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PEST Analysis of South Korea

Discuss about the Economic Integration Agreements and Margins of International Trade.

International marketing is application of marketing principles to do the business in more than one country. As stated by Papadopoulus and Heslop (2014), international marketing is the performance of the business designed to price, plan, promote and direct the flow of the organisation’s service and goods to customers in more than one country. Burlee Australia makes sheepskin boots and these boots are unisex style with fleece on inside; it has tanned on the outer surface. Trademark registration is filed for Burlee Australia by Wolverine Group Pty Ltd. Burlee Australia was established in the year 1974 and Burlee Australia brings together Australian raw materials and culture. With over 30 styles available in a range of colours, Burlee Australia has the largest range of designer sheepskin boots made in Australia (Burleeaustralia.com 2018). Burlee Australia also has an ever changing range of limited edition and exclusive one-off sheepskin boots, such as our Vintage Denim collection. The aim of the report is to showing the chance of Burlee Australia to expand the business in South Korea to sell the Burlee sheepskin Boots. In the first part of the report, PEST analysis is done with government intervention in the economy. In the following section, choice of entry strategy and modification of marketing mix to suit the international market.

In South Korea, political power rests on President as the President has the power to execute and amend any laws in the country. The President of South Korea aims to expand the growth of the per capita income top 7%. South Korea wants to make strong foreign relationship so that the foreign companies can do the business and South Korea has strong volatile relationship with Russia, China and Japan to do the business. South Korea has been the member country in United Nations since 1991 and it has diplomatic relations with more than 170 countries (Fine 2018). In economic factor, GDP of South Korea reached $1.4466 trillion and GDP rank of South Korea is 11th (Santandertradeportal.com 2018). GDP growth of South Korea is 2.7% and the inflation rate is 1.1%. It is important to note that South Korea ranked 4th in ease-of-doing business in 2017.

 

Figure 1: Macroeconomic data of South Korea

(Source: Asongu 2017)

In addition, in social factor, South Korean people are mainly Buddhist and they traditionally belong to the Seon School. South Korean people are not orthodox as they can accept any race and religious people in their community. In case of the culture of the people, the traditional dress of the people is ‘hanbok' and the social status; Korean people like to dress in the different way. During the winter season; common people wear cotton-wadded clothes and fur was common for the people. In case of the business practice; high-ranking people have more power than the subordinates and decision-making process is formal for as it is needed approval for the senior people. South Korean people believe in punctuality and business relations are maintained in South Korea with gifts, cards and shared meals (Park et al. 2014). In South Korea, post-1961 economic development; South Korea has been developed significantly in the field of technology. The most improved section in South Korea is the IT industry, biotech and manufacturing of the equipment.

Overview of South Korea's Economy and Culture

Burlee Australia can choose South Korea as South Korea is ranked 4th in ease-of-doing business. UNCTAD 2017 published a report where they showed that average transaction of foreign investment in South Korea reached 22.94 billion and it was a record high for the country. Most of the investments are coming from petrochemical and IT sector (Santandertradeportal.com 2018). The result of the country’s rapid economic growth and development provides the acceleration in growth in the field of country’s specialisation in the field of information and communication technologies.

Foreign direct investment

2014

2015

2016

FDI inward flow (million $)

9,275

4,106

10,827

FDI Stock

640

722

815

FDI inwards

2.3

1.1

2.6

FDI stock

12.4

13.0

13.1

Table 1: Foreign direct investment in South Korea

(Source: Santandertradeportal.com 2018)

South Korea can provide the highly skilled workforce to Burlee Australia and South Korea is advanced in Research & Development capabilities. This country can provide high quality infrastructure and brand savvy customers who are willing to pay on the quality of the products. Burlee Australia can have the strong shipping and air cargo infrastructure that makes the country great hub for expansion into other markets. Disposable income of South Korean people is $21,723 per year. Corporate tax is 10% for the business and income tax rate in South Korea is 10% also (Clifford 2016).

Country comparison for corporate taxation

South Korea

OECD

United States

Germany

Number of payment taxes per year

12.0

10.5

10.6

9.0

Time taken for administrative formalities

188.0

163.5

175.3

218.0

Total share of taxes (%)

33.2

40.5

44.0

48.4

Table 2: Corporate taxation in Korea and comparison

(Source: Santandertradeportal.com 2018)

In 1961, Chang Myon wanted to transform South Korean economy from agricultural to industrial nation which can provide decent way of life for the people. South Korea wanted to defend itself from the foreign power and the government had taken the regime and greater independence of development of the economy that can transform South Korea into modern industrial relations. Well educated young force and modern infrastructure has provided solid foundation of the economic growth to South Korea. Therefore, in the past, South Korea had incorporated the economic system into both free enterprise and capitalism. Government wants the economic system in South Korea is controlled by the group of chaebol and large private conglomerates (Choi and Kim 2015). The government takes the support of the private organisations and government provided support to the private organisations in order to export the products and have the production target using the control of the credit and informal means of pressure. The government of South Korea is hoping that technology can become competitive in the economy and the government has got GDP the most from the service sector (58.3%) and the labour force in South Korea touches 26 million.

As stated by Baier et al. (2014), economic integration is the agreement among the countries in the geographic region in order to reduce and remove ultimately, tariff and non-tariff barriers to the free flow of goods and factors of production among each others. South Korea is situated at the middle of the Northeast Asia and Seoul is the capital of South Korea and it is at the mid-point between Beijing and Tokyo. The economy of Japan and China are developed while South Korea saw drastic economic reform after 1960 and South Korea is now one of the economic powers in terms of the GDP growth. Burlee Australia is planning to expand the business from Australia to South Korea; the foreign relationship between both the countries have established in the year 1963. Australia and South Korea are both trading partners in Asia Pacific regions. Australia and South Korea has strong trading relationship and this relationship was enhanced by the end of 2014 with the free trade agreement between two of the countries. Korea-Australia Free Trade Agreement (KAFTA) came into existence in the year 2014 in 12th December (Park 2014). Australian exporters have the competitive gain in South Korea with all Korean import taxes on Australian good eliminated over time. In addition, Australia services exporters have better access to the market.   

Target Customers in South Korea

Target Customers: Burlee Australia mainly targets the upper class people and the individuals who line to travel. In South Korea; the native people like to purchase the quality products as the Koreans like to spend money on quality products. The disposable income of the people in South Korea is USD 21,723 in a year and it is lower than OECD average of USD 30,560.

Climate: South Korea has temperate weather atmosphere with four of the distinct seasons. Winters are long in South Korea and days become cold. Therefore, Burlee Australia can sell the products in South Korea as the temperature is low in South Korea; therefore, the people will wear the fur and sheepskin shoes.  

Incentive appeal: In South Korea; foreign direct investment incentives can serve as mean to compensate the investors for the economic contribution; it can reduce the cost of setting up the business in South Korea. South Korea government offers tax relief for the foreign companies as the government can supply with industrial sites. The government has made up some of the free trade zones include easing of regulation in trade and distribution.   

Excellent infrastructure: In order to do the business; the companies need to have the well established airports, seaports, rails and roads. South Korea has all the basic needs to fulfil of conducting the business. Inchon International Airport serves more than 63 airlines and it is the second largest airport in Asia (Samiee et al. 2015).

Burlee Australia is going to sell the unisex sheepskin boots in South Korea. Burlee Australia can take the strategy of franchisee as the mode of expansion of the business in South Korea. Franchising entry strategy is licensing (Wu 2015). Burlee Australia can sell the sheepskin boots through the help of franchise as Burlee Australia can create successful brand. Burlee Australia will allow the business to open their branches in South Korea. The franchisees will pay certain amount of money to Burlee Australia and sometimes they can cut the profit per year. The advantage of the franchise is that it will make the process of selling the products through outlets all across South Korea within a few months. The reach of the customers will be easier when the outlets will be positioned strategically through franchisee. Burlee Australia can take franchisee strategy as it offers the independence of the business ownership supported by the business network. The business franchise partners must have some knowledge of the business.

Incentive Appeal, Infrastructure, and Climate of South Korea

Product: Burlee Australia will sell particularly sheepskin boots for both male and females that originate in Australia. The products will be made in Australia; however, it will export to South Korea. Burlee Boots will be producing the sheepskin boots. Burlee Boots will take product line strategy in South Korea as this strategy will provide the benefits of offering various kinds of products under single brand name sold by the same organisation. Burlee Australia will expand the offering by adding new product line as customers like to purchase products from the brands with which they are familiar. Most importantly, each of the boots is created in single pair; so it is guaranteed that every boot is unique. Burlee Australia gives the ability to personalise the boots for the customers.

Price: Burlee Australia will target the upper market as the boots are costly. Burlee Australia will take the strategy of price skimming. As pointed out by Chaffey and Ellis-Chadwick (2016), price skimming strategy is about marketers’ tendency to set the price high at the initial stage at first and then the company lowers the price with time. Burlee Australia can set the price high at the beginning and the customers of South Korea will perceive that the product will be high quality.

Place: Franchisee strategy will help Burlee Australia to cover the entire South Korea market at once. In addition, Burlee Australia will take to the single distribution strategy to deliver the products to each of franchisee on time. The boots will be exported from Australia and will deliver to the franchise.  

Promotions: Burlee Australia will take the strategy of social media at first to let the customers know about the expansion of Burlee Australia to South Korea. The brand will start advertising on Facebook, Twitter and Instagram page. Burlee Australia will also take print media strategy where the organisation will advertise through newspapers (The Korea Times, Seoul Shimnum) and fashion magazines (Dazed, Vogue Girl, Queen, High Cut). Burlee Australia will advertise on the e-commerce sites of WeMake Price, Auction.co.kr and Coupang.   

Burlee Australia is going to sell sheepskin boots to the market of South Korea. The trade relationship between South Korea and Australia are good. It can be recommended that Burlee Australia can take the franchise to expand the business with a lower investment of money; however; the organisation can recruit the employees from South Korea as the employees are highly skilled. Burlee Australia will export the products to South Korea and it should use the direct channel of distribution as intermediaries will increase the price of the products. The infrastructure of South Korea is very impressive as it can provide cargo facility with the great hub to import the products.

Reference List

Armstrong, G., Kotler, P., Harker, M. and Brennan, R., 2015. Marketing: an introduction. Sydney: Pearson Education.

Asongu, S.A., 2017. Knowledge economy gaps, policy syndromes, and catch-up strategies: Fresh South Korean lessons to Africa. Journal of the Knowledge Economy, 8(1), pp.211-253.

Baier, S.L., Bergstrand, J.H. and Feng, M., 2014. Economic integration agreements and the margins of international trade. Journal of International Economics, 93(2), pp.339-350.

Burlee Australia. 2018. Our Story. [online] Available at: https://www.burleeaustralia.com/our-story/ [Accessed 1 Jun. 2018]

Chaffey, D. and Ellis-Chadwick, F., 2016. Digital marketing. London: Prentice Hall.

Choi, S.H. and Kim, P.S., 2015. Failure and success in South Korea and Taiwan: making policy for foreign workers and state–business relations in East Asian developmental states. Philippine Political Science Journal, 36(1), pp.19-34.

Clifford, M.L., 2016. Troubled Tiger: Businessmen, bureaucrats and generals in South Korea. Abingdon: Routledge.

De Mooij, M., 2015. Cross-cultural research in international marketing: clearing up some of the confusion. International Marketing Review, 32(6), pp.646-662.

Fine, B., 2018. The political economy of South Korea: From minerals-energy complex to industrialisation. Abingdon: Routledge.

Papadopoulos, N. and Heslop, L.A., 2014. Product-country images: Impact and role in international marketing. Abingdon: Routledge.

Park, J., Lee, H. and Kim, C., 2014. Corporate social responsibilities, consumer trust and corporate reputation: South Korean consumers' perspectives. Journal of Business Research, 67(3), pp.295-302.

Samiee, S., Chabowski, B.R. and Hult, G.T.M., 2015. International relationship marketing: Intellectual foundations and avenues for further research. Journal of International Marketing, 23(4), pp.1-21.

Santradeportal.com. 2018. South Korea Business. [online] Available at: https://en.portal.santandertrade.com/establish-overseas/south-korea/foreign-investment [Accessed 1 Jun 2018]

Wu, C.W., 2015. Antecedents of franchise strategy and performance. Journal of Business Research, 68(7), pp.1581-1588.

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