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Why Trade with South Korea? |
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Why Trade with South Korea? |
Dr Tony Michell
The Impact of the Asian Crisis
In January 1997 Korea was the 11th largest economy in the world and for many companies their largest market in Asia. It was also the 11th largest trading nation in the world. By the end of 1998, the effects of the Asian crisis may well have reduced Korea to the ranks of 17th largest economy, below Russia and Mexico, but it will still be the 11th largest trading nation.
In the first five months of 1998 Korea's exports have grown by about 4%. This nominal figure represents a massive redirection of trade. Exports to SE Asia, similarly affected by the Asian crisis dropped by 24%, but exports to OECD countries grew by 29%. In the coming months, Korean exports to Europe and the US are expected to soar.
Although imports were at an all time low at the beginning of 1998, they are expected to rebound, and Korea will run a healthy current account surplus of anything between US$30 billion and US$50 billion.
How should British companies act?
How are British companies affected? The answer really depends on how pro-active we are prepared to be. Korea's competitiveness in exports is now phenomenal. If the country was competitive when the won was at 1400 to the pound, consider what can be done when it is at around 2,200 to 2,300. While at first sight this would appear to rule out exports from Britain to Korea, think again.
Relationships are changing. Consider that Korea has gone from a high labour cost to a low labour cost economy in a matter of two months. With some of the world's most advanced industrial plant, Korea is becoming a major sourcing point for the world – one idea was that Kia would supply auto engines to Rover. Moreover, this is an ideal time for British companies to become agents for Korean exporters, not only for the UK but for the whole of Europe.
M&A Opportunities
Korea has become the subject of debate about M&A (Mergers & Acquisitions), with the world press linking Bowaters and Halla Paper, Lucas and Mando Machinery. Koreans are prepared to discuss selling divisions and overseas assets. During the next few months a wide range of acquisitions from banks to air-conditioner companies will be sold, often, with some of the world’s most advanced equipment. Those lacking sufficient finance will find a number of Asia recovery funds set up to assist as silent partners.
You Can Still Sell in Korea
How are companies managing to continue to sell in a recession? Several of EABC's clients in Korea had their best first quarter sales ever. One British company, which had never made target before, came in 10% above target.
Companies which can produce in Korea, or perform assembly in Korea are obviously at an advantage, but companies with strategic alliances with Korean importers can also continue to succeed. Being pro-active also means it is better to bring a financial partner. The Hong Kong and Shanghai Bank, which owns the Midland Bank, seems to be the best British bank, willing to consider trade financing.
Hi-tech remains good
For venture capitalists and start-up hi-tech enterprises, Koreans still have the industrial fire-power to license or co-produce products in some of the world's most modern plant. Koreans are continuing to invest, and are willing to consider co-operative R&D around the world. The biggest Korean R&D centre is the Daewoo Technical Centre at Worthing which is where much of their development work in the auto industry has been carried out, including the new car launched in February - the Mani.
With a new pro-foreign-investor government in power, companies are looking at the BOT system for the needed social infrastructure which foreign construction companies can now build.
Think Pro-actively
Excluding the familiar markets of Singapore and Hong Kong, Korea remains the most attractive and accessible of the three major Asian markets, Japan, Korea and China. If you have not looked at Korea for a while, or if you have been deterred by the talk of crisis - look again. It is a time for creative and proactive strategies. The old style of expecting Koreans to come to UK firms will no longer work, but a would-be exporter or importer will find plenty of willing partners and helpers.
EABC is currently acting for Korean Banks with sell mandates, Asian recovery funds and Korean organisations encouraging imports and exports.
12/10/06