Innovation in South Korea … disruptive innovators like Toss are growing rapidly in “the world’s most innovative country”
April 1, 2019
South Korea was recently ranked by Bloomberg as the most innovative country of 2019, with Germany in second, USA eighth and China 18th.
Bloomberg’s Innovation Index scored countries based on seven different criteria. South Korea secured its No. 1 ranking by coming in first in R&D intensity (the amount of money spent on research and development as a percentage of the country’s GDP), manufacturing value-added (also measured as a percentage of the country’s total GDP), and patent activity (the number of patents filed by and granted per every 1 million residents, as well as total grants by country as a share of the world total).
Creating the future
Most famously Samsung seeks to “inspire the world by creating the future” and recent innovations such as its folding phones continue to capture attention around the globe. Samsung has always focused on innovation, however it was only by embracing the power of design, that they were able to engage people in objects of desire, rather than products quickly imitated.
Samsung’s “the next big thing is already here” advertising theme promises to keep you ahead of the game, but is the latest Galaxy really better than the iPhone, and does the future really look Korean rather than Californian (with a bit of Chinese)? The ad’s defining moment came when your parents were seen queuing to buy an iPhone, the ultimate put-down in being cool, and Samsung’s attempt to assign Apple to history.
In Korean the word Samsung means “three stars”, where “three” represents something big, numerous and powerful, and “stars” means eternity. Samsung’s current vision is to “inspire the world, create the future”.
Visit Samsung Town, the huge business park just outside Seoul, and you will quickly feel the distinctive culture, a way of working based on five elements of innovation:
- Developing a “creative elite” in the business based around ideas and innovation, attitude and talent, rather than a hierarchy based on status and experience.
- Relentless competitiveness, tracking the patents of other brands, seeking to challenge them, outmanoeuvre them, or simply create something better
- Adopting a consistent, replicable innovation methodology across the business, which enables collaboration and rotational working.
- Maintaining focus and agility, by partnering with academia and specialist external companies rather than getting locked into specific types of fundamental research.
- Staying small whilst being big, by adopting a conglomerate organisational structure, a reflection of the traditional Korean “chaebol” model.
Samsung’s mission is to ‘lead the digital convergence revolution’. In so doing it has made a remarkable transformation from copy-cat manufacturer to become Asia’s most valuable technology company
Who the most disruptive innovators in South Korea?
While South Korea’s top ranking by Bloomberg is a recognition of the powers of its large enterprises like Samsung, Hyundai/Kia and LG, the country’s startups still have a ways to go before they get their time in the spotlight. At one point, Samsung accounted for 20 percent of South Korea’s GDP.
Viva Republica is often seen as the most disruptive fintech startup in South Korea. Since the 2015 launch of its simple peer-to-peer payments app Toss, banks are finally revamping their user experiences and customers have easier access to financial products. South Korea’s mobile payments have more than quadrupled in that time to $4.6 billion, according to Bank of Korea data.
The startup, funded at $76 million, hasn’t stopped there. After PayPal joined a $48 million investment in Toss in March, Toss has grown from a simple money-transfer app to a diverse consumer-finance platform generating Viva Republica’s $20 million in expected revenue in 2017. Toss thus joins Asia’s ranks of fast-growing mobile P2P payment services, reaching a $12 billion transaction volume.
6 South Korean startups have made it to the list of unicorns, with a valuation of over $1 billion:
Bluehole … a hit with shooting game “Playerunknown’s Battleground”
Coupang … online retailer, “the Amazon of South Korea”, 70% growth rate, valued at $9 billion.
Hello Mobile … launched the world’s first 5G mobile network, and now worth $4 billion
L&P Cosmetics ... a leading producer of 120 different types of Mediheal face masks
Viva Republic … including domestic money transfer app Toss
Woowa Brothers … operates food delivery app Baedal Minjok
L&P is part of the huge K-cosmetics market, that is now looking to grow internationally. Here is an extract from a recent Korean Times article:
“A facial mask brand stands out among the millions of so-called K-cosmetics sold at drug stores and duty-free shops all over Seoul. That it is promoted by celebrities like Hyun Bin, a hallyu star, and Fei, the Chinese member of girl band missA, on television and other media makes it hard to miss.
Customers, especially Chinese tourists, swarm duty-free stores to buy Mediheal masks. Made by L&P Cosmetic through partnership with factories, the masks come in about 120 types and are priced between 2,000 won and 3,000 won. The masks, known for moisturizing and other effects, have taken off here and abroad. Exports to some 25 countries account for 55 percent to 60 percent of the company’s sales, while 70 percent of the overseas sales are attributed to the Chinese market.
Until recently, facial masks were not popular in Korea. While Japanese companies started promoting them earlier, they were considered a complementary item in Korean women’s multi-stage beauty routine.
L&P Cosmetic CEO Kwon Oh-sub said his company succeeded in carving out a niche for higher-end masks, at a time when other companies were offering them as promotional gifts or selling them cheaply at 1,000 won for pack of three or more.
“I think the facial mask is part of progress in Korean cosmetics, from the BB cream several years ago to the air cushion makeup and now the facial mask,” he said. He also credits the company’s growth to the success of such products as the N.M.F Aquaring Ampoule mask and W.H.P. White Hydrating charcoal-mineral mask. “Especially in China, where the N.M.F was known as the ‘moisture’ bomb,” he said.
Since its founding in 2009, the company has sold 790 million masks as of the end of last year. Last year, it posted 400 billion won in sales, up from7.5 billion won in 2012. Its facial mask packs are one of the bestsellers on the No. 1 Chinese online mall www.taobao.com. And as news of its plan to go public this year spreads, there is anticipation about the company’s future and stock price.
“For me, every mask sold is valuable. One consumer’s choice is everything for us,” Kwon said. The company’s soaring sales are also an affirmation of the positive outlook for the “fast cosmetics” trend, which he has been promoting.
Selling cosmetics is selling a part of Korean culture.
“Our company introduces three to four products every month. I call this ‘fast cosmetics.’ Where in the world can you find such fast cosmetics trend? This is in line with the Korean people’s nature,” he said, referring to the country’s “palli, palli” or “hurry, hurry” culture. “Also, people no longer have to take the trouble of making their own masks at home,” he said.
Kwon likened himself to the green frog in the Korean fable who disregards what others tell him. That personality trait reflects, in part, his way of doing business in the K-beauty industry.
“I like doing things others shy away from,” Kwon said. “I also do not like to do things that others do.” In 2015, he opened a flagship store in Myeongdong, downtown Seoul, when others were pulling out from the area.
The cosmetics business runs deep in his family. From 1969 through 1987, his mother ran Wang Saeng Cosmetics, which produced the country’s first hair mousse. After studying geology at the undergraduate and graduate levels at Korea University, Kwon, the second son and the youngest child of three, entered the family business.
After running two businesses — the first one of which failed and the second one which achieved modest success — Kwon founded L&P Cosmetic in 2009.
Asked whether he thought he would hit it so big with his third company, Kwon said no. But he believes his first two businesses, laid the foundation for L&P Cosmetic.
“In the early 1990s, I named my cosmetics company Kospi Club with the aim of setting the standards for the cosmetic industry,” he said, adding that it was a premature attempt at a franchise business in Korea. “I learned if that you move too quickly, you are doomed,” he said jokingly. He poured three billion won of his own money and one billion won from investors into the company, which failed around the time of the Asian financial crisis.
“I learned humility, that I have to work along with my employees, my partner companies,” he said. Up until then, he said he had never experienced failure. “I was full of pride, vanity,” Kwon said. He looked back and said he failed to take others into consideration when his business was doing well. “I don’t want to blame it on the Asian financial crisis.”
The K-cosmetics veteran sees the industry change every decade. Before the 1980s, cosmetics saleswomen visited homes to sell their products. He said LG Household and Health Care entered the market in 1983 and launched a series of shops. In the 1990s, the Koreana brand surged, and in the 2000s one-brand shops like Missha and Faceshop prevailed. Now, beauty retailers such as Olive&Young, LOHB and Watson’s are succeeding.
The cosmetics industry is here to stay, and he has some ambitious plans for his company.
This summer, around July, L&P Cosmetic plans to go public. It also has plans to enter the makeup market, expand to Japan and increase its growth in China.
He did not deny the potential negative implications of the South Korea-China conflict over the Terminal High Altitude Area Defense (THAAD) battery deployment.
His company is making step-by-step preparations to help overcome any possible challenges.
Asked about lessons he learned from his mother, he recalled how his mother, when she was running Wang Saeng in the late 1960s and 1970s, ran a “gye” (a traditional Korean private-funding club) among merchants in the Namdaemun and Dongdaemun markets. He tagged along with his mother and saw how she worked together with her affiliates. “I saw that in business, you have to work together, that you are working with people,” he said, explaining that his mother’s approach drives his company’s focus on sales and marketing. L&P Cosmetic sales staff work full time as a way to maintain its focus on sales and marketing. “You could attribute about 20 percent of a store’s sales to the staff,” Kwon said.
The CEO believes that in this day and age, companies like his cannot afford to both manufacture and market products. “We have a lot of excellent ODM, OEM companies. We all should have respective strengths, and ours is sales and marketing,” he said.
Instead of building factories, he jointly invests in manufacturers such as Kolmar and Cosmax, the top two OEMs in the country. He has no plans to build factories outside Korea.
Kwon has maintained this strategy despite the difficulty of having to doubly persuade would-be buyers how his company remains competitive without its own factories. “I want my company to be like the Nike of Korean cosmetics,” he said.
A smoker, but only at the office, Kwon likes to play cards and is into baseball and music. He spends his weekends thinking about strategy, which sometimes drains his energy. Yet he presses on. He said he came to his senses after his first business failure, after which his son asked him whether he can continue attending extra-curricular schools.
“I am quick-tempered, I must admit,” Kwon said, smiling, “but if the sales go okay, nothing is problematic,” he said.
The humility he learned from his past business failures tempers his aggressive business style, his quick-temper and his fiery personality. As the chief of a medium-sized company, he makes sure to delegate to his employees, because he believes giving his full-time employees a sense of ownership helps the company.
As the company expands, the CEO interviews candidates for executive positions himself. “I look at how that person grew up and what that person says in the job interview. You might say it is a skill of mine,” he said.
A devout Christian, he has donated 12 billion won to his alma mater, and last year, set up the religious and charitable foundation, Mediheal Foundation.
His goal? “There are still markets untapped galore, such as Southeast Asia, the U.S., Europe and others,” he said. “I hope to hear that the second son of Wang Saeng’s founder has done well.”
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