Korean forwarders’ advance into South America still appears to be far off. Though they are aware that this market has the potential growth and offers the good opportunities to them, the local peculiarities of the market are a stumbling block to them. So, Korean logistics firms rely on indirect ways to do business in partnership with local firms instead of direct advance into the market by opening their branch office or local subsidiary firm.
Pantos Logistics (PL), which set up an overseas affiliated company in Brazil in 2007, points out that strict regulations and procedures hinder foreign firms from entering South America. A related official of PL said, "There are basically many import restrictions in this market." He added, "Import formalities and customs clearance are complicated with bureaucratic red-tapes being also prevalent among related public officials. In particular, Brazil has high cost structure in business operation including manning cost, tax and others.”
This means that additional expenses so-called ‘Brazil Cost’ incurred due to various factors including complex rules, tax system, high tax, interest rate, red tapes and incomplete infrastructure strain enterprises. With the customs clearance procedures not standardized but subject to customs officer’s personal evaluation, the efficiency in customs clearance is well below the global standard while complicated tax system and the strict application of labor law are intensively suppressing business activities.
Amid the said complications and difficulties some enterprises have advanced into South America firsthand. Two leaders here are Taewoong Logistics (TL), which entered Chile in 2005, and PL, which entered Brazil in 2007.
TL planned to advance into the ‘blue ocean’ of South America in a bid to secure competitiveness rather than to keenly compete in domestic market. Particularly, on expectations of the big potential growth in this region when Korea-Chile FTA had come into effect in 2004, they established a local subsidiary firm in Chile in the following year. Since then, more local subsidiary was founded in Colombia in 2006 and in Peru in 2009.
A related official of TL said, "Operating loss its Chilean subsidiary made in the first year of advance into South America was a good lesson fee.” He added, “With the potential development in South America assuring us, we had to pass through the said difficulties in South America, and by overcoming such difficulties we were able to secure competiveness.”
PL took the first step in South America, establishing a local subsidiary firm at Sanpaolo in 2007. Thereafter, it founded Panama branch in 2010. It further expects to set up local subsidiary in Colombia and at Manaus of Brazil in the second half of this year while planning to open subsidiary in Chile, Peru and Argentine in 2012.
PL anticipates its steady growth on the strength of massive favorable events such as Brazil World Cup in 2014, Olympics in 2016. In particular it forecasts that it can have the chance to gradually win the upper edge over local companies of South America in competition on a long-term basis in present situation where major big business group engaged in bio and car industries is coming into this region one after another along with consortium of Korean players participating in public projects such as energy, resource development, high-speed train, power plant and oil exploration.