Australia and South Korea enjoy a strong trade relationship, which has created a number of exciting opportunities for Australian SMEs looking to expand in the South Korean market.
Gaining a clear understanding of the opportunities available for doing business in South Korea, as well as any considerations to be aware of, will help Australian exporters entering the Asian market set themselves up for success.
Here are a few things you need to know about South Korea.
It is a strong market for export
South Korea is Australia’s third largest export market, with Australian exports to South Korea worth US$20 billion in 2014.
Research recently conducted by the Export Council of Australia, the Australian International Business Survey 2015, found that 72 per cent of Australian businesses that operate in South Korea expect business to get better over the year ahead.
This points to a positive outlook for Australian exporters, with South Korea’s growing, high-income economy driving strong demand for Australia’s high quality goods and services across a range of industries.
Mining is one of our key export industries to South Korea. South Korea has few natural resources of its own and so imports a significant proportion of its resources. Australia exports a high volume of raw materials to South Korea, including coal, iron ore and crude petroleum.
Another key export market is agriculture – Australia is the third largest supplier to South Korea for agriculture and food-related products.
Beef is one of our strongest exports to South Korea, with Australian beef exports to South Korea valued at A$942 million in 2014.
Considerations for export
Entering a new market can be daunting, so it is important that any SME exporters considering entering the South Korean market ensure they are aware of the potential challenges they may come up against.
South Korea has a very favourable business climate, ranking fifth out of 189 economies on the World Bank’s ease of doing business gauge.
However, the local language and business culture is a concern for many Australian companies looking to do business in South Korea.
In the recent Australian International Business Survey 2015, language and business practices were identified by more than 50 per cent of respondents as the dominant barrier to doing business in South Korea.
Doing thorough research around the local business culture and employing an interpreter can be invaluable in the early phases of doing business in South Korea.
The Australian International Business Survey 2015 also identified foreign competitors and tariffs, quotas and import duties as barriers to doing business in South Korea.
In good news for Australian exporters, the Korea-Australia Free Trade Agreement (KAFTA) came into force in December 2014 and is expected to level the playing field for Australian businesses in South Korea.
The KAFTA will make it easier for Australian SME exporters to compete with foreign competitors, who also have a presence in South Korea, by creating more favourable conditions for Australians to do business in the market. The KAFTA will also significantly reduce tariffs and duties for Australian exporters on entering the South Korean market.
Overcoming export barriers
It’s important to be aware of these barriers to exporting to South Korea, but there are a number of steps SME exporters can take to overcome them.
SMEs should seek out expert advice before entering any new market. The Australian Government’s trade and investment agency, Austrade, provide a number of services for Australian SMEs looking to enter the South Korean market.
Austrade can provide advice and support to SMEs who are considering whether to expand into South Korea, and can also help identify potential partners through its extensive network of contacts.
Understanding the business etiquette is important when doing business in South Korea. We know that SMEs can often find the business culture daunting. Developing an understanding of the differences with the Australian economy can reduce this fear. South Korean society strongly respects hierarchy, and business relationships are often developed through informal social settings.
Because of this, South Koreans prefer to conduct business with people with which they have a personal connection, which can be difficult for foreigners. One way to bypass this problem is to be introduced to a prospective business associate through an intermediary. Doing this helps to establish trust from the outset and can make forming partnerships an easier process.
Finally, potential exporters should consider their finance options. Respondents to the Australian International Business Survey 2015 identified access to finance as a potential barrier to doing business in South Korea. SMEs can overcome this is by asking their bank for advice and financial support.
Often your bank may be able to offer you a secure loan or commercial bill facility to help you finance your export contracts to South Korea. Alternatively, if your bank is unable to help, Efic, Australia’s export credit agency, may have a solution.
Setting up for success
South Korea offers great opportunities for Australian SME exporters thinking of expanding into a new market. The KAFTA has opened up the South Korean market for many Australian industries, and significant numbers of SMEs are already taking advantage.
Understanding the key considerations, as well as the steps to overcome the export barriers, as highlighted here, will enable your business to navigate entry in the South Korean market.
Andrew Watson is the Executive Director, Export Finance at Efic.