Do you want to start a business in South Korea but you are skeptical about it? If YES, here are the pros and cons of doing business in South Korea. South Korea’s GDP is 10th in the world with a total of $1.64 trillion as of 2019. A small country like South Korea has maintained its pace in the top 10 because they made concerted efforts to open up their economy to foreign players.
Therefore many foreigners are interested in starting a business in Korea. Note that the Korea society is more homogeneous than most and as a result, foreign investors and expats are expected to adjust and conform.
But according to The World Bank’s Ease of Doing Business rankings for 2023, South Korea came fifth out of 190 countries. It scored particularly highly on enforcing contracts (2nd), getting electricity (2nd), and resolving insolvency (11th). In the categories of getting credit and registering property, the country fell outside of the top 30.
South Korea is without doubts a republic. The Constitutional Referendum of 1980 established what is generally called the Fifth Republic. The basic model for the republic is the U.S. tripartite system of government with a separate executive branch led by a president, a legislative branch in the form of the National Assembly, and a judiciary branch with a supreme court.
According to reports, South Korea started its economic climb by concentrating on straightforward industries with little value added, such as textile and plastics. As the economy grew in the 1970s, South Korean companies began to shift to heavy industries such as shipbuilding and steel.
Howbeit, by the 1980s the economy was fully industrialized, and South Korean firms became world leaders in a range of products from microwaves and televisions to automobiles and major home appliances. By the early 1990s South Korean firms expanded vigorously into high technology products.
Also note that South Korean business is dominated by a collection of industrial groups whose corporate organization is unique to Korea. These industrial groups are known as chaebols. These Korean chaebol are popularly defined as “a financial clique consisting of varied corporate enterprises engaged in diverse businesses and typically owned and controlled by one or two interrelated family groups.”
Presently, there are about 50 chaebols in Korea of varying strength and size. Over 60 percent of South Korea’s gross national product (GNP) comes from the largest five of these: Samsung, Hyundai, the LG Group (formally the Lucky – Goldstar Group), Daewoo, and Sunkyong.
Chaebols also makeup numerous companies tied together by internal affiliations, shared boards, and family connections. This federation of interrelated companies is often difficult to understand in the Americas and Europe since no counterparts exist in those regions.
Pros of Doing Business in South Korea
South Korea can be a great place to do business and expand your company. Here are few advantages of investing in South Korea.
1. Astounding infrastructure
This Asian country has modern and well – maintained infrastructure that makes logistics a breeze. It also has some of the fastest internet speeds in the world. You won’t be fighting an uphill battle to communicate or transport goods.
2. They get things done
Note that once Koreans set their minds to something, it gets done. You might find yourself being the bottleneck or lay back sometimes.
3. Perceptive and educated customers
Korea remains one of the most connected countries in the world with the highest literacy and secondary education rates. You won’t have to worry about communicating value to customers there.
4. High incomes and high cost of living
Koreans are known to have one of the highest average incomes in the world and a strong consumer culture. Needless to say, the minimalist trend did not last long there. In addition, the cost of living in Korea is surprisingly high and continues to rise. They are willing to pay a premium for goods that are considered luxury.
5. Lower duties on goods
Korea has generous Free Trade Agreements with the U.S. U.K. and E.U. And all these make it easier to sell some products there.
6. Diverse market with a variety of industries
The country also has one of the largest shipbuilding industries in the world as well as leading solar energy technology. There is practically a place for any business type.
7. Protection of IP
South Korea tends to stay current with international trademarks and patents. It complies with the World Trade Organisation, and even updates IPR laws to protect emerging fields, such as electronic commerce and trade secrets. However, experiences may vary so make sure to do your research.
8. Overnight adoption
Also note that Koreans are known to be interested in overseas products and have a high demand for them. Trends are very important and can spread like wildfire.
9. Points and numbers
Koreans love numbers. They have mastered loyalty programs and hunt for related discounts. Note that an average Korean will have loyalty and rewards accounts with every store in town, including bakeries, cosmetics, shops, convenience stores and movie theatres. These entail collecting points on every purchase to be redeemed later.
10. Dense cities
Korea has 9 cities with over a million people. This makes it easier to access customers. Also, by being located between Japan and China, Korea provides an optimal location to gain a foothold in Asia.
Cons of Doing Business in South Korea
South Korea can also be difficult if you don’t know what to expect. However, learning the challenges you might face can make a big difference.
i. Cultural differences
Korean business culture is based on Confucism and military hierarchy. To succeed and do business in this country, you have to understand and adjust to this.
ii. Trend conscious consumers
Note that trends in South Korea can die down in a few years if you aren’t careful. Everything from street food to even neighbourhoods can go from boom to bust in a few years. For instance, Churros were a huge business in 2014 with lines stretching around the block. Copy cats even sprung up like mushrooms in the area. Presently, these stores have all but disappeared and the neighbourhood is very quiet.
iii. Tough competition
Just like it was stated above, the Korea Chaebol are very powerful conglomerates. In fact, they make up 67% of the GDP. Koreans have a love hate relationship with them. Chaebol are both credited with building the economy after the Korean War and holding it back now. They are well – established in the country and can move mountains to get their way. However, depending on your industry, it is imperative to either partner up with them or fly under their radar.
iv. Unique consumption patterns
These people are known to do things differently. They will be careful with low priced items and splurge on expensive ones without hesitation. For Instance, it is not new for Koreans to fly LCCs and then stay at a 5 – star hotel. They will buy groceries online for the lowest price, then line up at Channel for the newest brand bag. It is important to understand these patterns by doing research before pricing your items.
v. High rent
Also note that once a store or neighbourhood becomes popular, there is a risk of landlords jacking up the rent or evicting it so they can open the same one. It is important to have an ironclad contract to prevent this or plan for it.
vi. Protectionism and inefficient bureaucracy
To do business effectively in South Korea, you must play ball with the government or you are at the risk of failing. In addition, there is so much paperwork and archaic filing that you might have to invest in one or more dedicated staff members to sort it all out. This is especially true if you receive government aid.
vii. Other companies benchmark quickly
If you have a hit business idea, you can expect some doppelgangers to come out of the woodwork. However, you will have to maintain and stay a few steps ahead of such businesses.
viii. Low birth rate
Note that the rising cost of living and educating a child are driving birth rates down, while the population continues to age. This will create more challenges in the future.
First off, you will notice that the Korean government has more involvement in the business world. Therefore there may be a little more paperwork. In addition, there are different sets of laws that one must follow to be able to have a smooth operation in one of Asia’s leading business country. In the end, it will be worth it as South Korea is one of the most fast – paced and rewarding business environments not only in Asia but in the world.