|
Making Joint Ventures Work in Korea
by Tom Coyner
Korea IT Times
June 2006
This is the first of a two-part article. Ed
Joint business ventures are frequently seen as "marriages"
between companies. As in a marriage, cross-cultural business ventures
demand a generous degree of give-and-take, understanding, patience and
forbearance. It has been noted that to regard marriage as a 50-50
proposition is a mistake. Marriage might be more properly regarded as an
80-80 proposition. The same is true of corporate partnerships.
Nonetheless, when looking for a bride, it is critical to know your future
spouse's limits before reporting home. As obvious as this may seem, often
wishful thinking takes the place of doing one's homework.
Some years ago, one of the large chaebol companies was willing to go
50/50 on a joint venture with a large American company. When the assigned
American VP went back to the executive board in the United States,
he was asked if the American firm could have a 51% share. He made the
mistake of saying, "I think that may be possible" when he should
have said "no way." When he returned to Korea with
the 51/49 authorized offer, the Korean company told him to get lost.
The plant that was to come from this JV, producing a product for use in Korea and exported to the rest of Northeast
Asia, was instead built in Taiwan.
The American VP was later fired. The VP's blunder was agreeing to an
impossible request because he did not fully understand the limits of his
prospective partner.
One other common blunder comes from foreigners believing a common
overstatement from a prospective partner belonging to a chaebol. Too
often the prospect exaggerates their capacity to sell to other companies in
the same chaebol group. As enticing or logical as it may seem, in
fact this is rarely the case. The messenger who predicates setting up a
joint venture on this exaggeration could be heading for some nasty turns in
his or her career.
Nearly every joint venture in Korea has some sort of
adversity between partners sooner or later. Sometimes complete breakdowns
occur due to severe partner conflict. In such cases, the unfortunate result
is a traumatic divorce causing permanent damage and injury. Perhaps many of
these situations could have been avoided or overcome with adequate counsel
and understanding of the unique dynamics involved on both sides.
Several factors may enhance the sensitivity to cultural differences, and
bring about an awareness of potential areas of conflict, their prevention
or resolution. Let's consider the following:
Dominant National Traits
As in any human organization or enterprise, control of one's own
destiny is the name-of-the-game. This deep-seated emotional response is
especially prominent in the Korean national psychology. Koreans want to
maintain their independence and self-reliance, free of any domination by
foreign business. They are a people who successfully maintained their
distinctive identity throughout a history of repeated war and domination by
neighboring powers. Therefore, in dealing with their foreign partners, it
is natural that Koreans are sensitive and concerned about the degree of control
that they can maintain. It should be readily recognizable that some of the
behavior of Korean partners is due to their fear of losing control of the
company. Koreans can behave quite chauvinistically in spite of their
realization of the benefits of being more open and cosmopolitan.
Expectations from a Foreign Partner
Position and Status
Most Korean employees will certainly be paying close attention to which
executives will have the majority influence on their long-term well-being.
So the relatively short-term foreign director may have special challenges
in obtaining the same level of loyalty and dedication as received by the
Korean counterpart. Because of this, there is a general tendency of the
Korean partner's employees to generally ignore the foreign staff and work
around them. It is, therefore, critical for the foreign company to send
someone who is mature in many ways as well as having superb people skills.
The biggest mistake is to send some young MBA or Ph.D. hotshot lacking in
excellent cross-cultural political skills. Generally speaking, the foreign
representative really should be approximately the same age bracket as the
Korean counterpart. Someone who is quite a bit younger is likely to be not
taken seriously by the Korean rank and file for this senior position.
While Korean business people are profit oriented, profit is not the only
objective that Korean business people seek from an association with a
foreign company. They also want sustained growth and a larger market share:
with foreign products, technology, capital, and export capability. Small
companies, sometimes, seem more interested in building their image by an
affiliation with a reputable foreign company than in immediate profits.
In an association with a foreign partner, the Korean executive usually
wants to occupy a position with status and recognition, even though the
position does not necessarily accompany major responsibility in the
company. Job title is important, since it signifies social standing in Korea's
highly hierarchical society.
The Korean partner normally finds satisfaction in a situation where a
smooth relationship exists and, at the same time, he can meet his ego
needs. In Korean psychology, "kibun" is an extremely
important factor in ego fulfillment. This is the personal feeling, the
attitude, the mood, the mental state. Once the "kibun" is
unpleasant or unsatisfactory and "face" is lost in a relationship
with a foreign partner, the Korean partner's representative might be
willing to sacrifice any monetary benefit to recover good kibun.
Sources of Conflict
Let's try to identify some of the possible causes of conflict. Just as
in individuals, each organization has its own personality or culture,
unique to itself. Just as in human relationships, two organizations can be
quite incompatible. Many points of friction are related to differences in
the culture and the (in)flexibility of the style of management.
Incompatibility, both in its personal and organizational aspects, can lead
to serious conflicts.
Priority Differences
Each organization has its own set of priorities. The global strategy of
a major multinational corporation may not necessarily be aligned with those
of its Korean partner.
The most common priority differences arising between Korean and foreign
partners are:
* Profit versus the
market share,
* Dividend declaration
and profit remittance,
* Marketing strategy.
In the early stages of a joint venture, management control is usually
contested, even in a situation where the JV contract stipulates that the
foreign partner has full responsibility of managing the operation.
Management Style
The style of management, especially concerning personal policies, is
frequently a cause for conflict in such matters as:
* Employment and
promotion policies
-Salary increases
* Management
information system
-Customer relations
-Marketing and selling
practices
* Transfer pricing in less common cases can be another source of conflict.
Prevention of Conflict
In a joint operation, partners should make every effort to prevent
differences in management and organizations from causing conflict in the
first place.
Procedure Formula
A set of positive "rules of the game" must be established in
the formation of the joint venture and maintained throughout the entire engagement.
Some joint ventures have made it a point to have formal, annual review
meetings to ensure that both sides are pulling in the same direction and
ultimately if it still makes sense to continue to partner. It is desirable
to discuss and lay out as much as possible the management of the companies,
anticipating some of the possible problem areas. Records and minutes of
negotiations and ongoing consultations should be kept in good order and in
detail for future reference. If misunderstandings arise it is always
helpful to go back to the record, thus avoiding uncertainty and doubt that
could create instability and deteriorate the partnership.
Communication Channels
It is important to maintain regular and sincere open lines of personal
communication between the partners for an effective, productive and
harmonious business relationship. As long as there is dialogue, solutions
can be found, even to differences of major proportions.
The issues involved in working with a chaebol can be completely
different than working with a medium-sized partner. While one can assume a chaebol-class
company will have staff with the English language and backgrounds to
communicate effectively and easily with the foreign partner, this is often
not the case with the smaller companies. Therefore, special diligence is
needed to make sure that employees with language and communication skills
are on board when considering partnering with a medium-sized or smaller
company.
Status & Position
Another way to avoid difficulties with the Korean partner executive is
to be sure that he feels he has something important to do in the
administration of the business. That is, he is busy and active in company
affairs. He can be of invaluable use in areas where he has special skills
and important contacts such as public relations, government connections,
customer contacts and labor relations. These are areas where the expatriate
executive might lack skills, especially due to language and communication
obstacles. The Korean partner director can perform a strategic role with
these contacts and can be a beneficial adjunct to the foreign counterpart
and enhance the whole joint operation.
An alternative strategy is to take advantage of the vertical structure of Korea's
Confucian society that places great importance on position and status.
Therefore, some conflicts can be avoided by appointing the Korean
representative to the highest possible position in the company, such as
chairman. In a Korean organization, a person on top of the hierarchy is not
supposed to be involved in the mundane, down-to-earth details. So by
placing one's Korean counterpart in a high, honorary position one can
prevent him from meddling in day-to-day management decisions.
* * *
Next month we will resume this overview and consider
ten practical suggestions offered by expatriate executives on how to be
successful in foreign-Korean joint ventures.
* Mr. Song-Hyon Jang contributed to this article
|
