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What Are the Challenges of Doing Business in South Korea?

challenges of doing business in South Korea

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Perfectly situated between Japan and China, South Korea offers promising investment opportunities with an annual GNP of USD $1 trillion. This small nation represents one of the largest economies in the world and benefits from a young population eager to embrace the latest innovations.

As a world leader in electronics manufacturing and with the highest level of broadband penetration across the globe, the country is positioned to provide tremendous opportunities for businesses in this sector. The government is also committed to green growth and involved in efforts to ease regulations to make the market more accessible to foreign investment. 

Despite these promising aspects, many businesses still struggle to do business in South Korea. Below, learn more about the challenges of doing business in South Korea and how you can overcome them.

Confusing Regulations 

One significant barrier to market entry is a series of complicated regulations. It may be difficult to set up a business in South Korea and remain compliant with all applicable regulations. Not all industries are open to foreign investment. Exporters must often navigate multiple import regulations and testing requirements. 

Even when an industry is available for foreign investment, foreign businesses may still struggle because regulations are often not transparent and are constantly changing. 

Resistance to Foreign Business Models 

Like many Asian countries, South Korea has a deep respect for tradition. The way of doing business is deeply rooted in Korean culture, which is heavily influenced by a form of Confucianism and male-dominated. All healthy males are required to complete mandatory military service, so this discipline and hierarchy is often mirrored in the commercial environment.

Additionally, the employment law system is often perceived by foreign businesses as inflexible. For example, it is often difficult to terminate employees even when they are not performing as expected.

One of the world’s largest corporations, Walmart, was not successful in entering the Korean market because its way of marketing did not resonate with local consumers. The market had different tastes and preferences that Walmart did not consider, ultimately creating incompatibility between the company and the targeted consumers. This scenario represents the importance of having a unique value proposition and a strategic fit that match local market conditions.

Many foreign businesses that use a different model may confront resistance from Korean employees and business partners. They must learn to understand different business cultures and traditions. To be successful, many foreign businesses must develop an appropriate strategy that considers these deep-rooted traditions and history.

Local Competition

Foreign enterprises often face tough competition from domestic businesses that may apply pressure and force prices down. One sector where this issue is particularly prevalent is in pharmaceutical sales. The Drug Expenditure Rationalization Plan controls prices, which may make it difficult for companies that have an intensive focus on research and development to make a profit on their patented drugs.

Additionally, South Korea is home to some of the world’s largest companies, including Samsung, LG Electronics, and Hyundai Motor Company. Foreign businesses may have difficulty penetrating the market where these companies and others have such a large percentage of it.

For example, a well-known electronics company Nokia failed in its South Korea market entry due to competition from Samsung and LG. Companies that are hoping to expand into South Korea must consider the competition and whether they will be able to secure a portion of the market before making the investment in setting up a business here.

Your Solution to Challenges of Doing Business in South Korea: Horizons

Although there are certainly challenges of doing business in South Korea, they are not insurmountable. With the right partner, you can hire employees through a PEO & Employer of Record that handles compliance matters and ensures your business is up-to-date with the current regulations.

This framework allows you to test the market and localize your market strategy before you invest heavily in company incorporation. Our experts are ready to help you make your expansion to South Korea a success. Contact Horizons to get started.

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