[Editorial] Startups and regulations

At a time when a solid startup ecosystem is playing a greater role in introducing new technologies and innovating services, South Korea still remains a tough market saddled with regulations even for local ventures, a recent report showed.

On the surface, official figures regarding the Korean startup market don't look so bad. After all, the country runs the Ministry of SMEs and Startups, a state agency fully dedicated to nurturing startups in a way that helps the broader economy find a fresh growth momentum and stay competitive in the global market.

The ministry on Monday announced the number of startups whose sales exceed 100 billion won ($73.8 million) stood at 739 at the end of last year, up 16.7 percent from a year earlier.

Encouragingly, over 100 companies joined the 100 billion won club for the first time, marking a 71.1 percent increase from 2020. And the startups that generated more than 100 billion won in sales also contributed to the country’s job market, hiring over 270,000 in 2021, up from about 240,000 in 2020.

Given that the Korean economy struggled during the pandemic period, the visible growth of startups and their expanded market coverage come off as a hopeful sign for the sector. According to the Ministry of SMEs and Startups, the front-runners in the startup market were quick to notice what consumers wanted in connection with the changed lifestyle sparked by the pandemic and utilize digital technologies, leading to higher sales.

Companies offering innovative delivery services based on mobile apps, for instance, pulled off a faster growth as more people stayed home and worked remotely due to the spread of the COVID-19.

However, not all facets of the Korean startup sector are positive. According to a survey of 256 startups by the Korea International Trade Association, 1 in 4 startups, or 25.4 percent, consider shifting their offices outside of Korea.

The main reason is to avoid local regulations that remain a stumbling block for developing and commercializing innovative services. In general, startups, both at home and abroad, find it difficult to secure investment funds and talented engineers when they try to float a new business. In South Korea, navigating through complex regulations is as hard as timely investment and recruitment -- if not more burdensome.

There are a growing number of startups whose fledgling yet innovative services collapsed due to the rigid regulations and complicated procedures. This is not a new problem. In the past decades, the Korean government came under attack for its excessive regulations that hindered the growth of new business items. Both liberal and conservative administrations had pledged to push for deregulations, but such promises turned out to be empty lip service, as related laws to reform regulatory blocks failed to pass through the National Assembly.

The Yoon Suk-yeol administration appears to be willing to deal with the longstanding regulation issue, but it is virtually powerless as the National Assembly is controlled by the main opposition Democratic Party of Korea. This is why the ruling People Power Party proposed a total of 77 pieces of legislation since the Yoon administration started in May, but none of them have passed in the National Assembly.

The administration is now trying to untangle some of the regulatory excesses by revising enforcement decrees in related laws, but what is urgent is to pass key legislation that strikes at the heart of the problematic regulations.

The KITA survey showed that there are 14,961 regulatory clauses in the related laws as of May this year -- little change from the 14,857 clauses found a decade ago. This is largely because new regulations popped up as soon as old rules were removed in the National Assembly.

Considering the importance of startup-centered innovation in the digital era, the Yoon administration should make concerted efforts to remove unnecessary regulations and streamline business licensing procedures that slow the convergence of new technologies, while working with lawmakers to help pass the related reform bills.