REPORTER’S NOTEBOOKWhat's holding back innovation among Korean startups?
Summary
Musinsa’s tax investigation in Seoul has become a wider test of whether Korea offers startups enough predictability to innovate and grow. The piece says entrepreneurs need clear legal boundaries, while the government is expanding startup support and venture funding. It argues that Korea should avoid making regulations feel harsher as companies become more successful.
Key Facts
- The Seoul Regional Tax Office began investigating Musinsa last month over CEO Cho Man-ho’s alleged appropriation of corporate funds for his real estate investment spinoff firm, Lapel.
- The investigation is being handled by Investigation Bureau 4, which can launch special probes without prior notice and may escalate cases into tax offense investigations.
- The Fair Trade Commission concluded earlier this month that Musinsa’s arrangements with partner brands did not violate fair trade laws.
- The Financial Services Commission announced measures last week to support promising firms, including those with low credit ratings, and launched Korea Strategic Technology Partners for long-term funding.
- A Federation of Korean Industries survey found that 46 percent of elementary, middle and high school teachers nationwide were unfamiliar with the concept of entrepreneurship.
Musinsa under back-to-back gov't investigations
A Musinsa pop-up in Taiwan during the K-Tourism Road Show in Taiwan, jointly hosted by the Korean Ministry of Culture, Sports and Tourism and the Korea Tourism Organization, bustles with visitors in this 2024 photo. Courtesy of Musinsa
Korea’s largest fashion shopping platform Musinsa is currently under investigation by the Seoul Regional Tax Office over CEO Cho Man-ho’s alleged appropriation of corporate funds for his real estate investment spinoff firm, Lapel.
The investigation, which began last month, is being led by Investigation Bureau 4. Unlike other offices that primarily handle regular tax audits, Bureau 4 is known for conducting special investigations that can begin without prior notice and, in serious cases, develop into tax offense investigations, potentially exposing the targets to criminal complaints and significant business risks.
The Bureau 4 investigation began while the Fair Trade Commission (FTC) was still investigating Musinsa in a separate case, which concluded earlier this month. The antitrust watchdog looked into whether Musinsa prevented some partner brands from selling through other retail channels in order to secure exclusive sales of their products. The investigation, which began in August 2024, ended with the FTC concluding that the arrangements were part of normal business or marketing practices and did not violate fair trade laws.
But setting the pending investigation aside, another question remains: What signal is the Musinsa case sending to the industry? Beyond the legal question of whether the tax authority can prove that Cho engaged in tax evasion — if there was any — the case also raises questions about Korea’s business environment for entrepreneurs. The concern is whether that environment offers enough predictability for entrepreneurs to make business decisions with confidence.
Members of K-pop girl group Tuide appear in this promotional image for Musinsa's 2026 FW season collection which was released on Sept. 15. Courtesy of Musinsa
This is particularly important for startups that bet on innovative practices and strategies, some of which may require regulatory sandboxes to take shape, compete and grow. If the business environment leaves entrepreneurs constantly exposed to legal risks they cannot reasonably anticipate, is it an incubator for innovative leaders?
A good business environment is one where entrepreneurs with innovative ideas can thrive while recognizing that legal violations are followed by consequences. Business interests should not come before compliance with the law, and entrepreneurs should be able to understand which laws they must follow and what punishments they should expect if they cross those boundaries. Such predictability is a fundamental element of the rule of law, providing clear guidance rather than unexpected legal risks.
As a company that began in 2001 as an online community for sharing pictures of sneakers before growing into Korea’s largest fashion platform, Musinsa demonstrated the role entrepreneurship can play in turning a small startup into a major business.
Such entrepreneurship is essential to a vibrant startup ecosystem, as it encourages founders to take risks, pursue new ideas and turn them into businesses with the potential to grow. Creating an environment where more startups can follow a similar path has therefore become an important policy goal for the government.
The government has also been expanding support for domestic startups. Last week, the Financial Services Commission announced measures to provide financing to promising firms, including those with low credit ratings, while launching Korea Strategic Technology Partners to provide long-term funding for startups with strategically important technologies. The Lee Jae Myung administration has also pledged to expand state-backed venture investment and strengthen Korea’s startup ecosystem.
What should go along with such measures is to make domestic market trustworthy enough for startups to invest while not having to fear failure.
The government should also avoid giving startups the impression that the country’s business regulations become harsher simply because companies grow larger or more successful.
According to a survey by the Federation of Korean Industries earlier this month, 46 percent of elementary, middle and high school teachers nationwide said they were unfamiliar with the concept of entrepreneurship. If a predictable and supportive business environment remains a far-fetched ideal, Korea may struggle to produce the next Musinsa — and unfamiliarity with entrepreneurship may become more than just a survey finding.
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