Attractiveness of Korean Market for Australian Business

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Attractiveness of Korean Market for Australian Business

 

The Korean market is positive for most Australian goods and services (including technology). Except for the special circumstances of 1998, the market has been growing steadily and even the slowdown in 1998 did not affect Australia to any significant extent because of the predominance of mineral and agricultural products in Australia's export profile. The market will remain attractive for the mineral suppliers, but may not continue to grow as fast as Korea places less emphasis on heavy industry. The ongoing liberalisation of trade in agricultural products should provide expanding opportunities.

 

In terms of the market characteristics of Korea for the manufacturing and services sectors, businesses consulted during the project were mainly positive:

One small sized exporter of food processing equipment said the market in Korea is not large but provided steady sales. In its case the market is very clearly defined and there are no equivalent substitutes at this stage. A supplier of software that is used by the traditional Korean textile industry to move into high value added textile products expressed similar sentiments.

One medium sized exporter of software to the banking industry has had good sales to Korea, but has satisfied most of the original demand and is now moving to new markets while maintaining existing customers. These new markets include new types of financial institutions (e.g. mortgage brokers) that are emerging in Korea as a result of financial deregulation and other countries. A similar situation applies with another software supplier.

In the automotive components industry, the Korean market is growing steadily among automotive manufacturers within Korea and Korean automotive subsidiaries in third countries.

There is a growing demand for professional services as evidenced by the work obtained by some Australian firms.

There are many opportunities in the infrastructure/utilities sector, which may be enhanced as Australian financial institutions and professional services providers are involved in advising on new financing arrangements and ownership structures.

The Korean Government's strategy for Korea to become an important scientific and technological nation indicates a growing market for technology in the form of exports of products incorporating high technology or of intellectual property and know-how. This should also mean an expanding market in education and especially training in the application of such technologies.

In addition the national framework for human resources developed in Korea is presently being reviewed with positive implications for Australian education and training (especially the higher education sector) as discussed later in this report.


The competitiveness conditions within Korea are a challenge. In some industries such as electrical and electronics manufacturing, Korea is very competitive and at present there is little Korean interest in importing. Even with the successful companies in the software and professional services industry, there is always the potential of competition from suppliers in third countries such as the USA, Europe or Japan and from within Korea. The successful Australian companies in this area have in most cases developed a niche that is large enough for their purposes but is small enough not to attract major attention from other potential suppliers. Another approach is to have a product that is always ahead of any potential competitor. Nevertheless, competition from these other countries is always present because Australian companies do not have the same general high technology brand recognition as companies from, for example, the USA (Nearly every company consulted in the manufacturing and services sectors commented on the very little understanding that most Koreans had of the manufacturing and technological capabilities of Australia. This was also a theme that was raised by many Koreans). While the distribution system in Korea is sometimes considered to be a challenge (and probably is in some industries such as agricultural products), it has not been raised as an issue by the companies consulted in the manufacturing and services sectors. One comment did indicate a competitive advantage for Australia in the automotive components area in that Korean companies preferred to buy from Australian suppliers rather than Korean subsidiaries of European companies because of: (1) Australian products were cheaper and better quality, (2) access to advanced technology, and (3) the export credits generated under the Automotive Competitiveness and Investment Scheme (ACIS).

An important issue that normally arises in considering a country's attractiveness is the financial and economic conditions of doing business in that country. This covers items such as pricing and payment terms, tariffs and other barriers to entry, and foreign exchange conditions. While tariffs and non-tariff barriers are an issue in some areas such as agriculture, the manufacturing and services companies consulted have not raised any items in this area as being of particular concern.

 

However, legislative and socio-political conditions have been raised on a few occasions:

The Australian telecommunications equipment industry has raised the difficulties companies in that industry are confronted with in Korea (and many other Asian countries) in respect of the regulatory and approvals process, particularly the over-elaborate compliance regime. The process is costly, time-consuming, and requires a lot of documentation compared with other developed countries.

Another company was able to work its way through the regulatory process, but commented on the very high costs incurred on legal and accounting fees to gain an understanding of what is required.

Nearly all companies commented on the difference in Korean and Australian cultures, particularly in the way of doing business. Having made those comments, the successful companies went on to say that, as long as one understood and basically accepted the need to do business in a different way, the challenge could be overcome.

None of the manufacturing and services companies consulted had been confronted in recent years with particular foreign investment barriers nor with labour problems within Korea (The only comments in this context were with the lack up-to-date skills of Korean workers in some areas of manufacturing (automotive components). While this labour issue was not raised by any of the Australian companies consulted, some Australian companies are confronted with this issue). There are investment barriers at present in the way of overseas-owned education and training establishments.

Many firms commented on the intellectual property issue (It is understood that Korea has legislation that appears in the first instance to provide adequate protection. However, the legal process apparently does not involve the "discovery" process, which allows a claimant to ascertain what has really happened in the way of an infringement). The successful companies usually found a way around this perceived weakness in Korea, for example, doing business with larger companies that had assets in third countries such as the USA which could be pursued in the event of any significant breach of their intellectual property rights. During the consultation process, a few companies were encountered that were reluctant to do business in Korea because of their fears about intellectual property infringement.

 

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