United States exporters of environmental products and services who are new to the Korean market will most likely need to do a lot of preparatory work in planning and implementing market entry and business development strategies. Those who have already entered the Korean market will probably need to further develop their business in this market that offers long-term growth potential. They also need to assess more accurately and comprehensively assess the Korean market to continually take advantage of potential or emerging opportunities and to minimize any risk in expanding their commitments in the market.
As discussed in the previous sections, Korea seems to be one of the most attractive markets in the Asia-Pacific region in terms of market size and growth potential. But it is still one of the toughest international markets for a foreign company to do business with although entry barriers have been significantly eased in recent years. There still exist invisible barriers in various forms, such as cultural and communications gaps, inconsistency or obscurity in enforcing regulations, a possible need to adapt one’s product to meet local technical standards, nationalistic sentiments, irregular or less-transparent practices from the U.S. standard, to name a few.
All these constraints in market knowledge and business practices require a U.S. exporter, whether it is new or has some local experience, to form a partnership with a competent and reliable Korean partner to succeed. U.S.-Korean partnership can be established by taking any of the following arrangements: agent or distributor agreement, technology transfer, and joint venture. If a U.S. company has substantial experience and knowledge in the Korean market, it can establish its own representative or branch office or a wholly-owned subsidiary. Also, acquiring an existing Korean company is also possible. A few U.S. and European environmental companies currently operate their branch offices in Korea, but there is no foreign company in the form of wholly-owned subsidiary. For foreign environmental companies, the most common forms of market entry into Korea are agent or distributor arrangements and technology transfer (or licensing).
A U.S. company interested in entering the Korean market or expanding its business in Korea should carefully review all major aspects of market attractiveness, competition, and its capability and resources to cope with any future challenges or risks. Based on these analyses, the company can objectively evaluate sales and profit potential and long-term sustainability and can form a winning market entry and positioning strategy. If one is not so sure of a possibility of long-term success and survival, direct exports through a distributor or agent will be the best mode of entry. By doing business with a right Korean partner, a U.S. exporter can learn more about the local market situations and peculiarities.
In recent years, the Korean government has significantly eased requirements and procedures for foreign direct investment under the market opening and deregulatory initiatives. But actual foreign direct investments in the form of subsidiary or joint venture have not yet advanced in the environmental and construction engineering sectors. This is largely because entry barriers still exist, particularly in terms of local licensing and track record requirements as well as procedural transparency and nationalistic tendency in the bidding process for public projects. For U.S. environmental engineering and other service firms interested in Korea’s public infrastructure projects, opportunities are emerging and growing to form joint ventures with major Korean companies as the Korean government has recently started to privatize parts of environmental infrastructure facilities such as waste and wastewater treatment facilities. A foreign company is now allowed to acquire all or part of equity shares in existing Korean companies. Thus an acquisition strategy is also an alternative for a U.S. company to build or expand its business base in Korea. Tax incentives are available for foreign investors who bring in selected environmental and alternative energy technologies classified as “high-level technologies” according to the relevant regulation of the Foreign Investment Promotion Act.
Whatever mode of entry a U.S. company opts for, identifying the right partner or representative and building long-lasting mutual trust is critical to attaining long-term success in Korea. Although it is also important to prepare a clear-cut agreement, many Korean corporate decision-makers still place more value on personal trust and relationships than contractual terms and conditions. Such a trusting relationship can be built on maintaining frequent and effective communications, both formal and informal, and patience. In this context, it is also imperative to thoroughly evaluate the prospective partner(s) through reliable and objective sources in order to avoid or minimize any unexpected future conflicts and risks.
