Business Environment South Korea

Transcription

1 MARKET ACCESS SECRETARIAT Global Analysis Report Business Environment South Korea June 2015 EXECUTIVE SUMMARY* South Korea s economy is the 14 th -largest in the world with a gross domestic product (GDP) of US$1.3 trillion in 2013, and is forecasted to increase by 3.5% in South Korea has the 26 th -largest population in the world with just over 50.2 million habitants in 2013 and is expected to grow to 51.4 million by In March 2014, Canada signed its first Asia-Pacific free trade agreement, the Canada-Korea Free Trade Agreement (CKFTA), which will eliminate 86.8% of tariffs on agriculture tariff lines (Prime Minister of Canada, CKFTA, New Release, March 2014). South Korea s grocery retail sector was valued at US$144.2 billion in 2013 and is expected to increase by 11.8% in 2014 and 5.5% in 2015 (Planet Retail, 2014). Internet retailing sales in South Korea reached just under US$27.0 billion in 2013 and are forecasted to reach US$42.1 billion by 2018 (Euromonitor International, 2014). CONTENTS Executive Summary... 1 Country Snapshot... 2 Trade... 2 Retail Environment... 3 Foodservice Environment... 4 Doing Business in South Korea Tariffs and Labelling... 7 Conclusion... 8 For More Information... 8 Resources... 9 The South Korean consumer foodservice industry is the ninth-largest in the world, reaching value sales of US$67.3 billion in The industry will continue to grow at a compound annual growth rate (CAGR) of 5.4% through 2018 (Euromonitor International, 2014). According to the World Bank Group, South Korea ranks seventh out of 189 countries in terms of the overall ease of doing business in the country (2014). *Note: 2013 was the most recent data available at the time of writing this report Visit our online library of public reports for more information on this and other markets.

2 COUNTRY SNAPSHOT South Korea has the 14 th -largest economy in the world and had a gross domestic product (GDP) of US$1.3 trillion in Since the end of the recession in 2009, South Korea saw a large jump in its real GDP growth in 2010 to 6.5%, but this has leveled out over that last few years to rest at 3.0% in Euromonitor International forecasted that South Korea will experience a real GDP growth of 3.5% in 2014 and 3.6% in The agriculture sector employs 6.9% of the workforce and makes up 2.6% of the overall GDP (World Factbook, 2014). South Korea has the 26 th -largest population in the world with 50.2 million people in 2013 and is forecasted to reach 51.4 million by 2020 (Euromonitor International, 2014). South Korea is one of the most urbanized countries in Asia and over half the population resides in the six largest cities of Seoul, Busan, Incheon, Daegu, Daejeon, Gwangju (Planet Retail, 2014). Total agri-food and seafood trade (imports and exports) in 2013 for South Korea was valued at US$34.9 billion. Canada s portion of this was US$622.6 million, ranking it 30 th among all South Korean trading partners. In the same year, South Korea had a trade deficit of US$471.0 million with Canada with exports valued at US$75.8 million and imports of US$546.8 million. Also, South Korea s top five agri-food and seafood imports from Canada were pork, wheat (non durum), lobster, canola seed and canola oil (GTA, 2014). Historic Economic Overview South Korea Indicator Unit Total GDP US$ millions* 1,052, ,155, ,217, ,258, ,304,707.3 Real GDP Growth % Inflation % Exports US$ millions 363, , , , ,632.4 Imports US$ millions 323, , , , ,585.5 Source: Euromonitor International, August *Note: Current prices, fixed 2013 exchange rate TRADE In March 2014, Canada signed its first free trade agreement in the Asia-Pacific region. This agreement was the Canada-Korea Free Trade Agreement (CKFTA) and will provide new access for Canadian businesses to the world s fourteenth-largest economy and the fourth-largest in Asia (DFATD, CKFTA, 2014, and Euromonitor International, 2014). The CKFTA will help Canadian agriculture exports by eliminating tariffs on 86.8% of agriculture tariff lines. The elimination of such tariffs puts Canada on a level playing field with other Korean FTA partners and gives agriculture products such as beef, pork, fish and seafood, canola and grains, preferential access to the Korean market (Prime Minister of Canada, CKFTA, New Release, March 2014). In 2013, agri-food and seafood trade for South Korea was up by US$345.5 million over 2012, and rested at US$27.9 billion (Global Trade Atlas, 2014). South Korea s main agriculture and agri-food imports from the world were corn, wheat, soybean oilcake, sugar cane and food preparation. Canada made up just under 2.0% of total South Korean imports from the world in Page 2

3 South Korea s Agri-Food and Seafood Imports, 2013 (in million US$) Agri-food and seafood World Canada Canada s share 27, % Corn 2, % Wheat 1, % Soybean oilcake % Cane sugar % Food preparations % Source: Global Trade Atlas, 2014 RETAIL ENVIRONMENT According to Planet Retail, South Korea s total retail sector (grocery and non-grocery) was valued at US$290.6 billion in 2013, and was expected to increase by 5.9% in 2014 and Over the 2014 to 2019 forecast period, as the economy continues to recover, the sector s total sales will continue to gain traction with a CAGR of 5.9%, to reach US$432.7 billion. The grocery retail format accounted for sales of US$144.2 billion in 2013, or 50.3% of the total retail sector. Grocery sales are also expected to increase in 2014 and 2015 year-over-year (by 11.8% and 5.5%, respectively), and are forecasted to continue increasing through 2019 at around the same rate as the total retail sector. The grocery format is expected to reach US$210.8 billion by 2019 (Planet Retail, 2014). Retail Format Sales in South Korea, Historic/Forecast US$ Billions Year Total Retail Format Sales Total Grocery spending Source: Planet Retail, October Page 3

4 Internet Retailing Euromonitor s report on Internet Retailing in South Korea states that in 2013, South Korean internet retailing sales reached just under US$27.0 billion with food and drink sales making up 14.6% or roughly US$3.9 billion of the total. Internet retailing is forecasted to reach US$42.1 billion by At the same time, online food and drink sales are also forecasted to continue to grow through 2018 to reach estimated sales of US$6.3 billion. In 2013, the top three internet retailing companies in South Korea were ebay Korea Co Ltd, with the brands G Market and Auction, which held 22.1% of the overall market, followed by Lotte Shopping Co Ltd (4.4%) and their brand Lotte.com and finally GS Homeshopping Co Ltd (3.7%) and the brand of GseShop (Euromonitor International, 2014). Top Companies in Grocery Retail According to Planet Retail, the South Korean grocery market is relatively fragmented with the top five retailers accounting for around a quarter of the market. In terms of grocery banner sales, in 2013 Lotte Shopping was the largest hypermarket chain in the country, and had sales of US$10.4 billion or a 7.2% share of the total market. Planet Retail is forecasting that Lotte Shopping will have remained the leading grocery retailer through 2014 with a slight increase in banner sales and market share. As the South Korean hypermarket has become more saturated there has been a shift towards smaller stores such as convenience stores and supermarkets. This shift has caused the top retailers to alter their expansion from hypermarkets to the smaller grocery store sector of supermarkets and convenience stores (Planet Retail, 2014) Company Top Five Grocery Retailers in South Korea 2014 Forecast Number of Outlets Total Sales Area (Square feet) Average Sales Area (Square feet) Grocery Banner Sales (US$ millions) Total Grocery Market Share (%) Lotte Shopping 7,733 32,555, , Shinsegae ,821,072 2,475 10, Tesco ,341,791 1,813 7, GS Retail 8,370 10,239, , BGF Retail 8,172 6,157, , Source: Planet Retail, October FOODSERVICE ENVIRONMENT The South Korean consumer foodservice industry is one of the ninth-largest in the world, reaching value sales of US$67.3 billion in The industry will continue to grow at a CAGR of 5.4% through 2018 and will continue to present profitable categories such as 100% home delivery/takeaway and fast food. Although the South Korean economy rebounded in 2013, consumers still remain cautious of spending money on dining out (Euromonitor International, 2014). The South Korean consumer foodservice industry is dominated by independent operators who account for 80% of total outlets and 65% of total foodservice sales. The leading type of foodservice location, with a 79% market share, is standalone. The standalone location made up US$53.0 billion of overall consumer foodservice sales in This is an indication that standalone locations have matured and penetration may be difficult in the future, so operators should focus on other locations such as retail and travel outlets (Euromonitor International, 2014). Page 4

5 South Korea s chained foodservice industry is very fragmented with the top five chained operators making up only 5.8% of the market. The top five chained operators are SPC Group (Paris Baguette), Lotte Group (Lotteria), McDonald s Corp, Genesis Co Ltd (BBQ) and Starbucks Corp (Euromonitor International, 2014). In 2013, South Korea s Fair Trade Commission (FTC) implemented a new regulation which limited the expansion of large consumer foodservice franchises (bakery, pizza, chicken, convenience store, speciality coffee shops) by imposing a distance between how far a new outlet could be opened from an existing outlet. Also, in order to protect small businesses, the National Commission for Corporate Partnership (NCCP) announced a new guideline that advised large consumer foodservice companies to not open new outlets between April 2013 and March This new regulation and guideline allowed small- and medium-sized chain outlets to see strong growth and is causing large consumer foodservice chains to expand into the provinces and non-standalone locations (Euromonitor International, 2014). South Korea s Historic and Forecast Consumer Foodservice by Type Market Sizes in US$ Millions, Current Prices Fixed 2013 Exchange Rate Market Value (US$ millions) CAGR* (%) Category F F Total consumer foodservice 60, , , Independent consumer foodservice 43, , , Chained consumer foodservice 17, , , Full-service restaurants 39, , , Cafés/bars 13, , , Fast food 6, , , % Home Delivery/Takeaway 1, , , Street Stalls/Kiosks Self-Service Cafeterias Pizza consumer foodservice** 1, , , Source: Euromonitor International, 2014 *CAGR: Compound Annual Growth Rate **Note: Pizza consumer foodservice is the aggregate of three sub-sectors: pizza fast food, pizza full-service restaurants and pizza 100% home delivery/takeaway. These three pizza sub-sectors are also already included within the fast food, full-service restaurants and 100% home delivery takeaway sectors. DOING BUSINESS IN SOUTH KOREA Transactional Trends The World Bank s Doing Business: Republic of Korea Report (2014) assesses the number of procedures and length of time it takes for a small- to medium-sized company to start a business in South Korea. Measures range from registering a company to obtaining electricity, and the ease of paying taxes. In its latest report from 2014, South Korea ranked 7 th out of 189 countries, which is one ranking lower than the previous year. From 2013 to 2014, South Korea had three ranking changes that are worth highlighting: First, with the largest drop from the previous year, was the ease of starting a business ranking which fell from 23 rd to 34 th place, requiring five procedures and five and half days. However, this ranking is still above the Organisation for Economic Co-operation and Development (OECD) Page 5

6 average of 60. In comparison, New Zealand received the number one ranking requiring just one procedure and half a day to start a business (World Bank Group, 2014). Second, on the positive side, dealing with construction permits takes 29 days in South Korea to fully complete 11 procedures. This is an increase in ranking for South Korea from 21 st to 18 th. The top spot belongs to Hong Kong SAR, China which requires 26 days to complete only six procedures. (World Bank Group, 2014). Lastly, and again on the positive side, South Korea improved by four spots in paying taxes, landing at 25 th. South Korea requires 10 payments per year taking up to 187 man hours, whereas the top ranked country (United Arab Emirates) requires just 4 payments per year and 12 man hours (World Bank Group, 2014). Doing Business in South Korea World Bank Group Ranking Rank 2013 Rank Change in Rank Overall Starting a Business Dealing with Construction Permits Getting Electricity Registering Property Getting Credit Protecting Investors Paying Taxes Trading Across Borders 3 3 No change Enforcing Contracts 2 2 No change Resolving Insolvency Source: Doing Business, World Bank Group, Positive change= Making it easier to do business. Negative change= Making it more difficult to do business. Business Etiquette It is important to the success of your company, when doing business in South Korea, to understand how culture influences business practices. The following section will provide a brief overview of what to keep in mind when doing business in South Korea. For more information on Korean business etiquette, please visit the Canadian Trade Commissioners Service website, Doing Business in Korea: Business Etiquette. Confucian Influence Koreans follow Confucian traditions, which means they put great emphasis on respecting education, authorities, and those who are older. In following these traditions, Koreans intuitively establish hierarchical relationships based upon the age, position, status and educational background of other people relative to themselves. That being said, Canadian exporters should not be surprised to receive questions concerning age, marital status or educational background. These are tools that Korean businesspeople use to place you within this hierarchical structure. In addition, Koreans are more comfortable doing business with people they feel personally connected to and a mutual intermediary can be very helpful in establishing business connections (DFATD, 2015). Page 6

7 Korean Names A Korean name consists of a family name, usually of one syllable, plus a given name, usually of two syllables. In the beginning, until familiarity and very good terms are established between the exporter and Korean counterpart, the use of the family name preceded by a title such as Mr., Mrs. or Miss should always be used. When in a formal setting that calls for great respect, while addressing a Korean counterpart, the use of their formal title and surname (Chairman Lee, for example) is appropriate (DFATD, 2015). Meetings Just like doing business in other countries, when meeting a Korean counterpart it is important to arrive on-time or early and notify them should you need to arrive late for unforeseen reasons. Also, engaging in small talk, such as overall impressions of Korea, family, and sports, may occur at the initial meeting and should be something you re prepared for. In addition, socializing outside the business environment with your Korean counterparts is a very common way to build business relationships and establish a stronger personal relationship, which will fortify your business dealings (DFATD, 2015). Business Cards The exchange of business cards is important and usually happens at the initial meeting. The exchange allows the hierarchical structure to be identified and determines position and title. The formal and appropriate way to do this exchange in Korea is while standing, the Canadian businesspeople should politely hand a business card over with two hands, and receive one in return. Should you be sitting down when this exchange is to happen, you need to place the business card on the table in front of you for the duration of the meeting. Canadian businesspeople travelling in Korea should carry business cards that include Korean text (DFATD, 2015). Bowing and Handshakes Koreans are accustomed to bowing to those senior to them as a form of greeting and to show respect. The junior person initiates the bow. Then the senior person will acknowledge by returning a less accentuated bow. Bowing in Korea is not as prominent as in other countries, such as Japan (DFATD, 2015). Just like other exchanges, such as business card, the handshake is done with two hands. The handshake is done by extending the right hand and cupping the left hand below and around the right elbow. Canadian businesspeople should not be surprised by receiving a two-handed handshake and a bow at an initial meeting with a Korean counterpart (DFATD, 2015). TARIFFS AND LABELLING Tariffs The Canada-Korea Free Trade Agreement (CKFTA) came into effect on January 1, 2015 and will have a large effect on the elimination of tariffs between Canada and South Korea. The CKFTA, when fully implemented, will see South Korea removing 98.2% of tariff lines and Canada removing duties on 97.8% of tariff lines. This will be a huge benefit/advantage to Canadian exporters because on average, at this time, South Korea tariff rates (13.3%) are three times higher than Canada s (4.3%) (DFATD, 2015). Page 7

8 Labelling All product labels need to be in Korean and can have extra suggestions in English. The product label needs to contain metric measures and weight. The made in (origin of product) is mandatory and should be in Korean, Chinese or English. Below is a list of some of the labelling requirements in South Korea (Santander Trade, 2015): Product name Name and address of Korean manufacturer, or importer and original manufacturer in case of imported products Name and address of distributor of imported products, in case that importer and distributor are different Materials Size or volume Production number or date (or limited using period) Additional information on labelling requirements and regulations can be found on the Korean Ministry of Environment website or on the Korea Customs Service website. CONCLUSION The Korean market will continue to show potential for growth over the coming years whether it is in retail or foodservice. Both the retail and foodservice industries in Korea are very fragmented, and the market does not have a dominant retailer or foodservice provider. Additionally, its top ten country ranking in ease of doing business, and position as part of the dynamic and fast-growing Asia-Pacific region, will offer good possibilities for new entrants to gain market share. When doing business in South Korea, importers, investors and businesses should keep in mind proper business etiquettes and protocols, and adhere to tariffs and labelling regulations, to ensure successful market access. FOR MORE INFORMATION International Trade Commissioners can provide Canadian industry with on-the-ground expertise regarding market potential, current conditions and local business contacts, and are an excellent point of contact for export advice. Overview of Trade Commissioner Services in South Korea Find a Trade Commissioner For additional intelligence on this and other markets, the complete library of Global Analysis reports can be found under Statistics and Market Information at the following link, arranged by sector and region of interest: ats-sea.agr.gc.ca Page 8

9 RESOURCES Department of Foreign Affairs and Trade Development (DFATD) Canada (2014). Canada-Korea Free Trade Agreement (CKFTA), retrieved September 2014 from: o o Doing Business in South Korea: Business Etiquette, retrieved January 12, 2015 from: Euromonitor International (2014). Business Environment: South Korea Country Pulse: South Korea Country Profile: South Korea Internet Retailing in South Korea Consumer Foodservice by Location: South Korea Foodservice in South Korea Global Trade Atlas (2014). Trade data. Korea Customs Service 6vBXZZmYKpXng5G51Y4Lt! ?layoutSiteId=english Ministry of Environment (Korea) Prime Minister of Canada Canada-Korea Free Trade Agreement (CKFTA) Benefits New Release, March 11, 2014, retrieved September 19, Planet Retail (October 2014). Country Report: South Korea. Retail Market Data. Santander Trade: South Korea retrieved January 21, The World Bank Group (2014). Doing Business 2014 Economy Profile: South Korea World Factbook (2014), South Korea Page 9

10 Business Environment: South Korea Global Analysis Report Prepared by: Stephanie Clarke, Market Analyst Her Majesty the Queen in Right of Canada, represented by the Minister of Agriculture and Agri-Food (2015). Photo Credits All photographs reproduced in this publication are used by permission of the rights holders. All images, unless otherwise noted, are copyright Her Majesty the Queen in Right of Canada. For additional copies, to request an alternate format, and for all other inquiries regarding this publication, please contact: Agriculture and Agri-Food Canada, Global Analysis 1341 Baseline Road, Tower 5, 3 rd floor Ottawa, ON Canada, K1A 0C5 [email protected] The Government of Canada has prepared this report based on primary and secondary sources of information. Although every effort has been made to ensure that the information is accurate, Agriculture and Agri-Food Canada (AAFC) assumes no liability for any actions taken based on the information contained herein. Reproduction or redistribution of this document, in whole or in part, must include acknowledgement of Agriculture and Agri-Food Canada as the owner of the copyright in the document, through a reference citing AAFC, the title of the document and the year. Where the reproduction or redistribution includes data from this document, it must also include an acknowledgement of the specific data source(s), as noted in this document. Agriculture and Agri-Food Canada provides this document and other report services to agriculture and food industry clients free of charge. Page 10