South Korea's elusive market - exporting to South Korea - includes related article

South Korea's Elusive Market

Vern Ryles had no illusions about exporting to the Republic of Korea. He knew it would take patience and persistence to break into this new and very foreign market. But after more than six years of persevering, he's wondering how much more patience.

Ryles is president of Poppers Supply Co., a small Oregon-based firm that sells 30 flavors of popcorn to supermarkets, theater chains, and foodvending companies. Exports to Pacific Rim countries such as Japan, Taiwan, and Singapore account for about 5 percent of Poppers' business.

Popcorn was embargoed by the South Korean government when Ryles began looking into trade there in 1983. But based on his experience exporting elsewhere in the Far East, Ryles expected the ban would be lifted at least partially in a relatively short time. It didn't happen.

Poppers seems caught in a now-in situation. Ryles cannot bring his manufacturing know-how to Korea without U.S. corn, because Korean corn is not suitable for American-style popcorn. And the Korean government, concerned about the economic welfare of its politically powerful farmers, doesn't want to import either raw corn or finished corn products - despite the fact that Korean-style popcorn differs greatly in appearance, taste, and texture from the American snack.

The Korean government temporarily lifted its ban during the 1988 Summer Olympics, held in Seoul. That provided Ryles the chance to test market Poppers popcorn, and it proved to be popular, especially the bright-colored fruit flavors.

Last year, South Korea announced that it would lift its embargo against corn and certain other agricultural products in 1990.

Ryles says he will wait and see. He had expected removal of the embargo after the Seoul Olympics. "Now they say it's 1990," he says. "It's like a moving target." But he still has hope.

"My goal was - and still is - to get in early," he says. "Then, as trade barriers come down, I hope to become a successful offshore competitor. Eventually, I want to become a domestic producer, either through a joint venture or some other arrangement.

"The opportunities are there if you're willing to put in the time and do your homework."

Electro Scientific Industries Inc. (ESI), which sells sophisticated laser systems to electronics manufacturers worldwide, has had a very different experience in the South Korean market.

The company, with more than $83 million in sales annually, made its first sale in Korea in 1979, after it had been approached by a firm that needed a laser trimmer for production of the hybrid circuits that are used in most electronic products.

It was five years before ESI made its next sale in South Korea, says Tim Krouse, vice president of the firm's laser systems division. That followed a government decision to put much more emphasis on development of the country's electronics capabilities.

In the meantime, ESI contracted with a Korean company, Oyang Corp., to act as its representative, and through this intermediary the company began developing collegial relationships essential to doing business in Korea.

Since 1984, ESI's sales have grown to the point that the company felt it was important to establish a presence in South Korea. The firm entered into a joint-venture agreement with its representative, and in late 1989 the pact was approved by the Korean government. ESI retained 80-percent ownership of the new company, known as Oyang ESI.

Establishing a business in South Korea is "a little different" from simply exporting to that country, says Krouse. "The government requires a lot of justification [for the venture]. Korea is just beginning to open up to foreign investment and only recently changed the law to allow up to 100-percent foreign ownership. But it probably would not be wise to go for 100 percent - not in this country where personal relationships are so important."

The different experiences of Ryles and Krouse demonstrate a fundamental fact of life about doing business in the Republic of Korea: Enterprises that fit with government economic-development goals and policies have a much better chance of success. Potential exporters and investors in South Korea should keep that point firmly in mind.

Their experiences also show that developing direct export trade with South Korea should not be viewed as a short-term venture. Success demands staying power and patience.

Unless a company is willing to commit the time and money needed to develop and support a long-term relationship, it's probably not worth trying to do business in Korea.

Smaller companies can avoid many of the problems of direct exporting by marketing their products through intermediaries, such as U.S. export trading companies or commission agents. But before deciding whether potential sales justify the commitment required to develop a direct export program, a company needs to do some serious homework.

A Unique And Different Culture

One of the biggest mistakes any potential exporter can make is to assume that what works in the U.S. or even Japan will work in Korea. Koreans have their own sense of identity and their own ways of doing things. Thus, an understanding of Korea's people, history, culture, and customs is essential to developing a fruitful business relationship.

For example, ESI's Krouse says, "If you don't understand that Koreans make group decisions, you won't understand why you can't get an immediate commitment from the president of a company."

Relationships are highly valued in Korea, so it's important to take a personal interest in business associates and to cultivate their friendship and trust. An agreement between colleagues is more inviolate than a deal made quickly between strangers.

Entertainment is also an integral part of business relationships. When offered, social invitations should be accepted and also reciprocated in some way.

On the other hand, Korean business etiquette is generally quite formal, and the exchange of business cards is an integral part of every introduction. The American tendency to use first names is considered discourteous, so surnames (Mr. Park; Ms. Kim) should be used. And dark-colored business suits are the appropriate attire for almost any event other than a game of golf or tennis.

Choosing A Korean Representative

A Korean sales representative or distributor can help provide guidance on how to do business in Korea and can help a company make the necessary business contacts.

"One of the biggest difficulties for American companies is finding a good representative," says Krouse of ESI. "You need someone who has the interest and ability to learn about your product line. You want someone who is respected by other Koreans, someone who has good contacts."

The U.S. and Foreign Commercial Service (US&FCS), an agency of the Commerce Department's International Trade Administration, has a program designed to match American exporters with foreign agents and distributors at nominal cost.

Other companies already doing business in Korea are also good sources of agent recommendations. And some firms have been inundated with letters from Korean agents wanting to represent their firms.

It is important to investigate potential representatives carefully before making a final decision. Ask for their history, resources, and export experience. Find out if they have represented other American firms or if they have experience with product lines similar to yours. Check references and credit. (Background reports may be obtained from commercial credit firms as well as from the US&FCS, which will prepare a World Traders Data Report on a specific foreign firm, for a fee.)

Service Is Essential

Many Koreans speak English, but cultural differences and varying levels of comprehension can get in the way of communication. Americans should be aware, for example, that nods and smiles do not necessarily indicate agreement in Korea, only that the listeners are trying to show an interest in and understanding of what is being said. It's wise to speak slowly, to summarize what has been said, and not to be shy about asking questions.

Companies interested in exporting should take steps to protect their intellectual property - patents, trademarks, and the like - as securely as possible. South Korea is among a handful of nations that U.S. Trade Representative Carla Hills placed on a "watch list" of countries where intellectual property rights are infringed frequently.

"If you don't protect yourself," warns Poppers' Ryles, "you may find that

someone else has registered your name and wants to sell it back to you." Ryles says the concept of protecting a name or patent runs counter to Korean cultural traditions that hold that ideas are to be shared.

Ryles was advised to register his name and trademark in both English and Korean - usually one language is sufficient - and to register Poppers' packaging design and logo to prevent copying.

For many companies, developing an ongoing export business involves much more than maintaining high product quality and competitive prices. Firms also have to be concerned with providing support services for customers, which can be a real headache.

ESI, for example, attributes much of its success in Korea to its ability to provide a high level of support and service. But the company is large enough to send and maintain abroad the technical personnel necessary to provide such services.

Smaller firms often do not have this capability. A company in Tigard, Ore., Frye Electronics, which sells highly specialized equipment for testing hearing and hearing aids, found a different after-market service solution. Too small to provide support technicians, Frye designed its equipment so repairs can be made easily with an exchange of circuit boards.

The company relies on its overseas agents to describe a problem and then follow instructions on how to make a repair. "We use a fax machine," says Sallie Frye, the firm's international-marketing manager. "It's absolutely indispensable for dealing with such problems."

Poppers, which does not have to provide the same level of service as suppliers of finished goods, will resolve the service issue in still another way. When its popcorn can be sold, its South Korean distributor will have sole responsibility for servicing its customers.

Neither Ryles nor Krouse reports running into any anti-American feelings in their dealings with Korean business and government officials. In fact, Krouse says he has never seen either a demonstration or police with tear gas - except on the evening television news - although he has made nearly 50 trips to Korea.

In short, while doing business in South Korea is not always easy, in time it almost always can be done. As Krouse of ESI puts it: "If you have a good product and good support and you take the time to build personal relationships [with Koreans with whom you will have commercial dealings], you will get business. But it's not going to be next week or next month. It's going to take time."

PHOTO : Tim Krouse with a laser processing system of the kind his company has sold in South Korea.

Joan C. Johnson is a free-lance writer in Beaverton, Ore.

COPYRIGHT 1990 U.S. Chamber of Commerce
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