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BUSINESS NEGOTIATIONS
WITH THE KOREANS: A CROSS-CULTURAL PERSPECTIVE
Background
In recent years, China and Japan have been the focus of most research
on joint ventures. Little has been done on South Korea even though
its economic miracle rivals Japan's. From the ravages of a war-torn
economy of the 1950's, it is now the seventeenth largest economy
in the world. According to the Economist (1989), "In economic
terms, the question is not if South Korea will leave behind developing
country status and join the OECD, but when: 1992 looks the likely
answer".
Analysis of Korean-Foreign Ventures
A. Equity Share
As is also the case in Japan and China the percentage of equity
share or ownership is the most sensitive and contentious issue to
be negotiated between a Korean partner and a foreign entity. The
Korean partner typically desires a majority equity position in part
because of Korea's previous domination by foreign powers. From the
Western perspective the degree of operational dependence on the
Korean partner in building networks, establishing relationships
with consumers and suppliers, and government liaison gives the Korean
partner a critical role in the venture. Western companies usually
want a 51% equity ownership for accounting reasons, so that they
can consolidate their profit/loss statements. Additionally, Western
companies want to have an adequate control in managing the joint
venture. As one Western executive concluded, "We would not
have been able to push through a lot of the things if we did not
have that 51%. I have heard and discussed with other people here
who have not got that percent--they (the Korean partner) will listen
and just go their way. Status is so important in this community
that the status of 51% just gives us that extra clout."
B. Management Control
This was reflected primarily in two areas:
1) Representation on the Board of Directors:
This is usually commensurate with the percentage of equity ownership.
However, in instances where there is 51/49% split, there is usually
equal representation on the board. As in the case of both Japan
and China, even if the Western partner has 51% equity ownership,
most decisions are made through discussion rather than through votes.
2) Staffing of senior management positions in the venture:
The Western partner usually wishes to staff certain key positions
with
Western expatriates (including ethnic Koreans who have taken up
Western citizenship or who have worked with the Western company
in the U.S. for a period of time) for two reasons. One reason is
the U.S. company's concern about control over usage in the case
of technology transfer. The second reason is the U.S. company's
concern that the Korean partner will combine the joint venture's
activities with that of the business group in terms of financing
and personnel.
The Koreans on the other hand feel they should have control over
management for two reasons: national issues and their belief that
the
Korean business environment is unique, therefore they possess better
knowledge and understanding of how to run and manage an operation
in their own country.
CHARACTERISTICS OF KOREAN DECISION-MAKING
AND NEGOTIATION STYLE
Speed of Decision-Making
Compared with their Japanese and Chinese counterparts, Koreans
generally make decisions more quickly because most Korean companies
are still run by the owner/founder of the company, and hence decision-making
tends to be more centralized. Despite this relative speed of decision-making,
relationships are still pivotal to all aspects of societal functioning.
Personal Considerations vs. Western
Logic
Virtually all Western partners who were interviewed perceived that
Koreans were illogical in the decision-making process. The Westerns
felt that the Koreans tended to focus on trivial or emotional matters
rather than on issues that were the subject of negotiation. The
Korean partners on the other hand felt that Western logic or reasoning
may not be the only way of trying to persuade or convince your partners
to pursue a certain course of action. According to S.H. Jang (a
consultant in Korea), it is important to understand KIBUN, which
translates as "The personal feeling, attitude, mood, the mental
state which is an extremely important factor in ego fulfillment".
Profit Motive
Profit may not be the most important objective or motivator for
the Korean partner. Similar to the Japanese, the Korean partner
may be more concerned with market share and growth. This has two
implications for the foreign investor. First, it takes time to build
up market share and growth so he must be prepared to operate in
the red for a period of time.
Second, money in the Korean context may not be the most important
device in motivating employees. Other factors involved in ego fulfillment
such as status, position title, office size, company car, chauffeur,
corporate credit card, can become important motivating devices.
KEYS TO SUCCESS IN NEGOTIATING WITH
THE KOREANS
Complementarity of Product/Service
One of the prime motives for a Korean partner to enter a joint
venture relationship with a foreign investor is to gain access to
advanced technology. One implication of this is that once the foreign
partner can no longer provide the desired service or technology,
then the original objective that brought both the Korean and foreign
partners together will dissipate. For this reason, many of the Western
partners felt that they had to constantly maintain a technological
lead on their Korean counterparts.
Patience
Although Koreans, as compared with their Chinese and Japanese counterparts,
tend to make decisions more quickly, personal relationships are
still fundamental to success in Korea. Patience is required to build
and nurture these relationships. Patience is also required because
industry is still in a state of transition in Korea.
Respect for Cultural Differences
In dealing with Chinese and Japanese counterparts, knowledge of
cultural differences will not guarantee success, but a lack of cultural
awareness could be a principal factor for failure. All the Western
partners agreed with this finding. But Korean partners went one
step further. They said that knowledge of the Korean culture and
language is imperative to success.
Many of the Western executives who had experience as managers in
other parts of East Asia cited the difference in attitudes and value
systems as factors contributing to the difficulty of operating in
Korea.
An example of marked cultural differences between Westerners and
Koreans lies in the attitude toward law and the sanctity of the
contract. In the Western context a contract sets out duties and
responsibilities for each side and is supposedly sacrosanct. In
the Korean context, which is similar to that of Japan and China,
the contract is considered an organic document which can change
as conditions evolve. Another example of cultural differences lies
in the use of expensive gifts and lavish entertainment as part of
business practice in South Korea. While this is generally interpreted
as bribery in Western context, it is quite commonplace in the Korean
context.
Need to Establish and Nurture Relationships
As is the case with both Japan and China, it is important to build
and maintain personal relationships, otherwise the venture is doomed
to failure. Relationships in Korea are formed on the basis of a)
blood which includes members of one's immediate or extended family;
b) school ties; and c) geography, such as coming from the same clan
or village.
There are several reasons why it is important to build a relationship.
First, many of the Korean partners indicated that they were willing
to pay a price that is ten to fifteen percent higher if they know
or have developed a good relationship with that particular company.
According to one Korean executive, "We have a saying in Korea
that we get a contract not because we are qualified, but because
we know somebody". Second, it is important to maintain good
contacts with appropriate government ministries. Even with liberalization
the Korean government still exercises heavy influence over all aspects
of society.
Recruitment and Staff
Foreign joint ventures are at a disadvantage when recruiting staff
in South Korea. Given the complexities of operating in the Korean
environment, many Western companies feel that they have to hire
local nationals to manage the company's daily affairs. However,
unlike the 1950's and 1960's when Koreans preferred to work for
foreign companies because of higher salaries, the Westerners are
now at a disadvantage in terms of recruiting competent local nationals.
There are two reasons for this: first, relationships formed through
former school ties play an integral part in staffing. If a foreign
investor is unable to hire someone from Seoul National University,
for example, then he will not have those desired ties with people
in the government, etc. The second reason is that, in Korea (as
in Japan) there is social stigma attached to employment in a foreign
company. It is perceived that the foreign company will not have
a long-term commitment to the enterprise in Korea.
There is one major difference between Korean and Japanese employees.
In the case of the Japanese employee, he feels that he owes his
loyalty to the company, while in the case of the Korean, he feels
that he owes his loyalty to the person for whom he works. Hence
attributes of the Korean employee's boss such as special skills,
technical expertise, leadership, intelligence, etc. play an important
role in recruitment.
Long-Term Commitment
Market share and growth are important objectives from the Korean
partner's viewpoint. This is possible because as stated earlier,
many Korean companies are operated and owned by their founders.
Therefore, it's easier for them to take a longer-term perspective.
Difficulty arises because of the difference between the typical
Western attitude towards a short-term orientation and the Korean
preference for a long-term commitment.
The attraction for the foreign investor of forming these kinds
of joint ventures with Korean partners lies in the growing economy
and market size of South Korea. While having the right product or
service is important to a joint venture, that alone is inadequate
to guarantee success. Differences in value systems play a significant
role in influencing people's perceptions on what is an important
issue, decision-making and negotiation procedure. Although joint
ventures between Korean entities and Western partners seemed fraught
with frustration and difficulties, practical results may be achieved
if a foreign partner is willing to invest time and energy in building
and nurturing social relationships, and in understanding the Korean
context.
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