Korea (South)

Originally published: Feb-15-2007

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Official Name: Republic of Korea

Internet Domain: .kr
International Dialing Code: +82

Table of Contents

Government

The Republic of Korea was proclaimed in August 1948 and received UN-backed support from the US after the North invaded it two years later. The following four decades saw authoritarian rule, as well as government-sponsored schemes which transformed South Korea into one of the world's major economies and encouraged the growth of family-owned industrial conglomerates, known as "chaebol". Foremost among them were the Hyundai and Samsung groups.

A multi-party political system was restored in 1987 and the current government is a republic with powers nominally between the president, the legislature, and the courts.

Legal System

Combines elements of continental European civil law systems, Anglo-American law, and Chinese classical thought. It should be noted that foreign court judgments are not enforceable in Korea.

People

• Population: 48,846,823 (July 2006)
• Population growth rate: 0.42% (2006 est.)
• Languages: Korean

Korea’s population is one of the most ethnically and linguistically homogenous in the world. Except for a small Chinese community (about 20,000), virtually all Koreans share a common cultural and linguistic heritage.

Economy

The Republic of Korea’s economic growth over the past 30 years has been spectacular. Per capita GNP, only $100 in 1963, exceeded $16,000 in 2005. South Korea is now the United States’ seventh-largest trading partner and is the 11th-largest economy in the world. Moderate inflation, low unemployment, an export surplus, and fairly equal distribution of income characterize this solid economy.

Economists are concerned that South Korea’s economic growth potential has fallen because of a rapidly aging population and structural problems that are becoming increasingly apparent. Foremost among these structural concerns is the rigidity of South Korea’s labor regulations, the need for more constructive relations between management and workers, the country’s underdeveloped financial markets, and a general lack of regulatory transparency.

Currency: Won (KRW)

• KRW per USD: 950.39 (02-22-07)
• KRW per EUR: 1,248.78 (02-22-07)

Leading Markets (2005): China 21.8%, US 14.6%, Japan 8.5%, Hong Kong 5.5%

Leading Exports-commodities: semiconductors, wireless telecommunications equipment, motor vehicles, computers, steel, ships, petrochemicals

Leading Suppliers (2005): Japan 18.5%, China 14.8%, US 11.8%, Saudi Arabia 6.2%

Leading Imports-commodities: machinery, electronics and electronic equipment, oil, steel, transport equipment, organic chemicals, plastics

Top Industries: Electronics and electrical products, telecommunications, motor vehicles, shipbuilding, mining and manufacturing, petrochemicals, industrial machinery, steel

Economic Indicators

(e) estimate (f) forecast

Comparative Economic Indicators - 2006

*China's unemployment rate does not include rural areas
(e) estimate (f) forecast

Credit and Collections

• Collection Experience: Good-Fair
• Exchange Delays: 2 months
• Preferred Credit Terms: Unconfirmed letter of credit
• Minimum Credit Terms: Sight draft

Dispute Resolution (information from the U.S. Department of State)

Serious investment disputes involving foreigners are the exception rather than the rule in Korea. The exceptions are cases involving intellectual property rights protection. There exists a body of Korean law governing commercial activities and bankruptcies that constitutes the means to enforce property and contractual rights, with monetary judgments usually levied in the domestic currency. Foreign court judgments are not enforceable in Korea.

Although commercial disputes can be adjudicated in a civil court, foreign businesses often feel that this is not a practical means to resolve disputes. Proceedings are conducted in Korean, often without adequate translation. Korean law prohibits foreign lawyers who have not passed the Korean Bar from representing clients in Korean courts. Civil procedures common in the United States, such as pretrial discovery, do not exist in Korea. During litigation of a dispute, foreigners may be barred from leaving the country until a decision is reached. Legal proceedings are expensive and time-consuming and lawsuits often are contemplated only as a last resort, signaling the end of a business relationship.

Commercial disputes may also be taken to the Korean Commercial Arbitration Board (KCAB).

Korea is a member of the International Center for the Settlement of Investment Disputes (ICSID). It has also acceded to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). Korea is a member of the International Commercial Arbitration Association and the World Bank's Multilateral Investment Guarantee Agency (MIGA). It is important to keep in mind that Korean courts may ultimately be called upon to enforce an arbitrated settlement.

When drafting contracts, it may be useful to provide for arbitration by a neutral body such as the International Commercial Arbitration Association (ICAA). U.S. companies may wish to seek local expert legal counsel when drawing up any type of contract with a Korean entity.

Risk Assessment

Coface Country Risk Rating: A2 -- Default probability is still weak even in the case when one country's political and economic environment or the payment record of companies are not as good as A1-rated countries.

Ducroire Delcredere Political Risk Rating: 1 – Very low risk
Ducroire Delcredere Commercial Risk Rating: A – Very low risk

Business Climate

Transparency of Regulatory System: The Korean regulatory environment poses a significant challenge for both foreign and domestic investors. Laws and regulations are often framed in general terms and are subject to differing interpretations by competing government ministries. While the regulatory process has improved since the Asian financial crisis, it is often not transparent and frequent informal discussions with the bureaucracy may be necessary. Mid-level bureaucrats often rely on unpublished office guidelines and unwritten administrative advice for direction.

Patents and Brands: While important steps have been taken to improve the protection of intellectual property rights (IPR) in Korea, the protection of copyrighted material. The problem is particularly serious in the area of protection of digital content -- where IPR protection is made more complicated by Korea's very high Internet access rate and degree of broadband connectivity. While Korea has made progress on tightening IPR enforcement in recent years, online music piracy causes serious economic damage to recording companies.

Foreign investors also remain very concerned about problems involving trademark and patent violations of manufactured goods, including the reluctance of the Patent Court to provide injunctive relief to protect the intellectual property of patent-holders.

Korea remains on the U.S. Trade Representative's "Special 301 Watch List" following its removal from the "Priority Watch List" in April 2005.

Conversion and Transfer Policies: The Korean government has substantially removed restrictions on financial transfers into and out of Korea. In 1999, the Foreign Exchange Transaction Act (FETA) fully liberalized all current-account transactions by business firms and banks, and pared down a formerly long list of restricted transactions. The right to remit profits is granted at the time of original investment approval.

Corruption: Despite significant improvements in recent years, Korea's political structure still tolerates a degree of non-transparency in the formation of laws and regulations, which when combined with still-inadequate institutional "checks and balances" and a societal structure heavily based on personal ties can create opportunities and incentives for corruption and influence peddling.

For more detailed information on these topics, visit the 2006 Investment Climate Statement – Korea, of the U.S. Department of State.

Business and Cultural Practices

Business Cards: Bring a plentiful supply of business cards. Depending on your counterpart's English competency, have the reverse side of your card translated into Korean. Since you will be judged according to your status, your title should be emphasized on your business card. Present your business card with both hands.

Business Attire: In business settings, standard attire for men includes a dark suit, white shirt, and conservative tie. Women typically wear very conservative skirt and blouse combinations or business dresses.

Names and Titles: In Korea, a person has, in the following order, a family name and a given name. Korean family names tend to be one-syllable, while given names are more likely to be two-syllables. Address people by their title alone or by both their title and their family name unless you are asked to address them by their first name.

Conversation: Status means everything in South Korean business culture. Therefore, you may be asked extremely personal questions regarding your age, salary, education, religion, and family life. If you don't want to answer, remain polite but try to gracefully side step such questions.

Modesty is very important. When you are paid a compliment during a conversation, you may say that you are not worthy of such praise. However, you can compliment another person, since these comments are still very much appreciated, but singling out one person in a group may embarrass the receiver.

Answer questions directly, concisely and affirmatively, even when you have to deliver negative information. If you are declining a request for a favor, you should sound very apologetic.

Gifts: Gift-giving is often practiced in a business setting. Good gifts for a first trip include office items with your company logo or something that is commemorative of your home region. When you plan to give a gift to several people within an organization, be sure to give a gift of greater value to the senior person. Use both hands when giving or receiving a gift.

Meetings and Negotiations: South Korea is a collectivist culture, so the group, rather than the individual, prevails. Decisions are made with the consensus of the group, and deference is given to the oldest or most senior member. Koreans are very hospitable and friendly, but negotiations can be very aggressive in tone, and punctuated by emotional outbursts. You may find that your South Korean counterparts can be very frank and quick to express anger and frustration. Nevertheless, it would be a mistake to take everything said during these meetings literally, and you should strive to maintain your composure and patience. Maintaining a solid, cordial personal relationship with the South Korean side will help you get through the difficulties you may face during the negotiating process.

Acceptable Public Conduct: Tone down hand motions and facial expressions when talking as being too animated is frowned upon. When talking or laughing, keep your voice as quiet as possible. Men should take care that the soles of their shoes are pointing down. Don't cross legs in front of an authority figure in an open sitting environment. Blowing your nose in public is considered vulgar.

Sources for further information on doing business in (South) Korea

Doing Business in Korea, US Commercial Service: Extensive information on political, business and investment climate, trade regulations, leading sectors for export investment, etc.

SeriWorld.org, Samsung Economic Research Institute: Site is specifically designed for overseas readers wanting to find out in-depth information on Korea and neighboring economies such as China and Japan. This site offers not only summary and full text of research reports, but also many video clips featured by SERI researchers.

South Korea, Federation of International Trade Associations: Information on market access, doing business, labor, tax, etc.

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This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countries including South Korea. For further information, contact info@abc-amega.com.

This report represents a compilation of information from a wide variety of reputable sources including: the U.S. Department of State, U.S. Commercial Service, CIA World Factbook, Federation of International Trade Associations, and Economist Country Briefings.

Risk Assessment information: Provided with permission by Coface Country Rating. Also Belgian credit insurance company Ducroire Delcredere

Information on credit terms and the probability of prompt payment are provided, with permission, from Overseas Press and Consultants (OP&C) as published in IOMA's Report on "Managing Credit, Receivables & Collections," September 2006.