Korea: The Economic Miracle

Korea

South Korea has often been referred to an economic miracle. This is because the country went from a conquered and impoverished nation to an economic powerhouse. Its close proximity to China, Japan and it is a major trading partner of the United States. This is fueling growth in the last several decades. The result is that the nation has become one of the premier destinations for manufacturing. This is having a positive effect by diversifying the economy and it enables the middle class to develop. ("CIA World Factbook," 2015) For a large international retailer, this presents a unique opportunity for them become a dominant player inside: the women's wear and cosmetic sector. To fully understand what is occurring requires focusing on the retail environment and the impact of the currency. Together, these different elements will highlight the opportunities and challenges they will face inside South Korea.

Retail Environment

South Korea is the ideal opportunity to sell a host of different products to consumers who are becoming wealthier. According to the CIA World Factbook, per capita income is increasing consistently over the past three years. The below chart is highlighting these changes.

Personal Income Levels for South Korea from 2012 to 2014

Year

Personal Income

2012

$33,500

2013

$34,400

2014

$35.400 ("CIA World Factbook," 2015)

These figures are illustrating that South Koreans have more money to spend on: lingerie, women's wear and cosmetics. As a result, an increasing number of retailers are emerging to take advantage of the changes. The most notable include: Costco, Mega Mart, Hi Mart, Kim's Club, Daewoo Department Store, Hyundai Department Store, Amazon.com, EBay Korea, G-Market and Inter-Park. These are potential competitors for the organization. The types of stores include: large retailers / hypermarkets, online and small independent firms. The major retailers are: Shinsegae, Amazon.com, Hyundai Department Store, Costco and EBay Korea. ("CIA World Factbook," 2015) Each one of these organizations is targeting lingerie, women's wear and cosmetics buyers. This makes it a rapidly growing market in comparison with the U.S. As America, is at its peak for sales and the marketplace is saturated with competitors. This is harder for retailers to increase earnings from stagnant demand and a mature marketplace. These shifts are something that the U.S. went through earlier in 20th century. Now, South Korea is going through a similar period of long-term growth. (Standard and Poor's, 2015)

Currency

The South Korean Won is currently trading at 1083.25 per U.S. dollar. The biggest weaknesses are the fact that the exchange rate is so high. This is problematic, as it makes American goods more expensive. However, there are other trading partners with much lower rates. This means South Korea can import other products from these regions in order to keep prices low. For example, China is one of their largest trading partners. What helps to increase commerce, is 172 exchange rate for the Yuan Renminbi (China's currency). This makes their products more affordable to consumers. As a result, retail prices are low with inflation averaging 1.1% annually. ("South Korean Won," 2015)