A resident of Seoul, South Korea's capital city, may well have more in common with someone living in Los Angeles or London than many would assume. Living in one of the world’s most globalised countries, South Koreans have been highly influenced by trends they take in through their televisions and smartphones, as well as information gleaned through other channels of mass media such as online social networks. As a result, Hari Nair, the managing director of US-based personal care company Kimberly-Clark's global innovation centre in South Korea, believes the country's consumers have developed specific preferences for goods and products that are highly aligned with consumers in the West.
“We consider South Korea as a developed market, meaning it is no different to the UK or the US,” says Mr Nair. “What’s more, Korean consumers are demanding. They expect high-performing products in just about every category; whether it is toilet tissue or nappies, the Korean consumer has a very high set of expectations.”
As a result, rather than developing a range of personal care products which take a ‘South Korean hue’ that is specific in design to the country, Kimberly-Clark has worked to consolidate its presence in South Korea through producing products that are similar in style and quality to what customers can find in the company’s home market in the US. Best known for producing mainly paper-based consumer products, including Kleenex facial tissues, the Scott and Andrex toilet paper brands and the Huggies range of disposable nappies, the company initially began its operations in the country in 1970 through a joint venture with South Korean pharmaceutical company Yuhan Co, to create Yuhan-Kimberly.
Seeking to build on its success in the country since this joint venture was launched, Kimberly-Clark's global innovation centre was established just over a year ago in the Gyeonggi-do province, about an hour's drive from Seoul. “One of our four global innovation centres is in Korea, another is in Colombia in South America, and the rest are in the US,” says Mr Nair. “They operate as the creators of products and ideas, and they are combined through an integrated network.”
Although the company’s sprawling office complex at Gyeonggi-do attests to South Korea’s advanced infrastructure, which was a draw for the company, Mr Nair says that the country's educated workforce, and the similarity in tastes between South Korean and Western consumers, also makes it a significant test market for launching new products.
“Innovation centres are not about the machines, or the equipment, or even the beautiful offices,” says Mr Nair. “They are about the people that you can get to create this innovation, and we have been happy with the talent that we have been able to recruit.”
In addition, the South Korean government’s proactive approach to developing patent and intellectual property laws, which protect the interests of foreign companies, has been critical for Kimberly-Clark, which engages in extensive research and development and testing trials at its global innovation centres. “South Korea respects intellectual property, so it is a very seamless environment to operate in,” says Mr Nair.
Although he concedes that a significant factor behind Kimberly-Clark’s success in growing throughout the global economic downturn was its focus on creating essential products that are immune to economic cycles, the company's decision to expand in South Korea was down to the country’s consumer goods industry, which has also been one of Asia’s fastest growing markets.
According to consultancy PricewaterhouseCoopers (PwC), South Korea is one of the largest retail markets in Asia, and consumer goods companies in the country reported a total of $221bn in retail sales in 2010. This made it the fifth largest country for retail sales in the region, behind China, Japan, India and Indonesia. Asia's retail market is expected to grow in value from $248bn to $319bn between 2011 and 2015, and sales in the consumer goods sector could expand by 2.3% a year over the same period.
Although Kimberly-Clark has witnessed significant returns on its investments as a result of this growth, Mr Nair maintains that consumer goods companies continue to face the perennial challenge of continuously innovating to meet stringent customer demands. “There is always a challenge in terms of people trading down to [buy] cheaper products,” says Mr Nair. “Korean consumers are some of the most demanding consumers in the world. However, the best innovation comes when you are under some constraints, so it is a great constraint that we have very demanding consumers.”
With 70% of South Korea’s population classified by PwC as being part of the main retail target age of 15 to 64 years old, the outlook for its consumer goods products industry seems positive. Indeed, data from greenfield investment monitor fDi Markets shows that consumer goods companies are clamouring to access this market; in the past two years alone, capital investment in greenfield projects from abroad sharply increased by 1659%, from $9.7m in 2011 to $170m in 2012. This stands in marked contrast to the declining performance of the country’s traditional industries, as the electronic components and the automotive components sectors recorded annual declines in capital investments last year of 81% and 55%, respectively.
This only seems to confirm to Mr Nair his view that Kimberly-Clark’s decision to open its global innovation centre in South Korea was perfectly timed. “We are well over a year into the global innovation centre’s existence and for us the outlook is very positive,” he says. “The senior management of the company expects the innovation coming out of this centre to be the fuel for the future growth of the company, and we will continue to lead innovation from Korea.”