South Korea shows how it's done

South Korea, sandwiched between the two East Asian superpowers, shows how to get ahead in today's global economy. For much of the second half of the20th century, Korea pulled itself up by its bootstraps making itself rich by building huge industrial conglomerates and exporting their wares to the West. But that's the old story. Then China changed the world economy and Korea was adaptable enough to change with it.

Today, Korea faces its neighbours, and is defined by high-tech and a thriving entrepreneurial sector.

Seoul, the capital, is not your typical Asian city. It's filled with thorny skyscrapers and nondescript apartment towers. And young Seoul is the fashion capital of all of East Asia. I visit the country regularly, have Korean friends and direct experiencewith investing in the Korean stock market. For me Seoul is the Berlin of Asia - a place full of creativity where the future is available for those who want to see it.

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But you'll find the most exciting investment opportunities 50 minutes from Seoul by bullet-train in the city of Daejon.

A hundred years ago it was just a small village. But now, the city of 1.5 million people is the beating heart of Korea's tech industry. Everything from smartphones to biotech is developed in Daejon. And I'd like to tell you a little bit about the opportunities in Daejon today.

Out of its neighbours' shadow

Through history, China and Japan more or less took turns in occupying the country, which is why it's been called the shrimp between two whales'.

But since the end of World War II, South Korea has transformed itself into an economic powerhouse. This was due to close co-operation between the state and chaebols, family-controlled conglomeratessuch asSamsung that favoured export-oriented growth.

The chaebols began by producing cheap toys and textiles for export. That model was successful and the conglomerates become more sophisticated and more ambitious, and South Korea got richer along with them. Now the country is a high-tech industrial giant.

But after the Asian financial crisis in 1998, the growth model changed. Chaebols were forced to sell some of their assets to foreigners and allow greater domestic institutional ownership. That turned out to benefit the companies by imposing stricter financial discipline and corporate governance.

It unleashed a wave of foreign direct investments, entrepreneurial spirit and political liberalisation. It was accompanied by a soaring stock market in the past decade and the Korean Wave', a Britpop-like fashion for Korean popular culture in Asia.

Seoul's new wave of start-ups

As you know, I think something similar is about to happen in Southeast Asia. Many Southeast Asian countries are banding together under the ASEAN Free Trade Agreement(AFTA 2015). And as trade links are fostered, we can expect to see a new wave of consumer demand in the less developed economies, such as the Mekong region.

We have discussed these issues in greater details in earlier MoneyWeek Asia reports. We said that this new economic zone was in part motivated by the threat of a Chinese collapse. That these states were seeking to become self-sufficient by pulling together and heavily investing in new trade.

But another way to become self-sufficient is through start-ups and innovation. And that is the approach that South Korea is taking.

Now Korea's start-up culture is growing like never before. The number of company start-ups hit 7,100 in July, the highest number since theBank of Korea started monitoring in 2000. And the number of self-employed workers increased by 196,000. That's equivalent to 42% of the increase in total employment.

And amazingly, most of the new entrepreneurs are above 50 years of age. How did this happen? The tradition of lifelong employment was a cornerstone of the chaebols. But rapid technological change and increased competition from China forced the chaebols to continuously adjust and innovate. That means a less secure future for many workers. Baby boomers are financially better off and have expertise that can be easily transferred to startups.

I think that talented, well-educated young people will energise the legion of new start-ups. Indeed, I see a new wave of Korean innovation around the corner.

I think the endless debate in Britain over stagnation and austerity misses the point. The real question is how a small exporter like the UK fits in a new world that's dominated by China and emerging economies. For an answer, you could do worse than to ask an entrepreneur in buzzing Daejon...