As the 12th largest economy worldwide and the fourth largest in Asia, South Korea is a dynamic and vibrant place to do business. Its 50 million strong domestic population is wealthy, savvy and out to buy the best. With the introduction of the EU-South Korea Free Trade Agreement and a passion for UK goods, the country ranks among the most lucrative and exciting overseas markets for British companies, with numerous and varied opportunities for export.
The figures speak for themselves. Over the next five years, the South Korean economy is set to make the 10th-largest contribution to world growth. That’s as much as the UK and more than France or Italy. South Korea’s economy grew by 3.6% in 2011, the fastest in the OECD (Organisation for Economic Cooperation and Development), and despite the global economic slowdown, the economy grew by 2.8% in 2013, and is predicted by the Bank of Korea to grow 3.8% in 2014.
South Korea is a hi-tech economy. It is a world leader in electronics manufacturing, including semiconductor chips, flat-screen TVs and mobile phones. Samsung – the world’s largest electronics company – originated in South Korea. The organisation has a turnover greater than that of Apple, Google and Microsoft combined. South Korea also has the highest level of broadband penetration in the world (with speeds of 100 megabytes the norm), as well as the highest 3G mobile phone usage.
Moreover, the country is a global pioneer in shipbuilding, steel and the automotive industries. South Korean companies have delivered more than US $500 billion of overseas projects in 130 countries since the 1960s, including over US $50 billion in 2012 alone; six of the top ten contractors in the Arabian Gulf’s oil and gas markets are Korean. Samsung C&T built the Burj al-Khalifa, the world’s tallest building in Dubai, and state power utility KEPCO is delivering four new nuclear plants in Abu Dhabi, the Arab world’s first civil nuclear power facilities.
Increased success for these Korean companies abroad has opened up a range of opportunities for British companies to collaborate and share in their success across third-country markets. UK firms with appropriate products, expertise and connections in the Gulf, North Africa, ASEAN and beyond can seize a range of opportunities to work with them. They acknowledge the UK's global footprint, and show interest in the capacity of UK companies to help them manage project risk in all its forms.
The EU-South Korea Free Trade Agreement (FTA)
In July 2011, the EU-South Korea Free Trade Agreement (FTA) came into force. This historic agreement presents opportunities for greater UK-Korea trade and collaboration. Based on current trading patterns it will be worth at least £500 million per annum to the UK economy. The most comprehensive FTA ever agreed between two parties, the deal has created outstanding opportunities in financial services, telecommunications and legal services.
97% of tariff barriers between Korea and the EU will have been eliminated by July 2014 with £1.6 billion of duties for EU exporters abolished annually. South Korea is currently the only country in Asia to have concluded an FTA with the European Union:
Increased opportunities for trade in goods and services: Duties will be eliminated on 98% of products accounting for 70% of the trade between the EU and South Korea. The FTA is expected to create more than £17 billion in new trade in goods and services for the EU. The schedule of tariffs can be found online at: http://trade.ec.europa.eu/doclib/docs/2009/october/tradoc_145133.pdf
EU first mover advantage over the US: The EU negotiators of the FTA had a target of equalling or exceeding the South Korea-US (KORUS) FTA (termed KORUS Plus). Furthermore, EU companies have had a significant first-mover advantage over US companies, as the EU-Korea FTA took effect on 1 July 2011, before KORUS FTA implementation in March 2012.
Exchange rate fluctuations offer advantages to the UK in the short term: The UK had an advantage over many other EU countries at the launch of the FTA due to the relative weakness of the UK pound. Once British firms have captured the market, it will be easier to sustain even when rates change in the future. Fluctuations in exchange rate are a more significant factor than tariff reductions.
UK strength in services is big advantage in South Korea: A major focus of the FTA is trade in services where the UK is particularly strong (especially legal and financial services) and where South Korea is weak. This represents a special advantage for the UK over other EU countries.
Intellectual property is protected in South Korea: Intellectual property protection in South Korea is relatively advanced, so UK companies can approach the market with confidence that trade secrets will be safe. Protection is further strengthened by the FTA.
FTA supports removal of “non-tariff” barriers: Non-tariff barriers (such as harmonisation of local safety and testing standards with international standards) were a major issue that were extensively addressed in the FTA. South Korea has committed to transparency of its regulatory processes and to making the regulatory process more readily available to foreign firms. This should lead to a consistent, predictable regulatory regime.
FTA is an added benefit to the already open South Korean market: South Korea is already relatively open to trade and foreign investment. However, the FTA will ensure that South Korea cannot ‘back track’ on liberalisation.
Joint collaboration: The EU-South Korea FTA commits both parties to encouraging and supporting cross border collaboration particularly in the areas of scientific and technical co-operation.
FTA provides structure and leverage for dispute resolution: South Korea has a well established legal structure but enforcement has often been perceived to be discriminatory. The FTA addresses this issue by establishing Working Groups as a forum for dialogue on issues that arise. This is expected to provide ‘leverage’ for dispute resolution and help businesses address discriminatory practices.
Positive perceptions of the UK by Korean consumers: The UK has a relatively positive image with Korean consumers and the FTA is likely to increase the level of awareness of the EU. The FTA is also expected to increase awareness of South Korea among UK companies.
The full text of the EU-South Korea FTA can be accessed on line at: http://trade.ec.europa.eu/doclib/press/index.cfm?id=443&serie=273&langId=en
The European Commission has established a mailbox at TRADE-EU-KOREA-FTA@ec.europa.eu for British companies who have queries about the implementation of the FTA. If you have any questions about the FTA please email to this address.
Low carbon opportunties
On green energy, the South Korean Government is leading the way in the Asia-Pacific region with an ambitious low carbon strategy. In July 2009, the Government committed to spending 2% of GDP annually on the low carbon economy. Its Presidential Committee for Green Growth has set an ambitious target of a 30% reduction in carbon emissions by 2020. British business can help South Korea meet these targets.
Both the UK and South Korea are pursuing Low Carbon, Green Growth strategies. However, the focus of the policies and objectives of the two countries exhibit some differences. The UK is clearly committed to achieving Low Carbon targets. A detailed, year-by-year timeline of carbon reduction targets and specific plans on how to achieve them has been laid out and progress towards those targets is being carefully tracked. Growth is a by-product that the UK government hopes will be generated by pursuing carbon reduction policies. The UK has a wide array of strengths but most notably in the areas of green buildings, construction and deployment of offshore wind power systems, environmental impact assessments, wind assessments and connection to the grid.
South Korea also has targets but is primarily focused on economic growth, and low carbon activities are defined as a “new growth engine”. Policies and objectives are defined in terms of anticipated employment generation and potential for exports. The commercial viability of new technologies and energy conservation products are at the forefront of South Korean policies. The South Korean government is hoping to create a sustainable business model that utilises market forces to drive green developments. A reduction in Korea’s carbon footprint is a welcome addition to its green growth policy. Carbon reduction targets certainly exist but the link between the targets and the low carbon activities is less strong than in the UK. South Korea has a wide array of strengths but most notably in building materials, hardware for wind power and ICT components for smart grids.
Due to the differences in the approach to green building in South Korea, the opportunities in green buildings have been slow to evolve. UK green building policies take a systematic approach looking at the whole spectrum of contributors to carbon emissions: building design, building materials, materials manufacturing processes, transportation, demolition, recycling and reuse. South Korea is focused almost exclusively on reducing energy consumption through energy saving materials (primarily insulation) and active energy reduction systems at the expense of passive solutions. Unfortunately, South Korea’s electricity costs are relatively low in minimising commercial motivation to save energy.
However, New and Renewable Energy (NRE) offers much more potential for cooperation. Both countries are actively working to increase power generation from new and renewable sources, both face the need to develop a grid that can handle diversified power inputs and two-way flow, with the UK focusing on system design and management while South Korea is focused on developing ICT devices to monitor and regulate power flow.
More than 30 specific low carbon, green growth opportunities are presented in a UKTI report “Low Carbon Opportunities in the Republic of Korea” (updated 31 October 2012) which can be accessed at: www.businessgreen.com/digital_assets/5950/UKTI_Low_Carbon_English_version_pdf1.pdf
For UKTI Korea Sector Reports on any of the below industries please contact Opportunity.Korea@fco.gov.uk to request a PDF.
The South Korean population is highly educated. 7% of the country’s entire GDP is spent on education and nearly three quarters (74%) of South Koreans undertake postgraduate level study. This creates excellent opportunities for UK educational institutions.
Education – South Korea is one of the largest education markets in the world. English language training, including training delivered via e-learning, offers considerable opportunities. British English, our accent and linguistic expertise are held in high regard.
Financial and legal services – Korea has a highly developed and profitable financial services sector including the second largest insurance market and third largest banking market in Asia. The EU-South Korea FTA has removed some key barriers to the profitability of UK banks in the country and gradually, allows UK law firms access to the South Korean market. There are particular opportunities for asset management companies to work alongside South Korean sovereign wealth funds, including the South Korean National Pension Service (the fourth largest in the world), and the South Korean Investment Corporation.
Creative industries (Design) – South Korea’s overall design market is worth £10.6 billion. Seoul was the World Design Capital in 2010 and encouraged new and creative design concepts in and around the city. UK design is highly valued by South Korean companies.
Life Sciences – South Korea’s rapidly ageing population and societal drivers for a healthier lifestyle ensure a wide range of opportunities, from the supply of branded drugs to over-the-counter supplements, and natural-ingredient-based products in particularly high demand. South Korea is a developed market for healthcare provision, offering niche opportunities in the supply of high-end equipment and telemedicine.
Global Sports – South Korea will host the Winter Olympics in 2018 in the city of Pyeongchang in Gangwon Province. British companies with expertise in managing and delivering major international sporting events are well placed to offer their services to the South Korean organisers.
The following includes detailed information on these key sectors, but UKTI in Seoul publish detailed information on more than 15 different sectors, highlighting the opportunities: www.gov.uk/government/world/organisations/uk-trade-investment-south-korea
The South Korean education system is based on the US model consisting of six years of elementary schooling, three years of middle school, and three years of high school, with four-year undergraduate degrees and two-year masters degrees the norm. Pre-school children are educated in day care centres (or nurseries at ages of two to three) and kindergartens (at four to six).
Historically spending 11 out of every 14 days at school, South Korean primary and secondary school students adopted a five-day school week in March 2012. Young South Korean students are now free on Saturdays and parents, teachers and local education suppliers are keen to provide various educationally enriching entertainment activities for them. The South Korean Education Ministry also encourages schools to offer extra-curricular education programmes for its students.
There is a culture of paying for education at all levels in South Korea, from pre-school to college and university. Private ‘crammer’ academies (Hagwon in Korean) attract students as young as two, and cover all subjects ranging from English and maths to history and IT. The value of this market is estimated at approximately US $20 billion. If you include preschool children and adult education, this rises to more than US $22 billion. Some of the ways the FTA will influence the education sector are:
Non-degree adult education will be open to foreign owned entities
Enhanced cultural co-operation encouraged
Foreign investment is now permitted
Opportunities for UK Companies:
The South Korean government has emphasised the growing importance of English language in education and unveiled a roadmap to revamp the nation’s public English education provision. This has influenced not only students but also employers who wish to strengthen their employees’ English language skills as a result of globalisation.
* English Language Education
English education for pre-school children in South Korea is carried out on an industrial, nationwide scale. This is delivered through a variety of media including: language institutions, group or one-to-one lessons, study materials, over the telephone and over the internet.
Many South Korean companies are keen to improve their employees’ English language skills and help them reach global standards. There is strong demand for:
English for young learners
Career-based education and training
Teaching materials (books and multi-media materials)
British schools such as the Dulwich College in Seoul (established in 2010) and North London Collegiate School on Jeju Island (2011) are notable as highly successful leaders in the market in offering a British-style of education. In general, British educational expertise is now actively sought after by South Koreans who recognise the UK’s reputation for high quality.
* Online Education
South Korea’s e-learning market is one of the most promising niche areas in the educational tools and services industry. The South Korean e-learning market was worth approximately US $2.2 billion and had an annual growth rate of 7.4% in 2011 according to the South Korean National IT Industry Promotion Agency (NIPA).
With South Korean government initiatives in IT infrastructure and support for the development of IT industry, e-learning education has become a viable option for many South Koreans.
Over 82% of South Koreans currently own a PC and there are over 38 million South Korean internet users. According to NIPA, in 2011 49% of internet users used some form of e-learning and as many as 74% of elementary, middle and high school students are believed to use the technology.
South Korea has a highly developed and profitable financial services sector including the second largest insurance market and third largest banking market in Asia. The stability of the banking sector is underpinned by strong fundamentals and proactive regulation. At less than 1%, South Korea’s non-performing loan ratio is low by regional standards. Foreign investors own some 70% of the banking sector.
The relaxation of controls on cross-ownership of financial services has further opened up opportunities for market entry, acquisition and business development. As international financial services groups look to develop their footprint in Asia, a presence in South Korea is becoming increasingly desirable.
Influence of the EU-South Korea FTA
The FTA contains a number of provisions on services, public procurement, intellectual property and sustainable development as well as the liberalisation of goods tariffs. Financial services firms gain substantially from the FTA. They are now able to freely transfer data from their South Korean branches and affiliates to their headquarters overseas. FTA commitments also enable financial firms to off-shore their back office functions which previously imposed additional costs (in some cases of up £10-20 million) for such firms setting-up operations locally.
Opportunities for UK companies:
There are now four strong banking groups (Shinhan, KB Kookmin, Woori & Hana) with similar asset sizes, suggesting that this highly saturated sector could see competition intensify further. Long-term strategic investors have moved into the market in recent years, in many cases acquiring the stakes of an earlier wave of private equity buyers. The FSCMA could open up new opportunities for cross-selling to bank customers, including further development of Bancassurance and capital market businesses.
The market size is still small compared with the size of other developed economies. The value of managed assets was US $274.8 billion as of the end of September 2011, ranked 15th among 46 countries. The asset management sector is set for rapid growth as a result of pension reform. More than a third of the country’s 52 asset managers are now solely or jointly run by international groups. South Korea’s retirement pension fund has consistently grown by more than 100% per year over the past several years, while private pension funds have expanded at an average of 15% per year over the same period.
Insurance remains dominated by a small number of local players. However, foreign companies have made strong inroads. Foreign entry into the market has included both acquisition of existing companies and Greenfield start-ups. Recent listings of life insurers may create new investment targets. Given the impact of the global economic crisis on the industry, there will be limited demand for insurance products over the short term. However, the growth scenario will likely change over the medium term because of South Korea’s rapidly aging population. This creates ongoing demand for after-retirement protection products as well as health insurance products, including accident and illness as well as medical expense coverage.
Sovereign Wealth Funds/Pension Funds
Particular opportunities for asset management and property management companies exist to work alongside the likes of the National Pension Service (‘NPS’). Their fund is the fourth largest pension fund in the world with assets of more than US $300 billion. In the coming years the NPS will have to outsource its increasing assets to more financial services companies, pushing up the demand for funds.
The organisation recently purchased three iconic buildings in London including HSBC HQ in Canary Wharf as well as a 12% stake in Gatwick Airport. They set up a European headquarters in London last year.
There are about 12,000 lawyers in South Korea of which around 7,000 work in Seoul. Over 600 law firms (including one-man offices) and 800 in-house lawyers operate in the country. About 2,500 lawyers are licensed each year. All lawyers are required to become members of the South Korea Bar Association.
The number of lawyers is expected to double in the next five years as the South Korean Government liberalises legal services. Currently South Korea still has the lowest number of lawyers per capita in the OECD, making it a potentially strong market for UK law firms.
Currently, there are about 3-4 UK & US law firms in receipt of an operating licence from the Ministry of Justice to set up an office in South Korea. Approximately 15-16 more companies are currently applying for the licence.
Influence of the EU-South Korea FTA
New revenue opportunities have been generated by the enhanced protection of Intellectual Property Rights and an extended copyright period the FTA has brought. The legal services element of the FTA identifies a three stage, time-based process for opening up the South Korean legal system:
First stage: Solicitors and other EU law firms will have the right to establish a branch office to offer advice on foreign and international law. Foreign lawyers are permitted to use their home country titles in their home country language. By using their home country titles, domestic and foreign clients can be confident that they are receiving advice from an attorney legally registered in a specific jurisdiction.
Second stage: This permits a foreign law firm to fee share with a South Korean law firm, either on a project-by-project basis or on an ongoing basis.
Third stage: This will begin no later than July 2016. It will permit South Korean and foreign lawyers to go into partnership together and allow foreign law firms to employ South Korean lawyers.
Opportunities for UK companies:
Foreign-licenced attorneys already play a vital role in cross-border transactions involving, among other areas of law, mergers and acquisitions, financial and securities dealings and joint ventures. However, local companies dominate in other areas such as litigation. There may also be opportunities in niche markets such as shipping and construction where UK law firms already have considerable expertise.
South Korea is an export-oriented economy and a number of South Korean manufacturing companies are currently competing to gain a larger share of the global marketplace. To succeed in this endeavour, South Korean companies are making investments in developing new design concepts.
One of the ways they are doing this is by establishing closer partnerships with overseas companies with a strong track record in innovation. Many UK design companies such as Seymourpowell, Tangerine, and Kinneir Dufort already work with well-established South Korean clients from a number of diverse sectors including ICT, retail, advanced engineering and medical device manufacturing in order to provide a wide range of services. Typically these include product packaging, brand identity management, corporative visibility and design research. UK design firms have a high profile in South Korea and local companies appreciate Britain’s reputation for strong creative credentials.
Influence of the EU-South Korea FTA
The FTA has ushered in enhanced protection for Intellectual Property Rights and extended copyright regulation. This has improved opportunities for UK companies in service industries where the UK is traditionally strong and South Korea weak.
Opportunities for UK companies:
* Product/Packaging Design and Brand Identity
International collaboration is seen as essential in these fields. South Korean consumers have rapidly changing tastes and a strong desire for products with innovative designs. In addition, South Korean exporting companies are compelled to continue to provide goods and services featuring high quality and innovative designs in order to compete and differentiate themselves in the global marketplace.
There is an increasing demand for creative designs from companies operating in the electronics, food & drink, medical devices, and other consumer goods sectors. To respond to these growing demands, South Korean companies, including ICT giants like Samsung and LG, as well as large retailers like Shinsegae, CJ, and Amore Pacific, work with UK design agencies on their product/packaging design and branding.
* Design Consulting
Increasing numbers of South Korean companies seek professional advice and design solutions in both the local and global market. However, very few domestic design consultancies possess the necessary skills to meet this demand. This has generated significant opportunities for UK design agencies particularly for those with a proven record in design research and strategy for corporate design.
* Public Design
The Seoul City government has shown a strong desire to redesign the City since it was designated as 2010’s World Design Capital by the International Council of Societies of Industrial Design (ICSID). It has already introduced some design projects for public spaces in Seoul. Dongdaemoon Design Park & Plaza (one of the City’s major design projects) was designed by a famous UK architect Zaha Hadid and opened at the end of 2013.
There is a wide range of business opportunities for UK design agencies with expertise in areas such as architecture/landscape design, interior design, public design and design consulting.
Total domestic healthcare expenditure in South Korea has grown steadily from about 4.4% GDP in 1990 to 7.1% of in 2010, with an annual growth rate around 9%, twice as high as the OECD average. Part of this is a result of one of the world’s most rapidly ageing populations. In 2010, the percentage of the population over 65 was 11%. It is forecast to be over 20% by 2025.
The biotech industry is one of the fastest growing industries in South Korea and has grown rapidly with a constant annual growth rate in excess of 10%. South Korea is the 8th strongest biotechnology nation globally with particular technology advantages and skills in stem cell research. The South Korean government considers biotechnology as the next new growth engine for the nation. Thus, there is strong government support for the acquisition of core technologies and the development of biotechnology infrastructure. The South Korea bio-pharmaceutical market is forecasted to reach a value of £1.1 billion during 2013, with further growth expected.
South Korea is the 13th largest international pharmaceuticals market, accounting for some 1.5% of global market share in 2012. By 2020, the South Korean government aims to become the 7th largest pharmaceutical producing nation, accounting for 4.5% of the total global market. The South Korean pharmaceuticals market has traditionally been generics-oriented, but recent industrial investments have enabled an increased focus on new drug discovery. The market was worth around £10.9 billion in 2012 with an annual growth rate of around 8%. Since 1999, South Korea has developed 19 unique new drugs.
The South Korean medical device market accounts for 1.3% of global market share. The market was worth around £2.3 billion in 2012 with an annual growth rate of around 7%. The market is mainly serviced by imports, accounting for 65% of the total market, largely from the US, Germany and Japan.
Influence of the EU-South Korea FTA
Since its passing in July 2011, some of the ways the FTA has and will influence the Life Sciences sector are:
Item Change in Tariff Timing: Now/Later
Biotechnology Up to 8% 3 years
Pharmaceuticals 8% Immediately
Medicines 8% 0-3 years
Medical devices 8% 0-5 years
(Source: European Commission)
Opportunities for UK companies:
There are opportunities for R&D collaboration and technology transfer in the fields of oncology, cardiology, drug discovery, metabolic diseases, vaccines, neuroscience, stem cells, cancer theranostics, tissue engineering and regenerative medicine.
There is a growing demand for drugs to treat lifestyle related diseases such as hypertension, diabetes, and cancer. Korean companies are looking for overseas technology and experience which they can license in and further develop. The clinical trials are becoming more commonplace locally but there is high demand for international partnerships to conform to global standards.
There is a strong demand for both licensing in and out of pharmaceutical products/technology. South Korea has strong credentials in the traditional fermentation, antibiotics and diagnostic industries. Global outsourcing, partnerships and M&A are also becoming a more accepted approach to R&D and product development in South Korea.
* Medical Devices
There is a strong demand for imported medical devices such as dental equipment (especially dental implants), radiotherapy/imaging equipment, and orthopaedic equipment.
Sports and exercise are valued in South Korean society. South Korea has a tradition of excellence on the global stage – particularly in baseball (Olympic champions), football, speed skating, ice skating and in multi-disciplined events. In the 2010 Asian Games, South Korea came second in terms of total medal tally.
South Korea has hosted several iconic sporting events in the past, including the 1988 Summer Olympics in Seoul, the FIFA football World Cup in 2002, and the IAAF World Athletics Championships in Daegu in 2011.
South Korea has an ambitious programme to host additional major sporting events including:
Incheon Asian Games 2014: Incheon is home to 2.8 million people, and is one hour from Seoul. In South Korea, the Asian Games are bigger than the Olympics. The Games in Incheon will feature 36 sports held at 50 competition venues. 37 of the venues will be in Incheon with 13 others in five co-hosting cities. 24 venues will be new builds.
There is a desire to host eco-friendly games with the emphasis on green building and green technologies.
Gwangju Universiade 2015: Gwangju is home to 1.45 million people and is 55 minutes from Seoul via the KTX fast train line, which was completed in 2013. The Universiade will host 7,000 athletes from 170 countries. The games will feature 21 sports. There will be 77 separate facilities, including a new aquatics centre and a multipurpose hall.
Pyeongchang Winter Olympics 2018: The city of Pyeongchang in Gangwon Province will host the Winter Olympics in 2018. The games will be centred in two clusters – the Alpenasia cluster and the coastal cluster. No venue will be more than 30 minutes apart. There will be 13 competition venues; 7 are existing venues which will all be updated, and the other 6 will be new builds.
Opportunities for UK companies:
South Korea has established world class football and baseball leagues. They also have a proven track record of holding large scale sporting and entertainment events. Those foreign companies that succeed in Korea differentiate themselves from the local offer.
The South Korean Government has a strong focus on moving the country to a low carbon economy. Both Incheon and Gwangju have expressed a desire to host eco-friendly games, using low carbon and green building techniques.
There are opportunities for companies who excel in:
Marketing and ticketing
Hospitality & catering
Advanced IT (where not available locally)
Green building and design, including stadium and accommodation construction
Low carbon solutions
Source - UKTI
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