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.”
Close to 50 million people live in South Korea, a fast-growing country with a $1.1-trillion economy.
South Korea is Canada’s third-largest merchandise trading partner in Asia, after China and Japan.
When fully implemented, the Canada-Korea Free Trade Agreement will eliminate customs duties on 98.2 per cent of Canadian tariff lines.
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“I highly recommend working with the Trade Commissioner Service to identify appropriate representatives in the market and to develop an appropriate sales strategy.”
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.
“Koreans are looking for companies that are very committed to helping to promote their product in Korea and to providing strong after-sales service.”
How do Canadian companies find the right partners in Korea?
In Korea you’ll often deal with conglomerates that are active in multiple sectors, but maybe they're good in some sectors and not so good in others. Our staff can give you this type of information. When looking for the right partner, you might also want to look at distributors that are representing Canadian brands to see if that company is interested in taking on more. If they've already been successful in representing those other brands, they'll likely also do a good job of representing your brand.
What are Korean companies looking for in a foreign partner or supplier?
Koreans are looking for companies that are very committed to helping to promote their product in Korea and to providing strong after-sales service. You can buy everything online, and if you go to shops you have two to three people helping you – people in Korea are used to getting that level of service. It’s a very competitive market so if you want to make a place for yourself you have to provide exceptional service.
How can small or mid-sized companies, which typically have very limited resources, get into Korea?
There’s one model I’m starting to see, particularly in the agri-food sector, where a Canadian service provider will take a number of brands under its umbrella, and promote these companies using pooled resources. I think this model works well for SMEs that might not have the capacity to go it alone. The service provider is usually someone who is not selling their own product, but has some experience in international sales and is familiar with products in a particular sector. Ideally, the service provider will have a number of non-competing products.
“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.”
What do Canadian companies need to keep in mind when choosing a site for local operations?
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 and space requirements. But keep in mind that regulators and most of your customers are in Seoul and your expat employees 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?
There are many executive centres and private office services companies that rent office 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.
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.
“Because technology is highly valued in Korea, companies that come here also need to guard their proprietary technology very carefully.”
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’s a high level of inflexibility with employment rules. For example, there are plenty of restrictions around hiring contract or non-permanent employees. 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.
“Foreign companies are competing with large Korean companies …. but their payment and employment conditions are not much better than large Korean companies that don't have strict language requirements.”
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.