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S. Korea: A New Era of Innovation Begins
Source: korea.net
Source Date: Thursday, April 10, 2014
Country: Korea (Republic of)
Created: Apr 15, 2014

“For the seventh year, Korea has been unable to transcend an annual per capita income of USD 20,000. This signifies that the Korean economy’s current means of growth has reached its limit. In order to transcend this limit, we need to change our paradigm. I believe we should find the answer in a ‘creative economy.’ We are living in an era where a single individual’s creativity and imagination provides hundreds and thousands of livelihoods.”

 

With this statement, President Park Geun-hye brought forth an ambitious three-year plan to achieve sustainable growth and make the leap to become a truly advanced economy. The “creative economy” initiative, as the plan is called, aims to revolutionize the Korean economy by fusing information and communication technologies to not only create new businesses and opportunities, but also to innovate existing, traditional industries.

It’s a paradigm Seoul hopes goes global—as President Park said at the APEC Summit in Indonesia in October last year, “[I]nnovation is the one and only source for achieving sustainable growth in the world economy.”

Creating a virtuous cycle for investment funds
Korea has long been famous for its world-beating Internet speeds, bandwidth and penetration rates. Now the country will create a first-rate ecosystem for venture companies to match its IT infrastructure. The government is taking measures to ease the joint surety system— which imputes the obligation to repay debts to other parties such as family members, relatives or employees when the principal borrower defaults—for promising entrepreneurs, with the aim of making a transition from the collateral, security-based financial environment to one based on investment and financing through building a technology evaluation system for startups.

The government is also increasing the pool of angel investors, wealthy individuals who provide capital for startup businesses, often in return for equity. In addition to promoting networking between angel investors and providing matching funds for angel investments, the government will also increase tax deductions for angel investments.

For the next three years, it will exempt 100 percent for investments worth up to KRW 1.5 billion, and also provide angel investors with notable investment records which give them priority in policy funding.

Fostering an entrepreneurial spirit
To further promote a startup-friendly ecosystem, the government announced it would pour KRW 4 trillion into the system over the next three years. In accordance with an initiative launched in June 2013, it crafted a customized funding plan for startups, following up with the “creative economy town,” an online platform to facilitate and boost entrepreneurship.

Earlier this year, the government devised a plan to build “creative economy innovation centers,” offline versions of the online platform, in 17 provinces and metropolitan areas nationwide. Lee Woo-jin, an official handling creative industry projects at the Ministry of Science, ICT and Future Planning, said in an interview, “The creative economy innovation centers are regional ‘bastions of innovation’ and ‘start-up hubs’ (founded) to carry out a number of roles, such as activating entrepreneurship by efficiently bringing together regional resources, boosting corporate competition and opening global markets to products and services.”

The centers will serve as a platform for entrepreneurs-to-be, investors and mentors to interact and share information. They will also link Seoul with provincial areas and aid small- and medium-sized enterprises (SMEs) in expanding abroad together with conglomerates. The government will utilize global companies’ market knowhow, networks and platforms to support the entire process of startup training, technology development, business model development and providing consulting and funds. It will also foster angel investors in the provinces and cooperate with domestic and global accelerators to support the growth of startups.

The government is also striving to foster the entrepreneurial spirit amongst Korean youth through its “biz-cool program,” to be conducted at 5 percent of elementary, middle and high schools by 2017. It will also increase the number of universities specializing in entrepreneurship from the current 23 to 40 by 2017. These schools provide entrepreneurship training, offer opportunities to build product prototypes, and teach about commercialization. It will also devise a KRW 15 billion “venture for Korea” program that provides talented youth the opportunity to intern at promising venture companies. The government will also provide up to KRW 100 million in funds when they start a business.

Existing business incubators will undergo streamlining as well. The 277 existing incubators will be restructured so that well-performing ones can receive more government funding and grow further. They will receive increased support, including investment and links to broader networks.

 

Emulating the Israeli example
As a small open country with a leading startup infrastructure, Israel has captured the attention of Korean policymakers. In particular, the government has focused its attention on Israel’s Yozma Fund, created in 1993 by the Israeli government and the private sector in order to support technology startups. The fund has served as the basis for the country’s professionally managed venture capital market and the development of “Silicon Wadi,” the country’s concentrated area of high-tech industries.

Modeled on the United States’ Silicon Valley, the fund consists of venture capitalists and angel investors, and has helped a large number of its portfolio firms go public on major stock exchanges in the U.S. and Europe. It has also played a role in positioning its portfolio companies for acquisition or investment by leading corporations around the world. At a forum in Seoul on March 7, Israeli venture capital firm Magma VP co-founder Yahal Zilka said that in Israel, the role of the government in activating startup investment has been very important. Thanks to government sharing the investment risk, private capital could invest more boldly, he said.

Seoul aims to create a Korean version of the Yozma Fund by attracting investment in domestic firms seeking listings on foreign stock exchanges or M&As with foreign companies. It will build a KRW 200 billion fund by providing KRW 60 billion of government money and attracting foreign investment.

The government has also announced its commitment to expand the domestic M&A market, aiming to grow the local market by some 75 percent to some KRW 70 trillion by 2017. An active M&A environment has been emphasized as a necessary condition for venture companies to flourish, since it provides investors with the prospect of a return on their investments. In an address last month, Strategy and Finance Minister Hyun Oh-seok said the lackluster M&A market limits companies from restructuring themselves to focus on their core competencies and also makes it difficult for investors to recollect their investments in venture firms, and subsequently limits those companies’ opportunities for growth through M&As.

“In order to achieve a dynamic, innovative economy, we need to create an environment where startup and venture companies can grow into small- and medium-sized firms and ultimately global corporations,” said Hyun. “This can only happen when there are active corporate M&A activities.”

 

Identifying new industries and markets
Another part of vamping up the domestic economy is nurturing new convergence-based industries by applying information and communications technology (ICT) to traditional industries. Such measures are expected to boost productivity and added value, as well as foster related service industries to create more quality jobs for the nation’s youth.

To see this in action, one needs only to venture to one of Seoul’s large traditional markets. Not long ago, these bustling outdoor markets were on the verge of extinction as merchants found it difficult to compete with the conveniences of major supermarkets. Korean IT firms, however, are providing solutions that allow these pieces of Seoul’s commercial and cultural life to keep going strong. Last year, for instance, mobile operator SK Telecom provided touchscreen tablets to merchants at Junggok Jeil Market that not only function as electronic cash registers, but also help merchants more efficiently manage inventories and promote their wares. This, in turn, has led to a big boost in sales. SK Telecom has also provided market merchants with credit card scanners.

To promote developments such as these, the government has crafted a “creative economy vitamin project” to designate science or ICT-related businesses with significant socioeconomic ripple effects. The project will formulate new tasks to upgrade existing industries every year. For example, in the case of agriculture, forestry and marine products, the tasks could center on utilizing ICT to prevent agricultural disasters or using intelligent robots to protect water resources.

The government will also focus on finding and fostering new sources of growth, such as the Internet of Everything (IoE), cloud computing and big data. IoE, for instance, adds connectivity and “smart” capacity to each and every device— from cooking utensils to your car—in order to boost its functionality. To promote these sectors, the government is establishing partnerships with global companies to work together on producing IoE-based, sensor-equipped objects and networks such as smart cars and homes.

The government also plans to apply cloud computing in the public sector as early as 2015 by creating an open platform through public-private cooperation. Korea’s intelligent use of cloud computing is already drawing praise from the international community. In a report issued in December 2013, the United Nations Conference on Trade and Development (UNCTAD) cited Korea’s National Total Operating Platform System as an exemplary example of cloud computing in the public sector.

Boosting R&D, attracting foreign talent
The government has announced it will boost R&D investment to 5 percent of the nation’s GDP by 2017. The plan for greater R&D investment covers both the government and private sector. The government will continue to increase its budget for R&D investment to reach KRW 20 trillion in 2017, from the current KRW 17.7 trillion. It will also encourage private sector R&D by establishing a policy support center in the coming months and make concrete plans to activate private R&D investment by the end of the year.

The government also plans to widen the nation’s talent pool by attracting foreign scholars and researchers. The plan is to bring 300 of the top 1 percent of scientists from around the globe to Korea by 2017. To do this, it will create the Korea Research Fellowship, which will bring in foreign talent, including overseas Koreans, and foster them here. Scholarships and research funds will be provided for those coming for master’s degrees and PhDs, and a wide range of incentives such as airfare, living expenses and research funds, as well as positions in domestic institutions, will be provided for researchers. “A creative economy encompasses all fields ranging from culture to music to broadcasting. All industries can become new growth engines through convergence with ICT. Convergence is the new economic paradigm,” said Min Seungoh, vice president of Ericsson Korea, the local office of the Sweden-based telecommunications provider.

“A number of efforts need to be made collectively. The government needs to ease regulations and the private sector needs to play a role in building infrastructure and finding and fostering new growth engines. Both need to fully utilize ideas, talent and capital in doing this.”

Promoting and protecting intellectual property rights
It is also important to encourage innovation along with the promotion and protection of intellectual property rights. The government will step up crackdowns on counterfeit products, revise patent laws and provide support for domestic companies going through overseas disputes over intellectual property rights.

In particular, it will shorten the screening process for intellectual property rights, improve screening quality, strengthen the compensation system for damages related to intellectual property rights and bolster protection through amending legislation related to technology leaks. Those who leak confidential business information will be criminally punished.

In order to promote creative activity, the government will expand the “patent box” system to mid-sized firms, which will provide corporate tax exemptions on income streams from technology transfers. It will make a “creative fund” where the private and public sector can collectively invest in the commercialization of creative ideas. The government plans to put in some KRW 150 billion by 2015, and expects some KRW 350 billion to come from the private sector. It will also establish a database on technology transfer cases and an overall information network on technology commercialization by the end of the year.

 

Fostering new green energy industries and markets
The government is also taking measures to deal with domestic energy demands and to respond to global climate change. It will ease regulations to encourage new energy industry business models to be created, as well as promote investment in them.

It will map out business models for each of the eight new energy industries and provide policy support packages. The eight industries are those of new renewable energy, electric automobiles, carbon capture and storage (CCS), smart grids, energy storage means, energy management systems, intelligent demand response and energy saving companies (ESCo).

Along the same lines, the government will create a “green energy town” in order to deal with energy-related and environmental problems. These towns will be built at incineration plants and landfill sites where green technologies will be applied to transform them into new sites of renewable power. Each of the related ministries will cooperate to provide packages that suit each of the projects. For example, the environment ministry will focus on waste recycling, the trade ministry on new and renewable energy and the culture ministry on tourism resources. Task forces consisting of experts and related ministry officials, as well as local authorities and resident groups, will work together on these issues. A pilot project will start running this year of a green energy town. The Office for Government Policy Coordination will serve as the control center, and related ministries will work with local authorities to make a concrete profit model. The overall plan for the green energy town will be made by the end of this year, and implementation will start next year.

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