Asia’s ‘secret’ economy

Visitors are often surprised by the modern look and feel of Seoul, a metropolis of 10.4 million. They shouldn’t be, given that it’s home to multinational giants Hyundai, LG Corp. and Samsung Group. South Korea is an advanced country with a Western standard of living and a $1 trillion (U.S.) GDP. Last year, its $466 billion in exports and $425 billion in imports made South Korea the No. 8 trading country.

“Korea is often underestimated, and Seoul in particular is often underestimated,” says Roland Villinger, manager of consulting firm McKinsey & Co.’s Seoul office. “If you look at it, it’s actually a wonderful place to settle in Northeast Asia, with quite limited risk. It’s also a secret, I think.”

South Korea is overlooked by Canadian firms considering expansion into Asia. Simon Bureau, Seoul-based head of the Canadian Chamber of Commerce in Korea, says they think of its bigger neighbours Japan and China first. “But they forget that in the shadow of those two countries is a very interesting market with [almost] 50 million consumers.”

Some Canadian companies, however, are blazing the trail. Three years ago, the pharmaceutical division of Montreal-based engineering and construction company SNC-Lavalin Inc. opened an office in Seoul. SNC-Lavalin, which has worked in the Republic of Korea’s capital since the 1970s, saw an opportunity in the life-sciences sector.

Richard Poulin, vice-president of operations for Asia for SNC-Lavalin Pharma, says the South Korean government is pushing to improve and expand infrastructure for drug development, medical equipment and health care.

At the same time, local pharmaceutical firms are pouring money into research and development. “They want to make their mark on the global market,” explains Poulin, who is also seeing an influx of foreign investment in life sciences research, attracted by South Korea’s highly educated work force. “We consider South Korea a good platform to serve the whole of the Asia-Pacific.”

Canadian consumer products, though, barely register with South Koreans. Bureau says the Canadian business presence in South Korea is largely business-to-business. While companies such as SNC-Lavalin, Bombardier Inc. and Magna International Inc. enjoy success there, few Canadian brands have made an impact.

Exceptions include Research In Motion, which sells BlackBerrys in partnership with Seoul-based SK Telecom. B.C.-based outdoor clothing and equipment maker Arc’teryx has stores in Seoul and Ilsan. And in the supermarkets of Seoul, Canadian-made Inniskillin ice wine, Moosehead beer and Voortman cookies share shelf space with Korean foods.

Breaking into South Korea isn’t easy, Bureau warns. Its consumers are extremely demanding–and they’re used to being pampered by domestic companies such as LG and Samsung. Then again, they have serious purchasing power and will pay a premium for high-quality foreign goods. “If you can make it in Korea, you can make it anywhere,” Bureau says. “It’s a tough market, but it can be a rewarding market.”

Seoul, which dominates the world’s 12th-largest economy, is the place to start. Half of South Korea’s 48.8 million citizens live in the Seoul area. “Seoul is everything in Korea,” says Donald Baker, director of the Centre for Korean Research at the University of British Columbia. “Not only is it the economic capital, it’s the political capital, the cultural capital and the educational capital.”

This concentration equals convenience. “Seoul is where all of the industries that Korea is proud of are put together,” says Dong-sung Cho, professor of strategy, international business and management design at Seoul National University.

South Korea has helped things along by taking steps to encourage foreign investment. For instance, eligible Canadian and other foreign businesses setting up shop there pay no corporate and income tax for five years.

As an example of South Korea cutting red tape, the Toronto office of the Korea Trade-Investment Promotion Agency (Kotra) points to RIM. Until two years ago, the Waterloo, Ont.-based smart-phone maker couldn’t launch BlackBerry because domestic rules required all cellular devices to have government-regulated middleware that didn’t meet international standards.

Seoul is also capitalizing on its strategic location: From the city airport, you can fly to Shanghai and Tokyo in less than two hours. “That’s one of the areas where Seoul becomes a hub within Northeast Asia,” Villinger says.

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