[Insight & Opinion] Half of Foreign Unicorns Once Restricted by Regulations Went Public... What About Korea?

[Asia Economy] Among the top 100 global unicorns (companies valued at over $1 billion) in 2017, 56 were unable to properly conduct business in Korea. What about five years later, in 2022? Unfortunately, there has been little change. This year, 12 of the top 100 unicorns are completely unable to operate in Korea, and 43 can only do so in a limited capacity. This means that 55% still cannot fully conduct business in Korea. This is according to the '2022 Startup Korea!' report jointly published earlier this month by the Korea Startup Forum and the Asan Nanum Foundation.

Every time a new government takes office, discovering innovative businesses and regulatory reform have been recurring themes. Despite many efforts and some achievements, satisfaction with regulatory reform has actually declined over the past five years, and many global unicorn businesses still cannot operate domestically.

Among the 56 companies that were subject to domestic regulations in 2017, 23 foreign companies have since grown from unicorns to publicly listed companies. These companies, which had a cumulative investment of 60 trillion won at the time, now have a market capitalization of 497 trillion won, accounting for 20% of the market capitalization of domestic listed companies.

On the other hand, Korea’s new industries remain constrained. Ride-sharing, telemedicine, and shared accommodation are still regulated in Korea just as they were five years ago. Unlike overseas unicorns that have grown into giant platform companies, our startups continue to miss out on possibilities and opportunities.

The bigger problem is that this does not only result in opportunity losses for individual companies. The virtuous cycle of the startup ecosystem consists of 'startup-growth-exit-reinvestment.' While global innovative companies grow into giant platform companies and move into the exit-reinvestment phase, domestic companies remain stuck in the startup-growth phase. Even if regulations in these fields are lifted, there is concern whether domestic companies can properly compete with overseas companies in both domestic and international markets.

What should be done to prevent capable innovative companies from being held back by regulations and falling behind in global innovation competition?

First, integrated and full-cycle support from the perspective of innovative business is necessary. Innovative businesses widely permitted in most countries have been repeatedly discussed in Korea, but because the approach has been from the perspective of the necessity of individual regulations, progress has often been stagnant. The government’s burden of proof regarding regulations and the shift to negative regulation should be strengthened from the standpoint that innovative business should naturally be allowed.

Second, evidence-based social consensus for coexistence is needed. When existing industries strongly oppose, new industries are almost never permitted. Social consensus on the necessity and safety of new industries and the resolution of conflicts between new and old industries must be based on data and evidence, with the government playing an important role as a mediator. The government should move away from a passive or referee role and take an active role.

Third, regulatory innovation systems should be operated from the demand-side perspective. While the 'regulatory sandbox' has had some success, it has often become a form of 'hope torture' due to indefinite waiting periods or complicated additional conditions. Considering the situation of startups, uncertainty and complexity should be reduced, and support that allows businesses to grow during the regulatory innovation process is necessary.

The future leadership of our economy lies with startups that possess innovative DNA. Laws and systems can either be obstacles or stepping stones for them. Regulation is an area of legislation and administration that startups themselves cannot resolve. We look forward to regulatory innovation so that more startups can boldly challenge innovation.

Choi Sung-jin, CEO of Korea Startup Forum