Economy in transition – Keys to a successful business in Korea
Asian tiger, the miracle of the Han river, is getting sleepy and preparing for a nap time. The double-digit growth numbers from the past are a distant memory and the country is battling in the brink of recession together with slowing global economy. On the positive side South-Korean economy has grown to be one of the biggest industrial and economic powerhouses globally, which also means the demand and business opportunities have shifted considerably since the 1990s. With this article, we will explore some of the keys to a successful business in Korea, ins and outs of Korean industries and ways to capitalize on these opportunities.
Identify and verify your business opportunity
When assessing the market opportunity, it is noteworthy that the domestic market provides attractive opportunities not only in B2C and B2B businesses but also in traditional products and increasingly services. Korean companies have often solid financial standing and in the consumer side, the middle class is very big and wealthy. Through Korea, companies can often gain access to domestic markets and major global projects in for example plant construction. Korea is a major force in several fields including smart devices, automotive, shipbuilding, and heavy industries. Samsung Electronics dominates the Korean value-added production – providing some 25% of the whole nation’s GDP. Industrial giants, such as LG, Hyundai Motors group (including KIA), Hyundai Heavy Industries and Doosan are also household names. There are some 100 subsidiaries in the whole Samsung group and the group’s businesses are spread across many industries. Behind these conglomerates, there is almost an unlimited number of smaller but sizeable companies and industries that can be potential clients, distributors or manufacturing partners for foreign companies.
With a population of 50 million and GDP per capita over $30,000 – Korea has a market for everything you can imagine. The question is how to identify the addressable market size for your company and what will be the preferred sales channels to reach the markets?
Overcoming the information barrier
The first challenge all foreign companies face in Korea is the language barrier. Koreans have notoriously low language skills in general thus everything in Korea works in Korean. Usually, only people with language skills are working in companies’ overseas business departments and rarely in purchasing. If we think about language skills one step deeper – another challenge arises from a considerable difference in cultural and social structures when comparing Korea to western countries. It’s interesting to follow how different people who speak English as a second language find common language and way of communicating over time.
Connected to the language barrier is access to industry data and statistics. Both are widely and broadly available in Korea however quite often only in Korean. We usually have a rule of thumb we call ‘2-8’. Only 20% (at maximum) of relevant industry data and company details are findable in the English language. Usually, it’s closer to 10% only. While the remaining 80-90% remains hidden behind the language barrier.
Determine what kind of market presence is required
Like many other Asian countries, selling to the Korean market typically requires establishing a direct presence, partnering locally, or both. For direct presence, different legal entity options (subsidiary, branch, representative office or liaison office) have to be carefully considered, while proper partner selection and implementing a functioning channel sales concept is one of the keys to a successful business in Korea when it comes to establishing a presence through local partner(s).
Success in local sales absolutely requires a local presence. Often, we see foreign companies trying to cover Korea from their China, Singapore or Japan regional offices – unfortunately often the performance is behind the potential. B2B sales are heavily evolving around personal connections and being in the procurement flow requires you to be as close to the client as possible. Being physically located you are undeniably out of sight out of mind for Koreans.
Be patient and commit to the market
When selling locally, commitment to the market is another key to success: one to three-year business development cycle is normal for establishing a sustainable market presence. Apart from purely business-related considerations, brand building just takes time. Local references as absolutely needed before any major scale business is realistic.
Negotiations and agreements are also something that takes time to adjust.
A long-time European executive explains: “In Korea, signing a supply agreement is only the beginning of negotiations. Agreements are not considered as ‘final’ the same way as in the western world. They are merely documents that can be changed anytime.” Adding “Sometimes it’s needed to balance between ‘do I want to be right’ and ‘do I want to get things done’?”
Invest in people
Ever since the industrial growth started in Korea in the 1970s, Korea and Koreans have invested heavily in education. Korea does not have any major natural resources to capitalize on, so naturally, the focus on education has turned the Korean people as its biggest asset. College degree is often minimum level Koreans train for, many continue to graduate studies and post-graduates are numerous. Business circles are dominated by men due to the traditional view of gender roles – women take care of the family and men take care of the income. Past decades women are more and more in professional life also and can be found in high positions. Both men and women alike go through the same education standards. For bigger operations, establishing university partnerships are a common way to ensure the quality of graduates.
Finding the top talent at their younger age is very important for the long-term success of local Korean operations.
Quoting one German executive with long experience in Korea:” Best recruitments are done directly from the university or from other foreign companies. It seems to be standard in foreign business circles in Korea that hiring people with 10 years of experience in Korean conglomerates is the last thing a company should do. Korean conglomerate ways of working do not work in a foreign company environment. They bring in too much internal politics, hidden agendas and so forth, which will surely start undermining smaller organizations working style and inter-personal relationships. Hire the talent as early as you can and develop their talent to your needs is the way to succeed.”
Prepare for a fast pace and big quantities
The whole Korean society works in 8282 -mode, which translates roughly to ‘fast-fast’. Everything is expected to happen now or yesterday. Deadlines can be extremely short- and same-day responses to work inquiries are expected. This is great is you are buying from Korea but can cause issues if the roles are opposite. A lot of times foreign companies have either Korean staff or local Korean partners in between to handle all the communication.
Many European companies have difficulties adjusting to much higher than expected quantities Korean client-side is demanding. This is true especially to specialty producers who hoping to find a specific niche market for their products. Koreans rarely do things in a small scale.
In a nutshell – Keys to a successful business in Korea
- Identify and verify your business opportunity
- Determine what kind of market presence is required
- Be patient and commit to the market
- Invest in people
- Build trust and partner with the right people
If you read our blog articles on the same topic in the Philippines, you’ll notice the key learnings are pretty much the same. This message resonates pretty much through all the countries in the region.
These keys to success are shared with you based on the experience of carrying out 70+ advisory projects in Korea. For more information on how to make the most out of the business opportunities in this major market, have a look at our website: https://asianinsiders.com/service/asian-market-expansion/