Peter Underwood, long-time business consultant in Seoul and partner at IRC, was the fifth interviewee in our Korea Business Interview Series hosted at KoreaBusinessCentral.com.
Visit http://www.koreabusinesscentral.com/forum/topics/korea-business-central-4 to listen to the interview online, download the .mp3, read the transcript AND/OR participate in the lively discussion at KoreaBusinessCentral.com.
(The full list of interviews in the Korea Business Interview Series can be found here: http://www.koreabusinesscentral.com/page/interviews-2)
Main points of the interview:
Topic #1 - Dramatic Development of the Modern Korean Economy
- Over the last 50 years, Korea has progressed from dire poverty to become the 13th largest economy in the world.
- Koreans used to view themselves as inferior to most of the world and lived frugally. Today they are confident in themselves and enjoy affluence. Koreans today are open and global minded.
Topic #2 - Factors of Success in the Korean Market
- The Korean market is certainly unique and Koreans communicate with each other in a kind of "code" due to their homogeneity. Foreign companies must do their homework and learn to communicate to Koreans appropriately.
- A key component of Korean business success is investing in relationships by mixing business with pleasure.
- In spite of the reputation of Korea, there are more foreign companies which are successful in Korea than those that fail. These include: McDonald's, Starbucks, Tesco, Citibank, Kimberly-Clark, Bosch, Siemens, Prudential, MetLife, ING and many others.
- One client of IRC, Ehrlich and Balzers of Lichtenstein, launched into the Korean market at the peak of the Asian financial crisis of 1997-1998 but have still grown successfully every quarter since then and the Korean market is one of their most profitable in the world.
- Another IRC client bought up a Korean competitor and used the Korean production base to then penetrate the Chinese market.
- To be successful in the Korean market, one must have a long-term vision, a credible Korean partner and a compelling product or service offering.
- Many companies that fail in the Korean market blame cultural factors when the real problem was in the execution of basic business fundamentals.
Topic #3- IRC's Work with the US State of Georgia
- IRC has worked with Georgia to attract Korean investment to the US and this culminated in the Kia automotive plan in Westport, Georgia, which opened last month.
Topic #4 - Challenges that Must Be Addressed in Korean Business
- Koreans do not view contracts in the same legalistic way that Westerners do. The legal framework is often secondary to the social framework.
- Accounting and taxation are a challenge because the Korean accounting practices different in many ways from Western ones.
- Market barriers in Korea come in various forms. Oftentimes, this is to give Korean companies a chance to develop their own capabilities before foreign companies can enter the Korean market. As another example, data processing requirements or testing regulations may add extra costs to the products and services of foreign companies.
- Overcoming these hurdles can often be achieved by making one's organization look and act Korean. Sometimes getting to know and persuading the regulators can help.
- Corruption in Korea has dropped dramatically, but has not been eliminated. Still, many foreign companies have been successful by doing business honestly (and wisely, through relationship building).
Topic #5 - Case Studies in Korean Business
- Tesco and Carrefour both entered the Korean discount store market. Tesco teamed up with a strong Korean partner and localized their senior management; they were successful. Carrefour stuck with a French-centric team and failed.
- The anti-US beef demonstrations in 2008 in Korea were primarily caused by a failure to manage the perception by the Korean public that they were being fed dangerous beef. The lesson here is that it is important to act and address concerns like this quickly before they get out of control. Another example is the US military's late response to an accident which ended up in mass demonstrations in 2002; another one later was dealt with appropriately and the uproar went away quickly. We even see that Toyota made this same mistake in the US market recently.
- US automakers have had difficulty entering the Korean market, in part because of a lack of suitable luxury brands. These are the brands wealthy Koreans (i.e. the ones willing to buy foreign cars) want to buy. Korean cars tend to have more bells and whistles than US cars and are better matched to city driving.
- The following markets are considered sensitive and difficult for foreign companies to enter. However, it would be premature to say that in a country like Korea, which changes fast, these will remain as such indefinitely: rice, education, childcare
Topic #6 - Foreign Direct Investment into Korea
- There was very little foreign direct investment into Korea until the Asian financial crisis of 1997-1998.
- But the Korean government needs to change its approach to FDI to recognize benefits beyond attracting capital, such as skills, technology and employment.
- Incentives to attract foreign investment should be offered to any company, even Korean ones, that invest.
- Korean government funds for new strategic sectors can be a unique opportunity for non-Korean companies to crack the Korean market. However, the Korean government needs to make the market more accessible and avoid market distortions, such as channeling funds into inefficient areas.
Topic #7 - Final Advice to Foreign Companies Looking to Do Business in Korea
- Make use of resources available, such as IRC, Korea Business Central, chambers of commerce, embassies, Korean organizations such as Invest Korea and KOTRA.
- Foreign companies must take responsibility to fully understand the Korean market and get involved.
