You can easily fall
in love with Korea! Once upon a time in 1953, the Korean War had left the
country most in need; but braving all hostilities, it has now emerged as the 11th largest
GDP.
On the other hand, estimations
point out that the top ten chaebols
(family-run group of companies) account for 80% of the GDP with Samsung dole
out around 20%. Chaebol skills have played a vital role in proving their
essentiality for the national economy.
Korea is a wonderful
business destination; a country that welcomes foreign goods with open arms and
hearts. However, there are some stiff challenges & risks of doing business in South Korea
that confront foreign companies that are keen on building a business empire in the
country.
1. Corporate
Culture
Korean culture is brimming with the principles of Confucianism. This
is translated in the offices that have seen male domination throughout history.
Considering that all males who are well enough must serve in the military, this
also often translates to the workplace; companies can most of the times be administered
with an iron fist.
However, the upside is that this is not a cultural problem, on the
contrary, it is the inability of foreign businesses to get it right and have a suitable
plan of action. Notwithstanding this, a clear vision of the key drivers that influence
Korean business counterparts is a great way to counterbalance this challenge.
2. Rules and
Regulations
The Korean legal framework can be a blend of complications as well
as provisions. Other than that, the regulations are often liable to
modifications. This may be difficult to accommodate, especially in the case of
foreigners looking to set up a company in South Korea. This is flanked by the
seemingly and widely assumed to be relatively uncompromising Employment legislation;
this makes it very tough to expel non-productive workers.
3. Competition
Among the challenges
& risks of doing business in South Korea is the fact that heavyweights
(chaebol) take along with them a chunk of the economy. There is
substantial sideways (horizontal) and vertical integration patterns visible. It
may reflect a caution against contending with big league players. Though this
is a precise fact, it is also true that they make superb business associates.
The only worry factor here is to be able to get to the right product
or service and to be able to find the best suitable partner. Regardless of
this, a better understanding of the challenging prospects and well-planned solutions
make South Korea just the ideal place for your business to be.
4. Intellectual
Property
In terms of Intellectual
Property Rights, companies are strongly advised to get their patents and
trademarks registered with the Korean Industrial Property Office (KIPO) before
making any crucial business decisions related to business deals with Korean businesses.
As a rule, the patent and trademark registration system utilized in this case,
depending on a “first-to-file” (or, to be exact, the first to register a
success) with KIPO. Hence, the quicker the registration, the better.
Companies are likely to
suffer in case of any forthcoming conflicts over IPR if they do not have a
Korean registration. The contact details for KIPO are as follows:
International Co-operation
Division
Korean Intellectual Property Office
Add: Government Complex-Daejeon, Dunsan-dong, Seo-gu,
Daejeon Metropolitan City, Korea
Tel: 82 42 481 5072
Fax: 82 42 471 3459
Also, in the case of companies requiring
professional legal service pertaining to any business problems, you may get a
list of local lawyers from DIT Seoul on request.
5. Protective
Security Advice
South Korea is
among the countries that have the best connectivity. Among the challenges & risks of doing business in South Korea are IT criminal
attacks (like Worm infection, hacking, phishing, identity fraud, credit card
fraud, pornography, unlawful music/movie downloads and others) usually come
under the scanner in Korea.
In 2003, the
government established a National Cyber Security Centre (NCSC), to trace
growing Internet misuse. This Centre functions a surveillance room throughout
the year, 24x7. The NCSC is the focal point of the government for determining, thwarting
and responding to cyber-attacks and menaces in South Korea.
With the
widespread rise of internet banking, occurrences of hacking and information
theft become more commonplace. In 2006, the government rolled out the
Electronic Financial Transactions Act. The Financial Supervisory Service and
other government departments have issued directives on how to operate electronic
financial services in Korea.
On 20 March 2013,
South Korea faced a major cyber-attack, hit three key broadcasting stations and
three banks. Despite the fact that the banks managed to retrieve their
computers and cash machines back up and get them back in action in just a
couple of hours, the severity of the attack was quite destructive. A prompt investigation
into the attacks was conducted by the South Korean government. This probe
penetrated all governmental lines, revealing that the origin was DPRK.
In May 2017, the WannaCry global ransom-ware attack affected a few
enterprises and individuals. However, the Republic of Korea was not hit that
hard, in comparison to other countries due to the alertness and hi-tech
security measures of the authorities.
6. Configuration Issues
Of South Korea's best
known exported merchandise categories are semiconductors and other electronic
appliances, vehicles and refined petroleum products. All these categorizations
braved substantial worldwide pricing stress, resulting in numerous issues for the
industry in South Korea.
Pricing pressure reduces
the entire revenue that these enterprises can avail on a specific size of production.
This also shrinks the gains for productive companies, leading to integration and cost
reduction. Characteristically, industry consolidation and cost-efficiency
campaigns result in unemployment and bear upon on wages. With maturity, small-
and medium-sized companies function at a higher loss to large incumbents, thereby
suppressing the generation of jobs.
Ripening economies
with wages on the rise find it tough to remain competitive in exports, as
compared to countries where labor is cheap. This is truer if the mature
economy was earlier dependent on labor-driven production. On many
occasions, employment in the service sector is obvious in growing
economies.
Industrial sectors
are increasingly productive as compared to the service sector. The most common
reason for this is that service providers run very small businesses and have
slim chances of benefits from global production networks, curbing wage
growth.
7. Regional Matters
The South Korean
government has to strike a subtle equilibrium of good liaisons with regional
partners. The Republic of Korea’s relationship with the US continues to be a
fact of the matter of its political and security strategy. Better relations are
being built with ASEAN and more and more partners around the world.
In September 2011,
a Trilateral Cooperation Secretariat was constituted in Seoul to consolidate
liaisons between the ROK, China and Japan.
Nevertheless, tripartite
collaboration with China and Japan on a few matters of mutual interest continue
to be a political dilemma in the background of ongoing regional tensions.
Following the former
three-nation, a high-level summit that was hosted in Seoul in October 2015,
Korea has developed robust economic ties with China. As a result of this, China
and Korea share a major trading relationship. However, the Republic of Korea’s
relations with Japan have shades of historic and territorial conflicts.
8. Rising
Prices in Bordering Countries
Economically,
South Korea depends a lot on global trade, with exports hovering around 50%
of its GDP in 2014. Consequently, the rates of exchange with currencies in neighboring
nations matter a lot to the Korean perspective.
China and Japan being
two of South Korea's key business partners, devaluation of the Yuan and the
Yen could have a recessive effect. The reason for this would be that imported
goods and services would be priced lower and exports would be priced higher in
end markets. This gives competitors in neighboring countries an upper hand over
regional manufacturers.
China and Japan are also Korea’s chief rivals in global markets.
Any rise in the currencies of these countries might eat away South Korea's
price competitiveness, since the same products are much low-priced when they
come from China or Japan, keeping all other elements the same.
South Korea has been countering problems ever since the year 2012
when depreciation was introduced by Japan into the pricing of certain
electronics and metals. Exports meant a lot to South Korea's flourishing the economy between the 1960s and 2015 and any substantial risk to the country's business
advantage could have posed a risk to the country’s growth potential.
9. What China Knows
South Korea's
economy is highly susceptible to China, with imports from China forming a major
part of South Korean goods. The overall demand in China is hence the significant driving force of economic development in South Korea and a
slowdown in China's GDP growth slowdown seems to induce some sluggishness in
Korea's exports.
A large number of Chinese
companies are having a tough time sustaining their operating profits, and more
and more Chinese bonds are also maturing, which could create cash-flow
problems. A thinning trade surplus could hamper the Korean economy and result
in fluctuating exchange rates. Apart from employing the monetary policy to
reduce exchange rate fluctuations, there is not much that South Korea can do to
ignite demand in China for imports.
10. Tough Market Scenario
Korea
has unusual professional norms, rules that need more transparency, resilience to
international business models, competitive local companies in a large number of
sectors and compulsion for bringing down prices to equate them with those of domestic
manufacturers. These are a few of the challenges & risks of doing business in South Koreathat affect foreign businesses over there.
Despite
this, firms that introduce innovations are persistent and full of promises for the
Korean market on the whole. These foreign firms see a lot of rewards in doing
business in Korea and find Korean customers very sincere. On the brighter side,
Korean companies are quick to pick up any new technology, which makes them
highly receptive to newly launched products by foreign firms, into this market.
The Free
Trade Agreement (KORUS FTA) between Korea and the US has transformed the former
into a lucrative market. EU products have zero-tariff entry into the market after
mid-2011. Australia, Canada, and China too
have signed FTAs with Korea.
It is
imperative for foreign SMEs to have high levels of flexibility when working with
Korean business counterparts, with reference to contract terms or price
revisions, quantity, and delivery terms, after signing a business or mutual contractual
agreement.
Foreigners
need to be well aware that as a practice, Koreans believe that signing a
contract is square one of a business relationship, which might not be the same
in other countries. This can easily run in favor of doing business in Korea
with a higher level of insight about Korean business and market trends.
Conclusion
The exhilaration of victory can never
be experienced without accepting challenges! Against all the odds, Korea is
just the place where your business best fits in.
A country with the most powerful quantum
of exports since long, South Korea has entered the league of one of the biggest
e-commerce markets in the world. Higher than 84% of the population has Internet
accessibility.
The World Bank’s yearly rankings ranked
South Korea 5th among 190 economies in the ease of doing business. This ranking
dipped to 5th in 2018 from 4 in 2017. The average rating of Ease of Doing
Business in South Korea averaged 9.09 from 2008 until 2018. This peaked the
charts at 23rd in 2008 and an all-time low of 4th in 2014.
As Korea consistently gains ground in
more technology-driven industries and makes inroads into a knowledge-based
service economy, there are plentiful trade propositions for foreign investors, specifically
leaders in leading-edge technology and the service industry.
Are you interested in establishing a company or branch in South Korea?
Contact us for more information on doing business in Korea.
