A Match Made in Hi-Tech Heaven: Israel and South Korea

Israel and South Korea top the list of countries that spend the most on science and technology R&D.

Israel and South Korea have more in common than one would expect. Both are democratic countries that declared their independence in 1948 – the former gaining it only three months before the latter. Both countries also oversee some of the world’s most militarized borders.

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They furthermore have strong economies supported by thriving hi-tech industries. According to data from the Organization for Economic Co-operation and Development (OECD), Israel and South Korea spend the same proportion of its GDP towards Research and Development (R&D) – 4.2 percent, the highest in the world.

For the past three to five years government ministries and companies around the world have been eyeing hi-tech’s steady march forward in the two countries, which have also not been shy about working together. Indeed, some would say it’s a match made in heaven.

The Israel Innovation Authority reported that more than 140 joint Israeli-Korean technological innovation projects were launched in 2016 involving a total sum of $54 million.

“Israel is the fourth-leading exporter [among Middle Eastern countries] to South Korea,” said Cho Kyung Jin, a senior manager at KOTRA, an agency that promotes South Korean trade and investment with other countries.

Cho’s office – a branch of KOTRA based in Tel Aviv – provides buyer and market information to companies in Israel and South Korea.

“We observe the Israeli market for Korean companies so these companies can make appropriate adjustments to the local Israeli market,” Cho told The Media Line.

He explained that the main Korean exports to Israel included automobiles, mobile phones, and household appliances. In fact, one of five cars sold in Israel is reportedly from Korea. Additionally, Korean mobile phone sales gained more than 50% of the Israeli market.

Korean companies, by contrast, were interested in about 3,500 Israeli venture groups in the areas of bio-tech, medical equipment, renewable energy and aerospace.

Itzik Yona, the CEO of Yonaco, an Israeli consulting agency for businesses that are eyeing South Korea, told The Media Line that “Koreans cannot work without face-to-face interactions; the country has a very unique business culture.”

Yona got the idea of starting his own consulting firm when many Israeli businessmen came to him for help on how to navigate South Korea’s business culture.

“For the last 15 years with Yonaco I’ve been negotiating transactions and promoting businesses in Korea. It started with Israeli companies wanting to do business and invest in South Korea. Now we have clients in Europe, Singapore and the United States,” said Yona.

He added that Israel was a powerhouse for innovation in medical devices, green technology, pharmaceuticals and robotics. Yet, Israelis face some setbacks after the innovation phase.

“People in Israel are building companies to do one of two things: either to sell them or take them to an IPO [an initial public offering]. This means that after these companies reach a certain maturity and other interested parties step in, their technologies often exit Israel, the place where they originated.”

He continued, “Koreans know how to take core technologies and make them into a product. The capabilities in South Korea are to design a product, execute quality control over the product and order the production chain in a very efficient way.”

While both countries have their strengths and weaknesses, Yona said they complement each other almost perfectly.

“South Korea knows how to take core technologies and make products, while Israel knows how to make core technologies.”

There are others avenues through which this type of joint cooperation runs. Korean conglomerates make investments in Israeli startups through venture companies. Another popular option for big names in South Korea, such as Samsung and LG, is to open up accelerators in Israel.

“Accelerators are [investment and support] initiatives that provide small companies with about $50,000 to examine their technology for six to eight months. They can screen technology and get closer to it,” explained Yona.

Samsung Next and the LG R&D Center are examples of these accelerators which directly involve Israeli startups that want to work under the umbrella of tech-giants such as Samsung.

South Korea’s heavy investment in Israeli technology in the past few years may have been influenced by the aggressive investment strategies from its neighbors China and Japan towards the global market. Yet South Korea has a smaller stake of interests in Israel than do China, Japan and India.

“While South Korea is not among the countries doing the most trade with Israel, I think this economic partnership will continue to grow exceptionally,” said Yona.

Sageworks, a company that provides financial analysis to hi-tech firms, reported that information-technology was the fastest-growing industry in the US. With businesses relying heavily on the fast pace of information exchange, it seems that this sector – which is dominant in both Israel and South Korea – will expand much more in the future.

“Some industries in South Korea consider it a crucial strategy to trade in technology, consumer electronics, mobile technologies and networks. So, these Israeli companies will do business with South Korea for a long time to come,” said Yona.

Nevertheless, Cho was less optimistic about the prospect of growing business relations between the two countries in the future.

“To tell you the truth, the market in Israel is relatively small, and Korea’s interests align closely with other Middle Eastern countries like Saudi Arabia and the UAE which have maintained close trade agreements since the early stages of tech development – over 50 years of cooperation,” explained Cho.

Daniel Amar from the LG R&D Center, however, told The Media Line that the pattern of investment from the Korean conglomerate to the Israeli market in the past two years had been rapidly increasing.

“Compared to a year ago, the investments from LG have gone from 0 to 100%, and the volume of investments has reached thousands of millions of US dollars,” Amar concluded.

(David Lee is a Student Intern in The Media Line’s Press and Policy Student Program)