Though South Korea’s startup ecosystem is relatively new — its first accelerator was launched just three years ago — the culture is evolving quickly. With a big government backing, bold entrepreneurial spirit and increasing FinTech interest, the country’s tech scene is quickly becoming a global force to be reckoned with.
In this edition of PYMNTS’ Weekly Tech Center Roundup, we head to South Korea to see what’s driving the growth of its startup scene, and why investors around the globe are taking notice.
Before we jump into the post, here are a few quick facts about South Korea and its tech scene:
- The estimated population of South Korea is approximately 50.6 million.
- The city of Seoul has a population of about 10.2 million, making it a prime location for new technology adoption.
- South Korea’s GDP per capita is estimated at $25,023.
- The number of startups in South Korea rose to 30,000 as of Jan. 2015.
- Research shows that the country has the fourth highest mobile penetration in the world (83 percent) and the highest credit card penetration (five credit cards per person, on average).
- South Korea topped Bloomberg’s 2015 Innovation Index, gaining the highest overall score across six measurements: research and development, manufacturing, high-tech companies, education, research personnel and patents.
- Korea is considered the world’s mobile commerce powerhouse: Mobile commerce makes up 28 percent of total online sales.
It wasn’t long ago that South Korea launched its first startup accelerator.
Years later, the country was home to more than 30 investors, at least 15 accelerators and roughly 30,000 startups as of Jan. 2015.
“Korean young entrepreneurs finally start going beyond their risk aversion and the traditional mindset associating success with working for one of the industry leaders,” Innovation Is Everywhere reported.
“They are encouraged by the government, which wants to create a ‘creative economy,’ one that favors and encourages young entrepreneurship. Currently, no country in the world has more backing per capita from the government than Korea. In the next three years alone, they’ll put $3.7 billion into startups in the form of grants and other initiatives.”
Earlier this year, the country’s government announced plans to bring more diversity and enhancements to its tech industry by creating an accelerator for startups from around the globe.
The government has pledged nearly $2 billion per year since 2013 to support the local startup landscape. But the K-Startup Grand Challenge program, organized by South Korea’s Ministry of Science, ICT and Future Planning (MSIP), in partnership with various Seoul-based accelerators, marks the first time a specific effort has been made to cultivate and sustain foreign startups.
The end goal is to have more foreign companies set up their businesses in South Korea, which may be more likely to happen as plans for the K-Startup Grand Challenge to become an annual program are in the works.
“Most innovation is borne from diversity — just look at Silicon Valley,” MSIP Director Dr. Chang-yong Ahn told TechCrunch in May. “At this stage, the startup and business ecosystem in Korea lacks a high level of diversity, and the K-Startup Grand Challenge is one step towards creating a more diverse business environment in Korea.”
But the government isn’t the only one looking to build up South Korea’s global tech presence.
SoftBank Delivers A $4.5B Boost
Masayoshi Son, CEO of Japanese telecommunications and internet conglomerate SoftBank Group, said the company will invest 5 trillion won (approximately $4.5 billion) in South Korea’s technology industry over the next 10 years.
A SoftBank spokesman told The Wall Street Journal that, during a meeting with South Korean President Park Geun-hye in Seoul, Masayoshi Son said he wants the investment to support various fields, including smart robots, IoT and artificial intelligence.
Just last year, Korean eCommerce company Coupang announced it landed a $1 billion investment from a SoftBank subsidiary.
SoftBank’s capital will be used to fund Coupang’s continuing investments in end-to-end fulfillment service and same-day delivery operations. The company will also expand its R&D presence in Silicon Valley and Seattle, in addition to Shanghai and Seoul. Coupang has said that it has more than 25 million mobile application downloads and the highest number of active users in Korea, making it the largest player in that country’s eCommerce industry. Mobile sales account for as much as three-quarters of Coupang’s total top line, and the company has said its GMV has been growing at a rate of 80 percent annually.
“SoftBank aims to grow by investing in internet companies around the world and supporting disruptive entrepreneurs who share a common vision to contribute to people’s lives through the Information Revolution. SoftBank looks forward to supporting Coupang as they further revolutionize eCommerce,” Masayoshi Son said at the time.
Establishing The FinTech Bridge
Seoul, South Korea has the potential to become Asia’s top FinTech center, but some believe that, first, the country must build a bridge with other major nations around the world to establish a more conducive regulatory environment.
"From a global perspective, the cooperation in London and other major capitals around the world is evidence that innovation is more readily accepted outside of Korea, giving FinTech companies outside of Korea a clear competitive advantage to create markets for their products or services," Jeffrey Jones, an international lawyer specializing in finance, told The Korea Times.
"It is very sad that we have one of the most tech-savvy populations on the globe, but the legal and regulatory system prevents this population from developing products and services that could create jobs for so many young people.”
Many global FinTech centers, such as Singapore, Australia and the U.K., have made significant efforts to create connections with other cities around the world to help the growth of their individual FinTech sectors.
"These alliances are likely to help with innovation and investment in innovation, although I think that these things take a long time to have any meaningful effect," Mark Yeandle, associate director of U.K.-based Z/Yen Group and author of the Global Financial Centers Index, said.