Fostering innovation is paramount to sustaining an abundant economy. Governments world-wide know this. And with this knowledge they have embarked on creating policies and initiatives to assist in turning their countries into bustling innovation hubs. In this post we look at South Korea and how the not so long ago war-torn nation, landed itself the number one spot on Bloomberg’s Innovation Index.
Bloomberg’s Innovation Index
The Bloomberg Innovation Index scores and ranks countries on an innovative scale that factors in many areas. Only countries that provide the data to measure at least 6 of the 7 ranking criteria are included. These criteria include Research & Development intensity, manufacturing value-added, productivity, high-tech density, tertiary efficiency, researcher concentration and patent activity.
In early 2016, South Korea was ranked as the most innovative all-rounder, followed by Germany and Sweden. South Korea didn’t just beat the other nations; it led by almost 6 whole points.
South Korea is one of the world’s most successful economies. Since the 1970s the nation has developed at an exceptional pace and now sits at number 11 of all economies ranked by global domestic product. That’s two spots better than Australia, which is ranked in position 13.
To understand how the country strengthened their economy and ranked at the top of the innovation scale we need to look at their past and assess their motivations to prosper. The tiny nation stemming off China is a land without an abundance of natural resources. This meant Korea was forced to look elsewhere for income. And with this, the country developed a knowledge-based economy. But this did not happen overnight. The country has invested heavily in education, science and technology since the 1970s.
In the 1970s and 80s a number of things happened. Firstly, the Korean higher education system expanded and the government developed state-funded research institutes in the areas of science and technology. And the second, the country shifted it’s focus from an export industry of labor intensive products such as clothing, footwear and materials, to heavy industries such as car manufacturing, shipbuilding and consumer electronics. The shift laid ground for the development of the country’s major enterprise conglomerates - as they’re called in Korea - chaebols. These are the roots of globally well-known companies such as Samsung, LG and Hyundai. Interestingly, the funding of these conglomerates was mostly the result of foreign capital loans.
Between the 80s and 90s, while these companies grew, the government focused its attention to high technology industries and later to knowledge-intensive industries. The government spent a significant amount of money on developing industrial cities, as well as technology and science parks.
According to The Conversation: 'a National R&D Program was launched along with initiatives aimed at helping private companies develop high technologies'. This investment had a large impact. By 2007 80% of Korea’s R&D expenditure was within the private sector. This investment was supported by government tax incentives for R&D and the importation of foreign technology.
Government’s role in innovation
The Korean Government’s investment in state-led research developed a major science and technology capacity. Approximately 3% of the country’s GDP is spent on R&D. Today, there’s major investment in R&D in the areas of green technologies, network technologies, emerging communication technologies and space. Through the support of industry-oriented research centers, there’s also development into platform and infrastructure technology.
Industry’s role in innovation
Innovation Policies of South Korea, a report prepared by the Institute for Defense Analyses for the US Department of Defence, recognises the contribution from industry as a critical part of the country's innovative successes. The report explains Samsung is considered the 4th most innovative company in the world and Hyundai as the most innovative car company. The top companies of the country no longer spend the most of their Research and Development in safe technology, but now invest toward cutting-edge innovations in science and technology.
It’s about progress, not perfection
Korea’s rise to such an innovative landscape was the result of strategic approaches to science, education and technology. It was also combined effort between the government and industry. However, it’s not all perfect. The exponential growth of the country has caused a significant divide between classes. The bigger companies’ strong-hold over the workforce has made it challenging for other small to medium businesses to flourish, due to top talent being secured only by the conglomerates. There’s also little room for a start-up culture - the talent in conglomerates would speak to management about their ideas rather than branching off on their own. This, combined with an aging population, is making it questionable if the country can sustain its top innovation ranking.
While this may be the case, there are varying insights other economics can take away from Korea’s innovative landscape and apply to their own nations.
- Collaboration is key: Government and industry collaborating on innovative ideas and projects leads to success.
- Be open: Korea is open to learning from outsiders. 50% of faculty at top South Korean universities are have some training in the US or other nation. Many Korean students travel abroad. Large companies will hire foreign-trained talent.
- Take a risk: There’s a high tolerance for risk in business, even in the big conglomerates. This separates Korea from many other conservative Asian nations.
- Assess supply chains: There’s a strong manufacturing base in Korea. IDA found the control over vertical supply-chains enabled rapid innovation.
- Education is necessary: High-quality education and an incredible literacy rate in the country contributed to it’s success.
Korea is an incredible nation in many respects, but it’s strategic approach to innovation is what makes it standout in an ever-increasing globalised economy. The lack of start-up culture is a watch out that will likely have a negative impact on the country’s innovative landscape, unless something is done about it. Only time will tell if it will remain at the top of the innovation scale, or if it will give way to countries such as Germany and Sweden, or even Chile who has incredible startup initiatives attempting to take the stage away from Silicon Valley.
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