Draft
Policy Recommendation Paper
Creating U.S.-Korea Partnership in Innovation
and Entrepreneurship
Ryan Sunhak Cho
EXECUTIVE SUMMARY
Korea’s economy is facing an innovation huddle. China is catching up in key
sectors that Korea has been competitive. Korea’s GDP growth rate has continued to
decline, as its key industries are stagnating. In light of such challenges, Korean
government has been pushing forward with Creative Economy Initiative to facilitate
startups leveraging the country’s innovative resources in conglomerates, universities,
and SME’s.
Even more challenging for Korea is that the country lacks serial entrepreneurs
and innovation community builders. It has a relatively small venture investment
community, and the government has not been able to solve the problem of securing
successive investments for startups. Startup incubation model is still at its infancy, and
the entrepreneurs have few mentors and successful role models to benchmark after. A
relatively small domestic market hampers the growth of emerging companies as well.
The success of the Creative Economy Initiative relies on solving these puzzles, in
addition to coordinating different stakeholders in the innovation ecosystem. Proentrepreneurship agencies, regulatory agencies, incumbent industries, and lawmakers
all have different stance in nurturing innovative startups.
This report propose to establish the Korea Innovation Center(KIC). The KIC would be
positioned to undertake a cross-border entrepreneurship platform that provides a
strong environment to build startups that operate in the global market. The KIC is a
network of eight field offices in key global entrepreneurial communities, coordinated by
a HQ office under Korean National Research Foundation. By engaging with
entrepreneurship ecosystems domestically and internationally, the KIC will be able to
provide necessary support for Korean entrepreneurs and SME’s, as well as American
startups and investors. The KIC would develop in three phases:
•
Building partnership with the key innovation partners in the U.S., in order to
identify potential strategic alliance in innovation and entrepreneurship.
•
Creating small successes by identifying firms that are likely to succeed with a
little push, and serving as an enabling platform to identify, nurture and support
promising startups, with the support from the U.S. network of experts and
entrepreneurial communities. • Scaling up to become a multi-sector cross border entrepreneurship platform, with
Entrepreneurship Training Program, Startup Accelerator Program, and SME
Globalization Program The Korea Innovation Center would provide Korean entrepreneur community
with a platform to expand into global market. Competent Korean entrepreneurs and
startups would be able to leverage the KIC’s network of experts and investors, as well as
to find opportunities to create strategic alliance. Korea’s previous policies have had
mixed results, largely because of government-driven unilateral approaches to
entrepreneurship. The KIC would be more connected, more decentralized, and more
dependent on private expertise in advancing innovation. By mobilizing stakeholders,
and by helping identify the synergistic partnerships, the KIC would make a contribution
to Korean economy that is in dire need to pivot its national innovation strategy
INTRODUCTION
Over the last 50 years, the Republic of Korea has recovered from the ruins of the
Korean War, and the nation has joined the ranks of major industrialized economies.
Nominal GDP of 8.9 billion USD in 1970 has grown to more than 1,129.6 billion USD by
year 2012. From a nation striving for subsistence, Korea has evolved into 14th largest
economy globally, and it is word’s sixth-largest exporter after China, U.S., Germany,
Japan, and Netherlands. Korean companies’ leading market shares in key industries,
such as shipbuilding, semiconductor, displays, smartphones, and automobiles have
become the case studies in business schools. Recently, Bloomberg ranked Korea as the
most innovative country in the world three years in a row.1
1 Bloomberg Innovation Index 2016
2
Figure 1. Korean Economic Growth over the Last 45 Years
Despite these successes, the country is facing serious problems. Globally, Korea
finds itself increasingly squeezed by its neighboring economic superpowers, China and
Japan. A fast-follower strategy has enabled Korea to be on par with Japan in several
industries, but Korean companies are now getting more paranoid of Chinese
competitors catching up with, if not surpassing, Korea’s innovative capacities.
Domestically, the country is at a crossroad. Its GDP growth rate has been declining, and
is projected to further decline in the future. Korea Development Institute anticipates the
growth rate to fall below three percent over the next five years. Furthermore, its key
export industries are declining in their growth rate as well. Korea’s manufacturing,
chemical, heavy industry, and electronics conglomerates, once touted as impressive
portfolio of complementary businesses, are stagnated in terms of their growth, and some
of them have became a debt burden for the national economy.
A number of experts believe that the main cause for such stagnation lies in
increasing organizational bureaucracy2 and diminishing entrepreneurship among
leading companies3. As the globalization picks up speed in reducing barriers to world
markets, large hierarchical conglomerates will face surmounting challenges, as agile
entrepreneurial companies gains global competitiveness. Korea’s key challenge is
mobilizing innovative resources in the Small and Medium Enterprises(SME) that are
dormant for decades. This is essential not only for the success of the SME’s and
2 Korea Chamber of Commerce and Industry and McKinsey and Company(2015) Report on the Diagnosis on
Organizational Health and Corporate Culture of Korea
3 Author’s interview with Sangwon Lee, Former President of Samsung Electronics.
3
domestic economies, but also for infusing ideas and innovative business models to
larger companies. While the global economy is increasingly led by new generation of
innovative companies, Korean economy is largely populated by conglomerates.4 In this
regard, OECD has continued to recommend Korean government to support small and
medium-sized enterprises by nurturing startups and early stage firms, in addition to
streamlining government programs for SMEs.5 The innovative performance of a
country depends on its actors producing, distributing, and applying various kinds of
knowledge. A collective system of knowledge creation by the actors is critical, as
organizational incompatibility or performance mismatch among the actors could be
damaging to the organizations involved.6 The key is to create innovative ecosphere
that interlinks large corporates, SME’s, and academic innovators.
In order for the country to enhance its innovation process, Korea needs to foster
collaborations among different organizations, and among different technological sectors.
However, stakeholders engaging in Korea’s innovative economy are working in silos.
Korea’s National Assembly Budget Office, after an extensive review on national
innovation system, pointed out that there are very little collaborations among
communities, and innovative and entrepreneurial ideas are often dismissed at their
infancy.7 The culture of bureaucratic, stability-seeking nature of large enterprises
permeates through the business community, and such an atmosphere diverts top talents
to either conglomerates or startups abroad.
The Park Keun Hye administration has recognized these challenges, and
emphasized “Creative Economy Policy” as its number one national policy priority. The
Korean government is pushing forward with Creative Economy Initiative where
“ingenuity of the people, coupled with Korea's strength in science, technology and ICT
will deliver new jobs and added value.”8 One of major pillars encompassed by the
initiative is to facilitate startups and depart from the current economic structure that
relies heavily on large companies. Directed by the Office of the President, the new
Ministry of Science, ICT, and Future Planning(MSIP) worked with local governments,
conglomerates, universities, and SME’s to establish local innovation clusters in 17 cities
across the nation. 17 Centers for Creative Economy and Innovation(CCEI) provide
aspiring entrepreneurs with one stop service from ideation to commercialization stages
to support startups in R&D, marketing and global expansion, and linking them with
companies for possible supply chain participation or M&A opportunities, and with
universities and federal labs for sourcing technologies and entrepreneurial talents.
4 For an example, Samsung Group is responsible for 20% of South Korea’s National GDP.
5 OECD (2016) Korea 2016 Economic Survey
6 OECD (1999), Managing National Innovation Systems, OECD Publishing, Paris.
7 Gilhyun Yim (2015) Evaluation of National Innovation Policy, National Assembly Budget Office
8 Ministry of Science, ICT, and Future Planning annual report 2014
4
Figure 2. 17 Regional Innovation Clusters centered around CCEI
While the Creative Economy Policy was able to overcome initial skepticism and
has begun to create consensus at the federal and local stakeholders, a couple of key
challenges remain. Despite being the 14th largest economy in the world, Korean
domestic market is inherently small, and Korean companies still depend on export
market for its economic growth. Furthermore, Korea lacks serial entrepreneurs and
innovation community builders. A number of U.S. Experts advised President Park to
complement the “push” strategy of Creative Economy Policy with “pull” strategy by
creating partnerships with the U.S. Innovative ecosystem.9 This report provides
recommendations for the global engagement aspect of the Creative Economy Policy by
leveraging newly established Korea Innovation Center(KIC). Specifically, the report
identifies key issues of Korea’s entrepreneurship policies, reviews potential policy
opportunities, and suggests structuring KIC as a bridging organization that connects
innovators of the U.S. and Korea. Ultimately, creating mutually benefiting partnerships
that create opportunities on both sides would be the key to accelerate aspiring Korean
entrepreneurs to global stage.
9 In a round table discussion led by President Park in May 2013
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Overview of Creative Economy Initiative
In the face of pending national challenges, “Korea is pushing ahead with a creative
economy initiative to generate new markets and job opportunities by incorporating
individuals’ creative ideas into science and technology and facilitating convergence
between different industries as well as between industries and culture.”
- President Park
The current administration has heightened the level of priority of innovationdriven economic policies, in order to foster the innovation and new engines of
economic growth that will drive Korea’s future prosperity.
The creative economy initiative has three pillars;
Entrepreneurship : Creating new markets and jobs by enabling innovative
ideas to business opportunities
Collaboration : Fostering cooperation and convergence toward creating new
industries that will drive its future growth and competitiveness
Structural Transformation : Removing regulatory, structural, educational,
and cultural obstacles that constrains Korea’s innovative capacity
BACKGROUND OF POLICY
The Creative Economy Policy is intended to expand and strengthen local
innovation communities. The office of the president has empowered MSIP, the agency
responsible for this policy, to organize interagency and cross-industry collaborations,
such as public-private partnerships. These partnerships at the federal and local levels
have grown in numbers. They are supported by the Committee for Creative Economy
Implementation, which is composed of business leaders in different sectors and related
government agencies has been creating channels of communications among businesses,
ministries, and local governments. Three presidential advisors have been
communicating with startups, SME’s, and other innovators on a weekly basis in an
effort to remove barriers to entrepreneurship. An ad hoc committee was established
within the National Assembly to streamline accompanying amendments in national
rules and regulations. As a result of these efforts, the number of startups and
investment is on the rise.
6
Figure 3. Rising Trend on Startups and Start-Up Investment
Problems
Government initiatives in creating collaborations and abolishing regulatory
blocks have helped to create new startups and investments by lowering barriers to entry
for ventures. However, despite a series of concerted efforts, they have yet to address
crux of the challenges against establishing innovative ecosystems.
Relatively small venture investment community
CCEI and government seed funding programs have made it significantly easier to
start a tech-startup. However, they have been unable to solve the problem of securing
subsequent investments, which has been a major challenge for the entrepreneurs. There
are an adequate number of initial funding from public and private programs. If
entrepreneurs can demonstrate business models with potential growth, they have
usually received initial funding with amounts ranging from 27,000 to 63,000 USD.
However, raising subsequent funding has been the biggest hurdle for start-ups.
According to McKinsey and Company, angel investment is 44% of the entire start-up
funding in the case of the United States, whereas in Korea angels make up only four
percent of the total investment. Furthermore, venture capital community in Korea has
not matured fully. Annual venture capital investment has reached two billion USD in
2014. However, a majority of the venture capital focuses their investment in series B
investment, where the startups managed to get tractions in their markets. A limited
number of seasoned investors has resulted in series A investments that are difficult to
obtain, especially for startups with non-conventional business models or non-traditional
technologies. Series C investment opportunities are also scarce, because of the financial
constraints of the local VC’s and limited presence of global VC’s in the Korean
investment community. This lack of investment cycle creates additional concerns, since
it takes longer for Korean startups to exit in the form of IPO or M&A. Compared to
average five to seven years for an average U.S. Startup to make a successful exit, Korean
startups have to endure 12 years on average.
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Startup Incubation at its Infancy
In the United States, start-up incubators and accelerators have been making
significant contributions to increase survivability of the start-ups, by providing
mentoring, networking, professional services, and even financing. There are several
world-class incubators and accelerators in Korea. However, most of them are still in
their early stage, and many operating managers and staff do not have sufficient exit
experience. Many Korean incubators and accelerators attempts to nurture startups for
the first time, and there is a great need for expertise. Furthermore, most Korean
incubators are forced only on a few sectors of the economy, because a majority of
existing pool of mentors and serial entrepreneurs has background in mobile and IT
services. While more than half of new entrepreneurs are starting their business in
technology intensive area such as biotechnology and advanced manufacturing, they
have few mentors and are following only a small number of successful precedents and
guiding role models for technology-based startups.
Limited Domestic Market
While internet and mobile services are fastest growing entrepreneurial ground
worldwide, Korean entrepreneurs are having a hard time creating businesses that
would work in the larger global market.10 In this sector, a large portion of the business
models are country specific and not easy to replicate in the global outside of their
original market. Naturally most of such startups are crowding Korea’s domestic market.
Furthermore, some good business start strongly but quickly falter. Particularly,
businesses founded on technology that cannot be intellectually protected, or lack a
technology that differentiates them from their competitors are easy to replicate. Hence,
such businesses generate competition that undermines early investment. For example,
there have been more than 20 startups in the past year that operate delivery service
platforms, but only two are making profit.11 In finance and banking sector, startups
have not been able to overcome regulatory barriers concerning transaction security and
taxation issues.12
Hiring Difficulties
Korean startup companies often lack the technical leadership that they need to be
successful in the global market. In the United States, more than ten percent of
entrepreneurs have doctorate in science or in engineering.13 The number is only three
10 Interview with Dr. Myunki Han, an Korean-American serial entrepreneur
11 Interview with Yeonjin Chu, CEO of Lately Inc. an e-commerce startup(Former CSO of Home Depot)
12 Ministry of Science, ICT, and Future Planning(2016) Policies to Streamline Regulatory Barriers to Emerging Industries
13 Kauffmann Foundation
8
percent in Korean start-ups.14 While doctorate degree is not a necessity for a successful
venture, it and other top-level credentials can identify talent and create differentiation
among firms. Such technological expertise can create proprietary technologies, establish
barriers to entry against imitators, and attract investment and market opportunities
domestically and globally. In a study conducted by MSIP, more than fifty percent of
hiring managers interviewed for the study expressed difficulties in recruiting
experienced engineers and middle-managers. These managers cite the lack of financial
incentives as the main reason that they are unable to recruit top talent. Stock options,
for example, have provided an actual incentive in only 59 out of 29,000 Korean
startups.15 Top tier talent can generally find better opportunities with existing firms, or
with startups abroad.
Forces
Pro-entrepreneurship agencies
A number of Government ministries and public agencies are working in
conjunction cooperating to build start-up communities, and innovation clusters at large.
Chief Presidential Advisor for Future Planning is leading the initiative, and Ministry of
Science, ICT, and Future Planning, Ministry of Trade and Industry, Small Business
Administration, and several local governments have joined the coalition. While the
agencies are amicable at the top level, there are often pierce competition among the field
offices to get hold of promising startups, as well as fights over limited national budget
allocated among agencies.
Regulatory agencies and incumbent industries
Regulatory agencies hold the keys for the success of the entrepreneurship
community. Startups often come up with new business models that require
modification to existing rules and regulations at the national and/or regional level.
Regulatory agencies, including Korean FAA(Ministry of Land and Transportation),
Financial Supervisory Commission, Korean EPA(Ministry of Environment), and
Ministry of Education have been hesitant, and sometimes have refused to amend
regulations to accommodate new business models for start-ups. Incumbent industries,
especially in financial industries and in transportation sectors, have strongly opposed
new startups that disrupt the market. In 2015, for example, Seoul taxi operators were
able to get legislation that effectively blocked Uber, as well as similar Korean
14 Borne2Global
15 KSBA Study
9
transportation startups, from operating in Korea.16 Similar cases have been on-going in
medical field. Data privacy regulation has deadlocked startups with telemedicine and
precision medical analytics business models.
Law Makers
Korean Parliament has been generally favorable toward innovation and startups,
but has done little to actually support these businesses. The recent congressional
election drew attention away from these issues. While it does not seem likely that the
Parliament would reach consensus on making legislative changes on these issues, there
are possibility that the Parliament might prioritize entrepreneurship, if Job creation and
economic development become a political agenda in upcoming presidential and local
elections. However, due to conflicting perspectives in other political agenda, these
issues were not extensively covered among the parties.
Universities and National Labs
There are 200 four-year universities and 200 two-year technical universities in
Korea, under the supervision of Ministry of Education. However, the majority of
professors in science and engineering are not interested in startups. Five research
universities, KAIST, POSTECH, GIST, DGIST and UNIST, under the jurisdiction of
MSIP have hired former entrepreneurs and foreign experts in top level positions to run
technology licensing offices and on-campus accelerators. The majority of the tech-based
startups are born in these universities. 17
One important source of startups has been the national laboratory. A number of
National Lab spinoffs recently got listed in the Korean stock market, with market cap
exceeding two billion USD. However, most researchers at the National Laboratories are
generally in their 50’s and usually do not have enthusiasm to start a company.18
International Partners
16 Korean transportation regulations specify that paid drivers should be licensed and registered. Uber’s attempt to
bypass local regulations, in addition to its move to leverage USTR to bring the issue to trade negotiation table
have infuriated authorities. Coupled with oppositions from incumbent industries, these incidents have built
negative perceptions toward startups.
17 Choi, Wonsik et al (2015) The Virtuous Circle: Putting Korea’s Startup Ecosystem on a Path to Sustainable Long-run
Growth. McKinsey & Company
18 Lee, Yunjoon (2013) “The Creative Economy Initiative and Entrepreneurship Revival”, Science and Technology
Policy Review, Volume 23, Issue 2
10
Foreign governments, investors, and entrepreneurs have been expressing interest
in working with Korean entrepreneurship community. The Office of Science and
Technology Policy of the U.S. has shown interest in working with Korean Ministry of
Science(MSIP) at the top government innovation policy level. The U.S. Economic
Development Agency also has been organizing collaborations among entrepreneurial
communities of two countries. Korea’s MSIP and U.S. NSF have been discussing
expanding innovation cooperation leveraging NSF programs as a platform. Among a
number of programs, there are shared interests in NSF’s i-Corps(Innovation Corps)
Program, and IUCRC(Industry-University Cooperative Research Center Program). ICorps Program prepares scientists and engineers to extend their focus beyond the
laboratory, and teaches them to identify product opportunities that can emerge from
academic research, along with entrepreneurship training. Such a program could be of a
great benefit for Korean entrepreneurship community.
Past Proposals
This is not the first time that the Korean government has tried to nurture
innovation communities. In the late 90’s the Korean government pushed initiatives to
facilitate entrepreneurship to serve the domestic and international markets. Their
efforts included establishing public-private innovation fund to invest directly into the
startups, providing preferential market treatment for seemingly promising firms. The
government also provided extensive tax breaks for R&D and provided world-class
broadband infrastructure for tech companies. Internationally, the Ministry of
Information and Telecommunication had established eight centers outside of the
country to help give Korean ICT startups access to the overseas market.
These efforts, with perhaps one exception, mostly failed. The public-private
innovation fund had too much influence from the government officials. It tended to
invest in politically connected companies rather than those that had real promise for
success. The special access to the market failed because it did not have the ability to
identify potential success. Overseas offices were huge failure, as the directors sent from
Korean head office did not have either international experience or extensive network in
the cities where the centers were established. Boston office had shut down within a year
of its opening. By 2008, only Silicon Valley office remained in operation.19
The Creative Economy Policy has faced criticisms based on past policy failures.
Past proposals offer two key takeaways from their experience. First, it showed the
limits of a government-led program. The Korean government tried to design the startup market, rather than letting the private industry lead, resulting in a sub-optimal
allocation of resources. Secondly, Korean agencies tried to “push” entrepreneurship
19 Interview with Dr. Hikyu Lee, Managing Director at Cambridge Partners LLC
11
into the global market, without much understanding of the local networks and demands.
These are the two main issues that this policy proposal would be addressing.
POLICY STATEMENT
The Policy Goal
The goal of this paper’s policies is to provide Korea Innovation Center with initial
set of strategies to help Korean entrepreneurial stakeholders to advance the innovation
ecosystem to the global level. In particular, it should let the private sector lead the
process and it should provide a strong environment to build startups that operate in the
global market.
Based on the recommendations from successful U.S. innovators and
entrepreneurs, Korean government has made a decision to open outreach posts, or
‘Korea Innovation Centers’, in Silicon Valley, DC, Boston, and five other locations.
These offices would have mission to facilitate Korean entrepreneurs to reach global
market, as well as foreign investments. Korean government has established KIC
headquarter under National Research Foundation, and it is currently planning to open
eight offices around the world. Silicon Valley and DC offices would be the first two to
operate, and Boston, Berlin, and Beijing offices would follow suit. While the decision
has been made to open KIC’s, their implementable strategies are still under debate. This
paper aims to provide general policy recommendations and actionable plans for KIC’s
first two offices in the U.S.
The Policy Itself
The Korea Innovation Center should build upon existing innovation partnership
with innovation communities in the United States. KIC will be able to provide the
necessary support for Korean, American entrepreneurs, venture startups and SME’s to
launch startups that were designed to operate globally. This policy will engage
entrepreneurship ecosystems, a global support network of leading experts, and both
private and public organizations in Korea and the U.S. As a result, the firms will be able
to have local presences in the U.S. and easy access to global markets and capital.
The KIC’s will have the following elements,
¶ First, the KIC should build partnerships with the key innovation partners in
the United States, and with innovation stakeholders in Korea, in order to
identify potential strategic alliance in innovation and entrepreneurship.
12
¶ Second, the KIC should strive for small successes first. KIC needs to build
confidence among relevant stakeholders and supporting agencies.
¶ Third, following initial demonstrated success, the KIC should build a full-scale
team to expand collaboration with its U.S. partners. By building on-site crossborder accelerator, and by creating joint funding structure, KIC will be able to
create a strategy that both pushes startups towards success in the global
market, and pulls investments and expert network to help them.
There has been a mismatch between aspiring entrepreneurs aiming for the global
market, and investors looking for investment opportunities in Korean startups. KIC
should help facilitate matching process among stakeholders.
The Owner of the Policy
The owner of the policy is the Korea Innovation Center(KIC). The KIC has been
recently established to coordinate Korean CCEIs, engineering university tech transfer
centers, and federal labs in creating international strategic alliance. KIC will be
responsible for articulating the policy, creating strategic partnerships, and implementing
key project and programs under the policy.
Phase I : Building Partnerships
The first phase of the policy will build partnerships that will help to create and
strengthen new companies. The KIC already has an extensive set of formal framework
and potential collaborative possibilities with the United States. MSIP and OSTP have
biannual meetings to discuss Science, Technology and Innovation opportunities
between the two countries. By leveraging on this existing framework, the KIC can build
key partnerships maximizing mutual interests.
KIC should continue to expand on the existing collaborations including those
with the NSF i-Corps Program. Furthermore, the KIC can connect with U.S. local
clusters that have interest in connecting with Korean innovation communities.
Economic development agencies in Boston, Atlanta, Cincinnati, New York, and San
Diego have expressed great interest in partnerships. These relations could benefit both
countries by combining complementary resources in key industries, such as biomedical,
advanced manufacturing, composite materials, energy, among others.
With Korean partners, the KIC would maintain close partnerships with domestic
startup stakeholders to ensure KIC’s role that it serves as the linkage among the
innovation hubs of two nations. It would need to establish a strong platform to identify
potential success at the global level before a second phase for the policy. Specifically, the
KIC should,
13
¶ Develop a cross-border alliance network consisting of Korean American
leaders, local American experts, and public and private organizations as well
as key stakeholders in Korea. These stakeholders would be found in venture
clusters, universities and government organizations.
¶ Propose, launch and support cross-border entrepreneurship education,
training and mentoring programs to operate within innovative clusters.
¶ Operate online sites and hold off-line events to foster community and
relationship building among all stakeholders.
¶ Provide a framework and initiate efforts to track and disseminate information
about technology and market trends. This plan should utilize relevant public,
private, and institutional information on technology and market trends related
to SME globalization.
Phase II : Building Small Success
The second phase will build confidence in the work of the KIC. Considering
existing resistance and critiques, it is essential for the KIC to build confidence among
stakeholders. Confidence will not only help to secure budgetary support, but it will also
create supporters among public-private innovation communities and help make the
policy to be sustainable. Without building confidence among stakeholders, the program
would be vulnerable to changes in political leadership.
The KIC should focus on building small successes, by identifying firms that are
likely to succeed and by leveraging existing U.S. connections to create initial success.
There are already a number of platforms that Korean entrepreneurs can leverage, with
relatively little effort. Successful small-scale results, well promoted, would help the KIC
gain recognition and prepare the KIC for the next phase. In this Phase II:
¶ The KIC should serve as an enabling vehicle to identify, nurture and support
promising Korean venture startups and SME’s. It should provide these firms
with mentoring, financial and human resources that will attract partners and
investors. It should help these firms build connections that will allow them to
penetrate into the U.S. and other overseas markets.
¶ The KIC should analyze structural barriers that impede SME globalization. It
should develop concrete measures and recommendations for key stakeholders
and policy makers of Korea that will allow them to overcome such barriers.
14
¶ The KIC should hold regular investment conferences to bring investors and
entrepreneurs together from both Korea and overseas in order to stimulate
deal formation.
¶ Focus on the technology and market areas where there exists opportunity for
cooperation and potential for success between Korea and key U.S. cities.
Phase III : Scaling Up
The third phase of the policy will expand it to all sectors of the Korean economy.
It will create a full team that support a cross border platform that benefits wider
audience At this phase, the KIC will create a process that allows new companies to be
absorbed by other companies or operate independently. It will have procedures that
will encourage global mergers and acquisitions as well as global IPO’s. It will operate a
global venture promotion fund, tentatively called Global Korea Venture Fund, to
provide financial resources to promising Korean startups and SME’s as well as Korean
American entrepreneurs.
There will be three core programs that KIC will develop and operate.
¶ Entrepreneurship Training Program : Key elements are; education training
program, “boot-camp” training, entrepreneur education, and mentoring
services.
¶ Startup Accelerator Program : Identify promising Korean and American
startups. Help launch a U.S. based startup with seed funding, human resource
search and professional services support. Provide necessary startup
acceleration support through mentoring and initial market development
assistance. It’s success will be measured by the amount of post-seed round
financing from U.S. venture capital firms or accredited investors.
¶ SME Globalization Program : Identify promising Korean venture companies or
SME’s. Help establish a U.S. presence with initial funding, if needed, and
professional services support. Contribute to business and corporate
development. Facilitate successful exit paths via global M&A’s or IPO’s. Its
success will be measured by the number of successful mergers, acquisitions or
IPO’s.
The diagram below illustrates KIC operational model to establish a “self-feeding”
cross-border entrepreneurship and globalization ecosystem.
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Figure 4. KIC Operational Model
The KIC should focus on creating tangible outcomes, such as the aggregate
amount of investments secured, the number of business launches in the U.S. and the
number of successful M&A’s and IPO’s, which would directly and indirectly contribute
to the creation of high value jobs and reinvestment into the Korean entrepreneurship
ecosystem. Previous policies did not specified policy goals. Lack of focus ended up
with lack of results.
The KIC will use market-proved methods and practices to identify promising
startups and SME’s. For example, it might build an alliance with MassChallenge in
Boston, which operates a global startup competition and accelerator program.
Previously Korean entrepreneurship organizations did not leverage existing network
and alliance opportunities. Entrepreneurs, investors, and public/private startup
accelerators tried to reach the U.S. single-handedly, without much understanding of the
U.S. startup community. One of the largest contributions that the KIC will make is its
connecting role between entrepreneurship communities of both countries. The KIC will
organize seventeen Korean innovation clusters, VC’s, universities and public
organizations. It should help them connect with the right U.S. partner organizations. In
a similar manner, the KIC will help U.S. investors and entrepreneurs who are interested
in expanding into emerging market, and it should support them creating right
partnerships with Korean organizations.
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The KIC should create a venture fund, tentatively called Global KoreaVenture
Fund, be formed with private and public sector participation. This fund will promote
and support “Born Global” startups and SME globalization programs. It should include
private sector participation from corporations and/or accredited accredited private
investors of both Korea and the U.S. The Global Korea Venture Fund will be managed
by a team of professional fund managers along with the top management of KIC to
ensure achieving its goals of supporting Korean startups and SME globalization.
How this policy will Fulfill the Policy goal
This proposed policy builds upon the lessons learned from the past trial and
error. The government should facilitate innovation, not try to design the market. This
proposal departs from previous policies that were focusing on government investments.
The KIC model is centered on creating partnerships, leveraging existing collaboration
networks and engaging potential stakeholders into the U.S.-Korea joint
entrepreneurship community.
By establishing KIC and its affiliated global entrepreneurship venture fund, it
proposes to help Korean entrepreneurs and high tech SMEs by:
¶ Using the support from KIC as a launching pad for global business success by
leveraging the U.S. entrepreneurship ecosystem and its well-established and
highly valuable resources
¶ Giving access to capital resources of KIC affiliated venture fund and local
angel and VC network for launching startups. In addition, it proposes to
facilitate successful exits to reinvest and nurture “self-feeding” cross-border
entrepreneurship ecosystem between Korea and the U.S.
¶ Teaching the experiences of U.S. innovation and startup culture and training of
professional entrepreneurial skills through real life experiences and
participation in global entrepreneurship education and “boot-camp” training
programs.
ARGUMENT
SWOT analysis of the policy
Strength
The foremost strength of this policy is that it leverages upon the strong
relationship with the U.S. The two countries have one of the most solid innovation
17
relationship with the framework of U.S.-Korea Joint Committee for Science, Technology
and Innovation. Korea has ongoing collaborative programs with NSF, NASA, DOE,
EDA, and NIH, and innovation and entrepreneurship programs are growing in
numbers. This proposal also leverages upon the strong pool of potential mentors and
startup investors in the U.S., who has growing interest in Korean startups.
Weaknesses
As previously mentioned, cross-border entrepreneurship has been limited, and
there have been more failures then successes. There are numerous critics that remember
the entrepreneurial experiment in the late 90’s. Such criticism would continue to resurface. In the same line, this paper proposes a three-phase process to circumvent such
criticism. It will indeed be challenging to secure necessary budgetary support at least
for the initial stage of the proposal, and that is the main reason for proposing a threestaged strategy with building small success at first. Ultimately, the KIC’s largest
potential weakness is the complexity of its operation and the diversity of the industry
sectors that it needs to cover. Without the right managers and investment talents, it
would be extremely challenging to execute policies in this proposal.
Another weakness is that the KIC has to deal with bureaucracies. The key to
success in entrepreneurship is speed. However, many of the stakeholders are public in
nature. Federal labs, universities, and public-private clusters are under the supervision
of the relevant funding agencies, and National Audit Board. The KIC might be dragged
by bureaucratic decision making without attention from the agency leaderships.
Opportunities
The time has ripe for Korean entrepreneurs, and they need to seize the
opportunity. Korea’s startup community is growing exponentially, and the level of
entrepreneurs has improved dramatically. U.S. investors and entrepreneurship
organizations are opening doors for Korean startups.20 Traditionally phenomena for
internet and mobile service ventures, the startup phenomena is spreading to other
20 “We are impressed with the recent progress on Korean entrepreneurship programs. The U.S. government wishes to continue
policy dialogue in innovation and entrepreneurship, including NSF-led i-Corps program.”- Dr. John Holdren, OSTP
“Many U.S. startups, including ones in 1776, are interested in going into Korean market. 1776 can play a role in connecting US
and Korean accelerators for potential partnerships in entrepreneurship and startup strategic alliances.”- Donna Harris, Cofounder, Co-CEO, 1776
“There are numerous innovation initiatives going on at the regional level, not just in the Silicon Valley and Boston. Many of the
U.S. municipalities could benefit from partnership with Korean companies of all sizes, from startups to SMEs and large
corporations.” - Dr. Barrett Haga, EDA
18
technology sectors as well. More Ph.Ds and Masters students are starting their own
business, and engineers from Samsung and LG are beginning to take the high-risk
career path as well. Investment communities in Korea were primarily focused on lowrisk assets. However, recently Korean Pension Funds, and National Health Care funds
are starting to look into the startup communities.
Technologies showcased by Korean companies and startups are igniting interest
among U.S. Investors as well. Several U.S. Venture capital firms have opened Korean
offices. U.S. corporations are looking into Korean tech-based startups and SME’s for
potential acquisitions. Google opened up their first Asian startup incubator in Seoul.
M&A directors from Boeing, 3M, and GM are looking into Korean SME’s that would
complement their supply chain.
Probably the largest opportunity is the strong government commitment for
promoting innovation and entrepreneurship. President Madame Park is Korea’s first
president with an engineering background. She is also the second president to chair
National Science and Technology Council, which is often chaired by the Prime Minister
or Deputy Prime Ministers. Strong leadership support continues to mobilize relevant
ministries and agencies, and the concerted public-private efforts are beginning to
change the public perception of starting a venture company.
Threats
As much as the government support provides opportunities, political support
could be a double-edged sword, especially for sustainability of the policy. Leadership
changes in the administration, ministries and agencies, and universities could lead to
disruption in policy processes. Without building a strong consensus with the new
leadership, policies are often deadlocked, or bound to lose steam, especially when the
policy shows signs of failure. Political scrutiny from the opposition party and from
supervisory boards could further delay the implementation of policy as well. KIC, as
well as CCEI, would continue to be pressured to perform. Building a small success first
is especially important for the KIC in order to move to the next phase.
Bureaucratic competition could easily threaten the KIC If the KIC becomes
successful, there would be multiple agencies that would claim credit for the success.
Success might become a mixed blessing. If proven to be a promising organization,
multiple agencies might try to have the KIC under their jurisdiction. Governance
structure might be affected by political zeal. The KIC needs to constantly look at
political and bureaucratic landscape, which is not something that other accelerators
would be burdened with.
Survey Results
19
As entrepreneurs continue to embrace global markets and investments –
especially when pursuing technology-based startups – startups and potential
entrepreneurs say they need to step up to global market in establishing and growing
their business ideas. In synthesizing strategies for the KIC, I have surveyed
entrepreneurs, researchers, and mentors in the startup community. There were a total
of 1,251 respondents. In the survey, I asked respondents about demands in five key
area: global market, incorporating business abroad, international partnership, joint R&D
cooperation, and mentoring service. The key findings are:
¶ Entrepreneurs are keen on expanding into global market. However, they
identify a number of barriers; lack of local network, lack of operating capital,
insufficient market information, and lack of local ‘base-camp’ where
entrepreneurs could settle temporarily to test the market and to build network.
¶ Entrepreneurs are willing to incorporate their new startups in the U.S.
However, they identify a number of difficulties; insufficient capital, lack of
local network, and sufficient market information.
¶ Entrepreneurs have shown interest in collaborating with U.S. startups and
corporate partners. However, they would like to see government support in
creating partnerships, as there are legal issues involved, including intellectual
property and equity share agreements.
¶ Engineers and researchers would like to have assistance in developing
cooperative network in their respective technical field. Furthermore,
government could help identifying right partners for research consortiums, as
well as locating local experts in patents and legal issues.
¶ Mentors have identified local network as the most essential component for
entrepreneurs expanding into global market. Local mentors would be
extremely beneficial in evaluating technologies that entrepreneurs would be
bringing, as well as in creating investment opportunities leveraging local
networks.
The survey results21 reinforce the need for the KIC. Majority of the entrepreneurs
who responded are considering expanding their startups to global market. Their lack of
knowledge in the foreign markets, and difficulty in connecting with foreign
entrepreneur community are key barriers to their expansion. Many of them are willing
to move their business headquarters to where the market is. The KIC could play a vital
role in helping these entrepreneurs getting their first foot in the door.
21 See Appendix for a more detailed survey results.
20
SUMMARY AND ASSESSMENT
Korean Government’s initiative to foster entrepreneurship requires national-level
policy to organize key stakeholders internally and a strategy to connect to global
entrepreneurship communities externally. A majority of domestic entrepreneurs are
looking toward expanding their businesses to global market, and global investors and
entrepreneurs are also anticipating working with Korean startups and innovators as
well. Policies to advance the innovation ecosystem to the global level have become of
greater importance. Based on lessons learned from previous entrepreneurship policies,
the Korea Innovation Center is a potential policy that will provide a strong environment
to build startups that operate in the global market.
The Korea Innovation Center is a network of eight field offices in key global
entrepreneurial communities, coordinated by a HQ office under Korean National
Research Foundation. By engaging with entrepreneurship ecosystems domestically and
internationally, the KIC will be able to provide necessary support for Korean
entrepreneurs and SME’s, as well as American startups and investors. The KIC would
develop in three phases:
•
Building partnership with the key innovation partners in the U.S., in order to
identify potential strategic alliance in innovation and entrepreneurship.
•
Creating small successes by identifying firms that are likely to succeed with a
little push, and serving as an enabling platform to identify, nurture and support
promising startups, with the support from the U.S. network of experts and
entrepreneurial communities. • Scaling up to become a multi-sector cross border entrepreneurship platform, with
Entrepreneurship Training Program, Startup Accelerator Program, and SME
Globalization Program In summary, the Korea Innovation Center would provide Korean entrepreneur
community with a platform to expand into global market. Competent Korean
entrepreneurs and startups would be able to leverage the KIC’s network of experts and
investors, as well as to find opportunities to create strategic alliance. Korea’s previous
policies have had mixed results, largely because of government-driven unilateral
approaches to entrepreneurship. The KIC would be more connected, more
decentralized, and more dependent on private expertise in advancing innovation. By
mobilizing stakeholders, and by helping identify the synergistic partnerships, the KIC
would make a contribution to Korean economy that is in dire need to pivot its national
innovation strategy.
21
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34
APPENDICES
Survey Results
Figure 5. Difficulty in going to Global Market
¶ Entrepreneurs are keen on expanding into global market. However, they
identify a number of barriers; lack of local network, lack of operating capital,
insufficient market information, and lack of local ‘base-camp’ where
entrepreneurs could settle temporarily to test the market and to build network.
Figure 6. Difficulty in Incorporating Abroad
35
¶ Entrepreneurs are willing to incorporate their new startups in the U.S.
However, they identify a number of difficulties; insufficient capital, lack of
local network, and sufficient market information.
Figure 7. Difficulty in Joint R&D Cooperation
¶ Entrepreneurs have shown interest in collaborating with U.S. startups and
corporate partners. However, they would like to see government support in
creating partnerships, as there are legal issues involved, including intellectual
property and equity share agreements.
Figure 8. What Engineers and Researchers need most
¶ Engineers and researchers would like to have assistance in developing
cooperative network in their respective technical field. Furthermore,
36
government could help identifying right partners for research consortiums, as
well as locating local experts in patents and legal issues.
¶
¶ Figure 9. What Entrepreneurs Need from the U.S. Mentors
¶ Mentors have identified local network as the most essential component for
entrepreneurs expanding into global market. Local mentors would be
extremely beneficial in evaluating technologies that entrepreneurs would be
bringing, as well as in creating investment opportunities leveraging local
networks.
37
AUTHOR’S BIOGRAPHY
Sunhak Cho is the Director for Advanced Manufacturing and ICT Coordination
Division at the Ministry of Science, ICT and Future Planning. He is responsible for
coordinating national research programs and projects in the field of advanced
manufacturing, robotics, information and communication technology sectors. Prior to
the current position, Sunhak worked 18 years within various positions within Korean
government, in charge of national R&D programs, defense programs, transportation &
infrastructure projects, national education programs leveraging ICT, and science
diplomacy to name a few. He also has private sector experience in private equity,
venture capital, semiconductor and automotive industries. He received his MPA from
Harvard University, and engineering degrees from Korea Advanced Institute of Science
and Technology and from U.C. Berkeley.
May 7, 2017
38