[Grand Prize] Impediments to Korea’s overseas expansion
Sahmyook University in Seoul
In order for Korea to achieve continuous economic growth and progress, many believe it is necessary for its companies to expand overseas. There is no one particular reason why it is hard for our companies to expand overseas, but it is rather a combination of multiple factors.
The global market is full of difficulties because of regional isolation and differences in culture, religion, customs, and language.
With regard to language, only a few people can speak English in non-English-speaking countries, and communication through local interpreters has its limits, sometimes resulting in major errors.
This can also cause problems of local information. Far from reading the newspapers, people often don’t even watch the news depending rather on groundless rumor passed on by the local staff. They even often hear news from Korea.
Not only language but the investment permit system is considered as an obstacle. Some countries have very strict and complicated systems. As a result, it may take one or two years to go through the entire process. There is also a difference in labor laws and social security systems.
Insurance and pension plans occupy 30 to 50 percent, making them very burdensome. Tax law and tax payment systems are different. Declarations must be made every month as well as interim closings. The financial pressure caused by advance payment, tasks, and finance is enormous. The surveillance for foreign companies is especially tight.
The welfare system for employees is a problem. In many cases, they can’t live with their families, and companies struggle with the heavy burden of easing their employees’ resulting loneliness and inconvenience. In addition, there can be disharmony between local and foreign employees.
A difference also exists in national characters. Some countries are less industrious and optimistic by nature. Some countries don’t have specific goals and have high turnover rates.
Therefore, precise market investigation is a precondition in order to minimize risk and maximize benefits when trading with foreign companies. In the case of the U.S., its import control has been an obstacle, and plus it is hard to be competitive these days since companies compete with each other internationally with similar products.
They are experiencing a myriad of difficulties such as language, cultural differences, high wages, obtaining raw materials, and ecotax. The cost for acquiring approval overseas is becoming a major difficulty. In order to solve these problems, the Korean government provides R&D support, expenses for acquiring approval overseas, support for obtaining standard certification overseas, patent expenses, and international intellectual property consulting.
Korea’s shipping companies or logistics companies find it hard to get reliable information about local markets and have problems resulting from unfamiliar laws and systems. When difficulties occur, there is often only limited information available and even it is only scattered around governmental organizations, so support for expanding overseas is limited.
The causes of manufacturer’s failure include lack of information and experience, failure to choose the right partner, different laws and local customs, overly vague dreams of expanding overseas, labor problems, and insufficient support from the government because of lack of organizations for marketing and finance matters.
Currently, the global logistics network business is running an international logistics investment fund in order to minimize debt pressure borne by small logistics companies, but in fact, it is not useful because the fund is invested not in the form of loans but ownership of shares, and required earnings are set to be over 10 percent.
Actually, there is no need to rely on the international logistics investment fund since private companies can get loans at low interest at home and abroad. Therefore, it can be said that there are almost no financial benefits for our companies when they expand overseas.
The shippers and logistics companies that are planning overseas expansion feel that the most urgent support on which they want the government and subsidiary organizations to take measures immediately is customized information, something that is often difficult to come by.
According to a recent news report, many domestic companies agree with the necessity of expanding overseas, but the percentage of companies that put their ideas into practice is only 20 percent. The Korea Chamber of Commerce and Industry announced in a recent survey of 300 logistics companies, that 70 percent of them said “They feel the necessity of expanding overseas.”
The reasons for expanding overseas include the establishment of global network (51.9 percent), decrease of earnings caused by excessive domestic competition (20 percent), and the preoccupancy of global market opportunities regarding resource development and free trade agreement (17.3 percent).
However, only 22.3 percent of the companies have actually expanded overseas. About 66 percent of large companies and 16.9 percent of small companies expanded overseas, so we can learn from this that it is harder for small companies to expand overseas.
The uncertainty of securing sufficient quantity is considered to be the biggest difficulty for expanding overseas (38.6 percent) followed by the lack of ability to mobilize financial resources (22.4 percent) and insufficient regional information such as laws and tax systems (15.6 percent).
Companies prefer to go with domestic manufacturers or shippers (44 percent) or to expand through contracts with local companies (34 percent). However, many companies didn’t try joint expansion because of lack of ability (27.6 percent), or failure to find an appropriate partner and overly difficult bargains (34 percent).
The tasks to encourage domestic logistics to expand overseas include the establishment of joint expansion system (24.3 percent), large-scale funding (22.3 percent), the provision of customized regional information and consulting (19.4 percent).
From this, we can see easily that most companies agree they need to expand overseas, but they find it hard to put it into practice for various reasons. The biggest challenge among them is the difference in cultures and systems as shown by many complaints.
Therefore, it is the government’s responsibility to try its best to come up with creative and useful ideas and methods to support companies so that they can freely and easily go into overseas business.