It goes without saying that entertaining customers and
prospects is a big part of doing business in Korea. But since the enactments
of various overseas anti-corruption laws in the North America and Europe,
many foreign businesspeople hesitate trying understanding this topic. It is
better to allow your Korean partner company to handle this part of the
business process. They best know the market, the culture and the language.
Best of all, it is often legally prudent to pursue a policy of “don’t ask so
my Korean partner doesn’t tell” should anything hit the fan down the road
with your home office auditor.
But as wise as that attitude may be for Western
business professionals, it can place one on the edge of a metaphorical cliff
should one have to pre-authorize payment of business entertainment for one’s
Korean sales managers or whomever. Since many foreigners do not know how far
the “drop” may be from that cliff, the natural reaction is to say “no.” This
naturally can frustrate any Korean salesperson if (normally) he or (rarely)
she feels it is required to win a major deal.
So as to shed some light on the topic, as your
dedicated columnist, I have gone beyond the call of duty to find out what
Korean business entertainment is really all about.
Yes, it has been a nasty undertaking, but dog gone it, someone had to
do it.
At first glance, all this business entertainment seems
like an expensive way for Korean men to expand livers and shrink brain cell
count under the guise of developing relationships that lead to sales and
(wink, wink) having some fun in the process. But only if it were truly the
case. It may start out that way when one is young, but by the mid 30’s,
serious entertaining is actually hard work.
To put all of this into proper perspective, let’s
consider how a traditional Korean salesman uses various forms of
entertainment to capture a major business-to-business sale. (I will be using
the term “salesman” since “saleswomen often have to drop out of the process
and do team selling through their male counterparts)
While personal introductions are critical, often even
with such introductions, the Korean salesman starts out dealing with
strangers. Often the second sales call is scheduled just before lunch so
that salesman can take his prospects out to a modest lunch. If the sales
process is continuing well, later on the sales calls will be in the late
afternoon. Sometimes – not regularly – the salesman may offer to take the
prospect’s staff member or two out to a modest dinner followed by a few
beers. As both sales cycle progresses and personal relations improve, dinner
may be followed by reserving a private room, drinking beer while playing
“go-stop” card games. Alternatively, a salesman may take his guests to the
local sauna and play card games for hours there.
From this point a good Korean salesman should be
earning the trust and candor from his prospects to pick up “inside
information.” And I can tell you from having sold in Japan and the U.S., it
can make for a startling comparison to elsewhere in how much inside info
that comes out of these informal sessions. Not only can a salesman learn who
the competitors are, how they are viewed by the decision-makers, but even at
times what are the competition’s price offerings.
While the above schmoozing continues to and past
contract signing, we now reach the point when serious business entertainment
begins. Contrary to many foreigners’ opinions, expensive entertainment is
not rampant. When serious money is spent, both the seller and buyer take
such opportunities seriously. On the seller’s part, it is important, of
course, not to inflate the cost of sales. But also on the buyer’s part, it
is equally important not to mislead vendors. Buyers’ corporate auditors
consider acceptance of excessive entertainment as a form of corruption. In
fact, it is not unknown if a seller concludes they have been “had” by
buyer’s manager who is not seriously interested in buying from them, they
may notify that manager’s auditing department.
So offering -- and accepting -- a night out on the town is not a
lackadaisical affair.
Before we go any further, this is a good place to
consider some common errors in this process.
For foreigners, a common error is to pick up a prospect after dinner
for drinks. Entertainment always starts with dinner and ends whenever,
depending on the circumstances. A much bigger error can be entertaining the
“foreigner handler” rather than the real decision-maker. Once the mistake
has been discovered, the foreigner will probably need to entertain once more
but at a more expensive level, since the foreigner handler is almost always
of a lower rank and to entertain the decision-maker at the same level would
be considered a slight. For junior Korean salesmen, they almost always can
correctly identify the right person whom they should entertain, but they can
misgauge the proper timing to do so.
So timing is important, but so is frequency. Actually,
major entertainment frequency has decreased. Prior to the so-called IMF
Crisis of 1997~8, the common pattern was to conduct major entertainment two
or three times prior to contract signing, followed by one very big
celebratory entertainment upon consummation of the deal. These days,
however, most companies expect one major night out on the town prior to
contract signing and one more time if the deal is done, but today that often
includes the buyer team members as well as the key decision-maker.
But getting back to timing, the matter is predicated on
when the salesman is sure he is likely not to get turn down.
At other times, when in doubt, suggesting going out together can be a
sales qualification process. A
buyer is unlikely – and it can be considered unethical – to cynically allow
oneself to be competitively wined and dined by two or more vendors. It is
also good to remember by the time he reaches decision-maker status, the
buyer has seen it all and done it all -- years ago. This is not to say there
is no enjoyment to be found, but after so much work and work-related
entertainment, it all remains simply being at best one of the more pleasant
forms of, well, work.
We will have to stop here. In the next column, we will
scale the ladder of Korean business entertainment establishment categories.
It may be a bit of a climb, but it should be an informative as well
entertaining exercise.
So let’s start climbing the formal entertainment
ladder. At the bottom rung are the humble stand bars and
nore-bang or karaoke bars
In the latter case, girls can be included at the additional charge of
W20,000~W30,000 per hour per girl. Beverages are normally limited to beer
and soft drinks. This
relatively cheap and clean entertainment where the girls are quick to
admonish the clientele should a customer get a bit “handsy.”
Next rungs up are the “Business Clubs.” Actually, there
are two rungs here. The lower rung is the
dan-ran ju-jeom, which is
essentially a nore-bang with
private rooms, serving hard drinks such as whisky, vodka, etc.
here, too, an option is to order girls to join in the fun. The
difference with the nore-bang is
the price goes up while the girls are much less inclined to be protective of
their physical privacy. The added surcharge or “tip” comes roughly these
days to W200,000 per girl.
The swankier business clubs are proper
keul-leob or “club.” These are
actually what some consider to be a light version of the room salons, which
we will later explore. These establishment work on a pre-determined number
of hours – usually two or three for a set room price that includes drinks
and snacks at about W300,000+ per guest plus W200,000 tip for each de
rigueur hostess per guest. So, you should budget at least W500,000 per
visitor. (I should state from
this point up the ladder, personal physical privacy becomes even less of a
concern with the ladies with options being often available to spend more
money with these women afterwards, elsewhere.)
The next higher station is occupied by the room salons.
This is essentially the same as the clubs but women are younger and
generally prettier, often with college degrees – or at least often able to
speak English, Japanese and/or Chinese. The prices vary considerably
depending on location but including tips to the ladies, one does well to get
away with as little of W500,000 per person and often the tab comes out to
W700,000 or more. Besides the obvious upgrades of these establishments over
the lower rungs, there real value is there are no real time limits on
enjoying ones selves at this level.
Going up one more level, one encounters the
yo-jeong which are combined
restaurants and clubs. Traditionally these were the
giseng-jip or Korean geisha
houses of yore. Today, the girls may be just or even more beautiful, often
well educated, but generally lacking in the cultural refinements of the
nearly extinct giseng.
Considering that one gets a nice dinner thrown in, these are pretty
reasonable options compared to the values offered by the immediately lower
establishments. The price per person runs roughly between W600,000~W700,000.
The “gotcha” is that there is normally a four-guest minimum.
At this lofty height, one wonders where one may go. But
the real question is whom should you entertain at the top? Well, the rule of
thumb is that anyplace that deals with professional female entertainment is
appropriate to the department manager (bu-jang)
level or below. When one needs to entertain true executives, it is usually a
different game. In fact, it is
a game called golf.
An ideal golfing entertainment takes place at a golf
club not too far out of town – ideally the course should not be much longer
than an hour from Seoul or the departure point. Tee-off timing should be
predicated on 18 holes, including a light lunch, not take more than five
hours. Then one hour should be devoted to showering and relaxing before
piling back into the cars to arrive back in Seoul at about 7:00 PM. From
there, an acceptable option is to carry on at a
yo-jeong.
Finally, there is one last detail that probably should
be addressed – kickbacks. As with many things in Korea, standard kickbacks
are different than in most countries. For example, there is a standard
money-back rate that comes to approximately one won kickback for each US
dollar of sale. The money is paid, of course, in cash, but it is done in an
open and transparent manner to the purchasing department. The money doesn’t
go into any one person’s pocket but into a pool of like money. When special
holidays, such as New Year or Chuseok, roll around, this money is used to
buy gifts for the purchasing company’s employees. So in a sense, one may say
these sales rebates are a form of entertainment and certainly are included
in the costs of sale.
I hope the above gives at least the foreign reader a
better understanding what happens during after-hours business. It may
possibly give some insight to home office visitors who may be aghast by how
much money is used in this regard. One can discuss the merits and faults of
the system, but the system is in place – and it is business entertaining
that keeps Korea’s business world spinning.
Tom Coyner is president of Soft Landing Consulting, a consulting group
focusing on sales and human resources issues. He is
co-author of Mastering Business in Korea: A
Practical Guide.
