New Zealand exporters will be on a new and more level playing field when the New Zealand Korea Free Trade Agreement (FTA) is ratified by the parliaments of both countries, which is currently expected to take place around September this year.
"We hope the FTA will open up the economic relationship and boost trade," Ryan Freer, New Zealand's trade commissioner in Seoul, told an audience of Tauranga businessmen at a recent ExportNZ Bay of Plenty-organised seminar on the FTA.
But exporters faced several key challenges in maximising the South Korean trade opportunity, he said.
South Korea is currently New Zealand's fifth bilateral trading partner, its fifth-biggest export market - recently overtaking the UK - and its seventh-largest source of imports. Two-way trade totalled US$4.1 billion last year.
New Zealand only ranked at 41 in terms of South Korea's global trade relationships, said Mr Freer. But it imported the majority of its food and beverage needs, indicating there was enormous potential to expand New Zealand food and beverage exports.
"South Korea is a heavy importer of food and beverages and local producers have been unable to keep up with the changing patterns of demand from the South Korean consumer," said Mr Freer.
A key initial impact will be felt by kiwifruit exporters. Audience member and NZ Kiwifruit Growers Inc representative Neil Trebilco noted during the Q&A session that kiwifruit growers were losing $500,000 a month in potential export income in Korea as they waited for the FTA to kick in. The agreement will eliminate a 45 per cent tariff on New Zealand kiwifruit over five years and bring about parity with Chilean competitors who have been on a zero tariff since concluding their own FTA a couple of years ago.
Mr Freer said key questions for exporters included whether New Zealand could become more relevant to capture the growing premium food opportunity, including expanding wine exports while maintaining the existing premium for New Zealand wines.
Other challenging opportunities included helping meet the growing demand for health technology and services, taking part in global technology and manufacturing supply-chains with South Korean companies, and exporting New Zealand farming systems and technology, he said.
Tony Michell, of Korea Associates Business Consultancy, who has been consulting on South Korea since the 1980s, said South Korea was exploding with creative retailing outlets and had thousands of boutique coffee shops and restaurants.
"South Koreans are becoming much more individualistic, especially those under 35," he said. "The competitive search is to offer a coffee shop or small store something different or something their customer will keep coming back for."
New Zealand could easily grow its market share in food items in South Korea, particularly for processed food, he said.
"South Koreans want to buy ready-to-eat food," he said, noting that no South Korean woman wanted to even make the traditional fermented vegetable dish kimchi.
South Korea tough market to crack, says expert
South Korea is a tough market, says long-time Seoul-based British expert Tony Michell of Korea Associates Business Consultants.
"Ask anyone who is in business here and you will find their response is that South Korea is a difficult market," he told the ExportNZ BOP seminar on the FTA. The reasons included intense competition, difficult distribution, communications and language problems, tricky language requirements for advertisements and media, and a government that kept changing rules at short notice.
"Consumer action groups often misinterpret facts, and foreigners are seen as fair game for cheating," he added.
In addition, over the years a large number of foreign companies had run into excessive trouble with agents and South Korean middlemen, many of whom had set up in business after being displaced in the 1990s as South Korean companies took over their own distribution.
"Dealing with companies with a good track record - and reasonable funding - is the best policy," said Dr Michell.
New Zealand trade commissioner in Seoul Ryan Freer said a number of exporters failed to carry out adequate research and preparation before beginning to export to South Korea, or to take ownership of their brand in the market.
Key elements for success included being able to meet local tastes as well as label and packaging requirements, as was regular communication.
"Relationships are key," said Mr Freer.