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Entering the European market for Korean startups - Challenges and opportunity 
 

International R&D Industry-Con 2023 - Session 1

by Zachary Petit and Jiseon Lee

November 14th and 15th, 2023 
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On November 14th and 15th, 2023, the International R&D Industry Con 2023 (IRIC 2023), supported by KEY, took place at the Daejeon Convention Center in South Korea. The aim of this event was to bring together Korean and European actors, both from institutions and companies, to give them a framework in which to exchange and collaborate, and to enable them to export to the European market. 

 

The first session of the conference was dedicated to the diverse opportunities represented by the European market for Korean companies, as well as the challenges they have to overcome to develop their business in Europe.

In the first round table, Jeung-Jun Park, Attorney at Law at Kim & Chang, Julien Herveau, representative of Mazars, and Michel Sal, Manager of Korean Operations at Czech Invest, discussed the potential benefits of the European market for Korean companies. In the second round table, Woon Sung Jung, CEO of Dassault Systemes Korea, Phil Jae Park, Director of KITA, and Peter Madsen, Program Manager of White Castle, presented initiatives to support Korean investors in their European projects. Both round tables were moderated by Philippe Li, President of KEY.

Korean companies see Europe as a unique opportunity for growth and innovation, benefiting from the European market, the absence of customs barriers between member countries and certain tax advantages. However, despite these advantages, they face a number of challenges in penetrating the European market. One of the main obstacles is the negative image and stereotypes associated with Europe, often perceived as complex in terms of taxation and regulations. This perception can discourage some companies from setting up in Europe, despite the substantial opportunities offered by this diverse and dynamic market. By overcoming these challenges and adopting a well-defined strategy, Korean companies can take advantage of the many opportunities available in Europe, helping to strengthen economic relations between the two regions.

The International R&D Industry Convention 2023 (IRIC 2023) is an international event for consumers and suppliers in the R&D industry. Companies, research organizations, universities, and researchers interested in leveraging R&D for their business will participate in the event to share ideas and seek future collaborations. The EU-Korea International Cooperation aims to enhance mutual understanding of the bio/health industry in Europe. This event brings together key players of this industry with academic, professional and governmental backgrounds.

Key advantages of Europe

Economic and legal perspectives:

Currently, the main target for Korean investors interested in international trade is the US market. One of the aims of the conference and its participants was therefore to present the opportunities offered by the European market, and to highlight its qualities. To this end, Julien Herveau, representing Mazars, an international company specializing in auditing and business consulting, first emphasized the economic and legal advantages.

 

According to him, Korean companies have more and more reasons to turn to Europe. Already from an economic point of view, Europe represents the world's third-largest market, with over 500 million consumers. Its economy is largely based on the service sector, which benefits from cutting-edge technological advances. In addition, Europe's well-developed infrastructure and well-educated workforce attract foreign companies seeking stability and growth. Europe is known for being, after the United States, the region with the most innovative startups in the world.

Julien Herveau also explained how European legislation works, and how it can be advantageous. The European Union, like a federal state, is an entity that passes laws and decides on general directives for all member states. States are then free to transpose these directives into their own laws, but they must respect them. One example of this is value-added tax (VAT). The European Union states that VAT must be at least 15% for consumer goods. However, each state can decide on the exact value of this tax as long as it is at least 15%, the average being 22%. Europe therefore benefits from a very transparent and harmonized and relatively uniform legal framework, offering companies a high degree of predictability.

 

This makes Europe an accessible and attractive target for Korean companies. Jeung-Jun Park , attorney-at-law in the Korean lawyer’s office Kim & Chang, emphasized that the European Union's regulation facilitates investment and protects companies, mentioning 3 main arguments:

  • Europe has abolished tariff barriers between member states, making the European Union a single market. EU countries can now trade with each other without the need to negotiate or sign free-trade agreements. This directive may also apply to foreign investors in Europe. Access to the European market is therefore an opportunity to develop business throughout the continent, and potentially reach all consumers.

  • Europe also places particular emphasis on supporting small and medium-sized enterprises (SMEs), which account for 99.8% of all businesses in Europe. R&D funding programs, financial incentives and other benefits are targeted primarily at SMEs, providing an environment conducive to innovation and growth in particular for startups.

  • Intellectual property protection is another key factor. Europe offers continent-wide protection through the European patent and harmonized standards for the transfer and licensing of intellectual property. This guarantees Korean companies that their innovations will be protected uniformly and effectively throughout Europe.

 

These advantages indeed make Europe an attractive choice for Korean companies looking to expand internationally, offering both a stable environment and significant growth opportunities. Today, Germany is Europe's preferred destination for investment in technology and innovation. The country attracts major players, particularly in the automotive sector. Germany benefits from the European framework and stable economic growth, making it a benchmark in Europe. 

For example, in 2023, Korean manufacturers KIA and Hyundai signed a strategic partnership with German vehicle chip maker Infineon Technologies AG to secure a supply of power semiconductors, with the aim of developing a new generation of environmentally-friendly electric vehicles. Germany, like other European countries, is placing increasing emphasis on ESG challenges in its production process, which sometimes requires finding new production methods.


 

​Tax perspectives:

 

The European tax system is often perceived as complex and impenetrable by foreign investors. However, Julien Herveau set out to demonstrate that this is not in fact the case. Europe has simplified its corporate tax system enormously in recent years, and continues to do so today, providing greater transparency for investors. 

Europe's complexity and tax burden are often exaggerated. Looking at the example of France: although French taxes are perceived as an obstacle to innovation, the reality is quite different. France has one of the best R&D tax credit systems in the world, offering up to 30% tax credits. In addition, corporate tax rates in France have been recently reduced from 25% to 15%. 

Finally, the French tax system is very clear and transparent for businesses, making it easier for Korean companies to understand. What's more, it is based on the same principles as Korean law, which gives Korean companies an advantage, as they will have no difficulty adapting to it.

Thus, big Korean companies recently targeted France for their investments. The Korean leader in navigator software, Naver, invested significant amounts in AI research there and is currently hiring more than 100 people in France. The SK group is also present in France with SK geocentric, SK’s natural gas branch, who is expected to open a factory to recycle plastic in Europe. It is likely that the recent measures on business taxation in France will lead more Korean companies to take an interest in the French market within Europe.

 

Furthermore, according to Jeung-Jun Park, another key asset of the European market is the Free Trade Agreement (FTA) that has been signed recently with Korea. This treaty, which was ratified in 2015, suspends all existing trade barriers between the two regions, greatly facilitating trade. Thus, the absence of external and internal tariff barriers is a significant incentive for foreign companies to invest in Europe.

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Opportunities in the emerging markets - The case of Czech Republic

hese observations about Europe apply to all European Union countries. However, for economic and historical reasons, foreign investment is currently concentrated in the most developed markets, namely Germany and France. During the conference, Michel Sal, representative of the Czech Invest organization, whose mission is to support foreign investors in projects with the Czech Republic, presented the advantages that this country can represent for South Korean companies. The presentation highlighted the opportunities offered by emerging economies in Europe.

 

Czech Invest representative explained that the Czech Republic is already home to almost 100,000 foreign companies of all sizes. These include renowned multinationals such as, Continental, Danone, Ford, Nestlé, IBM, DHL, AstraZeneca, Renault, Siemens, Amazon and Volkswagen, all of which have major subsidiaries there. Korean carmaker Hyundai has chosen the Czech Republic to open a subsidiary in Eastern Europe, to take advantage of the country's infrastructure. Nevertheless, Korean SMEs and startups are not very turned towards South Korea yet. The DELTA project, which is the governmental cooperation project of the Czech Republic, has therefore established partnerships with SNU and Yonsei Universities to promote exchanges and cooperation.

Foreign-owned companies indeed play a key role in the Czech economy. Although they account for less than 2% of all companies by number, they generate 70% of total sales (2022) and employ 50% of workers (2022), mainly in medium-sized and large companies. Also, these foreign companies are responsible for a significant share of research and development (R&D) spending. The sectors with the highest shares of R&D spending by these companies are automotive, pharmaceuticals and electrical engineering.

Thus, Michel Sal presented key assets of the Czech Republic to attract foreign investments:

  • The Czech university system is renowned for meeting the needs of a competitive economy. In 2022, 60,481 students were enrolled in the technical programs. The number of university students increased from 118,000 in 1990 to 304,518 in 2022, providing a solid base of qualified graduates, including 12,068 in technical universities.

  • The Czech Republic devotes more resources to research and development than many of its competitors. R&D spending has risen from 0.95% of GDP in 2001 to 2.00% in 2021. This high level of investment has attracted major foreign R&D investments, notably in the automotive and medical sectors. The country is also home to many multinational research and design centers, including Panasonic, Mercedes-Benz and Motorola.

  • Looking at the workforce quality, the country offers a skilled workforce at an attractive cost compared to Western economies. Although labor costs are slightly higher than in other parts of Central and Eastern Europe, the country benefits from a high-quality workforce and dense, high-quality infrastructure.

  • The Czech Republic is strategically located in the center of Europe, with excellent access to established markets in the west and emerging markets in the east. Its road and motorway network is one of the densest in Central and Eastern Europe, and several rail modernization projects are underway to link the Czech Republic to the pan-European high-speed rail network.

Challenges and opportunities for Korean startups

Challenges:

In a second panel, White Castle representative and program manager Peter Madsen sought to identify and define the main challenges facing Korean entrepreneurs wishing to invest in Europe.

White Castle is an organization that helps startups expand internationally through networking and consulting activities. White Castle began working with Korea just before the Covid-19 pandemic, and has partners worldwide. They aim to support European investments in Korea and to help startups establish themselves there through administrative support and networking. 

Through their work with Korean companies, White Castle and Peter Madsen have been able to identify the points that South Korean startups need to pay attention to if they want to expand into Europe:

  • Korean startups have to navigate a complex and varied regulatory framework. Europe, although unified by certain regulations at EU level, applies country-specific regulations. This includes significant differences in tax systems. Detailed knowledge of these regulations is crucial to avoid costly mistakes and delays in product launches. Despite regulations tending to become more simple, it is important for Korean companies to find out about the rules in force in Europe.

  • To succeed in Europe, rigorous preparation is essential. This involves in-depth research into the market, the competition, and the expectations of European consumers. Startups also need to understand the mechanisms of subsidies and tax incentives, which are particularly advantageous for R&D.

  • To engage effectively with European partners, Korean startups need to build strong relationships with local government organizations and institutions to better understand the market and current regulations. Establishing a partnership in Europe thus can be an ease for Korean companies to develop there.

Although Korea is currently more oriented towards the USA than Europe when it comes to business, Korean technology is highly regarded in Europe. For Korean startups to succeed in collaborating with European partners, it is essential that they are well prepared and open to find local partners. Europe has all the elements necessary for success, but this requires careful preparation, particularly in terms of market research and regulation. White Castle aims to help companies facing these challenges.


 

​Collaboration opportunities:

 

Finally, business collaboration initiatives between Europe and South Korea were presented. Representatives from Dassault Systèmes and KITA commented on the development of programs and initiatives to facilitate the business and the collaboration between South Korea and the European Union, considering the perspectives that the Korean or European market can represent for companies.

 

  • Dassault Systemes' 3DX

Woon Sun Jung, CEO of Dassault Systemes Korea, presented the 3D Experience (3DX) program from Dassault. The 3DX program has been thought of as a solution for innovation management and digital transformation.This initiative aims to create a platform for innovation professionals, providing companies with a global, real-time view of their business and ecosystem through centralization of data. It connects people, teams and organizations in a digital ecosystem. 3DX creates a collaborative environment between professionals and companies to encourage innovation and joint projects, with the goal of bringing a product or technology to market.

The platform offers a way to centralize all data between companies and collaborators. It facilitates secure collaboration between individuals, teams, departments and external partners, enabling ideas to be transformed into innovative products, services and experiences. For now, 3DX is mostly used in sectors such as automotive and transport, aeronautic and defense, healthcare and high technologies. Dassault Systèmes' platform is a comprehensive, integrated solution that helps companies innovate, collaborate and succeed in a digital environment. It manages the entire product life cycle, from initial idea to production and beyond, ensuring effective collaboration and decision-making based on accurate, real-time data. The platform helps reduce complexity and improve product quality. Modular and adaptable, it can be tailored to the specific needs of each company, whatever its size or sector of activity. Finally, 3DExperience supports the digital transformation of companies, providing them with the tools they need to innovate and remain competitive.

  •  Korea International Trade Association

Secondly, Phil Jae Park, Director of the Korea International Trade Association (KITA), commented on different projects launched by the organization. The KITA is an organization which organizes events and tries to foster the development of Korean companies internationally. 

 

KITA plays a crucial role in helping Korean startups expand beyond their borders, notably by organizing Asia's largest 1:1 innovation event, the “Nextrise Global Fair”. These consultations offer valuable opportunities for startups to establish connections with world-renowned companies. This event brings together the majority of Korea's leading companies, providing a platform for startups to showcase their innovations and establish strategic partnerships. The association connects over 50 major international companies every year, such as Chanel, Nivea, HP, Coca-Cola, Bayer, Starbucks, Amazon and L'Oréal, to consult and work with Korean startups. 

Meetup offers startups the opportunity to collaborate with businesses and structure investments from global corporations. This platform enables large and mid-sized global companies to explore technological achievements and service innovations by establishing partnerships with startups. Nextrise facilitates thousands of annual consultations for investment and corporations. 

 

Another key KITA program is the Pilot Test Program. This program aims to connect startups with bigger companies to allow them to cooperate. In order to achieve this goal, startups and more established companies face challenges that need to be overcome. 

For global corporations, it is often difficult to evaluate startups when the information available is limited to documents and pitch presentations from the startups. Furthermore, the global corporations usually do risk averse decisions due to performance pressure and budget constraints of open innovation. Lastly, they experience informational asymmetry in finding qualified and prominent straps to partner with. Often, the information available is limited to documents and presentations, making decision-making risky due to performance pressure and budget constraints. Startups, meanwhile, need real-life tests to demonstrate their potential, but fear theft of their intellectual property or technology.

On the startups’ side, the KITA’s Pilot Test Program can be considered as a real world testing on actual data through the global corporation’s scale and network that is needed in order to show off their real potential. 

 

Thus, KITA and initiatives such as the 3DX program from Dassault Systemes play a key role in helping startups overcome the challenges of internationalization and fully exploit the opportunities offered by European and Korean markets. The development of these initiatives is bringing the two regions closer together administratively and intensifying economic exchanges.

Conclusions and KEY takeaways

Business and trade between South Korea and Europe is experiencing significant growth recently. The number of South Korean companies interested in the European market keeps increasing, and same for European companies with the Korean markets.

These two regions have different but complementary dynamics. South Korea is renowned for its dynamism and fast development, and Europe for its stability and interesting legal system. However, a lack of mutual knowledge can be a major barrier to this cooperation. Korean start-ups, while technologically advanced and renowned for their innovation, face challenges in understanding European regulations and tax systems. Similarly, European companies need to better understand the Korean market and its particularities.

Events such as the IRIC 2023 conference play a crucial role in fostering cooperation and improving understanding of Korean and European systems. They provide an opportunity to share knowledge, create networks and develop strategic partnerships, while benefiting from the expertise of players from both regions. By participating in these exchanges, European and South Korean players can better seize the opportunities offered by their respective markets, and overcome regulatory and cultural challenges.

Companies and institutions

Mazars, represented by Julien Herveau, is an international consulting and auditing company, founded in France, offering audit, tax, consulting and accounting services. With a presence in over 90 countries, it stands out for its collaborative and integrated approach to helping clients navigate complex and constantly evolving environments.

Dassault Systemes Korea, represented by Woon Sung Jung, is the South Korean subsidiary of Dassault Systèmes, a French company specializing in 3D design, digital mock-up and product life cycle management (PLM) software. It offers innovative solutions for various industries in South Korea, helping companies to optimize their product development processes and stimulate innovation. 

Kim & Chang, represented by Jeung-Jun Park, is the largest law firm in South Korea, renowned for its high-quality legal services covering various fields, including business law, finance, intellectual property and litigation. Founded in 1973, it provides legal advice to international and local clients, combining local expertise with a global perspective.

Czech Invest, represented by Michel Sal, is the Czech government agency responsible for promoting foreign investment in the Czech Republic and supporting the development of local businesses. It provides advisory services, financial support and information to facilitate the establishment and growth of companies in the country.

KITA, represented by Phil Jae Park, is an organization dedicated to promoting international trade and supporting South Korean exporters. Founded in 1946, it offers a variety of services, including market information, training and networking initiatives, to enhance the competitiveness of Korean companies on the world stage.

White Castle, represented by Peter Madsen, is an organization that advises startups on their investment projects internationally. It offers strategic advice, administrative assistance and operational support to help European companies set up and grow in new markets, notably in South Korea.

About the Authors

Zachary Petit

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KEY Intern

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Jiseon Lee

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Associate

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