‘Summary of the Korean market’
Korea’s position in the world tourism market has increased tremendously in the past 25 years. The purpose of this summary is to explain why and to note some key differences in the Korean travel industry vice other countries in the world.
Korea is a country universally recognized as having experienced an economic miracle. From the utter destruction of the Korean War in the early 1950’s, Korean has grown to be the 13 th largest economy in the world. Korea’s advancement up the economic ladder was crowned by her hosting the 1988 Olympics and 2002 Soccer World Cup. In addition to economic success, Korean culture also began making major inroads into the global market place. Korean Soap Operas have gained world wide popularity. Korean cuisine have also experience a degree of global popularity. Korea pop artists have scored global hits. These economic and cultural contributions have focused world attention on Korea and made it a popular tourist destination. The more than 12 million visitors to Korea in 2013 clearly demonstrated Korea’s popularity to foreign tourists.
So how does the Korean economic model impact the Korean tourism industry? Unlike other countries who build on their economies on small startup companies, Korea built its economic success on huge conglomerates called chaebol’s. Firms such as Hyundai and Samsung, that are now global powerhouses, are examples of these chaebols and were the building blocks of Korea’s economic miracle. For the travel industry, there were major governmental restrictions on the ability of Koreans to travel overseas prior to 1988. Prior to this time it was only a dream to travel to another land. This yearning built up a huge unsatisfied demand for overseas travel in Korea. After the Olympics, Koreans felt they had overcome the tough economic times of the past and the Korean Government liberalized overseas travel regulations for average Koreans 1989. Today, the demand for overseas travel is still insatiable; however, the taking of these trips has become a part of everyday Korean life.
In 2013, nearly 15 million Koreans or 30% traveled overseas. Given that the total population of Korea is a little over 50 million this is an enormous percentage of the overall population. In 2014, the Korean Government expects over 16 million Koreans travel abroad.
To build their travel industry, Koreans went with the economic model that lifted the country out of poverty. Instead of hundreds of startup travel companies, Korea established two large monopoly travel companies: A Tour and B Tour. These agencies have monopoly power over the entire outbound (overseas) travel industry. The two big giants, A Tour and B Tour, are to be called a Mega Agency (sort of a travel chaebol) and subsidized the over 10,000 travel agencies Korea-wide.
While these two agencies initially grew as wholesale travel agencies, nowadays they combine retail as well. This is a feature unlike that in any other country. They vigorously work for niche market that should remain for the small and medium size travel agencies. These dinosaurs try to grab each and every business opportunities regardless of their capacities and experiences. A Tours has astonishing 28 subsidiary companies.
It is unknown when this monopoly situation will end. Small startup companies are fighting for space in the market. It is hoped that one day the big giants will collapsed because they lack the effectiveness and efficiency of smaller organizations. These smaller organizations also offer a great deal of customer oriented service and professionalism that will eventually erode the large monopolies market share. It is certain that in the near future we will see increased competition between big giants and small but well experienced, and capable agency supported by advanced technologies and sophisticated use of SNS. Still, Korea is a different market used to big companies. It is hard to predict how long the large monopolies will hold on against more nimble competitors. I cannot predict who will win.
Companies interested in capitalizing on Korea’s strong outbound (overseas) travel market, should not be intimidated by the strength of the travel monopolies (Tour A and B). If you have an interest and willingness to be successful in Korea’s outbound market, the shortest and safest road to success is by obtaining a small, nimble, knowledgeable, strong partner in Korea. It is important for companies considering entering the Korean market to know how it currently works. To help colleagues in the world work more efficiently in Korea, ‘Summary of the Korean Market’ will now provide a quick discussion of how the outbound and inbound travel markets work in Korea.
Korea’s outbound (overseas) market is different from that of other countries. There are two components to the outbound travel market. First is the travel agency who designs the tour or travel program and arranges flights to send the tourist to their destinations. Once the traveler arrives at the destination, a tour operator associated with the travel agency who have representative offices in Korea, provides the necessary tour services at the destination. This creates and integrated approach to travel. You are booked by one company and passed off to another Korean company at your destination. Your trip is normally highly structured with Korean guides and you eat at Korea restaurants regardless of your destination. The system is unique to Korea. Approximately 95% of Korean travel agencies (associated with the big monopoly companies) work with the representative offices of the Korean companies in the destination countries. These Korean companies operating in the overseas locations with representative offices in Korea are referred to in the industry as the “Land Operators”.
This structure has advantages and disadvantages. The integrated travel reduces costs and makes for a seamless, hassle free trip. It also reduces costs and Korean tours too many locations are highly competitive. They are, however, very structured and lack flexibility. Also, they are difficult for non-Koreans to use and this can reduce the potential market. Due to the rapid growth of information technologies (IT) and the increase ability of Koreans to deal with non-Korean speaking operators, no one knows how further this unusual form of business structure will last due to competition for foreign firms in the destination countries and other competitors.
The inbound Korean market is also very similar. Travel agencies will book transportation by land, sea, or air. Then associated tour operators will provide the required tour services. As with outbound services, it is a closed loop system; however, again, IT is rapidly increasing the competition to the big tour companies and it is unclear how long the current structure will last.
In this summary, we have discussed how the current Korean travel industry system developed and some of the unique characteristics of the Korean system. “The Travel News” can be your partner in navigating the system and assisting its readers and customers to achieve their organizations’ goals in the Korean market.
By Jungchan Lee Publisher & Chief Editor The Travel News The Media1 미디어원
