South Korea is a progressive centre for technology, and its meteoric rise to become a global innovation powerhouse is an inspiration. In 2021, the country finished top of Bloomberg’s Innovation Index.
South Korea’s early years – 1910 to 1961
Yet, the rise of this innovative nation couldn’t have been anything but rapid. Between 1910 and 1945, the entire Korean Peninsula was still colonised by Japan. After the foreign ruler’s defeat in World War II, Korea became two countries, divided by the 38th parallel, with North and South Korea governed by Russia and the US, respectively. Then, exactly halfway through the 20th century, the Democratic People’s Republic of Korea (DPRK)1 invaded from the north, plunging the region into civil war until an armistice ended fighting in 1953. Perhaps not surprisingly, even after the gunfire stopped, South Korea struggled for several years to stabilise itself financially. As late as 1961, its exports only amounted to $55 million, but at the same time, the nation’s imports amounted to almost $400 million.
Science and technology in South Korea were almost non-existent around this time when there were only two institutions devoted to any type of R&D: The Korea Atomic Energy Research Institute and the National Defence Research and Development Institute. Even in 1964, the national budget for R&D only amounted to $5 million and sustained just a few thousand engineers and scientists.
1961 – 1997: South Korea pursues a strategy of R&D
However, as the country moved out of the difficulties associated with recovery from war and colonisation, new leaders emerged, and the nation changed tack. South Korea’s rise has been made possible by an outstanding structure that promotes research and development, which has seen it excel in IT and communications tech utilising cross-sector collaboration.
Successive leaders have heightened the country’s commitment to innovation in technology. President Park Chung-hee was the spearhead of that drive until his assassination in 1979, forsaking tech imports for home-grown products. The government pushed family-owned entities to invest heavily in R&D in return for protected status, leading to the formation of tech powerhouses like Samsung and LG.
Subsequent leaders followed Park’s lead, promoting R&D and investing heavily in the pursuit through the 80s and embracing semiconductor technology through the following decade, setting the scene for further cutting-edge innovation based on strong and healthy collaboration across academia and the public and private sectors. The South Korean government offered resource incentives against a measure of export performance, meaning they invested heavily in R&D to keep up with tech advancements overseas. That practice led to the formation of ‘Chaebols,’ which drove innovation further. Chaebols are an organisational phenomenon whose scale enables high-risk R&D strategies that smaller businesses just can’t undertake.
Samsung is a great example of a chaebol and of South Korean efforts around that time and up until this day. By the turn of the millennium, the company was a global leader in markets for mobile phones and tablets and the development and manufacture of computer chips. Tellingly, Samsung is a world leader when it comes to corporate collaborations with academia, too.
In 1981, South Korea’s total R&D investment amounted to around $500 million, but by 1996, just before the financial crisis hit, it had risen to more than $13 billion.
A slight setback during the financial crisis in Asia
South Korea’s innovation system came under significant strain just before the turn of the 20th century. The country had relied on policies of using long-term overseas loans to fund wholesale imports of turnkey equipment, technology, and manufacturing capabilities, but that backfired in 1997. The resulting financial crisis signalled a change in strategy. Now, technologically advanced nations were starting to consider South Korea a direct competitor, and supplies were drying up. The government reacted by loosening rules around foreign licensing.
South Korea pivoted from supplying foreign countries with relatively low-cost tech products to an approach focused more on home, semiconductors, apps, and mobile phone technology. Yet, those early practices of importing and often reverse engineering machines and tech allowed the nation to both adopt and train experts that would enable South Korea to eventually emerge with a well-educated army of workers. Soon, centres for innovation sprung up in the regions, with Gyeonggi, just outside of Seoul, emerging as the country’s economic and innovation hub.
There, with government backing, R&D thrived in an environment populated by universities, purpose-built research facilities, and companies like Samsung. However, responsibility for investment and funding now switched to the private sector, drawn by the potential rewards on offer from a conveyor belt of cash and patents supplied by a rich collective of academia and corporate talent, as well as healthy tax incentives. By 2005, investment in R&D had doubled since 1997 to around $26 billion – or about 3% of GDP.
Formidable growth in tech and innovation: South Korea from 2010 – 2020
During the last decade, South Korea owed much of its innovation capability to the strength and skills of its workforce and years of dedicated investment in R&D. Once the nation looked outward to export markets and their associated competition; it only fueled a commitment to research and development.
South Korea has now become a global leader in semiconductor chip technology, mobile phones, TVs and screens, as well as domestic appliances and manufacturing. Even though exports took a 5% hit during the COVID-19 pandemic, South Korea achieved a $45.6 billion trade surplus during 2020, according to the Ministry of Trade, Industry and Energy.
During the last decade, startup culture in the country thrived in an innovation eco-system founded on R&D and supported by government initiatives amid a shift to venture capital investment, much of which arrives in the nation from overseas. By the start of 2021, around 30,000 startups operated throughout the country. South Korea also boasted eleven unicorn companies, spanning sectors as diverse as e-commerce, health, fintech, and mobile communications tech.
Can Seoul grow to become Asia’s new financial centre?
These days, with a state-of-the-art infrastructure for ICT and the most rapid internet speeds on the planet, AI, 5G, data analysis, cloud computing, and cybersecurity companies thrive in South Korea.
Private investment has only intensified a climate for innovation and agility. By the time the first decade of the new millennium ended, a whole host of small to medium-sized businesses had emerged from innovation hubs like Gyeonggi. They carved out profits and advancements in biotechnology, cybersecurity, and artificial intelligence – driven by a new breed of willing entrepreneurs emboldened by unwavering confidence in the South Korean government’s funding and policies.
And it’s not just the tech, South Korea also appeals to many businesses because of its digitally skilled workforce. For many foreign companies, Korea is leaps and bounds ahead of alternatives like Australia or even the US. In fact, the county has designs on replacing Hong Kong as Asia’s fintech centre in the wake of the arrival of the Chinese city’s new national security law.
Seoul’s government recently announced a plan to spend more than $200 million during the next five years to incentivise employment and rent for overseas firms. The city’s mayor, Oh Se-hoon is vocal and bullish about turning Seoul into one of the world’s top five financial hubs by the end of the current decade.
Work to do if Seoul is to reach its full potential
It won’t be plain sailing. Seoul is beset by some pretty cumbersome regulations and high taxes when compared to cities like Hong Kong and Singapore. The region also can’t currently boast the same levels of spoken English as its rivals, and it sits in 13th place on Z/Yen Group’s Global Financial Centres Index – behind all of Hong Kong, Singapore, London, New York, Paris, Shanghai and Beijing.
Yet, there is confidence within South Korea that the country can capitalise on uncertainty in Hong Kong. Yang Jiyoung is the head of support at Financial Hub Korea, a department of South Korea’s financial regulator tasked with promoting the city. He recently told Al Jazeera that Seoul hoped to lure foreign companies from traditional financial centres such as Hong Kong.
“Other hubs are going through turbulence at the moment, take Hong Kong and China. Some companies are thinking of leaving. We’re in the middle of our fifth plan for nurturing the financial sector. We’re focusing on asset management and fintech, and we’ve put a lot of effort into fintech. Maybe roughly 25% of the plan is focused on fintech, it’s one of the major areas we would like to nurture. The concept of a financial hub will change.”