South Korea Despite favourable prospects in Korea, companies are complaining

Author / Editor: Stéphane Itasse / Rosemarie Stahl

South Korea's economy is growing steadily at a rate of about three percent per year and European companies consider the country to be an interesting market. Nevertheless, a number of criticisms do exist, as revealed by a recent survey of twelve European Chambers of Commerce.

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South Korea's economy is seeing steady growth. However, the European companies in the country are not yet satisfied.
South Korea's economy is seeing steady growth. However, the European companies in the country are not yet satisfied.
(Source: Public Domain / CC0 )

According to the Korean-German Chamber of Commerce and Industry (AHK Korea) in Seoul, the South Korean economy is expected to grow by about three percent in 2018. However, the Director of Germany Trade & Invest, Alexander Hirschle, stated at a chamber meeting that this year will be a good indicator as to whether the country is capable of healthy and sustainable growth, particularly since individual sectors have boosted the economy nicely in recent years, namely the construction industry in 2016 and the semiconductor industry in 2017.

Even without a boost like this, South Korea's economy does not need a special driving force this year. Hirschle is sure that the growth in South Korea will normalise itself in the coming phase. However, he is assuming that the semiconductor boom will continue, albeit not quite as dynamically. As a reason he states the continuing high demand from the Internet of Things, autonomous driving technology and smart factories. However, the current favourable economic situation in South Korea is not creating a favourable mood among European companies based in the country. AHK Korea, the Korean-German Chamber of Commerce and Industry, comments on a survey conducted on twelve European chambers of commerce: Various companies — about a third of which are German companies — have confirmed their optimistic business outlook for the Korean market. At the same time, they called for reforms for creating a clear and fair business environment.

According to the survey, the country remains one of the three largest sales markets in Asia. Some 77 percent of the German companies that participated in the survey have already been in the Korean market for over ten years. The investment intentions for 2018 also remain positive. One example of this is the fact that 46 percent of the German companies surveyed said they wanted to expand their business in Korea. The annual revenue generated in the country (the surveyed companies queried 2016 results) was over 50 million euros for 54 percent of the German companies surveyed. A three percent portion of the companies surveyed generated revenues of more than one billion euros.

Looking at the next two years, with 69 percent, German companies have predominantly optimistic expectations for a growth rate in their industries, whereby the development of profitability is assessed very differently. In contrast, the development of labour costs was seen as a definite challenge for the next two years as 57 percent o the survey feedback indicated pessimism for the coming period. Nor do companies anticipate to see any significant improvement in labour productivity from which they could possibly benefit.

Challenging business environment

(Source: Vogel Design Werkstatt)

The German companies operating in Korea also perceive the business environment as a challenging environment. Non-tariff barriers, ambiguous regulations, arbitrary interpretations, and also the availability of a qualified work force are among the most frequently mentioned difficulties in the survey. Accordingly, rule of law (97 percent), fair competition (89 percent) and openness on the Korean market to foreigners (89 percent) were seen as the most important factors influencing continued economic development of the country.

“The survey confirms that Korea is a very important and strong economic partner for German companies. This is reflected in the investment figures as well. In 2017, Germany was Korea's largest European investor,” says Barbara Zollmann, Managing Director of AHK Korea. “Unfortunately, the survey also substantiates the fact that the business environment for German companies in Korea has deteriorated, despite the positive figures from recent years. We therefore appeal to the new Korean government to address the areas of action mentioned by the German investors to ensure the creation of a favourable business environment.”

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