Selling in South Korea

A Hot Tip about Sales in South Korea

Posted on: 4 Jan 2010

 

Using an Agent or Distributor

The most common means of representation are: 1) appointing a registered commissioned agent (commonly known as an “offer agent” in Korea) on an exclusive or non-exclusive basis, 2) naming a registered trading company as a manufacturer’s representative or agent, or 3) establishing a branch sales office managed by home office personnel with Korean staff.

Any businessperson registered with the Korean government can import goods in his/her own name. Appointing a registered trading company (rather than an "offer agent") as an agent has its advantages because these agents can manage all of the import documentation and imports for their own account. Registered trading companies tend to be larger firms that split their businesses between exports and imports. However, these larger firms may be less attentive to building the U.S. supplier's business, placing a higher emphasis on diversifying their portfolio of products from different countries. Similarly, while the larger general trading companies may be influential and well known in the market, they also may not devote as much attention to a single product as do smaller firms.

Companies unsure of the market potential for their product/service can initiate a “Quick- Take Business Facilitation Service.” The first stop should be the Export Assistance Centers (USEAC) located throughout the United States requesting “Quick Take,” a modest-fee based review of market potential conducted by one CS Korea’s Trade Specialists. This is an initial review only and not an in-depth market study or analysis. Companies who have made a decision to enter the Korean market or expand their presence and seek representation should request the Gold Key Service (GKS). Under a GKS program, the U.S. client meets directly with prospective agent/distributor candidates. Trade specialists utilize their network of industry contacts and trade associations to identify pre-screened and high potential partners for the U.S. client.

CS Korea strongly recommends that U.S. companies seek legal counsel prior to signing a contract. Most experts also recommend hiring a local attorney prior to making major business decisions with Korean companies. A final recommendation is that any distribution or agency contract include a termination clause. Otherwise, Korean Commercial Arbitration bodies may specify the terms for termination, including compensation claims against the principal. A signed contract between a supplier and an agent/distributor with termination provisions would avoid risks for the U.S. company.

U.S. companies should also seek legal counsel with regard to protecting their intellectual property. Trademark and patent registration (if applicable) with the Korean Intellectual Property Office (KIPO) is the minimum safeguard for your intellectual property rights. U.S. companies are advised to seek the services of a local attorney to directly register their trademarks and/or patents in their own names. In order to have control over IPR, registration must be done in the U.S. company’s name and not the Korean agent’s name. Under Korean law, applications must be done in Korean and submitted to KIPO.

 

Establishing an Office

Most foreign companies seeking to establish an office in Korea should review location, taxation and business structures when deciding where and in what form to establish a presence in Korea. The following section provides some basic guidelines on how to set up an office in Korea. In addition, a list of real estate consultancy, taxation and human resource search services in Korea are provided.

Step 1: Assess Your Company’s Commitment to Establishing a Presence in Korea

Potential investors can take advantage of the many services offered by Invest KOREA, the primary investment promotion agency for Korea. Invest Korea is an arm of the Korea Trade-Investment Promotion Agency (KOTRA), a government-sponsored nonprofit organization. The operation is staffed by KOTRA personnel and complimented by officials from relevant government ministries and specialists from the private sector in areas such as law and accounting.

Invest KOREA provides assistance in the following areas: Identify the necessary administrative procedures. Consult on forms of investment, including M&A, joint ventures and real estate acquisition. Provide legal and taxation advice Invest KOREA also provides investment planning, ongoing support and follow-up support. Invest Korea also maintains an Ombudsman ready to address foreign investors’ grievances.

Step 2: Receive Authorization to Proceed with an Investment

Foreign investment projects require notification to the Ministry of Knowledge Economy (MKE) or its delegated authority – the head office of a major Korean commercial bank or Invest Korea. (A list of major banks in Korea can be found at www.buyusa.gov/korea/en/bankcontacts.html.) Investment notification in liberalized sectors can be handled through banks; however other sectors (see Chapter on Investments, pg. 88) require greater review or documentation.

Step 3: Identify an Office Site

Companies unfamiliar with Korean real estate should consult reputable real estate agents or a real estate consulting firm, especially one experienced in dealing with foreign firms. A list of select such agents can be found at: http://www.buyusa.gov/korea/en/realestatecontacts.html#_section1.

Under the Foreign Land Acquisition Law foreigners are allowed to purchase land regardless of size or purpose. Local zoning laws do regulate categories of activity permitted, and should be investigated prior to making final investment decisions.

Step 4: Register with the Nearest Tax Office

Investors should register with the nearest tax office in their local jurisdiction for tax reporting purposes. Given the complexity of Korean tax laws and the potential for misunderstanding provisions, companies should consider hiring a local accounting firm to file taxes. A list of local accounting firms can be found at: http://www.buyusa.gov/korea/en/realestatecontacts.html#_section2.

Step 5: Seek Qualified Employees

Local Koreans are attracted to U.S. firms given salary rates, prestige, opportunities for travel, the ability to use and learn English and the possibility to transfer to the company’s home office or another foreign branch office.

Korea has a large pool of conscientious and highly educated workers. Female employees are generally strong candidates and eager to be given a chance to excel in with foreign firms.

Whether seeking to hire local or foreign staff, U.S. companies should consult an employment agency in Korea. Click here to view a list of employment agencies: http://www.buyusa.gov/korea/en/realestatecontacts.html#_section3

To view the list of real estate consultants, accounting firms and human resource agencies, go to the link below. http://www.buyusa.gov/korea/en/realestatecontacts.html.

OTHER FORMS OF LOCAL REPRESENTATION

Subsidiary: A subsidiary of a foreign company is established as a local company, and therefore has often a closer relationship with the local business community. This may afford a subsidiary a better position to run its business and possibly allow the firm to tap into investment incentives offered by Korea. A subsidiary is eligible to receive tax incentives provided by the Special Tax Treatment Law (STTCL) in calculation of corporate income tax, if the subsidiary meets the requirements pertaining to the STTCL. No such tax incentives are available to branch or liaison offices.

Branch Office: For companies whose presence is significant enough to warrant a subsidiary operation in Korea, firms can opt to establish a branch office of the foreign parent. A branch operation is not subject to audits of external auditors in Korea, and thus, a branch’s net income is automatically viewed as being included in the headquarters balance sheet. If a company were expected to grow large enough to necessitate the establishment of a subsidiary in Korea at a future date, then it would be more cost effective to establish a subsidiary at the beginning rather than a branch operation.

Liaison Office: A liaison office is established as a branch office with only marketing and support operations. No direct sales could be conducted from a liaison office, meaning that a liaison office would be subject solely to the tax code of the headquarters country and would be the simplest form of conducting business in Korea.

 

Franchising

Korea’s franchising industry has developed rapidly in the last several years, led primarily by fast food restaurant chains. This growth has expanded to include family restaurants, discount stores, clothing, mailing services, cleaning services, as well as educational institutions. U.S. franchisers have met with varied success in this market.

Franchising has expanded due to a “new generation” of affluent Korean consumers coupled with changes in Korea’s distribution sector that favor new product and marketing concepts. According to the Distribution & Logistics Division at the Ministry of Knowledge Economy, the market value of this industry has reached an estimated USD 70.2 billion, which includes all franchise and sub-franchise fees and royalties. It also consists of product and service revenues, consulting fees, and related product sales, such as coffee equipment at coffee franchise outlets. Of the USD 70.2 billion market, 52 percent (USD 36.5 billion) is accounted for by food services, including fast food services and family restaurants. Other franchise services such as, education, real estate, cleaning services, and mailing services, account for 11.8 percent of this sector realizing nearly USD 8.2 billion in sales. The retail sector, such as convenience stores and consumer goods, comprise the remaining 36.2 percent of this industry (USD 25.4 billion).

Franchising in Korea first developed primarily in the food service market before expanding into other areas. Although the restaurant franchise market is beginning to mature, the service franchise market is relatively new with new concepts, promising possible market opportunities. Korean franchisees are seeking, and prefer to do business with, U.S. franchisers that can offer established brand names to Korean consumers and value the transfer of American management skills provided by U.S. headquarters. The service franchising market includes education, beauty salons, cleaning services, real estate, fitness centers, and other operations. Opportunities exist for franchisers in cosmetics, children’s educational services, and services tied to elderly care, sports and leisure activities.

Although U.S. franchises are sought after in Korea, several challenges remain. Potential Korean franchisees are often reluctant to pay the relatively high franchising fees and royalties required by U.S. headquarters. Other common franchising requirements, such as minimum facility size and the required number of store openings within a certain period are often very challenging for Korean franchisers to meet. U.S. franchises should therefore consider flexible franchising arrangements and conduct thorough research on the market and potential locations, as well as the potential master franchisee’s ability to manage its stores. There are no specific legal requirements for U.S. franchises to operate in the Korean market. However, franchisees need to comply with the Subfranchisee’s Fair Trade Act, which closely parallels the rules that exist for subfranchisees in the U.S.

 

Direct Marketing

The Korea Online Shopping Association (KOLSA) estimates that Korean consumers spend nearly USD 22 billion in purchases. Direct marketing primarily takes the form of catalog sales, TV home shopping, Internet shopping, and Mobile commerce market. Korea also has a large market for door-to-door sales and multi-level marketing.

Door-to-Door Sales

The major door-to-door sales items include home education materials, books, household consumer goods, cosmetics, health foods, sporting goods, and service products, such as insurance and travel counseling. According to the Korea Direct Selling Association (KDSA), the Korean door-to-door sales market is approximately USD 7 billion.

Multi-level Marketing

Korea’s multi-level sales for 2008 approached USD 2 billion. Nearly 70 multi-level marketing (MLM) registered companies employed about 3.1 million active distributors. In keeping with its deregulation plan, the Korean government reduced restrictions on MLM companies by passing legislation eliminating most existing market barriers against MLM products, such as the obligation to disclose retail prices on the MLM product label. Oversight of the MLM industry rests with the Fair Trade Commission (FTC).

MLM activities by U.S. firms in the cosmetics, cleaning products, and kitchenware have been expanding. In order to gain further successes, however, U.S. multi-level sales firms should promote their products and services appropriately and efficiently by carefully analyzing Korean market trends. Prior knowledge of the market conditions will help prevent unnecessary conflicts with government officials, consumer ‘watchdog’ groups, or industry groups.

Joint Ventures/Licensing

The Korean government promotes foreign investment. Government policies have liberalized investment including the lifting of foreign equity ownership limits in selected sectors. President Lee and the Prime Minister's Office have spearheaded efforts to deregulate and liberalize the economy. Foreign operations have welcomed such moves and encouraged further such steps. With the recent presidential elections and with signing of the Korean-U.S. Free Trade Agreement (KORUS-FTA), greater cooperation and the encouragement of foreign direct investment should increase.

Selecting the appropriate partner is one of the most difficult and critical aspects of establishing a joint venture in Korea. Large Korean conglomerates, known as Chaebols, still exercise considerable influence over the Korean government and financial institutions. The Korean government has stepped up support for small and mediumsized businesses. With the decreasing influence of Chaebols and greater concern of for anti-monopolistic behavior, joint venturing in Korea has become more diversified. Regardless of the scale of Korean partner, there is a tendency within Korean business culture to maintain local control, regardless of the percentage invested by foreign entities. A U.S. company should take into account such cultural aspects to ensure policies and operations are conducted in the best interest of the U.S. partner.

Management control must be evaluated on three levels: 1) shareholder equity; 2) representation on the board of directors; and 3) active management (representative director and subordinate management). Legally, Korean board meetings require the physical presence of all members as well as a quorum of the directors. Therefore, if a foreign investor intends to exercise day-to-day management, a representative director who resides in Korea must be appointed. Moreover, the representative director will need the support of and access to key functional areas of the company in order to manage in accordance with the foreign investor’s wishes. Therefore, the internal organization of a joint venture company as well as key management appointments should be worked out and agreed upon by all involved parties as early as possible.

Compatibility of goals between the Korean and foreign partners is also crucial to the joint venture's success. For example, a foreign investor's primary goal may be to send profit dividends offshore while the Korean counterpart may be more concerned with corporate growth in Korea, particularly by exporting to overseas markets.

Another fundamental issue to be faced is how contractual agreements are treated. To most Koreans, a contract represents the current understanding of a "deal" and is the beginning, rather than an end, to negotiations. If changing circumstances result in omissions or points that no longer accurately reflect the original agreement, then problems will arise. The same is true if the contracting parties change. This type of experience in Korea has led many foreigners to believe that Koreans place less importance on a written contract than Westerners. Though Americans may regard a written contract as legally binding, Koreans may regard the same contract as a "gentlemen's agreement" subject to further negotiations should conditions change.

Contract negotiations with Koreans therefore should be viewed as an on-going process of dialogue having the following objectives: 1) reaching a common understanding of the deal that includes each party’s responsibilities; 2) recording the detailed understandings; and, 3) being prepared to modify the terms of the agreement should there be a change in circumstances.

Certain terms of the commercial relationship between joint venture partners, such as technology transfer, raw material supply, marketing, and distribution should be agreed on in detail in the joint venture agreement.

As in most new business circumstances, American companies should guided by caution when entering into technology licensing agreements. For example, exclusively relying on the Korean partner to handle intellectual property registration may not be the wisest course – the U.S. party should be involved in the process so as to ensure that the U.S. party’s interests are protected, especially in the event of contract termination. A related approach is for the U.S. party to retain cutting edge technology and consider secondary levels for use, until the relationship has stood the test of time.

Korea’s legal procedures can be lengthy, cumbersome and expensive when dealing with contract violations. If at all possible, the best strategy is to prevent possible conflicts. The identification of a viable and trustworthy business partner from the outset is essential. U.S. parties should invest sufficient time in getting to know their Korean partner as well as conducting as thorough assessments as possible.

Legal advice is always a solid move. A list of attorneys is available at the end of this chapter. In addition to consulting with an attorney, foreign investors can also consult with the Korean Commercial Arbitration Board (KCAB), which advises foreign companies on contract guidelines. A KCAB counselor can also review contracts and identify areas of potential concern. Information on the KCAB website (KCAB).

 

Selling to the Government

Korea joined the World Trade Organization’s Government Procurement Agreement (GPA) on January 1, 1997. The GPA establishes non-discriminatory procedures for the procurement process so that a maximum number of qualified suppliers can fairly compete. In its accession offer, Korea agreed to cover procurements valued over certain “threshold” amounts (see below) made by Korean central government agencies, their subordinate entities, Korean provincial and municipal governments, and some two dozen government-invested companies. Korea included procurement of services and construction services. Other features of the GPA for Korea include a prohibition against offsets as a condition for awarding contracts on covered procurements, and a provision requiring procuring entities to allow suppliers to pursue alleged violations of the agreement through GPA-defined bid challenge procedures. The Korean Ministry of Strategy and Finance (MOSF) has established an International Contract Dispute Settlement Committee to deal with any challenges by foreign suppliers that Korean procuring entities have not complied with GPA provisions.

The annexes to Korea’s accession document specify certain thresholds, below which GPA rules do not apply. Thus, the threshold for Annex 1 (central government) entities for supplies and services is approximately USD 180,000, and for construction services approximately USD 7 million. Thresholds for supplies/services and construction services are considerably higher for Annex 2 (sub-central government entities) and Annex 3 (government-invested corporations). Korea also specified certain categories of purchases that would be exempt from GPA coverage altogether, including procurement related to national security and defense, Korea Telecom’s purchases of telecommunications commodity products and network equipment, procurement of satellites, and purchase by the Korea Electric Power Corporation (KEPCO) of certain electrical transmission and distribution equipment.

The Public Procurement Service (PPS) is responsible for the purchase of goods and incidental services required by central and sub-central government entities, government construction contracts and the stockpiling of raw materials. Not all GPA-covered procurement is handled by the PPS. In the case of Korean government-invested corporations (listed in Annex 3 of Korea’s accession agreement), procurement is handled in-house, with these entities following the same GPA rules. Thus, tendering under open, formal procedures are required.

All bidders who wish to participate in PPS tenders for supplying goods and services must register with PPS at least one business day prior to the date of the bid opening. However, foreign bidders are allowed to register with PPS prior to entering into a contract. Failure to register constitutes cause for rejection of the bid. Korea began the Government e-Procurement System (GePS) in October of 2002, a single window for public procurement which digitalized the entire process from order to payment for all public organizations. Bids can be viewed on the PPS website and are valid for at least 45 days after the bid opening date shown on the site. Additionally, as required by the GPA, the procuring entity must publish information on bid opportunities in at least two sources: the daily newspaper Seoul Shinmun (daily newspaper) and the Korean Government Gazette. While these sources are published in the Korean language, any given tender announcement must be accompanied by a summary in English, including the subject matter of the contract, the deadline for submission of tenders, and the address and contact point from which full documents relating to the contracts may be obtained. The tender announcement must contain a statement that the GPA covers the bid.

 

Distribution and Sales Channels

Local representation is essential for the success of foreign firms in the Korean market. This is especially true when considering the fact that business relationships in Korea are built upon personal ties and social introductions, and that much of the major thirdcountry competition is only a few flight-hours away. In addition, for sectors that involve any type of government procurement, an entity must be registered with the Korean government in order to bid on procurement projects. Hence, many American firms enter into a consortium with a Korean company or enter a representative agreement for the purpose of market entry. Finally, the language, business networks and relationships make it difficult to enter the Korean market without a qualified Korean representative.

Distribution methods and the number and functions of intermediaries vary widely by product area and local conditions. The market for most consumer products is concentrated in major cities. The traditional retail distribution network of small family-run stores, stalls in markets, and street vendors is changing rapidly toward large-size discount stores. There are many large retail stores in the major cities, especially Seoul, Daegu, Busan, and the outlying suburbs. Recently, retailing concepts such as Full-Line Discount Stores (FDS) have gained popularity. U.S. based Costco entered the Korean FDS market several years ago and have successfully competed against Korean rivals Emart and Lotte Mart. Rapid expansion of these discount chain stores is planned nationwide, with suburban satellite cities attracting the greatest number of stores. Distribution of goods through large discount chains is one of the best ways to market foreign products to Korean consumers.

Parallel imports can legally enter Korea. Parallel imports marginally reduce the value of an exclusive distribution agreement. Many American companies continue to give exclusive contracts, since they have in place territorial limits in neighboring countries that enhance the value of the exclusive in any one country. Likewise, any parallel importer in Korea that is not receiving the support of the OEM, and does not deal in the same volume, cannot be guaranteed a steady source of supply. As noted above, the legitimate exclusive distributor still has considerable advantages in Korea.

Most products enter Korea by air and sea at Incheon and Busan, after which they are transferred to major distribution centers by rail or road. Korea’s main distribution centers are Busan, Incheon, Daegu, and Gwangyang.

 

Selling Factors/Techniques

Three practices are essential for success in the Korean market: (1) adapting products and procedures to Korean tastes and conditions, (2) regular communication with Korean business partners and customers, and (3) making a firm commitment to the Korean market over the long run.

In selling to manufacturers, personal contact is important not only because of the value placed on direct discussions and on building long-term relationships but in obtaining a first-hand acquaintance with new processes and equipment. U.S. suppliers should consider the following recommendations in their market plan for Korea: (1) As possible, make regular visits to Korea in support of your local representative; (2) invite Korean representatives to U.S. offices/headquarters periodically to ensure they are informed and up-to-date on company strategies/products; (3) regularly discuss the best mix for Korea of company’s product line; (4) when possible hold demonstrations, seminars and participate in trade shows/exhibitions in Korea; (5) provide latest technical data and descriptive brochures; and (6) encourage strong customer relations and follow-up.

 

Electronic Commerce

The total amount of E-Commerce transactions in Korea reached approximately USD 518 billion and is estimated to have increased by 20 percent in 2008. This figure is projected to grow at an average annual rate of 10 percent over the next five years. In Korea, the B2B, B2G and B2C transactions in 2007 accounted for 89.9, 7.1 and 2.0 percent of the E-commerce sector respectively. There are approximately 4,500 B2C cyber shopping malls in Korea.

The transaction volume of Korean Electronic Commerce (EC) is forecast to grow over the next several years. Major factors driving the growth include a nationwide broadband infrastructure with 35 million Internet users from a total population of 48 million, and introduction of Wireless Broadband (WiBro) and 3.5G mobile High Speed Data Packet Access (HSDPA) services through mobile computing and communication devices in 2008. Increased EC transactions will lead to growing demand for E-commerce solutions, a variety of equipment, networking, software, and services, to develop and support E-commerce-related web-sites and transactions. The electronics and metal manufacturing industries that account for nearly 70 percent of total B2B transactions are willing to spend in order to achieve efficient and secure use of EC tools. However, U.S.- based E-Commerce companies need to monitor the Personal Information Protection Act and Ministerial data privacy/SPAM regulations that were enacted in 2007. Although the new regulations are likely to reflect concerns voiced by the public and the industry to the government, it may still be restrictive for E-Commerce firms managing user data globally to some extent.

 

Trade Promotion and Advertising

The Commercial Service section of the U.S. Embassy is the primary US government trade promotion agency in Korea. Among the non-USG organizations, the Korea International Trade Association (KITA) is the largest international trade association incountry. As a member of the World Trade Centers Association (WTCA), KITA explores new trade opportunities for Korea by organizing trade missions and market survey teams to a number of foreign countries on a regular basis. KITA's Trade Service Center also assists potential foreign buyers or sellers. The Center also offers on-the-spot consultation and personalized advisory service regarding trade rules and regulations, export and import procedures, business management, market research, technology development, and taxation. In addition, KITA maintains six overseas branch offices, two of which are based in Washington D.C. and New York.

Seoul is the largest trade show venue in Korea with its Convention and Exhibition Center, popularly known as "COEX." Covering 36,027 square meters of exhibition space, COEX is a full-service trade organization providing multi-lingual simultaneous translation, full range of audio-visual equipment, lighting and sound systems, as well as comprehensive information services. The Seoul Trade Exhibition Center (SETEC) also located in Seoul, is run by the Korea Trade/Investment Promotion Agency (KOTRA).

The second largest city in Korea, Busan, located in southeastern part of Korea currently holds regular national exhibitions. The Busan Exhibition & Convention Center (BEXCO) has a floor space of 26,446 square meters. There is also an outdoor exhibition site with 13,223 square meters of available space.

 

Advertising

Korea’s advertising market is open to 100 percent foreign equity participation. Foreign advertising agencies control more than 50 percent of the Korean advertising market. All the major international agencies are present in Korea.

There are four major broadcast networks (television and radio) in Korea. KBS I and KBS II are owned and operated by the Korean government, while MBC and SBS are independently operated. However, government influence remains, since advertising time on these and other broadcast networks is sold exclusively through a government organization known as the Korea Broadcast Advertising Corporation (KOBACO). Companies must register with this corporation if they intend to advertise. As of 2008, approximately 273 foreign and Korean agencies were registered with this corporation.

Though censorship in advertisement is still practiced in Korea, it is not as strict as it has been in the past. The Korea Advertising Review Board (KARB), which consists of advertising and industry associations, currently controls advertising censorship procedures. In addition, the government’s Korean Fair Trade Commission is responsible for determining whether an advertisement makes accurate claims.

Several local TV stations have been established in recent years. This development, as well as the advent of cable television in 1995, has expanded advertising's potential reach to Korean audiences. As of August 2008, the Korean cable industry was served by 103 system operators and about 200 program providers offering diverse cable programs such as business news, sports, music, Buddhist programming, shows on the Korean board game “baduk” (“Go”), etc. There are also five shopping channels, including CJ, Hyundai, GS, Lotte, and Nongsusan. Estimated total sales volume for these five shopping channels in 2008 was approximately USD 4 billion.

Advertising market opportunities are predicted to show strong growth as more Koreans gain access to electronic media. Cable television in Korea currently has an audience of over 15 million households. Additionally, the government took steps to promote broadcast satellite television in digital format in 2001, with expectations of nationwide coverage by 2010. Korea Digital Broadcasting (KDB), a subsidiary of state-run Korea Telecom, holds the contract for digital broadcasting. In 2008, KDB broadcast 150 satellite channels reaching an estimated 2.31 million households.

Internet advertising also offers significant market growth potential, since the number of computer users will further increase in the coming years. There are currently 15 million Internet using households in Korea, which amounts to about 98 percent of total households in Korea.

 

Pricing

U.S. goods have a reputation among Korean buyers of having quality, durability, and performance; however, since Korean manufacturers are price-conscious, they often perceive U.S. products to being expensive. In an export-oriented economy where finished products must meet keen competition in the world market, many Korean manufacturers believe that it is essential to buy the lowest priced raw materials and equipment, even at the expense of quality. Goods from China, Japan and elsewhere are often considered to be more attractive primarily because of price. Korean OEM manufacturers often seek to lower input costs to offset high Korean labor costs. Another factor to consider in assessing pricing attitudes is the tendency to “bundled” products hoping to achieve an overall low price. Finally, Koreans have tendency to undervalue "software" (engineering and other services components), particularly in the procurement of major systems.

Considering the factors outlined above, U.S. exporters might consider: 1) adapting their products to Korea by marketing basic units, 2) take into account of repeat business and follow-on spare parts and auxiliary equipment in determining pricing policies, and most importantly, 3) emphasize the superior quality and technology of U.S. manufactured products as a key to lower overall production costs.

Korea has consumer-protection legislation that requires consumer items be labeled with both the manufacturer’s sales price to the retailer and the marked-up retailer’s price to the consumer. The mark-up from manufacturer to consumer ranges from 50 percent to 150 percent. Korea has a 10 percent sales tax that is included in the price of taxable items. There is a 10 percent VAT on services provided in Korea.

 

Sales Service/Customer Support

Sales and after-sales service is generally secondary to product and price considerations. Following the Korean War, at a time when foreign currency was scarce, Korean plant operators relied on their own resources or on small machine shops to service machinery. This tradition of self-reliance and improvisation is still prevalent in contemporary Korean business practices. However, with increasing competition among foreign suppliers in the market, service has taken on a significant component.

Private traders and agents often hire in-house engineers to install equipment. For specialized installations, however, the best source of assistance includes resident and offshore foreign engineers in coordination with local engineers, whose services are available on contract basis.

Japan's proximity to Korea as well as similarities in business culture between the two countries allow Japan to send teams of specialists to Korea at marginal cost and effort providing skilled installation, maintenance and repair services. U.S. firms might consider regional service facilities that can cover the support needs of equipment sold in Korea. The emphasis by American firms on the training of personnel, often through U.S.-based programs, has proven beneficial.

 

Protecting Your Intellectual Property

Registration is particularly important when it comes to protecting your trademarks, designs and patents in Korea. Unlike the trademark registration system in the United States, which is based on “first commercial use” or “first intent to use,” the trademark, design and patent registration system in Korea is based on “first-to-file,” or more accurately, first to successfully register with the Korea Intellectual Property Office (KIPO), the U.S. equivalent of the Patent and Trademark Office.

Registration is particularly important when it comes to protecting your trademarks, designs and patents in Korea. Unlike the trademark registration system in the United States, which is based on “first commercial use” or “first intent to use,” the trademark, design and patent registration system in Korea is based on “first-to-file,” or more accurately, first to successfully register with the Korea Intellectual Property Office (KIPO), the U.S. equivalent of the Patent and Trademark Office.

Registration of trademarks is in Korean requiring a qualified local attorney familiar with procedures. To have maximum effect, a company should be prepared to register its trademark in every applicable product class category for the product(s). Protection is not generally provided under the Korean legal system if the company has not registered in the relevant product class category. Should the trademark registration remain unchallenged, the entire registration process should take ten months from the date you submit your application form to KIPO.

During the course of trademark registration, information on pending applications initially becomes available in publications of the Korea Invention and Patent Association two to three months after the initial application. Official announcements of pending applications are published for comment by KIPO in its Official Gazette. The U.S. company may discover from the aforementioned publications that an unauthorized party has filed the trademark and is awaiting registration. In this case the company is eligible to file an Opposition Action Petition within a 30-day period of official publication. In an opposition action petition, the company states their case as to why the unauthorized party’s application should be rejected. After reviewing the opposition action petition, KIPO can decide either to proceed with registering the unauthorized trademark application or to reject the trademark application, clearing the path for the U.S. company to register at a later date. At a minimum, American companies that plan to enter the Korean market in the future should monitor KIPO public notices to ensure that their trademark has been properly registered.

The 1998 Trademark Act provides KIPO with grounds to reject third-party applications of the same or similar trademarks if KIPO is convinced that the registration is done in "bad faith." As capable as trademark examiners can be, some trademark registrations by unauthorized registrants have slipped through the cracks and have been unfortunately registered. Registration by an unauthorized party may include “predatory registration” (i.e., knowing that the mark belongs to another company, the unauthorized applicant registers the mark, with no intention of using it but rather to sell the trademark registration when the legitimate trademark owner tries to enter the Korean market).

If an unauthorized trademark application has been registered with KIPO, and the party is using the U.S. company’s trademark commercially in Korea, the U.S. party may seek an “Invalidation Action”. The American company’s petition should outline why the unauthorized trademark owner’s registration should be voided (invalidated), i.e. that the American company is the legitimate and original trademark owner, and that consumers know the trademark to be associated with the U.S. company.

If the company follows either the invalidation or cancellation action routes, the burden of proof lies with the petitioner. U.S. companies should be prepared to provide documentation showing commercial use (include samples of the product and illustrating the uniqueness of the trademark and product), to substantiate financial investment in advertisements (include all examples of actual advertisements or promotional materials that appeared in the media), even to provide results of any surveys that show that the brand name is publicly recognized in Korea and that the company is the source of the legitimate goods promoting the trademark.

“Use” your trademark

Foreign companies that have registered their trademarks in Korea to protect their trademark, and left it unused within Korea, have been known to lose their trademark rights to Korean registrants on the grounds of lack of use. “Use”, in this case, includes not only sale of a product or service with the trademarks but also advertisements on TV, magazines, newspapers, Internet and so on. Please consult with your legal counsel on how you can show sufficient use of your trademark should your trademark be challenged.

 

Read the full market research report


Posted: 04 January 2010

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