As of 2004 looks less promising than in the years before, however due to increasing trade with China it is Koreas economic position is meant to increase amongst Asia’s developed economies. Korea’s economic indicators pointed to a deepening slump in October 2004. There was a modest improvement in the economy in August; however this may be a short mirage as current economic indicators suggest that the economic conditions are worsening. The index of leading economic indicators have had a six-month decline, this suggest that the economy might have entered into a recession.
2. Culture
2.1 Korean commercial and cultural characteristics
Korean culture can be seen as the most homogenous and traditional in the world. There is no other culture truly like it in the world. “Koreans appreciate a show of interest in matters that are important to them. They appreciate a foreigner’s effort in expressing a hello (an-yang-ha-say-ho) or a thank you (gam-sa-ham-ni-da)”.
The tradition ways of thinking, in many areas are still practiced in Korea. Family and hierarchy are highly respected. Traditional family homes are highly respected as in most cases the father is the sole bread owner while the mother stays at home.
The Majority of working women have university degrees however they are not given a chance to work upwards in the organisational hierarchy. Single women generally receive less respect than married women. Most women are engaged in secretarial job, assembly or education work.
Foreign businesswomen however seem to be exempted from these traditional ways of thought. Businesswomen especially (non-Asian looking women) are seen as equals to foreign businessmen. Foreigners are generally exempt from the above societal classification system.
Koreans have great respect for any senior in age, and intuitively establish their hierarchical position based on age. Whenever a Korean greets a person that older than he/she there normal custom would be to bow or nod. It can be seen as disrespectful if this is not practiced, this will be the usual greeting ritual even though there may only be a one-year gap between the two greeting parties.
Foreigners should be ready to mix business with pleasure, as Koreans base their business relationships on personal ones. Koreans often hold a business drinking meeting and that can be seen as bringing business people together.
It is also important for Koreans to use two hands when giving or receiving something. For example, when giving or receiving a business card both hands should be used.
2.2 Drinking culture in Korea
Despite the economic down turn, Korean consumers are still ardent drinkers. The drinking culture in Korea are favourable towards on-trade channels, as drinking is considered an important social activity. Alcoholic drinks are an important accompaniment to events ranging from orientation program in universities to company dinners and welcoming parties for new employees or farewell parties, as well as birthdays, weddings and funerals.
There is a unique and peculiar drinking custom in Korea. When Koreans drink alcohol with someone older than them, they are extremely cautious when pouring the alcohol. It is important not make the senior’s glass over flow, but more importantly It is important to use two hands when you are pouring the alcohol. This shows respect and a token of admiration, and this custom is applied to every case in Korea. For example you should submit you coursework with two hands to your teacher.
Koreans on occasion will exchange glasses. When somebody offers liquor with his glass, the drink should be drunk straight away and offer more liquor with the glass. Drinkers tend to serve one another rather than have the drinks poured by a bartender.
South Korea has a well-known reputation for having the most dangerous drinking culture in the world. A night out in town with Korean businessmen can entail some serious culture shocks, as Koreans are well known for the alcohol tolerance. Drinking plays a big part in the Korean culture as it helps build trust and deepen relationships. It is believe that alcohol is an invaluable social lubricant. There are also well known drinking games in Korea amongst the young generation.
The latest report from by the “Korean Institutes for Heath and Social Affairs” shows that the average adult male in Korea drinks about 11 days out of the month and women four.
This suggests that there is a strong drinking culture in Korea and that it is integrated into every aspect of their lives some way or another. Domestic reports show that in 2002, an average Korean drank 59 bottles of Soju, 86 bottles of beer and 1.3 bottles of whisky annually. Consumer expenditure on alcoholic drinks had an overall increase throughout the late 1990’s through to the 2003.
Table 1 Consumer Expenditure on Alcoholic Drinks 1998-2003
Won billion
Source: Official statistics (Korea National Statistical Board, Korea Customs Service), Euro monitor
2.3 Healthy trend in alcoholic consumption
A strong trend that continued from 2001 is the growing health consciousness of many consumers. This translated into the popularity of milder alcoholic drinks. As drinking alcohol is perceived as an important social activity, many consumers want to continue drinking, but less of the bad after effect. This brought about the popularity if milder drinks like mild Soju, Yakju, Grape wine and cocktails. Even for spirits, consumers increasingly choose quality over strength, resulting in the popularity of super premium whisky.
3. Trade relations
3.1 Trade relationship between Republic of Korea and the United Kingdom
There are already over 100 Korean firms with active presence in the UK, 36 of them have their European manufacturing and R&D based in the UK (account for about 50% of Korean manufacturing and R&D investment in Europe). There are also a number of financial institutions from Korea represented in the UK, including the Bank of Korea, which has its European headquarters in London. In 2000 Korea exported most goods to the UK. This can be seen below in table 2. The Most imported commodity from Korea into the UK was nuclear reactors, boilers and machinery. In 2001 (January to December) UK exported 508 Million Dollars of pearls and precious metals into Korea. For that reason it can be believed that Korea and UK have an excellent trading relation.
Table 2: Korean Trade by Principle countries
UNIT: US$ MILLION
The 4th biggest export item into Korea was actually Beverages, spirits and Vinegar. This shows that UK and Korea already have a substantial beverage and spirit trading relationship. The beverages and spirits imported into Korea actually increased from 2000 to 2001, from 178 million dollars to 253 million dollars.
4. Whisky
4.1 The premium single malt whisky
The spelling ‘whisky’ usually refers to the Scotch or Canadian drink and ‘whiskey’ to the Irish or the American. The earliest written record of whisky comes from Scotland in 1494, but the art of distillation was known before this time.
The name ‘whisky’ itself derives from the Gaelic “uisage beatha” or “usquebaugh” which meant “the water of life”
Scotch whisky is one of Scotland’s most favourite cultural products as well as one of it most profitable trade items. Scottish distillers have been perfecting production process of the worlds leading spirit for centuries and deservedly have earned the sole owners of the label “Scotch”. Scotland is the only nation in the world that knows exactly how to make true Scotch whisky. This may be due to the Scottish oak to make the maturation casks, or the Scottish air to seep through the casks and give the spirit its character.
The Scottish Trade International (STI) organisation reports that each year Scotland exports food and drink products worth 2.7 billion pounds and 84% of this is whisky. Therefore Scotch whisky is a big business for Scotland.
4.2 Whisky in Korea
There was 180.9 million pounds worth of Scotch whisky exported to Korea in 2003. South Korea is the 4th biggest export market for Scotch whisky. The other top three are USA (302.5m), Spain (256.0m) and France (236.0m). South Korea is the biggest and potentially the most important export country of Scotch whisky in East Asia.
Whisky is the second most important spirit after Soju. Whisky is widely distributed in Korea via nightspots like salon rooms. South Korean men like to drink expensive whisky during business and social entertaining; room salons have high levels of sales for such high-end alcoholic drinks. However there is an increase in trend to consume whisky in western-style bars.
4.3 Impact of whisky restriction in Korea
Scotch whisky has been unfairly taxed in Korea; which affects Scotland’s Scotch trade in Asia. Korea is one of Scotland’s biggest export global markets for Scotch. In 1999 the World Trade Organisation (WTO) Appellate Body upheld a dispute panel ruling that South Korea violated WTO rules by imposing discriminatory internal taxes on imported beverages. Since then there has been great tax reforms on alcoholic beverages. EU and the WTO raised the issue that there was a favourable tax on Soju (traditional local spirit) as tax was 35% for Soju and 100% for whisky. The current tax for both Soju and Whisky are the same at 72%. Education tax and value added tax must be paid when importing Glen Sporran. Education Tax is 21.6% and Value added Tax is 19.4%. Therefore the current and total Tax for Glen Sporran to be imported into Korea is 113%.
Table 3, Taxation and Duty Levies on Alcoholic Drinks 2003
% Value/actual
Source: Official statistics (Korea Customs Service), Trade associations (Seoul Alcohol & Liquor Distribution Association, Seoul Korea Rice Wine Production Association)
Key:
B = beer, GW=grape wine, M=makkoli, C=cheongju, Y=yakju, S=spirits
4.4 The major giants of Whisky in Korea
Whisky in Korea was long controlled by two giants in Korea. They are Allied Domecq and Diageo and they are both UK based companies. Allied Domecq is the biggest whisky company in South Korea. Allied Domecq distributes brands such as Ballentine’s, Canadian Club, Courvoisier and Kahlua.
5.0 Restrictions
5.1 Import Duties
Import Duty is levied on Scotch whisky and other spirits and liqueurs at 20% ad valorem, these discriminatory rates are higher in comparison to those applied in other industrialised countries. The Scottish Whisky Association (SWA) are seeking to eliminate all import tariffs in Korea.
5.2 Economic impact on whisky in Korea
2003 started with a gloomy outlook for the South Korean economy. Most economist report low consumer sentiments and affected alcoholic drinks in a varying manner. Whisky imports have fallen by 30%; this may be due to the continuation of Korea’s economic slump. In June Korea imported $15.76 million (approx £9.3) worth of whisky, however in May it imported $20.7million (approx £12.17). It is the first time that whisky imports have marked a double-digit fall since July 2001. According to industry experts, the reduction in imports resulted in a drop in consumption of premium whisky due the slow moving economy. Many companies have instructed their employees not to go to expensive bars when they meet their clients.
“Whisky consumption responds to business fluctuations” an official at the commerce, Industry and energy Ministry Said “diminishing whisky imports are likely to continue for the time being”. Whisky consumption has fallen over four successive months, from January to April, for the first time since the 1997 financial crisis. As a result there has been an increase in Soju consumption and a decline in whisky consumption. This can be seen from the quantity of whisky actually delivered into Korea, which fell by 50% from March to April. Soju on the other hand increase its sales with 16% during the same period. South Korea’s whisky consumption is a barometer of how confident the country’s 48 million people re feeling about their economy.
6. Glen Sporran potential Competitors
6.1 Soju
Soju is the most famous traditional Korean alcoholic beverage. Soju has 25% to 35% of alcohol concentration. It has no colours and transparent. The taste of Soju is very bitter and it has almost no smell. It is nearly pure alcohol itself.
Soju can be seen as indirect competition as Soju is a white sprit and Whisky is a brown sprit. As regards to taste, whisky has a typical flavour, describes as smooth, silky and warm. Soju and whisky are used for very different consumer needs. The most common way to drink whisky in Korea is as a cocktail, on the rocks (with ice) diluted with water to another mixer while Soju is almost exclusively drunk neat, that is, not diluted or mixed. Soju is more popular with the low and middle class, whereas Whisky is more likely to be consumed by the upper classes; therefore these two drinks are not in direct competition with each other.
6.2 Traditional alcoholic drinks
The Korean domestic alcohol market includes drinks such as Maesilju Makkoli, Cheongju, and yakju. Maesilju is a traditional local spirit, made from plums, Makkoli is a traditional local wine made by fermenting steamed rice, and Cheongju and Yakju are also traditional local wines. These can also be seen, as indirect competitors are the creation procedure of these drinks is entirely dissimilar from Glen Sporran.
6.3 Direct Competitors
Direct competitors are Single malt whisky’s that are already available in Korea. These would include whiskies such as Windsor, Imperial Classic, New Dimple and Jinro Ballentine.
Another direct competitor may be Scotch Blue. Scotch Blue is a Korean whisky brand that Lotte Chilsung beverage launched in 1997. At present, Lotte produces the 21-year old Scotch Blue, the 17 year-old Scotch Blue Special and the premium Scotch Blue International, all which are gaining popularity whisky market in Korea.
7. Target Market
As Glen Sporran is a Premium Single malt whisky, Glen Sporran could be aimed at the upper- middle and business classes. This is due to the Whisky being comparatively expensive to other alcoholic beverages in the market; also the high tax on importing the whisky to Korea will have an effect on the Price. Even though the current economic situation in Korea looks weak, there is still a demand for high quality products such as Glen Sporran. Therefore Glen Sporran could be targeted at the higher end of the market, as these individuals possibly will not be touched by the recession in Korea.
8. Advertising in Korea
Under the Korean Government law, any type of advertising for alcoholic drinks needs to include a health warning. However, other than that there are few restrictions faced by companies. On the other hand, the advertisement of alcoholic drinks with an alcohol content of more than 17% is forbidden. Alcoholic drinks with less than 17% are allowed limited hours for advertising after 2200hrs. This mean wine and beer can be advertised in television commercials whereas Whisky cannot.
Traditionally marketing and promotions mainly involved street marketing business good-looking ladies offering free tasting. This strategy of meeting customers directly can accumulate high costs.
However there is a current trend where advertising through the usage of the Internet in increasing. Cyber marketing and mobile phone marketing is also strategy that most firms are considering. However, due to Glen Sporran being a premium product, the Internet is not a likely consideration, as only the younger generation will be aimed at. The traditional method of advertising in Korea may be the right strategy as the Koreans are accustomed to this way of advertising and promotion even though this strategy may involve a high cost. Glen Sporran could offer free testing in high-class bars and clubs or even inside luxurious shopping centres.
9. Image of Glen Sporran
9.1 Packaging of whisky
Packaging can reflect on the whisky grade, packaging design in Korea plays an important role in spirits as this often reflects on the quality of the cover. In Korea expensive whisky products are often kept for ornamental purposes at home to display their wealth and social status. Therefore Glen Sporran could opt for beautiful and immaculately ornamented bottles when importing their product into Korea. Super- premium whiskies are gaining popularity in Korea and even though Korea currently has a slow moving economy. There is a still a strong current trend for prestigious products such as Glen sporran. Most of the packaging format for spirit is made from glass bottles. This can give the customer the style or reputation involved in buying a premium single malt whisky such as Glen Sporran. The most sold spirits in Korea actually came in glass bottles.
Sales of Spirits by Packaging Format: % Analysis 1998/2003
% Off-trade volume
Source: Official statistics (Korea National Statistical Board, Korea Customs Service), Euro monitor
9.2 Labelling
All foods and beverages imported into Korea are subject to inspections by the Ministry of Health and Welfare/food quantitative division. There are two types of food and beverage inspections: a detailed chemical analysis test and visual/document inspection.
Korean-language labels must include the following: name of the product; country of origin; type of product; importers name, address and telephone number; business licence number of importer; expiration date; alcohol percentage and volume; name and volume of ingredients by percentage; name of place where the product can be returned or exchanged in case the product is damaged or defective; instructions for storage; name of food additives; the Government’s health warning clause and lot number or manufacturing date. As a result if Glen Sporran is imported into Korea, it must abide with the labelling instructions stated above.
9.3 Price
When Pricing Glen Sporran, it should be noted that it is a premium malt whisky and the price should reflect the quality of the product. When pricing Glen Sporran the direct competitors should be considered. The Price should be compared to the other single malt whiskies that are already in the Korean market, as they would have went through similar strategies to make the whisky available.
10. Distribution
There is a high consumption of alcoholic beverages through on-trade channels in Korea. There are well-developed on-trade channels in Korea such as restaurants, pubs, and nightclubs especially in Seoul. On- Trade sales continued to account for a significant percentage of sales in the overall alcoholic drinks market in 2003. Even though there is a significant price gap for whisky due to high import tax and high local duties, Glen Sporran can be sold in premium on-trade outlets where consumers do not mind a high price gap as they enjoy the mood and the environment such outlets have to offer.
Table 11 On-trade vs. Off-trade Sales of Alcoholic Drinks by Sector: Value 2003
Won billion
Source: Store checks, Trade interviews, Euro monitor estimates
There are more sales in the on-trade sector than there are in the off-trade sector. This shows that the overall whisky is doing better in on-trade sector. For that reason Glen Sporran could strongly consider the on-trade outlets when choosing a distribution path.
10.1 Distribution methods from UK based companies
Allied Domecq and Diageo are already the major suppliers of whisky in Korea. Another distribution technique for Glen Sporran would be to contact these companies and request Glen Sporran be put with the other single malt whisky’s that they already supply to the Korean Market. This can be seen as an excellent proposition as these companies already have the knowledge and the capabilities involved in entering into Korean market.
10.2 Locating Partners and Agents
A number of organisations provide advice and assistance to foreign businessmen whether there are looking for a direct investment opportunity, a sales market, or a source of semi-finished goods. Information is best obtained from the American Chamber of Commerce in Korea, the Korean Chamber of commerce and Industry, other chambers of commerce, the Federation of Korean Industry. However these organisations are mainly based in Korea. A branch of the Korea Trade Promotion Corporation (KOTRA) is a good preliminary contact when outside of Korea. In addiction there are nine large general trading companies, there are numerous smaller exporters and importers.
Buying agents are best located through the Korean Export Buying Office Association. Official selling agents must be registered with the Association of foreign Trading agents of Korea. Only Agents registered with the Association of Foreign Trading Agents of Korea are allowed to issue selling orders it quotations recognised by the government and banks authorised to deal in foreign exchange. Selling agents may function as distributors with their own inventories or they may sell on a commission basis as straight agents.
Its is therefore recommended that Glen sporran consult business sources, sales offices, banks, their accounting firm and other organisations well-known to them for the assessment of prospective partners or agents.
11. Free Trade Zones
There are some free Trade Zones that are available for foreign investors. The Masan Free Trade Zone is located near Busan in the southern Korea. Another free trade zone is located near Kunsan on the western coast. The Kunsan free trade zone opened in July 2001. There are three industrial parks exclusively for foreign firm in Gwangju and Cheonan and Daebul. These parks offer incentives including large discounts on land rental fees and self-contained shopping and educational facilities. To encourage foreign investment the government set a minimum foreign owner ship requirement at 10% for Gwangju and Daebul and 30 percent for Cheonan. These free Trade Zones can be considered when importing Glen Sporran into Korea.
12. Future
12.1 Economic Forecast
Korea’s trade volume is expected to reach $600 million (approx 353 Million Pounds) in year 2010.
The statistics are export/ import forecasts of the Korea International Trade Association (KITA). The adjusted forecasts of experts are reflected in the figures.
Therefore it can be seen that Korea’s economic outlook is bright. This may be due to a number of factors such as increasing export to China are estimated to double from 10.7% in 2000 to about 19% in 2010. Exports to the US are estimated to be around 22%. Korea’s exports are forecasted to rank 8th after the UK and Canada in 2010.
13. Conclusion
Korea’s culture and traditional customs are truly different from any other nationality in East Asia. The business etiquette and conventional family roles are tremendously dissimilar in Korea (compared to the UK), and when undertaking business opportunities in Korea these factors should be placed deep in mind. Korea’s economic situation does not seem as dazzling as before; there is an overall decrease in the consumption of whisky as overall consumer expenditure has fallen. Currently there is still a strong demand for premium goods in Korea. Never the less, Korea has a strong economic forecast in the future and may even become the worlds 8th greatest export country in the world. The question is whether or not Glen Sporran should be imported into Korea. After carefully considering and examining the opportunities and restrictions of Korea. There is great opportunity for Glen Sporran to be imported into Korea, (especially through on-trade channels). However due to the economic condition of the country, Glen Sporran could consider importing into the country when the economic situation is more stable. In the mean time, Glen sporran could take time to understand the cultural difference and language barriers that could exist whilst entering into the Korean Market.
14. Limitations
Further amounts of research needs to be done in order to truly understand the Korean culture, When investing in a foreign country, cultural differences should be accepted and noted, therefore if the cultural understanding is weak, then this may cause huge problems and weaken the profitability margins.
Lack of capital in this report means that the research was limited as free information is imperfect.
14 Appendixes
14.1 Appendix 1
14.2 Appendix 2
UK TOP 10 EXPORT ITEMS TO KOREA
UNIT: US$ MILLION
14.3 Appendix 3
Table 2 Delivered Quantity of Alcohol in Korea by year
Information from
14.4 Appendix 4
Tax Rates by Price of Liquor
(1) Takju (Alcohol content 3% or more) 5%
(2) Yakju (alcohol content 13% or less): 30%
(3) Beer (alcohol content 1% or more): 100%
(4) Chungju (alcohol content 14% or more): 30%
(5) Fruit wine (alcohol content 1% or more) : 30%
(6) Distilled soju (alcohol content 1% or more): 72%
(7) Diluted soju (alcohol content 1% or more): 72%
8) Whiskey (alcohol content 1% or more): 72%
(9) Brandy (alcohol content 1% or more): 72%
(10) General distilled spirits (alcohol content 1% or more): 72%
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