As Korea’s AI economy matures, the government is reengineering how innovation spreads across the country. A new phase of its AI Transformation (AX) strategy links deep-tech startups, manufacturers, and regional governments under a unified growth system—signaling a decisive step toward scaling beyond Seoul and turning early-stage innovation into lasting industrial strength.

Korea Expands AI Transformation and Scale-Up Programs for Regional Startups

The Ministry of SMEs and Startups (MSS) is stepping up Korea’s AI transformation efforts through a nationwide expansion of its AI Transformation (AX) initiative and Scale-Up TIPS program. The government aims to strengthen regional innovation and deepen the country’s industrial shift toward AI and data-driven manufacturing.

On November 19, MSS hosted the Regional AI Transformation Vision Declaration Ceremony in Changwon, Gyeongnam Province, joined by lawmakers, local government leaders, AI suppliers, and startup founders. The event outlined how AI will be integrated across manufacturing-heavy provinces such as Gyeongnam, Ulsan, and Daegu, reflecting a growing effort to reduce the innovation gap between the Seoul metropolitan area and the rest of the country.

The initiative marks a clear policy evolution: Korea’s startup support system is moving beyond its long-standing focus on early-stage incubation toward a scale-up-centered model that helps high-potential companies secure sustained growth and global competitiveness.

From TIPS to Scale-Up: Expanding the Startup Growth Pipeline

The TIPS (Tech Incubator Program for Startups) model, where private investors select promising startups and the government provides matching support, has been central to Korea’s early-stage innovation. However, analysts have long argued that the country’s startup pipeline lacked mid- and late-stage support.

Through Scale-Up TIPS, the MSS is closing this gap. The program offers continued funding, R&D support, and global expansion pathways for startups that have already proven product-market fit. It also prioritizes regional venture capital collaboration, with 41% of current Scale-Up TIPS investments already directed to non-Seoul companies.

To deepen this shift, the ministry plans to ensure that over 50% of Scale-Up TIPS beneficiaries will be regional startups, reflecting a major step in decentralizing Korea’s innovation ecosystem.

At a Scale-Up TIPS roundtable, participants discussed strengthening the “TIPS → Scale-Up TIPS → Global TIPS” pipeline, ensuring that public–private cooperation supports companies throughout all growth stages.

Regional AI Transformation: Local Governments Take the Lead

The new Regional AI Transformation (AX) initiative extends this model into industrial innovation. Backed by KRW 35 billion in funding, the program enables local governments — including Gyeongnam, Daegu, Ulsan, Jeonnam, and Jeju — to design AI adoption strategies that reflect their regional economic strengths.

During the Changwon ceremony, Gyeongnam Province announced plans for a “Manufacturing-Focused AI Transformation” integrating AI into machinery, aviation, and energy sectors. Similar projects across the five provinces aim to enhance competitiveness in manufacturing, logistics, and smart services.

Awarded projects demonstrate how AI improves production performance. Cheonil Engineering, for instance, used AI-based vision inspection and predictive maintenance to cut defect rates by 42.3% and boost productivity by 20.8% — a clear sign that AI adoption is translating into measurable economic outcomes.

Major tech firms also participated in the event, including LG Production Engineering Research Institute, NAVER Cloud, Robot Valley, and MakinaRocks, showcasing real-world AI deployment in factories and automation systems.

Bridging Gaps in AI Transformation with Regional Participation

MSS Minister Han Seong-sook emphasized the importance of regional participation and practical impact, stating:

“To bridge the gap in AI transformation among regional SMEs, we ask for continued cooperation from local governments and greater awareness among business leaders. The Ministry will provide active support to ensure that the effects of AI transformation become visible in the field.”

Cheonil Engineering CEO Cho Hwan-soo, whose company received the top AX Excellence Award, shared:

“We hope more regional SMEs will adopt AI tools that enhance productivity and sales. The success of one company can show others that digital transformation is achievable.”

Korea’s Policy Shift: Building a Sustainable Deep-Tech Ecosystem

This latest move aligns closely with broader government regional development efforts to balance innovation between Seoul and regional hubs, as well as to fill structural funding gaps in the startup lifecycle.

For years, Korea’s startup ecosystem was criticized for concentrating support on early-stage companies while neglecting scale-ups that needed capital and R&D to compete globally—hence, the startup “Death Valley”.

That is why the new policies directly address this by combining regional venture capital activation, deep-tech R&D, and AI-driven manufacturing innovation under one umbrella.

By integrating programs like Scale-Up TIPS and expanding its AI Transformation (AX) mission beyond Seoul with Regional AX, Korea is creating a more coherent national framework — one that links startups, manufacturers, and local governments into a shared AI ecosystem.

From Early-Stage Support to Nationwide Competitiveness

Korea’s AI transformation is now entering its most crucial phase. The government’s focus on regional scale-up support signals a long-term strategy to turn short-term pilot programs into lasting industrial change.

If successful, this integration of AI, data, and manufacturing innovation could establish Korea as one of the few countries with a fully institutionalized approach to AI adoption across its SME sector — and a model for other economies seeking to merge startup policy with deep-tech industrial competitiveness. And it will eventually become a strategic path towards Korea’s ambition as a global top three AI powerhouse.

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