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  • Startup Hub UAE, Innovation Needed in Korean Startup Ecosystem
    2018-08-30

    Startup Hub UAE, Innovation Needed in Korean Startup Ecosystem  

     

    - Korea has excellent infrastructure but has high regulatory barriers Need to reduce dependency on policy funds and boost private investment -

     

    Compared to the UAE in the Middle East, it appears that the start-up ecosystem in Korea has several problems, such as lack of networking opportunities and heavy dependency on policy funds.

     

    According to a report titled "The Secret and Implications of the UAE which is Emerging as a New Startup Hub" issued by the Institute for International Trade (President, Shin Seung-kwan) of the Korea International Trade Association on August 30, the UAE has focused on innovative entrepreneurship since 2011 and ranked 5th place in the venture capital (VC) section area in the ‘2018 National Competitiveness Assessment’, beating established entrepreneurial countries such as Israel and Germany, with its active effort to create a startup ecosystem. The investment volume in startups is expected to reach $ 1 billion this year, from $ 40.5 million in 2014.

     

    The UAE has been able to rise as an emerging startup hub in a relatively short period of time, thanks to its location as the base to enter into the Middle East and North Africa markets, its business-friendly policies such as regulation-free and tax exemption, its high-tech startup infrastructure, and its favorable investment climate such as abundant Sovereign Wealth fund and foreign capital. In particular, the venture capital ecosystem seem highly dynamic as half of the top ten venture capitals in the Middle East and North Africa are based in the UAE, and their investment activities are diversified depending on the stages of the startups’ growth.

     

    On the other hand, Korea has a geographical advantage as a logistics hub in Northeast Asia and an excellent ICT environment, but the country is less business-friendly, compared to UAE. If the business models of the top 100 companies based on the accumulated investment volume of the past one year are applied to the Korean market, 70 percent of them will not be able to run their businesses in Korea due to the regulation barriers or they need to change their business conditions.

     

    In addition, there is a lack of opportunities for large-scale international networking. Of the 411 startup events held in Asia in 2017, only nine were held in Korea, far behind Singapore (96), India (67), UAE (62), Japan (29) and China (26). In particular, the average number of significant links that the startups in Korea have with those of advanced startup ecosystems, such as Silicon Valley, New York, London and Berlin is only 2.1, which is 1/3 of the international average 6.1.   

     

    Korea’s startups heavily depend on government funds. Korea's venture capital investment surpassed 2 trillion won in 2015. However, the ratio of venture capital investment to gross domestic product (GDP) stood at 0.13 percent, falling behind the United States (0.36%), Britain (0.21%), China (0.24%) and India (0.39%). Moreover, there are more loans than investment. The amount of funding required in the growth phase (Series BC), such as mass production and commercialization after the product development, is much smaller than that of foreign countries. In particular, among the new financing ways of Korean venture companies, 'government policy funds' account for 84.9 percent, and new funding through venture capital and angel investment take up only 0.4 percent. 

     

    The report emphasized through the UAE's case that in order to boost innovative startup ecosystem in Korea, unprecedented regulatory solutions such as regulation-free policy are required. For example, free-zone tenant conditions that are currently limited to foreign companies can be given to Korean startup companies. Furthermore, the report stressed to expand opportunities for startups to participate in government procurement projects, provide networking and information sharing opportunities such as global startup conferences, foreign investment in startups, expansion of cooperation between startups and large companies, and reduce dependency on policy funds and stimulate private investment.

     

    Jang Hyun-sook, a researcher at the Korea International Trade Association, said, Although the Korean government has been steadily shifting to negative regulation, it is not enough to resolve the single-sided regulation image that corporations are experiencing. She also stressed, "In order to boost innovative startup ecosystem in Korea, it is necessary to exert enormous efforts such as unprecedented elimination of regulations, reducing dependency on policy funds, and improving the private investment environment.

     

     

    < Comparison of Startup Ecosystems in Korea and UAE >

     

    UAE

     

    Korea

    Location

    Bridgehead to Middle East, Europe, Africa

    =

    Northeast Asia Logistics Hub

    Business Environment

    Regulation Free, Tax Free

    Regulatory barriers

    Infrastructure

    Working on expansion of state-of-the-art advanced infrastructure

    Already has a abundant infrastructure

    Global Network

    Strong

    Weak

    Investment Environment

    Abundant foreign capital and government investment funds

    Government Support (Loan) Fund-oriented

     

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