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Korea Sets Up Shop in China


Korea Sets Up Shop in China


Around 800,000 South Korean businessmen are presently in China, flexibly assimilating their companies into the Chinese business environment, and amassing US$140 billion in bilateral trade.



Korea Sets Up Shop in China

By Elaine Huang
From CommonWealth Magazine (vol. 448 )

The Wangjing Xiyuan area of Beijing, with its Korean barbecue restaurants and mobile phone stores, Korean coffeeshops and beauty salons, has become the city's Little Korea.

More than half of the over 60,000 South Koreans based in Beijing live in the Wangjing area. For Seong Jeong-han of the Korean Community in China, this is home.

Seong was sent to Qingdao, Shandong Province, in 1997 by children's clothes maker Agabang. He served as general manager of the sales department and was in charge of an apparel factory with more than 100 employees. Five years later, just when the Chinese economy was experiencing its meteoric rise, his company decided to transfer Seong from the frontline back to South Korea.

"I didn't want to go back. The Chinese market had so much more potential," Seong recalls. Instead, he moved with his wife and children from Qingdao to the Chinese capital. Seong saw an opportunity in the mining industry, so he set up a company that trades in mineral raw materials. His story is far from unusual.

Going Global with a Firm Footing in China

The car rushes from Fudan University in Shanghai to Gubei New Area, where many Koreans live.

Kim Heung Soo is president of Dongbang CJ, a home shopping venture between Shanghai Media Group (SMG) and CJO Shopping, a subsidiary of South Korean consumer goods conglomerate CJ Group. The 54-year-old has spent 17 years in Greater China. Kim used to work in overseas posts for consumer electronics giant Samsung in Hong Kong, Taiwan and China, accumulating rich practical experience as a frontline manager in the Greater China region.

In 2004 he was poached by the CJ Group, which was eager to get into the Chinese market. Kim more than lived up to expectations, helping latecomer CJ Group to make Dongbang CJ the No. 1 home shopping channel in the Shanghai area, with a 40-percent viewership rating. It is the only television channel in China that sells luxury homes with price tags of 3 million renminbi and BMW limousines.

Chatting away in fluent Mandarin as he sits in his black Kia limousine, Kim gazes at the dramatically altered Shanghai cityscape outside. In the modern skyline Kim also seems to see the fruits of his longtime personal efforts in China. "Returning to South Korea is like going on a business trip now. It's on the way back to China that I feel like I'm coming home," says Kim as a faint smile crosses his face.

For quite some time China has been the second home for some 3 million Taiwanese businesspeople, who fight for survival in the Chinese market. Today, some 800,000 Koreans also live more or less permanently in China. For South Korea, China, with its huge domestic demand, is the springboard it needs to leap into the ranks of the world's top trading nations.

China-Korea Air Flights Soaring

Bilateral trade figures give clear evidence of intensifying ties. Last year trade between South Korea and China totaled US$140 billion, accounting for about 20 percent of South Korea's total trade. Since 2004 China has replaced the United States and Japan as South Korea's largest trade partner.

There are 47 Korean Chambers of Commerce across China representing around 40,000 South Korean companies. More than 800 flights connect China and South Korea per week, about three times as many as between China and Taiwan.

Sitting in his office near Shanghai's Hongqiao Airport, Kim Kuk Tak recounts how he quit his Samsung Electronics expat job five years ago and decided to stay in China with his wife and children to start his own business. Kim's company Ekorean provides e-commerce services mainly to Korean companies in China and distributes South Korean brand cosmetics via the Internet and department store retail counters.

Two years ago, Kim, who also heads the Korean Chamber of Commerce in Shanghai, discovered from semiannual statistics that the proportion of South Korean companies in China that were engaged in manufacturing had slipped from 70 percent to 55 percent, while the share of companies active in industries driven by domestic demand such as logistics, medical care, cosmetics, food, and hospitality, had risen from 10 percent to 15 percent.

Hwang You Sun, a manager at the Shanghai office of the Korea Trade-Investment Promotion Agency (KOTRA), has just gotten a first-hand impression of the changing nature of South Korean investment in China. Hwang recently led a group of cosmetic surgery hospital operators on a tour to China. They were eager to explore possible cooperation with Chinese partner hospitals. "South Korean hospital operators have a keen interest in the Chinese medical cosmetics market. They want to find joint venture partners and quickly get into the Chinese market," says Hwang.

Though in private Korean businesspeople are very modest, claiming that they still need to learn from the Taiwanese how to tap China's domestic demand, the late-coming Koreans have caught up swiftly. Today they have already seamlessly conquered the Chinese market in many fields ranging from food to clothing to entertainment.

Two Secrets to Korean Success

There are two secrets behind the Korean success story in China:

First, South Korea's large conglomerates are agile and flexible, which allows them to quickly respond to market demand. Automobile maker Hyundai has made Beijing its hub for expanding across the country. Hanjin Shipping has based its warehousing mainly in the Shandong and Qingdao area, while consumer electronics firm LG is based in Guangzhou in the south. The SK Group, whose core businesses are energy and telecommunications, is based in Tianjin and Jiangsu Province, while Pohang Iron and Steel (Posco) has moved to the inland port of Zhangjiagang near Shanghai to reach China's second- and third-tier cities.

Posco China Holding CEO Chung Keel Sou and vice president Kam Gyu Sik came to Zhangjiagang in 1996 to build an integrated stainless steel factory from scratch. They began to take orders even before construction was completed. Chung imported steel from South Korea to China to show the samples to customers. He promised that the steel to be produced at the new plant would be as good as the imported steel.

"The sales contracts came in before the factory was finished. In our first year of production in 1999 we made a profit of US$3.5 million," Kam recalls with pride. Back then other steel producers were quite surprised, because integrated factories usually begin to make money only in their fourth year of operation. However, Posco also uses the money that it makes in China to contribute to the local community, having raised its initial investment of 150 million renminbi to 1 billion renminbi today.

"In the past foreign companies were still able to pursue only their own immediate interests, but now the entire business environment has changed. We need to develop toward a win-win situation for the foreign investor and for China," Chung notes.

What makes Korean businesspeople formidable is their adaptability. When it is time to show their strength, they can be dauntingly fierce, yet when cooperation is called for, they can be remarkably malleable.

Such flexibility became obvious when China was bent on developing its own G3 industry standard, known as TD-SCDMA. South Korean makers immediately cooperated with China on industry standard certification, opening a door for the entry of their own products into the Chinese market.

"As soon as the Chinese telecom authorities come up with a new standard, Samsung, LG and SK are the first to support it. When China started promoting TD-SCDMA as the industry standard, the first ones to support it, besides the Chinese brands, were all from Korea," notes Jia-Bin Duh, former president of Cisco China and founder of Taiwanese mobile device maker Mobinnova.

Second, Korean enterprises follow a strategy of low-key localization.

As a result Samsung China defines itself as a "Chinese company." The business card of Samsung Group Greater China Region president Park Keun Hee reads as follows: "Loved by the Chinese people, a company that contributes to China." The conference room next to his office is decorated with the Chinese national flag on the wall, in an effort to tone down the company's Korean image.

Paradoxically, this seamless external and internal assimilation began around 2007 when the "China threat" theory held sway over both Taiwan and South Korea. At the time a long succession of South Korean enterprises were going to China to do business, but more than 80 percent of these ventures failed, because they did not understand the local market. "Back then we were analyzing why Taiwanese investors were so successful," KOTRA's Hwang recalls.

Testing the Market in Taiwan

In the entertainment business it is even more obvious how important consumer preferences are. The CJ Group originally tried to sell China on the Wonder Girls, a girl group hugely popular in Korea. But in Shanghai, they were complete unknowns and could not begin to crack the market.

Having spent a decade in Taiwan and China, Stephen S. H. Kim, vice president in charge of entertainment and media at the CJ Group China Headquarters, thoroughly understands Chinese culture. He demanded that the Wonder Girls record some songs in Mandarin and that they first release an album in Taiwan, which has a trendsetting role in the ethnic Chinese pop culture world.

When the Wonder Girls album finally came out in China, the group took China by storm, with fans all over the country singing their hit song "Nobody" and practicing their choreographed dance steps.

Last year the company produced the romantic comedy "Sophie's Revenge" pairing Chinese film star Zhang Ziyi with South Korean heartthrob So Ji Sub, thus deftly appealing to moviegoers in the Chinese-speaking world.

"It's like fusion food. We're blending Korean and Chinese elements for a good product," says Kim.

Korean enterprises might be making full use of the Chinese market to build themselves into global brands. But China has managed to assimilate Korea's tough entrepreneurs, making them accept China as their second home, both physically and emotionally. Against this backdrop it's no longer absolutely clear-cut who is using whom.

Translated from the Chinese by Susanne Ganz