SEOUL Smokestack companies owned by chaebol conglomerates are losing steam. Startups are expanding their presence. Companies in information technology, pharmaceutical and other sectors are thriving. Welcome to the topsy-turvy world of South Korea these days.
While the chaebols were once the driving force of the country's economy, the spread of smartphones and stepped-up research and development capabilities have given a boost to next-generation industries. With consumer goods, especially cosmetics, also captivating the rest of the world on the back of the South Korean entertainment boom, the country's industrial competitiveness has entered a new stage.
An e-commerce site, Coupang, has been growing sharply, touting its "rocket delivery" service by the "Coupang Man," its own army of delivery staff. The company claims an item can be delivered within two hours from the time of order. With more than 25 million downloads since its launch by Forward Ventures in July 2010, the company's app has become a monster that half of South Koreans use.
Forward Ventures is catering to smartphone-wielding customers who put an emphasis on speed and convenience. With mobile sales accounting for 75% of the company's revenue, the value of transactions through Coupang amounted to about 2 trillion won ($1.72 billion) in 2014. In June this year, SoftBank Group of Japan announced it would invest $1 billion in the company.
The allure of South Korean venture companies even pushed U.S. Internet giant Google to open one of its entrepreneur incubation facilities, Campus Seoul, in the capital in May. It is Google's first startup incubator located in Asia, joining such hubs already set up in London, Tel Aviv and elsewhere. "South Korea has many entrepreneurs who are looking to do business overseas. It's a country Google can support," said Jeffrey Lim, the head of Campus Seoul.
NEW AVENUES Hanmi Pharmaceutical, a core subsidiary of Hanmi Science, has signed sizable license contracts with major Western pharmaceutical makers this year. Of the contracts with Eli Lilly and Janssen Pharmaceuticals of the U.S., Boehringer Ingelheim of Germany and Sanofi of France, the biggest was valued at about $6.5 billion.
Hanmi Pharmaceutical used to develop mainly chemically similar medications known as "me too" drugs. Under the initiative of President Lee Gwan-sun, who became CEO in 2011, however, the company shifted its stance to include the development of new drugs. Park Jae-chul, an analyst at Mirae Asset Securities, said South Korean pharmaceutical companies tend to concentrate investments in products least likely to prove a failure, but Hanmi has succeeded by introducing a development strategy based on a long-term perspective.
Celltrion, a producer of biosimilars, applied in November for approval from the European Medicines Agency for a biosimilar of rituximab, the best-selling anti-cancer drug in the world. If the company obtains approval, it will be its second biosimilar, after Remsima, a drug for rheumatoid arthritis.
With the annual sales of rituximab reaching 7.7 billion Swiss francs ($7.7 billion), large pharmaceutical companies had been developing its biosimilar, but many have halted their clinical tests. Unlike small-molecule generic drugs, biosimilars are large, structurally complex molecules and require clinical testing. This causes companies to think twice before investing in development. But a company that can commercialize a biosimilar ahead of its rivals will have a big advantage. Celltrion expects its rituximab biosimilar to earn more than $1 billion in annual sales.
Meanwhile, riding on the country's entertainment wave, leading South Korean cosmetics companies AmorePacific Group and LG Household & Health Care are forecast to rack up record operating profits for the fiscal year through December 2015. Sales in China and Southeast Asian nations are growing, while foreign tourists snatch up large quantities of their products at duty-free shops in Seoul and Jeju Island. The duty-free shops market in South Korea was valued at 8.3 trillion won in 2014, up 21.6% from the previous year. This poses a stark contrast to the slowdown in the department store sector. Duty-free shops are now emerging as a growth industry, along with a new generation of players in South Korea's economy.
Nikkei staff writer Manabu Ito in Tokyo contributed to this story.