Encouraging entrepreneurial activity in North Korea

Research Paper (postgraduate), 2023

16 Pages, Grade: 85




North Korea is one of the most isolated countries in the world, with a centrally planned economy that has stifled entrepreneurial activity for decades (Koen and Beom, 2020). It is known for its strict laws and regulations under communist rule since the end of the Second World War (Park, 2009). The government controls every aspect of the economy, and entrepreneurial activity is severely restricted. However, with recent changes in the country's economic policies, the government has recently taken some measures allowing start-up entrepreneurs to emerge and contribute to the economy's growth (Kibler et al., 2021). Encouraging entrepreneurial activity in North Korea, however, comes with significant challenges.

i. Lack of access to capital

One significant challenge start-up entrepreneurs face in North Korea is the need for more access to capital. The government controls the financial sector heavily, and entrepreneurs need more opportunities to secure funding. The country's banking system needs to be developed, and there are no private equity firms or venture capitalists. As a result, entrepreneurs have to rely on their savings or informal funding sources, such as family and friends.

ii. Lack of entrepreneurial culture

The country's education system needs to prioritize entrepreneurship, and there needs to be more exposure to entrepreneurial success stories. The government's focus on collective goals and communal living has also limited the development of a business culture that values risk-taking and innovation. Another significant challenge for start-up entrepreneurs in North Korea is the limited market opportunities (Kibler et al., 2021). The country's economy heavily depends on the government, and few private businesses exist. The government also restricts foreign investment, limiting start-ups' chances to enter international markets. Furthermore, there needs to be more reliable data on the country's economy and consumer behavior, making it difficult for entrepreneurs to develop market strategies and make informed business decisions.

iii. Legal and regulatory barriers

Start-up entrepreneurs in North Korea face significant legal and regulatory barriers that hinder their ability to start and grow businesses. The government controls almost all aspects of the economy, and private companies have few legal protections (Draudt, 2022). Additionally, obtaining business licenses and permits can be time-consuming and bureaucratic. The government also restricts the import of technology and intellectual property, which limits innovation and growth in the start-up sector.

iv. Limited access to technology and infrastructure

Another challenge start-up entrepreneurs face in North Korea is limited access to technology and information. The government restricts access to the Internet, and there are strict regulations on the import of technology making it challenging for entrepreneurs to access information about their industries, market trends, and consumer preferences (Kibler et al., 2021). Access to this information is necessary for entrepreneurs to develop competitive products and services. Entrepreneurs need a supportive infrastructure to succeed, including reliable access to electricity, internet connectivity, and transportation networks. However, North Korea's infrastructure could be much better, as the country's power grid is unreliable, and internet access is limited (Chen et al., 2010). The transportation network needs to be developed, and there are few reliable supply chains. Entrepreneurs will need a supportive infrastructure to establish and grow their businesses.

The Isenberg Model

According to the Isenberg Model, multifaceted and precise interactions between ecosystem components result in distinctive compositions of individual ecosystem components (Stephens et al., 2022). Isenberg Model recognized the importance of a supporting environment, favorable laws, effective management, adequate funding, human resources, and a variety of entities. The focus is on geographical and local contexts, as well as the circumstances necessary to inspire and promote innovative entrepreneurship. According to Isenberg, every setting needs a unique environment. This is due to the systems multiple parts and elements, all of which interact with one another in unique and varied ways. An entrepreneurial ecosystem approach to economic growth, according to the Isenberg Model, is a creative and economical way to promote financial stability (Mason and Brown, 2014). The model asserts that this strategy might take precedence of or turn into a prerequisite for the effective implementation of cluster techniques, technology infrastructure, knowledge markets, and nation-building initiatives.

The Isenberg Model applies to assess the performance of a system under various scenarios, such as when some components are redundant or more critical than others. North Korea operates under a unique political system primarily isolated from the rest of the world. As a result, its entrepreneurial ecosystem vastly differs from other countries (Wu et al., 2022). Nonetheless, the Isenberg Model can evaluate the critical domains of North Korea's entrepreneurial ecosystem and provide insight into its strengths and weaknesses. The culture of fear and repression in North Korea discourages individuals from taking risks and starting their businesses. The government tightly controls all aspects of society, including economic activity, and any attempt to pursue entrepreneurial activities outside of government control can result in severe punishment (Kibler et al., 2021). However, North Korea has some signs of a shift in cultural norms and values. In recent years, there has been a growing awareness of the potential benefits of entrepreneurship, particularly in the informal economy. As a result, there has been a rise in small-scale entrepreneurial activities, such as market trading and food production (Kibler et al., 2021). To foster a culture that supports entrepreneurship, the government must provide a supportive environment that encourages risk-taking and innovation. That would require a significant shift in government policy and ideology towards greater openness and support for private enterprise. Additionally, promoting entrepreneurship as a means of economic development and job creation could help shift cultural attitudes toward entrepreneurship.

The government tightly controls the workforce and education system, limiting the availability of skilled and talented individuals. The education system is heavily focused on political indoctrination, and individuals have limited opportunities to develop skills and valuable knowledge for entrepreneurship (Un, 2021). There is also a brain drain in North Korea, with many highly skilled individuals leaving the country to seek better opportunities elsewhere. The lack of human capital presents a significant challenge to developing an entrepreneurial ecosystem in North Korea (Xu and Dobson, 2019). Promoting entrepreneurship as a viable career path could encourage more individuals to pursue entrepreneurial activities and develop the necessary skills and knowledge. Also, fostering a mentorship and networking culture could provide aspiring entrepreneurs the support and guidance they need to succeed.

The North Korean government manages all financial institutions, and there are limited funding sources available for entrepreneurs. The restricted access to capital makes it challenging for entrepreneurs to start and grow their businesses. The government provides no support or incentives for private investors to invest in start-ups or small businesses (Lankov et al., 2017). Additionally, there needs to be more infrastructure for financial services, such as venture capital firms, angel investors, and banks. That limited access to financial capital presents a significant challenge to developing an entrepreneurial ecosystem in North Korea. The infrastructure needs to be developed with better transportation networks, an adequate power supply, and limited access to the Internet (Isozaki, 2017). That makes it challenging for entrepreneurs to establish and operate their businesses. Additionally, more infrastructure is needed to make it easier for entrepreneurs to access essential resources and services, such as raw materials and legal advice. Improving transportation networks and power supplies could help start-up entrepreneurs get the resources and services necessary for their businesses (Xu and Dobson, 2019). Additionally, improving Internet access could provide entrepreneurs access to a broader range of customers and markets. Furthermore, the government could promote the development of shared infrastructure, such as co-working spaces and shared manufacturing facilities. Shared infrastructure can provide entrepreneurs access to resources and services that may be relatively inexpensive for individual businesses.

International New Ventures in North Korea

International new ventures (INVs) are companies that start operations in foreign countries and rapidly internationalize their activities (Andersson et al., 2014). INVs are essential drivers of economic growth, job creation, and innovation. Developing an entrepreneurial ecosystem that supports INV's development can significantly benefit North Korea's economy. One example of an INV that could benefit from the entrepreneurial ecosystem in North Korea is a tech start-up that specializes in developing innovative software solutions. North Korea has a highly skilled workforce in the tech sector, and there is potential for creating a supportive policy environment that promotes entrepreneurship in the tech sector (Berger et al., 2018). A manufacturing company that produces high-quality goods for export could also benefit from the entrepreneurial ecosystem in North Korea. The country has a low-cost labor force and access to natural resources, making it an attractive location for manufacturing operations (Kibler et al., 2021). Moreover, North Korea has a unique opportunity to develop a niche market in the tourism industry with its rich cultural history and natural beauty, it could become a popular destination for adventurous travelers (Ni et al., 2018). Developing the necessary infrastructure, such as hotels and transportation networks, and promoting tourism as a viable industry could provide opportunities for INVs in the tourism sector. By addressing the challenges in each domain of the Isenberg Model, North Korea could become a competitive location for INVs and attract foreign investment to support its economic development.

The policy domain is essential to developing an entrepreneurial ecosystem that supports the growth of international new ventures (INVs) in North Korea. Policy refers to the rules, regulations, and incentives governments create to encourage entrepreneurial activities (Acs et al., 2016). Attracting foreign investment is critical to the growth of INVs as it provides access to capital, networks, and expertise. The North Korean government should offer tax incentives, relaxed regulations, and streamlined bureaucratic procedures to foreign investors interested in investing (Kibler et al., 2021). INVs are typically companies that leverage technology to create new products and services that can be sold globally. Therefore, the government should develop policies supporting research and development (R&D) activities in North Korea (Herreros et al., 2018). That can be done by providing tax incentives for R&D activities, funding research institutions, and collaborating with foreign universities and research organizations.

Moreover, the lack of entrepreneurial skills and knowledge is one of the main barriers to the growth of INVs in North Korea. Therefore, the government should collaborate with universities and business schools to offer aspiring entrepreneurs entrepreneurship courses, mentoring programs, and networking opportunities. The government can also support the creation of incubators and accelerators that provide training, mentorship, and funding to start-ups. The government should develop policies that support access to capital for start-ups. INVs require significant money to expand globally, and the lack of access to funding is one of the most significant barriers to the growth of INVs in North Korea (Mason and Brown, 2014). Therefore, the relevant legislative bodies should create policies that promote the development of a robust financial sector in the country. That can be done by creating venture capital funds, offering loan guarantees, and establishing credit bureaus to assess credit risk. In addition, they should focus on creating policies that assist the expansion of SMEs in the nation. SMEs are the backbone of most economies and play a critical role in the growth of INVs (Gherghina et al., 2020). Therefore, the government should create policies supporting SMEs, such as tax incentives, access to funding, and streamlined regulatory procedures.


Excerpt out of 16 pages


Encouraging entrepreneurial activity in North Korea
University of Essex  (School of Business)
MBA Business Management
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ISBN (eBook)
ISBN (Book)
Entrepreneurship, entrepreneurial culture
Quote paper
Anonymous, 2023, Encouraging entrepreneurial activity in North Korea, Munich, GRIN Verlag, https://www.grin.com/document/1363918


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