If you build it, will they come?
That was the belief of the South Korean government as it heralded a “creative economy drive” in 2012 to foster a startup scene nearly from scratch. Already championing one of the world’s fastest internet speeds and smartphone penetration rates, Korea has advertised its market-leading corporations like Samsung and Hyundai and huge markets for games, beauty products and ecommerce as providing a test bed to make Seoul the tech hub of Northeast Asia.
On paper, the list goes on. Yet South Korea is usually overlooked for other markets like Singapore and Hong Kong. In real life, conditions are not so rosy. There are deep language and cultural barriers that hinder foreign companies of all sizes from coming in and even local tech giants like Kakao, the leading messenger maker, from breaking out.
One key reason is the tech industry lacks a crucial dimension found in Silicon Valley or Hong Kong or Singapore: diversity. “Every time I visited those [other tech hubs], I realized that … mixing people from different backgrounds, different races and different experiences helps them to have more innovative thinking,” said Lim Jung-wook, managing director of Startup Alliance, which connects Korean start-ups with other organizations, told me in 2015.
Korea seems to be heeding this call. In recent years, the government has slowly ramped up startup support for foreign entrepreneurs, in the hopes to diversify the local startup scene and to help its own startups go global. One program hopes to attract new talent from abroad to set up and grow their business on South Korean turf.
It’s called the K-Startup Grand Challenge, which offers to foreigners free flights, office space, stipends during the program and even cash to take part in the interview process. According to organizers, 70 percent of the 40 startups that participated last year ended up incorporating in Korea, while 16 of them are still doing business in the country. This year, the program is expanding to bring in 50 startups, especially those in advanced tech like big data and Internet of Things.
Reactions to the effectiveness of such programs are a mixed bag. On one hand, it may be attracting talented entrepreneurs who wouldn’t have considered Korea before. “I probably wouldn’t have come to Korea without that challenge,” said Ryan MacArthur, founder of cybersecurity startup Traversal Networks and a participant last year, who started researching Korea because Grand Challenge, unlike private programs, doesn’t take equity.
But running such a program highlights the myriad unique issues that foreign entrepreneurs face in entering Korea. Some entrepreneurs realized they needed language support full-time. Networking events would be overly formal — Korean style. Organizers and entrepreneurs claim mismatched expectations about what such a program could provide. And as a government program, the processes appeared bureaucratic — contrary to the way fast-acting entrepreneurs especially from the West are used to operating.
“Since the people running it are not entrepreneurs, all they can do is check the box. In terms of startup support, they just don’t have that DNA,” added MacArthur.
Nonetheless, those running the program on the ground took a genuine interest in making sure the startups succeeded in Korea, said Hannah Waitt, CEO of K-pop media startup moonROK. “I got the feeling that yes, this is a government project … but never felt that it hindered our ability to accomplish anything,” she said
The program also helped them network with some big companies that they wouldn’t have met otherwise, such as leaders in automobiles, transportation, music and entertainment as well as local investors, not to mention the other participating startups from around the world.
“Some of the complaints you might hear even from me and other entrepreneurs is we’re being whiny entitled brats. You [entrepreneurs] should go to Korea and start your own business. It’s not their job to help you,” MacArthur said. The job of a program is to strip bureaucracy from the process to set entrepreneurs up for success, which could potentially be improved in the second iteration, he added. “I would say give [entrepreneurs] visas when they land, help make introductions to corporates, and get out of their way.”
Draconian Labor Laws
Despite their intentions, such startup support programs have their limitations. Beyond the bureaucratic and language hurdles, draconian labor laws have burdened businesses of all sizes. The government has created a visa acquisition program called OASIS to help foreign entrepreneurs bypass the requisite to invest $100,000 in order to obtain a visa. Yet some entrepreneurs have complained that the program is redundant and bureaucratic, taking three weeks to six months to complete the requirements.
Furthermore, starting up and scaling up face their own unique challenges. Another law requiring companies to hire five Koreans for every foreigner it supports hits small businesses hard, and foreign startups harder.
DJ Kim of Korea’s National IT Industry Promotion Agency (NIPA), which runs Grand Challenge, says the program speeds through the OASIS requirements as fast as possible, and his agency has recently gotten permission to dole out visa recommendations for entrepreneurs to bypass the program altogether. This year the government raised the possibility of lifting the visa quota specifically for startups, allowing them to more freely hire the talent they need. But the hiring law is an ongoing battle that Kim hopes can be tackled by the new president, Moon Jae-in, who entered office this month.
Red Ocean, But Prepare To Swim
In the end, Korea is not for everyone, and nor are such programs. Eugene Kim, CEO of SparkLabs, one of the participating accelerators, said some startups are unprepared to come into Korea with a localized product. That is a pitfall for not only small foreign startups, but also large global companies aiming to scale a one-size-fits-all model.
Several other teams may make the mistake of sending someone to Korea who doesn’t speak Korean to try to have meetings with Korean companies. “When you want to enter any market, you want to have a local team, someone who can know the market and work on the ground,” Kim said.
He says successful startups have an aggressive plan ready for the Korean market, and have a meaningful goal to expand in Korea or greater Asia. “It’s not just a program for a free plane ticket and some money to hang out in Asia. They should be serious about doing business in Korea,” Kim said.
Even a prepared team might not be in the right market. Waitt saw some hardware startups retreat, while MacArthur — who failed in Korea — said enterprise startups’ products would be difficult to prove within a few months. He also saw a lot of early startups seeking basic life support, with no knowledge of how to operate in Korea. There is only so much support such a program can provide. “There’s no business being an early-stage company expanding into a foreign country where you don’t speak the language,” he said.
Yet some argue those hurdles overshadow a potential unparalleled in other Asian markets like Singapore or Hong Kong.
“I still think Korea gets [unfairly criticized] a lot as only K-pop or too hard for foreigners. There is one thing that a lot of people don’t know about,” added MacArthur. “Korea has 50 million people and it’s a homogenous culture, so if you can break in as a consumer product in Korea … that’s an interesting place for a startup to be.”
Nathan Millard, CEO of G3 Partners, which consults Korean startups and government on marketing, notes that a lot of entrepreneurs from emerging economies are finding Korea’s IT infrastructure to be an ideal test bed. “For companies from the Middle East, Africa and Asia, where the infrastructure can’t support their product, they simply can’t roll out their services in home country because the infrastructure doesn’t exist,” he said.
The adoption of emerging financial technologies such as blockchain and ethereum, demonstrated by Samsung SDS’s recent commitment to the Enterprise Ethereum Alliance and deregulations on cloud computing, signals that Korea is ready for fintech innovations to bring its archaic banking system based on ActiveX into the present. Other startups have found higher quality and reliability from manufacturers in Korea versus places like Shenzhen, China, while marketing startups can latch onto Korea’s booming ecommerce industry.
Waitt, who hopes to connect with investors who already understand the K-pop phenomenon’s magnitude, noted that Korea is a trend-conscious society not only in fashion and pop culture, but also in tech — so even if Korea is not known as a startup or entrepreneurial hub, it’s a great market to test out a product or service.
“Korea’s startup investment is a relatively new thing for the country, which is dominated by conglomerates, so that makes it a little scary environment in which to start a business that are hard to compete with,” she said. “But if Korea continues to invest in cultivating small businesses here and the startup ecosystem, then it will slowly but surely develop into more of a startup hub in Asia.”