International firms are still struggling to navigate South Korea’s domestic trade markets. Finbarr Bermingham travelled to Seoul to find that life is tough on the ground.


Spring sun floods through the huge windows on the 18th floor of Ferrum Tower in Central Seoul. GTR is discussing Korean trade in the office of Squire Patton Boggs, a large US law firm. A couple of floors up, Clifford Chance, the sixth-largest firm in the world by revenue, occupies a similarly sized space: elegant, but small. Willis the credit insurer is a few floors higher still, while Barclays – one of the biggest players in global trade and export finance – occupies a level to itself towards the top.

In many other big international cities, each of these could reasonably expect to occupy such a building all by themselves. As it is in Seoul – the second-biggest metropolitan area in the world by population and home to some of the most powerful exporters in the world – they’re piled amongst one another in an office block, while the likes of the Korea Exchange Bank (KEB) and the Industrial Bank of Korea occupy what seem to be many acres nearby.

“We’re all competing for the same business – that of the big chaebol companies such as Samsung and Hyundai,” explains managing partner Joon Kim. In South Korea, the domestic legal market is still closed, meaning international law firms can only represent exporters overseas. This is a thread that runs throughout the trade space in the country: companies fighting over scraps of business from the behemoths, which dominate the industrial landscape. Korea can be a tough nut to crack for those in the trade business. Many have learnt not to even try.

One partner at the Australian headquarters of an international law firm told GTR recently that they had considered putting people on the ground in Seoul, but were advised against it by their Korean clients. “They told us they didn’t want us there – that the local sector can take care of their needs at home, and that their international partners can represent them abroad without needing to step foot in Korea,” he explained. It was a sentiment repeated by a senior staffer at one of the big global trade finance banks in Hong Kong, who recently quipped: “I don’t know why they [other banks] still bother having offices there. We learnt a long time ago that they don’t make any money.”

Despite the exponential progress South Korea has made as a country in recent decades, it is still relatively closed. For a journalist trying to speak with banks and law firms in the country, calls go unanswered, appointments often unfathomable. Similar anecdotes flow readily when speaking to those who have attempted to crack the financial markets. “People here want to use local banks and local insurers,” Andy Ryoo, country manager for Euler Hermes in South Korea told GTR over coffee in Seoul. “They trust local brands, and that’s difficult to change.”

The insurance market is just as tricky as the legal one. Currently only one organisation is licensed to offer trade credit insurance domestically: the Seoul Guarantee Insurance Company (SGIC), which since the financial crisis of 1998 has been fully managed by the Korea Deposit Insurance Corporation, a government body. For international insurance companies looking to do business in Korea, they have to enter the market as a broker, and then act as a reinsurer, feeding off the business sold secondarily by SGIC.
Ryoo says that – as with even the most mature markets – the take-up of trade credit insurance among SMEs in Korea is small.

“They don’t know about it so much. They don’t really consider risk management,” he explains. The trend also applies to export credit insurance, in which the space is dominated by K-Sure, the government-owned ECA which is currently the only institution licensed to provide insurance to exporters. This may be about to change, with the government suggesting that it would open the export insurance market to all-comers, leading Ryoo and other insurers in the country – such as AIG and Chartis – to up their headcount in anticipation.


Size matters


Questions remain, however, about whether there will be enough take-up for everybody in the market. The biggest Korean exporters – the Kia, LGs and Samsungs – may well have capacity to involve international players in their insurance plans. But further down the chain, options may be thinner on the ground. Many Asian economies – think Taiwan and Hong Kong – are renowned for their SME engines. In Hong Kong, it can be described as the mayfly effect, with shops and restaurants generally having a lifespan of about two years. But people want to own businesses and if they fail, they start another one.

The same appetite seems not to exist in Korea – at least on a widespread scale. Your correspondent spent some time teaching in Korea around the turn of the decade and was taken aback by how few of the students in the classrooms wished to be their own boss, or had ambitions beyond becoming a “salary man” – that is, an employee on the payroll of one of the dominant chaebol organisations. Most people on the ground that GTR spoke with feel the government does not do enough to diversify the company base in Korea. A headline from a 1997 edition of the New York Times reads: “Pressure On Chaebol: Change Now Or Break Up.” And while some investment into their ranks was permitted (General Motors owns Daewoo, for example), they are just as dominant, 18 years on.

This anecdotally highlights some of the challenges faced by people hoping to crack Korea’s trade finance market. SMEs do of course exist in South Korea, but that market is far less mature than in many of its Asian peers. The monochromic landscape means that for law firms hoping to represent Korean companies, it is chaebol or bust. For insurers hoping to offer export credit insurance to Korean traders overseas, the punchline is the same.

Observers of Korea’s aggressive trade policy abroad might feel that the situation at home is rather contradictory. Over recent years, the country has inked more free trade agreements than any other. Deals are signed and operational with the US, Turkey, Singapore, Peru, the EU, Chile, India and the Apac and Asean blocs. Signed but yet to take effect are deals with Australia, Canada and Colombia, while negotiations are underway with Japan, the GCC, Indonesia, Mexico and Vietnam.

These deals seem to have had little impact on the domestic trade scene, but have undoubtedly made life easier for exporters selling inbound goods and services. “Doing business here is like doing business anywhere,” Brett Cooper, senior trade commissioner for Austrade, the Australian government’s trade body, told GTR in Seoul. “You need to establish trust and find a good local partner. The language is a barrier, but it’s a relatively sophisticated market for exporters.”

Korea can be a country of real paradox. It has at various points in recent years been home to both the fastest trains and fastest internet connections: yet, in some parts of the country you’re advised not to drink the water, while many bars in regional cities provide holes in the ground for those looking to relieve themselves. On the trade side this is arguably true as well. The practitioners GTR spoke to were downbeat about the prospect of liberalised markets taking root in Korea anytime soon.

Yet it is becoming a more important player in international trade every year, exporting huge volumes of cars and gadgets, building mammoth construction and extractive projects around the world, offtaking an abundance of natural resources and, in the process, becoming a key factor in the pricing of some of the most volatile commodities. Undoubtedly as the Korean administration continues to negotiate trade agreements with some of the most powerful governments in the world, the clamour for it to blow open its markets will continue to grow. But until then, the country will continue to punch above its weight or, as the saying often goes among those who have spent a lot of time here: South Korea will continue to run, before it has learnt to walk.