Reaping the Benefits of a Systematic Approach

If you need to name a country that has dominated the most recent chapters of Hungary’s foreign investment promotion history, a top choice would be the Republic of Korea. Having the 10th largest economy in the world and the fourth largest in Asia, South Korea has clocked up FDI worth USD 6.8 billion in Hungary, an equivalent of 6.7% of the FDI stock.

The investment appetite of Korean companies has been enormous since 2018, in particular. That year the country was catapulted to second place in terms of investment volume, but in 2019, 2021, and 2022, it finished on the top step of the podium each year. It invested EUR 2.8 billion last year alone, whilst every fourth new workplace and every 10th project could be linked to them.

No wonder, either, that in the recent past, Korean investors such as SK On, Samsung SDI, and Toray Industries raked in numerous recognitions at HIPA’s Investors of the Year Awards. W-Scope’s EUR 720 million separator plant project earned the company the “Newcomer Investor of the Year” title in 2022.

As Hipa CEO István Joó explains, South Korean investments have always been welcomed as they represent the highest technological standard and are making a significant contribution to the rapid cyber age transformation of the Hungarian economy.

“The activity of Korean investors is best showcased by the fact that a total of 49 related HIPA-guided deals have been closed over the nine years between 2014-2022,” he says. “These projects account for a total investment volume of EUR 9.8 bln and nearly 15,000 new jobs for the Hungarian economy.”

Systematic Approach

Attracting Korean capital is part of the systematic approach of Hungarian foreign trade policy that strives to harness the power of two prevailing global trends. For one, tectonic shifts in the worldwide FDI landscape led to a growing significance of Eastern investments. On the other hand, e-mobility is a major driving force behind many recent investment decisions. Since Asian stakeholders rule that market, clinching their deals helps the Hungarian economy kill two birds with one stone.

A glance at the sectoral structure of Korean investments reveals that the bulk of projects are connected with e-mobility. Perhaps more importantly, from a Hungarian perspective, these market players cover different parts of the value chain, thus making the local EV ecosystem more diverse.

W-Scope’s aforementioned separator film manufacturing business is just one example. EcoPro will produce cathode material in a EUR 728 mln project, while Nice LMS plans to make battery cases by pouring EUR 14.4 mln into its local operation. CK EM Solution has recently inaugurated a facility to produce heat sink glue. The latter is an investment of EUR 10.42 mln in two stages to manufacture enough material for 200,000 EV batteries per year.

And these are just endeavors on a smaller scale. Battery manufacturers Samsung SDI and SK On have continued to invest even more heavily. SK On alone has so far announced investments in Hungary worth close to EUR 3 bln, not least thanks to its 30 GWh battery factory to be set up in Iváncsa (50 km south of Budapest by road).

Trade is also booming between the two nations. South Korea is Hungary’s 13th most important partner. Bilateral trade volume grew by a whopping 37% year-on-year in 2022, hitting USD 6.8 bln. Exports expanded mainly due to sales of public road vehicles and inorganic chemicals, whereas imports ballooned because of a spike in buying chemical materials and products. The dynamics show no signs of decline, with bilateral trade up 90% in January of this year.

Efficient Collaboration

The embrace is tightening, not least thanks to a cooperation agreement between the Korean Trade Investment Promotion Agency (KOTRA) and Hipa that aims to institutionalize and make more efficient the existing collaboration. The investment promotion and trade development pact signed by Hungary and South Korea in October 2022 serves the same purpose.

Although it is among the Korean companies with the largest revenues and staff in Hungary, Hanon Systems is not necessarily a household name here. A leading thermal and energy management solution provider for automotive, Hanon Systems celebrated the 30th anniversary of its plant in Székesfehérvár (64 km southwest of the capital) in 2021.

According to a company statement, Hungary’s highly skilled workforce and close proximity to Europe’s value chain means the country continues to offer great strategic potential. And the Korean corporation walks the walk. Since 2018, it has announced investments worth EUR 171 mln that concerned its sites in Székesfehérvár, Rétság (65 km north of Budapest) and Pécs, including setting up a brand new factory in that latter location.

Hanon Systems is apparently here to stay because, as its statement continues, it has “a solid and growing global footprint to support our diverse customer base and with locations close to customer sites.” Its Hungarian operations mean it “can continue building trust to win new and retain existing business and delivering value as a long-term supplier partner.”

HIPA counts on more Korean investments to come. “We look forward to this year with optimism, too, as Hipa currently has 14 projects of South Korean relevance in the pipeline,” Joó says. He adds that Korea is bound to play a crucial role in helping the Hungarian economy avoid recession.

This article was first published in the Budapest Business Journal print issue of April 21, 2023.