Indulge Co - Case Study
From the Asialink Business Korea Country Starter Pack
"Korea is a rules-driven place," says Ross Gregory, Chairman of wine, beer and spirit importing company Indulge Co.
Knowing the rules and doing things by the book, no matter how challenging, is vital for businesses setting up in Korea. Differing business practicalities in Asian markets can be a challenge to navigate but it shouldn't deter you.
"Korea is a rules-driven place – it is a highly regulated country particularly with taxes, import regulations and employment law, thus it is crucial to understand the regulations and do things by the book," says Australian Ross Gregory, Chairman of wine, beer and spirit importing company Indulge Co, and entrepreneurial investor in several businesses in Korea.
Having worked in Korea for more than 10 years, including a decade at Australia's Macquarie Bank, Gregory highlights the importance of getting local advice when setting up and running a business there. "Having a Korean business partner is not necessary to succeed in the market, but having a Korean accountant or lawyer who understands the regulations and having local Korean managers who you trust and who thoroughly understand the market, is vital."
Understanding employment practices is also important. "Korean labour laws have lots of quirks that need to be understood and may seem a bit confusing for Australians who are generally used to less unionism and more balanced attitudes in employment regulations," explains Gregory. "There are a lot of hidden costs Australian businesses may not budget for. An example of this is the legal requirement around providing employees severance pay – once an employee has worked for a company for 12 months, they are entitled to one month of severance pay for each year of service."
"Having a Korean accountant or lawyer who understands the regulations, and having local Korean managers who you trust, is vital."
Other laws particular to Korea include those related to entitlement to permanent employment. Contractual employees working for the same company for more than two years are then legally required to become permanent employees – even if performance is unsatisfactory. "It is incredibly difficult to dismiss a permanent employee in Korea unless under certain conditions such as criminal activity or company bankruptcy," highlights Gregory.
To address this challenge, Gregory recommends: "Oversee your employees during the contract period to determine their loyalty and if they are hardworking, as unfortunately, the only way to manage any problematic employees is ending their contract prior to the anniversary. Favourably, a three month probation period always applies."
Hidden costs may include taxes that even your Korean staff may not be aware of. "It took us a while to realise that a recycling tax applied to importing bottles. No one working for us had even heard of this regulation." Being across all information and constantly monitoring regulation updates is critical as not meeting requirements can accrue hefty fines.
Ensuring you complete all necessary government forms is also vital for businesses operating in Korea. "When building a new gym, one form in relation to the minor adjustment of a dividing wall was not lodged correctly with the local government office – this caused our construction to be delayed for four weeks," says Gregory.
Australian businesses importing a product into Korea should also pay attention to all regulations, including "things that you wouldn’t assume would be an issue". Gregory gives tonic water as an example – a drink whose quinine ingredient originates from the Cinchona tree. "Due to the product being associated with tree bark – wood – the Korean Food and Drug Association (KFDA) will not permit it to be imported. Therefore, only poor substitutes of tonic water are currently available in Korea."
Although Korean regulations are detailed, operating under "rule of law" does have advantages. "As long as you are aware of the regulations, you know where you stand," says Gregory. "Korea is a market full of potential and once you're up and running, operations tend to operate fairly seamlessly and similar to Australia."
Looking to expand your knowledge further? Download this case study and explore other market-leading research & resources to assist with doing business in Asia.