Doing Business in South Korea

Topics: Investment, Macroeconomics, Foreign direct investment Pages: 10 (3198 words) Published: April 16, 2011


South Korea continues a process of economic liberalisation and deregulation, but the government has yet to adopt a fully laissez-faire policy where the economy and trade are concerned. The UK TI team in South Korea works actively to lift or loosen the many regulatory barriers that still exist to ease UK-based company enter to the market(UK Trade and Investment, 2009)

Getting Paid - Terms of Payment

The payment terms you can normally expect in South Korea are “100 percent Confirmed Irrevocable Letter of Credit” . Letter of credit (L/C) is that adds the endorsement of a seller's bank (the accepting-bank) to that of the buyer's bank (the issuing bank). It provides the highest level of protection to the seller because not only the L/C cannot be canceled (or its terms changed) unilaterally by the buyer (the account party), but also both banks involved in the transaction guaranty its payment on its due (maturity) date. Letters of credit are the terms you should quote when doing business in South Korea. You are unlikely to obtain deposits with order, or prior to shipment. It may be counterproductive to try to insist on deposits. Letters of Credit are normally opened 4-6 weeks prior to the shipment date. The expiry date of the Letter of Credit will be geared very much to the promised delivery date. It is important therefore that delivery promises are fulfilled or the Letter of Credit will expire (UK Trade and Investment, 2009).

Compared to other types of Letters of Credit, it is suggested to use Standby Letter of Credit (SBLC). Standby Letter of Credit (SBLC) may be more beneficial for trade. The SBLC uses the original documents and the bill of lading in order to obtain payment for the merchandise from a seller to a buyer. This is all done in different parts and the process concludes when the merchandise arrives at the port. The documents are verified upon arrival of the goods and the process it usually fast and less strict. The beneficiary is ready to produce the documents required.

Unlike other types of Letters of Credit, the process for Standby Letter of Credit is better articulated. For regular Letter of Credit the original documents are passed from the advising bank to issuing bank in order for the latter to verify the process. Verification is therefore the last step and it can take up to ten days. For goods arriving by boat, the process may take longer because the documentation usually arrives after the merchandise. In this case, the bill of lading is given to the shipping company to be able to get the merchandise.

Letters of Credit offer one advantage that SBLC do not and that is the fact that they can be used as means of payment. A SBLC do provide certain protection for the holder in case of non-payment however they do not function the same way as other credit documents. It is therefore not advisable to compare them on these grounds.

Letter of Credit provide equal protection to the buyer and the seller, however the Standby Letter of Credit tend to be more protective of the seller. When documents arrive at the port or airport, based on the International Stand-by Rules, the reviewer of the documentation may take from three to seven days to review it. This is then more beneficial to the seller because the period clear the proceedings quickly enough for them to get the merchandise. Whereas for the buyer, this period may be too short to make sure that the information is accurate and does not have any errors. There are people that compare SBLC to a blank check when they are issued by order of the buyer.

Standby Letter of Credit are fairly new to the world of international trade, and therefore it is also legally new. The legislations that apply to it may be uncertain and not equally applicable when in comparison to other types of letters of credit.

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