Partners made perfect

When Bryan Reddy went looking for an overseas manufacturer to produce his company’s onboard point-of-sale devices for airlines, he wasn’t about to let any two-bit production house handle the job. The COO of Toronto-based Guest­Logix Inc. needed a partner with competent engineers and highly skilled technicians who could build the gadgets from scratch. He wanted to work with a company that was small and entrepreneurial, like his own firm. And he wanted the job done at a reasonable price.

With that tall order, GuestLogix staff took to the Internet to hunt down prospects. One shortlisted company piqued Reddy’s interest: ITWell, a small high-tech manufacturer based in South Korea. Thanks to Reddy’s former gig as a vice-president at Hyundai Canada, he knew that South Korean engineers are among the world’s best. Calls were made.

After meeting with ITWell executives at a conference in Orlando, Fla., Reddy knew he’d found a winning partner. “We shared the same entrepreneurial mindset,” he says. “ITWell wanted to get into our market, and they showed the same can-do attitude as we have. And it didn’t hurt that they were from South Korea.”

With that partnership, GuestLogix became one of the fast-growing number of Canadian firms doing business in and with the country known officially as the Republic of Korea. According to Statistics Canada, Canadian exports to the East Asian country have almost doubled over the past decade to $3.7 billion. During the same period, our imports grew by 40% to $6.2 billion. Part of this increase reflects the robust growth of South Korea’s economy. Last year, its gross domestic product grew by 6.1%, almost doubling Canada’s expansion rate (3.1%). And South Korea barely noticed the Great Recession, continuing to grow in 2008 and 2009.

South Korea’s 49 million people are relatively affluent. Salaries average the equivalent of $30,000, which is $20,000 higher than in China. South Korean companies—from such giants as LG and Samsung to small independents like ITWell—are working to develop new technologies to compete better on the global stage. So, they’re hungry to gain access to the expertise of Canadians, either directly or through intermediaries. And the country’s government is spending big bucks to bolster key sectors, most notably cleantech, to which it has earmarked $84 billion over the next five years.

These days, South Korea has a lot going for it. And many Canadian entrepreneurs—especially those in the high-tech, green energy and pharmaceutical-manufacturing industries—would be wise to investigate the plum opportunities in this often overlooked country.

Canadians haven’t always capitalized on South Korea’s advantages. That’s because the country has been in the shadow of China and Japan, says Simon Bureau, chairman of the Seoul-based Canadian Chamber of Commerce in Korea (CCCK). But since South Korea developed a strong high-tech market in the early 2000s and invested millions in education (the country’s literacy rate is 98%), he says, more Canuck firms are becoming wise to the advantages of drawing on the substantial expertise available there.

“South Koreans have money, they’re smart, educated, they travel a lot,” says Bureau. “And that has helped create a workforce that is highly skilled.”

Another factor behind South Korea’s rising star is its newly tough stance on the infringement of intellectual property rights. In the 1980s, the country was notorious for lax regulation and enforcement around IP theft, and its output of pirated products had angered the U.S. and the World Trade Organization. Frank Pho, vice-president of global expansion at the Business Development Bank of Canada (BDC), says that this laissez-faire attitude is gone. The South Korean government has signed new IP treaties in recent years, and last year the International Intellectual Property Alliance dropped the country from its watch list for the first time since 2001.

So, where are the best opportunities for Canadians in this Asian hot spot?

Perhaps South Korea’s most enticing quality is its reputation as a reliable high-tech manufacturing hub, says Soon-Jae Lee, a Vancouver-based investment officer at the Korea Trade-Investment Promotion Agency. Over the past four decades, the country’s factories have mastered everything from ships and automobiles to TVs and cellphones. Today, its manufacturing sector offers highly skilled production; there’s little risk of the quality-control problems that sometimes crop up in lower-cost countries such as China and Vietnam. And the bill to have a product made in South Korea will tally up to about 15% cheaper than what it would be in Japan—and fully 35% cheaper than in North America.

Six years into GuestLogix’s offshoring arrangement with ITWell, the South Korean manufacturer has delivered on every deadline. But what Reddy most appreciates is ITWell’s commitment to its customers, a trait he sees in South Korean manufacturers on the whole.

“They have a real willingness to develop relationships in business, which is refreshing in this dog-eat-dog world,” says Reddy. “They tend to value business relationships and trust, and they’re in it for the long term.”

But you shouldn’t see South Korea solely as a manufacturing master. One up-and-coming sector worth considering is cleantech, says BDC’s Pho. Although South Korea is a world leader in the manufacture of equipment for solar and wind energy, it relies heavily on external brainpower to come up with innovative developments in these fields. According to Pho, many Canadian firms have plenty to offer in this regard.

Environmental remediation is another potential bright spot. In 2008, the South Korean government placed restrictions on industrial-waste disposal, and many companies there are now scrambling to find technologies and practices that will help them comply with the new rules. Canadians, says Pho, are leaders in the highly sought-out areas of water management, recycling and waste reduction.

Canadian pharmaceutical firms are likely to be warmly received, too. South Korea is keen to master drug manufacturing the way it has high-tech, says Pho. Companies there are seeking partners for testing and commercializing drugs, and they hold Canada’s scientific community in high regard.

Canadian companies are generally well liked in South Korea, especially in comparison with U.S. firms. But this doesn’t translate into instant inroads in all segments of the market. For instance, don’t expect the red-carpet treatment from consumers; Bureau says South Koreans can be nationalistic in their purchases, generally preferring to buy from domestic suppliers. That’s why he advocates taking a back-door approach, selling consumer products through a South Korean intermediary—at least, until your wares have developed a good reputation in the country.

The same holds true for selling products or services to South Korean behemoths such as LG, Samsung and Hyundai. To get in with firms like these, it’s more expedient to partner with a domestic supplier than to approach them your own, advises Pho. Not only will you gain local credibility, you’ll be less likely to get roped into a one-sided relationship. As Pho explains it, “You’ll have a better chance to find a more equal partner.”

Sally Daub took that tack. The entrepreneur was initially drawn to South Korea because it’s home to many giant manufacturers that could use the video-processing chips sold by her Toronto-based firm, ViXS Inc. These titans distribute finished electronics all over the world, so Daub saw selling to them as a way to fast-track her company into major international business. But she didn’t start by approaching them directly; she originally got her foot in the door by partnering with a local distributor.

There are other ways to establish a beachhead in South Korea. Before taking the leap, it’s worth contacting one of the many trade-promotion agencies available to Canadian entrepreneurs. For instance, the Seoul-based Korea Trade-Investment Promotion Agency, which runs Invest Korea, helps foreign SMEs navigate the country’s business and government landscapes; it runs a centre for visiting foreign businesspeople in South Korea, and will even provide short-term legal and accounting work for free. The CCCK and the Canada Korea Business Association also make various resources available.

With South Korea’s buoyant economy, crackerjack workforce and business-friendly prices, its days as a forgotten market should be long behind it.