South Korea’s dominant chaebols—giant family-run conglomerates that include Samsung (005930:KS), LG (066570:KS), and Hyundai (005380:KS)—generate more than 80 percent of the country’s exports and hire four in five of its graduating college seniors. Chaebols helped to drive South Korea’s transformation quickly and efficiently from agrarian poverty to the world’s 15th-largest economy in a few short decades. Now, though, a growing sense in Seoul is that the old model has lost its sheen. GDP growth slowed to 2 percent in 2012, and unemployment is now rising, especially among recent college graduates.
No one is suggesting that the chaebols’ influence will be eclipsed soon, but “policy leaders realize there needs to be a more diverse economy,” as Tom Coyner, of Soft Landing Consulting in Seoul, puts it. Shortly after taking office in February, South Korean President Park Geun-hye launched the new Ministry of Science, Information-Communication Technology, and Future Planning, which is charged with jumpstarting creative industries and assisting small businesses.
As home to the world’s fastest Internet download speeds, South Korea might seem a natural place for tech startups to thrive. Indeed, Seoul has a nascent startup scene, which benefits from exposure to the country’s tastemaking media and entertainment industries. Korean soap operas play on TV sets inside Chinese apartment blocks and Mongolian yurts, and satirical K-Pop star Psy’s Gangnam Style video became an international YouTube (GOOG) sensation last year.
“Korea is big enough for a local market, but its size also forces you to think beyond,” says David Lee, the 33-year-old founder of Seoul’s Shakr Media, which runs video site shakr.com. He says that many Korean startups, like the country’s media companies, cater first to a domestic market. But because South Korea has just 50 million people, startups concerned about long-term growth need to think internationally from the get-go.
On shakr.com, developers can upload video templates for everything from weddings and children’s birthdays to real-estate sales. A user can insert personal photos into the template and download a low-res video for free or pay about $40 for an HD version. Since the website was launched on May 1, about 40 percent have chosen to pay for the higher-quality version. To date, Shakr has received about $2.4 million in seed funding from domestic and international investors, including Silicon Valley venture firm 500 Startups. Much of Lee’s growth plan centers around real-estate video templates for the U.S. market.
“It’s probably the best strategy to go international as soon as possible, without becoming dependent on the domestic market and inevitably bumping up against, or being subsumed by, the chaebols,” says Coyner, the consultant. He has seen many promising Korean startups sign lucrative but demanding contracts with chaebols, overextend themselves and lose focus, then have to cut back or go bankrupt. “There are plenty of good engineers and ideas in Korea. The problem is how to scale up without being absorbed.”