Local representation is essential for the success of American firms in the Korean market. The most common means of establishing a presence in Korea include: retaining an agent or distributor, naming a registered trading company as an agent or establishing a branch sales office.  See the latest "Exporter Guide" prepared by the Foreign Agricultural Service's Agricultural Trade Office in Seoul for updated information on this topic. Business relationships are built on personal ties. Companies should visit Korea to cultivate contacts and to better understand business conditions.  CS Korea can help U.S. companies activate the right connections in Korea through a wide range of marketing services which include identifying and arranging contact with potential buyers, distributors and importers. For more information, please visit CS Korea’s website: (http://www.buyusa.gov/korea/en/ourservices.html) to see the menu of CS Korea services for U.S. companies. U.S. exporters seeking general export information/assistance or country-specific commercial information should consult with their nearest Export Assistance Center or the U.S. Department of Commerce's Trade Information Center at (800) USA-TRADE, or go to the following website: http://www.export.gov. To the best of our knowledge, the information contained in this report is accurate as of the date published. However, The Department of Commerce does not take responsibility for actions readers may take based on the information contained herein. Readers should always conduct their own due diligence before entering into business ventures or other commercial arrangements. The Department of Commerce can assist companies in these endeavors.

Using an Agent or Distributor

The most common means of representation are: 1) appointing a registered commissioned agent (commonly known as an “offer agent” in Korea) on an exclusive or non-exclusive basis, 2) naming a registered trading company as an agent, or 3) establishing a branch sales office managed by home office personnel with Korean staff. Any businessperson registered with the Korean government can import goods in his/her own name. Appointing a registered trading company (rather than an "offer agent") as an agent has its advantages because these agents can handle all of the import paperwork and imports for their own account. Registered trading companies tend to be larger firms that split their businesses between exports and imports. However, these larger firms may be less attentive to building the U.S. supplier's business, placing a higher emphasis on diversifying their portfolio of products from different countries. Similarly, while the larger general trading companies may be influential and well known in the market, they also may not devote as much attention to a single product as do smaller firms.

To find a local representative, a good place to begin is with the International Partner Search (IPS) offered by the U.S. Export Assistance Centers (USEAC) located throughout the United States and by the Commercial Service Korea (CS Korea). CS Korea’s industry specialists utilizing their network of industry contacts and trade associations, can identify pre-screened partners for the U.S. client. The IPS provides the U.S. client an annotated list of three to five potential, qualified representatives. Given time and resource abilities, the preferred alternative is the Gold Key Service (GKS), whereby the U.S. client is in country to meet face-to-face with prospective candidates. The GKS is a very successful program providing full-service support that can often includes briefings, translation and transportation (fee based). CS Korea strongly recommends that U.S. companies seek legal counsel prior to signing a contract. Most experts also recommend hiring a local attorney prior to making major business decisions with Korean companies. A final recommendation is that any distribution or agency contract include a termination clause. Otherwise, Korean Commercial Arbitration bodies may specify the terms for termination, including compensation claims against the principal. A mutually signed contract between a supplier and an agent/distributor with termination provisions would take precedence and avoid placing the U.S. company at risk.

U.S. companies should also seek legal counsel with regard to protecting their intellectual property. Trademark and patent registration (if applicable) with the Korea Intellectual Property Office (KIPO) is the minimum safeguard for your intellectual property rights. U.S. companies are advised to seek the services of a local attorney to directly register their trademarks and/or patents in their own names. In order to have control over IPR, registration must be done in the U.S. company’s name and not the Korean agent’s name. Under Korean law, applications must be done in Korean and submitted to KIPO. To view a list of useful contacts for agents or distributors, go to the link  www.buyusa.gov/korea/en/agentscontacts.html.

Establishing an Office

Most foreign companies in Seoul are located in the following four well-known districts: 1) Kangnam -- the expensive, bustling, new city center south of the Han River where one can find the World Trade Center complex and the American Chamber of Commerce in Korea; 2) City Hall -- the historic CBD area where the U.S. Embassy and a few Korean ministries are located; 3) Yoido -- or "Manhattan Island," which is adjacent to the Han River, where many financial firms and the National Assembly can be found; and 4) Mapo District – which is halfway between Yoido and City Hall. While heavy urban traffic is an ongoing source of frustration and delay, Seoul has an excellent public transportation system that allows foreign investors to consider various locales for their Korean offices.

The following section provides some basic guidelines on how to set up an office in Korea. In addition, a list of real estate consultancy, taxation and human resource search services in Korea are provided. Step 1: Assess Your Company’s Commitment to Establishing a Presence in Korea Potential investors can take advantage of the many services offered by Invest KOREA, the primary investment promotion agency for Korea. Invest Korea is an arm of the Korea Trade-Investment Promotion Agency (KOTRA), a government-sponsored nonprofit organization. The operation is staffed by KOTRA personnel and complimented by officials from relevant government ministries and specialists from the private sector in areas such as law and accounting. Invest KOREA provides assistance in the following areas:

Identify the necessary administrative procedures.

Consult on forms of investment, including M&A, joint ventures and real
estate acquisition.

Provide legal and taxation advice
Invest KOREA also provides investment planning, ongoing support and follow-up
support. Invest Korea also maintains an Ombudsman ready to address foreign
investors’ grievances.
Step 2: Receive Authorization to Proceed with an Investment
Foreign investment projects require notification to the Ministry of Commerce, Industry, &
Energy (MOCIE) or its delegated authority – the head office of a major Korean
commercial bank or Invest Korea. (A list of major banks in Korea can be found at
www.buyusa.gov/korea/en/bankcontacts.html.) Investment notification in liberalized
sectors can be handled through banks, however other sectors (see Chapter on
Investments, pg. 88) require greater review or documentation.
Step 3: Identify an Office Site
Companies unfamiliar with Korean real estate should consult reputable real estate
agents or a real estate consulting firm, especially one experienced in dealing with foreign
firms. A list of select such agents can be found at:
http://www.buyusa.gov/korea/en/realestatecontacts.html#_section1.
While office space may be easing in Seoul’s Central Business District (CBD), given the
high demand for land in Seoul, rental rates are high even by U.S. and Asian standards.
A recent survey indicated that the average monthly rent in the CBD was USD 75 per
pyong (equal to 3.3 square meters) with rents in the popular Gangnam District even
higher. Experts expect rents to rise 4% over the next year. These rates are inclusive of
maintenance fees and are based on gross floor area, which include common areas.
In addition to monthly rent, another expense is a deposit payment (or "key money"), a
one-time charge refundable upon termination of the lease. Nearly all Korean landlords
require key money, which ranges from USD 3,000 to USD 6,000 per pyong. There are
various combinations of monthly rental fees and key money deposits, and the price per
pyong varies based on the negotiated terms. Office parking, another scarce commodity
in Seoul, is usually available for a monthly fee.
Under the Foreign Land Acquisition Law foreigners are allowed to purchase land
regardless of size or purpose. Local zoning laws do regulate categories of activity
permitted, and should be investigated prior to making final investment decisions.
Step 4: Register with the Nearest Tax Office
Investors should register with the nearest tax office in their local jurisdiction for tax
reporting purposes. Given the complexity of Korean tax laws and the potential for
misunderstanding provisions, companies should consider hiring a local accounting firm
to file taxes. A list of local accounting firms can be found at:
http://www.buyusa.gov/korea/en/realestatecontacts.html#_section2.
Step 5: Seek Qualified Employees
Local Koreans are attracted to U.S. firms given salary rates, prestige, opportunities for
travel, the ability to use and learn English and the possibility to transfer to the company’s
home office or another foreign branch office.
Korea has a large pool of conscientious and highly educated workers. Female
employees are especially strong candidates given the prevalence of traditional cultural
attitudes in many Korean companies.
Whether seeking to hire local or foreign staff, U.S. companies should consult an
employment agency in Korea. Click here to view a list of employment agencies:
http://www.buyusa.gov/korea/en/realestatecontacts.html#_section3
To view the list of real estate consultants, accounting firms and human resource
agencies, go to the link below.
http://www.buyusa.gov/korea/en/realestatecontacts.html

Franchising

Korea’s franchising industry led by fast food restaurants has developed rapidly in the last few years. This growth has expanded to include family restaurants, discount stores, clothing, mailing services, cleaning services, as well as educational institutions. In general, Koreans are attracted to American franchises given their global brand recognition, management support, and overall positive reputation. Part of the interest in franchising stems from the “new generation” of affluent Korean consumers coupled with changes in Korea’s distribution sector that favor new product and marketing concepts. The market value of the Korean franchise industry is estimated at USD 64.2 billion. This figure includes all franchise and sub-franchise fees, and royalties. Of the total franchise market, 45 percent (USD 28.9 billion) is accounted for by food services, including fast food services and family restaurants. A list of food/fast-food franchises in Korea is available on pg. 20 & 21 located at the following linked site: U.S. food and beverage franchises. Finally, the retail franchise sector, such as convenience stores and consumer goods, comprise 25 percent of the franchise industry (USD 16.0 billion).

Regarding franchise services, such as education, real estate, cleaning services, mailing services, and others, account for 30 percent (USD 19.2 billion in sales). Koreans are very conscious of health and beauty products and are fond of foreign cosmetics. With more Korean women entering the labor force and higher incomes, upscale products are more attainable. Korean men are increasingly using cosmetics. This heightened demand is helping create opportunities for foreign cosmetics franchises. On a per capita basis, Koreans spend more on prestige cosmetics than any country in the world. Franchise activity related to children's educational services and services tied to sports and leisure activities are also becoming very popular, especially with Korean parents' increased interest in providing better educational opportunities for their children. Korea places a high emphasis on education and most students engage in after-school study programs at private academies known as hakwon or at-home with tutors. At the same time, interest in activities such as field trips to the countryside, camping excursions, creative thinking classes, and book clubs is increasing, as highlighted by the recent successes of foreign companies such as Gymboree, New Horizon, Montessori, and Mad Science in entering this market.

Although U.S. franchises are sought after in Korea, challenges remain. Some business representatives may not be familiar with standard franchise requirements, fee schedules, and royalty rates. Others may raise concerns over minimum facility size or progressive expansion of the franchise as a condition of the contract. There are no specific legal requirements for U.S. franchises to operate in the Korean market. However, franchisees need to comply with the Sub-franchisee’s Fair Trade Act, which closely parallels the rules that exist for sub-franchisees in the U.S.

Direct Marketing

The Korea Online Shopping Association (KOLSA) estimates that for 2006, there were approximately 100,000 direct marketing firms in Korea. Gross revenues for Korean direct marketing from January to December 2005, including catalog sales and TV and Internet shopping, with a total of USD 15.30 billion. Direct marketing primarily takes the form of catalog sales, TV home shopping, and Internet shopping. Korea also has a large market for door-to-door sales and multi-level marketing.

Of the direct marketing total, approximately one-quarter were door-to-door sales firms in Korea. Major door-to-door sales items include home education materials, books, household consumer goods, cosmetics, health foods, sporting goods, and service products, such as insurance and travel counseling. According to the Korea Direct Selling Association (KDSA), the Korean door-to-door sales market for 2005 totaled USD 6.3 billion.

Korea’s multi-level sales for 2005 reached USD 3.6 billion. As of December 31, 2005, 128 multi-level marketing (MLM) registered companies employing about 3.1 million distributors. Over the years, MLM has come under a cloud as an “undesirable or inappropriate business form” for Korea, claiming that it neglects consumer safety, excessive profits, and threatens the Korean social fabric through its "pyramid schemes." However, MLM’s negative image in Korea appears to be changing due to the combined efforts of the Korea Direct Selling Association (KDSA) (whose membership includes almost all U.S. MLM companies doing business in Korea), and many governmental representatives on both sides of the Pacific. In keeping with deregulation of sectors of the economy, the Korean government eliminated most existing market barriers against MLM products, such as the obligation to disclose retail prices on the MLM product label. The authority to oversee the MLM industry rests with the Fair Trade Commission (FTC). As a result, multi-level marketing activities by U.S. firms in the cosmetics, cleaning products, and kitchenware sectors have been expanding. Prior knowledge of the market conditions can help prevent unnecessary conflicts with government officials, consumer ‘watchdog’ groups, or industry groups.

Joint Ventures & Licensing

The Korean government aggressively promotes foreign investment. Recent policies have liberalized investment including the lifting of foreign equity ownership limits in selected sectors. President Roh and the Prime Minister's Office have spearheaded efforts to de-regulate and liberalize the economy. Foreign operations have welcomed such moves and encouraged further such steps. Selecting the appropriate partner is one of the most difficult and critical aspects of establishing a joint venture in Korea. Large Korean conglomerates, known as Chaebols, still exercise considerable influence over the Korean government and financial institutions. The Korean government has recently adopted a policy shift promoting small and medium-sized businesses. With the decreasing influence of Chaebols and greater concern of for anti-monopolistic behavior, joint venturing in Korea has become more diversified. Regardless of the scale of Korean partner, there is a tendency within Korean business culture to maintain local control, regardless of the percentage invested by foreign entities. A U.S. company should take into account such cultural aspects to ensure policies and operations are conducted in the best interest of the U.S. partner.

Management control must be evaluated on three levels: 1) shareholder equity; 2) representation on the board of directors; and 3) active management (representative director and subordinate management). Legally, Korean board meetings require the physical presence of all members as well as a quorum of the directors. Therefore, if a foreign investor intends to exercise day-to-day management, a representative director who resides in Korea must be appointed. Moreover, the representative director will need the support of and access to key functional areas of the company in order to manage in accordance with the foreign investor’s wishes. Therefore, the internal organization of a joint venture company as well as key management appointments should be worked out and agreed upon by all involved parties as early as possible. Compatibility of goals between the Korean and foreign partners is also crucial to the joint venture's success. For example, a foreign investor's primary goal may be to send profit dividends offshore while the Korean counterpart may be more concerned with corporate growth in Korea, particularly by exporting to overseas markets.

Another fundamental issue to be faced is how contractual agreements are treated. To most Koreans, a contract represents the current understanding of a "deal" and is the beginning, rather than an end, to negotiations. If changing circumstances result in omissions or points that no longer accurately reflect the original agreement, then problems will arise. The same is true if the contracting parties change. This type of experience in Korea has led many foreigners to believe that Koreans place less importance on a written contract than Westerners. Though Americans may regard a written contract as legally binding, Koreans may regard the same contract as a "gentlemen's agreement" subject to further negotiations should conditions change. Contract negotiations with Koreans therefore should be viewed as an on-going process of dialogue having the following objectives: 1) reaching a common understanding of the deal that includes each party’s responsibilities; 2) recording the detailed understandings; and, 3) being prepared to modify the terms of the agreement should there be a change in circumstances.

Certain terms of the commercial relationship between joint venture partners, such as technology transfer, raw material supply, marketing, and distribution should be agreed on in detail in the joint venture agreement. American companies should proceed with caution when they enter into a technology licensing agreements. A company’s intellectual property is not necessarily protected and may be vulnerable in the later stages of a business relationship when the survival of the Korean company is dependent on the technology. Although U.S. companies frequently register their patented technology with the Korean Intellectual Property Office (KIPO) before entering into a licensing agreement, successful companies often retain cutting edge technology or key processes. This preventive strategy allows the U.S. party to control the use of the licensed technology as well as maintain the integrity of the licensing agreement.

Korea’s legal procedures can be lengthy, cumbersome and expensive when dealing with contract violations. If at all possible, the best strategy is to prevent possible conflicts. The identification of a viable and trustworthy business partner from the outset is essential, therefore foreign investors should conduct thorough assessments and due diligence when selecting a business partner. Legal advice is always a solid move. A list of attorneys is available at the end of this chapter. In addition to consulting with an attorney, foreign investors can also consult with the Korean Commercial Arbitration Board (KCAB), which advises foreign companies on contract guidelines. A KCAB counselor can also review contracts and identify areas of potential concern. Information on the KCAB can be found at: http://www.kcab.or.kr.

Distribution & Sales Channels

Local representation is essential for the success of foreign firms in the Korean market. This is especially true when considering the fact that business relationships in Korea are built upon personal ties and social introductions, and that much of the major thirdcountry competition is only a few flight-hours away. In addition, for sectors that involve any type of government procurement, an entity must be registered with the Korean government in order to bid on procurement projects. Hence, many American firms enter into a consortium with a Korean company or enter into a representative agreement, especially for the purposes of market entry. Finally, the language barrier and established social/ business circles make it extremely difficult to enter the Korean market without a qualified Korean representative.

Distribution methods and the number and functions of intermediaries vary widely by product area and local conditions. The market for most consumer products is concentrated in major cities. The traditional retail distribution network of small family-run stores, stalls in markets, and street vendors is changing rapidly toward large-size discount stores. There are many large retail stores in the major cities, especially Seoul, Daegu, Busan, and the outlying suburbs. Recently, retailing concepts such as Full-Line Discount Stores (FDS) have gained popularity. U.S. based Price Costco has entered the Korean FDS market and are successfully competing against their growing Korean rivals E-mart and Lotte mart. Rapid expansion of these discount chain stores is planned nationwide, with suburban satellite cities attracting the greatest number of stores. Distribution of goods through large discount chains is one of the best ways to market foreign products to Korean consumers.

Parallel imports can legally enter Korea. Parallel imports marginally reduce the value of an exclusive distribution agreement. Many American companies continue to give exclusive contracts, since they have in place territorial limits in neighboring countries that enhance the value of the exclusive in any one country. Likewise, any parallel importer in Korea that is not receiving the support of the OEM, and does not deal in the same volume, cannot be guaranteed a steady source of supply. As noted above, the legitimate exclusive distributor still has considerable advantages in Korea. Most products enter Korea by air and sea at Incheon and Busan, after which they are transferred to major distribution centers by rail or road. Korea’s main distribution centers are Busan, Incheon, Daegu, and Gwangyang.

Selling Factors & Techniques

Three practices are essential for success in the Korean market: (1) adapting products and procedures to Korean tastes and conditions, (2) regular communication with Korean business partners and customers, and (3) consistently exhibiting a firm commitment to the Korean market over the long run. In selling to manufacturers, personal contact is important not only because of the value placed on direct discussions and on building long-term relationships but in obtaining a first-hand acquaintance with new processes and equipment. In light of competition offered by Japanese suppliers, who often visit potential and existing customers throughout Korea, U.S. suppliers should consider (1) making visits to Korea to augment the efforts of the local representative; (2) bringing representatives back to the home office periodically to ensure they are fully informed, motivated and up-to-date on the supplier and its offerings; (3) allowing the distributor or agent to appropriately select from the U.S. company’s full product line items for sale in the market, (4) holding demonstrations, seminars and exhibitions of products in Korea; (5) increasing the distribution of technical data and descriptive brochures; and (6) improving follow-up of sales leads.

Electronic Commerce

In 2006, the total amount of E-Commerce transactions in Korea was estimated to have reached approximately USD 400 billion, a 9 percent increase from 2005. This figure is projected to grow at an average annual rate of 10 percent over the next five years. In Korea, the B2B, B2G and B2C transactions account for 88.6, 8.2 and 2.3 percent of the E-commerce sector respectively. There are approximately 4,524 B2C cyber shopping malls in Korea with estimated sales of USD 9.0 billion in 2006. The transaction volume of Korean Electronic Commerce (EC) is forecast to grow rapidly over the next several years. Major factors driving the growth include a nationwide broadband infrastructure with 35 million Internet users from a total population of 48 million, and introduction of Wireless Broadband (WiBro) and 3.5G mobile High Speed Data Packet Access (HSDPA) services through mobile computing and communication devices in 2007. Increased EC transactions will lead to growing demand for Ecommerce solutions, a variety of equipment, networking, software, and services, to develop and support E-commerce-related web-sites and transactions. The electronics and metal manufacturing industries that account for nearly 70 percent of total B2B transactions are willing to spend in order to achieve efficient and secure use of EC tools. However, U.S.-based E-Commerce companies need to monitor the Personal Information Protection Act and Ministerial data privacy/SPAM regulations that are being drafted for enactment in 2007. Although the new regulations are likely to reflect concerns voiced by the public and the industry to the government, it may still be restrictive for E-Commerce firms managing user data globally to some extent.

Trade Promotion & Advertising

The Commercial Service section of the U.S. Embassy in Korea is the primary US
government trade promotion agency. Among the non-USG organizations, the Korea
International Trade Association (KITA) is the largest trade association in country. As a
member of the World Trade Centers Association (WTCA), KITA explores new trade
opportunities for Korea by organizing trade missions and market survey teams to a
number of foreign countries on a regular basis. KITA's Trade Service Center also
assists potential foreign buyers or sellers. The Center also offers on-the-spot
consultation and personalized advisory service regarding trade rules and regulations,
export and import procedures, business management, market research, technology
development, and taxation. In addition, KITA maintains six overseas branch offices, two
of which are based in Washington D.C. and New York.
Seoul maintains the largest trade show venue in Korea, the Convention and Exhibition
Center, popularly known as "COEX." Covering 36,027 square meters of exhibition
space, COEX is a full-service trade organization offering multi-lingual simultaneous
translation, world-class audio-visual equipment, state-of-the-art lighting and sound
systems, and up-to-the-minute information services. The Seoul Trade Exhibition Center
(SETEC) is also in Seoul and is operated by the Korea Trade- Investment Promotion
Agency (KOTRA).
In addition the second largest city in Korea, Busan, located in southeastern part of Korea
currently holds national exhibitions. The Busan Exhibition & Convention Center
(BEXCO) has a floor space of 26,446 square meters. There is also an outdoor
exhibition site that is 13,223 square meters in size.
Advertising
Korea’s advertising market is open to 100 percent foreign equity participation. Foreign
advertising agencies now control more than 50 percent of the Korean advertising
market. Today, all the major international agencies are present in Korea.
There are four major broadcast networks (television and radio) in Korea. KBS I and KBS
II are owned and operated by the Korean government, while MBC and SBS are
independently operated. However, government influence remains since advertising time
on these and other broadcast networks is sold exclusively through the government
organization known as the Korea Broadcast Advertising Corporation (KOBACO).
Companies must register with this corporation if they intend to advertise in either of
these two media. As of 2006, approximately 256 foreign and Korean agencies were
registered with this corporation.
Though censorship in advertisement is still practiced in Korea, it is not as strict as it was
in the past. The Korea Advertising Review Board (KARB), which consists of advertising
and industry associations, currently controls advertising censorship procedures. In
addition, the government’s Korean Fair Trade Commission is responsible for determining
whether an advertisement makes accurate claims.
Several local TV stations have been established in recent years. This development, as
well as the advent of cable television in 1995, has expanded advertising's potential reach
to Korean audiences. As of December 2006, the Korean cable industry was served by
111 system operators and about 173 program providers offering diverse cable programs
such as business news, sports, music, Buddhist programming, shows on the Korean
board game, baduk (“Go”), etc. There are also five shopping channels, including CJ 39,
Hyundai, LG, Woori, and Nongsusan. Estimated total sales for these five shopping
channels in 2005 was USD 1.7 billion.
Advertising market opportunities are predicted to show strong growth as more Koreans
gain access to electronic media. Cable television in Korea currently has an audience of
over 12 million households. Additionally, the government took steps to promote
broadcast satellite television in digital format in 2001, with expectations of nationwide
coverage by 2010. Korea Digital Broadcasting (KDB), a subsidiary of state-run Korea
Telecom, holds the contract for digital broadcasting. In 2005, KDB broadcast 208
satellite channels reaching an estimated 1.9 million households.
Internet advertising also offers significant market growth potential, since the number of
computer users will further increase in the coming years. There are currently 12.7 million
Internet using households in Korea, which amounts to about 88 percent of total
households in Korea.

Pricing

U.S. goods have a reputation among Korean buyers of having high quality and
performance; however, since Korean manufacturers are price-conscious, they often
perceive U.S. products to be very expensive. In an export-oriented economy where
finished products must meet keen competition in the world market, many Korean
manufacturers believe that it is essential to buy the cheapest raw materials and
equipment, even at the expense of quality. Goods from Japan and elsewhere are often
considered to be better buys than goods from the U.S. In addition, Korean
manufacturers often seek to offset labor wages with low-cost inputs. However, as Korea
continues to move toward exporting higher-end and manufacturer-branded products,
and tries to combat criticism of poor quality control among certain Korean products in
recent years, the emphasis manufacturers place on price as a buying factor may be
somewhat tempered. Other characteristics in Korean price considerations are the
tendency to seek “bundled” prices and to undervalue "software" (engineering and other
services components), particularly in the procurement of major systems.
Considering the factors outlined above, U.S. exporters might consider: 1) adapting their
products to Korea by marketing basic units, 2) taking into account in their price
quotations the likelihood of repeat business for spare parts and auxiliary equipment, and
most importantly, 3) emphasizing and marketing the idea that the superior quality of U.S.
manufactured input products ultimately results in lower production costs.
Another pricing factor that merits consideration is commissions. The commission rate for
using an agent or distributor varies depending on the type of product and the transaction
amount. On average, Korean agents require a 10 percent commission, particularly
when a transaction is conducted on a spot basis, but this varies for different products.
Generally, a 5-7 percent commission applies to product categories such as general
machinery, including packaging, construction, and material handling equipment.
Meanwhile, more sophisticated products such as medical, laboratory, and scientific
analytical instruments usually require a commission of 15-18 percent or more, since
these are products for which after-sales service is considered to be very important.
Korea has consumer-protection legislation that requires consumer items be labeled with
both the manufacturer’s sales price to the retailer and the marked-up retailer’s price to
the consumer. The mark-up from manufacturer to consumer ranges from 50 percent to
150 percent.
Korea has a 10 percent sales tax that is included in the price of taxable items. There is a
10 percent VAT on services provided in Korea.

Sales Service & Customer Support

Sales and after-sales service is generally secondary to product and price considerations. Following the Korean War, at a time when foreign exchange was exceedingly scarce, Korean plant operators learned to rely on their own resources or on the many small machine shops in order to service machinery. This tradition of self-reliance and improvisation is still evident in contemporary Korean business practices. However, with heavy competition among foreign suppliers in the Korean market, servicing has become an increasingly important component of selling. Private traders and offer agents often hire in-house engineers to install equipment. For specialized installations, however, the best sources of assistance include resident and offshore foreign engineers in coordination with local engineers, whose services are available on contract. Japan's geographical proximity to Korea as well as the similarities in business culture between the two countries allow Japan to send teams of specialists to Korea at minimal cost and effort in order to offer skilled advice in installation, maintenance and repair. U.S. firms should consider establishing regional servicing facilities that can effectively service and support equipment sold in Korea. The emphasis given recently by some American firms on the training of personnel, often through U.S.-based programs, has proven beneficial.

Protecting Your Intellectual Property

Intellectual property laws exist in Korea. However, protection of intellectual property and the laws governing enforcement of these protections are not necessarily extra-territorial. What is understood and practiced in the United States is not always practiced in Korea. U.S. companies wishing to sell their products or services in Korea should first and foremost find out if they have to register their intellectual property rights (copyright, trademark or patents) in Korea. The speediest means to enforce the right-holders’ claim is to have their intellectual property recognized by the Korean authorities and government.

One of the most frequent IPR problems facing U.S. businesses in Korea is trademark protection. Unlike the trademark registration system in the United States, which is based on “first commercial use” or “first intent to use,” the trademark registration system in Korea is based on “first-to-file,” or more accurately, first to successfully register with the Korea Intellectual Property Office (KIPO). If a U.S. company is considering entering the Korean market it is highly advisable that the U.S. company register their trademark first before an unauthorized party has the opportunity to register the trademark. The company will save much time, energy, resources and legal fees in the long run. Since registration of trademarks is in Korean, in order to successfully register a trademark, the U.S. company should hire a qualified local attorney who is familiar with registration procedures. To have maximum effect, a company should be prepared to register its trademark in every applicable product class category for the product(s). Protection is not generally provided under the Korean legal system if the company has not registered in the relevant product class category. Should the trademark registration remain
unchallenged, the entire registration process should take eleven months from the date you submit your application form to KIPO.

During the course of trademark registration, information on pending applications initially becomes available in publications of the Korea Invention and Patent Association two to three months after the initial application. Official announcements of pending applications
are published for comment by KIPO in its Official Gazette. Generally, U.S. companies hire a local attorney and ask the firm to look into the status of the company’s trademark in Korea. Sometimes, the U.S. company discovers from the aforementioned publications that an unauthorized party has already filed the trademark and is awaiting registration. In this case the company is eligible to file an Opposition Action Petition within a 30-day period of official publication. In an opposition action petition, the company states their case as to why the unauthorized party’s application should be rejected during the course of initial review. After reviewing the opposition action petition, KIPO can decide either to proceed with registering the unauthorized trademark application or to reject the trademark application, clearing the path for the U.S. company to register at a later date.

At a minimum, American companies that plan to enter the Korean market in the future should monitor KIPO public notices to ensure that their trademark has not been registered. Since the public notices are only in Korean, if the U.S. company cannot monitor the situation from America, the company should consider hiring someone in Korea, such as an attorney, who can.

The 1998 Trademark Act provides KIPO with grounds to reject third-party applications of
the same or similar trademarks if KIPO is convinced that the registration is done in "bad
faith." As capable as trademark examiners can be, some trademark registrations by
unauthorized registrants have slipped through the cracks and have been successfully
registered. Registration by an unauthorized party can include “predatory registration”
(i.e., knowing that the mark belongs to another company, the unauthorized applicant
registers the mark, with no intention of using it but rather to sell the trademark
registration when the legitimate trademark owner tries to enter the Korean market).
In such cases, because the Korean legal system is based on “first to file”, and because
the unauthorized registrant successfully registered with KIPO, the unauthorized
registrant is the legal owner of the trademark in Korea—even if it is the U.S. company’s
mark and the American company has been using it in international business for several
years. Provided that the mark was not used commercially by the successful but
unauthorized registrant in Korea for the previous three years, the U.S. company can file
a Cancellation Action petition to cancel the existing mark. If the cancellation action is
successful and there is no appeal, the U.S. company can immediately file to register the
trademark with KIPO, thereby reclaiming the trademark.
The most contentious scenario takes place when an unauthorized trademark application
has been successfully registered with KIPO, and the party is actually using the U.S.
company’s trademark commercially in Korea. In this case, the legal remedy available is
an Invalidation Action. An invalidation action petition can be filed anytime during the
course of the 10-year life of a trademark, provided the unauthorized registrant is actually
using the trademark. The American company’s petition should outline why the
unauthorized trademark owner’s registration should be voided (invalidated), i.e. that the
American company is the legitimate and original trademark owner, and that consumers
know the trademark to be associated with the U.S. company.
If the company follows either the invalidation or cancellation action routes, the burden of
proof lies with the petitioner. U.S. companies should be prepared to provide
documentation showing commercial use (include samples of the product and illustrating
the uniqueness of the trademark and product), to substantiate financial investment in
advertisements (include all examples of actual advertisements or promotional materials
that appeared in the media), even to provide results of any surveys that show that the
brand name is publicly recognized in Korea and that the company is the source of the
legitimate goods promoting the trademark.
Provided that the company and their attorneys put forth a convincing argument with
meticulously documented details as to why the company is the legitimate trademark
owner, the company has a good chance of winning the case before the KIPO Trial
Board. However that may not be the final hurdle since there is an appeals process for
cancellation and invalidation actions from the KIPO Tribunal Board to the Korean Patent
Court and finally to the Supreme Court of Korea. The rule of thumb for a trial date is first
come, first served --- petitions are filed by date with the trial dates occurring in order of
the date of petition. A final judgment on a petition can be a long process due to the
length of time it takes to go from the KIPO Tribunal Board, via the Korean Patent Court,
to the Korean Supreme Court. Four years or more is not unheard of for a final decision
using the legal process and even then there is no guarantee that the U.S. company will
be successful. Regardless of the approach taken, good legal counsel is essential.
Unlike successful cancellation actions where the company may file for the trademark
immediately with KIPO, successful invalidation actions have a one-year moratorium from
the invalidation action date before a U.S. company can officially register a trademark.
However, US companies can seek enforcement measures from the date of invalidation
of the Korean registration.

Both the United States and Korea are members of the Madrid Protocol, which allows companies from the member nations to apply for trademark ownership in several member nation countries simultaneously. In Korea, a U.S. company can register their trademark and patents with the Korea Industrial Property Office (KIPO). Foreign applicants are required to retain a licensed local attorney in order to prepare applications in Korean and to conduct necessary follow-up correspondence locally. Under international law, copyrights do not have to be registered in order to be protected; however, similar to the U.S., registration is also possible in Korea with the Ministry of Culture and Tourism. Enforcement of legally registered copyrights, trademarks, and patents are under the jurisdiction of the Prosecutor's Office in Korea. Type of Intellectual Property Where to Register Trademark, Patent Korea Industrial Property Office (KIPO)
www.kipo.go.kr; Copyright Ministry of Culture and Tourism (MCT) http://www.mct.go.kr/ Copyright Registration Division: Copyright Deliberation and Conciliation Committee www.copyright.or.kr

When registering a copyright, trademark, or patent, US companies should maintain control of their intellectual property (e.g., registering in the U.S. company’s name) even if they request their Korean agent to do the processing. This control is particularly important should the relationship dissolve. In previous cases where the Korean agent maintained control of the intellectual property, long, costly legal battles ensued in order for the U.S. company to register their trademark.

Due Diligence

Local representation is essential for the success of foreign firms in the Korean market. Due diligence is critical, especially when selecting a local partner for joint ventures, licensing, and distribution. A due diligence check on a potential Korean business partner should include an evaluation of the company’s financial and operational history, accounting practices, hidden ownership interests, corporate relationships with other Korean companies, and position in the market for the product(s) you are exporting. CS Korea offers a fee-based service called the International Company Profile, which provides information on potential Korean business partners to help American companies obtain accurate, up-to-date information. The report includes financial information on Korean companies from D&B Korea Co., Ltd. D&B Korea Co., Ltd. and Kroll International, Inc. (http://www.kroll.com/) are also providers of due diligence services.