Doing Business in South Korea
by: Erika Visser, Associate partner of Hofstede Insights
Korea or the Republic of Korea (ROK) has a highly competitive business environment and is one of the favourite markets among foreign investors due to the widespread use of English and the thriving economy. Confucian values are one of the main drivers of Korean society, including beliefs such as respecting authority and the in-group, working hard, and being modest. The World Bank ranked South Korea in 2016 as 4th out of 189 countries in their Ease of Doing Business survey. Due to a lack of natural resources, Korea focuses on providing skilled labour enhancing their profile in the global economy.
Some of the main challenges when doing business in South Korea:
- Restrictions in the provision of legal and professional services
- Attracting and retaining top talent
- Ensuring compliance with local legislation
- Even though English is the most studied foreign language in Korea, a language barrier still exists and translations might be needed
Confucianism plays an important role in everyday life and it affects business and management practices resulting in a structured social system with scripted etiquette. Relationships between individuals are controlled by their position in the hierarchy (determined by age, gender, position, social class and existing relationships).
The most important things for doing business in South Korea:
- Hierarchy is very important and the proper respect should be shown
- Building long-lasting relationships is essential for successful business dealings
- Koreans like to conduct business with someone they know or someone with whom they have a mutual contact
- Understanding the concept of face will help to develop and maintain long-lasting relationships
- Age and rank is very important and building rapport with someone your own age might be easier
What to look for in a good partner:
- Has a good understanding of the local and national political situation
- Has the proper status and good connections with the government
- Has the ability and willingness to be your contact on the ground or help you find a good one by being a mutual connection
- Has lived and or worked and or has done business in the Western world and therefore is sensitive to an explicit task-driven way to do business
- Ideally studied abroad
Ensure you have another third-party contact on the ground that can check the credentials of your potential partner first.
Foreigners are expected to always be punctual in meetings and social events, however, they might need to wait for their Korean counterpart. Meetings can be arranged one-on-one rather than in a group setting. In this case you will need to establish a strong relationship with the contact person as he or she will need to sell your proposal to the rest of the group. When entering the meeting room let the person with the highest rank enter first, then the next and so on. Your Korean counterparts will do the same. English is the most popular foreign language and business dealings and business correspondence will likely be in English.
Business meetings are usually held between 10-11am and 2-3pm and an appointment should be made in advance. Avoid scheduling meetings during holidays from mid-July to mid-August. Early October and December Christmas holidays should also be avoided. Bow at the beginning and end of a meeting.
Koreans might ask multiple personal questions during social interactions or business meetings as they try to build a rapport and try to place you in their hierarchy. Always respect the hierarchy and give face to older Korean counterparts or Koreans with a higher status. When doing introductions, always greet the most senior person first and then move down the line. Do the same when introducing your own team. Wait to be told where to sit and match your team with the Korean team in terms of age and seniority as building relationships with Koreans with the same age and level can be easier. Gift giving is an important part of business, make sure that you are giving the appropriate gifts for each occasion. As a high-context culture, implicit communication is key, as is understanding the concept of face and how to give face and avoid losing face or causing Korean counterparts to lose face. This can damage or end business relationships that are needed for successful business dealings.
Business Entertainment / Meals
Do not discuss business during a meal unless your Korean host brings up the subject. Social meetings will usually be held at a restaurant or coffee shop. If you are invited to someone’s home this is considered an honour. Remove your shoes when you enter someone’s house and always place your shoes with the toes pointing outwards (away from the house). Call before you visit, and when leaving express your thanks by bowing and by sending a note afterwards. When you have been invited you should reciprocate by inviting your host for a meal of equal value at a later date. Usually you will be invited for a drink after working hours, and these social meetings can involve a lot of alcohol. Social meetings are very important to help build strong relationships that will benefit business dealings. Do not refuse these social invitations as it might harm current relationships, and try to reciprocate by inviting your Korean business counterparts for drinks at a later time. The person that extended the invitation should pay for drinks or the meal and the younger should always pay for the older. When sitting on the floor of a restaurant men can cross their legs and women should sit with their legs to the side, never extending their legs under the table. Koreans mainly eat with chopsticks. When you have completed your meal, place the chopsticks on the chopstick rest and not on top of the bowl as this signifies certain religious rituals. Never eat with your hands and do not put food in your mouth from a serving bowl, first transfer it to your own bowl. Never finish all the food on your plate as this is a sign that you need more food. Karaoke is very popular in Korea after meals and refusing to sing is impolite.
Be prepared to hand out a lot of business cards. Business cards are a key aspect to determine where you sit in the hierarchy, thus include your company, title, and qualifications. Have a Korean translation on the back of your card. Use your right hand to hand over business cards. Never write on business cards or place it in your wallet or back pocket when receiving it.
Businessmen can wear conservative suits with a tie and a formal white shirt. Women can wear a conservative suit, avoiding tight fitting clothing as some business deals might be done sitting on the floor of a restaurant. Dress modestly to avoid offending locals. Usually, the rule is to cover your shoulders and to wear trousers or skirts covering your knees. Wearing revealing clothing can be seen as a mark of poor character.
Business Meetings and Greetings
Korean men greet one another with a slight bow sometimes accompanied by a handshake while making eye contact. Supporting your right forearm with your left hand during the handshake is a sign of added respect. A junior person will initiate the greeting and bow while the senior person will be the first to offer their hand for a gentle handshake. Generally Korean men will avoid shaking hands with Korean women, however, foreign women can initiate a handshake with Korean men. Elderly people should always be greeted first as a sign of respect. Avoid introducing yourself, third-party connections are recommended to initiate introductions. When meeting an older Korean counterpart for the first time you might be asked multiple questions about your age, job and education. This is mainly to help place you in their hierarchy.
Gift giving is an important part of doing business in Korea and initial gifts can be a company pen or stationary with your company logo. When visiting someone’s house, always bring a gift such as fruit, high quality coffee or tea, chocolates or crafts from your home country. You can give liquor to a man but not to a woman. Use both hands to give and receive gifts; the gift is never opened in the presence of the gift giver. It is polite to reject a gift several times before accepting it.This block takes full on XS but 9/12 on others.
How to manage people and build trust
Confucianism plays an important role in everyday life and it affects business and management practices. Korean people have always lived under authoritarian regimes preventing individual thinking and behaving, and influencing management styles. Korean management or ‘kwalli’ is a combination of top-down and middle management-up with less documentation required than in the US and Japan. An ideal boss in Korea is paternalistic and a strict boss. Korean management strives for perfection and offers their absolute loyalty to the company. Managers have to train their staff on the philosophy of the company and what attitude and behaviour is expected of them using meetings, speeches or lectures. The Korean version of ‘carrot and stick’ or ‘Shin sang pil bol’ is used to motivate staff through giving incentives or harsh punishment on a group basis. Larger Korean companies are known for their severe scolding and criticism to manage staff. This is a sign that the boss is a strict father who then later will likely invite that employee for drinks as a loving father will do. This technique is NOT recommended to foreigners. It is said that Koreans are loyal to a boss and not a faceless company, and thus the relationship between boss and subordinate is very important. Korean and foreign bosses are responsible for developing and maintaining good relationships with their staff. Organisation structures are centralised and formalised with authority concentrated in senior levels.
As a group culture an individual might represent the group, however, decisions are made through consensus with submission and respect given to the most senior and oldest person at the top. The traditional system of decision-making is called ‘poom-mee’ that can be directly translated as a proposal that is submitted for deliberation’. The main function of ‘poom-mee’ is to spread responsibility among stakeholders. The decision-making system will vary depending on the size of the company, and the smaller the company the less likely that they will rely on consensus to make decisions. Senior managers have the authority to make decisions on their own, however, generally there is a certain amount of consulting among middle management and upper management before major decisions are made, and thus foreigners should invest in building relationships with all levels of management.
First meetings are used to get to know one another and never to jump into business. Always remain formal and expect tea to be served as a sign of hospitality. Younger Koreans might be easier to negotiate with due to a western influence, however, older Koreans are very traditional despite their westernised appearance. When doing business negotiations, take your time and expect to make several trips to Korea. Decision-making is via consensus and required the group’s input with the final say at the top taking time and requiring a lot of patience. Find out who will be on the Korean negotiating team and match your team in terms of rank and seniority. Representatives should be older holding more senior roles in your company. A mismatch in terms of seniority and rank will cause embarrassment on both sides. Usually women are not included in business meetings, however, this is changing slowly.
Decision-making is more about the relationships between business counterparts than logic or the bottom-line and thus time should be invested to strengthen business relationships prior to doing negotiations. Mutual trust and compatibility will be the basis of strong business relationships. Koreans also tend to be more aggressive than their Asian neighbours when negotiating and can show anger and frustration, however, it is important to remain calm and not to take it too seriously. Send proposals well in advance, highlighting the main points during the meeting and be patient with extensive questioning that will follow. Try to pick up cues if you have not been understood and rephrase any content that could be too complex (take in account that your Korean counterparts might not have a high level of English). A translator is recommended to avoid any misunderstandings. Make sure you have enough room to negotiate your bid.
Be Especially Careful with
Don’t confuse Korea’s history and culture with their Asian neighbours. Koreans are very proud of their unique culture. Koreans are sensitive about Japan and the cultural history between Korea and Japan - do not give gifts made in Japan or bought in Japan.
Short Case Study
Culture clashes in cross-border mergers and acquisitions: A case study of Sweden's Volvo and South Korea's Samsung (International Business Review · November 2014) by Sung-Jun Lee, Joongwha Kim, Byung Il Park
A M&A between Sweden's Volvo and South Korea's Samsung caused some cultural clashes. Some of these issues are summarised below as discussed in the article. For the full version follow this LINK.
During the early stage of post-acquisition integration, Swedish and Korean interviewees explicitly held two conflicting opinions regarding certain HRM-related issues (e.g., promotion and incentive pay), which led to various organisational problems both individually at the workplace and collectively in labour relations. Both the Swedish and Korean interviewees expressed their concern about cultural differences, and spent a considerable amount of time trying to explain how ‘we’ were different from ‘them’ and complain why ‘they’ did not understand ‘us’.
For many of the Korean interviewees, a firm was seen as being ‘normal’ when it could ‘protect’ its employees. In return, they were unquestionably loyal to their firm. It explains why most of the Korean interviewees shed light on the importance of in-house training programs. They possibly perceived the lack of in-house training programs as indifference to its employees. Swedish interviewees did not seem to fully understand why most of the Korean employees wanted to maintain their old Korean titles instead of receiving an extra bonus. Apparently, they failed to understand the social meanings attached to such titles in the context of Korean firms. The Korean interviewees did not seem to understand either why management urged them to identify themselves in terms of their jobs, not by their positions. Although the Swedish interviewees strongly emphasized the inefficiency of Korean culture in business contexts, they highly appreciated Korean employees’ hard-working attitude.
In summary comparing Swedish and South Korean cultures:
In summary comparing Swedish and South Korean cultures:
References & Links