Samsung Heirs Stage a Korean Soap Opera

Coyner’s Comment:

It’s not every day I get quoted in The New York Times, even if the quotes essentially just make up a “color commentary” in an article buried in the middle of the newspaper.
Nonetheless, the article is a good one. In a community less intimidated by chaebol advertising might, the article would have been on the front page, if only because the topic is the talk of the town these days.

In any event, Choe Sang-Hun’s article offers some worthwhile insight into Korean culture as it is played out among Korea’s own “Masters of the Universe” clans. This piece points out some of the strengths and weaknesses of this important global economy that is still dominated by a small handful of families.

Enjoy.

Samsung Heirs Stage a Korean Soap Opera

By CHOE SANG-HUN
The New York Times
April 24, 2012

Click here to read article.

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Catering to Caviar Tastes From an Unexpected Place

Coyner’s Comment:

Recently I’ve noted an increased frequency of caviar being served at banquets in South Korea. This may explain why.

Catering to Caviar Tastes From an Unexpected Place
By CHOE SANG-HUN
The New York Times
May 11, 2012


Click here to read article.

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North Face Isn’t the Issue

Coyner’s Comment:

The below is the reworked version of a recent KER message that is in today’s newspapers. Thanks must be given to a KER subscriber/attorney for giving this version a review for legal accuracy.

Should you have not read the earlier version of this essay and are particularly interested in related events, please refer to the following hot links:

“North Face slapped with biggest price-fixing fine”

“Students gripped by North Face fad”

For background on RPM, go to http://en.wikipedia.org/wiki/Resale_price_maintenance

North Face isn’t the issue

If there is a problem, it is the high school students who have decided to wear this brand of expensive mountaineering gear to school.

Tom Coyner
Korea JoongAng Daily
May 10, 2012

http://koreajoongangdaily.joinsmsn.com/news/article/article.aspx?aid=2952619

Recently I ran into a journalist who asked me, “Did you read about North Face here? I can’t make it out. They are being hit by a fine for keeping their prices too high!” Later, I hosted a dinner with a highly respected international corporate attorney. I asked him what could be going on from a legal perspective. His answer was succinct: resale price maintenance (RPM).

Learning RPM’s definition and why it can be viewed as illegal price fixing, I did some research on what may seem to be arcane Western law. Yet, understanding this concept, and considering why North Face Korea is being hit with a record fine, offers some insight into how South Koreans think and act.

I learned the prohibition of RPM is intended to allow the public (consumers) to enjoy a social good at a fair market price. Price fixing by producers and retailers deprives the public from buying at prices that retailers and consumers deem to be appropriate. One perspective is that after a retailer has taken possession of goods, it should be the right of the goods’ new owner to negotiate at whatever price he chooses on the open market.

But there are arguments against RPM restrictions. For example, if some retailers offer drastically discounted prices after other retailers have invested in educating the market or promoting the products, the discounters are unfairly free riding on the promotion costs paid by higher-priced retailers who need to recoup their promotional investments.

Another argument against RPM is that it’s up to the producer to determine its own marketing strategy. If a company wishes an upscale brand, it may insist that its goods are retailed at luxury prices. In such cases, it is incumbent upon the producer to provide goods of sufficient quality and to assist the retailer with superior promotion plus after-sales support; otherwise the market will freely make alternative buying decisions.

Moving from the theoretical to local current events, we shift our gaze upon South Korea’s over-competitive, status-obsessed society. North Face jackets have become serious status symbols among high school students here, so much so that the apparel has become a major social problem.

I also heard a similar dilemma. A high school student felt peer pressure to wear a certain brand and model of jeans that were sold quite expensively in Korean department stores. His father felt the jeans were too expensive, but during a business trip to the U.S., he bought his son the desired jeans.

The son wore the pants to school, admitting his father had bought the jeans at lower U.S. prices. When the father returned home that evening, he learned that his son refused to wear the pants again, since he felt ashamed wearing “cheap pants.”

One could argue the jeans manufacturer and North Face are not responsible. Since I’m unfamiliar with their South Korean promotion strategies, I really don’t know. There is, however, a general assumption that you get what you pay for and that means superior products command higher prices.

Apparently price/value is not the issue. The Korean Fair Trade Commission noted that North Face was monitoring retail pricing via real time data sharing. What the FTC must be referring to is part of a computerized supply chain management system – something common with most major global apparel companies.

What may be less defensible is the charge that North Face Korea may be charging substantially more in Korea than in other parts of the world. But local logistic costs vary greatly around the world. I’ve yet to hear anyone praise Korea for having highly efficient, cost-effective distribution networks. In any case, distribution costs, too, must be factored into pricing for a retailer to be profitable.

What makes this case remarkable is that a foreign company was assessed the largest penalty of its kind. Yet, North Face does not have a monopoly on its type of products. There are worthy apparel competitors that offer similar substitutes. So if there is a problem, it is the high school students who have decided to wear this brand of expensive mountaineering gear to school – and to use the same for status ranking and even bullying. That is why the YMCA got involved with this issue.

With the Korea FTC taking this American company down a peg, local companies are now likely to benefit in ways their possibly inferior marketing and conceivably lesser product designs would have hurt them in a freer market.

In other words, if a small- or medium-sized company becomes too successful in Korea, local forces – be they the government, NGOs or direct competitors – will try to bring it down one way or another. Consequently, should an SME rise too high above its competition, it may be wise to preemptively engage in public relations activities or corporate social responsibility actions aimed at likely sources of social and political opposition.

In any case, it is too easy for the people to blame the temptations rather than seriously address the base causes in this competitive society. The YMCA was right to get involved with this issue. But they may have gone after the wrong culprit. Rather than looking into the shops, well-meaning Koreans need to better address what is happening in their homes.

*The author is president of Soft Landing Korea, a business development firm, and an alliance partner of Odgers Berndtson Japan, a global Big Six executive recruitment consulting company.

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With Wal-Mart Claims, Greater Attention on a Law

Coyner’s Comment:

Perhaps in a few warped ways, I have a bit of affection for the Foreign Corrupt Practices Act, which bars American companies from bribing officials overseas.

From a nostalgic perspective, I recall when this act was made into law while I was at my first “real job” at The Chase Manhattan Bank in Seoul. The immediate reactions around me in the US business community were those of dread. We were certain that we would be put to disadvantage when competing with the locals as well as with other foreign nationalities. It turned out not to be the case. In fact, by and large we discovered the act gave us legitimate cover not to “go local” in conducting unethical and potentially sordid business practices.

In time, other Western nations passed similar laws. While this clean business movement has hardly eradicated corruption, it has contributed to reducing unethical business behavior – most notably among large multinational corporations. It now seems the smaller and more local the business entity, the greater the likelihood for kickbacks, bribes, etc. – usually more with corresponding local governments or other small-time businesses.

In Korea, the Big Boys in business really don’t have to resort to bribes at the same levels as they once did. The biggest players pay their top managers well enough and these companies can command (squeeze) price concessions without needing in most cases to risk legal jeopardy.

Recently someone was passing around on the Internet a “Korea business unmasked”-type English language tips on doing business here – many of which suggested the wisdom of bribes, etc. I would guess that person has not been doing business long enough or perhaps operates on a small enough scale to avoid getting him or herself entangled in the law so far. Perhaps I should have passed on those suggestions. I might have been able to drum up some new business for a lawyer buddy of mine.

In any case, while some business continues to be done unethically, we should remind ourselves that ethics are not morals based on some kind of religious foundation. Rather, ethics are based on accumulated wisdom based on the centuries’ observations of what is likely to succeed and what is almost certain to fail – in the end.

As such, many of my friends & colleagues and I have reputations of being straight arrows when it comes to doing business. Again, it is not because we are so moral (we probably are not!), but it is because we are a bit street wiser than those business folks who are too often cutting corners and getting away with it – for now.

With Wal-Mart Claims, Greater Attention on a Law

By Charlie Savage
The Wall St. Journal
April 25, 2012

Click here to view article.

Posted in Doing Business in Korea, Legal, Management, S Korea Economy, S Korean Politics, Selling, Trade, USA | Tagged , , , , , | Leave a comment

Holy [dead milk] Cow, Batman! Where are our candles?

Coyner’s Comment:

As I often quote Hunter S. Thompson, “When the going gets weird, the weird turn professional.”

It is still too early to figure what’s happening in Korea regarding this issue.

I have tried to provide below a cross section of perspectives, ranging the opposition newspaper, the Hankyoreh, to the Samsung-owned establishment paper, the Korea JoongAng Daily. Understandably, the two editorial staffs of the papers look at the situation quite dramatically. While I wouldn’t suggest that the Korea Times is taking a more independent stand, it is just as well to start with them first.

As of now, I can make the following observations:

1. The Establishment newspapers report this past week’s dead Californian dairy cow is the fourth recorded incident of the sort within the US over the past eight years.

2. The Hankyoreh simply reports that four cows have died from the disease (full stop)

3. The NGOs were out in force in their knee-jerk reactions. Beyond the Hankyoreh, I’m not sure how many people were actually listening to them

4. Today through Monday, sunny spring weather is forecasted – perfect for demonstrations. We may recall that the ongoing 2008 Anti-Mad Cow Disease Demonstrations finally came to an end with that summer’s raining season.

5. The most rational critique I’ve heard so far from a Korean “expert” is that the US-Korean beef exports agreement needs be tighten up to ensure no American dairy cows be exported as beef to Korea. Not that is likely to happen in any case, but such a regulatory refinement would take some of the wind out of Korea’s professional contrarians’ sails.

‘Korea, US cut secret beef deal’
Lawmaker claims gov’t complied with US demand for softer stance

By Kim Tae-gyu
The Korea Times
April 26, 2012

Click here to read article.

Experts say US beef imports should be halted and investigated

US and South Korean governments say this case doesn‘t count as ‘urgent”

Kim Hyun-dae, agricultural correspondent
Hankyoreh
April 27, 2012

Click here to read article.

Civic groups call for suspension to US beef imports
Opposition figures say investigation needed into where recently discovered case came from

Kim Yang-joong, medical correspondent
Hankyoreh
April 27, 2012

Click here to read article.

Consumers keep calm over scare on U.S. beef
혼비백산한 美, 한국 콕 집어 “감사”

By Lee Eun-joo, Kim Mi-ju
Korea JoongAng Daily
Apr 27, 2012

Click here to read article.

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Getting married in South Korea? Bring a lot of cash!

Coyner’s Comment:

I was quoted in today’s International Herald Tribune‘s “On The Record” side bar:

“These guys are better than Korean soap operas.”
Tom Coyner, a management consultant based in Seoul, on the feud among members of the family that controls Samsung.

Hmmm…maybe there is more to this glib thing than I had realized.

Turning to the below topic, most foreign visitors and residents here are routinely blown away by the extravagance that often approaches that of North American native potlatches. At least we do not witness the sacrificing of slaves and servants as the Indian chiefs of yore were known to do to impress their guests. But the material sacrifices that Korean families feel compelled to impress the community can be almost as breath taking.

Over-the-top nuptial spending on events that range from opulent elegance to downright campy kitsch, depending on the budget and tastes of the hosting families. Somehow smoke and/or bubbles have ways of almost always finding themselves being included in these festivities.

One often hears of honeymoon couples returning home on separate airplanes. One can imagine the immediate financial hardships caused these weddings as being one of the causes for traumatic disruptions in post nuptial bliss.

Most Koreans willingly acknowledge that this wedding extravaganza aspect of contemporary culture has gotten out of hand. Yet very few are willing to buck the phenomenon. In this ultra competitive culture where it ultimately comes down to the family’s standing over the individual’s status, it is exceedingly difficult for young people to stand up to their families and declare “enough, all ready!” In fact, young people who have not thought out the immediate and longer term consequences by this overspending can be the strongest advocates to match or better the recent weddings of their friends.

Getting married in South Korea? Bring a lot of cash!
Eunhye Shin
Reuters
April 27, 2012

Click here to read article.

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Samsung Posts Record Profit

Coyner’s Comment:

Giving credit to where it’s due, Samsung has to be congratulated for its ongoing climb in global markets and for reducing the “Korean discount” traditionally assigned to products marked “Made in Korea.”

At the same time, we need to recognize that while Samsung now clearly sells more cell phones than any other company, its profits from the same are much thinner than say Apple. And while the Samsung Galaxy brand smart phones are cultivating knowledgeable and loyal consumers around the world, we have yet to see customers waiting in line before the retailers’ doors open when major new models are released.

Samsung and other Korean companies still need to move from simply providing equal or sometimes better versions of other companies’ technologies. They need to become truly innovative in total product concepts rather than providing the best in components built into their own and their competitors’ products.

Samsung Electronics, for example, has some 5,000 PhDs in its R&D centers. That is very impressive. But in the bigger picture, this imbalance in favor of technology over product marketing may prevent Samsung from moving up from a solid Number Two ranking.

Samsung Posts Record Profit
By REUTERS
The New York Times
April 27, 2012

Click here to read article.

Posted in Doing Business in Korea, Management, Marketing, S Korea Economy, Selling, Technology, Trade | Tagged , , , , , | Leave a comment

How Post FTA Pricing Actually Works in Korea

Updates and Commentaries

Coyner’s Comment

As booze and babies illustrate in today’s newspapers, the consumer price impacts by the EU & US FTAs may have been blown way out of proportions by both proponents and opponents of these trade treaties.

The big price inflators are normally not duties but distribution costs and sometimes excise taxes. In time, some of the new import price savings resulting from tariff reductions may be passed on to consumers as more importers and distributors provide Korean consumers with foreign goods. But that will happen only so long as the marketplace is competitive, free of price fixing. In the main part, however, probably the greatest consumption boosts may be found to be more psychologically than financially based.

That is, consumers come to expect foreign goods to now be cheaper and more affordable — and consequently begin shopping, often for the very first time. Those consumers already familiar with foreign products are likely to be disappointed in the lack of any significant price drops. But in time, experienced shopper, too, will be rewarded.

As the Korean consumer herd begins to start buying more foreign goods, a greater variety is more likely to be commonly found. As foreign goods move away from being considered essentially luxury items to more common commodities, more import/distribution channels will being created. That in turn creates retail competition, which will drive down upstream pricing as middlemen compete more on the high volume, low margin model rather than the low volume, high margin one.

We first saw this happen with the overall wine consumption market exploding, thanks largely to the Korea-Chile FTA in which cheap – but not necessarily cheaper – wines stimulated consumer interest and thereby created increased demand for wine.

In other words, the trigger is for naive consumers to believe they can now afford once-considered exotic or luxury goods and their increased mass purchasing eventually brings down prices – actually more than tariff reductions. On the other hand, without highly publicized free trade agreement support and opposition, the common consumer would not likely pay as much consideration to start purchasing imported goods.

Below are two articles that illustrate shortly after major free trade agreement implementations how imported goods can maintain or even increase prices regardless of the expected FTA benefits.

The baby buggy example may shows price fixing maintaining artificially high prices. But without the FTA implementations, I doubt this practice would have been highlighted by journalists. This is likely to also be the case with whisky and other imports’ pricing in today’s and future media reports. And in turn this kind of exposure may eventually lead to lower prices.

Prices of top whiskies will be raised in mid-April

By Song Su-hyun
Korea JoongAng Daily
March 29, 2012

http://koreajoongangdaily.joinsmsn.com/news/article/article.aspx?aid=2950647

Imported strollers for babies are a giant rip off in Korea
Monopolies on the import, distribution results in hefty profits
51만원 유모차, 한국 오니 105만원

By Lee Sun-min
Korea JoongAng Daily
March 29, 2012

http://koreajoongangdaily.joinsmsn.com/news/article/article.aspx?aid=2950656

Posted in Coyner's Op-Ed Essays, Doing Business in Korea, EU, Economy, Marketing, S Korea Economy, Trade, USA | Leave a comment

A country on a roll, or rather a wave

Coyner’s Comment:

Long I’ve argued that S Korea’s political development is on par with its economic achievements. As the article points out, compared to China and Japan, South Korea comes across as a nation worthy of imitation. Korean popular culture in the form of the Korean Wave only reinforces this image abroad. Naturally as one looks into this phenomonae one sees it is all pretty complicated and intereconnected. But the below gives a concise, high-level summary.

South Korea’s influence in Asia
A country on a roll, or rather a wave

The Economist
Feb 18th 2012

Click here to read article.

Posted in Doing Business in Korea, Japan, Marketing, S Korea Economy, Selling, Society, Taiwan, Trade | Tagged , , , , , , , | Leave a comment

With a gentle kick, makgeolli satisfies

Coyner’s Comment:

This piece was originally penned a couple of years ago, translated into Korean and run in the Korean edition of NewsWeek. I was requested last week to update and add a new spin. Voila! Behold my new opus.

I should mention that I’m referenced as business development advisor to Odgers Berndtson (Japan). More precisely, these days I’m working nearly full time as the business development director for the Executive Search Practice within Nemo Partners HRG, which is an alliance partner of Odgers Berndtson Japan. Last week, Odgers Berndtson became the fourth among the global Big Six retainer-based executive search consulting firms to enter Korea on an ongoing basis.

With a gentle kick, makgeolli satisfies

Sing the praises of the creamy brew that, unlike soju, is not going to give you a hangover from hell.

by Tom Coyner
Korea JoongAngDaily
Feb 20, 2012

Even foreigners living in Korea cannot help but notice how makgeolli has taken on a new air of respectability. As a long-time imbiber of the brew – we are dubbed “makgeoholics” – this is good news!

I once was a Peace Corps volunteer who lived on a monthly stipend of 43,000 won for lodging, food and entertainment. That meant beer and other Western beverages were beyond my budget. So, during most after-hours events, my choices were pretty much limited to soju and makgeolli. But after some forgettable evenings and unforgettable mornings after, I soon realized that the soju of the 1970s was not healthy for living things.

Fortunately, I learned that makgeolli was not only cheap but even good for you. As an Irish-American, I have reverently believed that Guinness stout beer is good for you. In fact, the Irish say that Guinness is a meal in a glass. So, I was overjoyed when I heard from Eumseong townspeople that it is possible to survive a full two weeks on nothing but makgeolli. Having imbibed the stuff for over three decades, there is no doubt the creamy, tangy stuff is full of nutrients – and who knows what else.

And as a rural Peace Corps volunteer, I came to respect Korean farmers and small townspeople. These were real people, doing real work and drinking a real beverage. To me, soju was something akin to poison for a quick drunk, but makgeolli was a real man’s drink with which one can enjoy like a real man while not getting so drunk that the rest of the evening is only a hazy memory.

And, I might add, any woman who tells me she, too, loves makgeolli is immediately regarded by me as a superior sort of female. And that leads to my old friend from our shared Peace Corps days, the former U.S. Ambassador to Korea, Kathleen Stephens.

She has appreciated makgeolli for decades, and often served it at her official residence. While I cannot say her high regard for makgeolli is responsible for her success, I will say a woman who drinks it is likely to be up for any job.

All of which leads us back to the current fad, rediscovery and new ideas for exporting makgeolli. Frankly, I’m pretty excited about all of this. First, it opens the doors for further improvement of makgeolli. Back in the 1970s, under the Park Chung Hee regime, the amount of rice used in makgeolli production was curtailed as part of the nation’s efforts for grain self-sufficiency: a wise move since everyone knew how many Koreans would allocate their limited rice reserves towards the production of makgeolli.

Later on, as Korean agricultural production improved, the controls were removed and pure rice makgeolli became common. That was a major step forward and now makgeolli may be about to take the next important step in upgrading its quality.

When we order makgeolli at a restaurant, usually we really don’t know which type we are drinking. The stuff is served in a generic ceramic pot. In other words, unlike every other beverage on the menu, makgeolli is devoid of branding. As a result, one goes to those restaurants that serve “good makgeolli,” which means a beverage that is made by one of the better brewers and is fresh. Even good makgeolli sours relatively quickly, even when kept at optimum temperatures.

As a marketing professional, I see these negatives as allowing for future positives to be developed. First, by exporting abroad by brand, more competitive pressures will be placed on makgeolli brewers for consistent quality. Tetra Pak Korea, for example, is providing cartons to be used for the export of makgeolli, but so far, there has been no demand for these containers for domestic distribution. Rather, makgeolli is normally distributed only near the brewer’s facility.

But, when exporters fully master the means to deliver makgeolli abroad and as foreign consumers develop a thirst for the beverage, more Koreans will try to make money by exporting. And in so doing, branding will become more important. Furthermore, as brands become stronger, we may see the best brewers doing wider distribution domestically, taking advantage of new packaging – and possibly applying new refinements in brewing.

And that leads me to the second, likely development of makgeolli – new investments in improving the production of makgeolli so that it sours more slowly. In the past, there was regular soju and superior “tourism soju,” and I believe the Korean economy has outgrown that kind of product differentiation.

But I should add a word of warning. Given this upsurge in the creamy stuff’s popularity, I have been sometimes horrified as the unacquainted (usually female) imbibers shake the bottles to stir up the contents prior to uncapping. Frankly speaking, watching that kind of experience is only one level lower in anxiety than watching a sweet young thing pull out the pin from a hand grenade and ask what’s the purpose of the pin.

Should you see a well-meaning dining mate start shaking the bottle, immediately grab away the makgeolli bottle for everyone’s safety. Rather, hold the bottle by the top and slowly swing the bottle in downward arcs, almost as if you were ringing a chime or bell. The beverage deserves respect and your guests deserve to drink it, not wear it.

So next time you are out with your friends, lift your cup of makgeolli and toast what it once was and what it has become. Then dream of what makgeolli may soon be: a real beverage for real people around the world.

* The author is president of Soft Landing Consulting and a Korea business development adviser for Odgers Berndtson (Japan).

Posted in Coyner's Op-Ed Essays, Doing Business in Korea, Economy, Japan, Marketing, S Korea Economy, Society, Trade, USA | Tagged , , , , , , | Leave a comment