Korean Firms Take Their Money Abroad to Flee Red Tape

  • By Kim Kang-han

    September 12, 2018 12:19

    Big Korean companies are taking their business abroad, be it to escape red tape at home or because the infrastructure there is more forward-looking.

    Naver is investing W751.7 billion in its Line mobile messenger business in Japan later this month (US$1=W1,128). It will be the biggest investment ever for the portal giant since it was established in 1999.

    As of the end of August this year, Naver owns around W1.4 trillion in cash and assets, and its investment to Line amounts to half of that. Line also secured W1.5 trillion including capital from private investors to be spent on bolstering financial technology services like Line Pay.

    A Naver staffer said, "After pioneering the financial technology market in Japan, we plan to take the business to Indonesia, Taiwan and Thailand."

    Line has been a Japanese operation from the start, but it is striking that Naver is prepared to spend so much money abroad and so little at home.

    Early this month, Kakao opened a subsidiary specializing in blockchain technology called Ground X in Japan and hired some 100 staff over a couple of months. The subsidiary will serve as Kakao's overseas base for the burgeoning business.

    Hyundai, meanwhile, is investing in various ride apps overseas. In January, it invested in taxi app service Grab in Southeast Asia and in July it put money into Australia's Car Next Door car-sharing app. Last month, it branched out into Indian car-sharing company Revv and in November it plans to invest in the U.S.' Migo. It has not put a penny into similar services in Korea, which have been stifled by powerful and belligerent taxi lobbies.

    Hyundai did invest W5 billion in a domestic carpooling company called Luxi in August of 2017 but sold off its stake in February this year due to vehement protest from taxi companies amid a maze of red tape surrounding carpooling.

    "In Korea, there are strict regulations allowing carpooling only in the rush hour, which makes it technically impossible to expand the business," a Hyundai executive said.

    Korean companies worry that they might lose crucial business opportunities if they wait until the bureaucratic mills at home grind into gear. For instance, a bill easing regulations to allow private businesses to run banks, which has been touted as President Moon Jae-in's top priority in promoting innovative growth, is collecting dust in the National Assembly as lawmakers bicker.

    Japan, by contrast, eased regulations back in 2005 allowing private businesses to own banks, resulting in the emergence of eight online-only banks with total assets of around W200 trillion. And China is also spearheading innovation in the financial industry with Internet giants like Alibaba and Tencent.

    That means Korean companies have no choice but to take their money overseas if they want to benefit from emerging industries, even in areas like biotechnology which the government designated as a future growth engine.

    Biotechnology company Macrogen plans to start offering testing services overseas at the end of this year for cancer, diabetes and other illnesses. In Korea, only hospitals are allowed to offer such services.

    Blockchain and cryptocurrency companies are also treated with suspicion in Korea. After the Bitcoin frenzy, they will be no longer considered venture companies eligible for government support with incentives and other benefits. That is why Naver established a cryptocurrency exchange in Singapore called BITBOX in July and invested W5 billion in French blockchain company Ledger early this year.

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