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International Business - South Korea and Japan

Economic Environment

Japan has the third-largest economy of the world after the economies of the US and China. It is an economy that has a highly industrialized market with a very high per capita income. It has a well-qualified and highly talented workforce (Mehta & Bhanja, 2018). However, if we compare the economy of Japan to its advanced economy peers, Japan's economy is comparatively weak. In the last two decades, its average growth rate has been less than one per cent (Zhuravel, 2016).

South Korea has a high-income economy which makes it a very powerful market. It is also among the top 15 economies in the world, it is ranked at 12th position in the economies of the world (Hahm, 2020). The growth rate of the country has been very strong although the economy has suffered from a lack of global demand in recent years. The country has successfully transformed itself from a middle income to a high-income economy in the last 50 years. However, it still lags behind most of the other developed nations in terms of per capita income (Hahm, 2020). The government is helping businesses by taking several initiatives to deal with issues such as expansionary fiscal and monetary policies. In the long term, the country will face some challenges including an aging population, low growth in productivity, and a need to readjust the economy apart from exports (Zhuravel, 2016).

Political Environment and Risks

Japan has major opportunities for the import of wine from different wine producers. Out of the total consumption of wine in Japan, the largest volume category was at the retail price of JPY500-JPY1000 for a 750ml bottle which has now increased to 12,135,000 cases (Bruwer & Buller, 2012). Almost 60 % of the market share is held by imported wines. The market in Japan is still full of old wines with almost 60% of the total volume. Some of the wine exporters exporting to Japan include France, Germany, Italy, and Spain (Kunc, 2019).

The prices of wine for consumers are high as compared to other types of liquor but the country imports most of the wine. As compared to the prices of wine in other countries, retail wine prices rise to two to four times due to the combination of several factors like import duties, taxes, high costs of distribution, and mark-ups result (Bruwer & Buller, 2012).

  • Import Tariff – 9.4 per cent (compared to 15 per cent for other countries than Chile 3.5 per cent)
  • Liquor Tax – 80,000 JPY per 1000 litres (Zhuravel, 2016)
  • Consumption Tax (VAT) - eight per cent

The business climate of South Korea is ranked at 5 out of the 190 economies on the World Bank’s measure of Ease of doing business. It aims to estimate regulation and the opposing forces related to the firms of small as well as medium size (Lee, Zhao & Ko, 2005). The economy of South Korea leaves behind other advanced economies in terms of resolving insolvencies, contracts enforcement, and more. However, the country's market is strongly influenced by the combination of businesses run by powerful families known as chaebols. Approximately 90% of the GNP of Korea is made up by Chaebol’s and they hold a strong influence on the politics of Korea for which they are often criticized (Lee, Zhao & Ko, 2005). The political risk is comparatively low in South Korea. However, there is a major political risk due to the threat of wars between the northern and southern parts of Korea. The tension has been reduced as in the last year, due to a joint summit between the US and North Korea, there has been some progress.

The uncertainties related to economy and politics was for a short period with the blame of President Park Guen-Hye on corruption charges in March 2010. The president of Korea Moon Jae-In has pledged to make efforts to decrease the spread of systematic corruption. This could lead to an improvement in governance standards for the long term. All governance indicators of South Korea are currently below most of the advanced economies but are higher than their other Asian neighbours (Zivzivadze & Taktakishvili, 2019).

Business Environment

The changing Japanese market offers great opportunities for wine producers. The consumption of French and Italian wine is in decline, while the imports of Chilean wine are at the top. Also, since 2007, Chile has been free of tariff which has also led to a drastic increase in Chilean wine sales (Bruwer & Buller, 2013). The prices of Chilean wine went down which increases its sale in the market. The trading conditions in Japan may create new opportunities for growth based on the economic benefits from the upcoming Olympic Games in Tokyo (Bruwer & Buller, 2013).

In April 2014, the Korea Australia Free Trade Agreement (KAFTA) was signed which came out to be an important new for the Australian wine industry. Due to the enforcement of KAFTA, the previous 15% tax on the import of Australian wines will not be taken (Hwang & Kunc, 2015). This helped the producers of wine in Australia to gain a competitive advantage using pricing and increase their sales in the coming years.

A recent trend is being observed in which the Spanish wine is replacing Chilean wine in the market of lower prices (Hwang & Kunc, 2015).

Current rankings based on the value of imported wine into Korea are:

  • France - 31 per cent
  • Chile - 21 per cent
  • Italy - 17 per cent
  • United States - 11.5 per cent
  • Spain - 8 per cent
  • Australia - 4.3 per cent.

The volume-based rankings are:

  • Chile - 25 per cent
  • Spain - 22 per cent
  • Italy - 15 per cent
  • France - 14 per cent
  • United States - 12 per cent
  • Australia - 3 per cent (Norbury, 2019).

Country Choice

As per the study and analysis of the prevailing situations in terms of economic, political, and business environment, the country that will be more suitable for an exporter of wine in South Korea.

South Korea is not only good in terms of high economy but it also has a significant growth rate. The country is ranked at 12th position and is among the top 15 economies of the world. Also, the government of South Korea is supporting the businesses through different monetary policies and comes forward to address any issues related to the market. Japan is a very strong market for wines. However, there are many exporters of wine such as France, Italy, and Germany who are exporting their wines to Japan. Adding to it, the price at which the wine is sold in Japan's retail market is much higher than the price of wine in the exporter's country. This is because of the taxes and import duties that are applied to the wine imports in Japan. The political risks associated with the business are also low in South Korea as compared to its other Asian neighbours. There is more control over corruption and there is less chance of uncertainties of the economy in South Korea.

Conclusion on Country Market Analysis

After the analysis of different factors, we conclude that South Korea is a better choice out of the two countries for a wine producer to expand its exports as it offers more business opportunities and favourable conditions for the business to grow.

References for Country Market Analysis

Bruwer, J., & Buller, C. (2012). Consumer behavior insights, consumption dynamics, and segmentation of the Japanese wine market. Journal of International Consumer Marketing, 24(5), 338-355

Bruwer, J., & Buller, C. (2013). Product involvement, brand loyalty, and country-of-origin brand preferences of Japanese wine consumers. Journal of wine research, 24(1), 38-58.

Hahm, S. D. (2020). South Korea in 2019: Little progress in denuclearization of North Korea and poor macroeconomic performance. Asian Survey, 60(1), 61-68.

Hwang, J., & Kunc, M. (2015). Business dynamics of on-premise wine trade: Cases from South Korea. International Journal of Wine Business Research.

Kunc, M. (2019). Market analytics of the rice wine market in Japan: an exploratory study. International Journal of Wine Business Research.

Lee, K., Zhao, J., & Ko, J. Y. (2005). Exploring the Korean wine market. Journal of Hospitality & Tourism Research, 29(1), 20-41.

Mehta, R., & Bhanja, N. (2018). Consumer preferences for wine attributes in an emerging market. International journal of retail & distribution Management.

Norbury, P. (Ed.). (2019). Business In Japan: a Guide To Japanese Business Practice And Procedure--Fully Revised Edition. Routledge.

Zhuravel, V. (2016). China, Republic of Korea and Japan in the Arctic: Politics, Economy, Security. Arctic and North, 24(3), 99-126.

Zivzivadze, L., & Taktakishvili, T. (2019). Index-based Analysis of Georgian Wine Export’s Competitiveness on a Global Market. Journal of Agricultural Economics, 4(2), 1-14.

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