Drivers of Korean Startups’ FDI: Government Support or Regulations?

Dr. Hwy-Chang Moon's picture

The Korean government has been well-known for the significant support it gives to startups pursuant to its “Creative Economy” policy, which aims to stimulate economic growth through innovation and job creation. Ironically, given this strong backing, there have been an increasing number of Korean startups investing abroad to bypass the strict regulations of their home country. Although Korean startups have advanced technology, they are hamstrung by burdensome government regulations.

Illuminating in this regard is a quote from the CEO of a Korean startup who observed, “Many domestic startups use more than half of their resources to address legal regulations. Startups in other countries, however, use most of their resources for promoting innovation and providing higher value to consumers.” Avoiding government regulations, then, can well explain why some Korean startups, particularly in the digital sector, have a keen interest in overseas’ markets like the Association of Southeast Asian Nations (ASEAN). In Korea, extensive regulations restrict domestic innovation and technology convergence in many key fields associated closely with the fourth industrial revolution such as artificial intelligence, big data, fintech, and automatic driving. In contrast, the ASEAN region has lower degree of restrictive policies and regulations for startups in many fields of digital economy, which creates an attractive environment for foreign startups. The policies of Singapore and Malaysian governments stand out in this regard. As for Singapore, it supports not only startups, but also investors such as venture capitalists and has policies to nurture an international startup community. More provocatively, Malaysian backing for startups is not confined to its own borders, but also extends to the entire ASEAN region. Reacting to these positive stimuli, some Korean startups have established overseas offices. Seoul should realize that reducing regulations may be a more effective way than providing support to startup its effort to promote startups!