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1、0Growth strategies for South Korean companies in China in the post-epidemic era1Tiger ShanLead Partner,PwC Strategy&ChinaTel:+86(10)6533 2166Email:Julius ShenPartner,PwC Strategy&ChinaTel:+86(21)2323 2273Email:David DaiPartner,PwC Strategy&ChinaTel:+852 2289 1693Email:DH KimMainland China and Hong K

2、ong Korean Business Development LeaderPartner,PwC ChinaTel：+86(10)6533 3596Email：Dan S YoonChina North Korean Business Development Director PwC ChinaTel：+86(10)6533 3219Email：Jake ShinChina Central Korean Business Development Director,PwC ChinaTel：+86(21)2323 1080Email：JongwookWooSouth China(incl.Ho

3、ng Kong SAR)Korean Business Development Director,PwC ChinaTel：+852 2289 8888Email：Contact us:1Strategy&|Growth strategies for South Korean companies in China in the post-epidemic era2CatalogueIntroduction031.Korean companies in China face a new environment in the post-epidemic era:potential opportun

4、ities amid crises042.Korean companies in China are taking actions to revive the Chinese market,but there are still strategic“blind spots”093.Advice for Korean companies growth in the post-epidemic era122Growth strategies for South Korean companies in China in the post-epidemic era|Strategy&3Inthepos

5、t-epidemicera,theexternalenvironment for South Korean companiesdevelopment in China is critical,but thereare potential opportunities.Overall,China isstill a strategic market for South Koreancompanies,and Korean companies remainconfident in the potential of the Chinesemarket.Inthiscontext,leadingKore

6、ancompanieshaveadoptedlocalisationstrategies to revive the Chinese market.However,accordingtoPwCStrategy&practice and observation,Korean companiesin China still have strategic“blind spots”intermsoflocalisedorganisationandmanagement,operationalefficiencyimprovement and supply chain digitalization.In

7、the new environment of the future,Koreancompaniesshoulduselocalisationinnovationandoperationalmanagementefficiency improvement as the two drivers toachieve growth.Introduction3Strategy&|Growth strategies for South Korean companies in China in the post-epidemic era41.Korean companies in China facea n

8、ew environment in the post-epidemicera:potentialopportunities amid crises4Growth strategies for South Korean companies in China in the post-epidemic era|Strategy&5The diminished effect of COVID-19,new environmental dynamics such as geopolitical instability,therise of Chinese local companies,and the

9、change of domestic market demand structure have posedchallenges to Korean companies in China on both the supply and demand sides.Due to the rise of Chinas technology innovation,the export of South Korea to China has beenchallenged:In recent years,China has focused its efforts on the independent and

10、controllabletransformation of semiconductor and innovation technology.“The 14th Five-Year Plan”and the outline of thevision goals for 2035 clearly propose to strengthen the national strategic science and technology forces,aiming at the frontier fields of science and technology such as integrated cir

11、cuit,quantum information andartificial intelligence.As a result,in the major export products such as high-end semiconductors,chemicalsand mechanical and electrical products,South Koreas relative technological advantage over China isgradually decreasing,which poses challenges to South Koreas export t

12、rade with China in the post-epidemicera.Challenges010,00020,00030,00020182019202020212022Korea exports to ChinaKorea imports to ChinaChina-Korea Import and Export Trade Volume Trend$10,000，2018-2022Export accounts for 29%of South Koreas tradeAmong them,China is the first export destination market,co

13、ntributing 24%of export tradeAs the largest destination of Koreas export trade,China Korea trade deficit shrinks significantly in the post-epidemic eraSource:GACC statistics,Strategy&Analysis5Strategy&|Growth strategies for South Korean companies in China in the post-epidemic era6The competitiveness

14、 of Chinese local enterprises is increasing,and they are as competitive as Korean companies especially in industries such as steel and non-ferrous metalsSource:Korea International Business Association(KITA),Strategy&Analysis 989497950969910099.095.994.399.696.393.795.996.494.896.995.896.0Competitive

15、ness rating of Chinese enterprises by product typeNote：1）When comparing the competitiveness of the company(100)with that of Chinese companies,the higher the value,thehigher the evaluation of the competitiveness of Chinese companies2）Excluding ships,home appliances,petroleum products,etc.with respons

16、e numbers below 20Higher supply chain costs:South Koreas main export products to China rely on imports of upstream rawmaterials.Due to the epidemic and changes in the international environment,commodity prices continue torise,and energy supplies are tight.Take the semiconductors as an example,more t

17、han 50%of its main rawmaterials,silicon chips,hydrogen fluoride,neon,and xenon,are purchased from Japan,China and othercountries.After Japans export restrictions,South Korea gradually adopted a strategy of diversifiedprocurement channels,but still face the risk of chain breakage due to the situation

18、 in Northeast Asia,theRussia-Ukraine war and other international political factors.The rapid iteration of domestic consumer demand is putting higher demands on“Made in Korea”:Take the beauty market as an example,ten years ago,Korean brands created the golden age ofcosmetics with the traffic dividend

19、 brought by the“Korean wave,”coupled with the strong offline storenetwork and a pro-people store experience.However,currently consumers purchase channels havegradually shifted to online channels such as short video/live broadcasts.The emergence of new consumergroups such as“ingredient Party”and“effi

20、cacy Party”has given rise to the popularity of domestic bio-manufacturing beauty brands.The growth and development of upstream raw material and foundry in thedomestic market have further pushed domestic beauty enterprise into the fast lane.The brand filter of Madein Korea has been weakened,and the a

21、dvantages of offline channels have been less likely to besustainable in the new environment.Auto and Auto PartsHousehold goodsCell phone and wireless communication equipment accessoriesSemiconductorsAgricultural products,aquatic productsSteel and non-ferrous metal productsMachineryMedical,precision

22、instruments,optical instrumentsFiber,clothing and leather productsChemical productsElectrical and Electronic ProductsPlastic&Rubber ProductsGrowth strategies for South Korean companies in China in the post-epidemic era|Strategy&7The factors such as the remaining room for flexible turnaround in the g

23、eopolitics of China and SouthKorea,the trend of accelerating regional economic integration,the resumption of work andproduction and the gradual release of domestic market demand make it possible for Koreancompanies in China to turn the crisis into opportunityPositive geopolitical factors emerge in A

24、sia-Pacific:To counter the U.S.-centered Indo-Pacific economicsystem,ten countries led by China launched the Regional Comprehensive Economic Partnership(RCEP)agreement to strengthen regional economic integration,which officially came into effect for Korea in 2022.South Korean companies will enjoy pr

25、eferential treatment on goods such as medical and imagingequipment parts in China.For the export-oriented South Korean economy,import costs will be reduced,andexport channels will be more open.In addition,favorable thrusts such as the expected landing ofthesecond phase of the China-South Korea Free

26、Trade Agreement will also provide South Korea withinvestment flexibility.The trend of supply chain regionalization facilitates China and South Korea cooperation:in the post-epidemic era,the supply chain is moving from globalization to regionalization.China has the worlds mostcomplete industrial chai

27、n and value chain,which is irreplaceable in the regional and even global supplychain.Also,China is a major market and supplier of rare metals such as rare earth,tungsten and lithium,especially in the new energy industries such as new energy vehicles and large-capacity batteries.China isactively prom

28、oting the mutual recognition and division of labor cooperation between upstream anddownstream countries of the supply chain in the region,actively adopting bilateral cooperation agreements,providing preferential tax policies to attract Korean multinational companies.It is of positive significance to

29、South Korea in mitigating the risk of chain breakage in key manufacturing sectors.Release of demand in the Chinese market after the resumption of work and production:With theresumption of work and production in China,domestic consumer demand suppressed by the epidemic isreleased.At the same time,the

30、“20th CPC National Congress”clearly proposed to insisting on expansion ofdomestic demand,boosting the dual engines of investment and consumption.With a clear trend of policy-driven domestic demand,Korean companies in China can still seize the consumer demand released in thedomestic market to seek gr

31、owth.According to the measurement of Korea International Trade Association(KITA),South Koreas projected GDP growth rate in 2023 is 1.6-1.7%,of which the GDP growth generatedby investment and consumption due to resumption of work and production in China is about 0.16%.Opportunities7Strategy&|Growth s

32、trategies for South Korean companies in China in the post-epidemic era8As the epidemic normalized,China resumed purchase and production,releasing suppressed demand and Korea benefited significantlyThe normalization of the epidemic in China has driven the GDP growth of different countriesGrowth rate

33、pull from high to low,2023FIn general,the Chinese market will remain a strategic market for South Korean companies in the post-epidemic era,especially in the downstream of the semiconductor and other pillar export industries,whereChina has irreplaceable advantages.The Chinese market cannot be abando

34、ned.Korean companies stillhave confidence in the Chinese market,and their investment in China continues to grow,further boostingSouth Koreas GDP growth in the post-epidemic era.Source:Korea International Business Association(KITA),Strategy&AnalysisSingaporeVietnamKoreaMalaysiaAustralia0.210.210.160.

35、160.140.000.050.100.150.200.25%8Growth strategies for South Korean companies in China in the post-epidemic era|Strategy&92.Korean companies in China aretakingactionstorevivetheChinese market,but there are stillstrategic“blind spots”9Strategy&|Growth strategies for South Korean companies in China in

36、the post-epidemic era10At present,some Korean companies in China have adopted various strategies to revive the Chinesemarket,mainly focusing on the localisation of product channels,supply chain remodeling andupgrading,and the use of capital to cope with competition,and have achieved certain results.

37、However,it should be recognized that there are still blind spots in the development strategies ofKorean companies in China.In addition to insufficient geopolitical research,there is still room forimprovement in product channel innovation,supply chain remodeling and capital application,andthere is a

38、big gap with other multinational companies in terms of organisational optimization,digitalconstruction,policy compliance risk response and other aspects.1.Insufficient research and judgement on changes in the geopolitical situation:the current changes inthe international situation such as the Sino-U

39、S relations and the situation in Russia and Ukraine havebrought Asia,especially Northeast Asia,into focus,while the relationship among China,the United Statesand the South Korea has a continuous and important impact on the development of Korean companies inChina.With the frequent release of bilatera

40、l and multilateral policies,Korean companies in China did notadjust to the policies in a timely manner,resulting in missing the time window to formulate countermeasuresand hindering their business development in China.2.Limited adjustment of product channel localisation:Korean companies have recogni

41、zed the newtrends in product channels in the Chinese market and have taken targeted strategic actions.For example,aleading electronic technology company set up a China market innovation group in 2022,focusing on mobilephones and smart home devices,with the intention of regaining the market with high

42、-end smart devices.Aleading cosmetics brand reinvents its channel in 2022,focus on increasing the proportion of e-commercechannel sales to 55%.During the epidemic lockdown,a multinational sports brand rapidly increased itsoffline stores in trend-sensitive core cities expanding from 500 stores to nea

43、rly 800 stores in 2022.However,compared to the product and channel strategy adjustment of European and American companies,lesspositive feedback,and the cognition of Korean companies on the demand trend of Chinese market stillneeds to be improved.3.The remodeling and upgrading of supply chain is stil

44、l in the initial stage:affected by the internationalsituation,the globalization of the supply chain is towards regionalization.Multinational companies arebeginning to re-examine the rationality of the Chinese market as a single global factory”and are beginningto build a diversified regional market a

45、nd supply system in China.Taking a Japanese technology supplier(with smartphones and other components as its main products)as an example,in order to cope with theimpact of U.S.export controls on Chinese chips,it began to build two sets of duplicate supply chain systemsin China,respectively for diffe

46、rent groups led by the US and China.In contrast,some South Koreancompanies are still in the initial stage of supply chain remodeling,such as increasing the supply capacity ofhigh-end products and migrating the low-end parts to other Southeast Asian countries.But they still have notbeen able to reali

47、ze the overall remodeling and upgrading of supply chain,which made themselves moredifficult to adapt to market changes.4.Lack of synergy of capital operation and strategy:Overall,South Korean companies remain to activelyinvest in China.Taking a leading pharmaceutical and chemical enterprise in South

48、 Korea as an example,with the goal of providing a full set of solutions in the field of plastic surgery,it entered the Chinese marketin 2020,and established a joint venture biopharmaceutical Chinese company with a leading domesticfinancial institution and invest in other medical device companies ent

49、ering China.At the same time,someSouth Korean companies have withdrawn from production and operation organisations in China or reducedcapital investment.However,in general,the continuity and consistency of capital operation of differentcompanies are insufficient,resulting in poor coordination with t

50、heir medium-long term development strategies.Growth strategies for South Korean companies in China in the post-epidemic era|Strategy&115.organisational optimization needs to be more localised:many multinational companies adjusted theirorganisational structure in China during the epidemic and granted

51、 more decision-making power andautonomy to the China region through strengthening systems,integration and upgrading of businessmanagement,so as to meet the specific needs of the local market.Take a European multinationalautomobile company as an example,1)it improved decision-making efficiency and fl

52、exibility and cross-brandstrategy execution by adjustingtheboard structure toinclude the CEOs and functionalrepresentatives of core brands,mergers and acquisitions,and joint venture brands;2)it improved thesynergy effect through adjusting the technology development work and centralizing the implemen

53、tation ofnew R&D projects in the region.These actions aimed at realizing the concept and commitment of in China,for China.In contrast,the pace of organisational structure adjustment of Korean companies is relativelyslow and are also lack of global perspective,and consideration of the specific needs

54、of the Chinese market.6.Slow progress in digital capabilities application:During the epidemic,a large number of leadingmultinational companies leveraged Chinas high-quality human resources,proactive government policiesand constantly upgrading local digital capabilities to carry out digital transform

55、ation in multiple businessdomains in China.For example,the worlds leading European-owned electrical company successfullyestablished a digital and automated supply chain management system at its Lighthouse Factoryestablished in Wuxi in 2021.And the new system helped the company to achieve a 30%increa

56、se in on-timedelivery rate,a 25%reduction in production time,and a 52%savings in warehouse space.However,thedigital transformation of Korean companies in China has not progressed smoothly,due to insufficientawareness and utilization of Chinas local digital capabilities and the insufficient integrati

57、on of technologyand system.7.Insufficient attention to operational risks such as data compliance:In March 2023,the StandardContract Measures for Outbound Personal Information was deliberated and approved,and the StandardContract Measures for Outbound Personal Information,the Implementation Rules for

58、 Personal InformationProtection Certification and the Standard Contract Measures for Outbound Personal Information of Chinastroika were officially implemented.In response to the policy change,a multinational pharmaceuticalcompany established a special internal data compliance review committee to car

59、ry out internal data assetssorting,localised storage system construction,cross-border scenario identification and data checkingoperations.The daily operation of multinational companies in both their home countries and China involvedata sovereignty issues,and the interface issues in different jurisdi

60、ctions will seriously affect the complianceoperation of foreign companies in China,and currently Korean companies have less attention around suchpolicies.11Strategy&|Growth strategies for South Korean companies in China in the post-epidemic era123.AdviceforKoreancompanies growth in thepost-epidemic

61、era12Growth strategies for South Korean companies in China in the post-epidemic era|Strategy&13Korean companies in China should continue to strengthen the ability of geopolitical risk assessmentand analysis,continue to deepen the localised product channel innovation capabilities,upgradesupply chain

62、by digitalization,synergize capital operation and strategy,and focus on the changes ofdata and other compliance policies,to seize the opportunities to grow with the China market.1.Build ability to assess and judge geopolitical risks:Considering Koreas highly dependent tradestructure with China and t

63、he US as well as the upstream and downstream relationships of export products inthe industrial chain,Korean companies in China should continuously and dynamically monitor internationaland domestic policies in China,and systematically evaluate the short-term and long-term impact of changesin the geop

64、olitical landscape.For example,the Chip4 Alliance1)meeting held in 2023 requires South Koreato pay more attention to semiconductor supply chain resilience,which may further involve exportrestrictions in the future.In front of various multilateral and bilateral meetings and policies,Koreancompanies i

65、n China should flexibly adjust their own countermeasures and respond to changes in theinternational and regional situation in a one-policy manner.2.Strengthen the innovation capability of product channels localisation:In addition to the need foradapting products and channels to the development of th

66、e Chinese market after the epidemic,Koreancompanies should consider more to improving product power in terms of marketing,service,userexperience and other aspects,and seek local partners to optimize business models and establish localisedcompetitive barriers when necessary.For example,a large South

67、Korean home appliance company wasunable to replicate its success in the European and American markets in the Chinese market because it hadbeen using its original system.Later,with the assistance of external consulting projects,it found thecompetitive bottleneck and adjusted to the Android in respons

68、es to Chinese market demand,thus achievingincreased competitiveness.3.Accelerate supply chain remodeling and upgrading:The global supply chain pattern was reshapedduring the epidemic,especially for the chemical,electronic technology and other industries.Koreancompanies should make more use of Chinas

69、 digital capabilities and resources to empower supply chainmanagement,and accelerate supply chain upgrading based on the change of international situation,suchas strengthening supply chain risk prediction and early warning capabilities,and adjusting regional layouts,etc.At the same time,more attenti

70、on should be paid to new issues such as the ecological construction ofChinas local supply chain and the green and low-carbon social responsibility.131)Chip4 is a potential alliance consisted of the United States,Japan,Taiwan and South Korea,four major countriesdominating the markets of all segments

71、of the semiconductor supply chainStrategy&|Growth strategies for South Korean companies in China in the post-epidemic era144.Improve the synergy between capital operation and strategic transformation:For Koreancompanies in growth and innovation track,they can refer to European and American benchmark

72、 companiesto invest in local or other foreign companies with innovation ability,to quickly enrich product matrix,buildchannel advantages and enhance synergy.But at the same time,companies in different tracks shouldcomprehensively take the long-term vision,growth potential,regional opportunities,poli

73、cy regulation andother factors into considerationand make investment or exit decisions in the context of transformationstrategies.5.Optimization and improvement of organisational management capabilities:For multi-track Koreancompanies such as consumer electronics,pharmaceutical and chemical industry

74、,beauty cosmetics andautomobile,it is necessary to take China as a strategic market to optimize the organisational managementabilities.While deepening the understanding of the Chinese market,we suggest to decentralize theautonomy of the Chinese market and optimize the centralized regional market man

75、agement model toadapt to the characteristics of multi-regional and multi-level market of China.6.Leverage local resources to accelerate digital transformation:During the epidemic period,China hasvigorously developed the digital economy.Local digital talents continue to gather,and market competitionc

76、ontinues to generate new demands for enterprise digital upgrading.Korean companies should deepen theirunderstanding of Chinas local digital resources,capabilities,and market needs to fully utilize the localresources and capabilities,such as establishing multiple types of resource sharing centers(hum

77、anresources,finance,digital)to reduce costs and increase efficiency to improve operational efficiency.7.Focus on data compliance and reduce business risks:As domestic data compliance-related policiescontinue to advance to the ground.Chinese and Korean companies especially need to pay attention topol

78、icy content related to data export and personal information security in order to meet the continuouslystrengthened data regulatory requirements in China and reduce operational risks in a rapidly changingmarket.In Summary,Strategy&believe that by improving the ability of geopolitical risk assessment,

79、focusing on issues such as product channels,supply chains and capital operation,consolidatingorganisational management capabilities,putting digital capabilities in place,and maintaining a focuson risks,Korean companies can still break through the bottleneck of development in China andrelease their p

80、otential.14Growth strategies for South Korean companies in China in the post-epidemic era|Strategy&1515Strategy&|Growth strategies for South Korean companies in China in the post-epidemic eraStrategy&Strategy&is a global strategy consulting business uniquelypositioned to help deliver your best futur

81、e:one that is built ondifferentiationfrom the inside out and tailored exactlyto you.As part of PwC,every day were building the winning systems thatare at the heart of growth.We combine our powerful foresight withthis tangible know-how,technology,and scale to help you createa better,more transformati

82、ve strategy from day one.As the only at-scale strategy business thats part of a globalprofessional services network,we embed our strategy capabilitieswith frontline teams across PwC to show you where you need togo,the choices youll need to make to get there,and how to get itright.The result is an au

83、thentic strategy process powerful enough tocapture possibility,while pragmatic enough to ensure effectivedelivery.Its the strategy that gets an organisation through thechanges of today and drives results that redefine tomorrow.Itsthe strategy that turns vision into reality.Its strategy,made real.Ple

84、ase see for further 2023 PwC.All rights reserved.PwC refers to the PwC network and/or one or more of its member firms,each of which is aseparate legal entity.Please see for further details.Mentions of Strategy&refer to the global team ofpracticalstrategiststhatisintegratedwithinthePwCnetworkoffirms.FormoreaboutStrategy&,.No reproduction is permitted in whole or part without written permission of PwC.Disclaimer:Thiscontent is for general purposes only,and should not be used as a substitute for consultation with professional advisors.