We asked five in-market experts for their take on the prospects for local versus global brands in South Korea.
- Wain Choi, EVP/global creative director, Cheil Worldwide
- Kyunghee Lee, client services director at BBDO Korea
- Kwang Woo Keum, Executive Planning Director, TBWA\Korea
- Jeeyoung Kwak, Chief Operating Officer, McCann Worldgroup Korea
- Tyler Kim, managing director, Weber Shandwick Korea
How much growth opportunity is there still for international brands in Korea?
Jeeyoung Kwak: In the past, Korean consumers were often in two minds when it comes to global versus local brands. A sense of patriotism drove Koreans to prefer local brands, but global brands were often perceived to be premium, or better quality. However, times have changed and many Korean brands have become global – Samsung, Hyundai etc.
McCann’s “Truth About Global Brands” study found that Koreans are big proponents of local brands. They are most likely to say that they would rather buy local brands than global brands, compared to the other markets (66% of South Koreans) and only 34% of Korean’s said ‘superior’ best describes a successful global brand today.
However, consumers still have some preference for global luxury brands, especially in the fashion and car categories, which remain aspirational.
Another category where there is significant growth opportunity for global brands is that targeting the senior/silver segment, as Korea is rapidly ageing, with the lowest birth rate in the world (1.17 in 2016) and one of the longest life spans (an average life expectancy of 81.8 years). According to Samsung KPMG, from 2010 to 2020, the expected annual growth rate of senior-friendly industries such as medicine and medical supplies, medical appliances, food, beauty product, senior-friendly goods, leisure, housing, and finance industries is 14.2% and its scale is expected to grow from 33.2 trillion won in 2010 to 125 trillion won in 2020.
Kyunghee Lee: I think there’s not much opportunity left because in Korea local brands are very strong, especially healthcare, cosmetics and electronics. Only in the retail markets we see IKEA and Costco very successful. So there’s a special position in retail – they still have opportunity.
Wain Choi: Global brand [launches] have been dormant, but we’re starting to see them peek through. Last year Under Armour opened an office here and will probably open more retail shops. So you can see there’s a desire for another sports brand besides Nike and Adidas and local brands. There’s also Lululemon entering with a shop in one of the biggest retail areas. In the restaurant business Shake Shack opened a year and a half ago. Even now, you can’t get a seat and there are long lineups. If something’s hot somewhere else, Korea will bring them in. So you see more global brands peeking through in Korea, for sure.
Kwang Woo Keum: Due to the development of digital technology which lets consumers acquire global trend and information of products in real time, Korean consumers now have better understanding of global brands. Therefore, if global brands themselves have enough benefits for consumers, it would be easier to settle in the Korean market than past years.
However, solid entry strategy and understanding of the market are required since it still can be challenging to directly compete with chaebols which dominate the Korean business environment.
How do Korean government policies influence how well global or local brands succeed there?
Jeeyoung Kwak: Korea has ranked as a Top 5 market for doing business by the World Bank for several years now, placing Korea number one among the G20 countries. Korea earned high scores for starting a business, getting electricity, registering property, paying taxes, enforcing contracts, and resolving insolvency.
However, there are criticisms about protectionist policies. When surveying board members from foreign-affiliated companies, 66 percent of all respondents said that they do not compete equally with local companies because of the discrimination. And Korea ranks 33 out of 34 in terms of ‘recognition of an opportunity for starting a new business’ in a recent OECD report on SME performance and business conditions.
Kwang Woo Keum: As the Korean government aims to transform the country into one of the most business-friendly economies in the world, it’s keen to encourage foreign global brands as well as local brands. It has been making efforts to ease excessive regulations and provide incentives for FDI (Foreign Direct Investment), helping global brands succeed.
Tyler Kim: There’s always the potential for growth from innovative foreign brands, but taxes can play a role. One of the reason coffee capsule makers are struggling in Korea is because it’s cheaper for Koreans to buy their capsules from overseas because of taxes. Some clothing is cheaper by buying overseas as well. So there’s a great thirst for foreign brands in Korea if foreign brands can match prices.
How well are local brands taking on global brands in Korea? Why?
Jeeyoung Kwak: Local brands tend to be very agile in responding to, or even leading consumers’ needs and market trends. But global brands lag a little behind in terms of quick response times to new opportunities.
Local brands lead in most major categories such as F&B, automobile, clothing / electronics. For example, the top three local F&B brands CJ, Lotte, and Nongshim are responsible for 25 percent of the entire sales in South Korea. In the automobile sector, despite the increasing demand of imported premium and luxury cars, domestic producers Hyundai and Kia dominate the market with number of car sales 658,642 (Hyundai) and 535,000 (Kia) while the entire car sales for import cars was 225,579. Samsung and LG electronics also dominate South Korea electronics market.
Kwang Woo Keum: Local brands make very aggressive approaches once the business is deemed profitable, making it difficult for global brands, which enjoyed initial success, to guarantee that it will continue. Therefore, it's extremely difficult to sustain success just with the brand value for global brands unless they strive to transform themselves quickly through speedy decision-making. Local brands of Korea are also able to meet the needs and tastes of Korean consumers, giving them an edge over global brands in the market.
What are the best strategies for local brands competing with global brands?
Jeeyoung Kwak: Local brands need to harness the trifecta of top quality, fast response to ever-changing consumer tastes and sector expertise.
With a trend towards customized, specialty products, consumers no longer have loyalty to the giant corporations. They are savvy and willing to purchase from smaller and newer companies based on the in-depth peer-to-peer information they get from SNS and other sources.
Optimizing differentiation and low-cost business strategies is another key to success. Brands whose portfolios are diverse in both the low and high price ranges have more compelling opportunities to extend brands life cycles.
Finally, McCann’s “Truth About Global Brands” study, found that South Koreans most value creativity as a quality of a successful global brand. Local brands who are highly creative stand to do very well.
Wain Choi: There’s been a change over the years. A lot of the local brands were looking at the global brands, trying to copy them. But for Korean brands to excel inside and outside of Korea, keeping the essence of Korea [is important]. To be successful outside of Korea is to really maintain its own heritage and value, so it feels like a Korean brand. Not hiding it by changing its name, keeping the essence of what makes it very popular locally and then transforming it into a global brand without losing its DNA, grassroots or personality.
Kwang Woo Keum: The key to the success, lies much in how well brands can employ understanding of and ability to relate to local consumers. Global companies have rules applied to all countries they function in and usually do not change them based on different countries. On the other hand, Korean consumers want services that are suited for the locals and local brands are better at quickly catching what they want and providing it.
How can global brands better compete with local brands?
Tyler Kim: Global brands have to be a bit more politically conscious to compete with local brands. They can’t have a location map on their website that labels the sea between Korea and Japan as the ‘Sea of Japan’ or consumers will freak out. ‘East Sea’ is okay. IKEA sold a world map with the ‘Sea of Japan’ and after a reporter caught it consumer groups were calling for boycotts and demonstrations were held in front of stores. IKEA had to apologise and remove the product.