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In this article we share some insights on these opportunities and discuss what companies should do in order to capture them. The article originally appeared in Forbes Korea magazine, print issue 12/2021 in Korean, and is also available online (https://jmagazine.joins.com/forbes/view/334981).

Looking at the Purchasing Managers’ Index (PMI) ^[1] and the Global Consumer Confidence index ^[2], it is not a surprise that traditional global consumption engines such as Europe, US, and China are leading the recovery of both economic activity and consumer expenditure. In addition, Middle Eastern countries such as Saudi Arabia and United Arab Emirates also appear on the radar.

In the Nordic and Baltic states, solid trade partnership encourages new trade areas

The Nordic region—made up of Finland, Sweden, Denmark, Iceland and Norway—is one of the most lucrative markets in Europe. The Baltic states of Estonia, Latvia, Lithuania and Poland are also nearby. Trade between Nordics and South Korea was increasing in the year leading to COVID-19. South Korea has become one of the top trade partners from Asia for Nordic countries. As a case in point, Korea Trade-Investment Promotion Agency (KOTRA) has trade offices in Denmark, Sweden, and Finland. Usually, top imports are motor vehicles and mobile phones. However, potential further opportunities exist in areas such as cosmetics and digital technology.

In the case of cosmetics, market opportunities can be understood in the context of Nordic trends. Namely, that Nordic countries comprise the most developed market for sustainable products. Nordic consumers highly value sustainability. South Korea is one of the largest cosmetic export markets, but cosmetics account for less than 1% of export to Nordic countries in 2019. The market is dominant by European and US brands. Currently, the hottest trends when it comes to ingredients are natural, organic, probiotics, and peptides.

Digital technology also provides Korean companies with ample opportunity. Transport and digital infrastructure are very highly developed in the Nordic region. This means that consumers are tech savvy and used to doing anything from filing their tax returns to ordering a pair of slippers from the comfort of their sofa. A digital-first approach is therefore vital in this market. As Korean companies operate in a tech savvy environment at home, this opens opportunities for them. In November 2020, a “Sweden-Korea Digital Trade Forum” was held to revitalize business collaborations with specific reference to 5G, AI, big data, IoT and contact industries.

In DACH-region, opportunities in technology and sustainability with potential cooperation with “Mittelstand” SMEs

In the DACH region (Germany, Austria, Switzerland), imports from Korea have remained relatively stable, experiencing a dip of 4.6% in 2020 due to COVID, but still between 14 and 15 BEUR ^[3]; key imports include electrical machines, accumulators, vehicles, office machines, pharma products and telecommunications equipment. KOTRA has local offices in all DACH region countries, supporting Korean companies with market entry. Overall, the significance of Austria and Switzerland is slowly increasing, but still 85% of total Korean exports into the DACH region go to Germany, making it the most interesting market in the region due to its scale. Germany is also the most important trading partner of Korea in Europe ^[4].

Doing business in Germany is usually very personal, as 95% of German businesses are family-owned SMEs, which contribute to 42% of total turnover of all businesses ^[5]. These businesses are scattered throughout Germany and offer potential for more intimate business connections for Korean companies. Also, many large Korean companies, such as Hyundai, LG, and Samsung have selected Germany as the location for their European operations’ headquarters.

Germany is experiencing, in the wake of COVID, a technology expansion – although overall transition to home office was relatively painless, in many areas technological deficits have been identified. Hence the government has pledged additional investments into technology infrastructure to enable improved coverage and more innovation. Also, smart factories and industry 4.0 are in the center of development ^[6].

Sustainability has been a key topic in Germany economy, and its significance is increasing as witnessed by the historic high of the Green party in 2021 Federal elections; however, developments are still needed especially regarding mobility, buildings, and nutrition ^[7].

Ample opportunities in both infrastructures and high-tech industries in the Middle East – additional potential in trade with Iran is also worth to follow-up

In 2019, the Middle East region had four of the world’s top 10 improvers in terms of ease of doing business, all of them being among GCC (Golf Cooperation Council) countries: Saudi Arabia (62^nd), Jordan (75^th), Bahrain (43^rd), and Kuwait (83^rd). The United Arab Emirates remained the strongest performer in the region, placing 16^th (out of 190) on the ease of doing business rankings. On the other hand, Iran, as one of the key players in the region, ranked 127^th, well behind the GCC countries while South Korea ranked 5^{th [8]}.

Economic relations between South Korea and Middle Eastern countries have strong roots in the energy and construction sectors. South Korea’s energy-dependent economy is one of the biggest consumers of the region’s oil. Oil-producing states, on the other hand, have heavily relied on South Korea for infra-structure development, including utility plants, housing, roads and ports ^[9].

Development of infrastructure remains a high priority in the Middle East. The CEO of the National Iranian Oil Company recently announced that the country would need to invest more than 50BUSD to avoid becoming a net importer of gas ^[10]. As oil prices continue to go down, GCC countries also look at South Korea, China and Japan for provision of nuclear and renewable energy sources and infrastructure development in addition to development of smart cities, airports, intelligent transport systems, artificial intelligence, semi-conductors, space development, and ICT ^[11].

The situation in Iran, however, is complicated. Although the country is in urgent need of fresh investment and development on many fronts, sanctions not only have limited the country’s income, but they have also increased the risk of doing business with the country. As a result, foreign companies have been reluctant to enter the market. Recent political conflicts between Tehran and Seoul adds to this complexity for South Korean companies. However, keeping an eye on opportunities emerging may be well worth the effort in the mid-term.

China as a lucrative market requires tailored offerings for diverse taste of local consumers

During the past decade, China has experienced rapid urbanization and a booming middle class. As a result, retail sales have grown with a staggering 11% CAGR to almost 6TUSD in 2019 ^[12]. Therefore, staying on top of Chinese consumer priorities should be front and center. The market and purchasing power are significant enough to justify innovations only for the Chinese market.

Korean companies that aim to capture opportunities in China need to adapt their efforts and their offering portfolio to embrace the long tail created by diverse consumption habits. Although the Chinese market is not new to Korean companies, it is good to remember that China is a vast country with unbalanced development. The differences and the gap between provinces and cities drive diversified consumption habits. Foreign companies often focus on consumers in top tier cities, which accounts for about 400 million of the population ^[13]. However, the consumption potential of lower tier cities is not fully utilized currently. Consumers in lower tier cities do not always visit physical outlets for their desired products and brands. Due to lock-down and movement restriction, reaching consumers in lower tier cities via physical outlets becomes even more challenging. Social media platforms and short-video apps, combined with e-commerce, provide a powerful channel for companies to maximize its reach to consumers, especially the mobile-first, digital-loving hi-tech generation.

Using a strategic approach when entering new markets to ensure success

To enter these new markets, Korean companies need to understand the importance of a strategic approach and systematic planning. By structuring the problem and prioritizing their plans, detailed market entry approach forms. Reddal has accumulated rich experience on foreign market entry helping our clients in 45 countries around the world, and we have presence in the regions mentioned above. Five basic steps are essential for foreign market entry.

First, companies need to build a thorough understanding of the target market. This is an important step which is more than acquiring information. The dynamics around the market, customers and competition should be fully understood. In addition, the value proposition should be clearly defined. Second, companies should set clear ambitions for the new market by estimating sales potential with selected products. Third, companies should understand both internal and external factors to screen feasible entry modes. The optimal entry mode should maximize value creation and minimize risk; a multipronged approach may be needed. Fourth, companies should select a pricing method that fits the targeted segments and identify best channels, messages and buying propositions to engage the customers. Finally, it is important to define KPIs that measure the strategic goals in the market and have periodic checkpoints to monitor them. Based on the outcome of KPIs, companies should adapt and iterate their approach accordingly.

Many companies put excessive focus on short-term goals without sufficient planning and preparation. The opportunities for Korean companies in export markets are substantial, but require that detailed plans are in place with a long-term perspective and based on a thorough understanding of the target market.

References

^[1] IMF global economic activity indicator. Retrived at https://www.imf.org/en/Publications/WEO

^[2] OECD consumer confidence index (CCI). Retrieved at https://data.oecd.org/leadind/consumer-confidence-index-cci.htm

^[3] European union, Eurostat database and Swiss Federal Customs Administration, Swiss-Impex database

^[4] Auswärtiges Amt (2021), Deutschland und Südkorea – Bilaterale Beziehungen. Retrieved at https://www.auswaertiges-amt.de/de/aussenpolitik/laender/korearepublik-node/bilateral/216124

^[5] Stiftung Familienunternehmen (2017), Die volkswirtschaftliche Bedeutung der Familienunternehmen. Retrieved at https://www.familienunternehmen.de/media/public/pdf/publikationen-studien/studien/Volkswirtschaftliche-Bedeutung_Studie_Stiftung_Familienunternehmen.pdf

^[6] Ernst, Maximilian (2020), Insititute for European Studies - Germany-South Korea Relations: An Exceptional Relationship Based on Strong Economic and Academic Cooperation. Retrieved at https://www.researchgate.net/publication/350793917_Germany-South_Korea_Relations and Bertschek, Irene (2020), Digitalisierung – der Corona-Impfstoff für die Wirtschaft. Retrieved at https://www.zew.de/publikationen/digitalisierung-der-corona-impfstoff-fuer-die-wirtschaft

^[7] Göbel, Johannes (2020), Nachhaltig mit Strategie. Retrieved at https://www.deutschland.de/de/topic/umwelt/deutsche-nachhaltigkeitsstrategie-ziele-und-chancen

^[8] World Bank. Retrieved at https://www.doingbusiness.org/en/rankings?region=middle-east-and-north-africa, https://www.worldbank.org/en/news/press-release/2019/10/24/doing-business-2020-four-arab-countries-among-worlds-top-10-business-climate-improvers

^[9] The Middle East Institute, International Institute for Asian Studies. Retrieved at https://www.mei.edu/publications/bridge-brighter-future-south-koreas-economic-relations-gulf

^[10] Iran labor news agency. Retrieved at https://www.ilna.news

^[11] The Middle East Institute, International Institute for Asian Studies. Retrieved at https://www.mei.edu/publications/bridge-brighter-future-south-koreas-economic-relations-gulf

^{[12] [13]} National Bureau of Statistics of China. Retrieved at http://www.stats.gov.cn/english/Statisticaldata/AnnualData/

Tags
Forbes Korea, Go-to-market strategy, Foreign market entry, Nordic countries, DACH region, Middle East, China, Sustainability, Digital technology, Oil trade