Korea Perspective: Chapter 4, One way communications?

Korea Perspective: Chapter 4, One way communications?

Building on Chapter 4’s Short on feedback theme…

Withholding

Amid growing tensions between a joint U.S and Korean launch team in a US-based facility, the first US venture for the Korean company, I was asked to conduct a series of cross-cultural coaching sessions. Polite consensus by the leadership was that the problem was “cultural”—Koreans not understanding Americans and visa-versa.

Most of the American team were well seasoned —handpicked because they had been top performers in their previous jobs. Likewise, the Korean team members were highly experienced—but this was their first overseas’ assignment.

What surfaced during our discussions was that the new American management had been searching for documented policies and procedures to guide them in decision-making and day-to-day work. For example, those who had been former Toyota staff looked for a model similar to the Toyota Way, while others who had worked for Ford Motor Company sought manuals of standard operation procedures (SOPs). As a result of not finding guidelines, some of the Westerners were concerned that the Koreans were deliberately withholding vital information as a form of control and power even though the Korean and Americans were to be considered equals in decision making and project oversight.

Probing deeper, I found that the Korean managers, although limited in their overseas experience, were sincere in sharing responsibility and relied heavily on the American staff. What also surfaced was that there were, in fact, no formalized procedures or processes. In part this was rooted in the Korean mindset discussed in Chapter 2; Korean projects remain flexible and continually change. This, of course, was a stark contrast to the American teams who were groomed in a western production model.

What I also uncovered and shared with the Western management was that the Korean management actually respected the Western production model. In fact, there was an expectation that over time and based on know-how the American teams would fine tune the transplanted process and standardize procedure for the US operation.

One way

Several years ago during a group workshop which I hosted for Korean and Western senior managers, the discussion quickly focused on one-way communications. The local American teams voiced puzzlement over receiving little or no feedback on any reports or studies they provided to the headquarters in Korea. For example, at the direction of HQ the local team devoted considerable effort to the benchmarking of competitors and compliance testing but received no feedback. This, of course, led to considerable frustration, because in their previous employment the Westerners had been actively involved in high profile projects with considerable feedback and follow-up.

Summing up their frustration, they felt that information flowed only one way. Korea would request, and their job was to simply fulfill.

Collecting his thoughts, a senior Korean participant pointed out that local input was respected, but he, too, rarely received direct feedback for the work performed in the local office. In fact, what comments he did receive centered on achieving deadlines or were questions and requests.

Continuing, the Korean manager explained that despite what might seem to be an endless flow of reporting back to the HQ, he personally felt that senior management reviewed those options and took them into consideration. In fact, Korean leadership placed high levels of trust in the local teams and their judgment.

Listening attentively, I added that in Korea the formal communication channel was usually top down. The role of staff in the ranks was to execute, not question, and then report their findings to leadership. Seeking to change that model would be a challenge. Instead I suggested another option– both teams meet weekly for a joint lunch meeting. The local Korean team could share news as it surfaced and add their perspective. In turn, the American team could use the opportunity to present new ideas and approaches to ongoing projects. Over time they would at least improve inter-team communications, leading to better understanding.

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Korea Perspective: Chapter 4, One way communications?

Korea Perspective: Chapter 4, Short on Feedback

Korea Perspective: Chapter 4, Short on Feedback

Chapter 4
Short on Feedback

Sharing their feedback from a request for comments, a client noted: “My experiences on major projects have been frustrating at times as HQ’s review process is much too long, bureaucratic & short on feedback…”

The most common frustration in the overseas workplace is tied to communications between the Korean HQ and local operations. In the best cases, teams in local offices feel somewhat disconnected; in the worst cases they feel information is being deliberately withheld.

What may be a surprise for overseas teams is that even the Korean staff must make an effort to stay informed. As one entry-level employee of a major Korean group lamented, “If I did not spend an hour daily networking with fellow workers, I would be in the dark on issues major and minor that could have significant impact on projects.” For my own client work with Korea companies, nightly chats via phone and frequent emails and texts are required or I, too, would be ill informed and “in the dark.”

Filtering
That said, for most Korea facing international operations, the communication channel between the Korean HQ and local subsidiary is through expatriates (ju jae won) who are often referred to as “Coordinators.” In the larger overseas subsidiaries, these Korean expats are assigned to the major departments.

In many, if not most, circumstances the expats are not assigned managerial roles but instead operate as a “shadow management” with considerable oversight of local operations. Roles vary with each company, but frequently a coordinator’s primary role is to be liaison between Korea and the local subsidiary. Frankly, some expats are more open to sharing information than others. Regardless, I feel this is less a deliberate withholding of news than a “filtering” — that is, a review of communications from the mother company and then a doling out of that which the coordinator considers appropriate. Filtering becomes an issue when the expat withholds information until the last moment to avoid confrontation or to address a delicate situation. Delaying communication often forces local operations to drop everything and deal with an issue that would have been less demanding and disruptive for the teams if conveyed in a timely manner.

In other situations, I have found expats “filtering” information until they are 100% certain of an outcome or upcoming event. Activities, events, travel and schedules are continually changing. So instead of constantly having to return to the local team to shift plans, the expats stay quiet until the last moment. What appears to be a holding back on news is actually an attempt based on their years of experience working with the mother company to spare local teams of concerns that could and probably would change over time.
Part 2 of Chapter 4 will highlight 2 scenarios and my suggested countermeasures.

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Copyright BCW 2014

Korea Perspective: Chapter 4, Short on Feedback

Korea Perspective, Scenarios

Korea Perspective, Scenarios

Another preview of the new ” work in progress.”  Questions and comments welcome.

Chapter 3    Place, or no two equal, part 2

Two Scenarios

Hierarchical status driven interactions, communication norms, and the day to day situations that surface can dramatically impact the overseas’ workplace. On a number of occasions I have been tasked to assist clients in overcoming impasses. Most often I see a common thread–one rooted in a mismatch in status, title and position.

For example, a major American brand was negotiating with a large Korea retail group interested in a licensing arrangement. Time had passed with little progress to the dismay of the American CFO/ COO who had felt initial talks with the Korean company’s CEO would lead to a solid agreement. When I quizzed the American executive on the negotiation channel for the potential partnership, he indicated that all communication was with a Ms. Shin. The US executive quickly added he had never personally met Ms. Shin and that all interactions were via email. He also pointed out that she was very professional and capable.

After some further questions, the CFO/ COO mentioned he had Ms. Shin’s contact information. Upon review, I determined the Korea team member’s rank and position—daeri or Assistant Manager to the American executive’s surprise. He had assumed he was dealing were with a more senior level manager. My follow up was that we needed to ask Ms. Shin to kindly arrange a meeting between the American CFO and the Korean Group’s CEO to rekindle the negotiations and resolve issues that appear to have stalled the talks.

In a second example an American company was supplying product to a Korean manufacturer. The American plant manager who oversaw a division of the company was frustrated in dealing with ongoing supply issues and follow-up. Although he saw the Korean team overseeing day-to-day operations as cordial, little was ever resolved. Because of these unresolved issues the American company was now considering dropping the account, although it was a major revenue stream.

Again my approach was to determine the title and position of the Korean teams directly involved. They were in fact chajang (Deputy General Managers)—and from what I could determine oversaw all the day-to-day operations at the Korean manufacturing plant. Meeting with the American executive, I noted the position title on his business card was General Manager (GM). Quizzing him on the title, he explained that within his manufacturing sector a GM was commonly responsible for overall plant leadership. That said, in Korea a General Manager is seen as a highly respected member of the team but a tier below leadership positions. In turn a plant manager in Korea would hold a Managing Director or Vice President level ranking.

Probing deeper I asked if the American plant manager had ever met his customer’s leadership. He noted they had met briefly years earlier, but on his 2-3 trips to the Korea each year the meetings were with the chajang Deputy General Managers and limited in scope to day-to-day operations. What became clear was that issues were not being resolved in part because they never moved beyond the working team level. What should have been reconciled between the leadership of the two firms was never elevated within the Korea company because the Korea team viewed the American executive as their peer with senior manager rank versus a Managing Director or Vice President.

My coaching was to reposition the American plant manager as leadership with a Vice President rank. Meetings were then arranged with Korean senior management to tackle the outstanding issues.

A better approach

In short, determine titles and positions early in the relationship. Also, request an organizational chart and provide one to the Korean team. In some cases adjust American rank designations to better align with the Korean organization.

Remember titles and position are based on time and seniority with one’s age matching the position. With age in most cases tied to rank in the Korea workplace, norms dictate entry-level staffing are in their early to mid 20s, middle management those in their 30s and leadership individuals in the 40s and 50s.

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Korea Perspective, Scenarios

Korea Perspective: Chapter 3 Place, no two equal

Korea Perspective: Chapter 3   Place, no two equal

Before sharing a sneak peak of Chapter 3 Place, no two equal…some recent feedback on last week’s Chapter 1 Connected, Fluid and Conditional

Hi Don,

This is very fascinating.

In my personal studies with Thich Nhat Hanh, the Vietnamese Zen Buddhist monk, he often uses the term “inter-being” to highlight our collective interconnection with everything.

In my workplace and personal interactions with both Eastern and Western cultures, I have also witnessed the inherent conflict between collectivism and independence. There are quite a few jokes in Western circles around the “efficiency” of committees. In fact, most of the stated perspective about collaborative decisions is one of weakness and delay.

I wonder, then, how these different perspectives have been able to inter-operate as well as they have.

Will (or does?) your book include examples of successful inter-actions?

Regards,

D.N.

Chapter 3   Place, or no two equal

As noted in Chapter 1, innerconnectiveness or oneness is foundational and overarching in the Korean workplace. Norms and practices that may appear as routine and day-to-day are rooted in the concept. This chapter looks at “Place” within the social matrix. Introduction “meet and greets,” the sharing of business cards and a person’s company title are visible examples of Place in the workplace.

Broadly speaking, within the Korea workplace and society everyone occupies a position—a few individuals at the top, some in the middle and others in bottom tier. No two individuals ever share the same status within this social stratification.

Within this paradigm and from a cross-cultural perspective Korea is seen as a high Power Distance society. This means there are substantial gaps between those in middle and lower ranks and those at the top. Still in contrast to the West’s “Us and Them,” in Korea all are seen inclusive and part of the same connected framework.

Introductions, business cards and company titles serve as useful tools in better determining and fine tuning place in the matrix for Koreans who share a common culture and heritage. For example, when two Koreans meet for the first time a polite greeting is followed by the exchange of business cards. The role of the business card is to provide the person’s title as well their company affiliations—again as with individuals, no two companies ranked the same. That said, considerable significance is given to Fortune 500 firms and/ or global brands, such as Apple, Cisco, Samsung, or Hyundai. For academics, public sector officials and professionals the business card provides the same function by highlighting if the person is a Ph.D., Consular General, MD or graduate student. Additionally, the business card provides information about associations with a well-known university, government agency or hospital. Together the company or institutional affiliation and title provide a means of positioning a person within a workplace hierarchy.

Next both parties in an introduction commonly face a litany of questions beginning with the middle and high schools they attended their college education, marital status, number of children along with other inquiries that a Westerner may consider personal, such as church or religious affiliations. If a third party is present for the introductions, that person, too, might add to this conversation, embellishing each person’s life accomplishments and status whenever possible.

Combined with non-verbal clues, dress and appearance, one’s employment, title and education, all come into play in internalizing the placement of that person within society—again, while still considering each individual as a part of the greater whole. Once this place is determined, the new acquaintances will also then follow norms for interacting and communicating in business and day-to-day matters.

“Part 2” of this article will look at these hierarchical and status driven interactions and communication norms, a number of which differ from the West and can dramatically impact the overseas workplace.

BCW 2014

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Korea Perspective: Chapter 3   Place, no two equal

Korea Perspective Chapter 1 Connected, Fluid and Conditional

Korea Perspective Chapter 1 Connected, Fluid and Conditional

an excerpt from my latest work in progress Korea Perspective

Chapter 1 Connected, Fluid and Conditional

Perhaps the most enlightening experiences over my career as a business consultant has been managing Korea-based projects. As a result of years of study, research and coaching I developed a cognitive understanding into the Korean mindset. That said, nothing grounds one in reality as actually dealing with situations first hand. What stands out from my Korea facing work (cognitive and real life) is the innerconnectiveness of their workplace. Author Richard Nisbett describes the concept well in The Geography of Thought:

To the Westerner, it makes sense to speak of a person as having attributes that are independent of circumstances or particular personal relations.

This self— this bounded, impermeable free agent—can move from group to group and setting to setting without significant alteration.

But for the Easterner (and for many other peoples to one degree or another), the person is connected, fluid, and conditional…

The person participates in a set of relationships that make it possible to act and purely independent behavior is usually not possible or really even desirable.

Since all action is in concert with others, or at the very least affects others, harmony in relationships becomes a chief goal of social life.[1]

I interpret innerconnectiveness to mean the oneness of all things. A similar term, interdependence also applies to Korean workplace. Both terms refer to the idea that all things are of a single underlying substance and reality. More so, any separation is only at the superficial level. Drilling deeper, the core is the concept of universal oneness.

Overarching
I find the concept of this oneness as overarching and the foundation for values often used to describe the cross-cultural differences between Western and Eastern nations. The most relevant values to the Korean workplace are collectivism, high power distance and low risk tolerance. As for collectivism, in Korea the group is the primary unit of reality and the ultimate standard of value.

In collectivistic societies, group goals take precedent over an individual’s objectives. This view does not deny the reality of the individual, but ultimately collectivism holds that one’s identity is determined by the group(s) with which one is affiliated. Essentially, one’s identity is molded by relationships with others.

Collectivistic cultures also require that individuals fit into the group. The group’s goals and needs supersede the individual’s comfort and satisfaction. Within the collectives, the group shares responsibility and accountability, while fostering harmony, cooperation and interdependence. Independence vs. interdependence is, of course, not an either/or matter. Every society—and every individual—is a blend of both. [2]

Rooted
I also see innerconnectiveness as an outcome of Korea and East Asia’s strong rooting in Taoist, Confucian and Buddhism. Again citing Nisbett:

Confucianism blended smoothly with Taoism. In particular, the deep appreciation of the contradictions and changes in human life, and the need to see things whole, that are integral to the notion of a yin-yang universe are also part of Confucian philosophy. [3]

In addition philosopher Donald Munro pointed out that East Asians understand themselves in
“their relation to the whole, such as the family, society, Tao Principle, or Pure Consciousness.” [4]

I would include the workplace in Munro’s paradigm.

As for the influence of Buddhism, Pratītyasamutpāda is commonly translated as dependent origination or dependent arising. The term is used in the Buddhist teaching and refers to one of the central concepts in the Buddhist tradition—that all things arise in dependence upon multiple causes and conditions.

An Example
The Korean workplace is a complexity of interrelations. Decisions must consider relationships and the impact to the organization. To share an example from a project in which I was engaged, a meeting concluded following a high level presentation to division heads with the leadership pleased, but deferring decisions until they internally discussed.

To the dismay of the project leads, in the days following the presentation assignments for portions of the project were distributed to a number of departments. In private the project’s lead team was not pleased but accepted the mandate. There was no recourse since the parceling came from leadership. The team did not wish to create an issue despite knowing that the other teams were poorly equipped to handle the assignments. The lead team sought to maintain harmony above all—even knowing their project would suffer.

A Question
Pondering on the concept of the “ oneness of things”, this raises a question. Is considering actions that will impact a myriad of relationships more important than process, procedures and planning in the Korea workplace?

[1] Richard Nisbett, The Geography of Thought: How Asians and Westerners Think Differently…and Why,,Free Press, 2003, pp. 50-51.

[2] Ibid p. 67

[3] Ibid p. 16
[4] ‪Donald J. Munro, Individualism and Holism: Studies in Confucian and Taoist Values, Center for Chinese Studies, University of Michigan, 1985. P. 17

 
Copyright 2014 BCW

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Korea Perspective Chapter 1 Connected, Fluid and Conditional

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?

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