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Making Joint Ventures Work
By Tom
Coyner
Korea Times
January 3, 2007
Joint business ventures
are frequently seen as marriages between companies. 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.
When looking for a
bride, it is critical to know your future spouse's limits. As obvious as
this may seem, often wishful thinking takes the place of doing one's
homework.
Some years ago, one of
the chaebol was willing to go 50-50 with a large American company. When the
assigned American vice president went back to the executive board in the United States,
he was asked whether the American firm could have a 51-percent 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 venture, producing a product for use in Korea and exported to the rest of Northeast
Asia, was instead built in Taiwan.
The American vice
president was later fired. His blunder was agreeing to an impossible
request because he did not 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. Often the prospective partner exaggerates
their capacity to sell to other companies in the same chaebol group. The
messenger who predicates setting up a joint venture on this exaggeration
could be heading for some nasty turns.
Nearly every joint
venture in Korea
has problems between partners sooner or later. Sometimes complete
breakdowns occur.
Several factors may
enhance the sensitivity to cultural differences and bring about an awareness
of potential areas of conflict, prevention or resolution.
National Dominant 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 Korean
national psychology.
Koreans want to maintain
their independence and self-reliance and remain free of domination by
foreign businesses.
They are a people who
successfully maintained their distinctive identity throughout a history of
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 they can maintain.
It should be readily
recognizable that some of the behavior of Korean partners is the result of
their fear of losing control of the company. Koreans can behave
chauvinistically in spite of their realization of the benefits of being
more open and cosmopolitan.
Expectations From a Foreign Partner
Most Korean employees
will be paying close attention to which executives have the most 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 the Korean counterpart.
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 as well as having superb people
skills.
The biggest mistake is
to send a young hot shot lacking in excellent cross-cultural political
skills. The foreign representative should be about the same age as the
Korean counterpart. Someone who much younger is likely not to be taken seriously
by the Korean rank and file.
While Korean
businesspeople are profit-oriented, profit is not the only objective that
Korean businesspeople seek from an association with a foreign company. They
also want sustained growth and a larger market share. Small companies
sometimes seem more interested in building their image by 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 if the position does not necessarily come
with major responsibility. Job titles are important because they signify
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 monetary
benefit to recover good kibun.
Sources of Conflict
Each organization has
its own personality and culture. Just as in human relationships, two
organizations can be incompatible. Many points of friction are related to
differences in the culture and the flexibility of the style of management.
Incompatibility, both in its personal and organizational aspects, can lead
to serious conflicts.
Prevention of Conflict
In a joint operation,
partners should make every effort to prevent differences in management and
organizations from causing conflict.
A set of positive rules
must be established in the formation of the joint venture and maintained
throughout the 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 that it still makes sense to
continue to partner.
It is desirable to
discuss and lay out the management of the companies as much as possible,
anticipating some of the possible problem areas.
Records and minutes of
negotiations and 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 personal communication between partners for an
effective, productive and harmonious business relationship. As long as
there is dialogue, solutions can be found, even to differences of large
proportions.
The issues working with
chaebol can be completely different from working with a medium-sized
partner.
While one can assume
chaebol will have staff that speak English and have 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 small 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.
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 because of language
and communication obstacles.
The Korean partner can
perform a strategic role with these contacts and can be a beneficial
adjunct to the foreign counterpart.
An alternative strategy
is to take advantage of the vertical structure of Korea's
Confucian society, which places great importance on position and status.
Some conflicts can be
avoided by appointing the Korean representative to the highest possible
position in the company. 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, the foreign company can prevent him from meddling in day-to-day
management decisions.
Tom Coyner, a long-term
resident in Korea, runs
Soft Landing Korea,
a consulting firm. Coyner can be reached at softlandingkorea.com.
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