Struggling to Penetrate Overseas Markets
Korean commercial banks and insurance companies have been pushing into global markets to diversify their income sources but they are having difficulty penetrating overseas markets.
According to investment banking (IB) industry sources on Nov. 5, Korean commercial banks that have advanced into Southeast Asian countries are receiving favorable reviews by localizing their services, such as expansion of face-to-face and non-face-to-face channels and introduction of installment financing and credit loans. However, their overseas operations still account for less than 10 percent of the total profits and they have difficulties penetrating overseas markets.
First of all, it usually takes more than six months longer than South Korea to get a final permission for opening a new branch and starting services in Southeast Asian countries. An official from a commercial bank said, “Sometimes it takes months to receive a permission for services that would take only days in South Korea because of unsystematic procedures in Southeast Asian countries. It happens all the time some businesses get a license for services earlier than others regardless of the order even in the same industry.”
It is also difficult for heads of overseas branches to properly settle in the local market. This is because China and Southeast Asian countries have very strict examinations for qualifications of top officers. Advanced countries only carry out a relatively simple inspection on qualifications of presidents, including personal matters and business content, but China and most Southeast Asian countries conduct a comprehensive examination, such as local culture, laws and systems, through a face-to-face interview.
Another official from a bank said, “The qualification inspection itself is difficult but it takes long to get the results as well. For some countries, banks have to be prepared separately by region as there are different inspection criteria.” In addition, there are still regulations on loans between banks and it is hard to hire experienced workers fit for the local markets.
Domestic insurance companies have more difficulty in extending their business abroad and achieving good results. Major insurance companies have been sought to enter the market of China and Southeast Asia from 10 years ago but most of them still see its overseas business account for less than 1 percent and post 30 billion won (US$26.76 million) in operating loss last year. This is largely due to insurance companies’ internal management systems that lay emphasis on short-term performance and passive methods of business stemming from the burden of costs to build local infrastructure.
An official from an insurance company said, “Considering the nature of the insurance industry run by professional manager for three years at the longest, it focuses more on short-term overseas performance than long-term one. As there is lack of experience statistics that correspond to local demand and characteristics, insurance companies have to bear the burden of heavy costs to set up and maintain infrastructure. Accordingly, they continue to run business passively by securing insurance products mostly from domestic firms that operate in the local markets and seldom make a profit.”