Local representation is essential for the success of foreign firms in the Korean market. This is especially true when considering the fact that business relationships in Korea are built upon personal ties and social introductions, and that much of the major third-country competition is only a few flight-hours away. In addition, for sectors that involve any type of government procurement, an entity must be registered with the Korean government in order to bid on the procurement projects. Hence, many American firms enter into a consortium with a Korean company or enter into a representative agreement, especially for the purposes of market entry. Finally, the language barrier and established social/ business circles make it extremely difficult to enter the Korean market without a qualified Korean representative.
Distribution methods and the number and functions of intermediaries vary widely by product area and local conditions. The market for most consumer products is concentrated in major cities. The traditional retail distribution network of small family-run stores, stalls in markets, and street vendors is changing rapidly toward large-size discount stores. There are many large retail stores in the major cities, especially Seoul, Daegu, Busan, and the outlying suburbs. Recently, retailing concepts such as Full-Line Discount Stores (FDS) have gained popularity. U.S. based Price Costco has entered the Korean FDS market and are successfully competing against their growing Korean rivals E-mart and Lotte mart. Rapid expansion of these discount chain stores is planned nationwide, with suburban satellite cities attracting the greatest number of stores. Distribution of goods through large discount chains is one of the best ways to market foreign products to Korean consumers.
Parallel imports can legally enter Korea. Parallel imports marginally reduce the value of an exclusive distribution agreement. Many American companies continue to give exclusive contracts, since they have in place territorial limits in neighboring countries that enhance the value of the exclusive in any one country. Likewise, any parallel importer in Korea that is not receiving the support of the OEM, and does not deal in the same volume, cannot be guaranteed a steady source of supply. As noted above, the legitimate exclusive distributor still has considerable advantages in Korea.
Most products enter Korea by air and sea at Incheon and Busan, after which they are transferred to major distribution centers by rail or road. Korea's main distribution centers are Busan, Incheon, Daegu, and Gwangyang.