Going halal poses challenge to Korean firms
Since 2012, the Korean food maker has dominated the Muslim-majority country’s mayo market, with a 40 percent share.
To cater to the local market, the company came up with an Indonesian name for the product, Mamasuka, which translates roughly to “mom likes it.”
“We were also the first to employ a tube package that was easier to use and lighter than glass jars, which was the dominant packaging for mayonnaise in the local market,” Lim said.
Daesang entered Indonesia’s halal food market earlier than other Korean companies, having established local manufacturing facilities there as early as 1973. The company currently exports 29 halal products overseas, and sales from its Indonesian subsidiary accounts for roughly 28 percent of the company’s foreign operation. Total exports of halal food recorded 5 billion won ($4.47 million) in 2015, more than sevenfold from 600 million won in 2011.
More companies like Daesang are making efforts to establish facilities that manufacture halal products. They see great potential in the 1.8 billion people around the world who practice Islam. In 2015, this market was an estimated $1.9 trillion, according to the latest Global Islamic Economy Report released by the research firm Thomson Reuters. The report suggested a rosy outlook for the Muslim market, possibly reaching $3 trillion by 2021.
There’s also great potential for global manufacturers because the industries and economies of many Muslim-majority countries in the Middle East and Southeast Asia are not yet fully mature. Korean companies see an opportunity to establish production facilities and infrastructure in these regions and elevate trade relations with Muslim-majority nations.
“People are feeling the need to diversify our export markets because of frozen trade relations with China and protectionist sentiment in the United States,” said Yoon Yeo-doo, chairman of the Halal-Biz Forum under the Korea Federation of SMEs.
The biggest halal export is undoubtedly food. The global market for halal food reached $1.2 trillion in 2015, making up 61 percent of all halal exports, according to Thomson Reuters’ Global Islamic Economy Report. The firm expects this figure to expand to $1.9 trillion by 2021.
For Korean companies, food is the most active halal industry in which they are engaging. The Korea Muslim Federation is the local group that governs whether a product is halal. For food, this means it cannot contain pork or have been made in a facility that also handles pork. Alcohol consumption is also banned, and every animal used for meat must be slaughtered through specific procedures dictated by Islamic law.
While Korea, with a cuisine that’s heavy on grilled meat and drinking, might not seem like an obvious candidate to be producing the world’s halal food, companies are plugging certain aspects as compatible with Islamic law. Last month, CJ CheilJedang, one of Korea’s largest food producers, held a cooking class for Turkish residents in Seoul and demonstrated recipes for Korean dishes using its halal-certified products, including instant rice, kimchi, flour and gim (dried seaweed).
CJ CheilJedang has halal certificates for 43 products from the Korea Muslim Federation. Its main business target is Southeast Asia with a focus on Malaysia and Singapore. The company considers the two countries to be hubs for the halal food industry.
“The proportion of Muslim markets in our global portfolio is not big,” a CJ spokesman said, “but the company is definitely aware of its growing size, which is why we continue to renew halal certificates every two years.”
CJ CheilJedang generated 3 billion won in sales last year from its halal products, and it is maintaining a growth rate of 20 percent every year.
Ramyeon, the Korean variation of instant noodles, is also popular with Muslim consumers. Pulmuone’s Nature is Delicious ramyeon received a halal certificate from the Malaysian government in 2013. The company was the first Korean food maker to receive a global halal certificate.
Nongshim’s halal version of Shin Ramyun, the local best-seller, acquired a certificate from the Korea Muslim Federation in 2011 and from Malaysia’s Jakim, the institute which approves that country’s certificates, in 2013. To make the halal version, Nongshim removed the beef stock and replaced it with beans and wheat that mimicked the original flavor. The halal version made $6 million worldwide last year.
Also popular with Muslims is Samyang Foods’ notoriously spicy Buldak Bokkeum Myeon instant noodles. The chicken-based product was certified by the Korea Muslim Federation not long after its release in 2014 and quickly gained popularity in the Southeast Asian market, where people were sharing videos of themselves eating the intolerably spicy noodles.
“As in Korea, Buldak Bokkeum Myeon was what captured the Southeast Asian market,” the company said. “Word of mouth and videos on social media positioned the product as a ‘challenge’ that everybody should try at least once.”
The Southeast Asian market now accounts for 35 percent of Buldak Bokkeum Myeon’s overseas sales. The product boosted the company’s total revenue from that market to 30 billion won last year, a fivefold increase from 2015.
Korean manufacturers of sweets are also retooling their recipes to appeal to Muslim consumers. Orion, creator of the popular marshmallow-infused pastry known as Choco Pie, is making them halal in Vietnam using gelatin extracted from beef instead of pork.
At Lotte Confectionery, two variations of its cream-covered biscuit snack Pepero, the almond and peanut variety, received halal approval from the Islamic Food and Nutrition Council of America last year.
Medicine and makeup
If food takes up 61 percent of the halal market, the other 39 percent consists of products that can be absorbed by the body, including medicine and cosmetics.
As in food, halal pharmaceutical and cosmetic products cannot contain alcohol. Any animal-based ingredients, such as gelatin used in pills, have to be prepared halal, and pork is strictly prohibited.
The halal pharmaceutical market’s size was $78 billion in 2015, according to the Global Islamic Economy Report, and it’s projected to grow as big as $132 billion by 2021. The cosmetics market totaled $56 billion in 2015 and is estimated to expand to $81 billion in 2021.
Not many Korean companies have halal certificates for pharmaceutical and health care products. Obtaining one from foreign institutions is difficult - the rules are more stringent because they concern matters of life and death.
Ildong Pharmaceutical was the first Korean company to obtain a halal certificate from the Korea Muslim Federation in 2015. The approved product was Biovita, which helps infants with digestion.
Rival Daewoong Pharmaceutical entered a partnership with an Indonesian medical company in 2012 to build the country’s first biomedical factory. The joint operation plans to acquire an Indonesian halal certificate this year.
In halal cosmetics, Korean companies are also in their early stages.
Daeduck Lab, a small business with less than 30 employees, was the first Korean cosmetics manufacturer to obtain a halal certificate, Turkey’s Gimdes, in 2013.
The company’s CEO, Jeon Hyeon-pyo, was motivated to enter the market after a business trip to Kazakhstan in 2006, when he met a Muslim woman who asked if he could make cosmetics for Muslims.
“Cosmetics in our country are not very good in quality, and we want to put on makeup like we see in Korean dramas,” Jeon recalled the woman telling him.
In 2011, he established Daeduck Lab to develop halal cosmetics. It now has three halal brands, and the most popular product is whitening cream.
“Many people think pork- and alcohol-free products can easily be named halal, but Gimdes guidelines are very strict,” said Park Eun-jeong, a public relations director at the company. “We had to take out all ‘possibly’ bad substances that are actually a norm in most of the cosmetics we see.”
For now, Daeduck Lab’s halal cosmetics account for only about 5 percent of its revenue - it also makes non-halal cosmetics - but it expects the portion to grow over time.
Major market leaders like AmorePacific and LG Household and Health Care are relatively slow in obtaining halal certificates despite their forays into halal cosmetics.
AmorePacific’s chairman, Suh Kyung-bae, has often referenced the Middle East as a market with high potential. Last year, the company established a local subsidiary in Dubai, and earlier this year, it signed a memorandum of understanding with Alshaya Group, a retail giant in the Middle East.
But it hasn’t started selling products yet and is still looking into obtaining halal certificates, an AmorePacific spokesman said.
LG Household and Health Care entered the Middle Eastern market in 2006 and operates over 50 brick-and-mortar stores with its in-house brand The Face Shop.
The only major player in the Korean cosmetics scene that appears well prepared for the growing Muslim beauty market is Cosmax, which is an original development manufacturer of cosmetics. It has contracts with L’Oreal, Lancome and AmorePacific.
In March 2016, the subcontractor’s Indonesian factory received the local government’s halal certificate for manufacturing. The facility is now supplying halal cosmetics to global and Indonesian beauty brands.
Halal logistics is another relatively new area of business for Korean companies.
Between picking up a package, transferring it to a logistics center and delivering it to a home’s front door, the entire process, too, needs to follow Islamic dictates. For instance, halal-certified products like meat cannot be delivered in trucks that previously stored pork.
One of the big Korean players in this area is CJ Logistics, which acquired Malaysian Century Logistics, a firm with halal certification, last year.
“We are at an early stage, but considering the huge Muslim market of roughly 2 billion people, our moves will help us lead the halal logistics business in the future,” a CJ Logistics spokesperson said.
Hard to please
“The global halal economy is huge, but some local companies don’t even know about its existence or hesitate to enter it because they lack knowledge of the market,” said Park So-young, a senior researcher at the Institute for International Trade, a think tank under the Korea International Trade Association. “Many companies also seem to be stuck at the certification process, saying it’s hard and complicated.”
Obtaining a halal certificate from the Korea Muslim Federation requires a significant amount of time and money. After a company submits a request to the organization for halal approval, it has to submit various documents and undergo examinations of its manufacturing facilities. The average fee to have a product halal-certified is approximately 900,000 won, according to the Korea Food Research Institute. The Korea Muslim Federation’s certificate has to be renewed every one to two years, which requires additional cost.
Another obstacle that companies struggle with is obtaining halal certificates from the countries to which they export. Every country has its own state-approved institute that issues halal certificates recognized within its borders, which can be cumbersome for a company operating in several markets.
Some organizations allow their certification to cross borders. The Korea Muslim Federation’s certificate is also valid in Malaysia, Singapore and Taiwan. Companies with the Korean certificate can export their products to these markets without applying for additional certification.
But if a Korean company wants to export to any other country, it will have to go through the approval process of that country, which can entail costs not just for documentation and procedures but also hiring translators and interpreters of local laws.
Yoon Yeo-doo, chairman of the Halal-Biz Forum under the Korea Federation of SMEs, suggested the Korean government lobby on behalf of Korean halal manufacturers to expand partnerships with certifiers in other countries.
But Seo Jeong-min, professor of Middle Eastern and African studies at Hankuk University of Foreign Studies, believes the overall cost associated with certification will go down when a worldwide halal certification system is more mature and established.
“Halal certificates haven’t been around for that long, so there’s still some confusion in the system and lack of compatibility in the global market,” he said. “But once the system matures, halal certificates will undoubtedly function as a trade barrier, which is why we need to push efforts to encourage companies to obtain them and upgrade our country’s certification system as well.”
Indeed, demographic data shows that it will be hard to ignore the halal market in the future. A report released by the Pew Research Center last month suggested the number of Muslims might increase by 70 percent to around 3 billion in 2060 from 1.8 billion in 2015, making it the fastest-growing religious group in the world. By then, the Muslim population will surpass Christians, projected to grow only 34 percent during the same period.
And while many Koreans believe the Middle East to have the biggest Muslim population, the neighboring Asia-Pacific region actually holds the majority, with 61.7 percent of all Muslims as of 2010, according to the Pew Research Center study. Muslims in the Middle East and North Africa make up a much smaller pie at 19.8 percent.
“As labor costs in China are rising, many global businesses are moving their manufacturing facilities to Southeast Asia,” said Jang Jin-wook, an analyst at Hana Financial Investment. “Muslim-majority countries in general have vast amounts of natural resources and are therefore expected to experience huge growth in their economy, population and consumption.”
BY SONG KYOUNG-SON AND KIM JEE-HEE [email@example.com]