Sunday, January 01, 2012

2012 Trends and Expectations—A Korea-facing Commentary

By Don Southerton

Each new year, I share thoughts for the upcoming months in an executive-level commentary. Looking back at 2011, South Korea’s export economy saw a robust year—familiar names like Samsung, Hyundai, and Kia continuing to grow global market shares—demand driven by a mix of product quality, value, and design appeal, along with Japanese brands suffering set-backs from the devastation of the tsunami and threat of catastrophic nuclear meltdown.

Tempering the demand for top Korean cars, electronics, and consumer goods were deep concerns over the EU fiscal crisis—worries that still linger.

On a positive note following an amended agreement for the Korea-U.S. Free Trade Agreement (KORUS FTA) and ratification both by the U.S. Congress and Korean Assembly expectations are that the treaty will be implemented in the first quarter of 2012. Advocates and critics alike see the FTA boosting annual commerce between the two nations into the billions of Dollars.

Looking forward to 2012, first, the succession in North Korea will continue to be a concern. Issues include the stability of the Kim regime, threats of more border clashes, and an unchecked nuclear arms program. I’ll continue to monitor and share news as it unfolds.

Next, building on the momentum of the past 3 years, expect Korea’s export-driven firms to push their organizations to carve out greater global market shares. Look for even bolder announcements and sales targets than in the past. For example, Hyundai Motor Company, along with their sister firm Kia Motors, announced their global goals for 2012—targeting sales of seven million units. This is a significant increase from estimated sales of between 6.5 and 6.6 million the group expects for 2011.

Not to be outdone, Samsung Electronics, with record 2011 cell phone sales, intends to increase their total by as much as 15%. This translates to approximately 374 million phones, including 150 million smartphones for 2012.

One change from the past 2 years…., I expect few new foreign brands to enter the Korean market in 2012—part saturation, part concerns by the major Groups over the euro-zone fiscal crisis and a stalling U.S. economy undercutting global demand that in turn has an impact on the domestic economy. Two exceptions. One will be services benefitting from KORUS FTA such as U.S-based international law firms wishing to expand into Korea. The second are highly successful brands and products that bring with them strong appeal and a ready market—for example, Chipotle.

For those foreign businesses and brands that do plan to enter the Korean market or partner with Korean firms, I suggest they take efforts to understand not only the culture, but also business norms and expectations. For example, your key management needs access to coaching and someone to answer their questions on topics ranging from strategy to the impact of routine management changes within their Korean partner’s organization. It’s a small upfront investment and less costly than the consequences, which can include lawsuits, local and expat employee turnover, and months of missed goals and low productivity—not to mention tensions between you and the client over expectations. I know this area well—most recently handling the negotiations for a major brand launch in Korea.

Finally, expect further growth in Korean Green technology (wind power, solar, eCars, batteries), along with Korean overseas acquisition of energy related firms. With regard to Green, most of Korea’s major Groups have boldly entered the renewable and sustainable side of the market with plans to expand sales and distribution globally. This includes state of the art manufacturing facilities for wind turbines, solar cells, next generation batteries, and electric power trains.  In particular, Hyundai and Kia introduced hybrid models in 2011, with the group aiming to launch a variety of eco-friendly models in 2012.

To conclude, understanding the dynamics of Korea’s economy, markets, and major business groups is vital. It is critical to take into consideration Korea’s past and current trends. Culture, global influences, and a 24-hour virtual workday add to this complexity. I’m dedicated to providing much needed research, analysis, and critical thinking to provide you with answers and insights 24-7-365. 

Please feel free to share this commentary across your organization and teams.
If needed, I can also provide more details on specific market sectors, etc.
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