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Selling U.S. Products and Services

Using an Agent or Distributor

Before entering into a contractual relationship with a Korean manufacturers/commission representative (agent) or distributor, U.S. firms should conduct a thorough due diligence on a prospective business partner. A contract with an agent or distributor should be handled with care and with the assistance of an attorney. The Commercial Service in Korea can assist by providing companies with an Individual Company Profile (ICP) (Consult: http://export.gov/southkorea/servicesforuscompanies/icp/index.asp) report, which provides detailed financial and related business information on the company you seek to work with.

The most common means of product or service representation in Korea are:

  • Appointing a registered/commissioned agent or “offer agent” on an exclusive or non-exclusive basis;
  • Naming a registered trading company as manufacturer’s representative or agent; or
  • Establishing a branch sales office, managed by home office personnel along with Korean staff.

Additionally:

  • Any businessperson registered with the Korean government can import goods in his/her own name.
  • A ‘registered trading company’ can manage all import documentation. These are typically larger firms involved in both exports and imports. However, these firms can be less attentive to building the U.S. supplier's business, even though they can be influential and well-known in the marketplace.

Performance of your agent/distributor should be regularly/frequently monitored. An under-performing or non-performing agent/distributor should be counseled and properly guided. If, after a period of time, performance is still poor (and only after careful consideration of all legal and contractual obligations), a termination of contract should be considered. Once a termination is legally binding, the U.S. firm should begin searching for a new distributor.

Finding a Good Partner in Korea

The U.S. Dept. of Commerce’s Commercial Service (CS) office in Seoul, like CS offices around the world, offers the Gold Key Service (GKS) (See: http://export.gov/southkorea/servicesforuscompanies/gks/index.asp) to assist U.S. companies in finding a good partner in Korea.

U.S. exporters are urged to contact one of over 100 U.S. Export Assistance Centers (USEACs; please contact the USEAC closest to your business). Consult: http://export.gov/usoffices/index.asp to begin the process.

The GKS provides:

  • A customized schedule of face-to-face meetings with carefully-selected prospective candidates;
  • A briefing, interpretation service, and transportation (fee based); and
  • Information regarding each meeting, focused market research, and insights gained by CS specialists in the process of setting-up the GKS.

CS Korea strongly recommends that:

  • U.S. companies seek legal counsel prior to signing a contract or making major business decisions with Korean companies.
  • Any distribution or agency contract should include a termination clause. If not, Korean commercial arbitration bodies may specify the terms for termination, including compensation claims against the principal. A mutually-signed contract between a supplier and an agent/distributor, with termination provisions, would take precedence and avoid placing the U.S. company at risk.
  • U.S. companies should protect their intellectual property, trademark and patents with the Korean Intellectual Property Office (KIPO). Consult: http://www.kipo.go.kr/kpo/user.tdf?a=user.english.main.BoardApp&c=1001) as a minimum safeguard of your intellectual property rights.
  • A local Korean or U.S. attorney in Korea can easily perform these tasks. Under Korean law, applications to KIPO must be competed and submitted in Korean. This should be done in the U.S. company’s name and not the Korean agent/representative’s name. Since the passage of the KORUS FTA, there are now numerous large U.S. law firms with offices in Korea. Additionally, there are some 14,000 Korean lawyers practicing in Korea.

Establishing an Office

The dynamism and maturity of the Korean market, coupled with its strategic location in East Asia, may lead U.S. companies to consider opening an office in Korea. The following options exist:

  • Subsidiary Office: Established as a local company, a subsidiary has a closer relationship with the local business community and can provide the local firm the opportunity for Korean government investment incentives, as it would be eligible to receive corporate income tax incentives (Special Tax Treatment Law STTCL), if it meets certain requirements. These tax incentives are not available to branch or liaison offices.
  • Branch Office: Not subject to audits by external auditors in Korea, a branch office’s net income is automatically viewed as being included in the headquarters balance sheet. A company expecting to grow large enough to require the establishment of a subsidiary in the future should consider doing so from the beginning, rather than starting as a branch operation.
  • Liaison Office: A liaison office can only conduct marketing and support and cannot conduct direct sales. A liaison office is subject only to the tax code of the headquarters country and is the simplest form of conducting business in Korea.

Basic guidelines to setting-up an office in Korea include:

  • Review Invest KOREA: Consult the one-stop services offered by Invest KOREA (Consult: http://www.investkorea.org/InvestKoreaWar/work/ik/eng/) a government-sponsored, non-profit organization of the Korea Trade-Investment Promotion Agency (KOTRA; http://english.kotra.or.kr/wps/portal/dken).
  • KOTRA maintains offices throughout the United States, poised to guide U.S. companies through the administrative, legal and tax implications of opening an office in Korea. KOTRA also has an ‘investment ombudsman’ ready to quickly address foreign investors’ grievances. Consult: http://www.investkorea.org/InvestKoreaWar/work/ombsman/eng/au/index.jsp?num=3
  • Authorization: Once ‘authorization to proceed’ with an investment is granted, companies must notify the Ministry of Trade, Industry and Energy (MOTIE), a delegated authority (major Korean bank), or Invest Korea. Consult: http://www.investkorea.org/InvestKoreaWar/work/ik/eng/
  • Your Office in Korea: Consult a reputable real estate agent or real estate consulting firm when deciding on the best location for your office. A partial list is available at: http://export.gov/southkorea/usefullinks/majorrealestateaccountinghrfirmsinkorea/index.asp
  • Under Korea’s Foreign Land Acquisition Law, foreigners can purchase land regardless of size or purpose. Local zoning laws regulate categories of activity allowed and should be reviewed prior to making final investment decisions.
  • Register with the Tax Office: Investors must register their office/investment with the local tax office. Given language issues, the complexity of Korean tax laws, and the potential for misunderstanding, companies should hire a local accounting firm to file taxes. Consult: http://export.gov/southkorea/usefullinks/majorrealestateaccountinghrfirmsinkorea/index.asp
  • Seek Qualified Employees: Koreans are attracted to U.S. firms, given salary rates, prestige, opportunities for travel, the ability to use and learn English, and the possibility to transfer to the company’s home office or another foreign branch office.

Korea has a large pool of conscientious and highly-educated workers. Female employees are especially strong candidates, given their educational achievements, language abilities, and the prevalence of traditional Korean cultural attitudes toward female employees (which have historically prevented them from progressing as quickly as they would in a U.S. company).

Due to differences in U.S. and Korean employment practices, CS Korea recommends consulting Korean employment agencies before hiring.

  • Contact the Seoul Global Center website for Seoul Metropolitan Government’s program which occasionally offers free or reduced rent/office space for foreign residents (http://global.seoul.go.kr/).

Franchising

The franchise market in 2012 was valued at an estimated USD 84.3 billion (franchise, sub-franchise fees and royalties, product and service revenues, consulting fees, related product sales and equipment; Ministry of Trade, Industry and Energy).

Nearly 3,034 franchises were registered in Korea in 2011. Some 1,240,000 employees are currently working in this industry. There are some 21,121 convenience store franchises operating in Korea (2012 Yearbook of Retail Industry), of which 5,085 opened in 2011. Nearly 2,145 were food service franchises, 276 were retail franchises, and 613 were service franchises. On average, a franchise operates 68.5 stores across its industry in Korea.

Franchisors interested in this market must:

  • Meet the rules promulgated under: Korea’s Fair Transactions in Franchise Business Act, and the new regulations pending implementation from National Commission for Corporate Partnership (NCCP);
  • Be registered with the Korea Fair Trade Commission; and
  • Comply with the sub-franchisee’s Fair Trade Act, which stipulates the need for disclosure of all business information to potential sub-franchisees at least 14 days before signing an agreement. This Act closely parallels the rules that exist for sub-franchisees in the U.S.

The Korea-U.S. FTA (KORUS) will positively affect this industry in many ways, to include:

  • Expedited Customs Procedures: Improved transparency through the publication of customs measures will ensure U.S. companies have access to customs laws and regulations. In addition, the Agreement requires simplified customs procedures for timely and efficient release of goods.
  • Protected U.S. Investment: A stable, legal framework will protect all forms of U.S. investment. The KORUS FTA promises U.S. investors national treatment, which means they will be treated equally to Korean investors in the establishment, acquisition, and operation of their investments in Korea.

In 2012, Korea’s large retail players reported interest in opening numerous mega malls outside the Seoul metropolitan area, over the next three to five years. These highly respected (mostly Chaebol) retailers seek retail anchor stores, franchise food service establishments and restaurants with a unique concept or theme for their expansion projects. Several companies are interested in becoming master franchisors of U.S. franchise brands, as well as wanting U.S. franchise tenants for their new malls/stores.

Opportunities exist for franchises in: wellness/well-being, environmentally friendly products, sports and leisure activities, personal service, green growth, children’s services, education, laundry service, auto maintenance, hair care, senior day care, homecare, home delivery services (all sectors), home child care, human resource training and pet service, to name a few.

Korean franchisees are reluctant to pay the high franchising fees (USD 90,000 to 180,000) and royalties often required by U.S. companies. Domestic chains are popular because they do not require much capital or large royalty fee payments.

Minimum facility size and number of store openings required by U.S. franchisors are also a challenge for the Korean franchisee. The unique and expensive nature of the commercial real estate sector in Korea can affect the feasibility of a project which may otherwise offer great promise in other markets.

Korean franchisees prefer to do business with U.S. franchisors that offer established brand names to Korean consumers, as well as offering American-style, systematic operations and management skills.

There are three basic types of franchise investors in Korea:

  • Investors with little or no experience in the franchise they seek to own/start;
  • Individuals with real experience with franchising brands; and
  • “Retirees” with a strong business background, but who have downsized (age 40 and above) and wish to own their own business.

U.S. investors should seek an experienced workforce which they can mentor and monitor in this mature market.

As part of Korea’s efforts in 2012 and into 2013 to bring about economic democratization, the National Commission for Corporate Partnership (NCCP) recommended that regulations be imposed on large companies/conglomerates to provide opportunities and raise the competitiveness of SMEs in the franchise sector. The NCCP classifies large companies/conglomerates as those with annual sales over 20 billion won, with more than 200 employees, under the Minor Enterprise Basic Law. A whole series of restrictions, such as denying a conglomerate the ability to open a new store located less than 500 meters from an existing shop of the same brand, is scheduled to go into force in 2013. At present, there are no exceptions for foreign companies operating in Korea, if their annual sales are over 20 billion won and with more than 200 employees.

The NCCP’s new regulations will be in effect for approximately three years, from approximately May 2013 to March 2016. Franchise brands must follow these rules or will be penalized with fines imposed by Korea’s Small and Medium Business Administration (KSMBA). At this writing, with the regulations still in draft form, it is assumed that about 30 companies (Chaebols) will be affected by these regulations or semi-official rules. Chaebols are already proving unwilling to ‘rock-the-boat’ in reference to these regulations.

While the effects of economic democratization and the NCCP’s new regulations will indeed have a dampening effect on U.S. franchisors, opportunities do exist in Korea’s nearly half-dozen new cities or communities which are growing and gaining momentum. In this case, U.S. franchises would need to make their own investments in these new cities, for a two-to-four year period, until a Korean master franchisee is identified and/or until the NCCP regulations expire.

Direct Marketing

The 2012 Retail Industry Yearbook indicates that the online shopping industry is consistently growing and was estimated to be USD 39.9 billion (US 1$=KRW 1,126.28). This is a 15 percent increase from 2011 (USD 35.1 billion, US 1$=KRW 1,126.28). Direct marketing primarily takes the form of catalog sales, TV home shopping, internet shopping, and the mobile commerce market. Korea also has a large market for door-to-door sales, as well as a robust multi-level marketing sector. Internet sales account for nearly 80 percent of all sales among the four direct sales channels (catalog sales, TV home shopping, internet shopping, and mobile commerce). U.S. companies are encouraged to take seriously all four sales channels in this highly consumer-oriented market.

Door-to-Door Sales

The major door-to-door sales items include home education materials, books, household consumer goods, cosmetics, health food, sporting goods, and services (such as insurance). According to the Korea Direct Selling Association (KDSA: http://www.kdsa.or.kr/), the Korean door-to-door sales market was approximately USD 7.3 billion (US 1$=KRW 1,126.28) in 2011.

Multi-Level Marketing (MLM)

Korea’s multi-level marketing sales for 2011 approached USD 2.5 billion (US 1$=KRW 1,126.28). Nearly 100 registered multi-level marketing companies employed about 4 million active distributors.

The Korean government reduced restrictions on MLM companies by passing legislation eliminating most existing market barriers against MLM products, such as the obligation to disclose retail prices on the MLM product label. Oversight of the MLM industry is the responsibility of the Korean Fair Trade Commission (FTC).

MLM activities by U.S. firms in the cosmetics, cleaning products, and kitchenware industries have been expanding. MLM activities by U.S. firms within these sectors should promote their products and services appropriately and efficiently by analyzing Korean market trends. Knowledge of the market can prevent unnecessary conflicts with government agencies, consumer ‘watchdog’ groups, or industry groups.

Joint Ventures (JVs) / Licensing

Koreans prefer to maintain local control of JV operations with foreign entities. Thus, the financial goals, internal organization and key management issues of a JV must be agreed upon by all involved parties as early as possible.

Foreign direct investment (FDI) is encouraged and promoted by the Korean government. With the ratification and implementation of the KORUS FTA, greater cooperation and encouragement of FDI is expected.

When considering FDI in Korea, it is important to consider the following:

  • The decreasing influence of (some) chaebols, the Korean government’s promotion of SMEs, the government’s interest in seeking anti-monopolistic and more diversified JVs;
  • Koreans prefer to maintain local control, regardless of the percentage invested by foreign entities; and
  • Management control should be evaluated on three levels: 1) shareholder equity; 2) representation on the board of directors; and 3) active management (representative director and subordinate management). Legally, Korean board meetings require the physical presence of all JV members, as well as a quorum of the directors. If a foreign investor intends to exercise day-to-day management of an operation, a representative director who resides in Korea must be appointed. The director requires the support of and access to key functional areas of the company in order to manage in accordance with the foreign investor’s wishes.

Contractual Agreements in Korea

Well-written, well-understood, and well-executed contractual agreements are the basis and backbone to a U.S. firm’s success in Korea. Cultural differences surrounding the expectations of a contractual agreement and how one successfully arrives at a mutually beneficial agreement is often the basis of consternation and challenges.

For Koreans:

  • A contract represents the ‘current understanding’ of a deal. It is the beginning, rather than the end, to a negotiation;
  • Any change in the contract (omissions, invalid issues, new leadership, non-existent issues) may cause problems to arise;
  • Koreans may regard a contract as a "gentlemen's agreement" subject to further negotiation should conditions change; Americans generally regard the same written agreement as legally binding.

Contract negotiations in Korea must be viewed as an on-going process of dialogue and should have the following objectives:

  • Reaching a common understanding about the deal/contract
  • Reaching an understanding about each party’s responsibilities
  • Recording the detailed understandings
  • Being prepared to modify the terms of the agreement should there be a change in circumstances (leadership, other issues).

Additionally, the following precautions should be addressed:

  • Technology transfer, raw material supplies, marketing, and distribution should be agreed upon, in detail, in the JV agreement
  • A company’s IP may not be protected and could be vulnerable in the later stages of a JV business relationship, especially if the Korean company depends upon transfer of technology (see Protecting your IP, also in this chapter).
  • Korea’s legal system can be lengthy, cumbersome and expensive. When dealing with contracts, the best strategy is to prevent conflicts.
  • Foreign investors should consult the Korean Commercial Arbitration Board (Consult: http://www.kcab.or.kr/servlet/kcab_adm/memberauth/5000). The KCAB advises foreign companies on contract guidelines.

Selling to the Government

Government Procurement

Korea is an established member of the World Trade Organization’s Government Procurement Agency (GPA) protocols, establishing non-discriminatory government procurement procedures.

Korea’s GPA commitments include:

  • “Threshold” amounts by certain Korean government agencies and provincial authorities
  • Procurement commitments in the services and construction industries
  • A prohibition against offsets as a condition for awarding contracts
  • A provision allowing suppliers to pursue alleged violations through GPA-defined bid challenge procedures
  • An International Contract Dispute Settlement Committee
  • Annexes specifying certain thresholds below which GPA rules do not apply (approximately USD 180,000 and, for construction services, approximately USD 7 million)
  • Korea is exempted from GPA coverage for items related to national security and defense, procurement of satellites, and purchases by the Korea Electric Power Corporation (KEPCO: http://www.kepco.co.kr/eng/) of certain electrical transmission and distribution equipment.

U.S. companies interested in Korean government procurement must also work with Korea’s Public Procurement Service (PPS). Consult: http://www.pps.go.kr/english/.

The PPS supports domestic equipment and supplies and is responsible for the purchase of goods and incidental services required by central and sub-central government entities, government construction contracts and the stockpiling of raw materials.

Bidders must register with PPS one business day prior to the date of an opening bid. Foreign bidders can register with PPS (Korean language only) prior to entering into a contract. Failure to register constitutes cause for rejection of the bid.

Korea has launched its Government e-Procurement System (GePS) at http://www.pps.go.kr/english/. In part, the system includes:

  • A single window for public procurement, showing the entire process
  • Bids which are valid at least 45 days
  • Bids must be published with a summary in English, including the subject matter of the contract, the deadline for submission of tenders, and the address and contact point from which full documents relating to the contracts may be obtained
  • The complete procurement process, with specifications and requirements (biases against imported products and services are rarely overt; if they occur, these should be brought to the attention of the U.S. Embassy).

The newly-minted KORUS FTA, in effect since March 15, 2012, has a chapter devoted to government procurement. Consult: http://www.ustr.gov/.

Defense Procurement

Defense procurement is an active part of CS Korea’s portfolio. U.S. companies which sell to foreign and U.S. militaries should be cognizant of the importance given to military procurement on the Korean peninsula.

The Defense Acquisition Program Administration (DAPA: http://www.dapa.go.kr/eng/index.jsp) is responsible for Korean defense procurement and was established to ensure transparency in defense procurement. DAPA consolidates eight procurement and technology development organizations under the Ministry of National Defense (MND: www.mnd.go.kr/mndEng/main/index.jsp) and various military services. Although a civilian agency under the authority of the Executive Office of the President of Korea, DAPA works directly with the Minister of Defense and the service branches.

U.S. defense industry equipment standards are accepted in Korea as most Korean defense systems are based on American standards. Interoperability of systems is critical in what is now a sixty-year U.S./ROK defense partnership.

Defense equipment is marketed by direct purchase, sales agents, and importer channels. U.S. manufacturers/suppliers of defense equipment should use a well-qualified/vetted Korean agent who is familiar with the ROK defense system and also knowledgeable of key members of the country’s Air Force (ROKAF), Navy (ROKN), Army (ROKA), and Agency for Defense Development (ADD). Former ROKAF, ROKN, and ROK A officials have good potential as commissioned representatives in Korea. Local representatives must register and be certified by DAPA to supply their products and services to the MND.

In 2011 the Korean Importers Association (KOIMA: http://www.import.or.kr/) became DAPA’s sole source for legacy supplies and parts.

A well-selected representative can provide U.S. suppliers with information about the status of defense bids and procurement plans. Companies wanting to supply their products/systems to DAPA are required to register with this agency, typically a 10-day process. Consult: https://www.d2b.go.kr/English/jsp/regi/HI_HPD_E_regi_Main.jsp?md=311&cfn=HI_HPD_E_regi_01.

Distribution and Sales Channels

South Korea is 70 percent mountains, forcing it’s nearly 50 million people into key population centers: Seoul metro area: 11 million; Busan metro area: 4 million; Daegu metro area: 3 million; and Daejeon metro area: 2 million. Most freight forwarders use an extensive network of first-class railways, 3,000 kilometers of highways, and air routes that crisscross the country.

Incheon, Gimpo, and Busan’s first class airports and ports are the points of entry for most products. Products are then transferred by first-tier roads and railways to major modern distribution centers in Seoul, Busan, Incheon, Daegu, and Gwangyang. South Korea has eight international airports and seven domestic airports, including the world-class Incheon International Airport. Around 77 international passenger and cargo airlines operate frequent flights between Korea and many nations around the world.

Distribution methods and the function of intermediaries vary widely by product in this mature market. Traditional retail distribution networks of small family-run stores, stalls in markets, and street vendors are being replaced by large discount stores.

As part of Korea’s efforts to protect small “mom-and-pop” stores, under the auspices of “economic democratization,” in mid-2012 the government imposed a rule closing big-box discount chains on Sunday. The U.S. Costco (Korea being one of Costco’s most lucrative markets) and other retailers initially ignored the restriction. The government then imposed financial penalties on Costco and other discount stores, which eventually began complying by closing its stores on the second and fourth Sunday of each month in late 2012.

Korea’s major cities have numerous fashionable and expensive large department stores and boutiques. Thousands of second-tier and third-tier retail stores also abound. Full-Line Discount Stores (FDS) have gained popularity, as have U.S.-based Costco, which entered the Korean FDS market more than 10 years ago and is successfully competing against Korean rivals E-mart and Lotte Mart.

Rapid expansion of discount chain stores is planned nationwide, with suburban satellite cities attracting the greatest number of stores. Distribution of goods through large discount chains is one of the best ways to market foreign products to Korean consumers.

It should also be noted that parallel imports can legally enter Korea. Many U.S. companies continue to give exclusive contracts, since territorial limits in neighboring countries enhance the value of an exclusive area in any one country. Any parallel importer in Korea not receiving the support of the OEM, and which does not deal in a meaningful volume, cannot be guaranteed a steady source of supply. The legitimate exclusive distributor still has considerable advantages in Korea.

A handful of Korea’s highly successful and sophisticated retailers have called CS Korea over the past 12 months, seeking introductions to U.S. name-brand retailers and anchor stores for their three- to five-year mall construction plans.

Selling Factors/Techniques

Korea is a country with intense, demanding and eager consumers. U.S. companies wanting to sell into this market should endeavor to follow these guidelines:

  • Adapt company products and procedures to Korean tastes and conditions
  • Communicate regularly with both your Korean business partner and customers
  • Exhibit a consistent, firm and long-term commitment to the Korean market
  • Work at building long-term relationships
  • Augment the efforts of your local representative by visiting Korea frequently
  • Invite Korean representatives back to the home office periodically to ensure they are fully informed, motivated, and up-to-date on your company and its offerings
  • To the extent possible, allow the distributor/agent to select from all of the U.S. company’s product lines
  • Hold demonstrations, seminars and exhibitions of products in Korea
  • Increase the distribution of technical data and descriptive brochures
  • Assist local representatives with follow-up on sales leads.

Electronic Commerce

E-Commerce is a key component of the overall consumer market in Korea, a country where 98 percent of its population (15 million households) is connected to the web, making e-commerce a key component of Korea’s overall consumer market (also see the previous section on Direct Marketing). Characteristics of e-commerce in Korea include:

  • Over 30,000 B2C Korean cyber shopping malls in Korea
  • B2B, B2G, B2C and C2C transactions in 2009 accounted for 88.2, 8.8, 1.8 and 1.2 percent of the e-commerce sector, respectively
  • Major factors driving growth include national broadband infrastructure, with 37 million internet users, and the introduction of 4G Long Term Evolution (LTE), Wireless Broadband (WiBro), as well as wide coverage of WiFi services utilized by mobile computers and smart communication devices
  • New social commerce services, led by local companies like Ticket Monster, We Make Price, One a Day, etcetera, spur demand for e-commerce solutions: the equipment, networking, software and services
  • Manufacturing industries account for 68 percent of all B2B transactions and these same industries are investing in order to have reliable, efficient and secure e-commerce tools
  • U.S. based e-commerce companies should review the Personal Information Protection Act and ministerial data privacy/spam regulations (2007), which may restrict e-commerce for firms managing user-data on international servers.

Trade Promotion and Advertising

The U.S. Department of Commerce’s (USDOC) International Trade Administration (ITA) and the Commercial Service (CS) office in the U.S. Embassy in Seoul is the U.S. Government’s primary trade promotion agency. Consult: http://www.export.gov/southkorea.

In Korea, the Commercial Service works with numerous trading and commercial entities, to include:

  • The Korea International Trade Association (KITA): http://www.kita.org/. KITA organizes trade missions, conducts market surveys, assists potential foreign buyers or sellers, and offers consultation and personalized advisory services regarding trade rules and regulations, export and import procedures, business management, market research, technology development and taxation. KITA has offices in Washington, DC and New York.
  • The Korean Chamber of Commerce and Industry (KCCI): http://english.korcham.net/. KCCI is Korea’s largest private economic organization, with 71 regional chambers and approximately 135,000 members. Since its establishment in 1884, KCCI has contributed to the growth and development of the national economy and also to the enhancement of Korea's status in the international community.
  • The Korean Importers Association (KOIMA): http://www.import.or.kr/. KOIMA is Korea’s primary importers association and represents over 8,000 businesses.

Korea hosts many trade shows and exhibitions each year. Historically, many of these shows are highly focused on B2C activities and, thus, are not necessarily attractive to U.S. firms interested in meeting qualified companies, versus end-users. The following trade facilities and event schedules may be of interest to U.S. firms:

Advertising

A geographically small country, Korea is an exciting place to launch effective, sophisticated, state-of-the-art advertising. Korean advertisers are highly creative and utilize a host of media to capture the consumer’s attention.

Particular aspects of Korea’s advertising market include:

  • More than 80 mega-LED screens strategically pepper commercial areas (in Seoul and other cities) with 24/7 promotions. Monthly advertising opportunities exist.
  • Thousands of excellent promotional sites on Korea’s well-used bus stops, subway stations, railways and airports should be considered by U.S. firms
  • The presence of over 495 foreign (to include all major ad agencies) and Korean ad agencies. Foreign equity participation is permitted at 100 percent.
  • Hundreds of TV and radio stations, consisting of:
  • KBS I, KBS II: TV and radio owned/operated by the Korean government
  • MBC, SBS: Independently operated, but with ROK government influence Consult: www.kobaco.co.kr/eng/index.asp
  • The Korea Advertising Review Board (KARB: www.kobaco.co.kr/eng/business/publication.asp) is responsible for advertising censorship and the Korean Fair Trade Commission (KFTC) (http://eng.ftc.go.kr/) assures accuracy in advertisement
  • The Korean cable TV industry serves 12 million households, with 94 system operators offering over 150 programs. Korea Digital Broadcasting (KDB), a subsidiary of Korea Telecom (KT) (http://www.kt.com/eng/) broadcasts more than150 satellite channels to over three million households.
  • Five popular shopping channels (CJ, Hyundai, GS, Lotte, and Nongsusan) grossed over USD 3.5 billion in 2009

Internet advertising offers significant market growth potential. Currently 15 million households, or 98 percent of all households, use the internet.

Pricing

In Korea’s export-driven, raw-material dependent economy, price competitiveness is a serious driver. Korean manufacturers believe it essential to buy the lowest-priced raw materials or equipment, even at the expense of quality. Manufacturers often offset labor costs with low-cost inputs. Japanese goods are considered to be ‘better buys.’

Korean buyers generally believe that U.S. goods:

  • Have an overall good reputation
  • Are of high quality and good-to-excellent performance
  • Are very expensive.

Pricing in Korea:

  • Is dependent upon consumer-protection legislation, which requires that consumer items be labeled with the manufacturer’s sales price (to the retailer) and the marked-up retailer’s price (to the consumer)
  • Ranges from 50 to 150 percent (from the manufacturer to the consumer)
  • Include a 10 percent sales tax for taxable items
  • Include a 10 percent VAT on services
  • Is often dependent on ‘bundling’
  • Is often undervalued for software, engineering and other services
  • Price quotes should take into account price the likelihood of repeat business for spare parts and auxiliary equipment.

Commissions in Korea are dependent upon the type of product and the transaction amount:

  • 10 percent (average) for ‘spot-basis’ transactions
  • 5-7 percent for general machinery, packaging, construction and material handling equipment
  • 15-18 percent for sophisticated products, i.e., medical, laboratory, and scientific analytical instruments and for products where after-sales service is considered to be very important.

For larger contracts, commissions generally decline as the contract value for a major purchase/acquisition/contract increases.

Sales Service/Customer Support

Considered secondary to product and price considerations, after-sales service in Korea is often found lacking. A carryover from pre-Korean War times, Koreans often use improvisation and/or expect self-reliance when handling service issues. This should be managed closely, especially given the competition of third countries in this market. Servicing is/should be an important component of the ‘sale.’

The best approaches to after-sales service and customer support include:

  • Resident or offshore engineers (Japan or Taiwan) working with local engineers; service contracts should be considered
  • Establishing a regional servicing facility which can effectively service and support equipment sold in Korea
  • Training service and customer service personnel via U.S.-based programs.

Protecting Your Intellectual Property

Introduction on Intellectual Property Rights in Korea

In Korea, registration of patents and trademarks is on a first-in-time, first-in-right basis. Consider applying for trademark and patent protection before selling your products or services in Korea.

For U.S. small- and medium-size companies, the U.S. Department of Commerce provides one hour of free legal advice via the "SME IP Advisory Program" of the American Bar Association. Consult: http://apps.americanbar.org/intlaw/intlproj/iprprogram_consultation.html.

Protecting Your Intellectual Property in the Republic of Korea

Several general principles are important for effective management of intellectual property (IP) rights in Korea. First, it is important to have an overall strategy to protect your IP. Second, IP is protected differently in the Korean market than in the U.S. Third, rights must be registered and enforced in Korea, under local laws.

Your U.S. trademark and patent registrations will not protect you in the Korean market. There is no such thing as an “international copyright” that will automatically protect an author’s writings throughout the entire world. Protection against unauthorized use in a particular country depends, basically, on the national laws of that country. However, most countries do offer copyright protection to foreign works under certain conditions, and these conditions have been greatly simplified by international copyright treaties and conventions.

Registration of patents and trademarks is on a first-in-time, first-in-right basis, so you should consider applying for trademark and patent protection even before selling your products or services in the Korean market. It is vital that companies understand that intellectual property is primarily a private right and that the U.S. government generally cannot enforce rights for private individuals in Korea. It is the responsibility of the rights holders to register, protect, and enforce their rights where relevant, retaining their own counsel and advisors. Companies may wish to seek advice from local attorneys or IP consultants expert in Korean IPR law. The U.S. Commercial Service can provide a list of local lawyers upon request. Please consult: http://export.gov/southkorea/usefullinks/lawfirms/index.asp.

While the U.S. Government stands ready to assist, there is little that can be done if rights holders have not taken the fundamental steps necessary to secure and enforce their IP in a timely fashion. Moreover, in many countries, rights holders who delay enforcing rights in a mistaken belief that the USG can provide a political resolution to a legal problem may find that their rights have been eroded or abrogated due to legal doctrines such as statutes of limitation, laches, estoppel, or unreasonable delay in prosecuting a law suit. In no instance should U.S. Government advice be seen as a substitute for the obligation of a rights holder to promptly pursue its case.

It is always advisable to conduct due diligence on potential partners. Negotiate from the position of your partner and give your partner clear incentives to honor the contract. A good partner is an important ally in protecting IP rights. Consider carefully, however, whether to permit your partner to register your IP rights on your behalf. Doing so may create a risk that your partner will list himself as the IP owner and fail to transfer the rights should the partnership end. Keep an eye on your cost structure and reduce the margins (and incentive) of would-be bad actors. Projects and sales in Korea require constant attention. Work with legal counsel familiar with Korean law to create a solid contract that includes non-compete clauses and confidentiality/non-disclosure provisions.

It is also recommended that small- and medium-size companies understand the importance of working with trade associations and other organizations to support efforts to protect IP and stop counterfeiting. There are a number of these organizations, both Korea-based and U.S.-based. These include:

  • The U.S. Chamber and local American Chambers of Commerce (“AmChams”)
  • The National Association of Manufacturers (NAM)
  • The International Intellectual Property Alliance (IIPA)
  • The International Trademark Association (INTA)
  • The Coalition Against Counterfeiting and Piracy
  • The International Anti-Counterfeiting Coalition (IACC)
  • The Pharmaceutical Research and Manufacturers of America (PhRMA)
  • The Biotechnology Industry Organization (BIO)

IP Resources

A wealth of information on protecting IP is freely available to U.S. rights holders. Some excellent resources for companies regarding intellectual property include the following:

  • For information about patent, trademark, or copyright issues -- including enforcement issues in the U.S. and other countries -- call the STOP! Hotline: 1-866-999-HALT or register at http://www.stopfakes.gov/
  • For more information about registering trademarks and patents (both in the U.S. as well as in foreign countries), contact the U.S. Patent and Trademark Office (USPTO) at: 1-800-786-9199
  • For more information about registering for copyright protection in the U.S., contact the U.S. Copyright Office at 1-202-707-5959.
  • For more information about how to evaluate, protect, and enforce intellectual property rights and how these rights may be important for businesses, a free on-line training program is available at http://www.stopfakes.gov/data/us/menu/index.htm
  • For U.S. small- and medium-size companies, the U.S. Department of Commerce offers its "SME IP Advisory Program" through the American Bar Association, which provides one hour of free IP legal advice for companies with concerns in Brazil, China, Egypt, India, Russia, and other markets. For details and to register, visit: http://www.abanet.org/intlaw/intlproj/iprprogram_consultation.html.
  • For information on obtaining and enforcing intellectual property rights and for a market-specific IP Toolkit for Korea visit: http://export.gov/southkorea/iprtoolkit/index.asp, as linked from www.StopFakes.gov. This site is linked to the USPTO website for registering trademarks and patents (both in the U.S. as well as in foreign countries), as well as the U.S. Customs & Border Protection website to record registered trademarks and copyrighted works and allows you to register for webinars on protecting IP.

Due Diligence

Conducting a thorough due diligence check is critical when selecting a local partner for a JV, licensing, and distribution. A due diligence check should include:

  • An evaluation of the company’s financial and operational history
  • Accounting practices
  • Hidden ownership interests
  • Corporate relationships with other Korean companies
  • Position in the market for the product(s) you are exporting

CS Korea offers a fee-based service called the International Country Profile (ICP): http://export.gov/southkorea/servicesforuscompanies/icp/index.asp. The ICP includes the above information, obtained by the Commercial Service in Korea, in addition to a visit the office of the Korean company as well as obtaining financial information from D&B Korea Co., Ltd. (http://www.dnbasia.com/kr/english/sitemap/) and Kroll International (http://www.kroll.com/), both of which also provide due diligence reports.

Local Professional Services

Korea has a highly developed economy with a full range of professional services:

Agents/distributors: http://export.gov/southkorea/usefullinks/usefulcontactsregardingagentsdistributors/index.asp

Law firms: http://export.gov/southkorea/usefullinks/lawfirms/index.asp

Major banks: http://export.gov/southkorea/usefullinks/majoruskoreanbanks/index.asp

Major real estate and real estate consultancy firms, accounting companies and human resources firms:
http://export.gov/southkorea/usefullinks/majorrealestateaccountinghrfirmsinkorea/index.asp

Major newspaper contacts:
http://export.gov/southkorea/usefullinks/majornewspapersbusinessjournals/index.asp

The “Featured U.S. Exporters” (FUSE) site provides information on how you can advertise products on our worldwide website, in various languages, for a small fee. Click http://export.gov/southkorea/bsp/index.asp for more information.

Web Resources

Busan Exhibition and Convention Center (BEXCO):
http://www.bexco.co.kr/english/main/main.jsp

Agents or Distributors in Korea:
http://export.gov/southkorea/usefullinks/usefulcontactsregardingagentsdistributors/index.asp

Banks in Korea:
http://export.gov/southkorea/usefullinks/majoruskoreanbanks/index.asp

Convention and Exhibition Center (COEX):
http://coex.co.kr/eng/index.asp

Daegu Exhibition and Convention Center (EXCO Daegu):
http://www.excodaegu.com/

Defense Acquisition and Procurement Agency (DAPA):
http://www.dapa.go.kr/eng/index.jsp

Dun & Bradstreet Korea
http://www.dnbasia.com/kr/english/sitemap/

Featured U.S. Exporters (FUSE)
http://export.gov/southkorea/bsp/index.asp

Government e-Procurement Service (GePS):
http://www.pps.go.kr/english/

International Company Profile:
http://export.gov/southkorea/servicesforuscompanies/icp/index.asp

Invest KOREA:
http://www.investkorea.org/

KITA New York Office:
http://www.kita.net/ny/eng/01/index.html

KITA Washington Office:
http://www.kita.net/ny/eng/02/index.html

Korea Broadcast Advertising Corporation (KOBACO):
http://www.kobaco.co.kr/eng/index.asp

Korean Commercial Arbitration Board:
http://www.kcab.or.kr/servlet/kcab_adm/memberauth/5000

Korea Importer’s Association (KOIMA)
http://www.import.or.kr/

Korea Intellectual Property Office (KIPO):
http://www.kipo.go.kr/kpo/user.tdf?a=user.english.main.BoardApp&c=1001

Korea’s Main Distribution Centers:

Busan: http://busanpa.com/Service.do?id=engmain

Daegu: http://english.daegu.go.kr

Gwangyang: http://www.gwangyang.go.kr/02en/

Incheon: http://www.incheon.go.kr/icweb/html/web39/039.html

Korea Trade Investment Promotion Agency (KOTRA):
http://english.kotra.or.kr/wps/portal/dken

KINTEX
http://www.kintex.com/client/_eng/index.jsp

Kroll Korea:
http://www.krollworldwide.com/

Public Procurement Service (PPS):
http://www.pps.go.kr/english/

Law Firms in Korea:
http://export.gov/southkorea/usefullinks/lawfirms/index.asp

Newspaper Agencies in Korea:
http://export.gov/southkorea/usefullinks/majornewspapersbusinessjournals/index.asp

Real Estate Consultants, Accounting Firms and Human Resource Agencies:
http://export.gov/southkorea/usefullinks/majorrealestateaccountinghrfirmsinkorea/index.asp

Seoul Trade Exhibition Center (SETEC)
http://www.setec.or.kr/main.do

World Federation of Direct Selling Associations
http://www.wfdsa.org/