South Korea – export market

Lucrative Korean market can be a ‘tough nut’ for US exporters
South Korea is one of the United States’ largest trading partners. Currently our sixth largest export market, South Korea imports more American products than other major US export customers such as Australia, Brazil, China, France, or Italy. South Korea is Wisconsin’s 12th largest export market, and export shipments from the state to South Korea totaled more than $190 million in 2000. American exports have a solid 20% share of the Korean import market.
This huge export opportunity has not gone unnoticed by US competitors in Europe and Asia, however. Their direct investments in Korea are steadily expanding and the European Union has displaced the US as Korea’s largest foreign investor. Fierce competition will be the rule as companies struggle for positions of leadership in the large and growing Korean market. Despite excellent export opportunities, South Korea has been described as one of the toughest markets in the world for doing business, a place where foreign firms must do their homework and take nothing for granted.
Korean consumers have been on a shopping spree. Domestic passenger car sales and cell phone purchases have soared, appliances and TVs remain hot items, and apparel shops and up-scale family restaurants are bustling with customers. The sharp jump in retail sales has been dramatic, with total retail activity reaching about $100 billion in 2000. Overseas travel and spending have increased, and Korean consumers continue to show confidence and optimism.
South Korea has shown some progress in improving enforcement of its intellectual property rights (IPR) laws and in bringing its IPR standards up to those of the other major industrial countries. Nevertheless, a number of problem issues remain, and there are still serious concerns about South Korea’s efforts to protect intellectual property.
Local representation is essential for foreign firms hoping to be successful in the Korean market. That is especially true in a market in which business relationships are built upon personal ties and major international competitors may be only a few flight-hours away. In addition, in sectors related to any type of government procurement, only an entity registered with the Korean government has the legal right to bid on procurement projects. Therefore, most American firms must enter into a representation agreement with a Korean partner, especially for the purposes of market entry. Finally, the language barrier and tightly knit social and business circles make it extremely difficult to enter the Korean market without a qualified Korean representative.
The rate for commissions using an agent or distributor varies depending on the type of product and the dollar amount of the transaction. On average, Korean agents look for 10% when a transaction is conducted on a spot basis, but commission rates can vary from about 7% for general industrial machinery to as much as 15% to 18% or more for high-tech products such as medical, laboratory, and analytical instruments where a greater amount of after-sales service is required.
The most common means of representation include appointing a registered commission agent (more commonly known by Koreans as an “offer agent”) on either an exclusive or non-exclusive basis, naming a registered trading company as an agent, or establishing a branch sales office managed by home office personnel with Korean staff.
Only traders registered with the government are authorized to import goods in their own names. Appointing a registered trading company (rather than an “offer agent”) has the advantage that such agents can handle all of the importing paperwork themselves and import for their own account. Registered trading companies tend to be larger firms and often divide their business between exports and imports. However, they may be less attentive to building business for a specific US supplier and prefer to place a greater emphasis on diversifying their portfolio of products from different countries.
The U.S. Commercial Service in Korea and the Association of Foreign Trading Agents of Korea (AFTAK), a private trade organization created under Korean government auspices, are good places to start in locating a qualified local representative.
The above article is based on information provided by the U.S. Commercial Service in Korea. For more information, please contact the U.S. Export Assistance Center in Milwaukee at 414-297-3473. The Commercial Service’s web site on Korea is located at: www.cskorea-doc.gov
SOUTH KOREA AT A GLANCE
National capital: Seoul
Form of government: Republic
Official language: Korean
Population: 46.4 million (1998 est.)
Population growth rate: 1.0%
GDP per capita: $13,700
Literacy rate: 98% of people age 15 and over can read and write
Major industries: Electronics, automobiles, chemicals, shipbuilding, steel, textiles, clothing, footwear, food processing
Exports to: United States 17%, European Union 13%, Japan 12%
Imports from: United States 22%, Japan 21%, European Union 13%
Source: CIA World Factbook
Best Prospects for US Exports:
-Wireless Telecommunications Services
-Pollution Control Equipment
-Semiconductors
-Medical Equipment
-Architectural/Engineering Services
-Maritime Transportation Services
-Retail Services
-Security and Safety Equipment
-Electrical Power Systems
-Education and Training
-Drugs and Pharmaceuticals
-Aircraft and Parts
Source: U.S. Embassy, Commercial Service, Seoul, 2000
Aug. 17, 2001 Small Business Times, Milwaukee