The country that gave the world brands as Samsung, LG and Hyundai is also a rich market for Canadian exporters and investors.
“Canadian brands are on the upswing in South Korea, where companies such as Canada Goose, Arc’teryx and Joe Fresh have become quite popular,” says Eric Walsh, Canada’s ambassador to Korea. “There are so many sectors where Canada has strengths and where Korea has needs.”
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Chief Representative SEA (Southeast Asia),
Where are the new areas of opportunity in Korea for Canadian businesses?
The Canada-Korea Free Trade Agreement is going to have near-term impact on traditional exports, especially agri-food, when tariffs are removed and the price of Canadian products to Korea drops. On the high-tech side, clean technology stands out. Korea is focused on environmental issues – air quality in particular – because of blow over from China. Other new areas of opportunity include big data and new composite materials development – anything Samsung can use to get a leg up on its competition.
What are some of the key challenges facing Canadian companies?
Language is an evident barrier, more so than in other parts of Asia. There are also cultural aspects – Koreans like to do business with local companies and occasionally you get stories of ad hoc changes of labelling and documentation requirements that could favour domestic supply over imports. There’s also a high dependency on middle men when buying and selling goods. You may find yourself having to deal with intermediaries or distributors at the point of entry, which adds barriers and cost.
So how do you deal with that?
In some cases you have little choice. In other cases, it’s a matter of being able to spend the time and money to get into the market directly. On-the-ground relationships matter a lot, and building these relationships is especially a challenge for small and medium-sized businesses. I highly recommend working with the Trade Commissioner Service to identify appropriate representatives in the market and to develop an appropriate sales strategy.
Senior Trade Commissioner, Korea
Canadian Trade Commissioner Service
How do Canadian companies find the right partners in Korea?
There’s no single answer to this question for a market as complex and fast-moving as South Korea. Firms trying to access the chaebol, the large conglomerates like Samsung, Hyundai, and SK Group around which the economy is built, need to study complex procurement processes to figure out where they fit into local supply chains. Companies selling consumer products, including food, have to figure out which sales channel would work best for them (such as wholesalers, retailers, home shopping TV, and so on). Trade shows, both in and outside Korea, can be a good place to identify potential partners. The Trade Commissioner Service can help with recommendations, background information and meetings.
What are Korean companies looking for in a foreign partner or supplier?
Korean importers value commitment to the market and long-term relationships (which sometimes implies a desire for exclusivity in the Korean market). Regular communication is important, both emails and actual meetings. Korean culture prefers quick turnaround – let your partners know you are working on their questions, even if you don’t have final answers for them. In a highly competitive market, importers look for new products at reasonable prices and they want a partner who will support marketing and promotion. Uniqueness is valued – exclusive products just for Korean consumers sell well.
How can small or mid-sized companies, which typically have very limited resources, get into Korea?
Market prioritization is important – SMEs can easily spread themselves too thin. Prior international experience is necessary and SMEs should invest time to understand the market before they jump in. Selection of the right business partner based on the exporter’s business model is important.
Since Korean customers expect suppliers to be very responsive to their needs, as well as other reasons given above, SMEs selling consumer and food products often work through distributors in Korea. The Trade Commissioner Service at the Embassy of Canada in Seoul provides various services for exporters, including key contacts and market information, and in some cases trade show support. Funding programs targeted at SMEs are available from the Government of Canada, such as CanExport (international business), the Agri-Marketing Program and Going Global Innovation (industrial R&D partnerships), as well as the Canadian International Innovation Program with Korea.
Business Development Services IRC
What do Canadian companies need to keep in mind when choosing a site for local operations?
Location, location, location. You need to be close to your customer. Cost is obviously a big factor. If you’re manufacturing and need a big footprint you need to be outside Seoul because of the cost, available space and regulatory requirements. But keep in mind that most of the decision makers (especially your customers) are in Seoul and your employees (both expats and highly qualified locals) will prefer to live in Seoul, so you need to choose a location that your employees can commute to without too much difficulty. If you plan to have a retail presence, know that retail spaces present a big challenge; you need to be generating revenue or you’re out.
What options do Canadian companies have when setting up a physical office?
Right now, the market is favorable for renters. There is a glut of office space so you can negotiate a good deal. Furthermore, there are many executive centres and private serviced offices that rent space and offer shared administrative staff and access to meeting rooms. But these are not cheap. Canadian companies may want to look into organizations such as Invest Korea and the Seoul Global Center, which have a number of programs that let businesses use an office in their building, along with some support services, for free or a relatively low cost. Their primary focus is on companies that will invest in Korea. These normally have a limited duration such as 1 to 3 years. You are expected to get operations going and move into more permanent accommodations but it can be a good help to get started.
What about SMEs that are unlikely to make significant investments? How can they set up a low-cost physical presence?
Having a competent Korean working out of a home office can be a very cost-effective way to establish a local presence. But one of the problems I’ve often seen here is that a local agent or partner is chosen exclusively on the basis of their ability to speak English. When you’re hiring this person, make sure you’re also looking at their business competence, not just their language skills. SMEs have a big advantage in that they can be flexible and react quickly. At the same time, their lack of depth in management can mean that they are unable to exercise their flexibility because management is tied up with other pressing issues.
Online sales are booming for everything from electronics to groceries to services. Korean Customs Office reported that consumers purchased $974 million USD on-line directly from overseas in the first half of 2017, a 30% increase over the same period in 2016. Statistics Korea reports that 18% of all retail sales are now on line.
Barun Law LLC
How would you describe the legal and regulatory environment for foreign businesses?
Korea does not have many formal regulatory barriers to foreign investment. In terms of the complexity of doing business, it’s still difficult to do business on many levels because transparency here is less than what you’d find in Canada, although it’s better than how it was before. That’s why foreign companies need to make sure they line up professional help, such as a lawyer or an accountant who knows the rules inside and out.
Can you give examples of the regulatory and legal challenges?
There is little flexibility in the labour laws and there are two classes of employees—permanent and fixed-term employees (a bit more flexibility with the latter). This is a very complex area and it is rather unique to Korea.
Because technology is highly valued in Korea, companies that come here also need to guard their proprietary technology very carefully. Intellectual property needs to be addressed from the outset – everything from registering trademarks to determining what your trade secrets are and how you’ll restrict access to them.
Any recent noteworthy developments in the legal landscape?
Korea has become quite litigious – it’s arguably the most litigious Asian country today. They’re willing to get into legal fights over employment issues, commercial disputes such as issues pertaining to the quality of a product or service, or more complex issues like infringement of technology. The critical thing to do is to choose good partners and employees. Communicating clearly with all stakeholders is also important but this is often a huge challenge because of the language barrier.
CEO and Principal Consultant
How difficult is it to source qualified staff locally?
Foreign companies are competing with large Korean companies such as Samsung, which needs a large number of engineers and young workers to carry out projects overseas. So foreign companies are suffering because they want people who speak good English, but their payment and employment conditions are not much better than large Korean companies that don’t have strict language requirements.
How can Canadian companies make themselves more attractive to Korean workers?
Provide better compensation. But the reality is it’s not that easy. Canadian companies are often surprised to find that the Korean government requires employers to pay into four types of social welfare insurance. On the plus side, many Koreans prefer Canadian companies over American companies.
Any other human resource strategies Canadian companies should consider?
They need to set up a tight operation, perhaps through a one-person liaison office in Korea. Or they can also choose to merge with a Korean company. This will give the firm immediate access to personnel, but of course the employees will be working according to Korean culture.
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