How to Enter the Retail Market in Korea as a Brand

How to Enter the Retail Market in Korea as a Brand

The retail industry in Korea is ever-changing and fascinating. Successful Korean retailers quickly respond to shifting consumer tastes and seize opportunities as they come. It is an amazing country to do business in, and the challenges are worth facing. 

During the projected period (2023–2028), the South Korean retail market is anticipated to develop from an initial valuation of $495.30 billion to an ultimate valuation of $619.60 billion, with a compound annual growth rate (CAGR) of 4.60%.

Knowing what makes the Korean market special is crucial for American businesses looking to enter it. You need to form partnerships with Korean importers and distributors with strong retail industry networks to succeed in the local country market. This is because most Korean retailers get their products from the same entities. 

Korean customers have a reputation for being picky and having refined tastes. There is no assurance that Korean consumers will like products that are well-liked in other parts of the world. 

With all this in mind, we have structured this article to help you enter South Korea’s retail market following our strategy and the challenges you might face. You will also learn some tips and advice from the experts already doing business in Korea.

Let’s dive into some basics first!

Why Enter the Korean Retail Market?

Approximately half of South Korea’s 51 million people call the Seoul metropolitan area home. This fact is particularly important for those interested in building a business there. Because of the conduct of North Korea, South Korea is effectively an island since it is isolated from the rest of continental Asia. 

With a shared cultural heritage, the country has frequently sought inspiration from China and Japan. Many Koreans from the south have also attended universities in the United States, Canada, or Europe.

As a result, you are entering a country whose citizens feel proud of their Korean heritage while still being receptive to new ideas and influences. They are welcoming if you learn what businesses they admire and how you should conduct them their way!

Our Strategy to Enter the Korean Retail Market

When breaking into a new market, it’s important to do your homework and, sometimes, launch a branding campaign.

Furthermore, the sales channels you select impact your local market entry strategy. Consequently, there are several market entry techniques that you might use in Korea based on your objectives and dedication level.

Let’s look at different strategies and see what makes them unique in entering the Korean retail market:

1. Understand Retailers’ Sourcing Practices

As a result of their aversion to risk, most Korean retailers prefer to collaborate with importers and distributors. This is because they manage a modest amount of product sourcing directly. Therefore, vendors are responsible for greater risk, and product markups are frequently increased to compensate for possible losses. 

2. Use E-commerce Platforms as an Alternative

Through the use of global seller programs on platforms such as Coupang, Auction, Gmarket, and 11st, one alternate method for entering the Korean market is to use platforms as an alternative. Foreign sellers, particularly those from the United States, have the opportunity to communicate directly with Korean consumers through the use of these platforms.

3. Understand Export Pricing and Market Dynamics

The greater business costs in Korea, such as sales commissions and additional distribution layers, should be considered while negotiating export prices. Market dynamics are also an important factor to consider. Nevertheless, keeping retail pricing in Korea competitive compared to the United States market is an important step. 

Korean customers often use E-commerce websites from other countries, and the fact that prices in Korea are much higher than those in other countries may encourage people to shop on those websites.

4. Try Launching Ad Campaigns

Initial marketing strategies capture the attention of foreign brands that need to be more well-known in the local market. These campaigns can be overseen in various ways. Some of the top ones include online, offline, and occasionally, with the assistance of key opinion leaders (KOLs).

Before listing their items on local e-commerce marketplaces, brands generally conduct first marketing initiatives to build trust and awareness of their brand in Korea.

5. Get Assistance from Sales and Customer Service 

When doing business in Korea, many international suppliers overlook the importance of after-sale service in favor of product and pricing considerations. Based in Korea, companies like Samsung and LG provide superior after-sale service and customer assistance compared to smaller, multinational businesses. 

In terms of service quality, Korean customers have high expectations. There needs to be tight management of customer service in general and after-sales service in particular due to competitors from other nations in this industry. An integral part of the “sale” is servicing, for which you can consider BPO 

When you consider BPO to Korean vendors, you are already stepping up your business game as the local vendors are well-trained in their language, communication skills, and cultural values. All these factors are crucial in building your business credibility in the local market.

Obstacles When Entering Local Market in Korea

1. Documents for Information

When entering the retail market in Korea, the paperwork and procedure can appear daunting. Foreign investors are required to submit a total of fifteen documents, among which the important ones are:

  • Application form
  • The minutes of the inaugural meeting
  • Articles of incorporation
  • Stock purchase collateral in the form of a savings certificate
  • The minutes of the Board of Directors
  • The registration tax receipt
  • Others

2. Product Labeling and Standards

Local certification and labeling requirements in Korea are comparable to those in other countries, including ISO standards. To sum up, standardization among standards is the best way to make it easier for imported items to get into the local country.

As an alternative to China’s ubiquitous CCC mark, Korea’s KC mark is used for various products, including electronics and safety gear. 

The following are the usual procedures for obtaining the KC mark, which may appear to be a lengthy and complicated process:

  • Application
  • Factory inspection
  • Product testing
  • Certificate of registration
  • Business License
  • Post-certification surveillance
  • EMC testing

3. Customs Duties

In addition to the applicable import duties and customs valuation, there is a 10% value-added tax (VAT) to consider. Many high-end and long-lasting consumer products are subject to an additional 10% to 20% national excise tax.

You should know that Korea has FTAs (Free Trade Agreements) in place with the following countries:

  • Australia
  • Canada
  • Central America (Partial)
  • India
  • New Zealand
  • Peru
  • Singapore
  • Chile
  • China
  • Colombia
  • The European Union
  • USA
  • Turkey
  • Vietnam

Norway,  Iceland, Liechtenstein, and Switzerland are all members of Korea’s European Free Trade Association.

Tips and Advice to Succeed in the Korean Market

Here are some tips for foreign businesses entering the Korean retail market:

  • Communicate and Commit: Contact Korean business partners and clients regularly. Emphasizing long-term commitment to the Korean market helps build trust and streamline business.
  • Build Relationships: Building and maintaining long-term partnerships is vital. Visit Korea often, learn about the market, and invite Korean representatives to the home office. This updates everyone and strengthens business relationships in the local country.
  • Localization Matters: Adapting your products and strategies to Korean tastes and culture can have a big impact. Market tastes vary; thus, cultural awareness may attract customers.
  • Understanding Distribution: Use a Korean-wide exclusive distributor. This prevents internal price competition and distributor disagreements, streamlining the process.
  • Local Engagement: Product demos, seminars, and exhibitions in Korea improve brand visibility. Coordinate sales follow-ups with local representatives and distribute technical and promotional materials.
  • Advertising Strategy: Korean advertising is complex and different. Online advertising, especially mobile advertising, is rising while broadcasting is declining. Companies should also consider commercial mega-LED screens and the variety of TV and radio channels.
  • Pricing and Value Proposition: Foreign items, especially European ones, are considered high-quality but more expensive due to logistics. To compete, quality and price must be balanced.

Wrapping Up

Businesses worldwide can find tremendous opportunities in the ever-changing and flourishing Korean retail market. Successfully navigating this competitive market requires a strategic strategy and deep market knowledge. To enter the Korean market, utilize local partnerships, adapt to consumer preferences, and follow rules and regulations.

Planning is essential for entering the Korean retail market. This requires careful planning, long-term partnerships, and a Korean-specific distribution and marketing strategy. Local legislation must be followed to circumvent paperwork, product requirements, and customs duties.

Foreign businesses that want to compete well in this market need to focus on localization, build strong relationships, put capital into after-sale support, and be ready to adapt to market trends that are always changing. 

If businesses use these strategies and learn better about Korean consumers, they can take advantage of big growth and success opportunities in South Korea’s fast-paced retail sector.

Author: Greg.B

Executive with 25 years of proven success in call center management and revitalizing business units. Proven career record of producing multimillion-dollar profits through pinpointing operational inefficiencies and encouraging the revitalization of employee morale and corporate culture change.

Back to blog