I was sharing with a firm investing heavily in South Korea the considerable opportunity but one that comes with some challenges. Top on my list, I feel it’s a land of change. More than most foreign companies operating or looking to launch in Korea realize.
This translates in deals and agreements more as frameworks, a roadmap and subject to change. It’s rare to see a long- term strategy… 2020 now a common target for planning purposes.
So what am I getting at?
Regardless of where a foreign company today sees their project in 3-5 years… it will need to evolve. The team on the ground needs to focus 100% on the construction deadlines and milestones—but senior overseas leadership need to develop contingencies…
in one for my project where I served as an advisor, Incheon’s Songdo International District it evolved over the years…. the current model differs lots from the early 2000s original plan and even at midway point 2007.
1000 plus strong Starbucks Korea, too, is evolving more in Korea than even the US… Now with 60 plus “coffee forward” Reserve café, and more are opening monthly—the brand adapting to the Korean upmarket demand for premium goods and services.
So when looking at 2020 and beyond… as my work takes me…
What will be seen as new and different in 5 years?
What other projects, product and services in the works or being considered might better target Korea in 5 years?
Finally, as caveat is with regard to local partners… What are the plans if the local partner shifts and alters their focus?
Many do and have exited projects as their goals change. This is common and not an exception.
Again, all said, advising on best practices, workarounds and a sound plan is where I provide a framework, context and strategy.
As always, we open to discussing your needs and concerns.
Stacey, email@example.com, my assistant can schedule us a time to meet, or chat by phone. For urgent matters, Text me at 310-866-3777
In this Part 2 of my “Working with Korea 2017” series, I cover several scenarios with best practices for supporting overseas team.
All take finesse and collaboration, plus recognize norms and practices differ… as well as require working “within the Culture.” To again clarify, my perspective is based on years working with Korea and especially in daily mentoring and providing strategy for their overseas operations—Koreans and Westerners.
It’s common for a Korea expatriate, frequently called a Coordinator, to directly request members of the team to gather information or data on the local operation. Usually, Korea has asked for this information and the Coordinator is executing the request. These always have a sense of urgency.
The Challenge is the local departmental head may be circumvented (often unintentionally)…. and requests disrupt operations and designated priorities. More so, the line of management for the department is blurred—i.e. staff confused on “who is in charge.”
The Workaround centers on an effective working relationship between the Coordinator and the department head. An understanding must be reached that when requests from Korea (or from the senior Korean leadership at the subsidiary), it is first brought to the department head… and they handle who will execute.
In particular, the local western manager is more familiar with their team, individual workloads, any special situations and skill sets. In fact, with a clear communication channel the work will be performed with better results by the individuals tasked with the assignment, and less stress on the Coordinator asked to acquire the data.
As a caveat, one burden on a department can be when a high percentage of work and tasks teams are engaged are to support Korea and not the local operations. Part 3 in the series will provide some thoughts on shifting workload dedicating to Korea requests to actually running the local operation.
As noted, a Coordinator’s role is to support the local operation. Local teams and specialists are hired with a high degree of knowledge and experience. A clash occurs when decisions best left to those in the know are deflected.
The Challenge occurs when Coordinators override a decision or unilaterally make the call. This can range from the hiring of new employees to pushing off a much-needed program to the next year.
Again, the Workaround is a clear defined role for the Coordinator. They are advisors who can provide much-needed input and an HQ / mother company perspective… but not assume line manager responsibilities.
In other words, clarity must be established in regard to as long as they are acting on behalf of the mother company considerable weight must be given to their input. That said, even when they have the company’s best interest in mind, their own personal views must be gauged and moderated.
Perhaps the most challenging situation is moving Coordinators to make a decision.
The Challenge- In most Korean companies leadership decide on direction and major issues. In turn, the working team’s role is to implement or gather needed information. This role/ skillset changes when working level Koreans are assigned as an overseas Coordinator.
The Workaround- When conducting a meeting where a decision must be made recognize that your Coordinator will have considerable say in the outcome. First, since the topic and subject matter may be new to your Coordinator, I recommend you share prior to the meeting any needed background documents (best provided in PPT format).
In addition, have an informal pre-meeting Q&A with the Coordinator to brief and update them on any specifics. Note: they may need a day to review proposals and agreements, so timing is critical.
Even in the best cases, expect that the Coordinator may want to postpone any decision until they can carefully review and perhaps confer with Korea. I suggest all documents and meeting PPTs be immediately forwarded to the Coordinator.
I’d create a sense of urgency with a timeline for execution and implementation. Regardless, expect some delays and be patient.
Over the years, I’ve found that Coordinators appreciate when their overseas co-workers recognize that the internal approval process takes time and be ready to offer, as needed, additional supportive data or documents.
BTW, if you are a vendor and your firm provides services to a Korea-based partner, it’s best to provide both the western and Korean teams with background information prior to any meetings. Moreover, be prepared to share the meeting’s content in digital format afterward with the Korean team, too.
Reform in South Korean reaches back to the Asian Financial (IMF) Crisis of 1997.
A bailout package from the International Monetary Fund (IMF) shut down insolvent banks and pushed debt-ridden industrial companies into receiverships. The remaining Groups still standing had little choice but to follow government mandates including restructuring and greater transparency.
In some ways little has changed 20 years later… regulators continue to pressure the leading Korean groups to take on a more transparent corporate governance structure– now in the form of a Holding Company model.
So, what is a holding company?
A holding company is a legal entity that owns other companies’ stock. Holding companies typically do not run these businesses, but they do wield control over their affiliates or subsidiaries. In turn, a holding entity collects fees from operating units for the use of the corporate brand, which is considered an asset.
The Korean government has gone back and forth between tightening and loosening regulations on chaebols over the years, and the trend now is toward tightening.
More so, following the Impeachment and graft scandal involving Former President Park Geun-hye, which pulled in Samsung, Lotte and SK, politicians are calling for even greater reform.
In most cases, the Model is for a Group to split itself, often the flagship company, into an ownership company and an operating company as part of a complicated set of steps.
This said, South Korean laws mandate a holding company must own at least 30 percent of its publicly traded affiliates. This poses the challenge.
For example, the Samsung Group were to move towards a holding company model with flagship Samsung Electronics as the entity, it would require the flagship to buy additional shares in some of its affiliate companies at a cost of millions.
All said, Korea’s conglomerates are increasingly being reined in with new laws and taxes that seek to hold family members accountable and to increase the transparency of their organizations.
More significant perhaps is a disruptive public mood and presidential contenders who “pledge to shake up corporate governance as they lay out reform agendas.”
That’s my message this year in both commentaries and on-site presentations. It captures my work, which is to provide companies, leadership and teams with how best to work effectively… taking into account Culture plays a huge role in their workplaces.
When you ask somewhat “what are you most passionate about?” It can be very revealing—family, work, hobbies, sports, and social issues.
For me and my work its sharing Korean business culture and, in particular, strategies to succeed with the Culture.
Since 2004 I have offered programs and mentoring to thousands across America and internationally. A flagship Korea 101 program has served as the core for this Korean business culture mentoring. In turn, this training and coaching builds upon current experiences of the teams, while providing new understandings that lead to solutions.
Both our on-site and web-based programs have been offered to teams not only in America, but also in Canada, UK, Belgium, Germany, Russia, AU, India, South Korea, and the Middle East.
Customized versions have been professionally recorded and distributed worldwide to organizations and incorporated in their in-house programs.
Ideally the program is on-site over 4 to 6 weeks—each class a 1½-hour session. That said, we have a number of options including half and full day immersion programs.
Korea 101 and 201 programs are also an integral part of on-boarding and mentoring for key executives and management.
I like to highlight that we find participants genuinely care about their work and the company, and acquiring the needed skills offered in Korea 101 specifically help them to move forward within the culture.
Finally, the key to the success of our Korea programs has been the strong endorsement of our partner firms’ CEOs, senior American and Korean management, and across their teams. As organizations they realize that their teams need support. Expecting employees to “get it” without training and coaching rarely works. We are proud to work with our partners and their teams.
To chat about Korea 101 or a Korean facing business question, Stacey firstname.lastname@example.org, my assistant can schedule us a time to meet or chat by phone. For all urgent matters, Text me at 310-866-3777
I’m taking a week off from sharing commentary on the Korean car brands, market entry best practices, the Korean presidential impeachment, the indictment of Samsung’s de facto leader, and North Korean sword rattling.
However, beginning next week a Korea 201 program on Korea corporate and business culture will have me back in The OC (Orange County, home to the US HQs for Hyundai Motor, Kia Motors, Genesis, MOBIS Parts, Innocean, GLOVIS, Autoever, the California design centers, and Hyundai Capital. )
Amid meetings, days are filling up, but times are still open on Wednesday and Thursday.
As always, Text, Facebook Message, Linkedin Message or Email, and we can arrange a time. Or, Stacey email@example.com, my assistant can schedule us a time to meet, or chat by phone. For all urgent matters, Text me at 310-866-3777
If you have not had an opportunity to read my recent articles, here are the links
I noted, globally, the car industry in 2017 is more competitive than ever due to market fluctuations, shifting demand from sedans to SUVs and predictions that US car sales have peaked.
According to the Detroit Free Press an average of three separate industry forecasts from Kelley Blue Book, Edmunds.com and LMC Automotive predict overall U.S sales are expected to fall about 1.7%.
That said, Korean brands have done exceedingly well on a global scale. I see this trend continuing as Korean OEMs (original equipment manufactures) seek out top talent and adapt to changing conditions, even in an era of potential Trump protectionism.
And while success continues, there are still issues, some of which are rooted in culture that can still be a hindrance to the realization of full potential.
For example, in regard to talent, the abrupt dismissal of a Korean carmaker’s top Western executive can draw considerable attention in the local market’s media and industry.
Sources say these sudden departures are most often due to a failure to meet sales goals set by the headquarters in Seoul. But what’s behind these departures might very well be the real story of interest.
Korean vs. Western Norms
First, tenure for top Korean senior C level executives, excluding chaebol family members, is usually just several years and, in some cases, not even a single year. The career path for long-term Korean employees is to continually move up the hierarchy through a narrowing pyramid, with fewer and fewer advancing to the highest levels.
Even then, Chosun Ilbo noted only one out of 115 staff are likely to rise to a management position–this according to a study of 184 listed subsidiaries of the top conglomerates by market researcher CEO Score.
Among management, logistically only a select few can achieve vice president level and an even smaller number can become president or CEO. Studies have shown the average Korean CEO is 58.8 years old, graduated from a prestigious university and took 25 years to get to the top.
These executives recognize that at some point in their career they will be asked to retire and exit, allowing their juniors to advance. Most often these organizational changes occur during the end of year restructuring.
These practices align with norms of a collectivistic society and the Korean executive accepts the decision based on the group goals taking precedence over his or her individual objectives and desires. The goals and needs of the group supersede the comfort and satisfaction of the individual.
Following a somewhat different model, Korean overseas organizations have at times opted to assign a Korean to oversee the local OEM subsidiary. These employees work as expatriates for 3-5 years and then return to Korea for reassignment, retirement or exit.
At other times Korean companies will hire seasoned western professionals for the top leadership positions. Local industry expectations are that the westerners will stay on the job for an extended period until they retire or move to another company. A gap occurs when Korean cultural expectations are that the western leader would only hold the job for at most five years.
While year-end restructuring with promotions, retirements and dismissals are accepted Korean business norms, timing for the departure of a key western leader can be an issue. In particular, with a year-end exit the holidays allow little if any progress on recruitment.
Typically, companies, Korean or Western, are well into the new year before they can effectively interview candidates, review options, and consult with senior management before reaching such an important decision. Even if the search is internal, the process takes months.
What is concerning in today’s global market is a top proven leader of that caliber needed to head up a brand may be unwilling to accept a position so tied to achieving robust sales goals as well as being responsible for the overall business, when design, product mix and production targets are also set by the Korean HQ.
An Alternative Approach
I do see some alternatives. Termination of senior leadership goes with business. However, as Korean car brands strive to become more global, deep consideration is needed to determine the best way executives should leave. With a well-managed process there is little damage to the brand, and the field is opened to the best potential candidates for the job.
As an epilogue to The Investor article, and as a trusted industry friend and market leader reinforced… changing executives does come with the territory.
Nevertheless, we have seen in the case with American CEOs John Mendel of Honda, Jim O’Sullivan of Mazda, and Jim Press of Toyota—plus most recently Nissan’s Carlos Ghosnstepping down from the role of CEO, there is a success model of well-crafted exit notices (retiring, leaving for family reasons, resigning to seek other opportunities). These reduce negative press and promote a more balanced, attractive workplace culture.
I am a strong advocate of Korean global business. I see great opportunities and am passionate about seeing Korean brands succeed overseas as well as international brands thriving in Korea. However, as I have shared in a previous Brand in Asia article, my experience is that companies, Korean and global, need to recognize the considerable upfront investment required to enter markets outside their home countries.
In this follow up commentary I would like to share what I see as best practices.
Step 1: Do your homework
Invest time and resources in Discovery of the local market. Seek out an expert knowledgeable in both the local market and business sector to perform an objective detailed competitive analysis. The report should identify the strengths and weaknesses of the competition within the market, strategies that will provide you with a distinct advantage, the barriers that may prevent you from entering your market, and weaknesses in the competition that can be exploited.
Frankly, too often we see a company just scratch the surface. In some cases this is to control initial investment costs by assigning in-house teams to work remotely by researching via Google search. In other cases the staff at headquarters dispatches a team to do some “field work,” attend trade shows, and perhaps arrange to visit a few potential partners. This falls short of a legitimate competitive analysis.
Step 2: Get in front of the right people
For highly recognized U.S. or global brands, there is less a barrier in setting up meetings because product or service name recognition does open doors. I have found that this recognition at least generates enough interest for a potential partner to want to learn more. For Korean brands entering an overseas market there is considerably more effort in establishing upfront credibility.
I should point out that a cost comes with arranging solid introductions. This process is very time consuming for both international and Korea market entry. Additionally, anyone with the skill set, savvy and reputation to make introductions, especially with decision-makers, cannot be expected to do so as a favor.
Top consultants with a proven track record also do not work contingent on a potential partner and the company signing a contract.
Step 3: Share your brand, product and service like a first date
Although best done in person, I recognize introductions and first contact today is often “virtual.” That said, any content presented at this stage should be the very highest quality and well localized. Far too often, I see re-purposed PDF and PPT presentations—not unique, custom tailored content. Then, make sure the grammar, spelling and punctuation are double-checked by a native speaker, and the pages are free of format glitches.
Step 4: Share the Vision
During their screening and selection process global companies will select a top candidate among potential partners based on a number of criteria—foremost being the partner’s solid vision and business plan in the market. They will ask if the local partner has performed a detailed competitive analysis (see Step 1). They will then ask for a comprehensive Go To Market Business Plan. As a best practice, the Business Plan needs to be detailed, not a 3-4 page overview. As with PDFs or PPTs shared in introductions, the Plan needs to be free of glitches, poor grammar or spelling errors. The documents need to present an attractive, sound business opportunity.
All said, these 4 steps are best practices that can lead to a successful Memorandum of Understanding (MOU) and then agreement. They require time, resources, and commitment—with up front cost and many steps counter to past and current practices in Korea that traditionally require less investment.
Frankly, global business comes with challenges and risks. The effort requires embracing a new model and taking bold action by committing resources to a project that takes them into uncharted waters even when they feel a more practical approach is to tackle each stage as it unfolds.
At times representing Korean firms licensing the foreign brand and at times the international company seeking a Korean partner. In the best cases, I bring partners together, resolve their differences, and work towards an amicable agreement. In less so pleasant circumstances, I have been engaged when terms of an agreement are in dispute.
For entry into Korea, the current model is for an international brand to request the potential Korean company to prepare a “go to market” Business Plan. The plan would usually include background on the company, the competition, a 5-year sales and revenue projection and the number of locations they will open over that time period.
This model of asking the local partner to outline their plan may work well internationally between western companies—similar norms shared. For Korea, this model has faults for a number of reasons and ends in Brands less than pleased over time. This experience is not uncommon.
First and foremost Korean companies have high uncertainty and prefer to minimize risk in new ventures. They feel circumstance may change and not wish to be locked in to a rigid commitment. More significant, they see an Agreement as a roadmap subject to constant “adjustment” (code word for downsizing) and modification. This means the Plan they craft may be one attractive on paper for the sake of securing the Brand—and open at a later date to re-negotiation.
What’s more, when asked to draft a Business Plan/ Go To Market Plan, the actual teams developing the plan may have limited (some no) experience in actually launching a brand with western expectations. In turn, their business plan on paper may be very different what they will do in reality.
So what does this mean for 2017?
Frankly, I have been increasingly hesitate when asked about approaching potential Korean partners for international brands knowing the current Korean mindset and their preferred business practices.
Instead, I strongly recommend international brands present their potential partners with the Brand’s business plan for the market vs. asking for their Korean team to prepare their version.
This, of course, is a new model, however, it is over time in both parties best interest with expectations agreed upon up front and less subject to disagreement down the road…
As for crafting a localized business plan, this is something I can assist ….
With the start of every new year I am approached to consult on market entry and new business development projects that range in size and scale.
In addition to longtime and ongoing international support of major Korea Groups and their branding, marketing, sales, and manufacturing subsidiaries, I work with companies to secured overseas partnerships. This includes both Korean SME (Small to Medium size Enterprises) firms entering other countries (the U.S. for example) as well as foreign firms seeking opportunities into Korea.
Particularly for smaller Korean firms hoping to expand globally the challenges are many. In fact a recent Korea Times article, Korea seeks to boost SME exports points out SME struggle considerably more than the large group companies. I concur.
Why? Frankly, my experience is that global companies, even SME looking at Korea, recognize the considerable upfront investment required to enter the market. The companies invest time and resources in Discovery and hire experts to assist in the local market. As a benchmark based on recent projects this cost is easily a minimum of US$30,000- $50, 000…. just to accomplish an MOU with NO contingencies on fees for first securing a partnership. There are, of course, additional costs after an agreement is signed.
In contrast, Korean firms entering overseas markets prefer to take a different, more reserved approach. Sadly the success rate for Korea firms entering overseas markets is poor—even with the support of highly dedicated Korean government agencies such as KOTRA .
I can elaborate in more detail, but basically Korea companies tend to be very direct and want someone to focus on finding them a solid, committed overseas partner or client with little investment and upfront payment of fees to local experts in market entry — all compensation contingent upon first finding a potential partner. This rarely (never!) works.
More so, although Korean companies have websites, product, and company information (often in need of editing), they lack what is commonly accepted content for meeting presentations with potential partners, including, but not limited to, a detailed localized, savvy Go to Market Plan—often a high content 20-30 pages and a competitive market analysis. These western expectations are not options.
Even with adequate funding and preparation, getting in front of the right people is probably the greatest challenge in market entry. This is the same for Korean market entry or overseas market entry. For highly recognized U.S. or global brands, there is less a barrier in setting up meetings because of the strong desire for a top brand. For Korean brands entering an overseas market there is considerable more effort. In fact, I most often have to rely on my credentials to begin a dialogue with a potential partner vs. the Korean brand itself, which typically is little known outside Korea and East Asia.
All said, I am a strong advocate of Korean global business. I see great opportunity and am passionate about seeing Korean brands succeed overseas. However, as I have shared, this does require an upfront investment.