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No turning back the tide of South Korean investment

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South Korea
Feature 8: South Korea
Steve Kim
Interview with Steve Kim, CMS 

 

South Korean interest in emerging Europe is well established, but there has been a noticeable increase in activity in the past two years. With M&A deals totalling EUR 717m in 2019, South Korea is now knocking on the door of the top ten foreign investors from outside the region.

CMS’s Steve Kim explains some of the drivers behind this development.

Why are investors from South Korea looking so far afield?

The domestic market in South Korea is limited by its size, so companies have to look overseas for customers. Companies, pension funds and sovereign wealth entities have built up a lot of capital and there simply are not enough opportunities for them at home.

Companies, pension funds and sovereign wealth entities have built up a lot of capital and there simply are not enough opportunities for them at home.
Steve Kim

It can be difficult to achieve stable returns in the domestic market and the stock market is very volatile. For institutions with a three-to-five year investment strategy, it makes sense to look abroad.

What makes the region so attractive?

It offers access to western European markets, but is recognised as an important market in its own right. Exchange rates compared to the US, a traditional target for South Korean money, have also been favourable.

Emerging Europe is regarded as a stable region with good economic growth. There is a well-trained labour force at a competitive cost which makes it attractive for manufacturing compared to South Korea. It is important to have infrastructure in place and the availability of government support such as tax breaks.

Which countries are South Korean investors paying attention to?

Generally, investors appreciate the umbrella of EU membership. Poland is an attractive market close to Germany, and South Koreans have become its biggest Asian investors.

Hungary is also high on the list and in the first four months of 2019, South Korea overtook Germany to become its largest source of international investment. The Czech Republic, Bulgaria, Romania, Albania and Serbia have also attracted interest.

What sectors are investors looking at and is that changing?

Automotive remains the largest sector in terms of investment into the region. Historically, South Korea has depended on technologies such as mobile phones and semi-conductors, but these have become commoditised, so investors are looking at technologies associated with the Fourth Industrial Revolution, such as the Internet of Things, blockchain, sensor-based data collection, renewable energy and cleantech.

Korean investors are looking at technologies associated with the Fourth Industrial Revolution.
Steve Kim

What has been the hottest sector over the past year?

The electric vehicle industry offers a major opportunity, combining experience in automotive with new technologies. Hyundai announced plans to produce its fully electric Kona car in Nošovice in the Czech Republic in 2020, its largest overseas location for electric cars.

In Hungary, SK Innovation is building a second battery plant, Samsung SDI is expanding production at its battery factory in Göd, and Bumchun Precision has selected Salgotarjan for its first overseas plant to make electric vehicle components. In Poland, LG Chem has plans to step up battery production at Wroclaw.

Outside automotive and technology, what other opportunities are investors looking at?

Real estate offers stable returns and remains important and active. South Korean investment in European property hit a record in the first half of 2019, including growing interest in central and eastern European cities. Deals included Samsung Securities buying an Amazon logistics centre near Prague airport.

Ukraine’s potential encouraged POSCO Daewoo Corporation to buy a stake in the Mykolaiv Sea Port grain terminal and a stevedoring company.

Do South Korean companies favour M&A over greenfield investment?

Generally, large companies prefer to buy established companies rather than start from scratch, whether that is manufacturing, hotels or property. If there is no established industry, they will invest in greenfield.

What is the biggest challenge facing South Korean investors looking at emerging Europe?

Corporate culture is a significant issue because South Korea has a unique way of doing business. To understand the culture of a country fully and learn how things work, many large corporations will send people to countries for three-to-five years to study and learn.

South Korean investors are conservative by nature, but at the same time, once they feel comfortable about the risks involved, they can be very aggressive. When they find the right investment, they will make rapid decisions and act quickly.

When they find the right investment, Korean investors will make rapid decisions and act quickly.
Steve Kim

What support do investors get from agencies in South Korea and emerging Europe?

The Korea Trade Investment Promotion Agency facilitates overseas investment and the Korea Federation of SMES is opening doors for small firms. Individual countries use their diplomatic contacts to build relationships in Korea, such as the recent high-level meetings with Serbia’s president.

Do you see more of the same in 2020?

For South Korean investors, there is no option but to continue this trend. They must keep investing abroad to grow their markets and to find a home for their capital, and emerging Europe is becoming an important location.

This will be reflected in M&A activity involving South Korea, and in addition to traditional areas of interest such as real estate and automotive, we will see an acceleration of investment in renewables and clean energy.

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