Market Insights: South Korea
Overview of South Korea’s Economy
In the contemporary era, South Korea’s economy is a vibrant narrative of ingenuity, adaptability, and global prominence. Often hailed as one of the four Asian Tigers, this nation has orchestrated a remarkable transformation into a thriving economic force, propelled by technological innovation, manufacturing excellence, and the influential wave of Hallyu culture. South Korea’s economic prowess, guided by these dynamic forces, gracefully navigates the complexities of the modern global marketplace. This analysis delves into the insights of South Korea’s modern economy, exploring the synergies between its economic vitality and the global influence of Hallyu culture.
South Korea’s Gross Domestic Product (GDP) tells a unique tale of a nation’s economic evolution since the dawn of the 21st century, all against the backdrop of the global phenomenon known as the Hallyu (Korean Wave) culture. South Korea has consistently charted a remarkable course marked by substantial growth, innovation, and global integration. Post-2000, the nation has not only solidified its status as an economic powerhouse but has also harnessed the sway of Hallyu culture, influencing the world through its music, film, and entertainment. This analysis delves into the pivotal factors driving South Korea’s outstanding economic success in the new millennium while exploring how Hallyu culture has contributed to its consequential role on the global stage. 1
While the manufacturing sector plays a crucial role in South Korea’s GDP, the service industry has seen significant growth. Areas such as finance, entertainment and e-commerce are part of why the service sector makes up for around 58.24% of the country’s GDP.2 The government has also actively supported R&D in various industries and has kept a steady inflow of global investments, establishing a strong global presence. This has made the country renowned for its advancements in technology and innovation. It is also home to global giants like Samsung, Hyundai and LG, who contribute to its manufacturing sector and export-oriented economy.
Foreign Direct Investments
In 2022, FDI reached an all-time high of USD 30.5bn, a 3.2% year-on-year increase from 2021. South Korea is regarded to be a rather attractive economy for foreign investment, with Japan, the US, Netherlands and the UK holding most of the FDI stock. Her appeal stems from the country’s rapid economic development and the country’s specialization in new information and communication technologies. Furthermore, there are special concessions and tax exemptions available particularly in the hi-tech sector. Foreign investors may also be incentivized by cash grants and lower start-up costs.3
Growing Markets & Markets with High Growth Potential
As a developed economy, several industries in South Korea are still witnessing relatively remarkable growth:
Luxury products are beginning to experience a surge, with changing lifestyles and priorities amongst the younger generation. Higher income levels are also helping fuel this industry across all ages.
E-commerce and livestreaming continue to thrive in this digitalized and connected environment. It synergistic nature with luxury products suggests that platforms that support both e-commerce and livestreaming will benefit in the long run.
Tourism is expected to grow given the huge popularity of South Korea as a travel destination prior to COVID-19. Numbers also seem to suggest this emerging trend.
These trends present promising opportunities for businesses and investors in 2023 and beyond as South Korea adapts to it evolving economic landscape.
South Korea’s Demographics
With a population size of 51.7 million, South Korea is beginning to see a population decline. Failing birth rates and a rapidly aging population are some of the biggest problems facing the nation. The life expectancy has risen over the years to over 84 years, with a median age at 44.5 years, while fertility rate sits at 0.9, far below the minimum of 2.1, the number needed for each generation to replace itself.4 By 2025, South Korea is expected to become a “super-aged” society, where people aged 65 and older make up more than one-fifth of the country’s population. The urban population makes up 81.7% of the total population, a number which has stayed relatively stable since the turn of the century.5
South Korea has a minimum wage policy. In 2023, it was set to 9,620 KRW per hour. Median salary stands at 3,500,000 KRW per month. Males earn on average 6% more than females, with an average of 4,000,000 KRW compared to 3,780,000 KRW earned by the females.6 The chart below reflects the growing rate of annual household income per capita. It is noticeable that there was a decrease in income per capita in 2022 to US$18,350, after a rather consistent growth in income level in the years prior.
South Korean Consumers and Consumer Trends
South Korea’s ever-evolving consumer landscape reflects a nation at the forefront of global trends, where modern values harmonize with cutting-edge innovation. In recent years, several prominent consumer trends have emerged as dynamic forces shaping the choices and behaviors of South Korean consumers. From the pervasive influence of social media, which shapes preferences and fuels trends, to the growing appetite for luxury products and the surge of e-commerce, South Korea is a vivid example of a society in flux. The nation’s previously booming tourism industry is yet another aspect, as it attracts visitors eager to experience the unique blend of cultural heritage and modernity. In this exploration, we delve into these four distinctive South Korean consumer trends, offering insights into the vibrant tapestry of a society and its possibilities.
Social Media Influence
Backed by its good digital infrastructure in terms of internet speeds and smartphone ownerships, South Korea ranks 3rd globally in terms of social media penetration rate.7 Their locally-developed applications like KakaoTalk or KakaoStory are the baseline choices for the general consumers for shopping, keeping in touch with friends or engaging with celebrities.
Riding with the Hallyu culture, K-pop idols and agencies are using these media platforms to connect with fans globally. Given their thriving influencer culture, this is no surprise, as many consumers are easily swayed by these ‘influencers’. When surveyed, around 45.5% of respondents stated that they had purchased an item or product as it was endorsed by an influencer.8 Hence, brands frequently partner with influencers to promote their products or services and develop their image.
World’s Biggest Spenders on Luxury Goods
South Korean consumers are heavily influenced by their strong desire to outwardly exhibit social standing. This sense of materialism to boost appearance and reflect one’s financial success resonates rather strongly in South Korea compared to most other countries. It was estimated that South Korea’s total spending on personal luxury goods grew 24% in 2022 to US$16.2 billion. In per capita terms, this equals to about US$325, almost 6 times that of consumers in China. 9
This is spurred heavily by the younger age groups, many younger South Koreans are coming to terms that they cannot afford a house and are less likely to save for the future. Instead, they are turning to luxury treats to try and make themselves happy instead. In a report published, purchases of luxury items by those in their 20s jumped 70% in 2021 from 2018, the strongest growth among all age groups. 10
In general, the demand for premium products is driven by an increase in purchasing power and boosted by the youth-inspired culture that emphasizes appearance and personal grooming. For businesses hoping to enter the South Korean market, it is important to recognize that demand is heavily inspired by celebrity endorsements and branding image. To succeed in the South Korean market, brands will need to offer a premium product of high value and quality to break into the market and stand out. From there, developing strong online marketing services would be pivotal in building and maintaining one’s brand image.
The growth of the Korean retail sector is driven by e-commerce. Consumer behaviors have changed substantially over the past few years, consumers tend to go to traditional stores to window shop, before purchasing the same product at online retail sites to find the best deals. Traditional retail channels are suffering as a result.
The domestic e-commerce sales reached $108.2 billion in 2022 and have been growing at 17.4% between 2018-2022.11 This can be attributed to the high penetration of smartphones, with 91.5% of the population owning a smartphone and 99.7% of households in Korea having internet access. Live streaming of products allow potential customers to examine product details, communicate with sellers conveniently and thereafter, make real-time purchases through the streaming platform site. Coupled with the availability of secure online payment services, consumer confidence in e-commerce has risen over the years. Revenue in the e-commerce sector as a whole is expected to rise by 7.7% CAGR from 2023 to 2027, resulting in a projected market valuation of US$160.4 billion.12
In general, consumers in South Korea have been shown to be tech-savvy and tend to make well-informed decisions through their online research before making a purchase. With the ease of access to the internet, social media plays a significant role in capturing consumer’s interest. The young especially are exhibiting signs of materialism and increasingly view money as a significant representation of one’s success. Outwardly appearances are heavily emphasized due to their attached values and the belief that it can be used to express their individuality. Premium products are more likely to be sought after here and a brand’s ability to seek out endorsements by celebrities can boost sales tremendously.13
It is deeply important that brands hoping to enter South Korea’s market can achieve the aforementioned criteria so as to challenge the big household names. It should be noted that consumers are now less concerned with locally produced products. There is a growing demand for non-domestic products due to their competitive prices and the scarcity value that consumers place on foreign brands.
Korea’s tourism industry was the one of the biggest benefactors of the global rise in interest in Korean culture. The Hallyu culture has increased worldwide popularity in an array of sectors, from food to beauty & fashion and from K-pop to K-dramas. In 2022, South Korea witnessed 3.2 million tourists.14 Ignoring the 2020 and 2021 numbers due to COVID-19, visitor arrivals in South Korea have shown an overall growth since year 2000, with a large majority originating from Mainland China before the pandemic. As consumer’s confidence picks up in China, expect tourist numbers from there to surge. Forecasts for Chinese cross-border travel expects it to return to pre-pandemic numbers by the end of 2024. Businesses who can enter the market quickly prior to that will be able to capitalize. Furthermore in 2022, tourists from the US accounted for the biggest share of visitors to Korea.15 These 2 large demographics suggest that the tourism industry is expected to hit a boom in the coming years.
- South Korea boasts remarkable yet volatile economic growth
- FDI is expected to rise, due to its attraction in terms of cost set out by the government
- Sectors including luxury products, e-commerce and tourism show significant growth potential
- Demographics reveal an ageing population with declining birth rates and stable urbanized levels.
- Consumers are showing materialistic traits, with evolving preferences in branding and celebrity endorsement
- E-commerce is necessary for retailers to remain competitive
- Tourism is expected to grow in anticipation of Chinese visitors and visitors riding the Korean Wave
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