South Korea can look back on one of the greatest success stories in economic history. After the Korean War in the 1950s, the Asian country became one of the world's leading industrial nations within just a few decades. This rapid economic growth is referred to as “The Miracle on the Han River”. Today, South Korea is the fourth largest economy in Asia. The country is modern and prosperous, has the fastest broadband mobile network in the world and is setting standards for tomorrow's digital world. South Korea has already produced several global market leaders in the form of Samsung, Hyundai, SK Hynix or LG. Thispart of the peninsula intends to hold onto its strong position in world trade and is thus attempting to position itself above all as a research and development location, as well as a test and reference market for high-tech and lifestyle products throughout Asia. The Korean government and the country's large companies are planning massive investments in artificial intelligence, big data, virtual reality and renewable energies. Business and consumers are equally hungry for innovative solutions to drive further growth in the biotech, medtech, MEM and consumer goods sectors. But how do Swiss companies succeed in becoming part of this ecosystem?
Trade fairs in South Korea as a platform
International trade fairs, which have gained enormous importance in South Korea, are one way of entering the market. In recent years, SIMTOS has developed into the most important trade fair for machine tools and manufacturing technology. The number of exhibitors has risen from 270 at the beginning to over 1,130 today. KIMES is another major trade fair in South Korea, where exhibitors from all over the world show off their latest innovations in the fields of medical and hospital technology. A presence at an international trade fair is a good platform for Swiss SMEs to present themselves as a company and their own products to a specialist audience. Anyone who also uses their trade fair presence to meet potential customers can open doors in South Korea: a targeted exchange during trade fairs is crucial for successful business. It is therefore worth arranging meetings before the trade fair and preparing yourself accordingly. In so doing, Swiss exporters can explore the needs of the market in talks or already conclude specific transactions.
Another possibility is entry via e-commerce. A life without digital channels and online shopping is hardly imaginable in South Korea. The country’s digital affinity is reflected not only in its leading broadband technology, but also in the fact that 99.2% of all households have internet access. Online trade has outstripped conventional sales channels and has become indispensable. E-commerce therefore offers good export opportunities, especially in the consumer goods sector. TV home shopping is another heavily used sales channel for consumer goods. There are no less than seven home shopping channels, which are broadcast in ten different countries. Swiss companies must review their current business model in this regard and, if necessary, adapt it for the South Korean market.
Business partner vs. branch office
However Swiss SMEs open up the South Korean market, they must make a strategic decision as to whether they want to work with a business partner (distributor, commercial agent) or set up their own local branch. Local business partners can help optimally develop the market, because they understand how the market works, what its needs are, how customers can be reached or how cooperation with the authorities works. For Swiss SMEs, however, it is often advisable to have their own local branch office. This places the company even closer to the market and can often better drive its global growth. It gives you full control over brand development, prices and customer transparency. Switzerland Global Enterprise is represented by a Swiss Business Hub in South Korea to help Swiss SMEs set up a branch or find the right business partner. Thanks to their official status, all Swiss Business Hubs preside over an excellent network of experts and make their local knowledge available to Swiss exporters.
Korea ranks fifth in the World Bank's “Ease of Doing Business 2019” index (Taiwan 13, Switzerland 38, Japan 39, China 46). It is definitely fast and cost-effective to set up our own branch office there. But regardless of whether you choose a branch office or a local business partner, the Swiss headquarters has to intensively attend to the market. This is not always easy due to the geographical and cultural distance – but it is feasible and very worthwhile.
Culture in South Korea
Talking to locals is relatively easy. The South Koreans are a very open people and many of them have a good command of English. In daily business, they are very efficient, and long working hours are part of the daily routine, even though the legally permitted working hours were reduced from 68 to 52 per week in 2018. Due to this industriousness, they can also be very demanding; long waiting times are practically unacceptable. As a result, business relationships are handled very pragmatically, and if a product does not have a clear unique selling proposition, it is not sold. Yet despite these rapid and pragmatic work methods, South Koreans attach great importance to hierarchies. A South Korean CEO usually only does business with people at the same level. Good relations with business partners are correspondingly important. In addition to a good command of English, it can thus be advantage for Swiss entrepreneurs to speak a little Korean and know, for example, that Kimchi is a national dish and that the country has around 51 million inhabitants.
Benefit from free trade agreements
Swiss companies have discovered South Korea as an export market. There are comparatively few non-tariff barriers to trade and product registration is rapid and inexpensive. In 2017 alone, goods worth over 3 billion Swiss francs were exported to the Asian country. This made it the fifth most important trading partner on the Asian continent after China, Japan, Hong Kong and Singapore. When trading with South Korea, Swiss exporters benefit from a free trade agreement that has been in force since 1 September 2006. Switzerland is also endeavouring to modernize the agreement. For its part, South Korea – like Switzerland – has a dense network of free trade agreements. The country has signed corresponding agreements with the EU, the USA and China, among others. These free trade agreements will help the country to grow further in the international market and strengthen its position as the sixth-largest exporter in the world. Swiss companies can therefore not only drive their own growth with exports to South Korea, they can also strengthen the South Korean economy and possibly become part of an international supply chain.