By Don Southerton, KoreaLegal.org Editor
With the year end, Korean Groups have begun their annual end of
year reporting and restructuring. As in the past, Samsung Group has
already announced high level promotions across their organization,
we’ll see what happens at Hyundai Motor Group and the other Groups.
I monitor and track this daily.
In the days leading up to Holidays, team level promotions will
begin to be announced. The norm has been for the re-assignments and
promotions to take affect January 2.
I’d expect some change both at senior Korean global leadership level and
across the Korean overseas teams. Those receiving promotions should
be congratulated–promotions bring considerable status along with a
boost in wages.
Meanwhile, the Korean presidential election is week away. How will a new
president view the Korean chaebols is a topic of discussion–the
previous administration was pro-business.
Finally, 1st draft edits and revisions on the Korea Facing book are
completed. I expect 1-2 more draft revisions before the book goes
“to press”–actually since it’s an eBook, I’ll upload. Plans call
for the book to be available in iBook, Kindle, and Google Book
formats. Look for a Holiday release date.
As always, if you have questions and comments, please feel free to
contact me. Likewise, I’m open to new opportunities, so keep
me in mind.
By Don Southerton, KoreaLegal Editor
In this week’s Korea Facing update we look at approvals, and the challenges.
BTW why not subscribe to Korea Facing.
In the Korea Facing article on Decision Making, we pointed out that in most cases leadership made key decisions and teams implemented. Getting these approvals in itself can be a challenge, time consuming, and should take into account such subtleties as senior management’s mood.
At times, teams can wait days for an approval. This can be because senior Korean management is out of the office and traveling. But, it can also be that Korean teams try to be sensitive to their boss’ mood, well-being, and workload, along with an awareness of pressing issues impacting the company and their division.
In other words, if senior management is dealing with a major challenge, or looks stressed, team leaders may delay requesting a meeting that day. In contrast, if their senior management looks to be in a good mood, timing might be better to get an approval. Again timing is everything and good timing–being sensitive–is the sign of a savvy team leader.
In once instance when I was in Korea I witnessed teams (there was a line) waiting all day to meet with an overseas business Vice President to get approvals for a wide range of projects. One specifically involving a merger of services in the world’s largest and most competitive car market. The delay: the VP was on the phone with his back turned to the door making arrangements for his daughter’s wedding…a personal matter, but one which the teams and subordinates would not infringe.
In a word, be patient when waiting for an approval. Recognize that to be effective Korean teams often need to wait and time their meetings with seniors for an approval. Be sensitive and do not unduly press Korean teams. If the issue is time sensitive, (which many usually are), communicate this, and seek clarity on the status. In many cases, pro-actively sharing with your clients, suppliers, and service providers the Korea facing approval process can greatly reduces stress on your side.
Questions? Comments? Challenges? Let me know by email.
Just email firstname.lastname@example.org
By Don Southerton, KoreaLegal.org Editor
Ju Jae Won
Most Korean overseas subsidiaries have Korean management assigned to the host country. Whether they are senior executive level or middle management, the general term for these representative employees is ju jae won.
Executive ju jae won are usually key management—CEO, COO, or CFO. A second tier of Korean management serve as managers or “coordinators.” Roles vary with each company, but most often individuals act as key liaisons between Korea and the subsidiary.
To be eligible for their first overseas assignment, most new ju jae won have worked for the company about 6-8 years. They know company procedures well. They have been successful at their jobs. And, they often were assigned to the headquarters’ overseas support teams, traveled extensively to subsidiaries and were educated outside Korea.
So where is the challenge? New ju jae won are skilled and accomplished in Korean style business operations, norms and practices. However, they have now been assigned to an overseas subsidiary, where norms, practices, expectations, and laws differ.
Moreover, their responsibilities and assignments in the subsidiary may be in a department or specialty, in which they had little or no experience in Korea.
Be proactive. Require new ju jae won get intensive training and coaching in management skills needed for your market, region, and subsidiary. Expecting the new ju jae won to just pick up needed skills is like throwing someone into the deep end of the pool and expecting them to swim. Support your Korean teams, provide them with training.
BTW, Most Korean executives, both in Korea and at subsidiaries, have served several times in overseas markets—some for most of their careers. Over the years as ju jae won they polished needed interpersonal and management skills, not to mention learning the subtleties of many market. I see this group needing support, but different than the new junior ju jae won.
Supporting ju jae won and non-Korean executives is a must for all Korean-based organizations. This support must be more than Korean cross-cultural understanding. Mentoring and coaching is the key. Experience and skills vary, so each program must be tailored to address individual needs.
More significant, mentoring requires the Coach understand both Korean and western business, not to mention the specific Korea-based firm and the industry in general.
I work with both Korean ju jae won and non-Korean executives. I understand the challenges, pressures and expectations. To discuss you needs, please contact BCW at email@example.com call +1-310-866-3777
By Don Southerton, KoreaLegal.org Editor
For those with an interest in Korean legal affairs, the 1997 IMF Crisis set in motion a number of reforms along with heavy restructuring of the economy and major Groups. This article ( taken from content in my upcoming book The Hyundai Way) shares the impact of the crisis over the Korean car industry and specifically Kia Motors.
Part 5—Kia Motors, The IMF, and Rebirth
Few events in recent history have impacted South Koreans as significantly as the 1997-98 Asian financial crisis, commonly called the IMF Crisis. Thousands of Koreans lost their jobs and lifesavings as the crisis rocked the foundations of most Korean industrial groups or chaebol. In fact, no fewer than five major chaebol failed early in the crisis amid others who had to petition for bankruptcy. In the end, as many as 18 of the largest 30 chaebol would risk bankruptcy, and no more than a handful of the top 30 groups were seen as financially sound.
For Kia Motors the IMF Crisis would be devastating. Although overseas sales and growth were steady, by early 1997 with ever-increasing development and labor costs, Kia found themselves heavily in debt.
Perhaps of equal concern, Kia’s difficulties were also a signal of problems throughout the South Korean automobile industry. The big three Korean automakers — Hyundai, Kia and the Daewoo Motor Company—had created more capacity than needed for the once rapidly growing Korean domestic market. Adding to the pressure were plans by the Samsung Group to enter the car market, building a state of the art plant with the assistance of Nissan.
When the IMF Crisis ripped through the region, Kia’s debt load made the automaker extremely vulnerable. Strapped for cash, Kia looked to the government for an emergency loan. Meanwhile, an increasing number of Korean companies began to suffer similar financial challenges and they, too, sought government assistance.
In reaction to the crisis, international credit agencies downgraded the ratings of Korean banks. This led to a tightening of credit, which made it nearly impossible for debt-laden companies, Kia included, to borrow additional funds. As the economic situation grew worse across South Korea, domestic cars sales plummeted, further impacting Kia’s dwindling revenue and cash flow. By October 1997 it was clear that additional funding for the beleaguered Kia would not be forthcoming from private banks. With few options, the government took over the company and placed Kia in a receivership in order to stave off bankruptcy and job losses.
A number of other factors also contributed to the collapse of Kia Motors. Some were beyond the control of its management. Others included the practice of Kia Motors and most Korean to seek market share regardless of the impact on financial markers, such as high debt-equity ratios and cross loan guarantees to affiliates. To gain a better understanding we need to look deeper.
• First, the company’s profitability suffered prior to the IMF Crisis. In particular, excessive domestic market competition was triggered by Daewoo’s interest-free sales campaigns from the early 1990s. Kia also carried a growing burden of debt as a result of over-expansion of production capacity in its domestic and overseas plants. Moreover, Kia made huge investments to develop and then ramp up production of their own passenger car models, the Sephia and Sportage.
• Next, following the model of Korea’s most successful industrial groups, such as Hyundai, Daewoo and Samsung, the company sought to diversify their core business by acquiring a steel-manufacturing firm (renamed the Kia Special Steel), establish a constructing company (named the Kisan), and form a trading company (named Kia Inter-trade). Most of these new affiliates operated at huge losses and contributed significantly to the mother company’s financial crisis.
• In addition and rarely discussed was the adversarial and costly takeover attempt by the Samsung Group. Kia management barely defended themselves against Samsung’s M&A attempts. More damaging, Kia’s vulnerability was widely exposed to the finance community during the takeover attempt, causing a sharp drop in their stock market value between 1996 and 1997.
• Finally, as a smaller professionally managed and not family-run company, Kia was viewed more harshly by the Korean banks than larger, more diversified and politically connected Hyundai, Samsung and Daewoo. In fact, unlike Kia, the larger chaebol were seen as “too big to fail” and so critical to the Korean economy that the government would take extreme measures to support and bolster them financially.
Once in receivership Kia Motors was soon joined by a growing number of Korean companies. The government was not in a position to manage the growing list of failed firms and, therefore, sought a buyer for Kia Motors. A few foreign investors, including GM and Ford, considered bidding for the company. When terms set by the creditors were seen as unfavorable, both GM and Ford stepped aside, leaving Hyundai, Daewoo, and Samsung still highly engaged in a bidding war.
Posturing itself well, Hyundai eventually won the bid and purchased a controlling 51 percent interest in its former rival Kia Motors. Fortunately, for Kia Motors the Hyundai Group acquisition was an opportunity for a new start.
Part 6 in the series will examine the strategy and tactics instituted by the new management that would by late 1998 and into 1999 set a trend for today’s global success.
This article is from content included in the forthcoming The Hyundai Way. For more details, see http://www.facebook.com/TheHyundaiWay
By Don Southerton
Since the early 1960s, Korean firms have entered into partnership arrangements with international carmakers, including Nissan (Datsun), Toyota, Mazda, Fiat, and Ford. In particular, the Korean government and key industrial groups forged these alliances as the best way to introduce advanced automotive technology to South Korea. In 1967, Hyundai Group also entered the auto sector as a result of both the founder Chung Ju Yung’s early ties to the car repair business and growing government pressure.
Entering into a Ford Overseas Assembler Agreement, Hyundai looked to assemble Ford compact cars imported as knockdowns (CKD). Ford, in turn, would transfer technology and explicit knowledge, such as blueprints, technical specifications, production manuals, and training of Hyundai engineers.
Following the Hyundai model for taking immediate action and leveraging their background as a construction company, the Hyundai Ford plant was operational in 6 months, a record at that time for the 118 Ford assembly plants around the world
Interestingly, to accomplish the task, Hyundai gathered team members from its construction division who had excellent skills in project management and engineering backgrounds. Hyundai also recruited talent with experience in production from the Korean auto industry. Together with support from a team of 10 engineers dispatched from Ford, the Korean engineers, technicians and construction workers lived together in a makeshift structure near the plant, working 16 hours a day, seven days a week.
Initial car production at the plant focused on 2 models—first the Ford Cortina Mark II and soon after the Ford Granada Mark II. Production was for the South Korean domestic market with some limited export. Production number grew from 614 cars in 1968 to 7,009 in 1973.
Meanwhile by 1973, the Korean state-run Economic Planning Board (EPB) formulated The Long-Term Plan for Promotion of the Automobile Industry. In a policy-shift from CKD partnerships, the government mandated Korea’s four leading automobile companies–Hyundai, Daewoo, Kia, and SsangYong–to submit detailed plans to develop a “Korean” car by 1975.
Following similar tactics imposed across business sectors to build an import-substitution economy, the Korean government coerced automakers to embrace the new mandate or face restrictions in their current operations. Hyundai, a strong adherent of the state-corporate alliance, soon submitted a master plan for a new plant with a capacity of 80,000 Korean cars per year.
To meet the challenge, Hyundai approached 26 firms in five countries to acquire required technologies:
· 10 firms in Japan and Italy for car design
· 4 firms in Japan and the United States for stamping shop equipment
· 5 firms in the United Kingdom and Germany for casting and forging plants
· 2 firms in Japan and U.K. for engines
· and 5 U.S. and U.K firms for an integrated parts/components plant.
As it did entering shipbuilding and other technology ventures, Hyundai looked to the West for expertise. They soon hired former British Leyland Motor president Sir George Henry Turnbull as their new vice president. Turnbull, in turn, hired five other top British car engineers: Kenneth Barnett for body design, engineers John Simpson and Edward Chapman, John Crosthwaite as chassis engineer and Peter Slater as chief development engineer.
Turnbull’s exit from his position at British Leyland followed in the wake of the merger- restructuring of BMH and Leyland Motors. As a parting gift, he was, however, allowed any car from the lineup. He left with two Morris Marinas, a sedan and a coupe– cars Turnbull had developed. The Hyundai team used the Marinas as a base to develop the Hyundai Pony. Turnbull also brought with him the vision of using standard chassis to produce varying cars.
Along with Turnbull and his engineering team, the exterior design would come from the West with noted craftsman Giorgetto Giugiaro and the ItalDesign studio. Founded in 1968 by Giugiaro and Aldo Mantovani as Studi Italiani Realizzazione Prototipi S.p.A., the studio would became best known for its automobile design work, along with offering project management, styling, packaging, engineering, modeling, prototyping and testing services to manufacturers worldwide.
Hyundai’s new Pony was a true collaboration of design, engineering, and production. For example, the engine, transmission, and suspension were all from a previous model of the Mitsubishi Lancer. Mitsubishi Motors supplied the engines in 1200cc and 1400cc sizes. ITAL designed three and five-door (hatchback) body styles to fit on the basic Marina-styled floor pan.
The Hyundai cars borrowed heavily from Cortina design with MacPherson strut front suspension but retained the rear leaf springs. Parts costs were kept low by sourcing locally whenever possible. Parts also came from Hyundai’s Ford Cortina plant supply line. (The Ford relationship had been severed in part due to the government mandated for independent production.)
Hyundai continued its reputation to meet government mandate deadlines and by late 1975 the Pony with 90% domestic content was in production. This made Korea the second nation in Asia, in addition to Japan, to have its own domestic automobile. The car was officially released to the public in January 1976. The Pony was sold in three -door hatchback, four -door fastback, five-door wagon, and pick-up variants.
George Turnbull continued to serve as a vice-president and director of the Hyundai Motor Company until the fall of 1977 when he left for Iran National Motor Company.
This article is from content included in the forthcoming The Hyundai Way book.
For more details, see http://www.facebook.com/TheHyundaiWay
By Don Southerton, KoreaLegal.org Editor
This past week we saw the current Korean administration’s opposition seeking to “axe” KORUS FTA. In response supporters seek to get the FTA enacted ASAP. As reported in Yonhap News Agency, “We believe that the U.S.-Korea free trade agreement is in the interest of the United States, of the Republic of Korea, and of the relationship between our two countries,” A State Department official further noted. “The U.S.-Korea free trade agreement represents a historic opportunity to increase exports, support job creation, bolster both our economies, and strengthen a vital strategic alliance in the Asia-Pacific.”
So what’s the delay? Here’s my update…
On a positive note following the 2011 amended agreement for the Korea-U.S. Free Trade Agreement (KORUS FTA) and ratification both by the U.S. Congress and Korean Assembly expectations are that the treaty will be implemented in the first quarter of 2012. Advocates and many critics alike see the FTA boosting annual commerce between the two nations into the billions of Dollars.
That said, although the treaty has been signed, both the U.S and South Korean government require a final legal review, then a period of public review and discussion prior to implementation.
1. The original plan was for KORUS FTA to take effect on January 1, 2012.
2. However, end-of-year holiday time restraints slowed U.S. government legal review of the final KORUS FTA wording and translation. This has resulted in a January implementation delay.
3. Once this U.S. review has been finalized (probably in February), the agreement documents will be reviewed by Korea. Then, as in the terms of the agreement the KORUS FTA must take effect within 60 days of finalized documents.
4. The 60-day period also serves as a public review of the treaty by citizens from both countries.
5. According to my sources, we can expect KORUS FTA to take full effect in March or early April.
To conclude, the final review process can be time consuming. For example, even though the treaty is signed, U.S. legal review teams have asked for additional documents and clarifications regarding the FTA wording and translations. Once the Korean teams respond to the U.S. side’s questions, the documents will be then sent to Korea for their final review. The Korean team then may have questions for the U.S. team, who in turn will need to reply, and so forth.
Look for updated as the unfold.
By Don Southerton
Each new year, I share thoughts for the upcoming months in an executive-level commentary. Looking back at 2011, South Korea’s export economy saw a robust year—familiar names like Samsung, Hyundai, and Kia continuing to grow global market shares—demand driven by a mix of product quality, value, and design appeal, along with Japanese brands suffering set-backs from the devastation of the tsunami and threat of catastrophic nuclear meltdown.
Tempering the demand for top Korean cars, electronics, and consumer goods were deep concerns over the EU fiscal crisis—worries that still linger.
On a positive note following an amended agreement for the Korea-U.S. Free Trade Agreement (KORUS FTA) and ratification both by the U.S. Congress and Korean Assembly expectations are that the treaty will be implemented in the first quarter of 2012. Advocates and critics alike see the FTA boosting annual commerce between the two nations into the billions of Dollars.
Looking forward to 2012, first, the succession in North Korea will continue to be a concern. Issues include the stability of the Kim regime, threats of more border clashes, and an unchecked nuclear arms program. I’ll continue to monitor and share news as it unfolds.
Next, building on the momentum of the past 3 years, expect Korea’s export-driven firms to push their organizations to carve out greater global market shares. Look for even bolder announcements and sales targets than in the past. For example, Hyundai Motor Company, along with their sister firm Kia Motors, announced their global goals for 2012—targeting sales of seven million units. This is a significant increase from estimated sales of between 6.5 and 6.6 million the group expects for 2011.
Not to be outdone, Samsung Electronics, with record 2011 cell phone sales, intends to increase their total by as much as 15%. This translates to approximately 374 million phones, including 150 million smartphones for 2012.
One change from the past 2 years…., I expect few new foreign brands to enter the Korean market in 2012—part saturation, part concerns by the major Groups over the euro-zone fiscal crisis and a stalling U.S. economy undercutting global demand that in turn has an impact on the domestic economy. Two exceptions. One will be services benefitting from KORUS FTA such as U.S-based international law firms wishing to expand into Korea. The second are highly successful brands and products that bring with them strong appeal and a ready market—for example, Chipotle.
For those foreign businesses and brands that do plan to enter the Korean market or partner with Korean firms, I suggest they take efforts to understand not only the culture, but also business norms and expectations. For example, your key management needs access to coaching and someone to answer their questions on topics ranging from strategy to the impact of routine management changes within their Korean partner’s organization. It’s a small upfront investment and less costly than the consequences, which can include lawsuits, local and expat employee turnover, and months of missed goals and low productivity—not to mention tensions between you and the client over expectations. I know this area well—most recently handling the negotiations for a major brand launch in Korea.
Finally, expect further growth in Korean Green technology (wind power, solar, eCars, batteries), along with Korean overseas acquisition of energy related firms. With regard to Green, most of Korea’s major Groups have boldly entered the renewable and sustainable side of the market with plans to expand sales and distribution globally. This includes state of the art manufacturing facilities for wind turbines, solar cells, next generation batteries, and electric power trains. In particular, Hyundai and Kia introduced hybrid models in 2011, with the group aiming to launch a variety of eco-friendly models in 2012.
To conclude, understanding the dynamics of Korea’s economy, markets, and major business groups is vital. It is critical to take into consideration Korea’s past and current trends. Culture, global influences, and a 24-hour virtual workday add to this complexity. I’m dedicated to providing much needed research, analysis, and critical thinking to provide you with answers and insights 24-7-365.
Please feel free to share this commentary across your organization and teams.
If needed, I can also provide more details on specific market sectors, etc.
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