Cruising Seoul, it's unlikely that you'll see any high-rise buildings with the names of Australian companies on them, or find any of the large Australian construction companies waving their flags above local projects. In fact Australian investment in Korea is relatively small and low-key considering the high level of commercial relations between the two countries.

The reasons for that are many, but the primary explanation can be summed up in the complementary relationship that the two countries have developed. Australia supplies the fuel that keeps the Korean export engine running. Whether it's industrial inputs like coal and iron ore for power stations and steel mills; agricultural products like wheat, sugar, and beef; machine tools used in factories; or industrial software, Australian products play a significant role in Korea's prosperity.

That kind of trade profile has resulted in Australia becoming Korea's seventh largest trading partner, but it has also generated a large bilateral trade deficit for Korea, reaching $4.5 billion in 1996 alone. But as James Casey, Austrade's senior trade director in Seoul says, "In a way we help add to Korea's exports, because we provide a lot of the raw materials, value-added inputs and industrial products that come out the other end as exports.

On the other side of the coin, Korea is a very important trading partner for Australia-the third largest overall behind Japan and New Zealand, and Australia's second largest export market. And as Australia's Minister of Foreign Affairs, Alexander Downer, said during Australia Week in Korea in May, "Australia regards engagement with Asia as its highest foreign policy priority, and the strengthening and diversification of Australia's partnership with the Republic of Korea is a fundamental element of this goal."

So bilateral ties are indeed strengthening between the two countries, but because of the nature of the relationship and structure of industry, large facility investments by Australian companies in Korea have not been necessary. Coal, iron ore, wool or software sellers don't need physical investments in Korea to "produce" their goods, although many do maintain representatives here. Australian investment to Korea reached just over $3 million last year on an approval basis, and a cumulative $29.7 million in 38 cases since 1962. Casey says that there are only about 60 Australian expatriates here running companies (not all of them Australian companies), and perhaps 700 Australians in Korea overall. That's a very small number if you compare it to the 25,000 Australian expatriates in Indonesia, for example.

"Southeast Asia is closer to Australia and it's perceived to be an easier market," says Casey. "Most Australian companies are small companies that have limited resources, both in terms of capital and human resources. They may see, for example, that their products might do well in Thailand, Indonesia, Vietnam, Korea and Japan, but they have to prioritize their markets and because of this perception thing, it's easy for them to immediately strike Korea and Japan off their list."

There is no argument that the business environment has changed significantly in Korea with many of the barriers that were the root of the perceptions already gone. And every foreign visitor to Korea you meet will be fast to confirm that the country is still changing at a rate nobody living in a developed country would believe. In his position at Austrade, Casey is on the front lines of spreading that message to Australian business people.

"I tell them that it's like dog years," he says. "One Korean year is like seven Australian years. I tell Australian business people to come and take a look at the fantastic opportunity to sell their product here, but they say something like', oh, I was there in '92 and didn't see any opportunity."

"But 1992 is like history. To Americans or Australians, 1992 was only five years ago. But that's 35 dog years, so I tell them to think of those five years as 35. They won't believe me until they actually come and see it for themselves, but they end up saying, 'Hey, this really is a fantastic market for our product.'"

"It is hard to undo a perception," Casey continues, "but it will change. As more Koreans travel and study in Australia, and as more Australians study in Korea, their knowledge will eventually become society's knowledge. And when these young people become 30-40-50, things will be very different."

That seems to be the case for Vision Systems, a fast growing Australian company that specializes in research and product development in several high-tech fields like laser airborne depth sounding, biomedical, military, and security and fire prevention. Much of its revenue currently comes from the U.S. and U.K., and with a current push into Asia, the company expects that in five years, its revenues will be split equally between the U.S., Europe, and Asia, with Australia accounting for only a small percentage.

This young, dynamic company is just now making the transition from having an agent in Korea to opening their own office. Mr. Jun-Goo Lee took over as Regional Manager for Northeast Asia only on June 1, 1996. Registered as Vision Products Korea, the company will focus initially on promoting the company's VESDA (Very Early Smoke Detection System) which is used especially to protect expensive electronics facilities-clean rooms, computer rooms, or telecommunication facilities for example-or anywhere loss or downtime from fire would be unacceptable (hospitals, museums, electronic control rooms, prisons, etc.)

As a new entrant into the Korean market, the company registered first as a liaison office. "But when the time is right, we will convert to the next level, a branch office," says Lee.

Lee expects the company to grow significantly in Asia, and with the new Seoul office as a beachhead for the Northeast Asia region, sees much potential for growth. "The reason we chose Korea for this office is that Korea's strength is in anufacturing. And the key customers for VESDA are manufacturers," he says. "At the moment, our turnover in Australia is more than $7 million. In Korea, it's only $0.5 million, but if you look at the market size and population, it should be more than $10 million. That's why we are keen on the Korean market."

Vision System has a partner in Japan, where it also sees room for growth, and although the Chinese market is premature for its products now, it will certainly mature fast, so the company has to be ready, with some Asian experience under its belt. "Our new CEO has a good understanding of Asia and saw that it was a market that the company had been ignoring. If you look at world economic growth, Asia is the market with the most potential, so we are very keen to expand in Asia, but still we need experience," says Lee. He also indicates that the company is building a large presence in Malaysia and is considering placing a manufacturing facility there.

Despite that, it's already being used by some of Korea's top manufacturers, like Samsung Electronics and Hyundai Semiconductor.

The VESDA system is a cutting-edge aspirating smoke detection system which uses lasers and air sampling for active smoke detection. Vision Systems was the first to introduce this sort of air sampling system and the company remains the market leader, with about 70 percent of worldwide market share. New challengers to the market are appearing, but with clients like Intel, British Telecom and AT&T, the Australian developer has a good head start on the competition and confidence that it can maintain market leadership.

The United States National Fire Protection Association Code mandated exactly this kind of aspirating spirating smoke detection system for clean rooms in 1995, and VESDA has UL and FM approval there, along with the CE Mark and other approvals in Europe.

But when Vision System approached the appropriate fire agency in Korea, they were told, "That kind of system is not listed in our regulation books, so your product cannot be approved."

"It was ridiculous," says Lee. "The Korean regulations are very out of date."

It's another case of the "dog years" syndrome, but in this instance, it is regulation that can't keep up with the rapid changes in technology and the business environment. And other industries and companies cite similar stories, where laws change but subordinate regulations aren't cleaned up fast enough, often resulting in multiple rules and confusion for both companies and government.

Smoke detectors are, of course, required in most buildings in Korea, but until VESDA is approved, it won't be easy to break into the office building sector, for example. The large semiconductor manufacturers using the system recognized its merits, however, and have each installed VESDA next to another smoke detector which is rendered useless, except for its mark of government approval.

So the Korean market posed a real problem for Vision Systems which required a unique strategy to overcome.

"As a relatively small foreign company, and without the backing of a strong government or industrial lobbying like a U.S. company might be able to garner, it would be difficult for us to push for regulatory change," says Lee. "Until 1994, the government protected this industry for small and medium sized companies. So the major conglomerates could not even enter the industry. In 1994, the government opened it up. Now you see subsidiaries of the Samsung and LG groups going into the fire business. But so far, what the Korean manufacturers are offering is many years out of date."

To get some local support, Lee approached the major chaebol companies, which he suspected would be the primary customers anyway, to cooperate in promoting the system. "Our strategy in Korea is basically to work with the major chaebols," says Lee. I looked at the end user profile for our products and there was Samsung Electronics, Hyundai Semiconductor, KEPCO, and other large companies and government organizations. We decided to work with the major chaebol companies to distribute our products.

Regulations for these types of products are expected to eventually become international in scope because of agreements and standards set up within the WTO and other organizations. In line with that, Lee says there is movement in the direction of UL and CE approvals being recognized by the Korean government. "The regulation will no longer be a hurdle in the future because Korea will have to abide by the worldwide standards, but we want to make it happen sooner," he says. "We can't wait three or four years, so we're working on making the changes now."

The fact that leading companies like Samsung and Hyundai are using the product should prove to the Korean authorities that the rules need to be updated. And the partnership with the chaebols puts names behind the product that the government regulators might just recognize.

"Asia also requires patience. Sometimes Western management is looking for immediate return on their investments, but I think when doing business in Asia, it takes time to build your business. Then if you do the right things with your investment, your return is much greater," he continues. "I have told our Australian management that there is no small win in Korea. You either win big or get nothing."

One concrete way in which that materializes, Lee says, is in the trend for Korean people to prefer products that have a proven track record. That is, once the product is approved by a key customer, other customers will follow that company's lead. "I think Westerners generally prefer to try a variety of products, comparison shop, and then make their own decisions. But in Korea they will tend to rather choose something that everyone else is using."Companies win big or sell nothing.

Vision Systems is counting on that kind of behavior here. If the company can convince a few key customers to use the product, others should follow in a sort of domino effect. Lee says that to sell an advanced technology product like VESDA, it helps to be able to tell the Korean customer that big names like Intel and AT&T already have it in place and that it has UL and CE marks. And with Samsung and Hyundai as customers, government approval is bound to unleash a flood of demand. Vision Systems feels that promotions using big name customers as bait will fare better than those parading kangaroos and surfers.

"As part of our strategy, we do not focus too much on being Australian,"says Lee, "because sometimes it leads to the wrong impression. Australia is still perceived as a vacation spot, or a host to industries like mining and sheep ranching. I do not hide the origin of our company, but I don't necessarily emphasize it. Rather, I say that we are a global company."

Australia has become a major base for research and development, especially for European, American and Japanese multinational companies. But perceptions die hard in both directions it seems.

Lee admits that Australians still think Korea is a difficult market, which he says is both true and false. Because of the culture and the importance of relationships and connections, he believes you need the right man for the market, probably a local manager, to make successful inroads. But the potential is much greater in Korea than in other countries around the region.

At Austrade, James Casey pleads Korea's case by saying, "A lot of people prefer to go to the so-called soft markets like Vietnam or China, but as people in the know will tell you, there are very few companies that have made any real money in China. Everyone is investing there for the long term. But Korea-at $11,000 per capita income-has money, and they buy consumer products.

With more exchanges between the two countries, the word will inevitably get out about Korea's market potential. By then, the path will be cleared for Australian companies to take advantage of the Korean side of the complementary relationship-the manufacturing know-how, especially in technological sectors-so they can invest in a large and affluent market not all that far from home.

Regarding the approach to the Korean market, Lee sums up, "I hope our company can become a good example for other Australian companies to follow."

by Don Hackney

The Trade & Investment Facilitation Office for Foreign Companies is operated under the International Business Division of the Ministry of Trade, Industry and Energy. The Office assists foreign companies doing business with Korean counterparts and foreign invested companies in Korea to resolve any difficulties they encounter.

Foreign companies and foreign investors doing business with Korean firms as well as foreign embassies and organizations in Korea can make use of the office by filing their difficulties or making recommendations relating to trade and investment, as well as those concerning general business operations and daily life in Korea.

The competent staff at the Trade & Investment Facilitation Office for Foreign companies are able to assist in a wide range of categories, including:

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By following the application format below, the office can best work toward a solution to a problem experienced by a foreign company. A precise explanation of the problem and relevant legal and administrative impediments will also greatly assist in finding a solution.

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- Content of the Problem
(Please describe your problem in detail including the subject, related domestic regulation or the related international norm, and recommendation to the Korean government.)

All matters and information filed with the office will be used solely for the purpose of government policy-making to resolve the problems you encounter, and further, be treated as strictly confidential. In addition, the office will inform you of the results of our review or any measures taken in response to your problems.

We hope that you will take every advantage of the services offered by the Trade & Investment Facilitation Office for Foreign Companies.

Trade & Investment Facilitation Office for Foreign Companies
Ministry of Trade, Industry and Energy (MOTIE)
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