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If you’re thinking about expanding your small business to South Korea, the question isn’t “Why should I?” Instead, it ought to be, “What am I waiting for?” As the world’s 15th-largest economy in terms of GDP — and home to some 48.6 million people — South Korea offers an attractive marketplace for international investors. More than half of the Global Fortune 500 firms have already established a presence in the country (245 companies as of 2008).

Here are just a few of the benefits to be reaped from setting up shop in South Korea:

1. Incentive appeal. Foreign direct investment incentives serve as a means to compensate foreign investors in South Korea for their economic contributions, while also reducing their startup costs. The government currently offers tax relief to foreign companies with the potential to make major contributions to the Korean economy. At the same time, the government supplies these companies with industrial sites (or assists them with site location and acquisition), and provides cash grants and other types of financial support.

Government-designated free trade zones offer even more motivation for expansion, including the easing of regulations on manufacturing, distribution and trade; low rental charges for land and buildings; tax breaks; and one-stop administrative services. In addition, simplified customs reporting procedures are applied to various value-added logistics activities.

Free economic zones are also being developed by the government to support businesses in free trade zones, with the aim of promoting logistics at major international hubs and creating pleasant living environments for foreigners. Thus far, six free economic zones have been designated.

2. Location, location. Favorably located between China and Japan, South Korea is in close proximity to more than 60 cities with million-plus populations (average air travel time: three hours). And the conclusion of the 2007 United States-Korea Free Trade Agreement has set the stage for South Korean businesses to improve their access to the world’s largest consumer market.

More recently, South Korea has signed a comprehensive free trade agreement (FTA) with the Association of Southeast Asian Nations, as well as an interim agreement with India. An FTA is also being concluded with the European Union, and additional talks are under way with Canada, Mexico, Australia, New Zealand and several other countries.

3. Discerning customers. South Korea’s tech-savvy consumers have heavily contributed to the growth of the country’s domestic market over the last decade. Korean manufacturers of mobile phones and consumer electronics — well-known for their top-quality products worldwide — owe much of their success to their discerning domestic customers. This explains why tech firms like Microsoft, Motorola and eBay, along with consumer goods companies like Procter & Gamble and L’Oréal, use South Korea as a test market for their new products.

4. Excellent infrastructure. South Korea is well established in terms of seaports, airports, roads and rails. As of 2008, Incheon International Airport (the country’s largest, just outside of Seoul) served 63 airlines and 30 million passengers traveling to 49 countries. More impressive still, within six years of its 2001 opening, it had become the world’s second-largest airport in terms of cargo throughput.

It goes without saying that foreigners pondering an investment in Korea would do well to brush up on legal restrictions, obligations related to said investment and potential union issues. Two excellent sources for this information are the American Chamber of Commerce in Korea and the U.S. Embassy Seoul.

Other invaluable resources include the Korea International Trade Association, the Korea International Logistics Council and the Korea International Freight Forwarders Association.   

Kyung-Hwan Jeon is managing director of sales, South Korea, for FedEx. He first joined the company in 1991 as a marketing specialist, transitioning to sales in 1997.

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