A study on korean retail sector

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1. Introduction

The full market liberalization on the Korean economy in 1996 has a significant effect and has restructured the retail industry to be more efficient. Whereas such liberalization has been evaluated generally positive in terms of economies of scale, intensified competitiveness level, technology innovation, and management efficiency, which determining an enhancement in the total factor productivity of retail industry in Korea.The retail industry has now become crucial as one of nation`s growth engine in Korea providing market to manufacturers and logistics and also playing the role of delivery window for nearly 50 million Koreans.

Strategically situated at the crossroads of trade and transport routes in Northeast Asia, Korean market has been attractive as a target country for FDI. In the domestic market, since mid 1990s foreign direct investment (FDI) inflow in Korean service industry has been increasing while its share in manufacturing has been declining. The strong purchasing power has put Korean consumer in the top of range in Asia. The country’s generally wealthy educated base consumers with more sizable middle-income classes are used to exceptionally high customer service levels, and rate price below convenience, quality and choice. The revenue of domestic retail market has been forecasted to attain about KRW183 trillion which increase up to 3.2% from 2008 with the non-store retailing industry and discount stores showing strong growth[1].

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Likewise, large conglomerates, often known as “chaebols�, own diversified business units, and all of them merchandise everything from discount items to luxury goods through various retail outlet options. Their dominance has been characterized Korean retail distribution industry. It is also worthy to note that retailing in Korea contributes for approximately 10% of GDP and 19% of employment (Suh 2003). Naturally, the capital increase contributed to the rapid economic growth, consequently boosted production and consumer expenditure, causing the consumption increase. Korea has been portrayed as a country with a strong consumer base. The Koreans who are savvy consumers, their spending have remained a major contributing determinant in the growth of the domestic market. Therefore, it would be impossible to demonstrate a clear understanding of the Korean economy without considering the distribution sector.

Upon reviewing relevant literatures, it is widely accepted that Korean retail industry has been mature and very competitive market. In addition, it has acknowledged that only a few foreign retailers dominate the domestic market which creates fierce competition among local and foreign retailers. This resulted in withdrawals of global leading retailers such as Wal-Mart and Carrefour from Korean market. These have produced growing interests of many researchers to examine the cases. The main target of those researchers is to prove that successful penetration in Korean distribution sector does not necessarily guarantee success in business, and also success which is granted in a home country or globally might not exist in Korean market (Joe and Kim 2007).

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