Why do Some Foreign Companies Fail and Some Companies Succeed in Korea?

The Chosun Ilbo posted an interesting article on why some multinational companies fail in the Korean market.  The article notes, in part, that:

Struggling in Korea. Swiss multinational Nestle has achieved stellar performance in global sales of its mainstay coffee and powdered milk. Not so in Korea, where the market for coffee mix is worth around W1.3 trillion (US$1=W1,128). Nestle entered the Korean market in the 1980s with its Taster’s Choice brand of instant coffee and maintained the No. 2 spot for 30 years. But it fell to third place in January this year after ceding the No. 2 spot to Namyang Dairy’s popular French Café brand.

The gap between the No. 2 and 3 players grew wider with Nestle’s market share plummeting to just 5 percent. In 2001, Nestle started selling its NAN baby formula products in Korea, but it pulled out altogether in 2008 after maintaining barely a 1 percent share of the market. Procter & Gamble accounted for 50 percent of the domestic market for sanitary napkins in 1995 through its popular Whisper brand. But it ceded the No. 1 spot to Yuhan Kimberly’s White brand in 1999 and sank to No. 3 in 2010 after being beaten by LG Unicharm’s Body Fit. The firm pulled out of the baby diaper market in Korea in 2007 due to lackluster sales of global bestseller Pampers. With Pantene shampoo and other labels, Procter & Gamble held the No. 2 spot in the 1990s but fell to No. 3 in 2008 with a market share of around 15 percent.

Even Unilever, which controlled the biggest share of the domestic market for body cleansers until 2006, now ranks No. 3 with only a 10-percent market share. Johnson & Johnson used to reign as the No. 1 player in the local market for baby and kid’s skincare products but was overtaken by Yuhan Kimberly in 2010.

Fickle Korean Tastes. The reason multinationals are having such a tough time here is because Korean consumers are notoriously picky and it takes too long for global behemoths to respond due to the long decision-making process from the Korean subsidiary up to headquarters. In the case of coffee mix, Korean manufacturers quickly adapted to changing conditions here, introducing a wide range of packaging options from just 10 packets to 50 per box to meet the needs of a growing number of single-person households.

Local coffee-mix makers also held taste tests every month to keep abreast of the preferences of consumers. “Foreign companies cannot change a flavor just for the Korean market,” said one staffer with a foreign food manufacturer. When it comes to baby formula, U.S. and European manufacturers marketed products that are high in fat and carbohydrate according to the tastes of consumers in their home markets. But they failed to interest consumers here.

As shampoo, sanitary napkins and baby diapers containing traditional herbal ingredients began to take off in Korea, foreign products declined in popularity. “Sanitary napkins containing traditional herbal ingredients, which account for 30 percent of LG Unicharm’s sales, were the reason why we were able to rise to the No. 2 spot despite being a latecomer,” a company staffer said.

In the shampoo and rinse market, AmorePacific’s Ryeo, which contains traditional herbal ingredients, became a huge hit propelling the company to the No. 1 spot from No. 3. “Companies that give consumers opportunities to sample their products see their daily sales triple or more, and when it comes to detergents, consumers flock to products that offer complimentary samples.

But foreign companies are very passive when it comes to such marketing tactics,” said a staffer with a supermarket chain.

What do you think?
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