European companies expect South Korea to grow in significance

08 March 2023 Consultancy.asia 5 min. read
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Leaders of European-owned companies in South Korea expect the country to grow its significance to their international footprint, as South Korea continues its march up the economic ladder. This is according to a report by the European Chamber of Commerce in South Korea in collaboration with Roland Berger.

At a macro level, ties between South Korea and Europe grew further in 2022. European exports to South Korea increased by 1.5% to $79.2 billion, while vice versa the flow of economic goods and services from South Korea to Europe grew by 5.4% to $75.1 billion.

Based on a survey of South Korea leaders of over European 180 companies (combined turnover: €61 billion), the report found that European companies are “relatively satisfied” with their business performance booked last year. However, due to considerations such as geopolitical tensions, supply chain issues, and increasing costs, satisfaction was lower than the year previous.

How did your companys revenue in Korea change in 2022 compared to that of 2021

Overall, 65% of companies saw their revenue in South Korea increase in 2022, up considerably on corona-hit 2020, but down on 2021. A similar trend unfolded across other metrics measured, such as content with financial results, market outlook, and investments – they all showed a (slightly) deteriorating movement in 2022 vis a vis 2021 results.

Several factors are contributing to the mixed and deteriorating sentiment. As per the report, rising costs, supply chain challenges, and geopolitical tensions have made the operating environment more difficult for many businesses. Higher costs of production, such as the increase and shortage in raw material prices can reduce profit margins, as well as disrupt supply chains and put pressure on companies across the value chain.

How would you describe the business outlook for your industry in Korea within the next 2 years

However, with South Korea on a broad recovery track (the OECD expects GDP growth to hit 2% this year), the ongoing economic recovery and increasing consumer demand provides companies with opportunities. The researchers assert that the potential to capitalise will be varied however, with companies in high-growth sectors such as e-commerce and digital services more likely to benefit from the economic recovery.

Outlook

When it comes to the business outlook within the next two years, the numbers show a mixed picture: 24% of the companies are highly optimistic or optimistic while 28% have a highly pessimistic or pessimistic forecast. 55% of the companies still plan to increase their investment or operational expenses. Confident business expectations are also depicted by the intention of 53% of the respondents to increase their workforce.

In 2023, the South Korean market will continue to gain importance for European companies’ global strategy. Almost six out of ten companies reported the growing significance of the Korean business operation.

How would you characterize the importance of Korea in your companys overall global strategy

The art of doing business

The report further calls South Korean officials to improve the regulatory environment and overall infrastructure for doing business in the country. Over half of the leaders surveyed (53%) said that doing business in South Korea has become more difficult in the past year. Notably, the same is true for both 2021 and 2020, putting more weight to how corporates believe red tape needs some fixing.

Key areas of discontent lie in South Korea’s legislative environment, the discretionary enforcement of regulations, and administrative issues such as tax filings and publication of financial statements, the report found.

How has doing business in Korea for your company developed over the last 2 years

Concluding, the authors noted: “The outlook for South Korean companies in the coming years is marked by a mixture of optimism and uncertainty. While there are potential opportunities for growth, businesses also face mounting risks and challenges. Factors such as the direction of the economy, the state of public health, and global events will play a crucial role in shaping business sentiment and performance in 2023 and beyond.”

The European Chamber of Commerce and Roland Berger report, which has been held annually since 2014, comes on the brink of a historically important year for ties between the European Union and Korea, as they in 2023 celebrate 60 years of diplomatic relations.

Headquartered in Germany and active in South Korea (Seoul) since 2012, Roland Berger is one of the world’s leading strategic consulting firms.