When it’s a matter of going international, German founders often look to the west. But wrongfully so: South Korea has a lot to offer. With a gross domestic product of 1.65 billion US dollars (2019), the country is currently one of the richest and most modern countries in the world. Especially when it comes to new digital offers, the country’s approximately 50 million Koreans with serious spending power and particularly the companies are extremely open-minded. Roughly one in ten Koreans already uses 5G and 97 percent surf using a high-speed internet connection. Last but not least, South Korea’s government aims to position itself as a world leader in digitalization, which is why it will be investing a good billion dollars in its startup scene and in new online services by 2022.
Additional venture capital is being contributed by corporations such as Hyundai, LG, Samsung and the Shinhan Financial Group. This is something young companies from abroad can also benefit from as soon as they have an office in the region near the capital city Seoul, near Gwangju or in port cities like Incheon or Busan. Another advantage is that due to its location between China and Japan, it’s not only possible to tap into both world markets from South Korea, but also into further growing regions in South-East Asia, especially with new digital offers.
More customers, more open-minded investors
Phong Dao, co-founder of the Frankfurt-based fintech Ive.One, is one person who wants to secure these advantages. He hasn’t been to South Korea yet, but is still in the process of expanding his startup to the country and establishing a subsidiary there.
“The potential in South Korea and Asia is much greater for us than in German-speaking countries,”
was Dao’s explanation for taking the step.
“There are more customers for us there, and the investors are more open to our business model.”
With Ive.One, companies raise and manage capital digitally and look for online participation opportunities for investors. To ensure the flow of funds and the trading of shares, the startup that was founded in 2017 relies on blockchain and cryptotechnology.
“In this field, Germany is a strong front runner in regulatory terms, and while Asia is lagging behind a bit, it is much more assertive when it comes to using these kinds of services. This means we can bring forward the argument of proven technology, sustainability and greater safety there and conquer a new market,”
remarked Dao.
Get to know South Korea at German Accelerator
Much like in European countries or the US, there are also traditions and customs to be mindful of in South Korea that are quite different to those in Germany. Something that founder Dao quickly noticed was:
“As an outsider, it’s difficult to break into the market. You also need someone with knowledge of the language.”
Which is exactly why German Accelerator prepares young entrepreneurs for expanding to South Korea. In the accelerator’s workshops, startups learn about South Korea, its people, their traditions and also make their first personal contacts in addition to assessing the need for their products and services.
“Through the German Accelerator program, we found a US-Korean mentor who helped us take initial steps in the market and even helped us with pitches,”
reported Dao. It was only in September 2020 that he participated in the (digital) program offered by the accelerator, which is funded by BMWi, and immediately came up with the idea to expand to South Korea. All that’s missing now are a few legal documents and signatures for the subsidiary and market launch.
Smart production and solving social problems with robots
Good information and communication networks in the entire country, broadband and high-speed internet connections ensure that new digital services spread very quickly in South Korea – both in companies and among consumers. Communication services like Kakao, mobile shopping, gaming, organizing – it has all been part of everyday life for quite some time now, even in subways or out in the countryside, as is cashless payment. Only one in five transactions are still carried out with actual cash. And it’s the economy above all else that counts on the advantages provided by digitization and has already enhanced various offers with digital services. As a result, South Korea has been topping more than just the Bloomberg Innovation Index for quite some time now. Special support is provided by the (regional) government in these four digital fields in particular:
• Located south of Seoul, Pangyo Techno Valley is where applications involved with artificial intelligence and machine learning are created. Gwangju in the south of South Korea plans to invest more than 300 million dollars by 2025 to locate startups in the city that concentrate on smart systems and services, and that includes their employees.
• Approximately 320,000 robots support various production and service processes in South Korea, and that number is set to double by 2023. The Intelligent Robot Development and Supply Promotion Act specifically supports the development of smart machines, and workers are already being trained in how to work with robots. This is because the country views robotics as a solution for social problems, for example in nursing care.
• In 2020, nearly 26 billion dollars went to the Internet of Things and the networked smart city: Sensor technology and IoT solutions that are ‘Made in Germany’ have a very good reputation in South Korea, are known to help combat traffic congestion and can immediately show what they have to offer in real-life situations.
• According to the International Federation of Robotics, South Korea is the world’s most automated country, and by 2022, roughly 30,000 smart factories are to be built, and about a quarter of them have already become a reality. Startups that develop technologies for intelligent manufacturing are welcomed with open arms and receive the corresponding financial support.
South Korea is banking fully on digitization
Extremely open to new ideas, strongly committed to digitization: South Korea spends 4.5 percent of its gross domestic product on research, development and innovations, and a lot is invested in new proposals in companies as well. The country has made a name for itself around the globe with its creative (consumer) electronics and innovative cosmetics. Moreover, South Korea now also supplies recognized automotive and mobility technology. There is also a growing trend among manufacturers to enhance even hands-on products like lotions and face masks with supplementary digital features. The government stokes this innovative strength not only with financial support, but also with international partnerships and, most importantly, with straightforward founding and visa regulations for companies and their employees from abroad:
“It sometimes took longer to get the necessary documents here in Germany,”
reported Ive.One-founder Dao.
“Once everything is together, we’ll need about two weeks to file our company and have it registered, and I don’t even have to be there in person.”
Most applications can be submitted digitally, and for notarization, it’s sufficient to have a lawyer present locally. And if needed, organizations such as the German Embassy, the Korean-German Chamber of Commerce and Industry as well as their European counterpart can help companies interested in setting up business in South Korea. Additional opportunities for establishing contacts and cooperation are provided by organizations and research institutes, such as the Max-Planck-Gesellschaft or Fraunhofer Gesellschaft, who have been making use of the excellent climate for innovation in South Korea for quite some time and collaborate with local companies, scientists and researchers.
Personal contacts and trust are important
Despite being so open to new technologies and also to offers from abroad – people in South Korea are still very traditional in much of how they think and act. And that influences the economy. Establishing a business here requires patience and time. Age and experience are highly respected, which is why elders have a significant influence and set the tone of discussions. This fits in with the fact that large parts of South Korea’s economy are strictly arranged in hierarchies. Both in companies and in economic infrastructure, the economy is defined by the big five: Hyundai, LG, Lotte, Samsung and SK Group.
These “chaebols” are, each in its own right, quite highly diversified into sub-societies that collaborate closely and conduct business with each other. Above all, this is a sign of mutual trust. It is true that SMEs and startups are now gaining momentum, a development that the government is sponsoring heavily. But the conglomerates remain stable, because the business relations have proven themselves on all levels and everyone knows everyone else.
Meeting in person is considered safer and more reliable than digital communication. Even in South Korea, working from home still isn’t widespread. And business relations in particular – this also applies to private consumption – usually develop through personal references. Acquaintances set up contacts and vouch for their quality. Which is why founder Phon Dao appointed his mentor as his main proxy contact in South Korea. He is familiar with potential customers as well as sources of funding and investors. Roughly half of South Korea’s economic power comes from the chaebols, and they form partnerships with local companies, which also makes it difficult for outsiders to enter the market. Contact with locals or also cooperation with small companies or organizations shorten your path to success. Last but not least, they also bring along the necessary language skills. Phong Dao remembered:
“During the first pitch for venture capital, I was the only one in the round who presented in English. It quickly became apparent that we needed someone for Korean.”
Increase efficiency and streamline processes
That being said, both the chaebols and SMEs pay attention to innovative services and products, especially when they increase efficiency and streamline or accelerate processes. The startup scene is strong as a result and is greatly supported by the big players: 33,000 young companies are registered, among them unicorns such as the search engine Naver, the online store Coupang and the communication and information service Kakao. This is where the necessary digital specialists and experts are developing. At universities and in companies as well, intensive research and development work is being carried out on digital technologies. The chaebols and SMEs are gradually qualifying their employees in working with smart systems, automation, robots and big data, which makes it possible to quickly build powerful local teams.
Phong Dao is in the process of expanding his founding team. He even feels confident that Ive.One will be able to hold its own against the local competition in South Korea:
“We have the more reliable, and therefore more secure technology. We’ll be able to score points with that in South Korea. And even though nearly everything works digitally in South Korea, I’m really excited about flying there for the first time to finally meet the team in person.”
And perhaps the basic customs in South Korea won’t end up being all that different from those in Europe?