Starting a business in Korea

Korea is defined by the International Monetary Fund (IMF) as an advanced economy, one of only 35 in the world. The 2015 Australian International Business Survey (AIBS) found that Australian businesses rank Korea as the 14th most important destination for doing business and is the seventh most important new country for Australian businesses to acquire revenue from (tying with Malaysia).

There are a number of factors to consider before starting a business in Korea:

Location

Companies looking to enter the Korean market for the first time face a great number of location options. The choice of place is increasingly about serving specific niches and less about trying to offer all things to all customers.
While Korea is geographically compact, regional differences do exist which need to be taken into account. The country is uniformly well-served by world-class infrastructure and transportation network. 

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Financing your Korean business venture

Understanding the additional costs associated with conducting business overseas is essential to making an informed decision on whether you are ready to take the plunge. The main differences in Korea compared to operating in Australia may include:

  • A longer cash flow cycle, which could increase the pressure on cash flow and working capital
  • Being further away from clients, which can increase the risk of non-payment and makes it more difficult to collect debts
  • Getting paid in other currencies, which can expose you to foreign exchange risk and affect profit margins
  • Greater difficulty accessing finance, as Australian banks are often reluctant to accept overseas assets as security for loans
  • A longer timeframe to recover the upfront costs of establishing operations, which can reduce the cash flow and working capital available for domestic operations. 

Researching Korea

Comprehensive research is crucial when entering the Korean market because of its unique features, including:

  • The speed with which the market can change and evolve
  • Rapidly changing rules, regulations and the focus of enforcement authorities
  • A lack of consumer information and vague regulations
  • A shortage of publicly available information to assist with understanding processes and rules. Public data bases are in short supply. 

Risks

Your research into any overseas market, along with the opportunities, should also include careful assessment
of the risks associated with doing business there. While Asia presents Australian businesses with numerous opportunities for growth, going offshore entails increased risks that need to be identified, managed, and reduced as far as possible. Your business’s risk management strategy also has to include thorough due diligence. 

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Register your Business

To establish and register a company in Korea, the FIPA requires the following procedures, which normally take between four to six weeks to complete:

  • Foreign investment notification
  • Investment capital remittance
  • Incorporation registration
  • Business registration
  • Transfer of paid-in capital to corporate account
  • Foreign invested company registration

Korean Culture and Business Etiquette

Korean culture is steeped in Confucianism, which emphasises respect for education, authority, and age. Although modern Koreans may not adhere to Confucian principles as rigidly as previous generations, these principles continue to underpin many customs and business practices.

  • Age and status: Respect for age and status are very important in Korean culture, with hierarchy affecting all aspects of social interactions.
  • Business cards: The exchange of business cards is an essential part of initial meetings.
  • Korean names: Korean family names are mostly of one syllable, while given names tend to have two. The family name comes first (Kim Tae-Woo, for example).
  • Bowing and handshakes: Koreans bow to those senior
to them both as a greeting and a show of respect.
  • Building relationships: Building relationships is an essential part of doing business in Korea.
  • Dress code: Appearance is very important, and Koreans tend to dress more formally than Australians.
  • Gender equality: Although gender equality is increasing, men still dominate the Korean workplace.
  • Don’t be too pushy: Korean business people are good negotiators so be patient and gentle, but firm.
  • Geopolitical sensitivities

Building relationships with Koreans

Investing in relationships is critical to succeeding in Korea. Australian businesses should also explicitly consider the impact of age, gender, education, and marital status on the formation of personal and commercial relationships in Korea.

  • Formal introduction: Koreans prefer to do business
with those they have a personal connection with.
  • Conscious effort: Relationships in Korea are more trust oriented and personal than Australians might be used to.
  • Be consistent: Consistency in relationships is a key factor in success.
  • General knowledge of Korea: A basic general knowledge of Korea can assist your relationship building by creating an immediate connection with a new contact.
  • Socialise with Koreans: Socialising with Korean business partners is a very effective way to build a relationship.
  • Gifts: Gift giving is a part of the business culture in Korea. It generally occurs at the start of a meeting after greetings.
  • Networking events: Networking events in Australia generally involve standing up and moving between people while drinking and/or eating, this is not the case in Korea. 

Want to learn more? Explore our other South Korea information categories or download the Korea Country Starter Pack.