Thomas White Global Investing
South Korean Entrepreneurs Want Company
South Korea Stamp
September 21, 2012
A Postcard from the Asia-Pacific
South Korean Entrepreneurs Want Company

In early 2012, ordinary South Koreans were outraged at their country’s bakeries. Not that the South Korean bakeries did not produce delicious hot cakes, but that they were owned by the daughters and grand-daughters of the founders of chaebols, or family-owned industrial conglomerates, whose tentacles spread to every business in the country ranging from autos to semiconductors and property to ship-building. “These families already control everything else in Korea. Why can’t they leave something for the rest of us,” quipped an enraged small business owner to the Economist magazine.

Such is the dominance of the chaebols in South Korea. A 20-something entrepreneur with high dreams often finds it difficult to establish and run an independent business in traditional industries courtesy the huge entry barriers erected by the country’s handful chaebols. In a country where chaebols are praised as the driving force behind South Korea’s industrialization over the past many decades, chaebols now take a large share of the blame for South Korea’s lack of entrepreneurialism. The argument against chaebols go like this: chaebols have everything – money, talent and scale. When a young entrepreneur comes up with a bright idea, chaebols knock his doors, lure him with bags of money and turn the entrepreneur into a company man. As a result, entrepreneurs are hard to find in the country.

But that apart, South Koreans prize stability over risk. In the hyper-competitive Korea, many adults in the country spend most of their parental years worrying about their kid’s scores in class. They would rather see their children work for a prestigious chaebol like Samsung or Hyundai than witness the kids risking it all to start a business. Naturally, just as in Japan, Koreans give more respect to a salaried man than to an entrepreneur. In turn, these salaried men show immense loyalty to the chaebol they work for. When the debt-laden chaebols were on the brink of going bust during the Asian currency crisis of the late 90’s, one of the enduring images of the day were the ones of South Koreans lining up to donate their household gold to help their benefactors.

But such loyalty to chaebols seems to be dissipating fast. South Koreans have started viewing their chaebols more critically. Many young people in Korea, partly taking inspiration from the American success stories like Facebook, are shunning lucrative jobs in chaebols to start their own business. And surprisingly, South Korea like the U.S. has the ecosystem to foster entrepreneurialism, especially in the internet services industry. Nearly 83% of the population uses internet in the country and internet penetration in the country is touching almost 100% compared to nearly 80% in the U.S. Naturally, South Korean entrepreneurs are overwhelmingly from the internet and software industries. In fact, a number of Californian Koreans, who were forged in the hot-spots of the Silicon Valley, are returning to the land of their forefathers to inspire the brethren.

The South Korean government, for its part, is embracing foreign-based Koreans with open arms. Thanks to Seoul’s “Youth, 1,000 CEO Project”, whereby the city provides young entrepreneurs free office space and grants, expats have been scouting the city to turn their dreams into ideas.

The results are telling. Already, the Korea Venture Business Association, an agency that provides assistance to start-ups, estimates that in the four years through 2011, the number of technology enterprises started in the country soared nearly 83% and software firms incorporated jumped over 61%. Korean youth are coming up with imaginative ideas for their burgeoning companies. According to channelnewsasia.com, Woo Jong Wook, the head of Strong Technology, provides services like helping people roast their own coffee beans. His target customers include not only new restaurants and hotels but also golf resorts and other entertainment businesses. Park Hee Eun, a 26-year old’s marriage services website that employs 30 personnel, now has a customer base of 210,000.

The stellar rise of Ahn Cheol Soo, the man who founded South Korea’s biggest antivirus firm, is also the cynosure of many a young Korean entrepreneur. The 50-year Ahn Cheol Soo, who graduated as a medical doctor but went on to study business in Wharton and later established the country’s largest antivirus firm, Ahnlab Inc, is a candidate running for South Korea’s president. A persistent critic of the chaebols, Ahn Cheol Soo, has promised to limit some of the powers of large companies and foster growth through innovation.

The criticisms over the bakeries belonging to family members of chaebols forced the founders of the conglomerates to pull the plug out of the relatively small business. But they will face more challenges going forward. This time from lean young entrepreneurs who will continue to tussle with the giant firms. For a change, the nimbleness of the small firms could prove more irritating to chaebols than the criticisms over the bakeries.

 

Image Source: Justin Ornellas’s Photostream under a Creative Commons License

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