International Marketing Plan - South Korea

Country Notebook Helen Thames​ ⬥ K ​ ayla Reed​ ⬥ ​Jake Taylor

Part I: Introduction 1. Introduction: ​South Korea is easily considered the beauty capital of the world.

Appearance is incredibly important to those who live in South Korea. The culture is obsessed with taking care of oneself, and looking the best way possible. “Sunscreen and avoiding the sun is one of the most important things in Korean skincare - it’s extremely common to see women with parasols and desperately seeking shade.” This is according to Katherine Spowart, a businesswoman who runs a dedicated beauty blog called SkinfullofSeoul (Squier, Chemmie). It’s not uncommon to come across three of the same beauty stores on the same street when out shopping in South Korea. Needless to say, South Korea has great potential for a beauty product to do well. However, there is also the possibility a new product fails due to the sheer volume of competition in the market.

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Table of Contents Part I: Introduction--------------------------------------------------------------------------------Part II: Cultural Analysis------------------------------------------------------------------------A Briefing on South Korea’s Relevant History--------------------------------------Geographical Setting--------------------------------------------------------------------Social Institutions------------------------------------------------------------------------Religious and Aesthetics----------------------------------------------------------------Living Conditions------------------------------------------------------------------------Language----------------------------------------------------------------------------------Part III: Economic Analysis---------------------------------------------------------------------Population---------------------------------------------------------------------------------Economic Statistics and Activity------------------------------------------------------Developments in Science and Technology-------------------------------------------Channels of Distribution----------------------------------------------------------------Media--------------------------------------------------------------------------------------Part IV: Market Audit and Competitive Market Analysis-----------------------------------The Product-------------------------------------------------------------------------------The Market--------------------------------------------------------------------------------Part V: Preliminary Marketing Plan------------------------------------------------------------The Marketing Plan----------------------------------------------------------------------Methods of Payment---------------------------------------------------------------------Pro Forma Financial Statements and Budgets---------------------------------------Part VI: Sources of Information----------------------------------------------------------------Part VII: Appendix--------------------------------------------------------------------------------

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Part II: Cultural Analysis 1. Executive Summary: ​In the 1960-70’s era, South Korea began to experience rapid industrial development and economic growth, making it one of the most sophisticated countries in Asia. The country has four seasons: summer, spring, autumn, and winter and the topography consists mainly of hills and mountains. Education is extremely important to those in South Korea with 93% of students graduating on time. The country enforces a liberal democratic political system with a new presidential election every five years.

Buddhism is the most popular religion in the country at over 22.8%. The biggest characteristics of aesthetics are physical appearance and self-assured relationships, another reason why the country is the beauty capital of the world. Meat consumption is very high, and many cuisines are popular to the population of South Korea. Apartments are the most popular form of housing, often hosting an owner’s extended family as well.

The official language is Korean, although there are different dialects of it.

2. Brief Discussion of the Country’s Relevant History: ​After Japan’s defeat in 1945, the United States and Soviet Union divided control over the Korean Peninsula. South Korea was then established in the capital city. Their declaration of independence in 1950 led North Korea, China, and the Soviet Union to invade its neighbor in an effort to regain control of the entire peninsula. Backed by the United States, the Korean War caused 2 million casualties, but eventually settled by creating a divided demilitarized zone.

Following the Korean War, South Korea continued to have close ties with the United States, including military, economic, and political support. Throughout the 1960’s and 1970’s, South Korea experienced rapid industrial development and economic growth.

Today, South Korea is one of East Asia’s most affluent countries, ranking just behind Japan and China. With a large portion of the country covered by mountains, a majority of the population lives in urban areas. The capital of South Korea is Seoul, home to more than 25 million people, or over 50% of the country’s population.

3. Geographical Setting: a. Location​ - South Korea b. Climate​ - South Korea endures four very distinct seasons. In South Korea, the summers tend to be short and hot, spring and autumn are considered pleasant and short, and winter is usually long, cold, and dry. In January, Seoul’s temperature is usually about -5 degrees Celsius to -2.5 degrees Celsius (23 degrees-27 degrees Fahrenheit). In July the temperature ranges between 22.5 and 25 degrees Celsius (71 degrees-75 degrees Fahrenheit).

The country’s rainfall is enough to maintain their living conditions, and is usually over 100 centimeters. Typically about two-thirds of the yearly rain occurs 3

between June and September. The country, however, does experience a drought roughly every eight years.

South Korea is also less vulnerable to typhoons than neighboring countries. About one to three typhoons can be expected per year, usually passing over South Korea in the late summer with high winds and torrential rains. (Climate and average monthly weather in South Korea). c. Topography​ - South Korea's topography consists mainly of hills and mountains, but large coastal plains are prevalent in the western and southern parts of the country. The highest point in South Korea is Halla-San, an extinct volcano, which rises to 6,398 feet. (Briney, Amanda. “Geography of South Korea.”)

4. Social Institutions: a. Education​ - Getting an education is incredibly important to people in South Korea. This differs from the United States because, while Americans still value education, it is not something that everyone pursues. Dropout rates in South Korea are incredibly low, with 93% of students graduating on time. Dropping out of high school is assumed to be avoidable, and is labeled as a “disaster” or a “catastrophe”. This country has one of the highest literacy rates in the world, and many experts believe that the country’s success is due to their highly educated workforce. (“South Korea Profile”) b. Politics​ - The South Korean constitution requires a liberal democratic political system. This constitution was written with the central focus of the sovereignty of the people. The power ultimately lies with the people of South Korea, and a separation of powers exists among their three branches of government, the rule of law, the responsibility to promote citizen’s welfare, and the promise to keep a peaceful unification of Korea. Their president is elected every five years, and completes just one term. Voting is reserved for citizens that are at least 20 years old, and the nationwide ballots are direct, equal, and secret. (“South Korea Profile”) c. Legal System​ - South Korea has a civil law legal system, taking inspiration from the European law system. There are similarities to the U.S. legal system, but South Korea does not recognize any legal system at the federal level. (Cho) d. Business Practices​ - In South Korea, it is common to begin a meeting with a bow, followed by a handshake. It is considered respectful to trade business cards, and they should be received with both hands. Business cards are very important in South Korea, and it is considered disrespectful to write on the cards or place them in a pocket. e. Punctuality​ - South Koreans are not fond of tardiness, however it isn’t uncommon for them to cancel appointments with little or no notice. If this is done multiple 4

times, it usually means there is a lack of interest in doing business, and is expected that one takes the hint. f. Gifts​ - Giving gifts is a common practice when doing business in Korea. Gifts are intended to acquire favors and build relationships. You must also use both hands to accept these gifts as a sign of respect. g. Contracts​ - Contracts are viewed as a starting point, rather than the finished project in South Korea. A contract in South Korea is just as strong, if not less so, than a simple relationship between two companies.

5. Religion and Aesthetics: a. Religion​ - Buddhism is the most popular religion in South Korea, with over 22.8% of the population claiming it as their faith. It was first introduced to Korea from China in 372 AD. Throughout the following centuries, it blended with Korean Shamanism to become the Korean Buddhism that exists today. Although the fundamental teachings of Buddhism remain in South Korea, the belief of the three spirits (Sanshin, Toksong, and Chilson) were adopted from Korean Shamanism. Many Buddhist temples in South Korea are built on mountains, as it is believed to be the residency of spirits. Recently, South Korea has seen a decline in Buddhism due to conversions toward Christianity and atheism. Other than Buddhism, Protestantism, Shamanistic Beliefs, and Korean Confucianism are popular as well. Approximately 6.7% of the population claims to be atheist or unaffiliated. b. Aesthetics​ - Physical appearance and a self-assured relationship are the biggest characteristics for aesthetics in South Korea. Women are the number one consumers of cosmetic items in the world, spending six times longer performing beauty routines as French women. It is also acceptable to let a friend know when they have gained weight in South Korean culture. Because of this infatuation with physical appearances, plastic surgery has risen to popularity in recent years.

Changing one’s physical appearance is like a simple act of societal initiation in South Korea. In 2013, South Korea was the third market for luxury goods in Asia.

With a love of luxury and appearance, one's relationship with their own body is significant. Their infatuation with aesthetics has continued to grow, and it isn’t slowing down anytime soon.

6. Living Conditions: a. Diet and Nutrition: i.

Meat Consumption​ - In 2013, annual meat consumption in South Korea had ranged at about 63.61 kg per capita. Meat consumption in South Korea has steadily increased, and pork has been the most highly consumed 5

meat. Pork Consumption, at 20.9 kg per capita (total 1049 kt), comprised almost half of the total meat consumption (42.7 kg per capita, total 2148 kt) in 2013, followed by chicken (11.6 kg per capita, total 580 kt) and beef (10.3 kg per capita, total 519 kt). (Choe, Yang & Lee 2015). ii. Cuisine​ - Korean cuisine is largely based on rice, vegetables, and meats.

Traditional Korean meals are named for the number of side dishes that accompany steam-cooked short-grain rice. Kimchi (a traditional side dish made from seasoned and fermented vegetables, including napa cabbage and korean radishes) is served at nearly every meal. (North Korean cuisine, 2018) iii.

Malnutrition​ - According to the latest WHO data, published in 2017, South Korea had 91 malnutrition deaths (0.04% of total deaths). iv.

Death Rate​ - The age adjusted death rate is 0.11 deaths per 100,000 people, which ranks South Korea at #152 in the world. (Malnutrition in South Korea). v. Agriculture​ - Less than a quarter of South Korea is cultivated. Rice is the most important crop, but there is a wide variety of fruits, including tangerines, pears, persimmons, and strawberries. There are also vegetables like cabbages. barley, wheat, soybeans, and potatoes. The top three agricultural products after rice are pork, beef, and milk. Most importantly, fishing has been instrumental in supplying protein-rich food for South Korea. (Im, Lew, Yu, Lee, & Hahn, South Korea, 2018) b. Housing: i.

Home Type​ - Apartments (apatu) are the most popular housing type in South Korea. These apartments are usually filled with residents who live with parents and/or extended family. “Officetels” are designed to be either a workplace or a residence, and single people who want to be close to their workplace typically live in these units. The Villa is another type of housing, which isn’t as popular as the other types, but they are also the cheapest form of housing. (Living in South Korea: Housing types) ii. Buy or Rent?​ - Most people in South Korea rent an apartment because it is very expensive to own a home. iii.

Family​ - “Since many Koreans live with their parents until they marry, and married couples tend to have children shortly after tying the knot, there is less demand for smaller apartments for couples in the country” (Living in South Korea: Housing types). Most people live with their family or parents in an apartment.

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c. Clothing: i.

Traditional​ - A Hanbok is a traditional Korean dress for semi-formal or formal attire during traditional occasions such as festivals, celebrations, and ceremonies. It has vibrant colors and simple lines without pockets.

(Hanbok, 2018) ii. Business​ - South Korean business dress code is traditionally conservative, with a dark palette. Men wear a black suit with a white shirt and discrete colored tie, while women wear conservative skirts with a white blouse.

(Chuy, 2018) d. Recreation, Sports, and Other Leisure Activities: i.

Sports​ - Traditional sports are Tae Kwon Do, Jokgu (a mix of football and volleyball), and Ssireum (wrestling style). Baseball is one of the popular sports in South Korea as well. South Korea has one of the best baseball teams on the international stage. Other popular sports in South Korea are football, basketball, golf, and rugby. (Sport in South Korea) ii. The Olympics​ - South Korea prepares to spend $13 billion for the 2018 winter olympics. The olympic stadium will be used only four times before it is demolished. (Raphelson, 2018) e. Healthcare​ - South Koreans have the right to universal healthcare, ranking first in the OECD for healthcare access. Satisfaction of healthcare has consistently been among the highest in the world. (Health in South Korea, 2018) 7. Language - ​Korean is the formal language in South Korea. However, different varieties of Korean are spoken in every nation-state. With a number of dialects in South Korea, Hanguk is the most commonly used. Other dialects include Yeongseo, Jeju, Seoul, Jeolla, Gyeongsang, and Chungcheong​. ​In ancient times, Koreans attempted to pick up the Chinese alphabet, but struggled with Chinese characters. In the 15th century, the Hangul alphabet was created, which consists of 24 letters normally arranged in blocks for every syllable. Korean syllables have single phonetically articulated letters similar to the Latin alphabet. By the 19th century, the Hangul alphabet gained popularity and replaced the Chinese influences. The Korean language has an agglutinative dialect, meaning there’s no concrete evidence to suggest its origins are similar to an ancient dialect. Korean has three major speech stages linked to politeness: plain, politeness, and deferential. English is considered the second language of South Korea, but the majority of people do not speak it freely.

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Part III: Economic Analysis 1. Executive Summary: ​South Korea is a predominantly urban nation, and is a major producer of steel and electronic goods. The country's GNP is at an all time high, with a growth of 3.82% over the last year. The country has many modes of transportation and communication, and there is extensive internet access. South Korea’s exports are up 2.5% over the last five years, and their imports are down 7.2% over the same period. South Korea maintains a weakening surplus, and their currency is worth 0.000892% of the U.S. dollar. The inflation rate is steady, and the unemployment rate is declining. Trade barriers between the United States and South Korea are also being reduced because of each nation’s membership with the Asia-Pacific Economic Cooperation (APEC).

2. Population: a. Total​ -​ ​The total current population of South Korea is 51,229,935. i.

Growth Rates​ - The growth rate is 0.36% as of 2018 in South Korea. ii. Number of Live Births​- In 2017, there were 357,000 babies born in South Korea. iii.

Birth Rates​ - South Korea has a birth rate of 8.3 births per 1,000 residents. b. Distribution of Population: i.

Age​ - ​4.7% of the population is under 5, 11.5% is between the ages of 6 and 14, 13.6% falls between ages 16 and 24, 62.9% falls between ages 25 and 69, and 7.3% of the population is over 70 years old. ii. Sex​ - ​Men make up 50.03% of the population, while females make up the remaining 49.97% of the population. iii.

Geographic Areas​ - ​South Korea covers 99,720 sq km, 18.1% of which is used for agriculture and 63.9% is forest. The remaining area is used for other purposes, and is generally urbanized. About 70% of the country is covered with hills and mountains, meaning that the majority of the population lives on the lowlands, which makes up just 30% of the area.

South Korea is made up of eight provinces and one autonomous territory, the island of Jeju. The northwestern province of Gyeonggi, containing Seoul, is the most densely populated region of the country. By comparison, the northeastern province of Gangwon is the least densely populated region of South Korea. iv.

Migration Rates and Patterns​ -​ ​There is a net migration rate of 2.5 immigrants per 1,000 residents. v. Ethnic Groups​ - ​Ethnicity is considered homogenous, as over 99% of the population is of Korean descent.

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3. Economic Statistics and Activity: a. Gross National Product​ - In June of 2018, South Korea had a gross national product that was reported at US $408.05 billion. In March 2018, the number was US $393.04 billion, meaning the GNP is increasing by 3.82%. The data is updated quarterly, averaging US $57.74 billion from March 1960 to June 2018. This June marked the highest recorded GNP in South Korea, while September of 1961 marked the lowest GNP on record, with just US $552.08 million. b. Average Family Income​ - ​In South Korea, the current average household net-adjusted disposable income per capita is US $21,723 a year, lower than the OECD average. c. Distribution of Wealth​ - ​In South Korea, there is a large gap between the richest and the poorest as the top 20% of the population earns nearly six times as much as the bottom. i.

Income Classes​ - ​In 2017, South Korea’s middle class accounted for 65.7% of the population, a 1.7 percent decrease compared to the previous year. Korea’s National Statistical Office defines the middle class as 50-150 percent of the country’s median income. As a declining trend has been seen in the middle class, it is largely attributed to the deterioration in the country’s income disparity, as the gap between the rich and poor is widening. As the government continues to try and narrow the income distribution gap, the gap disparity shot back up in 2016 after five consecutive years of decline. The distorted distribution is also being attributed to the growing competition in self-employment, leading to lower earnings and a spike in low-income earners. d. Minerals and Resources​ - ​South Korea is the global producer or cadmium, slab zinc, and steel. They are also a leading regional producer of refined copper, pyrophyllite, cement, zeolites, and talc. The country’s mining industry is very well developed. Due to the rise in domestic demand for metals, the country tends to depend more on imports to meet its requirements. e. Surface Transportation​: i.

Railroads​ - Railways are one of the primary methods of transportation in South Korea. There are multiple railway providers, but the sole passenger provider is KORAIL. Railway systems run throughout the country, linking cities for easy, affordable, and efficient travel. In April of 2004, the Korean Train Express was put into service, reaching a top speed of 300 km/hr on a fitted high speed track. It utilizing two lines: the Gyeongbu and the Honam lines.

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ii.

Subways​ - Subway systems have also been heavily utilized in South Korea since their introduction in 1968. Subways are fully operational in 4 Korean cities including Seoul, Busan, Daegu, and Incheon. iii.

Buses​ - Korean bus services are offered regionally and locally. Almost every town is served by the regional bus service. iv.

Ferries​ - South Korea is home to a vast system of ferries. There are four major ports in Korea including Incheon, Mokpo, Pohang, and Busan. v. Taxis​ - South Korea also offers taxi services, including regular and deluxe services. They are reasonably inexpensive and operate on metered fares and/or predetermined fares. f. Communication Systems: i.

Types​ - ​South Korea offers five main types of communication: Telephone, Postal, Internet, Radio, and Television ii. Availability​ - In the 1980’s, telecommunication services greatly improved in South Korea due to the assistance of foreign partners and the development of the electronics industry.

1. Radio and T.V.​ - The radio is a popular form of communication used by many residents of South Korea. It is a source of free music, current events, and celebrity news with over 200 current broadcasting stations. South Korea currently ranks 46th in the world by number of television broadcast stations. The three largest networks are KBS, MBC, and SBS, with major studios located in Yeouido and Sangam-dong. There are approximately 14 million cable TV subscribers nationwide. Radio and television now reach virtually every resident in South Korea.

2. Phone​ - The three main cell phone service providers in South Korea are SK Telecom, KT, and LG Uplus. South Korea does not have a GSM network, which means roaming opportunities are limited. However, they do offer 3G networks, and the overall telephone network in South Korea has excellent domestic and international services.

3. Postage​ - Korea Post is the national postal service of South Korea, providing fast and reliable postal services and any additional postal services for residents.

4. Internet​ - As one of the world’s most wired countries, there are many Internet cafes ubiquitous through the country. There are about 19 million households, and 99.2% of them have internet access, deeming South Korea to have the highest number of broadband users. The rapid growth is a result of a combination of 10

government subsidies and market factors. On average, South Koreans spend 14.3 hours a week on the internet. g. Working Conditions​: i.

Hours​ - In 2018, South Korea lowered its maximum working hours from 68 to 52 hours. The country has the third highest number of hours worked of 37 countries tracked. The average person in South Korea worked about 2,024 hours in 2017, or 38.9 hours a week. ii. Regulations​ - The Korean labour market is highly regulated, with powerful labour unions and stringent employment protection laws.

Generally, employees are well informed of their rights. Employees can be employed on a permanent basis or on a fixed-term basis for up to two years. Agency-type working arrangements are very popular, but are highly regulated. Failure to meet the regulations can result in criminal sanctions.

Employers with more than 10 employees must provide an employee handbook covering matters such as wages, hours of work, and paid leave.

Key minimum employment rights include annual leave, sick leave, public holidays, working time, family leave, and wages and social insurance. iii.

Salaries and Benefits​ - ​Currently, the minimum salary in Seoul, South Korea is ￦7,530, or approximately $7/hour. The average salary in Seoul, South Korea is $48,324. h. Foreign Investment: i.

Opportunities​ - ​South Korea’s rapid economic growth over the last decade, in addition to the constant innovation of information technologies, makes South Korea a desirable place to invest for other nations. Some of the foreign nations that most heavily invest in South Korea include the United States, China, Ireland, Japan, Luxembourg, Singapore, the UK, and Vietnam. The lack of transparency with South Korea’s trade regulations is something to be cautious of. ii. Industries​ - ​The most popular industries for foreign investment in South Korea include shipbuilding, automobiles, electronics, cosmetics, textiles, and production of TV and music. i. International Trade Statistics: i.

Major Exports​: 1. Industry​: a. Electronics and Machinery​ - 40.3% of exports b. Vehicles​ - 10.8% of exports c. Ships​ - 7.1% of exports d. Fuels​ - 6.3% of exports e. Medical Technology​ - 5.1% of exports 11

f. Organic Chemicals​ - 4% of exports g. Iron and Steel​ - 3.9% of exports 2. Dollar Value​ - South Korea’s total exports amount to US $573.7 billion dollars in 2017.

3. Trends​ - The amount of exports is up 2.5% since 2013. ii. Major Imports​: 1. Industry​: a. Mineral Fuels​ - 23% of total imports b. Electronics​ - 17.3% of imports c. Machinery​ - 12.7% of imports d. Medical Technology​ - 4.5% of imports e. Iron and Steel​ - 3.5% of imports f. Vehicles​ - 3.3% of imports g. Ores and Ash​ - 3.3% of imports h. Organic Chemicals​ - 2.7% of imports i. Plastics​ - 2.3% of imports 2. Dollar Value​ - South Korea’s total exports amount to US $478.4 billion in 2017.

3. Trends​ - The amount of imports for South Korea is down 7.2% since 2013. iii.

Balance-of-Payments Situation 1. Surplus or Deficit?​ - ​South Korea has a trade surplus of US $6.55 billion as of October 2018.

2. Recent Trends​ - ​The surplus has decreased from US $6.93 billion over the previous 12 months. iv.

Exchange Rates 1. Single or Multiple Exchange Rates?​ - ​South Korea has a single free-floating exchange rate that is determined by supply and demand, similar to the United States. (The Bank of Korea) 2. Current Rate of Exchange​ - Currently, the South Korean Won is worth 0.000892% of the U.S. dollar.

3. Trends​ - ​The South Korean Won is fairly stable, and there isn’t a lot of fluctuation between it and the U.S. Dollar. j. Trade Restrictions: i.

Embargoes, Quotas, and Import Taxes​ - ​Embargoes, quotas, and import taxes are expected to be eliminated between the United States and South Korea due to the Asia-Pacific Economic Cooperation (APEC).

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Tariffs​ - ​Tariffs on U.S. cosmetics that are exported to South Korea have been significantly reduce by the passage of the KORUS FTA, and will be eliminated over the next 10 years. k. Extent of Economic Activity Not Included in Cash Income Activities: i.

Countertrades​ - ​South Korea is not a nation that is known to offer countertrades, as they are an economically prosperous nation, which usually eliminates the need for countertrades. ii. Foreign Aid Received​ - ​South Korea is a member of the Development Assistance Committee (DAC) and Organizations for Economic Cooperation and Development (OECD). The group consists of over 25 member states devoted to promoting economic and social development worldwide. l. Labor Force: i.

Size​ - ​There are 26,812,000 employed people in South Korea as of September 2018, which is an increase of 91,000 people since August. ii. Employment Rates​ - ​The employment rate in South Korea is 61.20% as of September 2018, up 0.30% from August. The unemployment rate is 4.00% as of September, down 0.20% from the previous month. m. Inflation Rates i.

Current Rate​ - ​The inflation rate of South Korea is 2.0% as of October 2018, up from 1.9% in September. The current inflation rate is considerably higher than the 1.7% expectation. The inflation rate is currently at a 13 month high. (South Korea Inflation Rate, 2018) This inflation rate ensures a profit margin won’t be lost. ii.

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4. Developments in Science and Technology: a. Current Technology Available​ - ​Current innovative technology includes water absorption technology, which can be used to save energy in regard to heating and cooling systems. This new technology can absorb 4 times the amount of regular absorbents. Kevlar Textile Coating Technology is another innovation that can increase performance by applying zinc-oxide to Kevlar fiber. This technology can be used for many projects, such as a protective coating on automobiles. Another innovation includes Medical Robotics Technology, which can be used as support for a patient’s recovery and rehabilitation by assisting the ailing or injured part of the body. TuPix is another innovative technology that can analyze big data quickly through an algorithm. b. Percentage of GNP Invested in Research and Development​ - ​Research and development expenditures in South Korea were reported at 4.2282% in 2015.

c. Technological Skills of the Labor Force and General Population​ - ​The labor force and general population of South Korea has a substantial understanding of technology, as most of the country’s exports are technology based.

5. Channels of Distribution (Macro Analysis): a. Retailers: i.

Number of Retailers​ - ​There many types of retailers in South Korea.

Stores may range from online shops and hypermarkets, convenience stores, duty free shops, or department stores. ii. Typical Size of Retail Outlets​ - The South Korean retail market reached ￦296 trillion in 2016.

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Market Size of Korean Retail Industry: 2012-2016 ​(​Korea:

Retail Industry, 2018​) Unit: ₩ Billion ($ Million)

Year

2012

2013

2014

2015

2016

CAGR (‘12~’16)

Value

260,436

264,125

268,979

278,588

295,745

(231,113)

(241,201)

(255,387)

(246,081)

(254,709)

3.2%

Customary Markup for Various Classes of Goods​ - ​Retail prices for imported perfume and women’s swimwear are being marked up by as much as eight times the original import price. Other items that are being marked up are face powder (6.4 times), leather belts (3.8 times), dog food (3.8 times), chocolate (3.5 times), sunglasses (3.5 times), women’s jeans (3.4 times), leather wallets (3.4 times), wristwatches (3.3 times), sleeping bags (3.2 times), hair dryers (3.1 times), leather handbags (3.1 times), beer (2.7 times), and digital cameras (2.1 times). iv.

Methods of Operation (cash/credit)​ - ​The most common way to pay in South Korea is by card. Koreans think that carrying cash cumbersome, and they simply don't have anywhere to put it. Carrying a debit card around makes it easier to manage their money. v. Scale of Operation (large/small)​ -​ The abundance of small and medium companies in South Korea demonstrate the important role of small businesses during the entire course of dynamic growth. vi.

Role of Chain Stores, Department Stores, and Specialty Shops​ - ​In a chain store, the efficiency of individual stores must be well managed to improve the efficiency of the entire enterprise. To do this, it is important to measure the efficiency of individual stores, and to find factors that may hinder efficiency. b. Wholesale Middlemen: i.

Number and Size​ - ​In South Korea, Dongdaemun Market is known as the world's extraordinarily large shopping town. Dongdaemun market in South Korea is widely popular with locals and tourists alike. This market has over 30 shopping centers and 30,000 stores with more than 50,000 manufacturing companies all in one spot. iii.

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Customary Markup of Various Classes of Goods​ - ​The markups between wholesalers and retailers are very similar. For example, a wholesale item at $5 could be marked up to $10. By 1997, about two dozen foreign stores had been approved by the central government to conduct business in South Korea. However, hundreds of foreign retailers and wholesalers had already established themselves in South Korean cities, having sought approval from the provincial or municipal governments. iii.

Method of Operation (cash/credit)​ - ​The most common way to pay in South Korea is by card. Koreans think that carrying cash cumbersome, and they simply don't have anywhere to put it. Carrying a debit card around makes it easier to manage their money. c. Imports/Export Agents​ - ​For small and medium sized companies, the best way to enter the Korean market is through a reputable or well-known agent or distributor.

These companies are located regionally and typically have a large sales network.

Thus they will have a better understanding of the Korean market and can provide assistance in developing distribution strategies in the region. In this way, new products can be launched easier into the market, and distribution networks can be set up without any issues regarding distribution rights and licensing. d. Warehousing​ - ​Retail warehouse and logistics properties are attracting new interest from overseas companies despite lower demand among other industrial space during the financial downturn. Korea has the world’s fastest growing consumer market for perishable foods and pharmaceutical products, but its per capita refrigerated warehouse space is less than one-tenth of most developed countries. e. Penetration of Urban and Rural Markets​ - ​A greater number of items are vying for limited retail space in both urban and rural areas. Consumers are being bombarded with products and promotions by an abundance of domestic and multinational companies. Statistics will highlight the product and purchasing frenzy most efficiently. ii.

6. Media: a. Availability of Media​ - ​South Korea is, by all measures, a media rich-country.

Television is ubiquitous too, with two national networks, over forty cable channels, and a digital satellite broadcasting service offering seventy-four channels. Koreans are avid users of new technologies as well. The availability and adoption of new communication devices in South Korea is on a par with the world's most industrialized countries. b. Costs​ - Television advertising expenditures were a total of $2.48 billion in 2017.

Total media advertising expenditures grew by 4.3% to $6.2 billion in 2017.

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Advertisers dedicated $2.27 billion towards mobile advertising last year, and by 2021, advertising expenditures are expected to exceed $10 billion. c. Agency Assistance​ - ​Development cooperation efforts were focused mainly on meeting the basic human needs of developing countries and on fostering their human resources development. The focus has now broadened to promoting sustainable development, strengthening partnerships with developing partners, and enhancing the local ownership of beneficiaries. d. Coverage of Various Media: i.

Newspapers​ - ​There are 116 daily newspapers in South Korea. ii. Magazines​ - ​There are 11 national fashion magazines in South Korea. iii.

Radio​ - ​There are 47,500,000 radio receivers and 209 radio stations in South Korea. iv.

Television​ - ​There are 15,900,000 television sets and 121 television channels in South Korea. e. Percentage of Population Reached by Each Medium: i.

Newspapers ​-​ 28% of South Koreans read newspapers regularly.

Newspapers are consumed an average of 35 minutes per day in South Korea. ii. Magazines​ -​ The average South Korean looks at a magazine for 10 minutes per day. iii.

Radio​ -​ 99% of the South Korean population has access to radio, but only 12% listen regularly. Radio is consumed 61 minutes per day. iv.

Television​ -​ Roughly every household in South Korea has access to television, and it is consumed 174 minutes per day. Television has the biggest impact on South Koreans, as nearly 80% watch television regularly. v. Internet​ - ​99.2% of South Korean households have internet access and use it frequently. South Korea has some of the fastest internet in the world, and will likely be the first nation to have access to 5G speeds. (Ramirez, 2017) vi.

Social Media​ - In 2017, 84% of South Koreans considered themselves active social media users.

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Part IV: Market Audit and Competitive Market Analysis 1. Executive Summary: ​South Korea is one of the largest beauty markets in the world, making the country a prime target for our Chrome Lacquer nail polish. This nail polish will change colors with the temperature, and it will have ingredients that strengthen the nail when applied. In order to reach our target market of women between the ages of 16 and 30, the product will be advertised in fashion magazines, on television, and on social media. The product will be sold in MAC stores, as well as other department stores across South Korea.

2. The Product: a. Evaluate the Product as an Innovation as it is Perceived by the Intended Market​: i.

Relative Advantage​ - ​This nail polish will be MAC’s first color changing nail polish around the globe, and it is based off of temperature. In addition, American cosmetic brands are viewed as safer, more reliable products in South Korea. The product will also have healthier ingredients that are designed to strengthen the nail as it is applied. Koreans favor multi-functional products, which also gives the color-changing and strengthening nail polish an advantage (Export.gov). ii. Compatibility​ - ​The product is not compatible with any other products, thus it will be sold by itself. iii.

Complexity​ - ​The color-changing nail polish is no more complex than any other nail polish in South Korea. It is applied and removed in the same manner as other nail polishes. iv.

Trialability​ - ​Testers will be available at department stores and MAC locations. Individuals can use a disposable brush supplied at multiple displays inside the store. v. Observability​ - ​Chrome Lacquer nail polish will be highly observable, as it will be worn visibly to the general public. b. Major Problems and Resistances to Product Acceptance Based on the Preceding Evaluation​ - South Koreans often prefer American made products, as they are known for quality and safety. Koreans also like multi-use products, so they should be accepting of a product that changes color and strengthens the nail. Because of this, there should be no major problems with product acceptance. (Export.gov)

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3. The Market: a. Describe the Market(s) in Which the Product is to Be Sold: i.

Geographical Region(s)​ - ​There are currently 41 MAC Cosmetics stores located in the country of South Korea. 22 of those stores are located in Seoul, Korea, the country’s capital. The majority of the other locations are in big cities, including Busan, Daegu, Pusan, and Incheon. ii. Forms of Transportation and Communication Available in the Region(s)​ In all locations that MAC is located, bus and taxi systems are available as forms of transportation. Subway systems are also fully operating in Seoul, Busan, Daegu, and Incheon. MAC has strategically placed their store locations in areas where transportation is accessible. iii.

Consumer Buying Habits​ - ​In 2017, South Korea was one of the top 10 global beauty markets, estimated at over $13 billion. Facial skincare makes up 51% of the total market share with $6.5 billion in retail sales with an expectation to hit $7.2 billion by 2020. Color cosmetics came in second, following facial skincare, at $2.3 billion in 2017 and is expected to reach $2.8 billion in 2020.

1. Product Use Patterns​ - ​Due to fast-paced innovations and highly engaged consumers, the Korean beauty market remains buoyant without any hesitation to adopt new products. In 2017, patterns seen within facial skincare revolved around extreme segmentation.

Products were increasingly multi-functional as the South Korean beauty routines can consist of up to 10 steps. These steps include moisturizing, brightening, whitening, toning, anti-ageing among others. Products have recently become more versatile in order to appeal to these multiple functions. According to a study done by Mintel, “Lines are blurring in every possible way to deliver new experiences and create continuous excitement around skincare”. In 2017, the makeup industry saw a sharp focus on lips and complexion, utilizing the variety of colors and contouring techniques that exist. Nail polish has seen a huge rise in demand as nail art continues blowing up on social media. In 2017, South Korea saw popular trends arise, such as nail art, and tends to lean towards unique creations. These include diamond nails, cuticle nails, high heel nails, and tattoo nails.

2. Shopping Habits ​- ​South Korea is the world’s top credit card users who often practice efficient spending habits with the middle to upper class being especially connected. With over 97% of 18-24 year olds actively on their mobile phones, much time is spent using 19

online resources to browse and read reviews of products in order to make an online purchase. South Koreans are well-informed shoppers, with special interests in luxury goods. Celebrities also have significant influence over the shopping habits of South Koreans, as many base their shopping habits off of what these stars are doing. iv.

Distribution of the Product: 1. Typical Retail Outlets​ - We will use​ ​MAC stores and high end department stores such as Shinsegae, Hyundai, and Lotte to sell our product.

2. Product Sales by Other Middlemen​ - ​We will not use other middlemen to sell the product. v. Advertising and Promotion: 1. Advertising Media Usually Used to Reach Your Target Market(s)​: We will usually use magazines, television, internet, or social media to promote our product. We will not use newspaper, as the product is very color oriented, and is being marketed to the high end. The product is also very visual, so radio is not going to be effective, especially given its low reach of only 12% of the population.

2. Sales Promotions Customarily Used (sampling, coupons, etc.): a. Coupons​ - ​Potential customers are often incentivized to buy a product through coupons. b. Premiums​ - ​Premiums are fairly common in South Korea, and are usually sent through the mail with the intention of gaining consumer interest. vi.

Pricing Strategy​ - ​MAC Chrome Lacquer will be priced at the higher end of the market. Specifically, it will start at $10.75/ bottle (￦12,036.34).

Our product is a differentiator and offers many health benefits, we believe it is worth more than the industry average.

1. Types of Discounts Available ​- ​Upon the launch of the product, MAC will offer a 15% discount for the first month. Additional promotions may apply in the future. b. Compare and Contrast Your Product and the Competitions’ Product(s): i.

Competitors’ Product(s)​: 1. Competing Brands​: a. Etude House​ - Etude House offers a wide variety of shades, ranging from metallics, glitters, solids, and neon colors.

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ii.

iii.

b. TonyMoly​ - Like Etude House, TonyMoly also offers a wide variety of shades, ranging from metallics, glitters, solids, and neon colors. c. Innisfree​ - Consumers that are looking for an eco-friendly option can turn to Innisfree, as they promise that only natural and organic ingredients are used in their product.

Innisfree also offers a wide range of colors to choose from. d. Peripera​ - Peripera offers a more pigmented polish that boasts about its “one coat only” strategy. Nail polish bottles are typically 8ml, but Peripera chooses to use a 15ml bottle designed to make their polishes last longer. e. Skinfood​ - Skinfood offers a line of top coats and base coats along with their regular polishes in order to attract consumers to the idea of keeping your nails healthy and strong.

2. Brand Name​ - ​MAC Chrome Lacquer 3. Features​ - We will offer primary and secondary colors that turn a dark shade when it’s warm, and a light shade when it’s cold. For example, if someone were to purchase the red polish, it would turn a maroon/burgundy the warmer it gets. The red would then turn pink as the temperature cools down.

4. Package​ - ​MAC Chrome Lacquer will be displayed and sold in the bottle itself. The polish bottle will be clear glass, with an iridescent cap.

Average of Competitors’ Nail Polish Prices​: 1. Etude House​ - $3.95 or ￦4,422.50 2. TonyMoly​ - $2.82 or ￦3157.33 3. Innisfree​ - $4.42 or ￦4948.72 4. Peripera​ - $11.29 or ￦12640.51 Competitors’ Promotion and Advertising Methods​: 1. Etude House​ - Etude House promotes themselves in commercials, often portraying young women going through their cosmetics items and ending with Etude in their hands. Their slogan,“Wanna be sweet? Play Etude”, appears at the end of the advertisement. The company also uses pop-up advertising windows, as well as outdoor ads found on transportation.

2. TonyMoly​ - There was a huge increase in demand when they began putting a whimsical spin on their packaging, such as containers shaped like peaches, eggs, tomatoes, or tangerines.

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Along with this, they use unique ingredients like snail mucin and vegetable extracts. Their key communication strategy has been viral marketing, specifically utilizing make-up artists and power bloggers to share their products. The company does not choose television as the central piece of their advertising, as the company only advertises on TV in a very concentrated manner. TonyMoly typically runs one TV campaign a year, and it almost always features an identified celebrity within the beauty community.

3. Innisfree​ - Innisfree advertises heavily for the emotional appeal.

They often feature Jeju Island to emphasize the relationship the island has with South Korea. Jeju is the main source of Innisfree’s ingredients, so they acknowledge Jeju Island and its natural state, promising to keep to solve skin problems as a leader of nature-based beauty products.

4. Peripera​ - Peripera utilizes many popular South Korean influencers to speak highly of their brand. They also use vibrant colors on their packaging to catch the attention of consumers. In the past, Peripera has collaborated with famous TV characters like the Powerpuff Girls to offer limited edition products showcasing the characters on the packaging.

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iv.

Competitors’ Distribution Channels​: 1. Etude House​ - Much of Etude House’s sales come through their website and their 10+ brick and mortar stores located throughout the country.

2. TonyMoly​ - TonyMoly has many stores located throughout South Korea, as well as an online store that contributes to a lot of their sales.

3. Innisfree​ - Innisfree has their own stores, boasting over 18 locations across South Korea. Many of their stores can be found roadside, designed so consumers can avoid going to a department store to find the products. Like their competition, Innisfree also sells their product on their website.

4. Peripera​ - Products are sold at Clio, a Korean beauty company with locations throughout the bigger cities. Products can also be purchased on their online store. c. Market Size: i.

Estimated Industry Sales For the Planning Year​ - ​Retail Sales in South Korea increased by 0.50% in September of 2018 over the previous year.

ii.

Estimated Sales For Your Company For the Planning Year​ - ​With anticipation of gaining 3% of the market in the first year,​ ​sales are estimated to to be around US $61.9 million based on the US $2.063 billion in the 2018 South Korean nail polish market.

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d. Government Participation in the Marketplace​: i.

Agencies That Can Help You​ - ​DGFEZ, Kim & Chang, Marketing Entry Services, and Sungjee Accounting are dedicated to serving new businesses that need an extra hand. ii. Regulations You Must Follow​ - ​The Act on Prohibition of Improper Solicitation and the Provision/Receipt of Money and Valuables is now in place. Foreign investment is restricted in certain industries such as: nuclear fuel processing, electricity generation, meat wholesale, food crop cultivation, and radio and terrestrial television broadcasting. Investment in other forms of broadcasting are partially permitted. Telecommunications, publication of newspaper, magazines, and periodicals, passenger transportation, and carriage of goods are all partially permitted. Foreign investment must be reported under the Foreign Investment Promotion Act. These investments need to acquire at least 10% of voting shares from a Korean company, or establish a business relationship with a Korean company, in addition to investing at least ￦100 million. The South Korean government has imposed heavy restrictions on doing business with North Korea under the National Security Act. In addition, there were restrictions on engaging in financial transactions with Iran under the Foreign Exchange Transaction Act. The South Korean government recently lifted most of those restrictions, but some of the restrictions will remain for a certain period of time. The Foreign Exchange Transaction Act regulates transactions and includes provisions on regulatory measures, registration requirements, and reporting requirements. A company must have at least three directors, including one representative director and an in-house statutory auditor, unless the company has a total capital of less than ￦1 billion, in which case there only needs to be one or two directors.

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Part V: Preliminary Marketing Plan 1. Executive Summary:​ Our product will be a differentiator in the market, and our target market will be females from the ages of 16-30. We hope to increase our market share by 1% every year for the first five years. When looking at our strengths and weaknesses, we determined the best promotion strategy and identified future opportunities. We plan to spend 10%, or $6.2 million of our revenues on annual promotion. Distribution of our product will be done with ocean and motor carriers, eventually making its way to the retail stores.

2. The Marketing Plan: a. Marketing Objectives​:​ ​Chrome Lacquer is intended to offer consumers a differentiated product that is unique to its market. We will increase and enhance awareness of the new product through a variety of methods in order to boost sales and obtain a higher market share. i.

Target Market (specific description of the market)​:​ ​Our target market is anyone who wears or wishes to purchase nail polish. Specifically, we will place a heavy emphasis on targeting females from the ages of 16-30, as they take great pride in their appearance in South Korea. These women will mainly live closer to the big cities, as they can typically afford to purchase products that are priced on the higher end. ii. Sales Forecast Years 1-5​ - ​With anticipation of gaining 3% of the market in the first year, and a percent of the market in each of the following years, sales forecasts based on 2018 total market capital are as follows: 1. Year 1​ - US $61.9 million (3%) 2. Year 2​ - US $82.5 million (4%) 3. Year 3​ - US $103.2 million (5%) 4. Year 4​ - US $123.8 million (6%) 5. Year 5​ - US $144.4 million (7%) iii.

Market Penetration and Coverage​ - ​We would like to have 7% of the nail polish market in South Korea over the next 5 years. b. SWOT Analysis: i.

Strengths​: 1. There are over 40 MAC cosmetics stores located in South Korea.

2. No other top competitor in the nail polish industry sells color changing polish based on temperature.

3. Strong brand reputation among South Koreans. ii. Weaknesses​: 1. The product is priced on the higher end of the market.

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2. There are more MAC locations inside large department stores than there are free standing MAC stores.

3. There is an inability to adapt to new demands as the market is very saturated. iii.

Opportunities 1. The country is the beauty capital of the world, making it a great market for our product to enter.

2. Continue to open more free standing locations. iv.

Threats 1. A rise in competition and/or new competitors emerging.

2. The possibility that the market may not accept our product. c. Product Adaptation or Modification​: i.

Core Component​ - ​The core components of the product do not need to be adapted because it is a brand new product designed for the Korean market ii. Packaging Component​ ​- ​Packaging does not need to be modified, as the product is brand new, and is designed for the Korean market. iii.

Support Services Component​ - ​There is no need to adapt the support services on the product as it is no more complex in terms of application than any other nail polish. If there happen to be questions, further information can be found at ​www.maccosmetics.com​. d. Promotion Mix​: i.

Advertising​: 1. Objectives​ - ​Our advertisements are intended to attract our target audience, and grow their interest in our product. We hope that this interest will lead to a growth of loyal customers.

2. Media Mix​ - ​We will use magazines, television, internet, and social media to promote our product. We won’t use newspaper, as the product is very color oriented, and is being marketed to the high end. Radio is not going to be effective either, given that the product is very visual and radio has a low reach of only 12% of the population.

3. Message​ - ​Our message will be focused around the phrase “Color-morphing, Nail-strengthening, Long-lasting” This phrase draws attention to the product’s relative advantages, including color-changing pigment and nail-strengthening ingredients.

4. Cost​ - ​With our desire to capture 3% of the market by the end of the year, and an estimate of $61.9 million in sales, we would like to spend 10%, or $6.2 million of our revenues on annual promotion.

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ii.

Sales Promotions​: 1. Objectives​ - ​Our sales promotions are intended to attract our target audience, and get them to try our product. We hope that these trials will lead to a growth of loyal customers.

2. Coupons​ - ​Potential customers will be incentivized to buy our product through coupons that offer 15% off the original price. We will distribute these coupons in fashion magazines and on the internet where we are most likely to reach our target market.

3. Premiums​ - ​Sample bottles can be placed in the mail for consumers to try, and information and locations on where to find Chrome Lacquer will be provided.

4. Costs​ - ​We will lose 15%, or $1.61 on each bottle sold from the coupons. We will also lose the full cost of each sample bottle placed in the mail. The desired increase in volume of sales should account for this. iii.

Personal Selling​ - ​The Dongdaemun market has a lot of shopping centers that attract millions of customers and tourists daily. We can personally sell our products in this market where there are many potential customers. iv.

Other Promotional Methods​ -​ Testers will be available at department stores and MAC locations. Individuals can use a disposable brush supplied at multiple displays inside the store. e. Distribution: From Origin to Destination​ - ​The majority of MAC products are manufactured in Canada, and our product will be manufactured in Toronto. We will use a truck to transport the products to Vancouver, where it will be shipped via ocean carrier to Incheon, South Korea. i.

Port Selection​: 1. Origin Port​ - ​Vancouver, Canada 2. Destination Port​- ​Incheon, South Korea ii. Mode Selection​: 1. Ocean Carriers​ - We will use ocean carriers to move the product from the port at Vancouver to the port at Incheon.

2. Motor Carriers​ ​- ​Motor carriers will be used from Toronto to Vancouver and from Incheon to MAC stores and department stores across South Korea. iii.

Documentation Required: 1. Special Documentation​: a. Name​ - MAC Cosmetics b. Address​ - 767 5th Avenue New York, NY 10153 c. CEO​ - John Dempsey 27

f. Channels of Distribution (Micro Analysis)​: i.

Retailers​: 1. Type of Retail Stores​ - ​There are many kinds of retail stores available in South Korea, but the retailers we will primarily use are department stores. According to Nielsen (2016), department stores take up 10% of the market share, and convenience stores take up 7% of the market share.

2. Methods of Operation For Each Type (cash/credit)​: a. Convenience Stores​ - Convenience stores offer the option to pay with both cash and card. b. Department Stores​ - Department stores offer the option to pay with both cash and card.

3. Scale of Operation For Each Type (small/large)​: a. Convenience Stores​ - Small scale of operation b. Department Stores​ - Large scale of operation ii. Wholesale Middlemen​: 1. Type and Number of Wholesale Middlemen​ - ​There are many wholesale outlets in South Korea, we are focused on using retail outlets, such as department stores. iii.

Warehousing​: 1. Location​ - We will have a warehouse in Toronto, where Chrome Lacquer is manufactured, and a warehouse in Incheon to store bottles that need to be distributed to retailers across South Korea. g. Price determination​: i.

Cost of the shipment of goods​ - ​It costs $805 for 20 square feet of space, and $1,202 for 40 square feet of space on an ocean carrier from Canada to South Korea.

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ii.

Retail price​ - ​The nail polish will sell towards the high end of the market.

We believe that Chrome Lacquer has enough of a competitive advantage that it can go for $10.75 or ￦12,036.34 a bottle at MAC stores, and a little more at other department stores because of additional costs.

3. Methods of Payment: a. Cash​ - We will allow customers to pay with cash at each location. b. Credit/Debit​ - Customers can use their cards at any of our stores as well, including online, given that it is the most popular way to pay in South Korea.

4. Pro Forma Financial Statements and Budgets: a. Marketing Budget​: i.

Advertising/Promotion Expense​ - ​We plan to spend 10%, or $6.2 million of our revenues on annual promotion. ii. Distribution Expense​ - ​To start, it will cost C$635.48, or US $479.34, to ship 150 pounds of our product from Toronto to the port in Vancouver.

Once there, we can pack roughly 100 bottles in a 12”×12”×12” crate. We can fit 20 of these crates on the ocean carrier if we purchase the 20 square foot area mentioned above. This means our overseas distribution expense will be $805 for 2,000 bottles, or 40 cents per bottle. iii.

Product Cost​ - ​The cost of a bottle is 5 to 20 cents, which can rise to 30 cents for special features. The price of a brush is 2 to 3 cents. A filler, which funnels the polish into the bottle, charges from 50 cents to $1 per bottle. Its contents cost between 2 and 30 cents. This means, at most, it will cost $1.63 to produce a single bottle of Chrome Lacquer.

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Squier, Chemmie. “How South Korea Became The Beauty Capital Of The World.” Grazia, Grazia, 6 Apr. 2016, graziadaily.co.uk/beauty-hair/hair/korean-beauty-products-good/.

Steger, Isabella. “South Korea's Demographic Time Bomb Is Ticking Faster than Thought.”

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Quartz​, Quartz, 2 Mar. 2018, qz.com/1219977/south-korea-recorded-its-lowest-ever-fertility-rate-in-2017/

Thomas, G.P. “South Korea: Mining, Minerals and Fuel Resources.” ​AZO Mining​, AZO Mining, 12 Dec. 2013, ​www.azomining.com/Article.aspx?ArticleID=60​.

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Part VII: Appendix 1. Shipping Quote from UPS:

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2. Example - Magazine Advertisement:

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