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작성일자 2018-03-05 17:10 수정일자 2018-03-05 17:10
The Korean startup ecosystem’s development
as the “3rd way”
Why Korean Startups Need India
▲ Steve Cervantes Konkuk Univ.
This is part 1 of 3 in a series documenting why the Korean startup ecosystem needs its Indian equivalent. The present writer interviewed several Indian startup CEOs, accelerators, and associations and has concluded that the two ecosystems should inextricably link together.
The ecosystems linkage is what I have termed the Korean startup ecosystem’s development as the “3rd way”. The first being that in which it is a Silicon Valley replica: world renown VCs, numerous unicorns, highly diverse, etc. and second China, which has the world’s largest amount of venture capital and whose startups focus domestically.
Much has been said about Korea becoming the “Asian Silicon Valley”—it will certainly take several years for such a goal to be realized. Korea’s startup development and promotion started in earnest in 2013 while Silicon Valley began in the 1950s. Silicon Valley venture capital in Korea has been few and far between, and while numerous Korean startups have entered Silicon Valley few have succeeded.
All the ballyhoo about Korean startups getting abundant Chinese investment and venture capital has come to naught; it was only about three percent of total venture capital last year. Likewise, few Korean startups are experiencing enormous success in China.
It could be too early to speculate whether Korean startups will continue to underperform in relations with either ecosystem; however, Korea has some major obstacles to overcome, especially with China: Presently, China’s implicit THAAD sanctions, a central government habitually prone to arbitrary actions against foreign business (just ask Lotte, Google etc.), which Korean startups must always bear in mind; language barrier, few Korean startup personnel speak Chinese; and Korean startups have limited means for marketing electronically given Facebook, YouTube etc. are blocked.
India, indeed, is the answer and third way to the Korean startup ecosystem’s development and growth.
Why India is an indispensable market for Korean startups
Demographically speaking India is a startup’s El Dorado; most demographers predict India’s population will surpass China’s between 2020-2024, but what’s most telling is more than 50% of its population is below 25 and by 2020 the India’s average will be 29 compared to 37 for China and 46 for Korea respectively. What is more, China and Korea’s populations will peak in 2025 and are expected to exponentially contract thereafter.
There are several problems inherently related to aging populations: decline in working age population which creates a smaller pool of workers; that in turn creates a vicious circle of rising wages coupled with inflation, less innovation, etc.
Essentially the global economy’s fate by 2030 will go where the Indian economy goes.
India’s youthful population facilitates demand for many of Korea’s startup platforms: coupled with the world’s second fastest growing middle class comes demand for internal and external esteem; as such middle-class youth’s demand for beauty products, entertainment etc. A conversation with Shiv Shankar Ganesh, CEO at Chennai’s startup, Kaching-FREE Deals & Offers, validates Indian demand for K-pop and Korean beauty products by stating “K-pop is India’s newest rage and is rapidly spreading despite India having the world’s largest music and movie industries.”
Korea may have the largest smartphone penetration per capita globally, but India is second only to China in demand and at about the same time its population surpasses China so too will its smartphone demand. Given India’s dearth of purchasing power and internet penetration, it has a lot more future growth potential than any other country while China will soon reach saturation in demand.
With India’s rising demand for smartphones comes a huge demand for apps and services. Korea has a surfeit of apps and services market, so much so that most app startups are in the “red”—Korean app startups can meet India’s demand and increase profits by entering the Indian market.
Much has been said about government regulations on fintech startups where the government has taken an almost pathological approach restricting their activity. Save for companies like Viva Republica, few Korean fintech startups have experienced notable success. Most pundits agree government regulations are hamstringing fintech startups from growing.
It doesn’t appear the government will relent anytime soon, if taking cryptocurrency as an indicator when the justice ministry said it would consider ways “to regulate cryptocurrency exchanges and plans to devise stiff penalties for crimes related to such transactions.”
India’s financial industry, conversely, is more open than Korea’s. For 20 years prior to the Narenda Modi administration India had been methodically deregulating its financial sector; since the adoption of Narenda Modi’s FDI policy, i.e. “Made in India’s”, where 100% FDI is permitted in 25 sectors including financial services other than banks and insurance companies, deregulation has greatly accelerated. In addition, bitcoin and cryptocurrencies are not officially prohibited.
According to Sanjay Enishetty CEO of 50K Ventures in Hyderabad, “Korean-financial-blockchain solutions are welcomed to India and a sizable number of initial coin offerings (ICOs) are coming up.”
Institutionally the Indian central government, similar to Korea’s, implemented the “Startup India” initiative. It provides tax breaks, improved bankruptcy laws etc.; it pales in the amount of seed funding Korea’s provides. But more importantly, India like Korea has proclaimed startups as its future growth engine.
The next two parts will focus on describing the Indian startup ecosystem and where and how Korea’s and India’s ecosystems can coalesce and how India will become Korea’s 3rd way.