The UAE and Saudi Arabia are both courting and engaging with South Korea’s startup ecosystem in a bid to attract its startups to their own countries and enable a transfer of knowledge and technology. Incentives have been laid out, a joint venture fund was launched in Saudi Arabia and the DIFC recently signed an MoU with Seoul’s government to drive financial service innovation and foster collaboration.
After spending a week in Seoul, here are some of the lessons that Wamda learned from South Korea’s startup ecosystem and what has made it so attractive to the GCC. According to Startup Genome, South Korea’ ecosystem is valued at $211 billion, far higher than the global average of $34.6 billion. The country boasts 14 unicorns at the moment and counts 132 exits from 2018 to 2022.
Powerful and engaged corporates
Perhaps South Korea’s biggest advantage is the dominance of several corporate giants, most of which are family-owned. In fact just three companies - Samsung, LG and Hyundai account for 66 per cent of South Korea’s economy. These companies, which benefited from cheap government loans when they were first established, have helped to shape South Korea’s economy and allowed the country to become a powerhouse of consumer technology, manufacturing and hardware engineering. They provide not only the ecosystem of research and development (R&D) for technology but also the training ground for many young Korean graduates.
The best entrepreneurs are those who have several years of experience working in the private sector before launching their own ventures and these conglomerates provide them a platform to do this through a globally-relevant lens. These companies have also become active stakeholders in the country’s startup ecosystem, providing investment, support and crucially, exit opportunities. In the Middle East and North Africa (Mena), many corporates are still wary of working with startups, seeing them more as competition than a potential partner. In South Korea, these big conglomerates recognise the benefits and the power of working with startups to remain competitive. Samsung, for example, opened an AI incubator in Gwangju earlier this year to support startups in the sector, a move that can help it bolster its own AI capabilities.
Culture of R&D and education
According to the World Bank, South Korea spends about 5 per cent of its gross domestic product (GDP) on R&D, making it the fifth largest spender on R&D in the world after the US, China, Japan and Germany. This level of investment has allowed South Korea to develop a robust deeptech ecosystem, particularly in areas like AI and biotechnology. Regionally, R&D spend is abysmally low, with most countries in Mena spending less than 1 per cent of their GDP on it. The ability to create and develop innovative technologies is one of the key ingredients in building a sustainable and competitive startup ecosystem that can support the development of unicorns. Very few “copycat” startups are able to scale to a global level and compete without unique IP.
Moreover, the pool of talent in the country is very-well educated. The government continues to invest heavily in education and several of South Korea’s top universities are rated highly in global rankings.
Strong government support
The government has been the driver of many startup initiatives in the country. In the same way the GCC wants to diversify its economy away from oil, South Korea wants to be less reliant on its corporate giants, particularly for job creation. It established a fund of funds (FoF) that proved to be a catalyst for the domestic venture capital sector, its regulations and policies tend to favour startups and it has established several technology parks to attract different stakeholders. Even COMEUP, the startup conference Wamda attended, was initially launched by the government, before it selected a private company to take the lead. For some in South Korea, the government has struck the right balance between being supportive and knowing when to take a step back, however for some investors, the ecosystem is still highly government-led with a need to diversify its pool of LPs instead of relying on the FoF.
Fear of failure
One issue that many countries in the region face is the cultural fear of failure, which prevents many a great mind from venturing into the startup space. South Korea’s fear of failure culture is perhaps even more pronounced, with the majority of people preferring to work in stable private sector jobs and climb the corporate ladder. The government has helped to shift attitudes through the second chance startup initiative, which helps founders minimise the cost of failure and help them launch another startup with the help of mentorship and incubation.
Scaling beyond its own borders
Korean founders build for the local ecosystem. While their technology is considered to be of a very high standard, few have managed to scale globally. When they do, the initial target is the US, then perhaps Singapore, usually with the support of government-led scaling initiatives. To encourage startups to go beyond Korea, the government plans to launch 10 startup support centres around the world by 2026 to provide a soft-landing for expansion.
Part of the issue is communication. Few South Koreans feel entirely comfortable speaking and communicating in English. In fact, almost all of the pitches at COMEUP were in Korean, despite a global audience in attendance. Such cultural and language barriers present one of the biggest hurdles to South Korea’s startup ecosystem, in both scaling and attracting foreign talent and investment. By contrast, leaders in Mena have done a better job of making their countries more amenable to global talent and attracting foreign startups, however, we lack the initiatives and programmes to support regional startups to scale globally.