Eyal, thank you for joining us! Can you explain briefly what KOISRA UP does, and what your role entails?
We launched KOISRA UP (www.koisraup.com) about one year ago to answer a growing demand by foreign companies to set up local operation in South Korea. We first learn about that demand from our client under KOISRA Consulting (www.koisra.co.kr) which established in 2009 and provide market entry and business development services in Korea. Once we realized the strong demand, we started to designed new set of services and solutions that focus only on the set up activities in Korea and branded it under KOISRA UP. We try to address all the difficulties that foreign companies face when they try to set up operation in Korea. It’s a kind of one stop shop for new comers but also for exciting companies that operate in Korea, but looking for more foreign friendly service provider. These services include Company Registration, Employment solutions such as hybrid payroll and EOR/PEO, Recruiting and HR administration, Payroll Management Services, Bookkeeping & Accounting, Trademark registration, Documents Apostille and Notarization, Virtual office address and more.
My main role is to identify the needs of foreign companies in Korea and develop them the right solution in a terms and language they can understand. Like in other countries, there are different regulations in Korea and service that work in most of the world may not be available in Korea.
KOISRA UP has worked with a variety of businesses looking to establish a presence in South Korea. What do you think are the main attractions of the South Korean market for foreign investors?
Korea isn’t big country but it’s not small as well. It size is 99.7 km2 with population of more than 51 millions. The economy of South Korea is the 4th largest in Asia and the 11th largest in the world with Nominal GDP of US $1.53 trillion. Korea considered as a rich country with GDP (PPP) per capita of US $41,350, this mean strong purchasing power which is great for B2C business. According to the World Bank, Korea ranked 5th as the easiest country to do business. There are good incentives for foreign investors such as tax deduction, more relaxed labor regulations, working permits for expats and even free office space. Since 2014, the startups sector is booming and the Korean government heavily supports it with grants, special funds and other support programs. Foreign startups that move their operation to Korea can get such support including investment.
Seoul is renowned as a home for international companies and expats. Will Seoul remain the hub of international business in South Korea, or are there up and coming high growth cities that foreign investors should look into as well?
Seoul will probably remain the main hub for international business in South Korea for the next 5 years, but I personally think that Busan, a larger port city at the south of the country has a great potential to take the lead in the future due its geographical location, international airport and better value for money in terms for real estate and business opportunities.
Many foreign company owners and executives are in the dark about the main challenges of expanding into South Korea. Can you briefly explain some of the issues that are faced?
In many cases, the first step for foreign company to work in the market is by hiring local employee before the formal registration and operation of local company. Culturally, Koreans prefer not to work from home so a local office solution should be provided. In addition, Korean employees want to be hired by local company who can secure their national insurance and pension contributions. Since the foreign company still has no local company in Korea, there is a need for other employment model solutions such as Employer of Record / PEO. We recently develop new employment model – Hybrid Payroll – which provide better balance between the foreign interest and the local employee right. The local labor law adding another layer of difficulty by giving an employee a permanent status after two years of work, however there is work around also for this hurdle.
South Korea – particularly the steel industry – has been affected by the US-China trade tensions. Can you highlight some of the main areas of concern and what foreign investors need to know about entering the market at this time?
The world economy is under great pressure these days and it’s affecting the relevant trading partners. Korea trade mainly with China, USA and Japan. Recently Japan started to block and limit the export to Korea of important raw materials for the semiconductors industry which heavily affect the display and mobile phone production. However, these tension and limitation create opportunities for foreign companies in Korea. For example, due to the export issue with Japan, Korea is looking for new suppliers from other countries and even willing to invest in relevant technologies related to it.
Which industries do you see as having the best high growth opportunities in South Korea in the next five to ten years?
In 2014, we founded KOISRA Seed Partners, a boutique startups accelerator in Korea. This allows us to get deeper insight about the Korean tech industry. I believe that Korea has great advantage in Robotics comparing to other counties. There is a lot of knowhow but still the potential isn’t realized yet. Other sectors which enjoy good business environment are the Fintech and Blockchain sectors.
South Korea has a strong hierarchical culture in society as well as the workplace. What are some ways that international companies can adjust to or accommodate this when establishing their presence in the country?
While internally foreign companies can build and manage their own corporate culture, it’s highly recommended to understand and respect the Korean business culture. For example, it’s recommended to rank the company officers according to the Korean ranks, so your business partners and clients will understand with whom they are talking with. Many times foreign companies setting up office in Korea with 1-5 employees, but none of them considered as director (according to the Korean ranks terms). As a result they have difficulties to close deals or set meaningful meetings. Having saying that, local IT companies and tech startups started to adopt more relaxed corporate culture, so this matter became more easy to overcome.
How easy or difficult is it for foreign investors to ‘test the waters’ in South Korea? Is it possible to enter the market rapidly?
Korea is one of the easiest countries to enter. First there is no minimum capital requirement to establish a company. Technically you can set up a local company with just the capital amount to cover up the registration cost. In addition, there is no need for local Korean representative or director. Another factor that make it more easily, it’s not mandatory for the shareholders or directors to physically visit the bank in order to open the company bank account. Based on our experience, if there are no other issues, foreign shareholders can register local company in Korea within 2-3 weeks.
South Korea has an expansive social security system. What types of local organizations exist for foreign businesses to outsource matters like payroll and social security contributions reliably?
Payroll management outsourcing is a quite new service in the local Korean market. Most of the Korean companies manage such work in-house. In other case it’s managed by local accounting firms and Payroll management firms. Recently we can see more labor law firms entering to this sector as well because payroll work is very affected by labor regulations which being update routinely. Due to language barrier and unfamiliar working practice, foreign companies, especially on their first and second year of operation, prefer to work with one firm who can provide accounting, bookkeeping, labor consulting and Payroll service.
If you had to choose one industry in South Korea with untapped potential, what would it be?
It’s well known that most of the industries in Korea are heavily controlled by the largest conglomerates, however there are still few sectors where startups and foreign companies can develop good market share. One of them is the Agritech industry and its subsectors FoodTech and Aquaculture. As of now I don’t see any of the largest conglomerates involved despite the great need and strong government support in these sectors.