Korea Facing / Korea Perspective– Process: the TF

Korea Facing / Korea Perspective   Process: the TF

By Don Southerton  KoreaLegal.org Editor
As with the previous post, I highly encourage you to share your comments and feedback.

In this commentary which builds upon the previous Process articles, I would like point out that although the Korean model appears to move quickly, potential projects are, in fact, reviewed with a high level of scrutiny.

Prior to the approval of any major initiative a “behind the scenes” dedicated task force (TF) is formed. The TF’s job is to research and benchmark the best practices of similar projects outside Korea. In many cases the team is cross-functional, comprised of staff from across the company—each member representing a department. Quite often the TF operates under a code name and work is kept confidential and private, even from most of their own organizations. Over the course of several months the team will compile a comprehensive report for leadership on which management can base a decision. TF reports can vary from a PPT presentation to thick binders.

The preparation work by the TF can provide considerable data and establish timelines, benchmarks and a roadmap for the project. For the Korean market, with which Korean business is most familiar, there is little gap between this in-house planning and the start of implementation.

More significant gaps between planning and implementation occur when Korean firms expand globally and the TF are unfamiliar with the nuances of the local market. Plans crafted in Korea often have little relevance to the actual execution of an overseas project –the timelines, cost estimates and roadmaps requiring constant adjustment and revisions.

As a solution, I suggest TFs solicit local support, and industry expertise–realizing that in many cases, especially in new global launches, there are no overseas operations yet to draw upon. This means the TF not only benchmark best practices globally but also seek out common pitfalls, potential challenges and worst-case situations.

In turn, local teams who will be required to implement need to realize and accept the Plan as more of a roadmap vs. a detailed blueprint. Once leadership has approved the project, the teams assigned to the project are expected to make all efforts to achieve the milestones.
Your Questions, Comments, Feedback?
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Korea Facing / Korea Perspective   Process: the TF

Korea Facing 2014: Process–the Feedback

Korea Facing 2014: Process  the Feedback

My commentary titled “Process” provided insights into the differences between western and Korean project with a focus on planning stage. To recap, Koreans tend to move fast and make necessary adjustments going forward. In contrast, the western and the Japanese process invests considerable time initially to explore all the potential pitfalls and plan accordingly prior to beginning the implemention. In most cases timelines for Korean projects are considerably truncated— a potentially year-long project might be reduced to 3-4 months. A follow-up commentary to ‘Process’ is underway; in the meantime I’d like to share some reader comments:

Thanks for the discussion. I loved the topic.

These comments are like gold!
The conflicts between Western and Korean styles are really quite confronting (baffling to any new staff), and your comments and explanations are like little rays of sunshine breaking through the black clouds. Please keep them coming.

A great piece. Matches my experiences to a T and helps put them in a context that I can understand. Captures some very important ideas.

Great read – my concern is cut twice measure once is not necessarily a proven option.

Thanks Don – you’re spot on here.

I’d also like to share Dr. Jennie (Chunghea) Oliver’s insights. Her academic work at the moment is focusing on globalization and international business. As in the past Jennie’s input on my writing on Korea business is very much appreciated.
Jennie notes…
Understanding the cultural background of a host country is critical for international firms. Culture, as a powerful force pervasively embedded in human interactions and behaviors, helps one get a glimpse of how society is organized and how members of society play their roles. The differences between monochronic culture and polychronic culture, which also show strong connections to individualism and collectivism, have been widely discussed. For example, while a monochronic person takes a serious commitment towards following plans, a polychronic person is willing to change plans as needed. Another example is that while a monochronic person tends to tackle tasks one at a time, a polychronic person tends to multitask. Besides these two examples, orientations toward relationships, time commitments, privacy, punctuality, and private belongings are also included in the differences described by Edward Hall in his book “Understanding cultural Differences: Germans, French, and Americans.”

Agriculture was a major element of the Korean economy up until the early 1960s. In an agricultural environment, farmers plan their activities around meteorological factors which are uncontrollable by man. In this kind of environment, time is cyclical as things are done around seasonal requirements. As such, people tend to change their activities and plans as they go depending on the external elements, namely the weather and the needs of others if cooperative farming is practiced. While waiting for the right time for seeding, planting, weeding, and harvesting, farmers tackle various other tasks. Korean meals eloquently describe this tendency. Korean meals typically consist of a bowl of cooked rice, stew (or soup), and 3 or more side dishes all at once. The person who prepares the meal basically multitasks in order to complete the preparations in a timely manner. While cooking rice, the soup and side dishes are made simultaneously.

According to your comment about work process style, “measuring twice, cutting once” is standard in Western business practice (and Japanese) while Korean organizations seem to exhibit “measuring once, cutting twice” as their model. These two perspectives show a stark difference in worldview. Without understanding each other’s work orientation and habits along with cultural background as described above, partnerships between Western companies and Korean companies is likely to encounter mistrust and dysfunction. In this regard, there is a benefit of having outside consulting firms involved in partnership projects to help both parties meet their respective needs and expectations.
Working with others who do not share the same culture, language, and habitual norm is challenging for everyone and calls for a great deal of energy, patience, and strategic decision making. There is no perfect business solution that works for all organizations. Solutions that worked for some organizations may not have the same effect for others. This thought also applies to work process style. Some projects need a “measuring twice, cutting once” strategy while others need a “measuring once, cutting twice” strategy. The local business environment contributes to this phenomenon. Depending on how quickly the market moves, companies have to adjust their actions. Nevertheless, there are business practices proven to be successful over time. In this case, the best business practices are often taken into consideration for deciding on what kind of work process style is appropriate for a specific project.
Jennie Oliver, EdD
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Korea Facing 2014: Process  the Feedback

Korea Facing 2014: Process

Korea Facing 2014: Process

This is the first commentary in a new series on Korean global business. My hope is you respond in an email and share your thoughts and comments.

Like with my previous works, I will edit the series into a new publication (yet to be titled) and incorporate the valued comments and input

Process: Cut Twice, Measure Once?

During a recent workshop I polled participants on the differences they experienced between the Korean and western workplaces. One attendee’s comment centered on how the Korean planning and execution process differed from not only his previous western background but also the Japanese model.

When asked to elaborate, the participant shared that Koreans tend to move fast and make necessary adjustments as needed going forward. This was in sharp the contrast to his experience with the western and the Japanese process in which time is taken initially to explore all the potential pitfalls and plan accordingly before implementing.

Others in the group added that the ability to report that the project was underway seemed of utmost importance to theIr Korean colleagues. Additionally, in most cases timelines for projects were considerably truncated— a potentially year-long project might be reduced to 3-4 months.

Reflecting on the group’s comments, I recalled that a colleague once noted the Korean model might be seen described as cutting twice after measuring once—a variation to the adage measure twice, and cutting once.

From a cultural perspective, the Koreans’ approach to managing projects differs from the West. To better explain dynamics in the Korean workplace, we need to draw on two cross-cultural terms. The first is “mono-chronic” in which people proceed according to linear plans made well in advance of the project start and carry out tasks one at a time from start to finish. For many this is considered a very western approach. The second term is “polychronic” in which numerous tasks are addressed but not necessarily linear. Multiple issues can be dealt with simultaneously while other assignments can be put on hold or elevated in priority. In many cases, this is the Korean workplace.

A polychronic work style can result in negotiations, planning, and project activities proceeding at major levels with conversations jumping back to earlier discussed issues mixed with new issues. On the positive side, Korean organizations are flexible and teams are used to change. Frankly, however, this can conflict with a workplace culture of high risk-avoidance and limited risk taking.

All this said, I have some suggestions. First, recognizing this is the Korean model and adapting accordingly will save considerable frustration and stress. I have seen efforts by western firms working with their Korean partners to institute a structured project management process to align teams. In some cases this means bringing in experts and outside consulting firms to put in place a western project control system. Although the Korean teams are open to the training and cognitively agree in the value of the procedures, they rely on their own time-proven systems and defer to their own methods, especially when under a deadline. This can apply in U.S., global and Korea-based projects.
And, a final thought to consider. Recently, I have found that Korean companies expanding internationally may spend considerable time researching the new market but stop short of a detailed action plan. Probing deeper into this approach, they see these first ventures as a ‘learn as you go’ experience and are open to what works and what does not. Lessons learned are then used as a foundation for future bolder market entry project efforts.

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Comments requested Korea Facing 2014: Process

Korea Facing 2014: Process

Automotive News: Hyundai pays the price for prestige?

Automotive News: Hyundai pays the price for prestige?

By Don Southerton, KoreaLegal.org Editor

Building upon some of my comments in the most recent Automotive News, I see the media and some industry watchers who look­ solely at the high cost of the land purchase.

Frankly, land is pricey in Seoul and Gangnam even more so…. Following the announcement of the deal, the Hyundai Motor Group has dis­closed more details­­­ one point being that up to 30 sister companies will be tenants spreading ongoing costs across much of the organizations.

More significant with new tax laws soon to enacted, the Group will hugely benefit from the land purchase.

My perspective has been cultural. In short, the move is a bold statement. They brand will contin­ues to move upward and gain in prestige. More so, in a status based culture like Korea a high profile corporate campus solidified the Group’s position within both society and business.

Hyundai pays the price for prestige

$10 billion land deal brings swift backlash

Gabe Nelson
Automotive News | September 27, 2014 -

Hyundai Motor Group Chairman Chung Mong-koo got what he wanted: a spacious corporate home in Korea’s most prestigious neighborhood.

Now he is paying the price.

With a record $10 billion offer, triple the appraised value of the property, Hyundai outbid rival conglomerate Samsung Group this month for a 20-acre plot in Seoul’s swanky Gangnam district, which it plans to use for a headquarters uniting the group’s far-flung offices.

The purchase provoked a swift backlash.

Investors sold off Hyundai stocks after news of the deal surfaced on Sept. 18, erasing $8 billion of shareholder value in a matter of days. Labor leaders called strikes at Hyundai and Kia assembly plants, and postponed contract talks in protest. Board members rushed to distance themselves from the decision, saying they weren’t told the bid would be so large.

While the deal appears to have become a boondoggle for Chung, 76, who has steered Hyundai Motor Group to new heights since taking over the company in 1999, experts see the purchase as unsurprising, given Korea’s status-driven business culture.

The deal will send an unmistakable message about Hyundai’s place in the corporate pecking order, aiding in marketing and recruiting, said Don South-erton, a consultant on U.S.-Korea business relations whose clients include Hyundai.

“The dollars shock people, but it’s really nothing out of the ordinary over there,” Southerton said. “There’s a feeling [in Korea] that if you want to be a global player, you’d better be in Gangnam, because that’s where the serious global companies are.”

Opportunity cost
Hyundai Motor Group is spending $10 billion on real estate in Seoul’s splashy Gangnam district. What else could it have done with that money?
• Build 6 to 10 assembly plants: Hyundai spent $1.7 billion on its Montgomery, Ala., manufacturing complex. Kia is spending more than $1 billion on a factory in Mexico that opens in 2016.
• Redesign 20-plus products: Hyundai has said it spent 450 billion won ($432 million) to develop the redesigned 2015 Sonata and 500 billion won ($480 million) on the redesigned 2015 Genesis.
• Buy an automaker: $10 billion would go a long way toward a bid for a smaller rival such as PSA Peugeot Citroen (market cap: $10.1 billion) or Mazda ($15 billion), though there is no sign that acquisitions are on Hyundai’s agenda.

Hyundai already has a smaller presence in Gangnam, the retailing mecca made world famous by the 2012 pop song “Gangnam Style.” Hyundai’s showroom there, called the Hyundai Motorstudio, includes a gallery, cafe, library, playground and tuning garage under a single roof; in the street-facing windows, Hyundai displays Genesis luxury sedans on spits that rotate the cars at unusual angles, like rotisserie chickens.

Seeking visibility

It is common around the world for car companies to seek visibility in ritzy commercial districts, as exemplified by General Motors’ decision last week to move Cadillac and 50 employees to Manhattan’s SoHo neighborhood.

But Hyundai is going a step further by moving its whole headquarters to Gangnam. And the property that Hyundai bought, held by state-owned Korea Electric Power Corp., was the only suitable property that was likely to come available, said JoAnn Hong, a director at real estate consultancy Savills Korea.

“There are no [other] large parcels nearby,” Hong wrote in an email to Automotive News. In Seoul’s three main business districts, she said, “this one is uniquely large.”

Dabbling in real estate
Though Hyundai’s $10 billion purchase is unprecedented in size, other automakers have poured money into big building projects in pursuit of prestige.

› Volkswagen AG’s Autostadt
Wolfsburg, Germany
Each member of VW’s corporate family gets a shrine at this $400 million complex, which opened in 2000. It was envisioned by Chairman Ferdinand Piech as a way to transform VW’s gritty industrial hometown.

› Toyota Motor Corp.’s Amlux
Tokyo
Opened in 1990 in a flashy high-rise in Tokyo’s Ikebukuro district, this tourist attraction was a showroom for past and present products, plus games and shopping, until it closed in early 2014.

› Ford Motor Co.’s Renaissance Center
Detroit
Led by Henry Ford II, the automaker spent $350 million in the mid-1970s to develop the iconic towers as an urban-renewal project. General Motors bought it in 1996 for its headquarters.

› Porsche AG’s Experience Centers
Atlanta; Beijing; Los Angeles; Leipzig, Germany; Silverstone, England
Porsche is building tracks around the world for owners and shoppers to test drive its sports cars. Its latest, a 53-acre, $29 million complex near Los Angeles, is due to open this winter.

Still, the impact on Hyundai’s auto business could be substantial. By spending nearly one-quarter of the $41 billion that Hyundai Motor Group’s 10 listed companies held in cash at the end of the first quarter, the world’s fifth-largest automaker will have that much less to invest in new factories, product development, r&d and acquisitions that could help it overtake competitors such as General Motors, Toyota Motor Corp., Volkswagen AG and the Renault-Nissan alliance.

Ongoing labor issues

Hyundai and Kia said this past week’s strikes were not a direct response to the property purchase, but part of ongoing labor issues. Union officials didn’t respond to requests for comment.

In a joint statement, Hyundai and Kia said the land purchase reflected the group’s need for an “integrated control tower” to oversee its rapid growth.

Meeyoung Song, a spokeswoman for Hyundai Motor Co. in Seoul, said the company wasn’t trying to generate a short-term return with its purchase, but rather “to establish a corporate campus that will create far-reaching synergies.”

Southerton said Hyundai, which is Korea’s second-largest chaebol conglomerate after Samsung Group, may also have felt pressure to keep up with its larger rival, which already has its headquarters in Gangnam.

“They need to secure this position in their society, and they need to maintain that position,” Southerton said. “This is one way that they can do it.”

Hans Greimel contributed to this report.

LINK http://www.autonews.com/article/20140927/OEM/309299979/hyundai-pays-the-price-for-prestige

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Automotive News: Hyundai pays the price for prestige?

Golfsmith Korea Virtual Tour

Golfsmith Korea Virtual Tour

Very cool. Golfsmith Korea virtual tour, Lotte Premium Outlet Paju.  A BCW project.

 

Golfsmith Korea Virtual Tour

Korea Commentary: Car Industry Strikes 2014

Korea Commentary: Car Industry Strikes 2014

By Don Southerton, KoreaLegal.org Editor

Labor issues abound in Korea. None more public than those in the car industry. As for my thoughts on when this year’s Hyundai and Kia Motors’ strike will be resolved…. it’s hard to make a prediction.

My concern is that the Strike vote was late this year, in late August vs. July, and Chuseok is very early this year. Many years, Union and Management conclude negotiations before the Chuseok Fall Harvest holiday, which begins next week on Sept. 6.

Nearly 70 percent of the 47,000 + workers in the Hyundai union voted to strike, joining Kia’s workforce of 30,000.

The Union’s primary demand is that bonuses and other compensations now be included in determining workers’ base pay. Currently this base pay is an hourly compensation. In turn, this wage plus bonus base would be used to calculate allowances for overtime and holiday shift pay and other benefits, such as vacation pay and pensions. The inclusion of bonuses would raise workers’ overall income by an average of 10%.

The Company’s position has been that the ordinary wage/bonus demand should not be part of the current contract talks until there is a final court decision ruling on the issue. The country’s Supreme Court ruled in December 2013 that periodic bonuses and other compensation must be included in workers’ base pay. The court deferred to companies and their unions to carry out specifics of the ruling. Acting in response to the ruling, Hyundai and Kia and the Union entered into its own legal battle over the inclusion. Results of this legal review by the Courts are still pending.

Other key contract issues include an extension of the mandatory retirement age from the current 58 to 60. Frankly, this is an issue with older workers throughout South Korea.

Meanwhile, Renault Samsung Motors Co., the local unit of French automaker Renault S.A reached a tentative agreement on this year’s pay increase, pending a local court’s decision on a sticky labor-management issue on ordinary wages.

In addition, carmakers, such as GM Korea and Ssangyong Motor, decided to include bonuses and other fixed benefits in their ordinary base pay.

My hope is Hyundai and Kia Unions and Management either follow a path similar to Renault Samsung and defer to the courts ruling on the issue of determining the base for ordinary wages or come to a mutual agreement while pushing the vote to after the holiday.

Best case scenario… labor unions and management reach an agreement by as late as the middle of next week. Meanwhile, normal tactics are in play. Shift walkouts are underway as well as planning for a rally planned for outside the Hyundai and Kia Motors HQ.

More to come… as it unfolds.

DS

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Korea Commentary: Car Industry Strikes 2014

Korea Commentary: the Won

Korea Commentary: the Won

So what’s all this concern over a strong Won?

Well, frankly, similar to what Korea facing business experienced in the mid 2000’s, today, Korean-made products are more expensive in other currencies as the Won continues to strengthen. As a result, US Dollar profits repatriated back to Korea are worth less in Won.

Attributed to the strong Won…

1. The strength and stability of the Won compared to other nations’ currencies is driven by sound economic fundamentals in the Korean economy.

2. There is an improved overall global perception for Korea Inc. and their brands. Today there is high demand for products from leading Korea exporters: Samsung, Hyundai, Kia Motors and LG. Korean brands are now seen as market leaders in quality, design and value. The brands also capitalized on a weak Won between the global financial crisis of 2007 and 2012. This allowed South Korea brands to offer greater value and lower price points than the competition and in turn dramatically increased their market share globally.

3. Global investors searching for yield have bought South Korea assets this year.

The Impact of the Yen…
Many countries, including Japan and China, have engineered weaker currencies to help make their goods more competitive.

South Korean carmakers fared well between 2007 and 2011 as the Won fell as much as 50% against the Yen. That trend reversed in the middle of 2012, and the Won’s climb accelerated after Japanese Prime Minister Shinzo Abe came to office, backing a new wave of monetary easing that depressed the Yen.

Countermeasures…
South Korean companies are looking for ways to address the Won crisis, including moving more business overseas, just as Japanese companies did during years of Yen strength. Additionally, for component and parts used in overseas plants they are planning to increase local sourcing vs. exporting Korean parts to the manufacturing facilities.

Meanwhile, in an attempt to reverse a slowdown in growth, policy makers are pumping up the economy through all possible means. For example, the Bank of Korea issued its first rate cut in over a year, lifting South Korea stock prices.

Long Term
There are both long term solutions and challenges to Korea’s economy enduring a cycle of weak and strong Won. First, there needs to be a move to high worth and margin exports (like Apple iPhones, for example) that are less price sensitive. Cost driven value goods with low margins are highly impacted by fluctuations in currency when consumers buy product based on the lower price points.

Second, as noted above, many Korea companies have moved key manufacturing overseas but still export substantial parts they produce in Korea. These operations, too, need to be permanently relocated in the local markets. The challenge here is that the domestic Korean economy would suffer from the loss of jobs and industry.

All Said
As in 2006, I feel that most Korean firms approach to the Strong Won will be to push the company to reduce cost and “boost productivity.” That means ” work harder.”
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Korea Commentary: the Won

Korea Commentary: Chaebol Succession

Korea Commentary: Chaebol Succession

By Don Southerton, KoreaLegal.org Editor

Recent Korean media has highlighted accounts of Succession moves within the Korean chaebol such as the Hyundai Motor Group and Samsung. This has included a round of restructuring with smaller sister companies merging to strengthen key companies within the Group.

As I have shared in chats, this comes as no surprise and is part of a long term strategy built around two words—Work Funneling.

In this process, most Korean chaebol families have considerable ownership stakes in many of the privately-held sister companies.

Next, the other subsidiaries give these smaller companies a huge amount of business to increase their revenue. Finally, these smaller companies grow considerably over time and can move to an IPO or sell some of their holdings to outside investors.

The families can then use the revenue stream to buy stock in other key publically traded subsidiaries and their chaebol’s defacto holding company. This ownership stake along with circular, cross and pyramid (radiant) shareholdings give them direct and indirect control over the entire Group.

That said, despite the chaebols’ dominance and influence, they are increasingly coming under pressure from new laws and regulations designed to increase financial transparency and accountability of family members.

For instance, the government recently enacted a “deemed inheritance tax,” so that family members can’t get around South Korea’s inheritance tax laws, and has revised commercial laws to tighten requirements for reporting internal transactions.

Questions, comments, concerns? Feel free to ask.
More to come as I prepare an update on my take on a strengthening Korean Won to US Dollar, as well as what I perceive as a timeline on this year’s Union strikes.
DS

Korea Commentary: Chaebol Succession

Korean CEO Tenure

Korean CEO Tenure

By Don Southerton, KoreaLegal.org Editor

I often share that non-family Korea CEO tenure being considerably less than their overseas operations.

By comparison internationally the non-Korean CEOs tend to stay in the job lots longer … and a more performance based model.

Of course, the organizational dynamics in Korea with everyone in the ranks ever-moving upward forces those at the top out to make room for the next generation.

This excerpt notes CEO tenure at many of the top Korean Groups.

SEOUL, July 30 (Yonhap) — The average term in office of South Korean CEOs is 2.63 years, shorter than the minimum three years endorsed by the country’s commercial law, a finding by a local corporate research firm showed Wednesday.

The report was compiled by tracking the tenures of 576 CEOs at listed companies belonging to the country’s 30 largest conglomerates from 2000 onwards, CEO Score said. The results exclude chief executives who actually run the conglomerate or are family members of these tycoons.

The data showed that 367, or 63.7 percent of the total, stepped down in less than three years, with 102, or 17.7 percent, staying on for less than a year.

CEOs at Hyosung Group had the shortest term, 17 of them staying on the job for an average of 1.7 years during the measured period.

Mirae Asset and CJ had 1.79 and 1.97 years, each.

Others such as Kolon, Hyundai, KT, GS, POSCO, Doosan, Kumho Asiana and Dongbu had CEOs staying for less than 2.6 years on average

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Korean CEO Tenure

US Korea Connect and Golf

US Korea Connect and Golf
US Korea Connect and Golf

 

Success Stories

US Korea Connect and Golf
Golfsmith
Austin, Texas
Profile Golfsmith International, based in Austin, TX, is a specialty golf retailer operating in the U.S. and Golf Town stores in Canada. The business operates as an integrated, multi-channel retailer. Golfsmith International offers extensive product selection of premier branded golf equipment as well as its proprietary products, club-making components and pre-owned clubs.
Exports The popularity of golf in Korea presents a major opportunity for Golfsmith to expand into the market, which they did in 2013 by signing a definitive licensing agreement with Seoul and Daejeon headquartered Golfzon Co. Ltd. to create a retail chain in Korea under the Golfsmith brand. At its locations in Korea, Golfsmith offers a selection of popular golf brands with a focus on U.S. sourced products. In addition to clubs, balls, shoes, tees and other golf essentials from brands like Titleist, PING, Callaway, TaylorMade, Cobra, PUMA, Nike Golf, and more, Golfsmith Korea locations offer a wide selection of authentic golf apparel brands and fashions not found in Korea.
Growth Golfsmith is the world’s largest specialty golf retailer. By expanding into Korea, which has around 3 million golfers, the company puts itself in a position to continue leading the industry. Korea’s golf-related market has an estimated worth of more than $15.7 billion. In addition to its current location, Golfsmith will continue opening more locations in Korea over the next several years.
Lessons Learned: Golfsmith International’s first retail venture outside North American success was ensured by partnering with Golfzon and its keen understanding of the local Korean golf market. Moreover, Korea’s free economic zones as something not to be overlooked by companies seeking expansion into the market. Currently, Korea has eight such zones, which encourage foreign investment through tax incentives, reduced regulations such as tariffs and high-quality administrative services and infrastructure designed to attract an international audience through benefits as advanced as ultra-modern airports and as simple as English-language traffic signs.

http://www.uskoreaconnect.org/business-connect/success-stories/golfsmith.html

US Korea Connect and Golf