Canada has to be more than a “bridgehead” to North America for South Korea

Seoul, South Korea (Pexels Photo)

While Canada has upped its trade diplomacy game in the Indo-Pacific region, there is an ongoing risk of being overlooked as a serious North American business partner independent of its juggernaut neighbour to the south. 

South Korea is a critical piece of the puzzle. It is Canada’s seventh-largest trading partner in the world and is the only country in the strategically critical Indo-Pacific region with which Canada shares a free trade agreement (FTA). 

A Canadian delegation led by Trade and Economic Development Minister Mary Ng recently completed a trade mission to Seoul. The mission was a key component of the federal government’s Indo-Pacific strategy aimed at unlocking new opportunities and showcasing Canadian innovation in one of Asia’s most dynamic economies. 

The delegation came home with signed agreements on clean energy, artificial intelligence (AI) and creative industries. 

Participants benefited from the opportunity to nurture business and diplomatic partnerships and discussions that promise to enhance bilateral trade and investment through the Second Korea-Canada CEO dialogue and the fourth Canada-Korea FTA joint commission. 

The trade mission marked significant strides toward deepening ties between Canada and South Korea, but a significant gap has emerged that could point to lost opportunities for Canada in the future. 

Asymmetrical perceptions come at a cost 

South Korea continues to view Canada primarily as a “bridgehead” to North America rather than as a market unto itself. South Korean media and business reports typically describe Canada’s appeal in the context of its geographical, linguistic, and cultural proximity to the U.S. and its access to the broader North American market. 

This view of the trade relationship presents a challenge for future Canadian trade missions. Not only will they need to continue building on business and diplomatic agreements, they will also need to shift perceptions that Canada is merely a conduit to the U.S. Failing to reset this narrative places a kind of glass ceiling on future trade and investment. 

Putting Canada’s best foot forward 

Emphasizing Canada’s unique strengths as an independent market where companies can thrive long-term and lead technological and economic advances independently without necessarily entering the U.S. is essential to shift this perception and fully leverage Canada’s trade and investment potential. 

Canada comes to the table with some real street cred. The 2024 market strategy report from the Korea Trade-Investment Promotion Agency (KOTRA) positively evaluates Canada’s cultural mosaic and its status as a global testbed. 

Another KOTRA report underscores Canada’s vibrant market and government support for research and development, as well as its stable business environment. 

Building on this to overcome the perception that the primary benefit of Korea doing business with Canada is gaining U.S. access requires advocating for deeper investments in sectors where Canada holds a competitive advantage. 

Canada’s strong selling points include clean energy, secondary batteries, AI and the rising sustainable consumption trends that correspond with global economic shifts and South Korea’s strategic interests. 

More than reputation management 

By focusing efforts on these and other areas where Canada is at the forefront, the mission can shift toward securing commitments that foster long-term partnerships and fully leverage Canada’s market potential. 

South Korea has shown it is keen to expand partnerships in industries such as clean energy. The creation of NextStar Energy, a joint venture by LG Energy Solution in Ontario and Quebec, is a perfect case in point. The specific mention of small modular reactors (SMRs) indicates that South Korea values Canada’s advancements and regulatory framework. 

Showcasing examples such as these can help foster significant bilateral investments and projects. 

Similarly, substantial collaborative opportunities exist in the AI sector that South Korea is actively pursuing. In AI, the proactive efforts by Canada’s $2.4-billion AI investment, coupled with South Korea’s $9.4-billion AI investment announced on the following day, present fertile ground for joint development and trade in expertise. 

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South Korea’s investment branch has also flagged the Canadian market’s shift to emerging consumer trends driven by societal shifts toward environmental consciousness – such as sustainability and veganism – as new opportunities for South Korean businesses. 

For Canada, understanding these focal points – electronic vehicles and battery production, nuclear energy, trendy eco-friendly consumer products and AI – will be crucial in negotiating and securing partnerships that are not only beneficial but also strategic in fostering long-term economic and technological collaboration between Canada and South Korea. 

Hard road ahead 

However, several potential barriers inherent to the Canadian business landscape stand to hinder new South Korean entrants to the Canadian market. 

For example, Canada’s distribution networks are highly concentrated. This makes it challenging for new players to find a foothold. 

Additionally, the prevalent “relationship-centric” business practices in Canada, where dealing often relies on established personal and corporate relationships, can deter foreign companies unfamiliar with the local customs and traditions. 

Conversely, Canadian businesses aiming to enter or expand within the South Korean market may also encounter several challenges due to distinct cultural and regulatory differences. 

The South Korean business environment is heavily influenced by local customs and hierarchical business structures that may differ significantly from Canadian norms, which emphasize informality and equality in corporate dealings. 

Moreover, stringent regulatory requirements, especially in technology and telecommunications, can pose barriers to entry for foreign companies. Navigating these complexities requires a deep understanding of South Korean corporate culture and legal frameworks, which might necessitate local partnerships as well as work on compliance and market-entry strategies. 

Strategic partnership is key 

Ng told South Korean media she is confident Canada can play a strong role as South Korea’s prime partner for addressing global challenges related to energy and food security. 

To maximize trade and investment success with South Korea, Canada must comprehensively prepare its businesses. 

This involves developing a more complete understanding of how the Canadian market is perceived in South Korea. Conversely, detailed market research and tailored business matching are essential to equip Canadian businesses to effectively engage and form strategic alliances with South Korean partners. 

Ultimately, galvanizing an enhanced strategic relationship must include both governments inviting key stakeholders from sectors like AI and clean energy to their annual high-level economic security dialogue. This dialogue will help promote and support high-competence sectors for bilateral collaboration that encourages innovation and reduces barriers. 

By doing so, Canada can enhance its position throughout the Indo-Pacific region, paving the way for further partnerships in areas where it holds a strategic advantage rather than settling on a role as “bridgehead” to the broader North American market. 

This article first appeared on Policy Options and is republished here under a Creative Commons license.