Automotive to Korea

(Last updated: 31 Jul 2007)

Trends and opportunities

The market

There are five original equipment manufacture (OEM) companies in the industry:

• Hyundai
• Kia
• GM Daewoo
• Ssangyong
• Renault-Samsung Motor

There are approximately 1100 component companies in this sector and 95 per cent of them are small and medium enterprises (SME). Many are affiliated directly with OEMs and only about 50 firms are considered to be large by Korean standards. An indication of how many SMEs are involved can be seen by the following supply breakdown:

• Daewoo supplied by 480 parts manufacturers
• Kia by 440
• Hyundai by 370
• Ssangyong by 240

Korean car makers are being encouraged to induce foreign investment so more than 100 suppliers have had to transfer 50 per cent or more of total equities to foreign firms during the last five years. Examples of this include:

• Six plants of the Mando (Korea's largest parts supplier) were sold to foreign investment
• Visteon acquired 70 per cent of the total equity of Halla Climate Control and 51 per cent of Duck Yang Ltd
• Britax Australia acquiring 70 per cent of Poong Jeong Ind., a mirror producer

Global sourcing is gaining prevalence - many Korean component makers also have production sites outside of Korea to accompany their OEMs in countries that include:

• India
• Turkey
• Poland
• Romania
• Uzbekistan
• China
• USA

In line with world trends, Hyundai is now accelerating modularisation in component purchasing, especially by its own subsidiary supplier Hyundai Mobis to cut down assembly hours, assembly costs, and development costs. This will drastically reduce primary suppliers and supplier-related overhead expenses. 

Opportunities

There are a number of important developments, needs and influences in the Korean automotive market that will improve opportunities for Australian suppliers. Korean automakers now have a reasonable understanding of Australian capabilities following promotions and successful supply arrangements during the past few years.

Australian suppliers need to maintain regular contact at working and executive levels in the major car makers because senior staff in these companies are rotated regularly.

Targeting Tier 1 suppliers in Korea also appears to be an attractive option for Australian suppliers of semi-processed or raw materials. Australian suppliers also should consider a strategic approach to Hyundai/Kia or their Tier one suppliers to access opportunities to supply to their offshore assembly plants.

Tariffs, regulations and customs

There are no official restrictions other than the commercial structural situation (original equipment manufactures [OEM's] own and local industry). Import duty is eight per cent for most auto parts.

Industry standards

Standards are determined from the material and technical specification of the OEMs. Supplier qualification processes vary for OEMs, however, Australian suppliers can expect to undertake rigorous compliance testing, sometimes taking two to three years. It is unusual for Korean OEMs to accept Australian components without some minor modification to the product.

Marketing your products and services

Market entry

Most hi-tech components (except standard parts, consumable and after market components) have to go through a technical qualification process with relevant departments of research and development centres of the original equipment manufactures (OEMs).

Korean OEMs or Tier 1 suppliers to the industry do not have purchasing representatives in Australia so potential Australian suppliers may contact Korean OEMs directly or may nominate their local (Korean) representatives to do so on their behalf. The first contact with OEMs is usually with the purchasing departments and eventually you will be lead through other divisions including technical verification. This will greatly depend on the products being supplied and in many cases, OEMs technical centres are involved even though the components are to be assembled by Tier 1 suppliers.

As OEMs and component suppliers are the clearly defined target market for Australian exporters, sponsored visits, niche trade exhibitions, and FAPM conferences will be key marketing tools for Australian manufacturers.

There have been business-to-business (B2B) developments in the Korean auto component industry that are mainly characterised by the limited system integration level among major auto companies and their regular local suppliers rather than open competition as an active e-marketplace.

Links and industry contacts

Automotive–related resources

Korea Automobile Manufacturers Association(KAMA) - www.kama.or.kr
Korea Automotive Industries Coop. Association (KAICA) - www.kaica.or.kr 

Government, business and trade resources for Korea

Ministry of Commerce, Industry and Energy - www.mocie.go.kr
Ministry of Construction and Transportation - www.moct.go.kr

Media

There are two main sources of industry news, the monthly magazine published by KAMA and a weekly auto news overview by the Korea Economic Daily but they are only available in Korean.