South Korea

Market overview

While South Korea was one of the early epicentres of COVID-19 community spread, the number of deaths resulting from infection is remarkably low, seemingly through a stringent testing policy that many other countries are hoping to emulate.

Although the country ended its social distancing campaign and implemented an “Everyday Life Quarantine” scheme on 6 May, a new outbreak on 10 May centered around several Seoul nightclubs and bars prompted officials to strengthen social distancing rules that were eased. Museums, parks and art galleries will all be closed again, while companies were urged to re-introduce flexible working, among other measures.

Many large Korean corporations have sizeable cash reserves and are good at getting products to market. This often pairs well with the creativity of small New Zealand companies - so now may well be an opportune time to look into, or expand to, Korea.

Challenges with export logistics are likely to be first and foremost. However, demonstrating strong communication utilising e-channel technology, together with a definitive commitment to the market in the long term, will stand you in good stead.

According to reports from the New Zealand Ministry for Foreign Affairs and Trade (MFAT), the New Zealand brand appears to be benefiting from New Zealand’s successful response to COVID-19, creating a good impression with many Korean stakeholders.

COVID-19 Market Realities: South Korea

Export support
Video
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Last updated: 28 Apr 2020
COVID-19 Market Realities: South Korea overview, 29 April

Philip Turner, NZ Ambassador to South Korea, speaks with Craig Pettigrew (NZTE Trade Commissioner, East Asia) about his advice to NZ exporters.

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Economy and trade

The COVID-19 outbreak is a major setback for the economy and many businesses in Korea. Korean economic growth, which had already slowed to around 2% prior to the start of the outbreak - an alarmingly low level for Koreans used to rapid growth – has begun to contract with particular impact on the tourism, education and hospitality sectors.

On 20 May, the Korea Development Institute (KDI) adjusted its forecast for economic growth in 2020 for Korea to 0.2%. The main reasons for the re-forecast, down from a previous estimate of 2.3%, is due to a drop in consumer spending and exports. The KDI estimates the economy will recover in the second half of this calendar year and continue to rebound and is forecasting 3.9% growth in 2021. The New Zealand brand appears to be benefiting from New Zealand’s successful response to COVID-19, creating a good impression with Korean consumers and commentators. South Korean President Moon recently proposed a “digital New Deal” as part of an economic stimulus package that will further develop online platforms. This seeks to generate new jobs.

South Korea's economy is strongly connected to China and is likely to suffer impacts while the Chinese economy grapples with COVID-19. China takes around 25% of Korea's exports (particularly semiconductors, chemicals, and machinery), and supplies 21% of its imports.

In instances where production delays have occurred in New Zealand due to difficulty securing components from offshore, businesses have been exploring alternative sources but report that costs are prohibitive. Many New Zealand businesses hope to partially restart production lines at some factories this month but remain concerned that any further delay may further threaten the stable supply of components to customers.

A number of small Korean businesses will enter bankruptcy if the COVID-19 situation extends into the second half of the year. This would further negatively impact the Korean economy, with potential for it to enter into recession.

Whilst Korean Government's financial support to lower income households can temporarily support consumption, consumer sentiment is likely to ease dramatically if the disruption continues longer term.

The road to economic recovery for businesses most impacted by COVID-19 will largely depend on how effective Korean and international fiscal and monetary efforts are at softening the blow and facilitating a return to economic growth. Until then the trends outlined are likely to continue.

The Ministry for Foreign Affairs and Trade (MFAT) has a report that includes additional insights, available here.

Supply chain, logistics & freight

Air freight continues to be a challenge for New Zealand exporters due to limited connections and rising costs (2-5 times higher than normal times).

Mainfreight is operational in Korea and plans to resume air freight between Auckland and Incheon via Narita in the near future. Although sea freight appears to be faring better, there have also been reported delays.

For some products, the instability of sea freight is seen as an ongoing risk to supply. The erosion of international air links has also resulted in reduced freight capacity as companies wrestle with limited options. Some businesses have reported an inadequate number of available staff in New Zealand to manage logistics.

Daesang commented that while sourcing import products is still unstable, logistics are improving daily.

There have been no major disruptions in logistics from New Zealand, but some minor delays have occured around the requirement for physical certificates. A reciprocal arrangement between the Ministry for Primary Industries (MPI) and Korea’s Ministry of Food and Drug Safety (MFDS) has now been successfully reached whereby PDF copies of certificates will be accepted in lieu of delayed original certificates due to COVID-19 disruptions.

More broadly, New Zealand exporters report that logistics appear to be improving on a day-to-day basis.

Government support

The Government is providing financial support to employers who attempt to maintain their workforce during the challenges of COVID-19.

The requirements for the Government's Employment Retention Support Programme" have been temporarily relaxed, and the payment level has been raised. The key points are:

  • Up to three-quarters (from two-thirds) of the total labour costs (upper limit of KW 66,000 or about NZ$90 per day) will be paid as subsidies for employees.

  • Employers can apply for the subsidy for up to 6 months.

  • Companies need to prove they have implemented employment retention measures such as temporary suspension of business or leave of absence and paid suspension and leave allowances to employees from 1 February to 31 July 2020.

  • From 1 August, the Government support will go back to two-thirds of the total labour costs.

More detailed information (Korean language) can be found on the Korea Employment Insurance website.

State-backed lenders in South Korea will extend 2.9 trillion won (US$2.35 billion) in aid for Korean Air Lines and Asiana Airlines to keep the major carriers aloft and safeguard jobs as the pandemic decimates travel demand. The assistance from the Korea Development Bank and the Export-Import Bank of Korea is also aimed at keeping the nation's transportation infrastructure intact.

Travel

South Korea travel advisory: Safetravel.govt.nz

Advice to exporters

The overall impression by a range of New Zealand exporters to Korea is that the impact on their business has not been as bad as potentially expected. Appetite for F&B in retail in particular has soared in recent times and some New Zealand exporters have been quick to bring in higher sales. The healthcare sector is also performing well.

Various reports note that most industries including automotive, telecommunications, aviation, hotel, and fashion will be negatively impacted, whereas food and beverage will be partially impacted only, with delivery service and e-commerce purchase demand increasing and offsetting other softening sales. The gaming, media, and entertainment industries are likely to benefit as people are spending more time indoors.

New Zealand exporters that will continue to perform well under the current scenario (if supply can be maintained) will include food and beverage producers, helped by strong Korean delivery service and e-commerce channels. New Zealand products that are sold through large café brands in Korea will continue to fare better than small to medium sized retailers. The trend points to growing demand for immune system-related products off the back of strong demand for health food products and is unlikely to diminish anytime soon.

At the right time we think that some New Zealand businesses may be able to secure additional market share for certain products with the right strategy, particularly as the Korean market begins to transition back to normalcy. For example, the current challenges and the lack of domestic US supply for certain products in the next quarter may present an opportunity for some New Zealand businesses to secure a bigger share of the US market.

Common challenges facing New Zealand businesses include:

  • Rising logistics costs (e.g. airfreight now priced 2-5 times higher), including many last minute cancellations, delays, and reduced capacity.

  • Detainment of consignments due to delayed documentation for customs.

  • Difficulty maintaining supply due to disruptions at home, export volumes constrained by excessive demand, and difficulty securing components.

  • Travel stoppages and event cancellations that are forcing businesses to explore alternative marketing and promotion methods.

If these challenges can be met by New Zealand companies, Korean partners will appreciate effort and commitment to their business long term.

Tradeshow and event information

Numerous international tradeshows and events are being postponed or cancelled in response to the COVID-19 pandemic.

Make sure you proactively check with organisers for any tradeshow or event you're scheduled to attend – conditions and regulations are changing rapidly overseas, and events may be postponed or cancelled at short notice.

Below is the status of major South Korea tradeshows and events that NZTE's teams are aware of.

If you have questions about an event not listed here, please contact the organisers in the first instance or get in touch with NZTE for further advice.

  • Korea International Boat Show 13 – 15 March, 2020 is rescheduled to 5 – 7 June, 2020.

  • Korea Build 26 Feb – 1 March, 2020 is rescheduled to 2 – 7 July, 2020.

  • Korea Wine & Spirits Award 25 March 2020 has been cancelled.

  • Cosmobeauty Seoul 23 – 25 April has been cancelled.

  • Seoul Food & Hotel 19 – 22 May,2020 has been cancelled.


Sector insights

As is to be expected, numerous sectors have been impacted by the COVID-19 pandemic. Below you'll find information on any COVID-19 effects across important sectors and industries in Korea.

E-commerce

New Zealand Trade and Enterprise has found that due to Korea's well-established logistics system for e-commerce, there has been no panic buying, as people can purchase food and daily necessities safely online.

Online retail sales have continued to experience strong growth in Korea. Government statistics show online transactions in March were up 11.8% from the same period last year, and up 24.5% on the previous month. Compared to last year, online demand has surged for food and beverage products (up 59.4%), food delivery services (up 75%) and sanitisers and detergent (up 46.9%). There have also been observable shifts in the preferred method for online shopping in Korea. As of March, mobile devices account for 67.3% of all online sales (compared with other devices such as laptops), having grown by 19.2% compared to the previous year.

In January 2020 the online shopping transaction value was 12 trillion KRW, rising nearly 16% from January 2019. The mobile shopping transaction value accounted for 67% of the total online shopping transaction value, up by 3.3% from January 2019.

South Korea's leading online portal Naver is strengthening its non-contact (also known as 'untact') technology support to help small and medium businesses.

Naver's 'Live Commerce Tool' is designed for offline store operators to promote products sold at their offline shops and communicate with customers in real time through live broadcasting. Customers can order products via Naver's online store platform.

As consumers become used to contactless service, it is likely that these changes will remain as a growing trend even after the outbreak finally ends.

Additional resources

Below you can find information and contact details for other New Zealand government and international agencies regarding their response to COVID-19.

New Zealand Government agencies

Covid19.govt.nz
COVID-19 helpline for businesses
Business.govt.nz
New Zealand Customs
Ministry for Primary Industries (MPI)
New Zealand Export Credit (NZEC)
MFAT Export Helpline
MFAT Safetravel
Callaghan Innovation
Immigration
Ministry of Health
WorkSafe New Zealand

Global agencies

World Health Organization (WHO)
Centers for Disease Control and Prevention (CDC)

Contact NZTE

We're available to talk to you about any issues your export business is facing due to COVID-19.

For existing NZTE customers, please contact your New Zealand-based Customer Manager.

If you're unsure who to contact or haven't worked with us before, you can call NZTE on 0800 555 888 or email below and one of our Customer Advisors will help you.