[Inside Chodong] Hungary and FDI

[Image source=Yonhap News]

[Asia Economy Reporter Kim Hyewon] Budapest, visited one week after President Moon Jae-in's state visit, still retained its excitement. The reason why the usually calm Budapest was stirred was not only because it was the first visit to Hungary by a South Korean president in 20 years, but also because of the hidden driving force: Korean companies. A Korean expatriate reported that there are at least 14 factories where Korean companies are simultaneously expanding or newly establishing facilities in Hungary. The number of Korean expatriates, which was less than 1,000, has increased by 5 to 6 times.

On the homepage of the Hungarian Investment Promotion Agency (HIPA), which I visited to inquire about exact figures, the headline "KOREA" immediately catches the eye. It is news stating that "Korea topped Hungary's foreign direct investment (FDI) in 2021." In summary, Korea decided to invest 2.8 billion euros (about 3.8 trillion KRW) in Hungary last year, creating employment for about 3,500 people. This is the second time Korea has become the number one country in FDI to Hungary, following 2019. Previously, this position was held by neighboring Germany, which invested heavily in Hungary's automotive industry, a key sector supporting Hungary's manufacturing economy. Thanks to low labor costs, Hungary hosts manufacturing plants of Germany's three major luxury car brands: Mercedes-Benz, BMW, and Audi.

Korean companies also invested in Hungary as a foothold, seeing the future of the European automobile market, which is strongly shifting toward eco-friendly vehicles. Leading the trend are electric vehicle battery companies such as Samsung SDI and SK On (formerly SK Innovation's battery division). In addition to large corporations like Samsung, SK, and Lotte, small and medium-sized enterprises such as Inzi Controls, Beomcheon Precision, Sungil Hightech, Sang-A Frontec, and EcoPro BM have established or plan to establish subsidiaries and factories in Hungary. According to HIPA statistics, 261 Korean companies of various sizes are conducting business in Hungary, creating over 20,000 jobs.

However, the market itself is not the only factor attracting investment. The head of SK On's Hungarian battery subsidiary cited not only the low labor costs, with a monthly minimum wage around 800,000 KRW, and the quality of labor, but also HIPA's proactive incentive programs as decisive reasons for investment. Hungary has a well-established system that provides various subsidies to foreign-invested companies meeting certain conditions, more so than any other country. These subsidies cover new equipment investments, job creation, renewable energy, and recently, even COVID-19 support funds. Similar to Korea's cash support system, where the central and local governments share part of the funds for investments with over 30% foreign ownership, Hungary often grants incentives worth hundreds of billions of KRW to a single company for a single investment, unlike Korea's foreign investment support budget, which was only about 60 billion KRW last year.

EcoPro BM, which plans to establish its first overseas cathode material factory in Hungary, and Inzi Controls, an SK On partner company visited by SK Group Chairman Chey Tae-won last November, are both in close negotiations with HIPA regarding subsidy matters. The issue lies in the structure where the more you know, the more money you receive. Miklos Korbus, head of Korbus Consulting, said, "European companies with long-standing know-how, such as those from Germany and France, typically receive at least 30% of their investment costs in cash support," adding, "Korean companies generally receive single-digit percentage incentives because their investment experience in Hungary is short and their negotiation power with the government is weak." There is clearly a role for our government to play in supporting small and medium-sized enterprises that are in information blind spots or lack resources when expanding overseas. / Industry Department Deputy Editor Kim Hyewon

This content was produced with the assistance of AI translation services.