Why Should Companies Do Business in South Korea?
With a rapidly growing economy and GDP expected to reach $1.7 trillion this year, South Korea is a prime setting for companies to flourish. Along with its rich culture of entertainment, cuisine, and fashion, South Korea provides various other opportunities and incentives for companies to establish and do business internationally. Beyond their strong economic environment, the Korean government has favorable laws and incentives to encourage companies to launch and succeed. Furthermore, South Korea’s geographical location, innovation, and business climate positively impact growing businesses. While there are still challenges for companies to overcome, South Korea’s economy, incentives, and culture offer a firm foundation for startups to thrive.
Having the 4th largest economy in Asia and the 10th largest in the world, South Korea’s free-market system, democratic government, and hardworking population set the stage for startups to be successful. However, the government of South Korea sets policies that directly benefit companies. For example, the Korean government invests an average of $2 billion per year in startup companies. To further support startups, the government minimizes legal risks for them and offers second-chance startup initiatives that decrease the loss incurred by failure. South Korea is a prime location to build startups because they endorse tax breaks for angel investors and venture capital firms, along with giving tax benefits for mergers and acquisitions in the research and development and technology sectors. They also grant startup-specific visas for foreign entrepreneurs and employers. Lastly, South Korea’s intellectual property office allows some smaller companies that fit the requirements to apply for discounts on patent fees to make the cost more startup-friendly.
Additionally, in 2017, the Korean government created the Ministry of SMEs and Startups (MSS) to support the growth and security of startups. MSS led to the development of several programs that foster networking, training about entrepreneurship, and business development programs. They also facilitate international relations to grow in global cooperation through trading, knowledge exchange, and investment. On the financial side, MSS will support SMEs and startups through assistance programs, funding initiatives, loan guarantees, and venture capital investments so that companies have enough capital to compete in the market. Specifically, one of the initiatives funded by the MSS is the K-Startup Grand Challenge, which invites promising international startups to Korea for an acceleration program. In this program, the chosen startups receive initial funding, living accommodations, office space, and access to mentorship with specialists to help launch them successfully into the Asian market. Other MSS programs address different areas, including productivity and management, stock exchange, specialized training and workshops, and access to resources and support centers, all with the primary goal of fostering business stability and success.
Next, the geographical, technological, and cultural factors also demonstrate why Korea is a prime location to conduct business. Being positioned close to many major trading countries like Japan, Russia, and China, Korea’s geographical location helps facilitate efficient distribution during international trade. As South Korea heavily relies on imports and exports, its extensive transportation systems, especially the Seoul Incheon Airport, allow for the effective movement of goods on a broad geographical scale. In addition to Seoul being the capital and major technological and economic developer, cities like Busan, Incheon, Daegu, and Daejeon also make major contributions to the South Korean economy.
Apart from its valuable location, the emphasis on technology and innovation has helped South Korea grow to where they are now. In 2021, South Korea was named the most innovative country in the world, ranking first place on the Bloomberg Innovation Index, excelling specifically in patent activity, manufacturing, and research and development. South Korea embraces innovation quickly, often being the first to try new technologies, which is evident in their major tech companies such as Samsung, LG, and Hyundai. They are also renowned for having one of the fastest internet networks in the world, with 98% of individuals using the internet, according to statistics from the World Bank. However, part of the reason why their cutting-edge innovation is growing so rapidly is the work ethic embedded in the culture. Because Koreans place such an emphasis on education, students are trained at an early age to prioritize academic performance and strict discipline. Since higher education is regarded so significantly, students gain expertise along with a work ethic that transfers to the workplace. This combination of geographical location, technological prowess, and diligent work ethic solidifies Korea's standing as an exceptional destination for business opportunities.
While there are multiple benefits to building a startup in South Korea, there are still challenges within the market. On both the supply and demand side, companies must be aware of various obstacles that many startups are currently facing. Because South Korea offers so many benefits to startups, more companies are beginning to move to Korea for business. However, this means that the market for startups will become more competitive and companies will not only have to distinguish their products and services to survive in the market. This influx of startups also indicates that businesses will have to compete against others to receive adequate funding. Yet, this problem can be addressed by exploring alternative funding solutions, like investors, crowdfunding, or governmental programs.
Korean startups also put a heavy emphasis on catering to the domestic market. Although domestic consumers are important to establish a company, too strong of a domestic focus can make it difficult to scale globally and make an impact beyond Korea. Moreover, beyond the language barriers of working in foreign countries, networking internationally and navigating a different legal system poses an additional challenge that startups should be equipped to navigate. Despite these trends, companies can prepare themselves to succeed in South Korea with thorough research, strong international connections, and a flexible attitude.
Through examining South Korea’s stable economy and cultural factors like location, innovation, and education, it is evident that the country is an ideal destination for startups to flourish. While new companies will face inevitable difficulties, South Korea has valuable resources in place to support startups and make the transition process smoother. Ultimately, by leveraging the country's economic environment, government support, technological prowess, and cultural values, startups can thrive in South Korea and beyond.
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BLT & Partners has the most extensive business network in Korea and a team of top-notch professionals, including IP attorneys, lawyers, financial experts, marketers, and more. If you’re looking to enter the Korean market, we have everything you need to succeed. Contact us today to learn more about how we can help you achieve your goals in Korea.