SME’s with new ideas to grow. The lack of start-up culture is a watch out that may have a negative impact on Korea’s innovative landscape. However, innovation seems key to South Korean companies, as they face increasingly tough competition on the global markets. Therefore, chaebols invest heavily in R&D and innovation. Besides, the Korean service sector has much room to grow and offers potential for innovation. 
 

 

This page highlights major economic sectors and iconic products, shows business trends and explains how easy it is to do business in Korea. In addition, you will find the list of websites, which provide some hands-on information. 

 

What is the country known for?

 

Sectors
The biggest sectors: shipbuilding, electronics, semiconductor, IT, automobile, textile, steel, (petro)chemicals and aerospace. 

 

The service sector in South Korea is the driver of the economy, since it accounts for 59.2%, while industrial and agricultural sectors account for 38.6% and 2.2% respectively.

 

Iconic products 
Integrated circuits, refined petroleum, passenger and cargo ships, vehicles and vehicle parts, (semi-)finished steel, flat displays, plastic products, computers, wireless communication equipment, electrical machinery.

 

How easy is it to do business in Korea? 

 

Based on the World Bank ranking:
 
  Korea EU Average Emerging Markets Average
Overall - ease of doing business 5 30 83

 

South Korea has a very good climate for doing business, which is better than in most European countries. Connecting a warehouse to electricity is quick and inexpensive, the costs of contract enforcement are low, and the associated bureaucratic processes are quite simple, due to facilitated online case filing systems. The efficient and well-established legal system ensures good protection of minority investors. 

 

Korea’s telecommunications system is generally efficient and makes Internet use and maintenance easily affordable. Around 80% of the Korean population is connected via Internet. To further upgrade the ICT infrastructure, Korea is constructing ubiquitous broadband convergence that allows accessibility of multimedia services from anywhere in the country. 

 

Despite trade agreements which facilitate trade, the trading across borders is a bit more complicated than in Europe, due to regulations related to border compliance. There are several rigid import regulations and quality control procedures, particularly for food imports. Note that importers of fresh food should pay a 45% tariff. 

 

Business trends in Korea

 

Before the rise of e-commerce, the South Korean supply chain network had already been developed, due to vital domestic market, good physical and digital infrastructure for cooperation. Due to the growth of e-commerce, the manufacturing sector has received a boost, business-to-consumer (B2C) interaction and customization of goods and services became more frequent and led to diversification of products and novel ideas.

 

South Korea is highly dependent on foreign trade and the EU is South Korea's third largest export market. The composition of EU and South Korea exports to each other are similar, they mostly consist of transport equipment, chemical products and machinery. The EU is also one of the biggest investors in South Korea’s economy. Korea aims to protect and encourage foreign investment by measures such as identical business operations regulations for foreign and domestic companies, external remittance guarantees and tax deduction provisions. The majority of foreign companies in South Korea are involved in high technology or manufacturing sector. The overall feedback of foreign companies about doing business in South Korea is positive.

 

The demand for technologies, cars and automobile parts, and customized services is likely to grow. The rising average income and decreasing poverty rate should increase the size of the luxury market and the demand for goods and services in areas of leisure, education, health.

 

More hands-on info

 

 

 

Bibliography

 
Level 1:

PKF Group (n.d.) Doing Business in South Korea. Retrieved from: https://www.pkf.com/media/131978/doing%20business%20in%20south%20korea.pdf
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Level 2:

Bloomberg. (2017). The Bloomberg innovation index. Retrieved from: https://www.bloomberg.com/graphics/2015-innovative-countries/
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Zastrow, M. (2016). Why South Korea is the world’s biggest investor in research. Retrieved from: http://www.nature.com/news/why-south-korea-is-the-world-s-biggest-invest...
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Dominguez, G. and Mazumdaru, S. (2016). Why innovation is king in South Korea. Retrieved from: http://www.dw.com/en/why-innovation-is-king-in-south-korea/a-19038625

 

Level 3:

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Santander. (2017). South Korea: foreign investment. Retrieved from: https://en.portal.santandertrade.com/establish-overseas/south-korea/fore...
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Schultz, A. (2012). How South Korea became product juggernaut. Retrieved from: https://www.cnbc.com/id/48041792