Marketing In North Korea (11)

- There are startups in North Korea? It’s surprised

Jeon Byung-kil

Senior Consultant of YESInnovation

former of Secretary General of UniKorea Foundation

Investors and Entrepreneurs Do Exist in North Korea

Can an individual start a business in North Korea where individual business activities are officially prohibited? A short answer to this question is “yes.” The keyword to understand this answer is “Donju,” the emerging North Korean capitalists in the 1990s when the commercialization took place in North Korea. As the country’s socialist system lost power and the government failed to supply enough daily necessities to its people, Jangmadang – an unofficial market for the residents – was first established. In this process, groups of people who accumulated wealth through commerce activities grew into a new power called Donju, alongside with North Koreans living in Japan and Overseas Chinese. Around 2003, the North Korean government legalized Jangmadang by carrying out comprehensive reforms on the country’s market system. Additionally, the self-employed people grew in number whose businesses were registered as state-owned stores but operated by individuals. Though not in a legitimate way, capital formation and business operation took place through an unofficial system in North Korea.

Donju either directly performed manufacturing activities by borrowing state-owned factories that were not in operation or earned foreign currency by engaging in trade businesses. Donju also served as a financial agency lending funds to small enterprises. Many have pointed out that such self-reliance nature of Donju was what kept the North Korean economy afloat despite a series of economic sanctions placed by the international society. Donju are currently playing dual roles as both investor and entrepreneur, albeit in a limited sense. The North Korean version of entrepreneurship is taking place through triangle cooperation among entrepreneurs, agencies (places of business), and Donju. This shows that investments made by Donju serve as priming water for startup business boom in North Korea.

Startup Craze in North Korea

In North Korea, the market is mainly composed of wholesale & retail industry, service industry, and startup businesses run by small business owners. Recently, however, technology-based startups using the country’s intranet are increasing in number. Even though Internet access is blocked in North Korea, various e-commerce activities are taking place via Kwangmyong, the national intranet service. Also, facilities resembling an Internet Café that offers an access to the intranet are under construction in many places. A brief on the North Korean economy published by the IBK Economic Research Institute in 2018 classifies the startups in North Korea into three categories. The first category is street food startups that sell a variety of foods at street vendors, such as the famous “artificial meat rice.” These startups use a niche market strategy built on the country’s food shortage and are widespread in many places. Street food sellers often borrow money from Donju to run business or make transactions with multiple stakeholders to secure ingredients. Joseon-Maranatha Trust, an Australian fund which carried out a microcredit business in North Korea from 2004 to 2010, also granted loans to these street vendors and provided them consulting services.

The second category is the transportation business. As the public transit system is not fully developed in North Korea, many people have limited access to transportation. Against this backdrop, the so-called “service-cars” are recently booming in North Korea. Service-cars refer to personally owned vehicles that are registered on the relevant agency or enterprise and operated by owners, directly or indirectly, to transport people and goods. Basically, service-cars are a mixture of personal taxi and delivery system. With the growing number of mobile phone users in North Korea, a similar feature to taxi-calling service has been recently added to service-car, and the number of related business registration has increased as well. Bicycle is another popular transportation means worth noting in North Korea. The popularity of bicycles in North Korea far exceeds that of South Korea. Buying and selling of bicycles, as well as bicycle repair services, are very active. 

There are even businesses in which people steal bicycles from others and resell them to other cities. All these facts reflect the importance and high demand for bicycles in North Korea as a means of transportation. The third category is knowledge-based businesses. Startups in this category are based on high-tech industries pushed by the government policy that emphasizes scientific capabilities. These startups include startups handling appropriate technology applicable to North Koreans’ daily life and IT-based startups. In particular, there have been attempts to create startups in software and software-related businesses, over which North Korea has a unique strength. Global media outlets have already introduced new businesses in North Korea that specialize in information service and e-commerce areas. Therefore, North Korea’s business applications such as Manmulsang and Okryu may sound quite familiar to people having interests in North Korean issues.

Lean Startup for Customized Business Development

In North Korea, startup education for the public is not yet in full swing. On the contrary, there are many startup support centers in South Korea, and entrepreneurship is even included in the curriculum of universities and social education institutions. Yet, North Korea is still in its infancy in terms of startups and entrepreneurship. People are not well aware of the concept of startup, nor do they know how to actually “start” a business. Choson Exchange, an NGO based in Singapore, has been promoting education on business management and entrepreneurship for around 14 years. The concept of “lean startup” is often brought up when discussing an organization’s project in North Korea. Lean startup is a methodology for increasing a company’s chance of success by developing products in a short time and measure product performance. It was named after the production system of lean manufacturing used by Japan’s Toyota and was developed by American venture entrepreneur Eric Ries. The key process of lean startup is to first manufacture prototype products, release them into the market and modify the products according to market response.

The lean startup was developed based on three main principles: first, an entrepreneur should accept the fact that what he or she has is only an “untested hypothesis” and establish the hypothesis before creating a product or business plan. Second, the entrepreneur should engage in customer development, which is a process of verifying the established hypothesis by meeting potential customers in person, instead of having discussions only in the office. Third, the entrepreneur should develop the business by creating a minimum viable product (MVP) according to the agile development methodology, through which he or she repeats the process of solving customer problems and learn from their response. While companies that already have power in the established market focus on project implementation, companies starting new businesses need to discover and test a new market, which requires a startup management system. In North Korea, however, an established market does not exist and the economic system is operated in a completely different way from the traditional capitalist market economy. Therefore, a startup program should be developed that befits the country’s unique environment. One of the possible options is benchmarking the lean startup methodology mentioned above.

The Lean Startup Experiment in North Korea and its Future

Ever since the Jangmadang system has taken root in North Korea, the perception of North Koreans on startups/startup-related culture and infrastructure has quickly changed. The North Korean government is now encouraging more companies to take responsibility for business performance. A number of startup education and entrepreneurship programs are now available. Choson Exchange has provided management education to more than 2,000 people. These programs led to various business ideas such as develping a North Korean version of WeChat messenger or creating an Internet Café for moms, allowing North Korean women to share their pregnancy and birth experiences. In one program, a participant presented an idea to launch a convenience store chain in North Korea. 

Upon researching different convenience stores across the country, the participant found out that all stores open and close at the same time. However, the opening hours were after the office-going hours and before the office-closing hours, meaning the stores were not available during the peak rush hours. Thus, the participant thought of an idea to open the stores earlier and close them at a later hour to provide more convenience to the people. The idea was simple yet quite innovative. Lean startup education has become a cornerstone that brings changes to people’s ideas on business and their ways of life. In this way, Choson Exchange produced nearly 20 North Korean startups, all of which primarily handled IT, food, and drug-related businesses.

Startup in North Korea is still in its early stage and has a long way to go. In the capitalist economy, startups typically follow the principle of high risk and high return. This means startups carry high risks but also receive high economic returns upon their success in the market. To ensure economic returns for businesses, individual property rights must be guaranteed beforehand. In North Korea, although public awareness on individual rights has improved a lot compared to the past, it is still not enough. Considering the country’s unique characteristics, there is a possibility that the government may seize individual properties at its discretion. In order to create a successful startup environment in North Korea, more autonomy should be given to private companies. Besides, a number of issues need to be addressed, including difficulties with continuous profit generation due to limited market system, communication issues related to the Internet and international call, lack of investment capital and business know-how, as well as bureaucratic corruption based on unofficial transactions.