The Korea Herald


[Anniversary Special] Pandemic fuels the rise of startups in South Korea

Will the startup boom bring an end to the dominance of a handful of conglomerates owned by wealthy families?

By Yim Hyun-su

Published : Aug. 12, 2021 - 17:45

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A delivery rider picks up Samgyetang at a restaurant in Seoul. (Yonhap) A delivery rider picks up Samgyetang at a restaurant in Seoul. (Yonhap)
In early March, South Korean e-commerce giant Coupang made its landmark debut on the New York Stock Exchange, raising $4.6 billion in an initial public offering that shattered expectations.

The successful debut of the South Korean flag-waving Softbank-backed startup in the US stock market soon became a major talking point in an economy heavily dominated by a handful of conglomerates, capturing the excitement surrounding the growing number of local startups.

The move also followed a year marked by the rise of unicorns -- a term coined for startups worth over $1 billion -- of which the country boasted 15 as of July this year. In a further sign of the trend, Kakao Chairman Kim Beom-su, whose company began as a startup, beat Samsung Electronics Vice Chairman Lee Jae-yong on the Bloomberg Billionaires Index to become the richest man in the country, boasting $13 billion in net assets as of this month.

From property technology app Zigbang, blockchain fintech firm Dunamu to Kurly, the operator of e-commerce platform Market Kurly, the Ministry of SMEs and Startups says more unicorns now exist than ever before in the country, though Coupang was pushed out of the list following its US listing.

These three companies -- whose respective services cover real estate listings, cryptocurrency investing and grocery shopping -- have continued to serve the needs of many as the coronavirus pandemic engulfed multiple sectors of the economy including tourism and physical retail.

“As part of a global trend, the coronavirus has had a major impact, accelerating the digitalization of businesses. And with more reasons to go contactless and digital, companies with such solutions rose in value, not just major tech companies but also startups that are pioneering in future-oriented sectors,” Lim Jung-wook, managing partner at venture capital firm TBT, told The Korea Herald.

Travel and leisure platform operator Yanolja, one of South Korea’s 15 unicorns, announced last month it had raised $1.7 billion in funding from SoftBank Vision Fund 2. What began as an accommodation booking app now offers a hotel management solution in some 170 countries around the world as it seeks to lead the digital transformation of hotels.

“We have the super app Yanolja at home and a cloud-based automation solution for the international market. They are fast growing markets with great potential and we believe the funding acknowledges our technology to keep things going and our great team,” said Lee Sang-jin, director of solution business at Yanolja Cloud.

Market Kurly, a fresh food delivery operator, also announced it had raised investment of 225.4 billion won ($193.78 million) with its corporate value more than doubling from a year ago to 2.5 trillion won.

Launched in 2015, the platform has enjoyed rapid growth, racking up 953 billion won in revenue in 2020 -- a 123.5 percent year-on-year increase -- as it pioneered next morning delivery and focused on offering high-quality groceries in the country.

The growing list of unicorns buck the trend of conglomerates like tech giant Samsung and global automaker Hyundai Motor dominating the economy for decades. Known as chaebol, a handful of corporate groups owned by wealthy families reigned over markets ranging from electronics, retail to energy.

Jeon Se-hui, a director at the Ministry of SMEs and Startups, said last month that the recent uptick marks the country’s “second venture capital boom” and the “shifting paradigm of the structure of the South Korean economy away from conglomerates to venture capital and startups.”

Professor Suh Yeong-gu at the Department of Business Administration at Sookmyung Women’s University said the main takeaway from the recent unicorn boom should be setting long-term goals now for the future.

“Having 100 unicorns will not suddenly translate to a 5 percent annual economic growth for the South Korean economy.

“But instead of wishing to be lucky, we should focus on encouraging young people to start their own business that could become unicorns as the fourth industrial revolution rapidly takes over the world,” he said.

In the past, pipeline businesses saw companies create and deliver products to customers in a one-way process, Suh explained, especially in the manufacturing industry. But platform businesses have grown recently among IT startups in particular as contactless services enjoyed growing popularity amid the pandemic.

Combined with more internet access thanks to smartphones, it also means the relationship between corporations and consumers is fast changing.

“As much of the information imbalance has diminished compared to the past, consumer rights have been strengthened,” he said.

As interactions become paramount in the platform business model, app-based businesses like food delivery app Baemin or e-commerce platform Coupang are subjected to more public scrutiny and boycotts when ethical issues such as poor working conditions and workplace safety arise.

While the change might be slow, professor Lee Jung-hee at Chung-Ang University College of Business & Economy said the recent startup boom shows the South Korean economy is heading in the right direction. South Korean unicorns could someday grow into big tech companies the likes of Amazon, Facebook and Google that lead the US economy, Lee said.

“Conglomerates end up looking for growth engines from startups with potential in the market when they cannot find them within themselves. But as much as startups need funding, we will also see more of major companies invest in them and willing to tweak their identity and change directions,” he said.

Lee, however, said that efforts to maintain independence in management are crucial.

“If major companies take over even management through investment, the tech industry would end up taking the shape of a more conglomerate-dominant corporate landscape.

“Instead of investors intervening, it would be ideal to keep the startup spirit, allowing founders to grow their own into a big tech firms with the help of funding from major companies,” Lee said.

For job seekers, Suh of Sookmyung Women’s University says the rise of startups might not be all good news.

“Jobs for life at major companies are no longer available. Instead, there will be more opportunities in the gig economy.

“You might need to have more than one job, delivering food for a couple of days and working at a cafe or a store for another couple of days in one week,” he said.

On Aug. 15, 2021, The Korea Herald celebrates its 68th anniversary as South Korea’s No. 1 English-language daily. To mark the day in a time of pandemic and turmoil, The Korea Herald has prepared a series of stories on the challenges that we face and the prognosis for life with, or after COVID-19. -- Ed.