06 Nov South Korea: The Commercial Dark Horse By Tom Shon, MinterEllison
Australia and South Korea are influential middle powers which share mutual interests in the commercial and investment context. Yet, the relationship-building focus on the two nations has been slowed down by constant paranoia about issues arising from geopolitics including those surrounding North Korea and more recently, the trade war between Japan and South Korea. These uncertainties have resulted in unseized opportunities, slowing down the growth and potential to maximise their bilateral relationship.
We are on the verge of celebrating the 5th anniversary of the Korea-Australia Free Trade Agreement (KAFTA) which effectively removed barriers to trade and investment and allowed Australian businesses to penetrate the Korean market. The success of KAFTA is particularly evident in the mining, agriculture and energy sector which contributes to a significant part of Korea’s economic security. The challenge however, is the need to expand the investment relationship that goes beyond the heavy concentration on the resources sector.
While on the rise, there appears to be mutual resistance in making proactive investments in other industries such as the service sector. There is growing attraction towards Australian exports of education and tourism services but this is lacking in the financial services, professional services, pharmaceutical and infrastructure sectors. The absence of an established investment base coupled with limited knowledge on these sectors result in insecurities in making a worthwhile investment. Moreover, we cannot undermine the fact that Korea’s service-driven industries hold a strong base in the domestic local market. Consequently, without understanding the economic benefits of these new industries entering the market, it is likely that both consumers and investors are likely to take the conservative option of seeking familiarity over new business models. By providing a unique offering in these services and helping both nations understand the importance of strengthening their investment relationship, there will gradually be a shift in the future market where such changes will be embraced.
If Japan’s ‘economic’ miracle foreshadows the future of Korea’s economic landscape, it is only a matter of time before Korea will emerge as the commercial dark horse. Often, we forget Korea was once one of the poorest countries in the world – the aftermath of the Korean Civil War virtually wiping out the nation’s economy. Yet, its swift and remarkable resurrection as a global economic powerhouse is reflective of Korea’s economic capabilities with the nation currently ranked the 11th largest economy in the world and the 4th largest economy in Asia. It is imperative that Australia recognises the investment opportunities available and strategize how they can further grow their investment relationship with Korea beyond the ‘traditional’ sectors and into industry sectors which hold great potential for growth and present mutual benefits over the next phases in the future.