National business conglomerates or chaebols are family-owned corporations in South Korea. They have played an important role in transforming South Korea’s market from a humble agrarian economy into one of the world’s largest economies. With the chaebols leading the development of electronics and automobile industries, government initiatives to foster innovation and promote fast-growing enterprises in these sectors have been a priority. As a result, chaebols such as Samsung, LG and Hyundai quickly emerged to dominate local markets and started competing on a global scale enabling a new phase of growth characterised by technological leadership and innovation with a reputation for high-quality and leading-edge products.
Background: Chaebols often consist of many diversified affiliates. Their success has been based on close collaboration with the government: decades of subsidies, loans and tax benefits have helped them become economic pillars in South Korea. Currently, the top five chaebols represent more than half of the South Korean stock market’s value. Chaebols also drive much of South Korea’s investment in research and development and employ people around the world.
Since the Korean War, South Korea has become one of the world’s leading economies. Forward-thinking government, regulatory efficiency, market openness and the willingness to embrace foreign investment has made doing business in South Korea a positive and lucrative choice.
Background: According to the latest World Bank annual ratings, South Korea is ranked fifth in the ease of doing business. The World Bank predicts that South Korea will maintain or improve its ranking in the upcoming years. As a result, many foreigners are interested in starting a business in South Korea.
Though there are a good number of start-ups in the electronics sector in South Korea, they generate substantially less revenue than created by the electronics giants- according to the Korean Venture Capital Association (KVCA). Nevertheless, there are still many valuable opportunities for start-ups in the sector.
Background: The South Korean economy started off highly dependent on the electronics conglomerates such as Samsung and LG. These organisations started as electronics manufacturers in the 1960s and 1970s, and with the support of government policy were able to transform the South Korean electronics sector from low-cost and low-quality to high-value and reliable. South Korea's burgeoning electronics industry is fueled by an emphasis on acquisition and adoption of fundamental technology, followed by quality control at a later stage.
The modern shipbuilding industry is dominated by East Asian countries, with South Korea at the forefront. South Korea's top shipbuilders have achieved significant success in this industry, which requires advanced technological input, massive capital and skilled manpower. The public-private bodies in South Korea support both foreign or national companies, by providing the required manpower and capital, making this industry lucrative, favourable and highly sought after.
Background: Historically, the leading country for shipbuilding was Japan in the 1950s but South Korea has gradually managed to surpass China and Japan to become the leading ship manufacturer worldwide. In the 1970s, as the chaebols expanded into heavy industries, producing oil tankers and oil drilling platforms, South Korea became a leading producer of ships. Hyundai was the country's largest shipbuilder, which developed a 1-million-ton capacity drydock at Ulsan. The industry slowed down for some time in the 1980s due to a shipping crisis caused by rising oil prices, but after the oil price shock ended, the shipbuilding industry in South Korea quickly expanded again.
Despite increasing competition, South Korea still boasts a strong presence in the world of ship manufacturing providing many business opportunities.
South Korea is a leader in global innovation. Although the private sector provides the majority of R&D investment in South Korea, the government recognises the importance of R&D and has enacted needed policies and funding. These innovation policies are regularly adjusted to the changing market, as seen in the recent development. The government has prioritized R&D funding, highlighting the importance of researchers to the economy.
Background: South Korea is widely recognised to be a top global player in innovation. In the Bloomberg Global Innovation Index 2020 - which covers productivity, R&D intensity, manufacturing capacity, high-tech density, higher education efficiency, researcher concentration, and patent status - South Korea ranked 2nd among 60 countries. South Korea is also widely known as being one of the Four Asian Tigers in the world. On an annual basis, South Korea invests 4.3% of its GDP in research and development.
The construction industry in South Korea has always been profitable and a source of foreign income. The industry is expected to play a big role in creating smart cities and revitalizing the urban economy. The government has kicked off the Urban Renewal New Deal project and pronounced the target regions across the country. Thus, the increasing demand for construction projects is expected to bring about interesting players from both national and international backgrounds with ample business opportunities.
Background: The construction industry has traditionally been a strong export market for South Korea, although the mix between foreign and domestic projects has been changing. The overall market is profitable, generating total revenue of €125bn in 2019. The activities include residential construction, commercial and industrial construction, and civil engineering services.
Investing heavily in R&D was one of the chaebols’ strategies for businesses in the private sector to become global technology leaders. This brought South Korea to the forefront of innovation.
Background: In 2019, the private sector spent over €50billion on R&D in South Korea, contributing 77% of the total R&D investment in the country. In the first three quarters of 2020, notable contributors to R&D expenditure were Samsung with around €12 billion spent on R&D, along with others like LG, Hyundai Motors and SK Hynix, which spent more than €7 billion each.
Patents can be an indicator of how well a country is doing in terms of R&D and technological advancements. The consistently increasing number of patents registered by South Korea reflects the technological breakthroughs it has achieved and the benefits to the South Korean economy. It also highlights the hospitable climate for foreign investors who are interested in R&D.
Background: South Korea is an innovation-driven economy. According to the World Intellectual Property Indicators (WIPI) report, in 2019, South Korea had the highest number of patents filed - with 4.3% of the total patents. In 2020, it was ranked fourth in the world in terms of number of patents and utility models applied with over 125,000 patents. To provide further perspective, South Korea is above Germany and France, which are some of the highest patent manufacturers in Europe. In 2020, Germany was ranked fifth in the world with over 46,000 patents with the highest patent growth rate amongst the European countries. In addition, France had the second-highest patent growth rate among European countries in the same year, with over 14,000 patents.
How do chaebols play a role in the South Korean market? What are the most attractive industries for foreign businesses? Find your answers in our quiz about innovation in South Korea!