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

Nation's Business, Feb, 1990 by Joan C. Johnson

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.