Open innovation in Korea is slowly moving away from building R&D capacities to reassessing business and operational models by either building its own corporate venture capital arm or working with an external consulting partner (typically a VC or an accelerator). The purpose for most Korean companies would mainly to have a testbed in innovating its business model or developing new technologies. And by running the open innovation program, the respective company would update its biz model, secure new talent, tech, market insight, and approaches to customer acquisition, etc.
Of course, a company may decide to buy a well-oiled startup with the range of technologies the company would need. For instance Hanwha Systems recently bought Satrec Initiative and plans to equip itself with the nut sand bolts to launch its own satellite.
In Korea, open innovation really used to be investing in a company one by one or expanding its social impact footprint and its CSR program, e.g., Hyundai Car’s pitch program called H-On Dream, but it is now opening up to a much more open collaborative approach.
- Digital Transformation with a consulting firm: One of the most well-known open innovation consulting firm is called 로아 인벤션랩. Its most successful case studies are with KT 국민은행 and working with fashion & cosmetic brand companies that were relatively slow to innovate, e.g., LF and 신세계. Side note: It also began investing in startups, ~20 last year, via an angel-based VC, Big Bang Angels.
- MOU-based with VC/Accelerator: A large startup/accelerator/VC signs a partnership with a corporation to reassess its business model. The example I witnessed was the one with Hashed, a blockchain fund in Korea. It worked with an array of companies, banks, LG CNS, and those even remotely interested in learning about blockchain, including SM entertainment and CTIA, a mobile telecom company. And in doing so, the corporation’s tech or new business department could pilot a business model and the VC funneled its startups to partner with large corporations.
- CVC: The corporation could also decide to build its a raw datasheet of startups by opening a “신사업” or new business branch in industries it already does business in.The most successful ones I’ve seen are Kakao Ventures and Samsung Next. Most Korean CVCs do not have a very strong international base, except for the Korean conglomerates that already have a presence abroad. 한화생명’s Dream plus 63 has secured a network in Tokyo and Shanghai. Even Smart Study famous for its animation and its song, baby shark, has hired one or two investment analysts to review startups that they could be a part of. And it was quite successful at it so far. The interested company could soft-land by participating in one of KITA Next Rise’s programs as a judge/mentor.
- Introduction-based: KITA has done this really quite well. KITA is the parent company that owns the space in Coex Mall and has a free lounge for startups. Annually, it hosts an annual conference called Next RIse for the purpose of assisting with open innovation. Another program KITA is famous for is a program called Fortune 500 Connect. KITA hosts an open invitation for startups interested in working with conglomerate contacts, notably BMW and Chanel, in the States, etc., to make introductions.
Open innovation may seem tricky to enter, but there are many new mediums in which the startup could enter the field of open innovation. I suggest all those who are interested to start attending the startup-corporate meet-ups and or read case studies of successful programs or acquisition models.
South Korea has historically been reliant on foreign suppliers for the core technologies. Many of its advanced weapons systems are based on technologies developed outside South Korea.
To mitigate the dependence and facilitate the technological development of the defense sector the commercial R&D activities carried out by the state are increasingly being outsourced to the defense industries.
One way to bring in foreign technologies into the defense industrial ecosystem is to work with local partners, suppliers, trading companies, and manufacturers that already have a contract with the ADD (Agency for Defense and Development.)
You’ll also need to get through the International Traffic in Arms Regulations. I’ll have a follow-on post about ITAR.
Here are five ways to enter the Korean market:
- Work through a trading company. This method is used when the foreign entity is not interested in establishing an entity in Korea, but in testing out the market. A contract is drawn between the company sourcing the product and a domestic import/export partner. The trading company in the deal receives an estimate from the supplier, sign a sourcing agreement with clients, and receives a set fee. Then they work with domestic partners, customers of the product, and negotiate ($/unit, etc.)
- License out the technology. Licensing or outbound licensing is essentially selling the intellectual property of the technology to commercialize the IP into the business. This is useful if the supplier lacks market knowledge, infrastructure, and resources to bring the product to market without the related R&D costs. The key here is to set reasonable and nondiscriminatory terms to avoid the likelihood of future IP litigation.
- Set-up its own branch here in Korea. At Big Bang Angels, I worked on a fund model to help U.S. and Canadian tough-tech startups with IP protection but without access to the market, network, and investors, to make inroads into Asia. The thesis was that the startup could secure IP protection in the international finance hub of Asia, Singapore, or Hong Kong, to attract follow-on capital on the specific technology. Then form a team agile enough to navigate the Asian market. Risky, but an appealing method for startups, especially AI or SaaS companies, for its agility.
- Partner with a local manufacturer or supplier that could establish itself as a sales partner on the ground. This could be a one-stop-shop solution to localize the production of the technology. They can ideally deliver on the technical capabilities, integrate the product into the niche needs, and utilize the sales channel to get the product into the market.
- Form a joint venture. It’s an agreement between two companies with different areas of expertise in the creation of the new, separate business entity. By sharing the risk, revenue, and technical know-how of two business entities, they can enter the market much more effectively.
Forming a joint venture is a common method to set-up an entity in Korea between two companies from two countries. They share different cultural capital, market know-how, and through the JV, they share their areas of expertise in the creation of the new, separate business entity.
I recently had a conversation with a family member who grew a joint venture, or a business entity created by two or more parties with shared ownership, into a ~$690 million USD figure business in Korea.
Vacuum pumps used to remove air, gas, or oil particles from a device or equipment that can corrode the internal parts of a machine. It is used for various industrial applications in manufacturing units for optimal processing environments such as semiconducting materials, glass coating, etc. They are used even in medical applications that require suction.
In the beginning, he received an offer from the company to set-up a venture here in Korea with around 15% or so market share. When he began his business, he found that machinery malfunctions. The problem was that the company knew how to sell, not to engineer.
The Korea office would field complaint calls about tech malfunctions. Even if the specific equipment is around $50K or $100K USD per unit and the technology it supports is $10 Mns USD, it will not operate if the supporting tech does not work.
When he found the issue in the supply chain, the company did not have the capacity to fix the equipment but just to carry it into the country. And instead of delaying the issue, he created a study program for engineering students. In turn, they would help troubleshoot the mechanics.
The slogan became — “Fix First, Fighting Later.” As in, fix the equipment before they make the sales. They created a one-stop-shop to smooth out the process inventory to procurement. Competitors did not.
Eventually, the company sustained its customers and slowly increased its market share. The most popular use for the vacuum pump was in suppliers of semiconductors and flash memory chips. They began receiving offers investments from the parent company and the client companies like SK Hynix and Samsung Electronics, the South Korean memory chip powerhouse. It built its own facility to manufacture the pumps then exporting it from overseas and hired electrical engineers and field engineers. Engineering support was no longer a simple value-add, but its main competitive advantage to help design and set-up the system from ground zero.
There certainly many elements to the equation — the careful maneuvering of relationship management in penetrating the market, the internal R&D to continue improving the deployment systems piling on its many IPs, and others. But what gave the company the kick it needed to get off the ground was resetting priorities, creating another value-proposition, and building it into a core asset in the company.
Arabesque is the first ESG Quant Fund global asset management firm founded by Georg Kell, the founder and former Executive Director of the United Nations Global Compact. It is focuses on advisory and data solutions by combining big data and environmental, social and governance (ESG) metrics to assess the performance and sustainability of companies worldwide.
It has its headquarters in London and a research group in Frankfurt and has offices globally. It analyzes the ESG data first and then finds out how much to invest based on the company model. The fund has a 32.5% return on investment, higher than global investment growth rate of 24%.
It all began with George Kell’s speech at the Davos forum. He partnered up with Bob Eccles, the founding chairman of the Sustainability Accounting Standards Board. The vision is to enable everyone to be able to invest in responsible companies to hold them accountable.
The technology of Arabesque S-Ray is based on the dimensions of the UN Global Compact – environment, human rights, labor rights, ant-corruption and excludes those who rate poorly in the fields of arms, tobacco, or gambling. Kell hopes to continue to move a critical mass of companies in the right direction and markets demonstrate responsibility of creating a shared future.