For years, Korea's growth was hidden from most Westerners as it developed an industrial base and an export-driven economy. The local consumer market began developing rapidly in the late 1980s without much participation by the leading multinational players, who were kept out of Korea by trade barriers and an insufficient focus on the country. Today, Korea is generally open to foreign players. But, unlike most emerging markets, it is dominated by home-grown companies, a significant asset as Korea is poised to become one of the world's 10 largest economies. The country already is one of the top 10 markets in many consumer product categories.
Ad spending, estimated at $5.4 billion, is growing annually by double digits, but multinationals account for a paltry 8% of the total. This large domestic market is dominated by a few large Korean conglomerates called chaebols, whose total sales worldwide compare with Unilever and Procter & Gamble.
In the past 15 years, the chaebols have gone from manufacturing and exporting products for other brand owners to being brand owners themselves. The issue now for Korean firms is to develop world class products and brands with consumer franchises. Korea's big four-Hyundai, Samsung, LG and Daewoo-are committed to developing global brands and are rapidly building a global production base, as well as launching their brands in major markets across the globe.
The isolation in which the Korean economy developed created a unique environment with different rules of doing business. That environment has frustrated many multinationals accustomed to competing mainly against other (non-Korean) multinationals.
The approaches used by Korean firms range from ever-expanding manufacturing capacity, aggressive sales and distribution practices to saturation advertising. The extreme practices employed by Korean firms sometimes do not appear to make financial sense and are the outcome of decisions made in the absence of Western practices such as arms-length accounting, which requires a contribution from every business entity. True costs may not be known to many Korean firms, and true losses may not be recognized.
Korean marketers moving outside their own economy face a number of challenges:
nKorea has been a homogeneous society, with every manufacturer chasing the dominant market segment for every product. With few wholesalers and many retail outlets, only the dominant products attain wide distribution in Korea. This reinforces a one-product-for-everyone marketing mentality. The fragmented global consumer market requires skills in market research, marketing and distribution-talents that Korean firms have only recently begun to use.
nThe concept of branding is different in Korea, where marketers try to create a brand synonymous with the product category, such as the beer for everyone. In the global market, Korean multinationals must identify and stake out segments that they can satisfy.
nHistorically, self-reliant chaebols have insisted on doing everything in-house-manufacturing, market research, advertising, distribution, even ownership of the retail outlets that sell their products. Economics prevent such self-reliance in global markets, and Korean firms need to better utilize and get the best value out of working with business partners.
Korean firms will likely be relatively big spenders to develop their opportunities quickly, a boon to marketing partners that are prepared to provide additional marketing support and endure more stress than is normal.
David Richardson is managing director of Frank Small & Associates, part of Sofres Group of research companies, in Seoul.