South Korea is in eastern Asia in the southern half of the Korean Peninsula. It is bordered by North Korea, the Sea of Japan and the Yellow Sea. At 99,720 sq km in size, the country is slightly smaller than the US state of Pennsylvania.
Although it has been an independent kingdom for much of its history, the 20th and 21st centuries were tumultuous for South Korea. It was occupied by Japan in 1905 and did not regain its independence until 1945. The Democratic Republic of Korea in the south and the communist People’s Republic of Korea in the north split the peninsula after 1945. The US fought alongside South Korea from 1950 to 1953 to defend the country against the north’s invasion. In a 1961 coup, a new leader took over and led South Korea through several years of prosperity. Its first free presidential election took place in 1987 under a revised constitution. Strife between North Korea and South Korea continues to this day.
Manufacturing in South Korea
The South Korean government began encouraging investment in manufacturing technologies, especially for high-tech and automotive industries. Family-owned chaebol conglomerates like Hyundai, Samsung and Daewoo helped to fuel the growth. Typical manufacturing products made in South Korea include electronics, telecommunications, automobiles, chemicals, shipbuilding, mining and steel. South Korea also enjoys a reputation for excellence in cosmetics and high-end skin care products.
As of 2017, South Korea’s industrial production growth rate was about 4.6%, putting it at number 63 in the world. Industry accounts for approximately 39% of the country’s GDP.
Other Important Industries
Services make up 58.3% of South Korea’s GDP, and tourism is the largest service sector industry. More than 61,000 people visit South Korea in a single month, and even during the COVID-19 pandemic, tourism still generates $496,700 million per month. In less troubled times, tourism reached as high as $2,227,900 million and 1,703,495 people per month.
Agriculture is a mere 2.2% of South Korea’s GDP, and its primary agricultural products are rice, root crops, barley, vegetables, fruit, cattle, pigs, chickens, milk, eggs and fish.
Supply Chain Infrastructure for Manufacturing
South Korea has a strong infrastructure to support its manufacturing supply chain. The country has just under 100,000 km of paved roads, and a very strong telecommunications backbone, with 129 cell and 50 landline subscriptions per 100 inhabitants, making it one of the easiest countries in the world to communicate with.
Shipping
South Korea has 71 airports with paved runways, more than half of which can support cargo jets. The country also has 466 heliports. This robust infrastructure makes it easy to move freight in or out of the country quickly and easily. The annual freight traffic on registered carriers was 11.297 billion mt-km in 2015.
With more than 3.978 km of railway and 1,600 km of waterways, South Korea has the ability to move products to customers or suppliers as needed. Even though the inland waterways are primarily used for smaller craft, South Korea has a strong merchant marine to take advantage of its direct ocean access. As of 2019, it has 1,880 vessels, of which 83 are bulk carriers, 86 are container ships, 368 are general cargo ships, and 187 are oil tankers.
Workforce
With a workforce of 27.75 million people and unemployment at a consistent 3.7%, South Korea’s workforce is large. Workers enjoy a high standard of living because of South Korea’s favorable economic policies and the strength of its economy.
Only 4.8% of the workforce is in the agricultural sector, while 24.6% are in industry and slightly more than 70% in services.
The country’s population has a median age of 43 years. Its overall literacy rate is 98%, and most people attend school for 16 to 17 years, so workers are typically well educated and capable of handling complex tasks.
Economy
South Korea’s economy is the 14th largest in the world, despite its small geographic footprint. The total GDP is $1.54 trillion as of 2017. Taxes make up 23.2% of the GDP.
South Korea’s economic growth is expected to undergo a gradual slow down, but it is expected to stabilize in the range of 2-3%, which is common for countries with advanced economies such as that of South Korea.
In 2017, South Korea exported $577.4 billion of goods including semiconductors, petrochemicals, automobile parts, automobiles, ships, wireless communication equipment, flat screen displays, steel, electronics, plastics and computers. Its primary export trading partners were China, the US, Vietnam, Hong Kong and Japan.
Imports for the same period were $457.5 billion, and the primary commodities were crude oil, petroleum products, semiconductors, natural gas, coal, steel, computers, wireless communication equipment, automobiles, fine chemicals and textiles. Import trading partners were China, Japan, the US, Germany and Saudi Arabia.
Political Landscape
South Korea’s president is considered both the chief of state and the head of its government. A prime minister acts as the principal executive assistant to the president. President Moon Jae-in has been in office since May 2017, and since January 2020, the prime minister is Chung Sye-kyun.
Tax Rules
Tax payments are required 12 times per year, and typically require 174 hours for preparation and reporting. The total tax and contribution rate add up to 33.2% of total profit.
In 2018, the South Korean government amended some of its tax rules. The withholding rate on certain foreign entity employers was increased to 19%, and the definition of businesses subject to this level of tax was expanded to include the ship building industry and the financial sector.
Even so, the country still enjoys a reputation for being an easy place to start or run a business.
Special Circumstances
North and South Korea continue to dispute the official borders, including the Demilitarized Zone and certain portions of the Yellow Sea and the Northern Limit Line.
Getting Down to Business
Doing business in South Korea has many advantages along with a few challenges. Despite forecasts that the economy will slow, it is still one of the largest and most robust in the world, and it is extremely manufacturing-friendly. Its location and robust infrastructure make it an ideal spot for an Asian supply chain hub, and tools such as QAD Internationalization enable companies to easily manage the challenges of taxation. As in many countries, the manufacturing industry within South Korea is undergoing rapid change, making QAD Adaptive ERP an essential part of many companies’ IT footprint.
How would you describe the state of Manufacturing in South Korea? Learn more about manufacturing and doing business in other great countries around the world.
When doing business, Americans should be sensitive to Korea s historical relationship with Japan, which made a virtual colony of the Korean peninsula. Because of the Japanese colonial period, Koreans have an emotionally intense reaction at times to things Japanese, though there is an admiration for Japanese business acumen. A businessperson should show great respect towards Korean society. Any comparative mention of Japan versus Korea, where Japan has the upper edge may harm a business deal.
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