UK Trade & Investment

Doing business in South Korea

Doing business in
South Korea

Are you a member of a UK company wishing to export

overseas?

Interested in entering or expanding your activity in

the South Korean market? Then this guide is for you!

The main objective of this Doing Business
Guide is to provide you with basic knowledge
about South Korea; an overview of its economy,
business culture, potential opportunities and an
introduction to other relevant issues. Novice
exporters, in particular will find it a useful
starting point.

Further assistance is available from the UKTI
team in South Korea. Full contact details are
available at the end of this guide.

The purpose of the Doing Business guides, prepared by UK Trade & Investment (UKTI) is to provide information to help

recipients form their own judgments about making business decisions as to whether to invest or operate in a particular

country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no

representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and

Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the

Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be

construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument.

No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may

arise out of or in connection with the Report.

Important Information - Sanctions and Embargoes

Some countries maybe subject to export restrictions due to sanctions and embargoes
placed on them by the UN or EU. Exporting companies are responsible for checking that
their goods can be exported and that they are using the correct licences.

Further information is available on the

Department for Business, Innovation & Skills (BIS)

UK Trade & Investment

Doing business in South Korea

Content

Introduction

Preparing to Export to South Korea

How to do business in South Korea

Business Etiquette, Language and Culture

What are the challenges?

How to Invest in South Korea

Contacts

Resources/Useful Links

UK Trade & Investment

Doing business in South Korea

Introduction

South Korea is the world’s 13th biggest economy. It is one of the world’s most vibrant and
sophisticated markets. It is a global ICT powerhouse with 90% high speed broadband
penetration. Korean semiconductors, mobile handsets and TFT-LCDs are amongst the best in the
world. Other main industries are steel making, shipbuilding, automotive, and textiles. Well-known
South Korean brands include Samsung, LG, Hyundai, KIA and Daewoo.

Studies suggest that Korea’s affluent consumers are continuing to spend despite the global
recession; purchases of high end items such as luxury watches and luxury goods have increased
in recent months. More Koreans own luxury products that any other group in Asia Pacific. These
include designer clothes, leather goods, quality accessories and footwear.

South Korea weathered the global downturn well. It was the only country in the OECD which did
not go into negative growth in 2009. Forecast GDP growth in 2010 is 4.5% (IMF).

Opportunities in South Korea

Located between two great powers, Japan and China, South Korea remains off the beaten track
to most UK companies even though it is home to 49 million people and the fourth largest
economy in Asia. It has sophisticated, affluent and globally aware consumers who are eager to
experience the latest fashion and products from around the world. Many South Koreans in their
20s and 30s have travelled internationally and have substantial amounts of disposable income.
South Koreans are disciplined, hard working, loyal, motivated, well-educated and eager to excel.
Participating in this resilient and vibrant economy is about to become easier with the
implementation of the EU-Korea Free Trade Agreement.

The EU-Korea FTA, the most comprehensive free trade deal ever negotiated by the EU, was
initialled in October 2009 and is expected to be approved in 2010. This FTA is an example of a
next-generation agreement - it contains provisions on services, public procurement, intellectual
property and sustainable development as well as the liberalisation of tariffs on goods.
Negotiations on this between the European Commission, on behalf of all 27 Member States, and
South Korea started in 2007, and the conclusion of the negotiations in less than three years
represents a great success for all parties.

UKTI in South Korea recently identified the following sectors as having the best opportunities for
British companies:-

Automotive

South Korea is the world’s fifth-biggest automotive producer and offers wide-ranging
opportunities for auto supply and design companies.

Consumer Products

As a result of steadily increasing levels of disposable income, total retail sales ballooned to over
$220 billion in 2008. Most of the major luxury brands are represented in the market, with many
rating South Korea as one of their most profitable markets. This extends to fashion and
accessories. Tariffs on clothes will drop to zero when the FTA comes in to force.

Design

South Korea’s overall design market is worth $7.6 billion (2008). Seoul has been selected as the
World Design Capital for 2010, and is therefore keen to encourage new and creative design
concepts in and around the city. Many UK companies are already active in the design sector in
Korea.

UK Trade & Investment

Doing business in South Korea

Education

South Korea invests almost 7% of its GDP in education expenditure, one of the largest
proportions in the world. E learning offers particular promise, as does English language training.

Environment

South Korea’s environmental market is expected to grow at a rate of some 11.1% during the
period from 2005 to 2010 and the President is strongly committed to the country being an early
mover towards a ‘low carbon green growth’ economy.

Financial Services

The Capital Markets Consolidation Act which took effect in February 2009 played a big role in
deregulating South Korea’s capital markets. There are particular opportunities for asset
management companies to work alongside the likes of South Korea’s National Pension Service –
the fifth-largest pension fund in the world.

ICT

South Korea ranks first in terms of household internet penetration among OECD member nations.
South Korea has the world’s highest broadband speed’s. A vast array of niche opportunities exist
for companies involved in embedded software, 4G mobile telephony, bio-recognition systems and
internet security, to name but a few.

Life Sciences

South Korea, which has one of the fastest ageing populations in the world, has one of the most
attractive pharmaceutical markets in the Asia-Pacific region.

Shipbuilding

South Korean shipbuilders are global leaders in terms of new orders, order book and volume of
vessels built.

Trade between UK and South Korea

The UK enjoys a very good trading relationship with South Korea, the UK’s 25

largest export

market in 2008. The trade volume is comparable to other EU markets, but behind China, the US
and Japan.

South Korea’s main economic policy has been to negotiate Free Trade Agreements (FTAs) with its
major trading partners. The Korea-US FTA was signed in 2007 but has not yet been ratified by
either party. The EU-Korea FTA was initialled on 15 October 2009 and will come into force in
2010. It will lead to the removal of duties on 97% of all duties within three years. It is the world's
second biggest free trade deal ever. Of particular interest to the UK will be falling tariffs on iron
and steel, pharmaceuticals and alcoholic beverages, major British exports to South Korea. In
addition, the FTA will open South Korea’s legal services market to EU firms, and will allow
financial data to be held off-shore (both are currently major issues for the UK). It will also cut
Korean red tape on EU automakers by eliminating duplicate safety and environmental tests.

Economic Overview

South Korea is the world’s 13th largest economy and has the world’s sixth largest stockpile of
foreign reserves. Despite the global economic downturn, South Korea’s economy did not go in to

UK Trade & Investment

Doing business in South Korea

recession and is now starting to grow. The trade account in December 2009 recorded a surplus
for the eleventh consecutive month.

The International Monetary Fund (IMF) raised the South Korean economy growth outlook for
2010 again to 4.5% from its October projection of 3.6%, forecasting that private sector demand
will pick up in 2010, following the government’s aggressive fiscal stimulus. But it would be too
early to say that the country is freed from the global financial crisis. With weak domestic demand,
there remains a possibility that the South Korean economy will plunge again into recession if the
global economy fails to sustain recovery.

Population

South Korea’s population stands at about 49 million, but the population growth rate is very low.
In 2008, the rate was 0.31% and is expected to further decline to 0.02% by 2020.

The number of foreigners, including short-term residents, reached 1,158,866 in 2008. Foreigners
now account for 2% of the population. The speed at which South Korea is diversifying in terms of
race and culture is evidenced by the 8.7% annual growth in the size of the foreign population.
(source: About Korea, http://www.korea.net)

Political Overview

South Korea operates under a presidential system. Several of its early Presidents managed to
establish dictatorships, some military, but waves of civil unrest eventually led to the first real
democratic elections in 1987. With several constitutional amendments, there has been a gradual
shift of power away from the President to the National Assembly. The President is elected by
popular vote for a single non-renewable five-year term. The current President, Lee Myung-bak,
was elected in December 2007. The President performs his executive function through
instructions to the Prime Minister who supervises the Cabinet.

Getting here and advice about your stay

FCO Travel Advice

The FCO website has travel advice to help you prepare for your visits overseas and
to stay safe and secure while you are there.

For advice

please visit the FCO Travel section

Getting here

Two airlines, Korean Air and Asiana, operate daily direct flights from London to Seoul, the capital
of South Korea (flight time around 11 hours). Incheon International Airport handles all
international flights whereas Gimpo Airport handles all domestic flights and short flights to/from
Tokyo, Osaka and Shanghai.

UK Trade & Investment

Doing business in South Korea

Preparing to Export to South Korea

A good start is BUYKOREA (www.buykorea.arg), the trade portal aimed at promoting cyber
marketing. BUYKOREA provides customers with a search function for up-to-the-minute trade
information such as product offers, company profiles and product catalogues.

British companies wishing to develop their business in the South Korean market are advised to
undertake as much market research and planning as possible in advance.

UKTI’s team in South Korea can provide a range of services to British companies wishing to grow
their business in the market. Its services include helping UK firms to:

• find local contacts
• carry out in-depth research on the market
• attend trade fairs and missions
• receive business opportunities direct to the desktop
• organise events to meet potential partners
• promote the company and its products/services

You can commission our Overseas Market Introduction Services to assist your
company to enter or expand your business in South Korea. Under this service, the
Embassy’s Trade & Investment Advisers, who have wide local experience and
knowledge, can identify business partners and provide the support and advice most
relevant to your company's specific needs in the market.

To find out more about commissioning work, please contact your local UKTI office.
See also:

www.ukti.gov.uk

UK Trade & Investment

Doing business in South Korea

How to do business in South Korea

What companies should consider when doing business

At first glance, South Korea seems to be "just like any other modern nation." But it’s important to
understand that modern does not equate to Western. Confucian values continue to dominate
business practices in South Korea. For example, people have a great respect for
hierarchy; women professionals at the highest levels are still very rare; they still have a great
respect for anyone senior in age; and people establish their hierarchical position relative to others
based on age.

Gateways/Locations – Key areas for business

The capital Seoul is the largest commercial centre with a population of about 10 million and a
further 10 million in suburban Seoul. There are also a range of industrial clusters outside Seoul.

Osong Bio-Technopolis, for example, is South Korea’s first bio cluster and located 170 kilometres
south from Seoul. Its completion is scheduled for late 2010. Osong has secured a total of $260
million in foreign investments and is designated a special zone for foreign direct investment.
Foreign companies seeking to invest in the complex will be exempt from rent and corporate taxes
for five to seven years, and the local government will offer additional tax benefits.

South Korea’s shipbuilding cluster, on the other hand, stretches along the south east coast. The
cluster houses top-quality makers of steel plates, steel structures and engines, as well as colleges
specialising in shipbuilding and marine engineering.

Market entry and start up Considerations

There are two most common means of market entry:

• appointing a registered commissioned agent on an exclusive or non-exclusive basis (also

known as an "offer agent" in South Korea)

• naming an existing trading company as a representative or agent

For companies who do not have the resources to consider JVs or wholly owned subsidiaries in
South Korea, it is essential to have a reliable agent when doing business in the market as
business methods can sometimes be complicated. Many local agents operate on a small scale and
lack capital, but if they have the right contacts they can provide adequate representation, even
for major projects.

The UKTI office in South Korea can advise British companies on how to commission a tailored
report for their specific needs and a list of potential partners. UKTI can also arrange a visit
schedule for UK businesses to meet local partners and appoint contact.

Customs and Regulations

There are two methods in determining a duty amount: Declaration & Payment, and Notice of
Assessment. In the former case, a person who desires to import goods makes a declaration on
the payment of the customs duties, upon making a declaration of import to the Customs house.
In the latter case, the Customs house shall directly impose and collect customs duties. The
Declaration & Payment system is practised in most of the cases. The Notice of Assessment
system is used for the imposition of minor Customs duties such as on passengers’ and crew's
goods, unaccompanied baggage and postal matters.

Related information and customs forms can be found on the Korea Customs Service website.
(http://english.customs.go.kr)

UK Trade & Investment

Doing business in South Korea

Legislation and Local Regulations

Revisions, amendments and regular corrections take place. When considering new projects in
South Korea it is worth consulting one of the international law firms established here.

Recruiting and Retaining Staffing

The Ministry of Labour (MOL) is involved in the protection of employment conditions, industrial
relations adjustment, industrial accident prevention, workers' welfare promotion, employment
security, vocational training, employment insurance and industrial accident compensation
insurance to improve workers' quality of life and contribute to the balanced development of the
national economy. For further information, visit the MOL website
(http://www.molab.go.kr/english/main.jsp)

South Korea has a large number of skilled and often bilingual resources. They can be easily found
through headhunting agencies, recruiting fairs, university career centres, internet websites, etc.
Companies such as Manpower, Heidrick & Struggles, Korn/Ferry International and Adecco have a
permanent base in South Korea.

Documentation

For companies exporting to South Korea, the following documents are required to clear Korean
Customs: commercial invoice, certificate of origin, packing lists, bill of lading, maritime insurance,
etc.

Labelling and Packaging Regulations

Country of origin labelling is required for commercial shipments entering South Korea. The
Korean Customs Service (http://english.customs.go.kr) publishes a list of the country of origin
labelling requirements by Harmonized System Code number. Further labelling and marking
requirements for specific products, such as pharmaceutical and food products, are covered by
specific regulations from the Korean Government agencies responsible for these items.

Korean language labels, except for country of origin markings that must be shown at the time of
customs clearance, can be attached locally on products in the bonded area either before or after
clearance. The Korea Food & Drug Administration (http://eng.kfda.go.kr) is responsible for
setting and enforcing Korean labels for food products, other than livestock products. The Ministry
of Food, Agriculture Forestry and Fisheries (http://english.mifaff.go.kr) regulates livestock
products. It also has its own set of standards for markings for the country of origin labelling of
agricultural products.

Detailed information on country of origin labelling is provided in the guidelines for country of
origin labelling. Local importers usually print Korean language labels when imported quantities
are not large, and can consult with the Korean Customs Service as to where they can be attached
to the product.

The Certificate of Origin should indicate the item's description, quantity, price, place of origin,
exporter, importer etc. and should be written in English, Korean or French. For items shipped
directly to South Korea from their Country of Origin, the Certificate of Origin should be issued by
the relevant customs authorities or Chamber of Commerce. The items themselves should be
clearly marked with their Country of Origin.

Getting your Goods to the Market

As an exporter of goods you need to develop an understanding of various issues such as:

• legal and regulatory requirements your consignments have to comply with

UK Trade & Investment

Doing business in South Korea

• paper work involved
• the right mode of transport, i.e. road, air, rail, sea transport
• packaging and labelling
• how freight forwarders can help you
• rules for dangerous goods

Intellectual Property Rights

South Korea is a member of the World Trade Organisation (WTO) and has made a number of
improvements to its intellectual property protection system in order to comply with WTO’s TRIPS
(Trade-Related Aspects of Intellectual Property Rights) Agreement.
The European Commission’s IPR Enforcement Report 2009 provides an overview of the current
situation in South Korea. See
http://trade.ec.europa.eu/doclib/docs/2009/june/tradoc_143745.pdf

The Korean government has a long term goal of becoming the top country in intellectual property
rights protection by creating, protecting and utilising intellectual property rights. The Korea
Institute of Patent Information (http://eng.kipi.or.kr) has been improving efficiency and
productivity of intellectual property rights related works to accommodate the dynamic changes in
the international trade environment.

UK Trade & Investment

Doing business in South Korea

UK Trade & Investment

Doing business in South Korea

Business Etiquette, Language and Culture

Language

Korean is the official and accepted business language. South Korea’s high-level business people
and government officials are familiar with Western etiquette and English, but it is important to
repeat and emphasise key points for correct understanding.

Meetings and Presentations

For business meetings and presentations, it is very important and advisable to have a formal
introduction to any person or company with whom you want to do business. The exchange of
business cards is a formal affair and plays a very important role in an introduction. Preparing a
large supply of business cards is important, as South Korea’s business people generally do not
feel comfortable until they know what company and what position the person they have just met
holds.

Negotiations

At a negotiating table, one should not try to push his or her own position too hard. It is important
to be prepared to be patient, gentle but firm, and as dignified as possible. Sensitive issues and
details may be skipped for future discussions. Use of go-betweens can be very valuable especially
in delicate dealings where financial negotiations are involved. Sufficient time should be allowed
for Korean counter arguments.

What are the challenges?

South Korea continues a process of economic liberalisation and deregulation, but the government
has yet to adopt a fully laissez-faire policy where the economy and trade are concerned. The
UKTI team in South Korea works actively to lift or loosen the many regulatory barriers that still
exist.

Getting Paid - Terms of Payment

The payment terms you can normally expect in South Korea are “100 percent Confirmed
Irrevocable Letter of Credit” and these are the terms you should quote. You are unlikely to obtain
deposits with order, or prior to shipment. It may be counterproductive to try to insist on deposits.
Letters of Credit are normally opened 4-6 weeks prior to the shipment date. The expiry date of
the Letter of Credit will be geared very much to the promised delivery date. It is important
therefore that delivery promises are fulfilled or the Letter of Credit will expire.

Koreans usually like to deal in US dollars because it is still the predominant currency in Asia.
Sterling is an acceptable currency but for price comparison purposes a sterling price will
invariably be converted to US dollars, usually at a rate that is beneficial to the buyer. You may
consider it appropriate therefore to quote in US dollars in the first instance.

Koreans are formidable negotiators but they will pay a fair and competitive price. The price
quoted should be on a FOB basis - the Koreans usually like to organise the shipping themselves
on the basis that they can negotiate more competitive rates.

UK Trade & Investment

Doing business in South Korea

How to Invest in South Korea

The incumbent administration which took office in 2008 has been committed to establishing a
concrete and strong system to promote FDI. Despite a worsening investment climate prompted
by the global financial crisis, investment promotion activities have been expanded based on a
"business-friendly" policy platform. The reduction in investment from the US in the aftermath of
the financial crisis was offset by increased investment from the EU and Japan. Investments in the
financial and insurance industries are on a steep rise with the growing investment in line with the
enforcement of the Financial Investment Services and Capital Markets Act (FSCMA), which went
into effect on 4 February 2009. The manufacturing industry is also experiencing a steady growth,
based on the trust in the growth potential of the South Korean industries.

Foreign direct investment (FDI) in South Korea fell 1.9% year on year to $11.48 billion in 2009.
The economic downturn led to a steep decline in global cross-border mergers and acquisitions. As
a result most countries witnessed a marked downturn in FDI; South Korea turned in a strong
performance by comparison.

Invest KOREA (http://www.investkorea.org), South Korea's national investment promotion
agency, was established within the Korea Trade-Investment Promotion Agency (KOTRA) with the
sole purpose of supporting the entry and successful establishment of foreign business into South
Korea.

Financial Assistance

Financial support refers to financial aid toward the cost of staff education and training, the cost of
hiring staff, and projects to build infrastructure within a foreign investment zone or to enhance
the living environment within it. Aid under this program is currently extended to companies in
which the foreign equity stake is at least 30% or in which a foreign company or individual
investor is the largest shareholder.
Tax Support
For foreign investors who meet a set of qualifications, corporate and income tax on business
income, dividends income, technology loyalty, earned income etc. and duty on capital goods will
be exempted or reduced in accordance with the Restriction of Special Taxation Act. Acquisition
tax, registration tax, and property tax on properties acquired or held for the operation of the
business will be exempted or reduced under local government ordinances mandated by the
Restriction of Special Taxation Act.
Cash Grant
For foreign investments that meet certain requirements, the government and the local
government shall provide a cash grant for funds required to build new factories. In doing so,
various aspects shall be considered regarding the foreign investment, such as whether or not
they involve high technologies, the effects of investment's technology transfer, the number of
jobs created, redundancy with internal investments, adequacy of location etc.

UK Trade & Investment

Doing business in South Korea

Contacts

If you have a specific export enquiry about the
South Korean market which is not answered by
the information on this report, you may
contact:

UK Trade & Investment Enquiry

Service

Tel: +44 (0)20 7215 8000
Fax: +44 (0)141 228 3693
Email:

enquiries@ukti.gsi.gov.uk

You will be signposted to the appropriate
section on our website, or transferred directly
to the British Embassy in Seoul.

British Embassy Seoul

UKTI South Korea
Soomee Moon
Taepyeongno 40, 4 Jeong-dong,
Role: Publicity Manager
Telephone: +82 2 3210 5625
Email:

soomee.moon@fco.gov.uk

UK Trade & Investment

Doing business in South Korea

Resources/Useful Links

Business Link: International Trade

Business Link’s International Trade pages provide an overview of export basics including
licensing, customs procedures, classifying and movement of goods, other regulatory
information and export paperwork issues. It also introduces exporters to the UK Trade
Tariff.

Essential reading for exporters!

Find out more at:

http://www.businesslink.gov.uk/bdotg/action/layer?r.s=tl&r.lc=en&topicId=1079717544

Country Information:

BBC Website:

http://news.bbc.co.uk/1/hi/country_profiles/default.stm

FCO Country Profile:

http://www.fco.gov.uk/en/travel-and-living-abroad/travel-advice-by-country/country-profile/

Culture and communications

CILT –National Centre for Languages - Regional Language Network in your area:

http://www.cilt.org.uk/workplace/employer_support/in_your_area.aspx

Kwintessential culture guides