Australia’s recent attempts to regulate tech giants has done little for the long-term prospects of its national innovation ecosystem. As South Korea shows, there are other ways to achieve these goals.
The Australian Competition and Consumer Commission wants to put the genie of bullish big tech companies back into the bottle. In early 2021, the first of many regulatory efforts culminated in eyebrow-raising negotiation tactics from defensive industry incumbents.
Australians seem to have accepted that most consumer-facing technology are inevitably the terrain of global giants, almost all US-based. Australia started the 21st century with an enviable position globally in science and innovation, but has accepted its tech importer status over the last two decades.
It does not have to be this way. Australia only has to look as far as South Korea, where leading search, navigation, e-commerce and messaging providers are largely all locally developed. Supportive policies from the public sector and strategic investment from the private sector have nurtured a homegrown innovation ecosystem that is now arriving as a genuine third force in the global high-technology landscape.
With key instruments like the Korea–Australia Free Trade Agreement, Australia has every reason to seek out South Korea as a serious research and investment partner to diversify its high-technology and digital platforms options.
South Korea trails Australia in GDP per capita, but is light years ahead in high-technology capability. In the time it has taken Australia to limp through a protracted national broadband network rollout, South Korea launched the world’s first 5G network and established itself as a leader in advanced chip manufacturing.
South Korea is now the most innovative economy in the world, while Australia is the 19th most innovative. Unlike Australia, South Korea never had the option to fall back on natural resources to fuel the country’s growth. Instead, South Korean policymakers have always needed to be highly attentive to centring the economy around knowledge, entrepreneurship and technology.
From the early 1980s, the South Korean government shifted away from a heavy reliance on imported technologies to building local research and development (R&D) capacity. The National R&D Program was launched in 1982 by the Ministry of Science and Technology, followed by various government incentives to encourage private sector investment in R&D.
Dedicated government ministries that led the country to become a technology and knowledge-based economy are behind South Korea’s tech success. The country’s top-down approach of creating a whole innovation ecosystem has also been crucial. It has helped form a close partnership between South Korea’s public, private and academic sectors. This enabled key actors representing all segments of the industrial value chain to participate in identifying gaps and working towards filling them in a holistic and collaborative way.
Today, South Korea outpaces many advanced economies in terms of R&D investment. R&D expenditure accounted for 4.29 per cent of South Korea’s GDP in 2017, the second highest rate of investment among OECD countries, just behind Israel. In contrast, Australia’s R&D spending accounted for 1.79 per cent of GDP, below the OECD average of 2.36 per cent. Local Australian tech companies have raised further concerns on barriers to the innovation ecosystem, with the current exclusion of software development from the R&D Tax Incentive scheme.
The private sector is accelerating South Korea’s R&D intensity, dominating the share of the country’s total R&D investment since the mid-1980s. Private R&D investment has been led by major chaebols (large family-owned business conglomerates) like Samsung and Hyundai which have their own dedicated research institutes. In 2019, private sector spending on R&D accounted for nearly 77 per cent of the nation’s total R&D expenditure, much higher than Australia’s. With this strong focus on technology R&D, the chaebols have functioned as world-class incubators for the growth of the country’s tech talents, with many of today’s successful entrepreneurs commencing their careers in these companies.
It is no surprise that Samsung alumni were behind Naver, the local internet company which outpaces Google. Naver claims an estimated 59 per cent of the South Korean search market as calculated by monthly active users, while Google Search sits at around 33 per cent. Like Google, Naver is reaping the benefits of nearly two decades of data-fuelled growth and product diversification, culminating in an expanded role for machine learning R&D.
Naver is now looking outside South Korea to the region for strategic partners and projects. Long-running ties between South Korea and Vietnam provided the ballast for Naver Corporation and the Hanoi University of Science and Technology to partner in building the Vietnam’s first dedicated AI research institution. Naver and Japanese giant SoftBank have merged their subsidiaries to invest US$4.7 billion over 5 years into emerging technologies, with the explicit aim of challenging Amazon and Tencent.
As one of Australia’s long-standing allies in a complex global environment, South Korea has modelled a sophisticated and sustainable approach to technological innovation. As South Korean tech companies look beyond their borders to scale in new markets, Australia has an opportunity to both encourage the development of localised products from regional partners and leverage South Korea’s best practices to excel in its own right. As governments ponder the post-pandemic world, the prospect of education, research and investment partnerships with South Korean institutions offers promising potential.
Alice Dawkins and Xiaoyi Kong are senior associates at Lydekker.
This article was originally posted on East Asia Forum.
