This chapter examines the overall
attractiveness of the Korean market for Australian business and Australia's
competitive position. The major challenge for Australia is a relatively low
profile compared with other countries. Australia's major competitive position
has been in mineral and agricultural products. There is an emerging Australian
competitiveness in the technology and infrastructure sectors – the sectors
where the Australian profile has been lowest.

3.1. Attractiveness
of Korean Market for Australian
Business

The Korean market is positive for most
Australian goods and services (including technology). Except for the special
circumstances of 1998, the market has been growing steadily and even the
slowdown in 1998 did not affect Australia to any significant extent because of the
predominance of mineral and agricultural products in Australia's export
profile. The market will remain attractive for the mineral suppliers, but may
not continue to grow as fast as Korea places less emphasis on heavy industry.
The ongoing liberalisation of trade in agricultural products should provide
expanding opportunities.

In terms of the market characteristics of
Korea for the manufacturing and services sectors, businesses consulted during
the project were mainly positive:

• One
  small sized exporter of food processing equipment said the market in Korea is
  not large but provided steady sales. In its case the market is very clearly
  defined and there are no equivalent substitutes at this stage. A supplier of
  software that is used by the traditional Korean textile industry to move into
  high value added textile products expressed similar sentiments.
• One
  medium sized exporter of software to the banking industry has had good sales to
  Korea, but has satisfied most of the original demand and is now moving to new
  markets while maintaining existing customers. These new markets include new
  types of financial institutions (e.g. mortgage brokers) that are emerging in
  Korea as a result of financial deregulation and other countries. A similar
  situation applies with another software supplier.
• In
  the automotive components industry, the Korean market is growing steadily among
  automotive manufacturers within Korea and Korean automotive subsidiaries in
  third countries.
• There
  is a growing demand for professional services as evidenced by the work obtained
  by some Australian firms.
• There
  are many opportunities in the infrastructure/utilities sector, which may be
  enhanced as Australian financial institutions and professional services
  providers are involved in advising on new financing arrangements and ownership
  structures.
• The
  Korean Government's strategy for Korea to become an important scientific and
  technological nation indicates a growing market for technology in the form of
  exports of products incorporating high technology or of intellectual property
  and know-how. This should also mean an expanding market in education and
  especially training in the application of such technologies.
• In
  addition the national framework for human resources developed in Korea is
  presently being reviewed with positive implications for Australian education
  and training (especially the higher education sector) as discussed later in
  this report.

The competitiveness conditions within Korea
are a challenge. In some industries such as electrical and electronics
manufacturing, Korea is very competitive and at present there is little Korean
interest in importing. Even with the successful companies in the software and
professional services industry, there is always the potential of competition from
suppliers in third countries such as the USA, Europe or Japan and from within
Korea. The successful Australian companies in this area have in most cases
developed a niche that is large enough for their purposes but is small enough
not to attract major attention from other potential suppliers. Another approach
is to have a product that is always ahead of any potential competitor.
Nevertheless, competition from these other countries is always present because
Australian companies do not have the same general high technology brand
recognition as companies from, for example, the USA (Nearly every company consulted in the manufacturing and services sectors
commented on the very little understanding that most Koreans had of the manufacturing and technological capabilities of Australia. This was also a theme that
was raised by many Koreans). While the distribution
system in Korea is sometimes considered to be a challenge (and probably is in
some industries such as agricultural products), it has not been raised as an issue
by the companies consulted in the manufacturing and services sectors. One
comment did indicate a competitive advantage for Australia in the automotive
components area in that Korean companies preferred to buy from Australian
suppliers rather than Korean subsidiaries of European companies because of: (1)
Australian products were cheaper and better quality, (2) access to advanced
technology, and (3) the export credits generated under the Automotive
Competitiveness and Investment Scheme (ACIS).

An important issue that normally arises in
considering a country's attractiveness is the financial and economic conditions
of doing business in that country. This covers items such as pricing and
payment terms, tariffs and other barriers to entry, and foreign exchange
conditions. While tariffs and non-tariff barriers are an issue in some areas
such as agriculture, the manufacturing and services companies consulted have
not raised any items in this area as being of particular concern.

However, legislative and socio-political
conditions have been raised on a few occasions:

• The
  Australian telecommunications equipment industry has raised the difficulties
  companies in that industry are confronted with in Korea (and many other Asian
  countries) in respect of the regulatory and approvals process, particularly the
  over-elaborate compliance regime. The process is costly, time-consuming, and
  requires a lot of documentation compared with other developed countries.
• Another
  company was able to work its way through the regulatory process, but commented
  on the very high costs incurred on legal and accounting fees to gain an
  understanding of what is required.
• Nearly
  all companies commented on the difference in Korean and Australian cultures,
  particularly in the way of doing business. Having made those comments, the
  successful companies went on to say that, as long as one understood and
  basically accepted the need to do business in a different way, the challenge
  could be overcome.
• None
  of the manufacturing and services companies consulted had been confronted in
  recent years with particular foreign investment barriers nor with labour
  problems within Korea (The only comments in this context were with the lack up-to-date skills of Korean
  workers in some areas of manufacturing (automotive components). While this labour
  issue was not raised by any of the Australian companies consulted, some Australian
  companies are confronted with this issue). There are investment barriers at present in the way of
  overseas-owned education and training establishments.
• Many
  firms commented on the intellectual property issue (It is understood that Korea has legislation that appears in the first instance to provide
  adequate protection. However, the legal process apparently does not involve the
  "discovery" process, which allows a claimant to ascertain what has really happened
  in the way of an infringement). The successful companies
  usually found a way around this perceived weakness in Korea, for example, doing
  business with larger companies that had assets in third countries such as the
  USA which could be pursued in the event of any significant breach of their
  intellectual property rights. During the consultation process, a few companies
  were encountered that were reluctant to do business in Korea because of their
  fears about intellectual property infringement.

3.2. Australian
Competitiveness

Overall Australian industry is competitive.
This is most obvious in the areas of mineral and agricultural products where
Australian producers can match most competitors. It is also applicable in many
areas of the manufacturing and services sectors, especially where production
does not require high volume lower quality products.

In terms of supply expertise of the
Australian manufacturing and services sectors:

• The Senior Vice President of Hyundai Motor Company has acknowledged that Australian
  automotive component manufacturers have excellent fundamentals and that
  Australia in particular has price competitiveness in the aluminium and
  magnesium castings areas (Dr Hyun Soon-lee at the Federation of Automotive Products Manufacturers Convention
  (FAPM) Convention, 4 May 2000. He said that Korean automotive makers are pushing
  forward the development of aluminium and magnesium parts to reduce weight. Korea
  hopes to cooperate with Australia to develop an Aluminium Space Frame and
  Magnesium Seat Frame. The Korean industry expects to employ Australia' s excellent
  techniques and low cost basic materials with Korean production
  engineering). The scale required by the Korean automotive
  industry suits Australian suppliers – 100/150,000 units per annum rather than
  two million per annum. If large-scale production is required, it would be
  better to produce in the market with the ongoing R&D being done in
  Australia.
• One
  small sized exporter of food processing equipment said that its prices/costs
  are not an issue in Korea. At this stage its capacity is adequate but increased
  worldwide sales may require an increase in capacity. Although the company is
  located in a regional area distant from the capital cities, its relatively high
  value product has so far meant that the cost and physical delivery is not an
  issue.
• Australian
  professional services providers (e.g. legal, accounting) are cost effective
  compared with the USA and UK.
• In terms of technology capability, this is
  the strongest area of Australian competitiveness:
• Access
  to technology seems to be the driving force for Korea in the automotive
  components area. Korea does not want to rely on technologies from Japan, USA
  and Germany, but prefers to obtain if possible from Australia, especially light
  alloys where Australia is the technology leader as well as being the cheapest.
  FAPM has a general Memorandum of Understanding for cooperation with the Korea
  Automotive Industries Cooperative Association, including exchanges of technical
  information. FAPM also signed on 23 March 2001 an agreement for mutual
  cooperation with the Korea Automotive Technology Institute for the promotion of
  jointly funded cooperative R&D projects.
• Similarly,
  an Australian automotive components company, which has invested in Korea, has
  said that the only Australian it has working in Korea is a Quality Manager so
  as to raise the quality standards in Korea so that exports to Japan from Korea
  can become possible. The company also said that its major challenge with its
  Korean subsidiary was putting in best practice management practices and systems
  – where it used Australian expertise.
• The
  Korean Institute for Industrial Economics and Trade has proposed that Korea
  should pursue technological cooperation with Australia in the development of
  new lighter materials for automobiles and in technological cooperation among
  automotive components suppliers (Byoung-jun Song, Director of the Manufacturing Industries Analysis Division of
  KIET, in a paper dated 9 November 2000 on Industrial Cooperation in the Automotive
  Industry Korea/Australia).
• Technology
  and innovation is the major strength of the small sized exporter of food
  processing equipment previously mentioned. It is the international leader in
  its field and continually undertakes R&D to maintain its leading edge
  position.
• The
  objective of the investment of the Anam Industries group in Semiconductor
  Technologies Australia Pty Ltd is to link Australian strengths in intellectual
  property in software design with Korean skills in manufacturing and marketing.
  Australia is regarded as being very strong in software and systems development,
  which is a strong point for developing synergy between Australian and Korean IT
  companies.
• A
  Korean working in Australia for an IT company said that, although Australian
  technology is excellent, most Koreans are not aware of Australia's high IT
  standards.
• There
  is already some collaboration with Australia in computer games technology
  although some individual Korean firms do not believe they need access to
  overseas technology.
• The
  successful software exporters to Korea that were consulted had technology that
  was leading edge and there was little other competition.
• In terms of marketing ability, the
  successful manufacturing and services companies are obviously doing the right
  thing. The major limiting factor is the issue raised in the paragraph on
  competitiveness conditions in the section on Attractiveness of Korean Market
  for Australian Business, namely, Australia's lack of a general high technology
  brand recognition. While individual companies can do so much to advertise and
  promote their own image and reputation, it will continue to be an uphill task
  for individual companies if Australia as a nation does not have that image and
  reputation. Other potential areas for improving marketing ability include:
• Encouraging
  investment (including intra industry investment) in Korea and Australia, i.e.
  Korea investing in upstream activities in Australia with Australian investment
  in downstream activities in Korea. The investment in Korea usually brings the
  Australian supplier much closer to the ultimate customer. Such investment need
  not just be in traditional industries but also in high technology areas where
  the upstream activities are the R&D in Australia with manufacturing
  (particularly large scale) and marketing in Korea.
• Australian
  companies using Korea as the base to develop markets in neighbouring Asian
  countries, particularly China and Japan.
• Building
  on the relationships Australia has built up with resources purchasers such as
  POSCO and KEPCO. Some of the people in the Korean companies in resources areas
  know Australia well and have moved on to senior management positions in other
  parts of the companies – or they could provide introductions to people in the
  new areas of interest.

The issue of management capability (e.g.
span of contacts/alliances in Korea, effectiveness of government and other Australian
institutional support) has not arisen. Clearly, having a presence in the market
is an important key to success as is strong support from Australian
Governments. The only comment that has direct relevance was an Australian
company that originally had difficulty in raising finance for its investment in
Korea – however, the funds were ultimately raised.

< Australia
and Korea – The Background

Industry
Sectoral Issues >

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