In Seoul, the news can be as discouraging to investors as it is to tourists: fire fights between the South Korean army and North Korean infiltrators; two former presidents under sentence of death; and occasional bonfires for “imported luxuries” sponsored by consumer groups. There is often more than a whiff of tear gas or cordite in the air.
Yet after Japan, Korea is one of Asia’s richest markets with over 40 million consumers reaching for middle-class material goals. In the first seven months of this year, imports of luxury goods, such as passenger sedans, consumer electronics and cosmetics, reached $3.77bn (2.4bn), or 43.8 per cent of imported consumer goods. Foreign cars have achieved visibility on the streets for the first time.
Last year, a record 7,000 were imported. Unlike earlier years, their purchase did not prompt an immediate investigation of the buyer’s tax affairs by the National Taxation agency. The World Trade Organisation and hopes for Organisation of Economic Cooperation & Development membership have opened the way for imports. And also for foreign retailers.
In a surprising decision, Marks & Spencer chose Korea, rather than Japan, for its move to the farthest East. Three M&S stores will open in Seoul next year and another seven are scheduled within five years. Costs are certainly a little less than in Tokyo but, more to the point is the nature of the opportunity. Unlike Japan, retailing in Korea is a relatively backward industry which had seen little innovation until firms such as Makro, Carrefour, and Price-Cost set foot there a couple of years ago.
Separately, IBM Korea, which has had little luck selling PCs and laptops, formed a joint venture with LG Electronics, hitherto a major rival.
The new firm, LG-IBM will market IBM’s computers with dual LG and IBM branding. IBM Korea also assigned LG Advertising a $30m (19m) budget to launch the new brand during the last quarter. Ogilvy & Mather were as astonished as IBM’s brand marketing people, who were not consulted. According to IBM Korea, IBM’s global agreement with O&M does not cover its new local venture. Well, not so far.
Korea has not yet become as fertile a new product innovator as Japan. Like Japan Inc. in its early days, the Koreans are targeting autos and electronics. Sales of Korean automobiles in Europe last year jumped 68 per cent from 1994 when 179,000 were sold. Sales between January and April this year climbed a further 69 per cent. It is predicted that Korean auto exports to Europe will reach 300,000 units by the end of the century. Firms like Daewoo, Hyundai and, shortly, Samsung, could see their shares grow much faster than better-known Toyota, Nissan and Honda since they are not regulated by import quotas and are competitively priced. Some believe Korean autos could eventually account for ten per cent of the European market.
It’s a country still on a bumpy growth curve where consumers are starting to learn about what to buy and where, as the Japanese consumer did before them.