South Korea has joined various international endeavors for more improved IPR
protection by becoming a member of the following treaties;
- Convention establishing the World Intellectual Property Organization
(1967)
- Paris Convention for the Protection of Industrial Property (1980)
- Patent Cooperation Treaty (1984)
- Convention for the Protection of Producers of Phonograms against
Unauthorized Duplication of Their Phonograms (1987)
- Budapest Treaty on the International Recognition of the Deposit of
Microorganisms for the Purposes of Patent Procedure (1988)
- WTO Agreement on Trade-Related Aspects of Intellectual Property
Rights (1995)
- Berne Convention for the Protection of Literary and Artistic Works
(1996)
- Strasbourg Agreement Concerning the International Patent
Classification (1998)
- Nice Agreement Concerning the International Classification of Goods
and Services for the Purposes of the Registration of Marks (1998)
- Trademark Law Treaty (2002)
- International Convention for the Protection of New Varieties of
Plants (2002)
Using an Agent or Distributor in South
Korea
The most common means of representation are: 1) appointing a registered
commissioned agent (commonly known as an “offer agent” in South Korea)
on an exclusive or non-exclusive basis, 2) naming a registered trading
company as a manufacturer’s representative or agent, or 3) establishing a
branch sales office managed by home office personnel with South Korean
staff.
Any businessperson registered with the South Korean government can import
goods in his/her own name. Appointing a registered trading company (rather
than an "offer agent") as an agent has its advantages because these agents
can manage all of the import documentation and imports for their own
account. Registered trading companies tend to be larger firms that split
their businesses between exports and imports. However, these larger firms
may be less attentive to building the global supplier's business, placing a
higher emphasis on diversifying their portfolio of products from different
countries. Similarly, while the larger general trading companies may be
influential and well known in the market, they also may not devote as much
attention to a single product as do smaller firms.
To find a local representative contact South Korean Visa Commercial
Service.
Establishing an Office in South
Korea
Most foreign companies seeking to establish an office in South Korea review
location, taxation and business structure when deciding where and in what
form to establish a presence in South Korea. The following section provides
some basic guidelines on how to set up an office in South Korea. In
addition, a list of real estate consultancy, taxation and human resource
search services in South Korea are provided.
Step 1: Assess Your Company’s Commitment to
Establishing a Presence in South Korea
Potential investors can take advantage of the many services offered by
Invest South Korea, the primary investment promotion agency for South Korea.
Invest South Korea is an arm of the South Korea Trade-Investment Promotion
Agency (KOTRA), a government-sponsored non-profit organization. The
operation is staffed by KOTRA personnel and complimented by officials from
relevant government ministries and specialists from the private sector in
areas such as law and accounting.
Invest South Korea provides assistance in the following areas:
Identify the necessary administrative procedures.
Consult on forms of investment, including M&A, joint ventures and real
estate acquisition.
Provide legal and taxation advice
Invest South Korea also provides investment planning, ongoing support and
follow-up support. Invest South Korea also maintains an Ombudsman ready to
address foreign investors’ grievances.
Step 2: Receive Authorization to Proceed with an
Investment
Foreign investment projects require notification to the Ministry of
Knowledge Economy (MKE) or its delegated authority – the head office of a
major South Korean commercial bank or Invest South Korea. (A list of major
banks in South Korea can be found at www.buyusa.gov/South
Korea/en/bankcontacts.html.) Investment notification in liberalized sectors
can be handled through banks; however other sectors (see Chapter on
Investments, pg. 88) require greater review or documentation.
Step 3: Identify an Office Site
Companies unfamiliar with South Korean real estate should consult reputable
real estate agents or a real estate consulting firm, especially one
experienced in dealing with foreign firms. A list of select such agents can
be found at:
http://www.buyusa.gov/South Korea/en/realestatecontacts.html#_section1.
Under the Foreign Land Acquisition Law foreigners are allowed to purchase
land regardless of size or purpose. Local zoning laws do regulate categories
of activity permitted, and should be investigated prior to making final
investment decisions.
Step 4: Register with the Nearest Tax Office
Investors should register with the nearest tax office in their local
jurisdiction for tax reporting purposes. Given the complexity of South
Korean tax laws and the potential for misunderstanding provisions, companies
should consider hiring a local accounting firm to file taxes. A list of
local accounting firms can be found at:
http://www.buyusa.gov/South Korea/en/realestatecontacts.html#_section2.
Step 5: Seek Qualified Employees
Local South Koreans are attracted to global firms given salary rates,
prestige, opportunities for travel, the ability to use and learn English and
the possibility to transfer to the company’s home office or another foreign
branch office.
South Korea has a large pool of conscientious and highly educated workers.
Female employees are especially strong candidates given the prevalence of
traditional cultural attitudes in many South Korean companies.
Whether seeking to hire local or foreign staff, global companies should
consult an employment agency in South Korea. Click here to view a list of
employment agencies:
http://www.buyusa.gov/South Korea/en/realestatecontacts.html#_section3
OTHER FORMS OF LOCAL REPRESENTATION
Subsidiary: A subsidiary of a foreign company
is established as a local company, and therefore has often a closer
relationship with the local business community. This may afford a subsidiary
a better position to run its business and possibly allow the firm to tap
into investment incentives offered by South Korea. A subsidiary is eligible
to receive tax incentives provided by the Special Tax Treatment Law (STTCL)
in calculation of corporate income tax, if the subsidiary meets the
requirements pertaining to the STTCL. No such tax incentives are available
to branch or liaison offices.
Branch Office: For companies not have a large
enough presence in South Korea to establish a subsidiary operation, firms
can opt to establish a branch office of the foreign parent. A branch
operation is not subject to audits of external auditors in South Korea, and
thus, a branch’s net income is automatically viewed as being included in the
headquarters balance sheet. If a company were expected to grow large enough
to necessitate the establishment of a subsidiary in South Korea at a future
date, then it would be more cost effective to establish a subsidiary at the
beginning rather than a branch operation.
Liaison Office: A liaison office is
established as a branch office with only marketing and support operations.
No direct sales could be conducted from a liaison office, meaning that a
liaison office would be subject solely to the tax code of the headquarters
country and would be the simplest form of conducting business in South
Korea.
Franchising in South Korea
South Korea’s franchising industry has developed rapidly in the last
several years, led primarily by fast food restaurant chains. This growth has
expanded to include family restaurants, discount stores, clothing, mailing
services, cleaning services, as well as educational institutions. global
franchisers have met with mixed success in this market.
Franchising has expanded due to a “new generation” of affluent South Korean
consumers coupled with changes in South Korea’s distribution sector that
favor new product and marketing concepts. According to the Distribution &
Logistics Division at the Ministry of Knowledge Economy, the market value of
this industry has reached an estimated USD 70.2 billion, which includes all
franchise and sub-franchise fees and royalties. It also consists of product
and service revenues, consulting fees, and related product sales, such as
coffee equipment at coffee franchise outlets. Of the USD 70.2 billion
market, 52 percent (USD 36.5 billion) is accounted for by food services,
including fast food services and family restaurants. Other franchise
services such as, education, real estate, cleaning services, and mailing
services, account for 11.8 percent of this sector realizing nearly USD 8.2
billion in sales. The retail sector, such as convenience stores and consumer
goods, comprise the remaining 36.2 percent of this industry (USD 25.4
billion).
Franchising in South Korea first developed primarily in the food service
market before expanding into other areas. Although the restaurant franchise
market is beginning to mature, the service franchise market is relatively
new with new concepts, promising possible market opportunities. South Korean
franchisees are seeking, and prefer to do business with, global franchisers
that can offer established brand names to South Korean consumers and value
the transfer of American management skills provided by global headquarters.
The service franchising market includes education, beauty salons, cleaning
services, real estate, fitness centers, and other operations. Opportunities
exist for franchisers in cosmetics, children’s educational services, and
services tied to elderly care, sports and leisure activities.
Although global franchises are sought after in South Korea, several
challenges remain. Potential South Korean franchisees are often reluctant to
pay the relatively high franchising fees and royalties required by global
headquarters. Other common franchising requirements, such as minimum
facility size and the required number of store openings within a certain
period are often very challenging for South Korean franchisers to meet.
global franchises should therefore consider flexible franchising
arrangements and conduct thorough research on the market and potential
locations, as well as the potential master franchisee’s ability to manage
its stores. There are no specific legal requirements for global franchises
to operate in the South Korean market. However, franchisees need to comply
with the Sub-franchisee’s Fair Trade Act, which closely parallels the rules
that exist for sub-franchisees in the global market.
Direct Marketing in South Korea
The South Korea Online Shopping Association (KOLSA) estimates that South
Korean consumers spend nearly USD 22 billion in purchases. Direct marketing
primarily takes the form of catalog sales, TV home shopping, Internet
shopping, and Mobile commerce market. South Korea also has a large market
for door-to-door sales and multi-level marketing sector.
Door-to-Door Sales
in South Korea
The major door-to-door sales items include home education materials, books,
household consumer goods, cosmetics, health foods, sporting goods, and
service products, such as insurance and travel counseling. According to the
South Korea Direct Selling Association (KDSA), the South Korean door-to-door
sales market is approximately USD 7 billion.
Multi-level Marketing
in South Korea
South Korea’s multi-level sales for 2009 approached USD 2 billion. Nearly
70multi-level marketing (MLM) registered companies employed about 3.1
million active distributors. In keeping with its deregulation plan, the
South Korean government reduced restrictions on MLM companies by passing
legislation eliminating most existing market barriers against MLM products,
such as the obligation to disclose retail prices on the MLM product label.
Oversight of the MLM industry rests with the Fair Trade Commission (FTC).
MLM activities by global firms in the cosmetics, cleaning products, and
kitchenwares have been expanding. In order to gain further successes,
however, global multi-level sales firms should promote their products and
services appropriately and efficiently by carefully analyzing South Korean
market trends. Prior knowledge of the market conditions can help prevent
unnecessary conflicts with government officials, consumer ‘watchdog’ groups,
or industry groups.
Joint Ventures/Licensing
in South Korea
The South Korean government promotes foreign investment. Government policies
have liberalized investment including the lifting of foreign equity
ownership limits in selected sectors. President Roh and the Prime Minister's
Office have spearheaded efforts to de-regulate and liberalize the economy.
Foreign operations have welcomed such moves and encouraged further such
steps. With the recent presidential elections and with signing of the South
Korean-global Free Trade Agreement (KORUS-FTA), greater cooperation and the
encouragement of foreign direct investment should increase.
Selecting the appropriate partner is one of the most difficult and critical
aspects of establishing a joint venture in South Korea. Large South Korean
conglomerates, known as Chaebols, still exercise considerable influence over
the South Korean government and financial institutions. The South Korean
government has recently adopted a policy shift promoting small and
medium-sized businesses. With the decreasing influence of Chaebols and
greater concern of for anti-monopolistic behavior, joint venturing in South
Korea has become more diversified. Regardless of the scale of South Korean
partner, there is a tendency within South Korean business culture to
maintain local control, regardless of the percentage invested by foreign
entities. A global company should take into account such cultural aspects to
ensure policies and operations are conducted in the best interest of the
global partner.
Management control must be evaluated on three levels: 1) shareholder equity;
2) representation on the board of directors; and 3) active management
(representative director and subordinate management). Legally, South Korean
board meetings require the physical presence of all members as well as a
quorum of the directors. Therefore, if a foreign investor intends to
exercise day-to-day management, a representative director who resides in
South Korea must be appointed. Moreover, the representative director will
need the support of and access to key functional areas of the company in
order to manage in accordance with the foreign investor’s wishes. Therefore,
the internal organization of a joint venture company as well as key
management appointments should be worked out and agreed upon by all involved
parties as early as possible.
Compatibility of goals between the South Korean and foreign partners is also
crucial to the joint venture's success. For example, a foreign investor's
primary goal may be to send profit dividends offshore while the South Korean
counterpart may be more concerned with corporate growth in South Korea,
particularly by exporting to overseas markets.
Another fundamental issue to be faced is how contractual agreements are
treated. To most South Koreans, a contract represents the current
understanding of a "deal" and is the beginning, rather than an end, to
negotiations. If changing circumstances result in omissions or points that
no longer accurately reflect the original agreement, then problems will
arise. The same is true if the contracting parties change. This type of
experience in South Korea has led many foreigners to believe that South
Koreans place less importance on a written contract than Westerners. Though
Americans may regard a written contract as legally binding, South Koreans
may regard the same contract as a "gentlemen's agreement" subject to further
negotiations should conditions change.
Contract negotiations with South Koreans therefore should be viewed as an
on-going process of dialogue having the following objectives: 1) reaching a
common understanding of the deal that includes each party’s
responsibilities; 2) recording the detailed understandings; and, 3) being
prepared to modify the terms of the agreement should there be a change in
circumstances.
Certain terms of the commercial relationship between joint venture partners,
such as technology transfer, raw material supply, marketing, and
distribution should be agreed on in detail in the joint venture agreement.
American companies should proceed with caution when they enter into a
technology licensing agreements. A company’s intellectual property is not
necessarily protected and may be vulnerable in the later stages of a
business relationship when the survival of the South Korean company is
dependent on the technology. Although global companies frequently register
their patented technology with the South Korean Intellectual Property Office
(KIPO) before entering into a licensing agreement, successful companies
often retain cutting edge technology or key processes. This preventive
strategy allows the global party to control the use of the licensed
technology as well as maintain the integrity of the licensing agreement.
South Korea’s legal procedures can be lengthy, cumbersome and expensive when
dealing with contract violations. If at all possible, the best strategy is
to prevent possible conflicts. The identification of a viable and
trustworthy business partner from the outset is essential, therefore foreign
investors should conduct thorough assessments and due diligence when
selecting a business partner.
Legal advice is always a solid move. A list of attorneys is available at the
end of this chapter. In addition to consulting with an attorney, foreign
investors can also consult with the South Korean Commercial Arbitration
Board (KCAB), which advises foreign companies on contract guidelines. A KCAB
counselor can also review contracts and identify areas of potential concern.
Information on the KCAB website (KCAB).
Selling to the Government of
South Korea
South Korea joined the World Trade Organization’s Government Procurement
Agreement (GPA) on January 1, 1997. The GPA establishes non-discriminatory
procedures for the procurement process so that a maximum number of qualified
suppliers can fairly compete. In its accession offer, South Korea agreed to
cover procurements valued over certain “threshold” amounts made by South
Korean central government agencies, their subordinate entities, South Korean
provincial and municipal governments, and some two dozen government-invested
companies. South Korea included procurement of services and construction
services. Other features of the GPA for South Korea include a prohibition
against offsets as a condition for awarding contracts on covered
procurements, and a provision requiring procuring entities to allow
suppliers to pursue alleged violations of the agreement through GPA-defined
bid challenge procedures. The South Korean Ministry of Strategy and Finance
(MOSF) has established an International Contract Dispute Settlement
Committee to deal with any challenges by foreign suppliers that South Korean
procuring entities have not complied with GPA provisions.
The annexes to South Korea’s accession document specify certain thresholds,
below which GPA rules do not apply. Thus, the threshold for Annex 1 (central
government) entities for supplies and services is approximately USD 180,000,
and for construction services approximately USD 7 million. Thresholds for
supplies/services and construction services are considerably higher for
Annex 2 (sub-central government entities) and Annex 3 (government-invested
corporations). South Korea also specified certain categories of purchases
that would be exempt from GPA coverage altogether, including procurement
related to national security and defense, South Korea Telecom’s purchases of
telecommunications commodity products and network equipment, procurement of
satellites, and purchase by the South Korea Electric Power Corporation
(KEPCO) of certain electrical transmission and distribution equipment.
The Public Procurement Service (PPS) is responsible for the purchase of
goods and incidental services required by central and sub-central government
entities, government construction contracts and stockpiling raw materials.
Not all GPA-covered procurement is handled by the PPS. In the case of South
Korean government-invested corporations (listed in Annex 3 of South Korea’s
accession agreement), procurement is handled in-house, with these entities
following the same GPA rules. Thus, tendering under open, formal procedures
are required.
All bidders who wish to participate in PPS tenders for supplying goods and
services must register with PPS at least one business day prior to the date
of the bid opening. However, foreign bidders are allowed to register with
PPS prior to entering into a contract. Failure to register constitutes cause
for rejection of the bid. South Korea began the Government e-Procurement
System (GePS) http://www.pps.go.kr/english/ in October of 2002, a single
window for public procurement which digitalized the entire process from
order to payment for all public organizations. Bids can be viewed on the PPS
website and are valid for at least 45 days after the bid opening date shown
on the site. Additionally, as required by the GPA, the procuring entity must
publish information on bid opportunities in at least two sources: the daily
newspaper Seoul Shinmun (daily newspaper) and the South Korean Government
Gazette. While these sources are published in the South Korean language, any
given tender announcement must be accompanied by a summary in English,
including the subject matter of the contract, the deadline for submission of
tenders, and the address and contact point from which full documents
relating to the contracts may be obtained. The tender announcement must
contain a statement that the GPA covers the bid.
The negotiated KORUS-FTA has a chapter devoted to government procurement,
for further information please visit the website for the Office of the
United State Trade Representative at http://www.ustr.gov/.
For more information on the South Korean Public Procurement Service, please
visit their website at http://www.pps.go.kr/english/
Defense Procurement in
South Korea
The Defense Acquisition Program Administration (DAPA) was launched on
January 2, 2006 as a streamlined military procurement agency, replacing the
former Defense Procurement Agency (DPA). DAPA is responsible for defense
industry equipment purchases. The new agency was formed in order to ensure
transparency in the defense procurement process and consolidates eight
organizations that were responsible for procurement and the development of
technology that were formerly under the purview of the Ministry of National
Defense and the separate military services. Though DAPA is a civilian
government agency, it works closely with the Minister of Defense, who is a
civilian. Please visit the DAPA website at
http://www.dapa.go.kr/eng/index.jsp for further details on the agency.
global defense industry equipment standards are generally accepted in South
Korea since most South Korean defense systems are based on American
standards and interoperatability of systems is critical within the defense
partnership. Defense equipment is marketed in South Korea through the
following channels: direct purchase, sales agents, and importers. global
manufacturers and suppliers of defense equipment generally use a
well-qualified agent in South Korea who is familiar with the South Korean
defense system and who knows key members of the Republic of South Korea Air
Force (ROKAF), ROK Navy (ROKN), ROK Army (ROKA), and the Agency for Defense
Development (ADD). The selected representative can provide global suppliers
with information about the status of bids and procurement plans for defense
equipment. Former ROKAF, ROKN, and ROK Army officials have good potential as
commissioned representatives in South Korea. Local representatives should
register and be certified by the DAPA to supply their products and services
to the Ministry of National Defense (MND).
For enquiries on the current status of DAPA, please contact Mrs. Myoung Soo
Lah at MyoungSoo.Lah@trade.gov .
Distribution and Sales Channels
in South Korea
Local representation is essential for the success of foreign firms in the
South Korean market. This is especially true when considering the fact that
business relationships in South Korea are built upon personal ties and
social introductions, and that much of the major third-country competition
is only a few flight-hours away. In addition, for sectors that involve any
type of government procurement, an entity must be registered with the South
Korean government in order to bid on procurement projects. Hence, many
American firms enter into a consortium with a South Korean company or enter
into a representative agreement, especially for the purposes of market
entry. Finally, the language barrier and established social/ business
circles make it extremely difficult to enter the South Korean market without
a qualified South Korean representative.
Distribution methods and the number and functions of intermediaries vary
widely by product area and local conditions. The market for most consumer
products is concentrated in major cities. The traditional retail
distribution network of small family-run stores, stalls in markets, and
street vendors is changing rapidly toward large-size discount stores. There
are many large retail stores in the major cities, especially Seoul, Daegu,
Busan, and the outlying suburbs. Recently, retailing concepts such as
Full-Line Discount Stores (FDS) have gained popularity. global based Price
Costco has entered the South Korean FDS market and are successfully
competing against their growing South Korean rivals E-mart and Lotte mart.
Rapid expansion of these discount chain stores is planned nationwide, with
suburban satellite cities attracting the greatest number of stores.
Distribution of goods through large discount chains is one of the best ways
to market foreign products to South Korean consumers.
Parallel imports can legally enter South Korea. Parallel imports marginally
reduce the value of an exclusive distribution agreement. Many American
companies continue to give exclusive contracts, since they have in place
territorial limits in neighboring countries that enhance the value of the
exclusive in any one country. Likewise, any parallel importer in South Korea
that is not receiving the support of the OEM, and does not deal in the same
volume, cannot be guaranteed a steady source of supply. As noted above, the
legitimate exclusive distributor still has considerable advantages in South
Korea.
Most products enter South Korea by air and sea at Incheon and Busan, after
which they are transferred to major distribution centers by rail or road.
South Korea’s main distribution centers are Busan, Incheon, Daegu, and
Gwangyang.
Selling Factors/Techniques
in South Korea
Three practices are essential for success in the South Korean market: (1)
adapting products and procedures to South Korean tastes and conditions, (2)
regular communication with South Korean business partners and customers, and
(3) consistently exhibiting a firm commitment to the South Korean market
over the long run.
In selling to manufacturers, personal contact is important not only because
of the value placed on direct discussions and on building long-term
relationships but in obtaining a first-hand acquaintance with new processes
and equipment. In light of competition offered by Japanese suppliers, who
often visit potential and existing customers throughout South Korea, global
suppliers should consider (1) making visits to South Korea to augment the
efforts of the local representative; (2) bringing representatives back to
the home office periodically to ensure they are fully informed, motivated
and up-to-date on the supplier and its offerings; (3) allowing the
distributor or agent to appropriately select from the global company’s full
product line items for sale in the market, (4) holding demonstrations,
seminars and exhibitions of products in South Korea; (5) increasing the
distribution of technical data and descriptive brochures; and (6) improving
follow-up of sales leads.
Electronic Commerce
in South Korea
The total amount of E-Commerce transactions in South Korea reached
approximately USD 518 billion and is estimated to have increased by 20
percent in 2008. This figure is projected to grow at an average annual rate
of 10 percent over the next five years. In South Korea, the B2B, B2G and B2C
transactions in 2007 accounted for 89.9, 7.1 and 2.0 percent of the
E-commerce sector respectively. There are approximately 4,500 B2C cyber
shopping malls in South Korea.
The transaction volume of South Korean Electronic Commerce (EC) is forecast
to grow over the next several years. Major factors driving the growth
include a nationwide broadband infrastructure with 35 million Internet users
from a total population of 48 million, and introduction of Wireless
Broadband (WiBro) and 3.5G mobile High Speed Data Packet Access (HSDPA)
services through mobile computing and communication devices in 2008.
Increased EC transactions will lead to growing demand for E-commerce
solutions, a variety of equipment, networking, software, and services, to
develop and support E-commerce-related web-sites and transactions. The
electronics and metal manufacturing industries that account for nearly 70
percent of total B2B transactions are willing to spend in order to achieve
efficient and secure use of EC tools. However, global-based E-Commerce
companies need to monitor the Personal Information Protection Act and
Ministerial data privacy/SPAM regulations that were enacted in 2007.
Although the new regulations are likely to reflect concerns voiced by the
public and the industry to the government, it may still be restrictive for
E-Commerce firms managing user data globally to some extent.
Trade Promotion and Advertising
in South Korea
The Commercial Service section of the global Embassy in South Korea is the
primary US government trade promotion agency. Among the non-USG
organizations, the South Korea International Trade Association (KITA) is the
largest trade association in country. As a member of the World Trade Centers
Association (WTCA), KITA explores new trade opportunities for South Korea by
organizing trade missions and market survey teams to a number of foreign
countries on a regular basis. KITA's Trade Service Center also assists
potential foreign buyers or sellers. The Center also offers on-the-spot
consultation and personalized advisory service regarding trade rules and
regulations, export and import procedures, business management, market
research, technology development, and taxation. In addition, KITA maintains
six overseas branch offices, two of which are based in Washington D.C. and
New York.
Seoul maintains the largest trade show venue in South Korea, the Convention
and Exhibition Center, popularly known as "COEX." Covering 36,027 square
meters of exhibition space, COEX is a full-service trade organization
offering multi-lingual simultaneous translation, world-class audio-visual
equipment, state-of-the-art lighting and sound systems, and up-to-the-minute
information services. The Seoul Trade Exhibition Center (SETEC) is also in
Seoul and is operated by the South Korea Trade- Investment Promotion Agency
(KOTRA).
In addition the second largest city in South Korea, Busan, located in
southeastern part of South Korea currently holds national exhibitions. The
Busan Exhibition & Convention Center (BEXCO) has a floor space of 26,446
square meters. There is also an outdoor exhibition site that is 13,223
square meters in size.
Advertising
in South Korea
South Korea’s advertising market is completely open to 100 percent foreign
equity participation. Foreign advertising agencies now control more than 50
percent of the South Korean advertising market. Today, all the major
international agencies are present in South Korea.
There are four major broadcast networks (television and radio) in South
Korea. KBS I and KBS II are owned and operated by the South Korean
government, while MBC and SBS are independently operated. However,
government influence remains, since advertising time on these and other
broadcast networks is sold exclusively through the government organization
known as the South Korea Broadcast Advertising Corporation (KOBACO).
Companies must register with this corporation if they intend to advertise.
As of 2008, approximately 273 foreign and South Korean agencies were
registered with this corporation.
Though censorship in advertisement is still practiced in South Korea, it is
not as strict as it was in the past. The South Korea Advertising Review
Board (KARB), which consists of advertising and industry associations,
currently controls advertising censorship procedures. In addition, the
government’s South Korean Fair Trade Commission is responsible for
determining whether an advertisement makes accurate claims.
Several local TV stations have been established in recent years. This
development, as well as the advent of cable television in 1995, has expanded
advertising's potential reach to South Korean audiences. As of August 2008,
the South Korean cable industry was served by 103 system operators and about
200 program providers offering diverse cable programs such as business news,
sports, music, Buddhist programming, shows on the South Korean board game “baduk”
(“Go”), etc. There are also five shopping channels, including CJ, Hyundai,
GS, Lotte, and Nongsusan. Estimated total sales volume for these five
shopping channels in 2008 was approximately USD 4 billion.
Advertising market opportunities are predicted to show strong growth as more
South Koreans gain access to electronic media. Cable television in South
Korea currently has an audience of over 15 million households. Additionally,
the government took steps to promote broadcast satellite television in
digital format in 2001, with expectations of nationwide coverage by 2010.
South Korea Digital Broadcasting (KDB), a subsidiary of state-run South
Korea Telecom, holds the contract for digital broadcasting. In 2008, KDB
broadcast 150 satellite channels reaching an estimated 2.31 million
households.
Internet advertising also offers significant market growth potential, since
the number of computer users will further increase in the coming years.
There are currently 15 million Internet using households in South Korea,
which amounts to about 98 percent of total households in South Korea.
Local Fair Authorities
Convention and Exhibition Center (COEX)
Tel: 82-2-6000-0114
Website: www.coex.co.kr
Busan Exhibition and Convention Center (BEXCO)
Tel: 82-51-740-7300
Fax: 82-51-740-7320
Website: http://www.bexco.co.kr/
Seoul Trade Exhibition Center (SETEC)
Tel: 82-2-2222-3800
Fax:82-2-2222-3820
Website: http://www.setec.or.kr/eng_new/main.do
Daegu Exhibition and Convention Center (EXCO Daegu)
Tel:82-53-601-5000
Fax: 82-53-601-5029
Website: www.excodaegu.com
KITA US Offices
KITA NY Office
Tel: 212-421-8804(ext. 26)
Fax: 212-223-38270
E-Mail: kitany@kita.net
Website: http://www.kita.net/ny/eng/01/index.html
KITA Washington Office
Tel: 917-699-2032, 703-242-5713
Fax: 703-242-5714
E-Mail: wayne@kita.net
Website: http://www.kita.net/ny/eng/01/index.html
South Korea Trade Investment Promotion Agency (KOTRA)
Tel (rep): (82-2) 3460-7114
Fax (rep): (82-2) 3460-7777
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Pricing
in South Korea
Global goods have a reputation among South Korean buyers of having high
quality and performance; however, since South Korean manufacturers are
price-conscious, they often perceive global products to be very expensive.
In an export-oriented economy where finished products must meet keen
competition in the world market, many South Korean manufacturers believe
that it is essential to buy the lowest priced raw materials and equipment,
even at the expense of quality. Goods from Japan and elsewhere are often
considered to be better buys than goods from the global In addition, South
Korean manufacturers often seek to offset labor wages with low-cost inputs.
However, as South Korea continues to move toward exporting higher-end and
manufacturer-branded products, and tries to combat criticism of poor quality
control among certain South Korean products in recent years, the emphasis
manufacturers place on price as a buying factor may be somewhat tempered.
Other characteristics in South Korean price considerations are the tendency
to seek “bundled” prices and to undervalue "software" (engineering and other
services components), particularly in the procurement of major systems.
Considering the factors outlined above, global exporters might consider: 1)
adapting their products to South Korea by marketing basic units, 2) taking
into account in their price quotations the likelihood of repeat business for
spare parts and auxiliary equipment, and most importantly, 3) emphasizing
and marketing the idea that the superior quality of global manufactured
input products ultimately results in lower production costs.
Another pricing factor that merits consideration is commissions. The
commission rate for using an agent or distributor varies depending on the
type of product and the transaction amount. On average, South Korean agents
require a 10 percent commission, particularly when a transaction is
conducted on a spot basis, but this varies for different products.
Generally, a 5-7 percent commission applies to product categories such as
general machinery, including packaging, construction, and material handling
equipment. Meanwhile, more sophisticated products such as medical,
laboratory, and scientific analytical instruments usually require a
commission of 15-18 percent or more, since these are products for which
after-sales service is considered to be very important.
South Korea has consumer-protection legislation that requires consumer items
be labeled with both the manufacturer’s sales price to the retailer and the
marked-up retailer’s price to the consumer. The mark-up from manufacturer to
consumer ranges from 50 percent to 150 percent. South Korea has a 10 percent
sales tax that is included in the price of taxable items. There is a 10
percent VAT on services provided in South Korea.
Sales Service/Customer Support
in South Korea
Sales and after-sales service is generally secondary to product and price
considerations. Following the South Korean War, at a time when foreign
exchange was exceedingly scarce, South Korean plant operators learned to
rely on their own resources or on the many small machine shops in order to
service machinery. This tradition of self-reliance and improvisation is
still evident in contemporary South Korean business practices. However, with
heavy competition among foreign suppliers in the South Korean market,
servicing has become an increasingly important component of selling.
Private traders and offer agents often hire in-house engineers to install
equipment. For specialized installations, however, the best sources of
assistance include resident and offshore foreign engineers in coordination
with local engineers, whose services are available on contract.
Japan's geographical proximity to South Korea as well as the similarities in
business culture between the two countries allows Japan to send teams of
specialists to South Korea at minimal cost and effort in order to offer
skilled advice in installation, maintenance and repair. global firms should
consider establishing regional servicing facilities that can effectively
service and support equipment sold in South Korea. The emphasis given
recently by some American firms on the training of personnel, often through
global-based programs, has proven beneficial.
