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Country Commercial Guides for FY 2000: Korea
Report prepared by U.S. Embassy Seoul, released July 1999
Note* |
CHAPTER IV. MARKETING U.S. PRODUCTS AND SERVICESDistribution and Sales Channels
Local representation is essential for foreign firms hoping to be successful in the Korean market. This is especially true in a market in which business relationships are built upon personal ties and valuable introductions, and in which much of the major third-country competition is only a few flight-hours away. In addition, in sectors related to any type of government procurement, only an entity registered with the Korean government, by law, has the ability to bid on procurement projects. Hence, a majority of American firms enter into a consortium with a Korean company or enter into a representative agreement, especially for the purposes of market entry. Finally, the Korean language barrier and established tight social/ business inner circles make it extremely 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. Retail distribution is accomplished through a highly complex network, the majority of which are small family-run stores, stalls in markets or street vendors, though this traditional distribution method is changing. There are many large retail department stores in the major cities, especially Seoul, Taejon and Pusan, and their outer-lying suburbs. This distribution channel is one of the best ways to market foreign products to Korean consumers. Just recently, retailing concepts such as general merchandising, shopping centers and high-volume discount stores ("hypermarkets") such as Price Costco (USA), Makro (Wal-Mart, USA), Carrefour (France), and Kim's Club (Korea) have gained tremendous popularity in Korea. Rapid expansion of these discount store chains are planned nation-wide, with suburban satellite cities attracting the greatest number of stores.
Hypermarket stores, in the past, experienced difficulty with parallel imports into the Korean market due to previous regulations that had the original intent of ensuring trademark protection by blocking counterfeit products from entering into the Korean market. In November 1995, however, regulations from the Korean Ministry of Finance and Economy (MFE) took effect which now allow the legal entry of parallel imports. Prior to that date, exclusive distributor/agents agreements implied that, other than the authorized and registered distributor/agent, no other importer could legally clear goods through Korean customs, i.e. importers in Korea who tried to bring in products through overseas secondary sources or who were not the exclusive distributor/agent found that their shipments were held up at customs. According to the current parallel import regulations, however, any importer, regardless of whether they hold an exclusive agreement with the overseas supplier, is allowed to import products to Korea as long as: (1) the articles are genuine (not counterfeit products); (2) there is no exclusive local production, and (3) the goods meet other necessary requirements such as sanitary documentation, test analysis, safety and effectivness, etc.
Information on Typical Product Pricing Structures
The rate for commissions using an agent or distributor vary depending on the type of product and the amount of transaction. On average, Korean agents look for 10%, when a transaction is conducted on a spot basis, but it varies for different products; Generally, 7% would apply to such product categories as general machinery including packaging, construction, and material handling equipment. And, 15-18%, or even more, would apply to such sophisticated products as medical/laboratory/scientific analytical instruments, for which after sales service is very important.
For the protection of the consumer, Korean regulations require consumer items, in general, to be labelled 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 roughly from 50 % to 150%.
Use of Agents/Distributors; Finding a Partner
The most common means of representation include: appointing a registered commissioned agent (or more commonly known by Koreans as an "offer agent") on an exclusive or non-exclusive basis, naming a registered trading company as an agent, or establishing a branch sales office managed by home office personnel with Korean staff.
Only traders registered with the government are authorized to import goods in their own names. Appointing a registered trading company (rather than an "offer agent") as an agent has the advantage that such agents can handle all the paperwork of importing and import for their own account. Registered trading companies tend to be larger firms and to split their business between exports and imports. However, they may be less attentive to building the U.S. supplier's business and place a higher emphasis on diversifying their portfolio of products from different countries. Similarly, while the general larger 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.
To locate a local representative, a good place to begin is with a fee-based service called the Agent/Distributor Service (ADS) performed by the Commercial Service (CS) Korea. Offered for a modest fee, the service starts with one of the many local Export Assistance Centers of the U.S. Department of Commerce located in most major cities throughout the United States. The ADS is carried out by industry specialists of CS Korea's local staff who tap into their well-established network of industry contacts and trade associations. Upon receipt of an annotated listing of three to five potentially qualified representatives, the next logical step is to plan a visit to Korea, perhaps calling upon CS Korea to arrange market briefings, a meeting schedule, and an interpreter/secretary under the fee-based Korea Gold Key (KGK) (or special Green Key program for environment-related firms) service.
Another good resource of contacts is the Association of Foreign Trading Agents of Korea (AFTAK), a well-established private trade association founded under government auspices uniquely dedicated to increasing imports into Korea. To fulfill its original mission of promoting balanced trade, AFTAK helps to execute Korea's import diversification plan, leads annual purchasing missions to the United States, Latin America, and Europe, and holds monthly meetings between member agents and the foreign commercial services of various embassies in Korea.
To illustrate the importance of AFTAK,the current Korean law stipulates that a sales agent must be a member of AFTAK to be able to issue and make price quotations, or pro forma invoices in their own names. This mandatory registration requirement is expected to become voluntary by the end of 1999. Until then, quotations, locally used as 'offers,' issued directly by foreign suppliers (without the involvement of an agent/distributor) are subject to case-by-case approval (endorsement) by AFTAK. A commissioned agent/distributor does not have to be registered with AFTAK, but such an agent/distributor must have one of its registered agent(s)/distributor(s) handle the paper work by paying a fee. American businesses can contact AFTAK by sending their catalog with a letter specifying the items for which they are seeking an agent or visit the AFTAK office directly. Catalogs are displayed in the AFTAK library and inquiries are published free of charge in the associations monthly, AFTAK TRADE NEWS (AFTAK contact information is listed at the end of this section). The Commercial Service of the U.S. Embassy also works closely with AFTAK to advertise requests for agents received from American companies.
Usually an agency contract specifies the terms applicable to terminating an agent's contract. When there are no specific provisions in a contract on agent termination, the Korean Commercial Arbitration Code can specify the provisions for terminating an agent contract. This compensation clause allows the agent to claim compensation from the principal. The amount of compensation is usually determined as the total year average of one year's sales commission (i.e. total sales commission over the years divided by the number of years). As a mutually signed contract between supplier and agent/distributor overrules the default Korean provisions of claims for a commercial agent, U.S. companies are advised to specifically include provisions on agent termination.
The Commercial Service in Korea recommends that U.S. companies seek legal counsel prior to signing a contract in Korea. The legal advice that law firms with international experience can provide can prove to be very important. Most experts advise engaging a local attorney before making major business decisions in dealing with Korean companies.
U.S. companies should also seek legal counsel with regards to protecting their intellectual property. Trademark, copyright, and patent (if applicable) registration with the Korea Industrial Property Office (KIPO) is the minimum safeguard for your intellectual property rights to be protected in Korea. 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, not the Korean agent's name. In order to have control over these important intellectual property rights, registration must be done in the U.S. company's name. Korean law requires that only local attorneys be allowed to make applications to KIPO. A list of major attorney firms in Korea is listed at the end of this chapter in the section entitled "Need for a Local Attorney."
List of Useful Contacts Regarding Agents/Distributors
(Note: Telephone dialing information when calling from outside of Korea: 82 is the country code for Korea, followed by 2 which is the city code for Seoul)Association of Foreign Trading Agents of Korea
AFTAK Bldg., 218 Hankangro 2-ka
Yongsan-ku, Seoul 140-012, Korea
TEL: 792-1581/4
FAX: 785-4373The Korean Commercial Arbitration Board (KCAB)
43rd Floor, Trade Tower 159 Samsung-dong,
Kangnam-ku, Seoul 135-729 Korea
Trade Center P.O.Box 50,
TEL: 551-2000/19
FAX: 551-2020Branch Office, Pusan Korea (KCAB)
Rm. 805, Daehan Tongun bldg., 1211-1,
Choryang-dong, Dong-ku,
Pusan 601-714 Korea
TEL: 82-51- 441-7036/8
FAX: 82-51-441-7039Korea International Trade Association (KITA)
Trade Inquiry Office, 1st floor, Trade Tower, KWTC
159-1, Samsung-dong, Kangnam-ku, Seoul, Korea
TEL: 551-5267/9
FAX: 551-5161
Franchising
There are three main types of franchises in Korea, including restaurants, retail, and services.
Restaurants:
The family franchise restaurant market began to develop in Korea in late 1994, and grew between 40-50 percent a year until the beginning of the fourth quarter of 1997. The image of many foreign restaurants operating in Korea was first tarnished by the e-coli bacteria health scare in September 1997, which set off a wave of concern over the quality of food served at fast food and family restaurant chains. The adverse publicity was followed by the sudden impact of the economic crisis which began in November 1997. Between November 1997 and February 1998 in the midst of a national shortage of foreign capital, anti-foreign sentiment was stirred up by various media and consumer organizations who claimed royalties earned in Korea were being expatriated overseas to foreign franchisors. Foreign franchise restaurants were criticized for contributing to the economic crisis because they pay royalties and franchising fees abroad in U.S. currency. From November 1997 until late 1998, even though the economy began to show signs of recovery, U.S. franchisees experienced a 30-50 percent drop in sales.In the first quarter of this year, Korea's economy grew by 4.6% mainly due to the increased levels of facility investment and partly as a result of increased personal consumption. During the first quarter, personal consumption rebounded 7.4%, after a 10.3% fall a year earlier. In conjunction with positive signs of economic recovery, industry specialists foresee that consumers will once again be dining out in significant numbers. Although experts do not expect in the near term that revenues for the food service industry will soon return to pre-crisis levels, overall sales in franchise restaurants have shown a 15-20% since the beginning of this year. Recently, however, a new dioxin scare has created concern about imported food products served in fast food and family restaurants and has stirred up a small wave of criticism from media and civic groups. The total franchise restaurant market is estimated to be approximately 1,044 billion won (US$870 million, US$1 = 1,200 won), which represents about 5 percent of Korea's 20 trillion won food service market.
Retail:
Since Korea's economy is recovering faster than expected by local and overseas economic research institutes, the domestic retail industry expects to grow by 9.7% to 110.5 trillion won ($92.1 billion) in 1999. Gross revenues for the Korean retail industry, which includes department stores, discount stores, supermarkets, convenience stores and conventional markets, reached 100.7 trillion won ($71.9 billion) in 1998. In particular, department stores, which comprise 11.3% of the retail industry, expect revenues of 12.5 trillion won ($10.4 billion), up 9.7% from 1998. Discount stores expect a 40% growth rate this year, reaching 7 trillion won from 5 trillion won in sales made in 1998. Due to the continuing popularity of discount stores (especially during the economic crisis) and their significant expansion in the market, department stores experienced negative growth of 9.8% in 1998, compared to 1997.Services:
In Korea, the service business franchises has not been quite developed yet, because franchisees focused more on developing restaurant and retail businesses. However, recent market developments indicate that there is potential for a new type of franchise service directed toward business users. For example, Frannet Korea was recently established as an associate office of Frannet USA, a large franchising company based in San Diego. The local office introduces U.S.- based franchising companies to prospective Korean master franchisees and is attracting the attention of many Korean investors and recent early retirees with cash on hand who are looking for new business ventures. Accordingly, U.S. service franchises, which do not require much initial investment, will attract potential Korean franchisees who are seeking to franchise foreign SOHO (Small Office/Home Office) businesses. U.S. firms' systematic management skills and established brands will be important factors in selecting the proper investment opportunity for potential Korean franchisees and for Korean end-users. Additionally, name recognition and quality are also key factors. Industry experts believe that Korea offers a good potential market for business-to-business franchise services over the next few years.Direct Marketing
The direct marketing business is comprised of three main areas: door-to-door, multi-level, and direct mail catalog sales.
Door-to-Door Sales:
Door-to-door sales is a well established practice in Korea. There were 7,740 door-to-door sales firms in Korea, as of December 1998. Major products that door-to door-sales firms market include home education materials, books, household consumer goods, cosmetics, health food and sporting goods. Services sold include products such as insurance and travel. Obtaining data about the market for door-to-door sales in Korea is difficult because the majority of the firms are small-sized. According to the Korea Direct Selling Association (KDSA), the Korea door-to-door sales market at year-end 1998 was approximately 1 trillion won (US$ 714 million, US$1 = 1,400 won).Multi-level Sales:
The main problems in Korea have centered upon restrictions placed on multi-level marketing organizations (MLM). Over the years, Korean authorities have criticized MLM's as an undesirable or inappropriate business form for Korea; one which is prone to consumer safety negligence, "excessive" profitability, and abuse of the tight Korean social fabric through "pyramid schemes."To check the rapid inroads made by foreign multi-level sellers, most notably U.S. firms active in the areas of health and cleaning products, the Korean Door-to-Door Sales Act was implemented in late 1991. In addition to being arguably the world's most restrictive law on multi-level sales, certain provisions were vague or contradictory and led to criminal charges brought against two American companies. The Ministry of Trade, Industry and Energy (MOCIE) worked to revise the original 1991 law in the fall of 1994 to bring it more in line with international norms. As a result, the revised Door-to-Door Sales Act went into effect in July 1995 which contained provisions that regulate distribution, training and compensation. A number of multi-level U.S. firms in such areas as cosmetics, cleaning products, and kitchenware have been operating and expanding quite successfully under the Act.
More recently, MOCIE abolished some unnecessary regulations for MLM companies by amending the Door-to-Door Sales Act. The National Assembly passed the amendment on January 5, 1999. The regulations abolished this time include one of U.S. industry's main concerns, i.e. the obligation to disclose retail prices on the MLM product label. However, the existing Door-to-Door Sales Act still contains restrictive provisions such as requiring a maximum sales price of any product of no more than 1 million won and a maximum on sponsoring bonuses of up to to 35% of the sales price. Korean government officials have stated that their aim in reforming MLM legislation is to promote regulatory reform and reduce administrative burdens and penalties for legitimate MLM companies, while the government realistically attempts to address growing social problems related to illegal MLM's.
As of May 25, 1999, the government authority that enforces the Door-to-Door Sales Act was transferred from MOCIE to the Fair Trade Commission (FTC) as a result of the Government Reorganization Law. The FTC reports to the Office of the Prime Minister. The industry still expects a measure of support from MOCIE because of the Distribution Industry Promotion Act, which was originally intended to support small and medium-sized distribution businesses. However, MLM companies also are curious about how the FTC will interpret existing policy or whether it will propose additional reforms now that it has assumed supervisory authority from MOCIE. The multi-level sales for year end 1998 was approximately 600 billion won (US$ 428.6 million, 1US$ = 1,400 won).
As noted, there are still some problems, which appear to relate to Korean perceptions of how foreign MLS firms advertise the benefits of their products in the media rather than the quality of the goods. Foreign catalog and MLS firms should analyze market trends carefully to promote their products and services successfully in Korea. Prior knowledge of the issues can help avoid unnecessary difficulties in relationships with government offices, consumer watchdog groups, and customs officials.
Direct Mail Catalog Sales:
Although direct mail catalog sales businesses are still in their infant stages, there is potential in Korea, particularly in Seoul, where the heavy traffic can make even the most patient person look favorably towards convenient home delivery. However, industry sources are of the opinion that there will not be good market opportunities for the direct mail catalog sales business in Korea in the near term due to several factors: 1) the current economic situation which Korea is facing; 2) expensive distribution costs; 3) less competitive prices compared to other large discount or membership stores; 4) the illegality of trading mailing lists; and 5) delivery time delays due to an unorganized mailing/ street address system.Joint Ventures/Licensing
Since the economic crisis of November and December of 1997, the Korean Government, at the highest levels, has made a dramatic and high profile effort to attract foreign investment for the purposes of restructuring its economy and bringing in much needed foreign capital. In its efforts to overcome the economic downturn, the government has not only publicized its open encouragement of foreign investment, but also has implemented liberalization policy measures, including an increase in foreign equity ownership, to accommodate its goals. Though high level officials, lead by President Kim and the Prime Minister's Office, have led the charge to de-regulate and liberalize the economy, some foreign companies point out that restrictive regulations which would strike out trade and investment barriers at the working level are not being realized.
Yet, many foreign companies, like Coca-Cola and Pfizer, that already have operations in Korea have chosen this opportunity to increase their involvement in Korea. However, many U.S. investors continue to take a wait and see attitude because of continuing concerns over corporate transparency and indebtedness. Opportunities exist for cautious investors, though it may take a little longer before many investors are really ready to take the plunge.
Foreign investment approval is controlled by the Ministry of Finance and Economy (MFE) and governed through the Foreign Capital Inducement Act (FCIA) which was replaced by the Foreign Investment Promotion Act in 1998. It is anticipated that the new Act will enhance investor rights and incentives, as well as remove bureaucratic obstacles to investment.
Selecting the appropriate partner is one of the most difficult and crucial aspects of initiating a joint venture in Korea. On the one hand, the large Korean conglomerate chaebols still exercise considerable influence which permeates the Korean government and financial institutions. On the other hand, the Korean Government's attempts at a policy shift toward the support of small and medium sized businesses means that the participation of a chaebol in a joint venture could create additional obstacles in terms of obtaining necessary approvals and local financing, especially with the recent government policy shift towards anti-monopoly behavior. In addition, Chaebols' tend to be insistent on operating a joint venture in accordance with the overall policies and business culture of the group, sometimes to the detriment of the foreign shareholder's interest. Though there may be a great need for an injection of foreign capital for the survival of a company, there is a tendency built into Korean business culture to maintain local control, regardless of the percentage invested by foreign entities. A U.S. company may therefore consider assigning its headquarters staff to Korea to closely monitor and influence the activities of a newly established joint venture company.
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). Since board meetings in Korea can only be legally held by a physical meeting of a quorum of the directors, if a foreign investor intends to exercise day-to-day management by appointing a Representative Director, that individual must be expected to reside in Korea. Also, in order to carry out the intentions of the foreign investor, the Representative Director will need the support of and access to key functional areas of the company which are crucial to those intentions. Therefore, the detail of the internal organization of a joint venture company should be settled and key management appointments agreed upon in the early stages.
Compatibility of goals between the partners is a crucial element to the joint venture's success. Conflicts often arise because of a conflict between the foreign investor's goal of sending profit dividends offshore and the Korean investor's goal of company growth in Korea with accompanied exports to third country markets. Korean attitudes are rooted in social and cultural factors and a continuing family orientation on the part of many companies.
To Koreans, a contract represents the current understanding of a "deal" and is the beginning of negotiations with a Korean partner, not the end of discussions. If there are omissions or points that do not accurately express the understanding of the original deal under changing circumstances, then problems will arise. The same is true if the contracting parties change. This has led many foreigners to believe that Koreans do not place the same importance on a written contract as Westerners do. Though Americans may regard a written contract as legally binding, a Korean may regard the same contract as a "gentlemen's agreement" which is subject to further negotiations dependent upon new circumstances. Therefore, contract negotiations with Koreans should be viewed as a process of extensive dialogue with the objectives of (1) reaching a common understanding on the deal and of each party's responsibilities; (2) putting that detailed understanding on paper; and (3) being prepared to modify the meanings of the terms afterwards, as conditions change.
Certain terms of the commercial relationship between the joint venture partners, such as technology transfer, raw material supply, marketing and distribution, should be agreed upon in detail concurrently with the negotiation of the joint venture agreement. Though circumstances are slowly changing, Korean companies have not invested a great portion of their operating funds towards research and development. For this reason, there is a large Korean demand for technology transfer licensing agreements from foreign countries, particularly, the United States, whose companies have a comparative advantage in the high technology area.
In this context, American companies should proceed with caution when they enter into a transfer technology licensing agreement. The protection of a company's intellectual property is not necessarily guaranteed, especially in the later stages of a business relationship when it means the survival or death of a Korean company. Though U.S. companies oftentimes register their patented technology with the Korean Industrial Property Office (KIPO) before entering into a licensing agreement, the most successful American companies intentionally withhold from the Korean partner a small but key component of the manufacturing process or component. This preventative strategy allows the U.S. company to harness the use of the licensed technology in a controlled manner and maintain the integrity of the licensing agreement.
If a contract is violated in Korea, the legal procedures in Korea can be lengthy, cumbersome and expensive. Hence, if at all possible, the best contract strategy is preventative. Identification of a viable and trustworthy business partner from the very beginning is essential and due diligence should be performed regarding the potential business partner prior to any contract negotiations.
One precautionary strategy is to consult with attorneys throughout the process of negotiating a contract. (A list of attorneys in Korea is included at the end of this chapter.) In addition to consulting an attorney, another potential source to consult is the Korean Commercial Arbitration Board (KCAB). The KCAB is staffed with counselors who can advise U.S. companies on contract guidelines. At the company's request, an assigned KCAB counselor can review the contract and stress the importance of an arbitration clause in the contract. The KCAB contact information is as follows:
Mr. Kim, Kwang-Soo, Manager
Public Information Section
The Korean Commercial Arbitration Board
43rd Floor, Trade Tower (Korea World Trade Center)
159 Samsung-dong, Kangnam-ku
Seoul 135-729, Korea
Tel. 82-2-551-2703, 82-2-551-3511
Fax. 82-2-551-2011Steps to Establishing an Office
The following section provides some basic step-by-step guidelines for U.S. companies on how to set up an office in Korea. In addition, a list of real estate and real estate consultancy, taxation and human resource search services in Korea is provided in this section.
Step 1: Assess Your Company's Ability to Conduct Business in Korea
According to your company's particular industry sector, each investment will be different in terms of the size and complexity of an investment as well as the Korean laws and regulations governing operating in Korea. Because the Ministry of Finance and Economy continually revises its negative list, the best way to verify if your business activity can be conducted in Korea through your proposed office in Korea is to contact the "Investing in Korea Service Center."
The Korea Investment Service Center (KISC), formerly the Investing in Korea Service Center (and before that, the Comprehensive Center for Foreign Investment), can help provide general counseling in helping your company to assess whether your company's office in Korea will be allowed to conduct business in Korea. The Center can also provide general assistance before and during your set-up phase. Under the auspices of the Ministry of Commerce, Industry and Energy, the Center is charged to provide assistance and advice to foreign investors. Their one-stop service system provides services including information and consultations regarding trade and investment regulations, taxation, financing, customs clearance, plant/office site location, and investigation and resolution of difficulties or inquiries related to foreign investment.
The Center is located in an active business area of southern Seoul. The following is contact information for the KISC:
KOTRA/ KISC
6th Fl.,
#300-9, Yumgok-dong, Seocho-ku
Seoul 137-170, Korea
Tel:(82-2)3460-7545
Fax:(82-2)3460-7946/7
E-Mail: ico@kotra.or.kr
Website: http://www.kotra.or.krOther References for Foreign Investment Assistance include: (Note: Telephone dialing information when calling from outside of Korea: 82 is the country code for Korea, followed by 2 which is the city code for Seoul)
Organization: Telephone Fax - Investment Policy Division 500-2535 503-9438 - Investment Promotion Division 500-2539 500-2152 (Ministry of Commerce, Industry, and Energy) - Investment Promotion Division 551-4384 551-4463 (Korea Trade-Investment Promotion Agency) - International Cooperation Department 769-6706 782-9702 (Small and Medium Industry Promotion Corp) - Seoul Foreign Investment and Trade Service Center (Seoul Metropolitan Government 731-6800/2 731-6803 - Trade Inquiry Office, 551-5269 551-5161 (Korea International Trade Association)Step 2: Receive Authorization to Proceed with an InvestmentOnce your company is confident that it will be allowed to conduct its business activity in Korea, the next step is to complete and submit the necessary notification documents. Permitted foreign investment projects are subject to notification to the Ministry of Commerce, Industry, & Energy (MOCIE) of the Korean government which delegates its authority to the head office of any major commercial bank in Korea. (A list of major banks in Korea can be found at the end of Chapter VIII - Trade and Project Financing.)
The head office of any major commercial bank is entrusted with the power to accept notification from companies proposing to engage in business in a liberalized sector. In practice, a commercial bank's head office will also generally accept notification of partially liberalized sectors provided that the foreign investment meets the criteria condition for the specific business. However, the bank will reject those notifications in sectors which are still considered prohibited to foreigners.
Your organization's designated representative should visit a commercial bank's head office (the Bank) and consult with the designated staff dealing with foreign customers and foreign investment. The Bank provides application documents to be later re-submitted to the Bank for authorization. Once all the documents have been thoroughly completed with the Korean translations attached, the authorization process by the head office bank should not take more than three hours.
Step 3: Search for an Office Site
It is required that a company submit notification documents and have them accepted by the head office of a bank in order to proceed with setting up an office. However, as finding and negotiating for an office site may take longer than the process of completing the documentation and notification to the bank, company's may consider taking steps 2 and 3 simultaneously. To the company unfamiliar with Korean real estate, one of the most important assets of finding a good office site is to find a good real estate agent or real estate consultancy firm that is particularly skilled with foreign investments. A list of select real estate and real estate consultancy firms can be found at the end of this section.
Because of the scarcity and high demand for land, property is still expensive by U.S. and even Asian standards, despite the economic downturn. The rental rates for office space in Seoul, by comparison, are not as high as East Asian capitals such as Tokyo or Hong Kong. A recent spot survey indicated a range of monthly rents in popular Seoul commercial buildings from $40 to $80 per pyong (equal to 3.3 square meters). These rates are inclusive of maintenance fees and based upon gross floor area, which include common areas. Compared to a spot survey done in 1996, the rates were down by 50% in 1998. However, the rates are up by 10% in 1999 over 1998.
In combination with the monthly rental fee, another major cost item is the substantial deposit payment (or "key money"), a one-time charge which is refundable without interest upon termination of a lease. Key money is required by almost all Korean landlords. Hence in addition to the monthly rental fee, key money deposits for the rentals quoted above range from $3,000 to $6,000 per pyong. Considering the present economic situation, the rental fee still has room for negotiation. There are various combinations of monthly rental fees and key money deposits, and the price per pyong varies based on the negotiated terms. Office parking is another scarce commodity in Seoul, with monthly charges.
Foreign companies in Seoul tend to cluster in four well-known districts: City Hall -- the old downtown where the U.S. Embassy, the American Chamber of Commerce, and a few Korean ministries can be found; Yoido -- the "Manhattan Island" alongside the Han River where financial firms and the National Assembly are located; Kangnam -- the expansive, bustling, new city center south of the river which also includes the World Trade Center complex; and the Mapo district -- halfway between Yoido and City Hall. While traffic is an ongoing source of frustration and delay, Seoul has an excellent public transportation grid such that newly arriving firms can consider various location options.
In the past, the Korean government limited the foreign acquisition of Korean land under the Enforcement Decree of the Alien Land Acquisition and Management Law. Under the old law, foreign investors needed to obtain permission from the government or were not able to acquire land. But according to the revised "Foreign Land Acquisition Law," the Korean government allows foreigners to purchase land regardless of the size and purpose. However, local zoning laws which limit the scope of the type of activity should also be taken into consideration before making the final purchase.
Step 4: Register with the Nearest Tax Office
After locating the site for the office and providing notification to the Bank, the investor, for tax reporting purposes, must register with the nearest tax office within the jurisdiction of the site area. Local Korean tax authorities, in addition to performing tax audits, provide new tax information and counseling at the request of the company. However, the complicated Korean tax laws and the language barrier make it prohibitively difficult for unfamiliar foreign companies to file tax documentation with the Korean tax authorities. Therefore, a company should seriously consider hiring a local accountant firm to perform this function. (Such a list can be found at the end of this section on "Steps to Establishing an Office").
Step 5: Seek Qualified Employees
One last area of setting up your company office may be to find qualified employees, whether local or foreign, to staff your office. Oftentimes, the headquarters of a U.S. company designates one or two Americans to head their office in Korea, while the rest of the staff tend to be local Koreans or Koreans educated in the U.S. To fill both managerial and staff positions, many companies increasingly seek technically qualified Korean-Americans who possess bilingual skills and who are sensitive to bicultural business protocol.
Attractive factors to local workers can include a higher salary, a higher position earlier in one's career, opportunities for travel, the chance to learn and use English, and the opportunity for transfer to the home office or other foreign branch office.
Korea also has a large pool of conscientious, highly educated, enthusiastic and underutilized women workers who usually cannot find equivalent employment in Korean companies due to traditional cultural attitudes towards women in the work force and the prevalence of the "old boy network." Where little opportunities for professional advancement in traditional Korean companies exist, frustrated Korean women, especially professionally qualified Korean women, often welcome a career opportunity should a foreign firm make a good offer.
The complete dedication to the company by Korean workers is slowly disappearing. Company loyalty still exists but these attributes and high productivity do not result automatically. The employer, if foreign, must first earn the respect of his/her Korean employees. Foreign managers have had success using recognition and increased pay to reward increased productivity. In addition, the basic requirements of earning loyalty, respect and friendship gained by the foreigner's own personal efforts are also important motivators.
Whether seeking to hire local or foreign staff or obtaining consultation and information on the local labor laws, one of the options is to consult an employment agency in Korea (list below).
List of Real Estate and Real Estate Consultancy, Taxation, and Human Resource Search Services (*Note: ALL lists and contact information in this Country Commercial Guide are provided only to assist U.S. companies or individual investors to identify companies in Korea who may be able to meet the specific needs of U.S. companies. The lists are not meant to be an exhaustive one, nor is it intended that inclusion in the list be construed as a U.S. Embassy endorsement or recommendation of the companies so listed. The Department of Commerce and the U.S. Embassy assume no responsibility for the professional ability or integrity of the persons or firms whose names appear in the lists given below. The companies listed below are arranged in alphabetical order according to category, and the order in which they appear has no other significance.)
(Note: Telephone dialing information when calling from outside of Korea: 82 is the country code for Korea, followed by 2 which is the city code for Seoul)
List of Major Real Estate and Real Estate Consultancy Firms in Korea
Century 21 Korea Co., Ltd.
3rd Floor, Daewon Bldg.
946-18 Daechi-dong, Kangnam-ku, Seoul
Phone: 561-0021; Fax: 561-0361
Contact: Mr. O.J. Kwon, CEO & Regional Director
(Specialized in commercial & residential real estate)ERA Korea Co., Ltd.
Room 2001, Dusan Bearstel
1319-11, Seocho 2-Dong
Seocho-Ku, Seoul
Phone: 3472-9114;Fax:3472-9113
Contact: Mr. Ahn, Bum Joon
(Specialized in commercial & residential real estate)The John Buck Company
Room 1009, Sam Hwan Bldg., 98-5
Unni-dong, Chongro-ku, Seoul 110-742
Phone: 741-6200; Fax: 741-2598
Contacts: Mr. Pietro A. Doran, Managing Director; Mr. David Yoon, Senior Director (Specialized in commercial, retail, location analysis, leasing, project & construction management and development consulting)KIRA Consulting
7th Floor, Samsungdang Bldg., 101-14
Nonhyun-dong, Kangnam-ku, Seoul
Phone: 544-8400; Fax: 547-8480
Contacts: Mr. Chun, Won Jae, President; Mr. Ji, Moon Bae, Manager
(Specialized in commercial real estate)Korealand Co.
5th Fl., Soam Building, 44-10
Samsung-dong, Kangnam-ku, Seoul 135-090
Phone: 548-4900; Fax:515-4009
Contact: Mr. Kang, Young Dae, Planning Director
(Specialized in residential real estate)Le Meilleur Co., Ltd.
15Fl., F.K.I. Bldg., 28-1
Yoido-dong, Youngdungpo-ku, Seoul
Phone: 761-0600; Fax: 786-0901
Contacts: Mr. K. T. Chung, President; Mr. Choi, Soo Young, General Manager (Specialized in real estate marketing)Pacific Consulting Co., Ltd.
Room 206, 2nd Fl, Unhyun Shinwha Tower Bldg.
30-6, Iksun-dong
Chongro-ku, Seoul
Phone: 785-1818; Fax: 785-0249
Contact: Mr. Yang, Jae Wan, President
(Specialized in commercial real estate consulting/marketing)List of Major Accounting Corporations in Korea
Ahn Kwon Accounting Corp.
7th Floor, Tae Young Bldg., 252-5
Gongduk-dong, Mapo-ku, Seoul 121-020 Korea
Phone: 3271-3114 Fax: 3271-3200
Foreign Partner: Deloitte Touche TohmatsuAnjin Accounting Corp.
Samwhan Camus Bldg., 5th Fl., 17-3,
Yoido-dong, Youngdungpo-ku, Seoul
Phone: 82/2/784-6901 Fax: 785-4753
Foreign Partner: Arthur Andersen (U.S.A)Chong-Un Accounting Corp.
6th Fl., Dongha Building
629, Daechi-dong
Kangnam-ku, Seoul
Phone: 82/2/2263-2868 Fax: 82/2/2267-0470
Foreign Partner: Howarth Int'l (Switzerland).Samduk Accounting Corp.
Seohung Bldg., 12th Fl., 68, Gyunji-dong, Chongro-ku, Seoul
Phone: 82/2/735-0241 Fax: 82/2/730-9559
Foreign Partner: Nexia International (Netherlands; has several business networks in the U.S.A)Samil Accounting Corp.
Kukje Center Bldg. 20th Fl., 191
2-ka, Hangangro, Yongsan-ku, Seoul, Korea
Phone: 82/2/709-0800 Fax: 82/2/796-7027
Foreign Partner: PriceWaterhouseCoopers(U.S.A.)KPMG San Tong Accounting Corp.
15th Fl., Construction Center, 71-2
Nonhyun-dong, Kangnam-ku, Seoul 135-010 Korea
Phone: 82/2/3438-2000 Fax: 82/2/3442-3200
Foreign Partner: Klynveld Peat Marwick Goerdeler (U.S.A)Shin Han Accounting Corp.
7th Floor, Dae Shin Securities Bldg., 34-8,
Yoido-dong, Youngdungpo-ku, Seoul 150-010 Korea
Phone: 82/2/769-3600 Fax: 82/2/769-3650
Foreign Partner: Robinson Rhodes, Salustro Reydel,
McGladrey & Pullen (multi-national)Young Wha Accounting Corp.
Daeyoo Securities Bldg., 8th-14th Fl., 25-15
Yoido-dong, Youngdungpo-ku, Seoul
Phone: 82/2/783-1100 Fax: 82/2/786-6957
Foreign Partner: Ernst & Young Int'l (U.S.A)List of Human Resources/ Executive Search Agencies in Korea
AMROP International
Executive Search
Room 1401, Jongkeundang Building
368, 3-ka, Chunjung-ro, Seodaemoon-ku
Seoul 120-013
Phone: 393-3701; Fax: 393-1811
E-mail: info@amrop.co.kr
Contact: Mr. Shim, In Shik / Representative DirectorBoyden International, Inc.
Room 1105, Changkyo Bldg., 1, Changkyo-dong
Chung-ku, Seoul 100-760
Phone: 756-9305/6; Fax: 755-4632; Email: seoul@boyden.co.kr
Contact: Mr. Yim, Ki Soon, Managing Director
(Affiliated with Boyden World Corporation, New York)Korea Search System Ltd.
3 Fl., Jesung Bldg., 1487-4, Seocho-dong
Seocho-ku, Seoul 137-073
Phone: 587-6200; Fax: 587-6260
Contact: Mr. Jim M. Lee, PresidentKK Consulting, Inc.
Suite 514, City Air Terminal Korea, 159-6
Samsung-dong, Kangnam-ku, Seoul 135-729
Phone: 551-0366 Fax: 551-0220;Email:kkkim@kkconsulting.com
Contact: Mr. Kuk-Kil Kim, PresidentUnico Search Inc.
Suite 603, City Air Terminal, 159-6, Samsung-dong
Kangnam-ku, Seoul 135-728
Phone: 551-0313; Fax: 551-4959
Contact: Mr. Hyong-Jin Kim, PresidentT.A.O. Korea, Teams and Organization
No. 1, Chongro-1ka, Chongro-ku
Seoul 110-714
Phone: 739-3981/ 4; Fax. 739-3985
Contact: Ms. Romi Gyunghee HahnSelling Factors/Techniques
Three practices are essential to success in the Korean market: (1) adapting products and procedures to Korean tastes and conditions, (2) staying in close communication with Korean business partners and customers, and (3) consistently exhibiting 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 discussion and on building long-term relationships but also because such contact brings the end-user in touch with new processes and equipment. In light of the competition offered by Japanese suppliers, who often visit potential and existing customers throughout Korea, U.S. suppliers should consider (1) making visits to Korea to augment the efforts of the local representative; (2) bringing representatives back to the home office periodically to ensure they are fully informed, motivated and up-to-date on the supplier and its offerings; (3) allowing the distributor or agent to appropriately choose among the U.S. company's full product line selection for sale in the Korean market, (4) holding more demonstrations, seminars and exhibitions of their products in Korea, perhaps utilizing the U.S. Business Center facilities of the Commercial Service in Korea; (5) increasing the distribution of technical data and descriptive brochures (the Business Center of the US Embassy can assist with catalog displays, translations and mailings); and (6) improving follow-up of initial sales leads.
Advertising and Trade Promotion
In 1991, the advertising market was completely opened to 100 percent foreign equity participation. As a result, a large number of joint venture agreements between major international advertising agencies and local Korean advertising firms were established. Today, all the major international agencies are present in Korea.
There are two established broadcast networks in Korea, KBS I and KBS II, which are Korean government owned and operated. Two other networks, MBC and SBS, are independent. Advertising time for all four networks is sold through the exclusive government selling organization, Korea Broadcast Advertising Corporation (KOBACO). Despite problems in the past regarding the competition for air time, the advertisement market is not just a virtually open market, but also a buyer's market.
As one of the government's efforts to privatize government-owned firms, the Korean government announced its plan to abolish KOBACO and give the sales right back to the broadcasting companies. A detailed plan will be discussed and made after the new Integrated Broadcasting Act is enacted in 1999. According to this change, the advertising sector will see a more active market after a transition period.
Presently, the networks do not televise during the early afternoon and very late night/very early morning periods. However, along with many local TV stations established in the past three years, the opening of the Cable TV industry just in 1995 has provided a phenomenal increase in the potential to reach Korean audiences. As of July 1999, there are four Network Operators that are currently servicing the Korean cable TV industry, 77 System Operators and 29 Program Providers providing such diverse programs from business news, to sports, to music, to Buddhism, to the Korean board game, baduk ("Go"). Among the 29 Program Providers, there are two shopping channels.
The Korean Broadcasting Commission is the responsible governmental authority for censorship in the local broadcasting advertising field. The Korea Advertising Review Board (KARB) was established in 1991 under the control of the Korea Advertisers Association as an organization to protect advertisers and ad agencies. KARB, which is organized by advertising associations, societies and industry associations, completed work on advertising review regulations in 1994. In addition, the Korean Fair Trade Commission has power over the advertising sector in determining whether an advertisement accurately portrays its claims. Also, certain Korean industry trade associations have the power to approve or reject advertisements related to the industry. Though Korean censorship is still prevalent, it is not as strict as it has been when compared to the past and the Korean government is planning to move from a pre-censorship to post-censorship system in the near future.
Seoul has a world-class trade resource known as the Korea World Trade Center (KWTC). The KWTC consists of the 55 story Trade Tower and the Korea Exhibition Center, popularly known as "KOEX." The Trade Tower houses the offices of the Korea Trade and Investment Promotion Corporation (KOTRA), a wholly-owned corporation of the Korean Ministry of Commerce, Industry and Energy. KOTRA has offices throughout the world and is the main international trade promotion organization of the Korean Government enhancing the export of Korean products as well as investment in Korea. Also located in the Trade Tower is the Korea International Trade Association (KITA), Korea's largest trade association for import and export trade. KOEX is a profit-making, wholly-owned subsidiary of KITA. It contains over 335,000 square feet of usable space, making it the largest trade show venue in Korea. The exhibition center hosts about 100 major trade shows a year, one third of which KOEX organizes. The KOEX facility features eight event halls, seminar rooms, restaurants, video and copy services as well as an equipment rental office.
Pusan, the second largest city in Korea located in the far southern part of the Korean peninsula, has currently one exhibition hall called the Pusan Trade Exhibition Center (PUTEC) which has a floor space of 33,870 square feet. PUTEC is directly run by the Pusan metropolitan city government. A construction project for another larger exhibition hall is being planned in Pusan and is scheduled to begin operating in 2002. This new hall would more than double Pusan's trade exhibition capacity. There are also smaller exhibition halls in Seoul, Pusan, Taegu and Changwon.
The major five star hotels in Seoul, for example, the Hilton, Hotel Shilla, The Hyatt, Intercontinental, Lotte, Ramada Renaissance, Sheraton Walker Hill, and the Westin Chosun offer excellent options and services for organizers and individual firms planning exhibitions, seminars or receptions. In addition, located directly behind the U.S. Embassy in the Leema Building, the U.S. Business Center of the Commercial Service Korea, which is a part of the U.S. Embassy in Seoul and organizationally a part of the U.S. Department of Commerce, offers invaluable support to bring U.S. products and services to the Korean market. For a nominal fee, the Business Center provides modern audio and visual equipment as well as catering arrangements to help U.S. businesses stage a cost effective professional promotion, technical seminar, matchmaker, reception or business meeting.
List of Major Newspapers and Business Journals (Note: Telephone dialing information when calling from outside of Korea: 82 is the country code for Korea, followed by 2 which is the city code for Seoul)
Major Newspapers in Korea
Chosun Ilbo
(Korean newspaper)
General: Tel: 724-5114 Fax: 724-5329 (Int'l Div.)
Advertising: Tel: 724-5824 Fax: 724-5809
Address: 61, 1-ka, Taepyung-ro, Chung-ku, Seoul 100-756 KoreaChungang Ilbo
(Korean newspaper)
General: Tel: 751-5114 Fax: 751- 5420 (Int'l Div.)
Advertising: Tel: 751-5076 Fax: 724-5809
Address: 7, Soonhwa-dong,
Chung-ku, Seoul 100-130 KoreaDong Ah Ilbo
(Korean newspaper)
General: Tel: 361-0114 Fax: 361-0445
Advertising: Tel: 721-7755 Fax: 721-7787
Address: 139, Sejong-ro,
Chongro-ku, Seoul 110-715 KoreaHankuk Ilbo
(Korean newspaper)
General: Tel: 724-2114 Fax: 732-9288/4124
Advertising: Tel: 724-2802 Fax: 720-7222
Address: 14, Chunghak-dong,
Chongro-ku, Seoul 110-150 KoreaHankyoreh Shinmun
(Korean newspaper)
General: Tel: 710-0114 Fax: 706-9569
Advertising: Tel: 710-0417 Fax: 710-0410
Address: 116-25 Gongduk-dong,
Mapo-ku, Seoul 121-750 KoreaKorea Economic Daily
(Korean newspaper)
General: Tel: 360-4114 Fax: 319-6016
Advertising: Tel: 3604-477 Fax: 392-4168
Address: 441, Chunglin-dong,
Chung-ku, Seoul 100-360The Korea Economic Weekly
(English weekly newspaper)
Tel: 365-3053/4 Fax: 365-3057
Address: 441, Chungnim-dong, Chung-ku,
Seoul 100-791 KoreaKorea Herald
(English newspaper)
General: Tel: 727-0114 Fax: 727-0670
Advertising: Tel: 727-0333 Fax: 727-0676
Address: 1-12, 3-ka, Hoehyun-dong,
Chung-ku, Seoul 100-771 KoreaKorea Times
(English newspaper)
General: Tel: 724-2716 Fax: 732-4125
Advertising: Tel: 724-2827 Fax: 723-1623
Address: 17-11, Chunghak-dong,
Chongro-ku, Seoul 110-792 KoreaKuk Min Ilbo
(Korean newspaper)
General: Tel: 781-9114 Fax : 7819-381 (Int'l Div.)
Advertising: Tel: 781-9818 Fax: 781-9830
Address: 12, Yoido-dong, Youngdungpo-ku,
Seoul 150-010 KoreaKyunghyang Shinmun
(Korean newspaper)
General: Tel: 3701-1114 Fax: 735-6140 (Int'l Div.)
Advertising: Tel: 3701-1502 Fax: 736-4985
Address: 22 Jung-dong, Chung-ku, Seoul 100-702Maeil Kyungjae
(Korean newspaper)
General: Tel: 2000-2114 Fax: n/a
Advertising: Tel: 2000-2250/1 Fax: 2275-8070
Address: 51-9, Pil-dong 1-ka,
Chung-ku, Seoul 100-728 KoreaMunhwa Ilbo
(Korean newspaper)
General: Tel: 3701-5114 Fax: n/a
Advertising Tel: 3701-5566 Fax: 730-0674/5
Address: 68, 1-ka, Choongjung-ro, Chung-ku, SeoulNaeway Economic Daily
(Korean newspaper)
General: Tel: 727-0114 Fax: 727-0661
Advertising Tel: 727-0303 Fax: 727-0674/5
Address: 1-12, 3-ka, Hoehyun-dong, Chung-ku, SeoulSegye Ilbo
(Korean newspaper)
General Tel: 2000-1234 Fax: 799-4520
Advertising Tel: 792-3500 Fax: 793-7125
Address: 63-1, Hangangro 3-ka, Yongsan-ku, SeoulDaehan Maeil
(Korean newspaper)
General: Tel: 721-5114 Fax: n/a
Advertising: Tel: 721-5777 Fax: 721-5779
Address: 25, 1-ka, Taepyung-ro,
Chung-ku, Seoul 100-101 KoreaSeoul Kyungjae Shinmun
(Korean newspaper)
General : Tel: 724-2715 Fax: n/a
Advertising: Tel: 724-2821 Fax: 734-9009
Address: 14, Chunghak-dong,
Chongro-ku, Seoul 110-150 KoreaMajor Business Journals Published in Korea
Business Korea
(monthly magazine)
Marketing: Tel: 744-4010 Fax: 745-3232
Address: 3/F, Christian Women's Mission Center
1-1, Yeonji-dong, Chongno-ku, Seoul 110-470 KoreaKorea Economic Report
(monthly magazine)
Tel: 783-5283/7 Fax: 780-1717
Address: Suite 603, Shinsong Bldg.
25-4 Yoido- dong, Youngdungpo-ku,
Seoul 150-010 KoreaKorea Trade and Investment
(bi-monthly magazine)
Tel: 3460-7524~6 Fax: 3460-7940
Address: Rm. 1504 Korea World Trade Center
300-9, Yomgok-dong, Seocho-ku,
Seoul, Korea 137-170Travel Trade Journal
Tel: 744-4010 Fax: 745-3232
Address: 3/F, Christian Women's Mission Center
1-1, Yeonji-dong, Chongno-gu, Seoul, Korea 110-470Pricing a Product
U.S. goods have a reputation among Korean buyers for high quality and performance; yet Korean manufacturing companies tend to be very price conscious and often regard U.S. input products as too expensive. In an export-oriented economy where finished products must be able to meet keen competition in the world market, many local manufacturers believe that it is essential to buy raw materials and equipment from the cheapest source, even at the expense of quality. Goods from Japan and elsewhere are frequently considered to be better buys, even though their quality and durability may be no match to that of the American item. In addition, Korean manufacturers look to offsetting labor wages with lower cost input manufactured goods. However, as Korea continues to move toward higher-end and manufacturer-branded exports -- as well as to combat perceptions of poor quality control of certain Korean products in recent years -- the precedence given to price as a buying factor may be somewhat tempered. Another characteristic of Korean price considerations is the tendency to bundle and often undervalue the "software" (engineering and other services components), particularly in the procurement of major systems.
U.S. exporters might consider (1) adapting their products to Korea by marketing basic units; (2) taking into account in their price quotations, as their competitors do, the repeat business generated by the demand for spare parts and auxiliary equipment; and (3) most importantly, emphasizing and selling the idea that superior quality of U.S. manufactured input products ultimately results in lower production costs.
Sales Service/Customer Support
In determining success over time for U.S. suppliers in the Korean market, sales and after-sales service (commonly abbreviated by Koreans as "A/S") rank just after the selection of the appropriate product and right price. Just after the Korean War, when foreign exchange was exceedingly scarce, Korean plant operators learned to rely on their own resources or on the many small machine shops to service machinery. The tradition of self-reliance and improvization remains. However, with heavy competition among foreign suppliers in the Korean market, servicing has become a much more important part of selling.
Private traders and offer agents often hire in-house engineers available to install equipment. For specialized installations, however, the best sources of assistance include resident and offshore foreign engineers, in coordination with local engineers, whose services are available for contract.
Japan's proximity to Korea (not to mention Asian business cultural affinities which transcend deep political animosities) allow already stiff competitors from that country to send teams of specialists at less cost and time to offer skilled advice in installation, maintenance and repair. U.S. firms should consider establishing regional servicing facilities that can effectively service and support equipment sold in Korea. Short of that, the emphasis given recently by some American firms on training personnel, often through programs in the United States, has proven beneficial.
Selling to the Government
The purpose of the World Trade Organization's Government Procurement Agreement (GPA) is to establish non-discriminatory procedures for the procurement process so that a maximum number of qualified suppliers can fairly compete. The GPA defines steps to be followed regarding qualification of suppliers, publication, opening and award of tenders, and specifies minimum bid deadlines. It also limits circumstances under which open and competitive tendering procedures may be waived, such as cases of extreme urgency or follow-on procurement of spare parts. The GPA strives for greater transparency by requiring Korea and other signatories to publish laws, regulations, and detailed statistics regarding government procurement. The Agreement also requires procuring entities to make public basic information about contract awards, including (if requested and if not deemed contrary to the public interest) an explanation of why a supplier failed to qualify or was disqualified from competing on a bid, why its tender was not selected, or the reasons why the winning tenderer was selected. Another novel feature about the GPA is that it establishes bid challenge procedures in cases where a supplier believes a procuring entity has breached the Agreement. While such procedures have yet to be tested in Korea's case, they have been successfully used in other GPA signatory countries to the benefit of U.S. suppliers.
Korea began implementing the GPA on January 1, 1997. In its accession offer, Korea agreed to cover procurements valued over certain "threshold" amounts made by Korean central government agencies, their subordinate entities, Korean provincial and municipal governments, and some two dozen government-invested companies. In addition, procurement of services--including construction services--by covered Korean entities is included. 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. Accordingly, the Korean Ministry of Finance & Economy (MOFE) 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 $180,000, and for construction services approximately $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 equipment related to electrical transmission and distribution.
The Supply Administration of the Republic of Korea (SAROK, formerly the Office of Supply or OSROK) is responsible for the purchase of goods and incidental services required by central and sub-central government entities, government construction contracts and related services, and stockpiling raw materials. Not all GPA-covered procurement is handled by SAROK. 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 is required.
U.S. suppliers are required to register in advance with SAROK (or any other procuring entity), which maintain lists of pre-qualified suppliers for given materials, equipment and services. Invitations to bid are announced 40 calendar days in advance of the bid deadlines. 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 bid is covered by the GPA.
While SAROK features tender information in English on its internet home page at http://www.sarok.go.kr, other procuring entities only sporadically publish information on their respective websites (if available) and the information is not always timely. While not required in order for foreign firms to be eligible to bid on Korean Government contracts, any foreign firm with local representation tends to have a competitive advantage on Korean tenders, since it can better track tender notices, arrange for translation, and ensure that bids are properly submitted.
Protecting your Product from IPR Infringement
The protection of intellectual property rights, with regards to patents and copyrights and their policy implications, is further addressed in Chapter VII (Investment Climate). For the purposes of this chapter on marketing U.S. products and services, however, the protection of a valuable marketing tool, such as a trademark, is addressed in this section.
With very few exceptions, most U.S. companies encountering problems in the intellectual property rights (IPR) area or wishing to register their copyright, trademark, or patent engage the services of an attorney firm (a list of law firms in Korea can be found at the end of this chapter). U.S. companies can seek trademark and patent registration from the Korea Industrial Property Office (KIPO). Generally speaking, under international law, copyrights do not have to be registered in order to be protected; however, like in the U.S. where copyright registration is possible, registration is also possible in Korea with the Ministry of Culture and Tourism. Enforcement of legally registered copyrights, trademarks, and patents are under the jurisdiction of the Prosecutor's Office in Korea.
If a U.S. company wanted to see if their trademark were registered without authorization, they would have to employ the services of a qualified Korean attorney because the Korean Industrial Property Office (KIPO), the equivalent to the U.S. Patents and Trademarks Office, does not directly take individual company requests in practice. Rather, with limited resources, KIPO only takes such requests from established Korean law firms who are familiar with the appropriate contacts and more importantly, the technical process of registration. In addition, if a U.S. company wanted to pursue legal avenues in the Korean legal system or in the KIPO Trial Board System, the intricacies of Korean IPR law in addition to the immense paperwork and documentation needed to be completed and compiled in the Korean language can be a daunting task for a U.S. firm without full time local presence and without contacts in the Korean government. Hence, in order to attempt to remedy most IPR problems in Korea, an effective local attorney is a key asset.
One of the most frequent IPR problems facing U.S. businesses in Korea is trademark protection. Unlike the trademark registration system in the U.S. which is based on "first commercial use" or "first intent to use" the trademark registration system in Korea is based on "first-to-file," or more accurately, first to successfully register with the Korea Industrial Property Office (KIPO). If a U.S. company is fortunate enough to have the foresight to consider entering into the Korean market, and no one has yet filed to register the same or similar trademark in Korea, it is highly advised that the U.S. company register its trademark first before another unauthorized party registers it. The company will save a lot of time, energy, resources, and legal fees in the long run. In order to successfully register a trademark, hiring a qualified local attorney who is familiar with registration procedures is a must. To have maximal effect using this prevention strategy, the company should be prepared to register the trademark in each product class category which is applicable for the product(s); should the trademark be challenged, protection is not generally provided under the Korean legal system if the company does not register in the pertinent particular product class category. Again, U.S. companies should be the first to file their trademark in Korea, and file in every applicable class category.
During the course of registration, information on registration pending applications becomes initially available from 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. Generally, U.S. companies hire a local attorney and ask the firm to look into the status of the company's trademark in Korea. Sometimes, the U.S. company discovers from the above publications that an unauthorized party has already been filed and is awaiting registration. In this case the company is eligible to file an Opposition Action Petition during the course of a registration, but before a registration is successful. In an opposition action petition, the company states their case as to why the unauthorized party's application should be rejected during the course of initial review. After reviewing the opposition action petition, KIPO can decide either to proceed to successfully register the unauthorized trademark application, or, KIPO can decide to reject the trademark application, enabling the U.S. company to clear the path for the American company's successful registration at a later date.
If the American company is not yet fully engaged in the process of registration but plans to enter the Korean market in the distant future, then the company may at least want to monitor KIPO's public notices to see if someone tries to register the mark. If the company cannot monitor the situation from America, then the U.S. company should consider hiring someone in Korea, like an attorney, who can.
The March 1998 Trademark Act includes a new provision to increase the possibilities of a successful action. It provides KIPO, grounds to reject a third-party application of the same or similar trademark application if KIPO is convinced that the registration is done in "bad faith." Even if an unauthorized party has filed for a U.S. company's trademark, hopefully, the capable trademark examiner at KIPO will have done his/her homework and have the knowledge to reject a famous/well-known trademark application.
As capable as trademark examiners can be, some trademark registrations by unauthorized registrants have slipped through the cracks and have been successfully registered. A registration by an unauthorized party is particularly unscrupulous in cases where the party registers the mark without intent to use the mark in a "predatory registration"....i.e., knowing that the mark belongs to another company, the unauthorized applicant registers the mark in hopes of cashing in when the legitimate trademark owner tries to enter the Korean market.
In this case, because the Korean legal system is based on first to file, and because the unauthorized registrant successfully registered with KIPO, the unauthorized registrant is the legal owner of the trademark in Korea ---even if it is the U.S. company's mark and the American company has been using it in international commerce for the past several years! Provided that the mark was not used in commerce by the successful but unauthorized registrant in Korea for the past three years, the company can file a Cancellation Action petition to cancel the existing mark. If the cancellation action is successful and there is no appeal, the company can immediately file to register the trademark with KIPO, therefore, reclaiming the trademark.
The U.S. Patents and Trademark Office (USPTO) has an efficient system whereby it is empowered to eliminate such "deadwood marks" (i.e. trademark registrations which are not commercially used). In the U.S. system, all successful registrants are required to submit an Affidavit of Use between the fifth and sixth years of registration. If the Affidavit is not filed or there is no evidence of commercial use, USPTO has the power to automatically de-register the registration. Such a system in Korea would help to alleviate existing problems with predatory registrations.
The most onerous scenario takes place when an unauthorized trademark application has been successfully registered with KIPO, and the party is actually using the U.S. company's trademark in commerce in Korea. In this case, the legal remedy available is an Invalidation Action. An invalidation action petition can be filed anytime during the course of the 10 year life of a trademark, provided the trademark is actually being used by the unauthorized registrant. The American company's petition would 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 all kinds of documentation showing commercial use (include samples of the product and show the uniqueness of the trademark and product); to substantiate financial investment in advertisements (include advertisements in every way, shape, or form); even to provide the results of a survey conducted to show that the brand name is recognized by the public at large in Korea and that the company is the source of the legitimate goods touting the trademark.
Provided that the company and their attorneys put forth a convincing argument with meticulously documented details as to why the company is the legitimate trademark owner, the company has a good chance of winning the case before the KIPO Trial Board. However it may not be over as cancellation and invalidation actions have an appeals process from the KIPO Trial Board to the Korean Patent Court and finally, to the Supreme Court of Korea. The rule of thumb for trial date is first come, first served; petitions are filed by date with the trial dates occurring in order of the date of petition.
Unlike the case of a successful cancellation action where the company may file for the trademark immediately with KIPO, in the event an invalidation action is successful and there are no appeals, the U.S. company cannot officially file to register the trademark until one year has passed from the invalidation action date. However, U.S. companies can seek enforcement measures from the date of invalidation of the Korean registration.
Suffice it to say that the above means are legal means. There is always the possibility of settling out of court. And, because of the lengthy time it takes to go from the KIPO Trial Board to the Korean Patent Court, all the way up to the Supreme Court of Korea, some companies just cannot wait that long to re-claim their trademark. Time is money. Four years or more is not unheard of for a final decision using the legal process, and even then, there is no guarantee that the U.S. company would win. Because the opportunity cost of not entering the lucrative Korean market is so great, some companies have opted to settle out of court, i.e., to buy their own trademark from the unauthorized (but legal) registrant for use in the Korean market. However, some companies have strictly limited themselves to legal battles based on moral principle; in either case, good legal counsel is an absolute must. Ultimately, the decision is up to the U.S. company with good legal counsel as to how to proceed.
When registering for a copyright, trademark or patent, US companies, should maintain control of their intellectual property, even if they request their Korean agent to do the processing. This control is particularly relevant should the Korean-American partnership dissolve. In such previous cases where the Korean agent maintained control of the intellectual property, long, costly legal battles have ensued. The legal system is structured on an appeals process which could take at a minimum three to four years in the courts should a case go to the Supreme Court of Korea or to the Supreme Civil/Criminal Court. Again, even then, there is no guarantee that the US party would win. Hence, to avoid such legal disputes and hefty legal fees, US companies are urged to do their due diligence when choosing a potential Korean partner.
Need for a Local Attorney
Although the industry is in the process of liberalization, the legal services sector is presently closed to foreign firms. The sector was partially liberalized on January 1, 1997 to allow foreign lawyers who pass the judicial exam (in the Korean language, only) to practice law in Korea. For the time being, only Korean law firms are allowed to be established, and foreign lawyers are technically not allowed to practice law in Korea. However, an increasing number of international attorneys are hired as consultants by Korean law firms, and many are essentially practicing law with the exception of a final approval signature which must be completed by a Korean attorney. It is astounding that for a population of nearly 44 million people, the present Korean examination system allows less than a thousand newly graduated law students a year to enter into the ranks of practicing law. The Korean government is working to liberalize this sector by allowing more graduates to enter into the ranks. However, as Korean law firms enjoy a comfortable industry monopoly, they generally oppose the liberalization of this sector to foreign competition which may drive legal fees down and provide more choices for Korean and foreign consumers.
Though there is a market for legal services regarding domestic matters, a large scope of practice by Korean law firms focuses on international business and transaction. Most experts advise engaging a local attorney before making major business decisions in dealing with Korean companies. The legal advice that Korean firms with international experience can provide can be very important. In addition to advice on structuring deals or arranging contracts, Korean law firms are usually well connected into the power structure and have extensive contacts in the government ministries whose approval often means life or death to the foreign company.
Although it is important to have legal representation when a business in Korea reaches even a modest level of complexity, it is important to remember two things. First, the Korean law firm's capabilities will go well beyond strictly legal work and will likely include functions more often performed by consultants or public relations firms in the United States. Second, although major Korean firms have extensive and excellent contacts with the Korean bureaucracy, for anyone planning long term business involvement in Korea, it is often useful to establish direct contacts with the officials who oversee any given industry.
List of Major Law Firms in Korea (*Note: ALL lists in this Country Commercial Guide are provided only to assist U.S. companies or individual investors to identify companies in Korea who may be able to meet the specific needs of U.S. companies. The lists are not meant to be an exhaustive one, nor is it intended that inclusion in the list be construed as a U.S. Embassy endorsement or recommendation of the companies so listed. The Department of Commerce and the U.S. Embassy assume no responsibility for the professional ability or integrity of the persons or firms whose names appear in the lists given below. The companies listed below are arranged in alphabetical order according to category, and the order in which they appear has no other significance.) (Note: Telephone dialing information when calling from outside of Korea: 82 is the country code for Korea, followed by 2 which is the city code for Seoul)
Aram International Law Offices
6th Fl., Daejeong Building, 51-7, Banpo-dong, Seocho-ku, Seoul
Tel: 592-0892; Fax: 596-6081Bae, Kim & Lee, P.C.
7th - 11th Fl., Hankuk Tire Building, 647-15, Yuksam-dong, Kangnam-ku, Seoul
Tel: 3404-0000 Fax: 3404-0001Central International Law Firm
5th Fl., Korea Re-insurance Bldg., 80 Soosong-dong, Chongro-ku, Seoul
Tel: 735-5621/6; Fax: 733-5206/7Chin, Ahn, Ha & Seo
8th Fl, Il-Heung Building, 1490-25, Seocho-Dong, Seocho-Ku, Seoul
Tel: 586-2240; Fax: 586-3184C.J. International Law Offices
8th Floor, Dae Kyung Bldg., 51-5, Banpo 4-dong, Soecho-ku, Seoul
Tel: 736-0145; Fax: 3476-5995First Law Offices of Korea
275, 3th Fl. Dongwonsanup Building
Yangjae-dong, Seocho-ku, Seoul
Tel: 589-0001; Fax: 589-0002Hwang Mok Park & Jin Law Offices
9th Fl., Daekyung Building, 120, 2-ka, Taepyong-ro, Chung-ku, Seoul
Tel: 772-2700; Fax: 772-2800Kim & Chang Law Offices
Seyang Building, 223, Naeja-dong, Chongro-ku, Seoul
Tel: 737-4455; Fax: 737-9091/3Kim, Chang & Lee
9th Floor, Daeil Building, 43 Insa-Dong, Chongro-ku, Seoul 110-290
Tel: 397-9800 Fax: 725-8727Kim, Shin & Yu
12th Fl., Leema Bldg., 146-1, Susong-song, Chongro-ku, Seoul
Tel: 735-5822 Fax: 739-6606, 739-6182Law Offices of Kim, Chang & Lee
9th Fl., Daeil Building, 43, Insa-dong, Chongro-ku, Seoul
Tel: 397-9800; Fax: 725-8727/8Law Offices of Lee & Ko
17th & 18th Fl., Marine Center Main Bldg., 118, 2-ka, Namdaemun-ro, Chung-ku, Seoul
Tel: 753-2151; Fax: 753-0373/0374/0375Shin & Kim
Samdo Bldg., 4th Fl., 1-170, Soonhwa-dong, Chung-ku, Seoul
Tel: 316-4114; Fax: 756-6226Shin & Shin: Suite 1913 Champs Elysees Center Building
#889-5, Daechi-dong, Kangnam-Ku, Seoul 135-280
Tel: 565-6300; Fax: 565-7400Yim, Kim, Kang, Lee, Cho & Partners:
8th Fl., Poong Lim Bldg. 823-1
Yeoksam-dong, Kangnam-ku, Seoul
Tel: 553-1246 to 1250; Fax: 553-0990 or 0987Yoon & Partners: Suite 831,
Korea Chamber of Commerce & Industry Bldg.
45, Namdaemunro 4-ka, Chung-ku, Seoul
Tel: 773-0161; Fax: 773-4947; 773-4948
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[end of document] Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title17, United States Code.
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