How can a foreign company enter the Korean market?

Why it matters

These decisions constrain each other. The entry structure determines what the Korean operation can do and who holds customer contracts; the target customers determine which partners are relevant; the product’s regulatory position can rule out a structure altogether. Taken out of order, they produce plans that look complete but have to be rebuilt once a partner negotiation or a certification question surfaces.

The route that worked in the previous market is a reasonable starting hypothesis, not a conclusion. Korean customers and partners may expect a local contracting entity, Korean-language support or local references that the earlier route did not provide.

What to do next

• Define the target customers in Korea and how they buy: directly, through distributors, through corporate or public procurement, or online.
• Shortlist two or three realistic entry routes and set out what each would require.
• List the product’s registration, certification or licensing questions and confirm them with Korean counsel.
• Identify which decisions headquarters must approve and who approves them.
• Take the quick diagnosis for Korea market entry to see which issues come first.

Prospera's role

Prospera advises foreign companies on the Korean entry structure and then executes it: comparing the realistic routes, finding and negotiating with Korean partners, distributors and suppliers, and running the set-up and first operating milestones under one plan. The person who diagnoses the situation stays responsible through execution, with specialists alongside; see the profile of Prospera’s founder.

Prospera leads the overall business and transaction structure. Legal, tax and accounting services are provided by affiliated professional firms that contract directly with clients. Korea market entry advisory explains how an engagement runs, and companies whose route is already decided can start a project with Prospera.

What are the main routes into Korea?

Most foreign companies enter Korea through one of six routes, or a combination of them. They differ in speed, cost, control and what the Korean operation is permitted to do.

The most common choice, between a distributor and a subsidiary, is covered in detail in the comparison of a Korean subsidiary and a distributor.

• Distributor or reseller agreement: a Korean partner buys and resells the product. Typically the fastest route to revenue where the partner already reaches the customers, with customer relationships held by the partner.
• Liaison office: generally limited to non-revenue activities such as market research and liaison. It is a step before an operating model, and its permitted scope requires confirmation with counsel.
• Branch: operates under the foreign parent’s own legal entity, so the parent is directly exposed to its liabilities.
• Korean subsidiary: a separate Korean company, commonly a stock company (jusik hoesa) or a limited company (yuhan hoesa), that can contract, hire and hold licences in its own name.
• Joint venture: a Korean company owned together with a Korean partner that contributes customers, licences, operations or capital.
• Acquisition: buying a Korean business whose customers, licences or team would take too long to build.

How should a foreign company choose its entry structure?

Choose the structure from what the Korean business must do, not from how quickly a vehicle can be registered. Four questions usually narrow the options to two or three.

• Activities: will the Korean operation sign customer contracts, invoice, import, hire or hold licences? Each activity rules certain vehicles in or out.
• Customers: do target customers expect a local contracting entity, Korean-language support or local references before they buy?
• Control: how directly does the business need to control pricing, positioning and customer data in Korea?
• Commitment: how much fixed cost and management time will headquarters carry before Korean revenue is proven, and how would the company change route later?

Which Korean partners does an entry plan need?

Most entry plans depend on at least one Korean partner, even when the company sets up its own subsidiary. The partner may be a distributor or reseller that reaches customers, a joint venture partner that contributes operations or licences, a system integrator or channel partner in technology sectors, or a Korean supplier that manufactures or assembles locally.

Select partners against written criteria before accepting introductions: the customers they must reach, the capabilities they need, the incentives that will keep them focused on your product, and conflicts with competing lines. Protect exclusivity until performance is proven.

Where the plan includes local manufacturing or procurement, Korean supplier sourcing qualifies suppliers before commercial terms are discussed. Where a partner’s contribution is large enough to justify shared ownership, the questions move to control, contribution value and exit, covered under joint ventures and strategic alliances in Korea.

Which regulatory questions should be confirmed before committing?

Regulatory questions belong before any commitment to partners or customers, because the answers can change the structure. The specific requirements depend on the product, the sector and the vehicle, and require confirmation with Korean counsel. The questions to put to counsel usually include:

• Whether the product or service needs Korean registration, certification or a licence before sale, and in whose name it can be held.
• Which activities each candidate vehicle is permitted to perform.
• Whether the planned equity investment counts as foreign investment, and which reporting and registration steps follow. Under the Enforcement Decree of the Foreign Investment Promotion Act this generally turns on the investment amount and on the shareholding or the appointment of officers ^[1].
• Whether customer data, including personal information, will be collected in Korea and on what basis. When personal information is collected on the basis of consent, Korea’s Personal Information Protection Act requires the data subject to be told the purpose, the items collected, the retention period, and the right to refuse consent with any disadvantage of refusing ^[2].
• The tax treatment of the chosen vehicle and of transactions between the Korean operation and headquarters, to be confirmed with tax advisers.

In what order should the entry decisions be taken?

The order matters more than the speed of any single step. Registering a vehicle is rarely the slowest part of entering Korea; agreeing the structure internally, confirming the regulatory position and negotiating with partners usually take longer.

The complete guide to entering Korea sets out each stage in detail, and much of what a Korea market entry advisor does is holding this sequence together. In outline:

• Diagnose: set the commercial objective and establish the evidence of Korean demand, existing relationships and internal constraints.
• Structure: compare the realistic routes, frame the legal, tax and regulatory questions for advisers, and agree the structure with headquarters.
• Connect: set partner criteria, approach Korean partners, distributors or suppliers, and bring in professional firms for the confirmed scope.
• Execute: negotiate, set up the entity or partnership, and manage the first operating milestones against one plan.

Read next

• GuideThe Complete Guide to Entering Korea→
• PracticeKorea Market Entry Advisory for Foreign Companies→
• ServiceKorean Supplier Sourcing for International Buyers→
• PracticeJoint Venture and Strategic Alliance Advisory for Korea→
• QuestionWhat does a Korea market entry advisor do?→
• CaseFrom Distributor to Korean Subsidiary Without Losing Customers→