By Andrew Watson
There are a number of markets that offer a strong outlook in 2016 for Australian SMEs considering expanding overseas. South Korea is one of these, with significant opportunities for SME exporters looking to consolidate or expand their business in this market.
A wealth of opportunity
As one of our close Asian neighbours, South Korea is Australia’s fourth largest trading partner and our fourth largest export market. Australian merchandise exports to South Korea were worth US$18 billion ($24.48 billion) in 2015.
South Korea has successfully transitioned from a middle-income to a high-income economy over the past 50 years and has enjoyed a strong growth rate during this time. The country’s rapid historical industrialisation and high-income economy have created strong demand for imports that Australia is well-placed to meet.
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These trade opportunities have been further helped by the free trade agreement with Australia that came into force at the end of 2014.
This agreement has significantly improved market access for goods and services, making access easier and cheaper for Australian exporters.
Since implementation, for example, 84% of Australian exports to South Korea are now duty free, which will rise to 99.8% on full implementation of the agreement.
Key export industries
There are opportunities in the South Korean market for SME exporters in a range of industries, including mining, agriculture and services.
South Korea has few natural resources of its own and so is required to import a significant proportion. Australia is well placed to meet this demand and provides a high volume of raw materials to South Korea.
Coal, iron ore and crude petroleum are Australia’s key mining exports to South Korea and this is expected to continue, providing a number of opportunities for Australian SMEs in the mining and mining services sector.
Agriculture is another growth market for Australian SME exporters, as Australia is the fourth biggest supplier of agricultural and food-related products to South Korea.
One of our biggest export products is beef, with beef exports valued at $1.1 billion in 2014/2015. And this should grow given the opportunities that have opened up with the free trade agreement.
Services are also a key export growth market. Australian education and tourism are two sectors that have already experienced strong export growth in South Korea and these are still growing.
South Korea is Australia’s fourth largest source of foreign student enrolments and our ninth largest source of visitor arrivals.
Tips for export success
For Australian SMEs looking to enter the South Korean market, there are a number of steps to follow to help make this transition is as smooth as possible.
Speaking to experts before taking the plunge to commence export operations can be valuable as it helps you to understand the market and the export environment.
Austrade, the Australian Government’s trade, investment and education promotion agency, provides a range of services for Australian SMEs looking to enter the South Korean market, including providing advice and support on how to go about entering the market.
Establishing on-the-ground partners, advisers and suppliers is critical if you plan on exporting to South Korea without a local presence. Local partners and networks can be a great source of information in the early stages of exporting and also provide a safety net for when things go wrong and you need in-market support to fix issues.
As with any export venture, SMEs exporting to South Korea may require financial support to get an export contract up and running. Your bank may be able to offer financial support to help finance an export contract to South Korea. If your bank is unable to help, the Export Finance and Insurance Corporation, Australia’s export credit agency, may be able to.
For SMEs with little or no experience of the South Korean market, commencing a new export contract to the country may seem a little daunting.
The business culture in particular is likely to be unfamiliar and new to an Australian business entering South Korea for the first time, so doing some research is useful.
It’s worth knowing South Koreans tend to prefer conducting business with people they have a personal connection with, so it can help if you are introduced to a prospective business associate through an intermediary.
South Korea is an exciting export market for Australian SMEs looking to establish export operations, with strong demand in a range of industries including agriculture and services.
For SME exporters looking to take advantage of this growth opportunity, adequately preparing and planning before entering the market is key to ensuring export success.
Andrew Watson is executive director of export finance at the Export Finance and Insurance Corporation.