Entrepreneurship, Risk Taking and Innovation in South Korea

Visitors arriving at Seoul's acclaimed airport can only be impressed by its sophisticated application of technology into everyday lives.

The train I rode from Seoul to Daejoen cruises at 300 kmph. Every taxi in Seoul is clean and paid for with a back seat touchpad card reader. And the urban planning seems super smart, with local government being placed in beautiful floating structures on the river and national government being moved altogether out of Seoul.

It is said that much of South Korea’s success is due to entrepreneurs who grew conglomerate companies like Samsung, Hyundai and LG — and that is right. These companies' high-tech goods constitute nearly one-third of South Korea's total exports.

Despite this history of growth entrepreneurship fueling the Korean economy, I found almost unanimous opinion that a negative attitude lingers towards "entrepreneurs," "risk" and "failure," which is blocking the emergence of new innovators.

Yoon Seong-hoon, a graduate business administration student at Korea University, once wrote for the Korea Times criticizing the cramming education culture in Korea. "What many students and their parents believe is that students who study hard and go to good universities can get good jobs and succeed," the student wrote.

The make-a-job mentality is still not natural for most young Koreans. Students I spoke to at Chung-Ang University and Hanbat National University echoed this sentiment to me.

To some degree, the exceptional ability of South Korea's larger firms, like Samsung, to remain so innovative in the true Schumpetarian sense, is making up for a limited startup culture. However, since smaller firms are so good at injecting the dynamism that helps larger firms remain competitive, adding more startups will be vital to long-term economic growth in Korea.

The South Korean government has already begun implementing some changes that aim to mold its market into an innovative hub of Northeast Asia. For example, the country has shown progress in making tax rates more competitive. According to the Index of Economic Freedom, the top corporate tax rate has been reduced to 22%.

Historical World Bank data also show that Korean policymakers have worked on regulatory reform to make it easier to start new ventures. In one year, the country improved its rank from 133 to 53 in the ease of starting a business (i.e., it jumped 80 spots in the list of 183 economies).

This progress is thanks to a reduction in the number of bureaucratic barriers to entry. The number of procedures it takes to register a firm fell from ten to eight, and the number of days from 17 to 14. Most striking is the fact that Korea dropped to zero with respect to the minimum amount that the entrepreneur needs to have before registration and up to three months following incorporation, down from almost 300% of the per capita income two years ago.

Building an educated workforce and having sensible requirements for starting a business, trading across borders, paying taxes and commercializing innovation can all influence the rate at which people start companies.

For example, after accounting for differences in per capita income across nations, countries with easier and less expensive procedures for registering new businesses have higher rates of new business creation, according to an analysis of the 2008 World Bank Group Entrepreneurship Survey.

Clearly, Korea is on the right regulatory track to build a strong entrepreneurial ecosystem. Cultural change, though, will be harder to achieve. Culturally, entrepreneurial economies reflect a more open-source risk-taking character.

This involves intangible changes that are very hard for leaders to stimulate without aggressive use of the bully pulpit from the highest level of government — especially in Asian cultures. The regulatory reforms provide impetus for this change, but pro-entrepreneurship thinking must be encouraged in all sectors from both the bottom up and top down.

Academia in Korea, from elementary schools to universities, has a big role to play in instilling the entrepreneurial mindset in youth and encouraging new generations to explore entrepreneurship as a career path.

Creative thinking and prudent risk-taking are no different than any other skill set. They are likely to become useless unless nurtured through education and experience. Schools at all levels are an ideal place for young people to explore their entrepreneurial potential — and they should be viewed as catalysts for an entrepreneurial society.

Although I met skepticism with respect to this happening in high schools, given that an emphasis on entrepreneurship education is a great recipe for success, I visited two fairly new Graduate Schools of Entrepreneurship, where I witnessed great efforts underway to adopt the best ideas and practices their deans could find on the planet to help Koreans develop their entrepreneurial ventures.

But their enrollment seemed relatively low, leaving me to believe that while one should be cautious in overstating entrepreneurial culture, clearly in South Korea — where citizens are already known for their smarts, extraordinary work ethic and competitive spirit — it is undoubtedly the missing piece of the puzzle.

Role models are very important in changing this. A prime example is Charles Pyo, CEO of Wizard Works, who is helping to build "cultural capital" for Korean entrepreneurs. Pyo is one of the promising young Korean entrepreneurs in the domestic IT industry and was selected as one of “Asia’s Best Young Entrepreneurs 2009” by BusinessWeek magazine.

At the time of the award announcement, he said, "Many young people are obsessed with bar exams and other tests to become civil servants. I would like to say that, if there are no role models in our society, they should become one.”

I left my presentations and meetings with a sense of promise that new resources and government support for entrepreneurship in South Korea would be forthcoming. I also think that grassroots movements like Global Entrepreneurship Week will result in an increased level of public interest in enabling Koreans to open up to their entrepreneurial potential.

Hence, while entrepreneurship was far from the agenda of the G20 finance ministers who gathered in South Korea while I was there, history makes it clear that countries cannot have sustained economic development without a burst of entrepreneurial energy. South Korea's economic history is no exception.

Editor's Note: This piece has been adapted from Jonathan Ortmans' "A Silent G20 and the Need for Entrepreneurial Role Models in South Korea," published on the Policy Forum Blog on October 25, 2010.