Most foreign companies in Korea, for practical reasons, must partner with a local company to market, sell and support their products and services. While once upon a time there were legal requirements to do so, now Korea has a relatively free market in this regard. Nonetheless, unless the foreign company is willing to make a very substantial investment up front, it almost always makes sense to partner.
Frankly speaking, finding a Korean partner company can be ridiculously easy. Finding a successful partnership, however, can be surprisingly difficult. That is, many Korean companies are willing to partner for all of the wrong reasons. And this may be said for a like number of foreign firms.
Many Korean firms look at partnering with overseas companies as a cheap and easy way to “grow their presence by becoming “international,” or at least more international, via foreign partnerships. Partnering can add to their market prestige and provide new products and services the domestic competition lacks, or that they cannot easily develop on their own. Thus, in their reasoning, sales may often be secondary to domestic market positioning.
Foreign firms often regard the Korean market as important but secondary to their overall global marketing strategy. As a result, they may be tempted to do a “quick and dirty” market entry, finding a Korean company selling into the right market niche and boasting a glib speaker of English or some other appropriate foreign language. After the partnership agreement is inked, its back on the plane without much expectation to return to Korea for another six or even twelve months.
These two descriptions are stereotypes, but unfortunately they are closer to realitys mark than Korean and foreign firms may like to admit. So what may be a better way to find and develop a successful partnership?
First, look carefully at the company and the key people on whom you will depend. Many Korean firms look absolutely great on paper, but it will be a couple of key people who will largely determine whether your partnership will succeed. Certainly the Korean company needs to be financially stable and credible in your market niche. At the same time, that company must have individuals with sufficient authority to ensure commitments with the foreign company remain at a mutually appropriate priority level.
Key people include the CEO, marketing or planning director, sales director and product support director. If you do not perceive a personal stake in the venture for each of these people, your partnership may be in danger from the beginning. You should be able to accurately articulate from the Koreans perspectives why the partnership is personally important to each key person. Then you should honestly compare their motivations with your own. Even if you like the company and the people, if there is a not a good match, its time to move on.
Second, consider how and with whom your company will be able to communicate. Assuming you do not have Korean speakers in the home or regional offices, it can be critical to ensure there are capable English speakers at least in the marketing/planning and product support groups. Ideally there should also be a strong English speaker representing the Korean sales team, but that may be harder to find. Naturally, the larger the company, the more likely the Korean partner will have employees with foreign language skills.
That brings us to our third point: It is important to partner with the appropriate-sized Korean company. It is surprisingly easy to go too big or too small. The big companies are usually part of the giant chaebol or business conglomerates. Their prestige often brings instant credibility to the market for your products, but their ability to sell to other companies within their chaebol group is usually exaggerated.
Furthermore, big companies typically have annual or even more frequent organizational reshuffles. The net result can be that the Koreans in whom you have invested a great deal bringing them up to speed on your company and products may one day, perhaps without notice, be reassigned to other departments. Major corporations anywhere in the world tend to be systemically arrogant, holding the unstated assumption that you need them more than they need you. Korean companies are no different.
Partnering with too small a company, meanwhile, may entail another set of traps. The good news is that they may need you as much as you need them – or even more so. Consequently they will be putting enough skin into the game to consider you more than simply another arrow in the quiver. The personnel you train are probably more likely to stay dedicated to your products than those of the larger firms.
However, if you are selling large capital assets, these smaller firms may themselves having to partner with other Korean firms to be credible producers, marketers and supporters of your products for future customers. Additional, de facto partners mean smaller pieces of the shared pie of profits and/or higher pricing that may make your products less competitive.
Finally, even if you are able to get the right mix and balance, you have just begun the partnership. Koreans look at all written agreements as just the launching of a new relationship that will need to adapt to unforeseen circumstances. So the foreign firm should not be shocked if, almost from the very beginning, the Korean partner asks for variances from the written partnership agreement as the first real sales opportunity approaches.
Such requests for variances might be justifiable in some cases, but there are also times when the Korean partner has not done adequate due diligence in selling or preparing support for the foreign products. At these times, one needs a reasonable adjudicator who can advise from ground zero on how to handle variance requests.
Established foreign firms usually have local representative offices with enough employees to act as the local eyes and ears and advise home office management. Those firms not yet ready to set up representative offices can outsource to consulting companies, such as Soft Landing Korea and others, to provide ongoing advice and assistance, and ensure the partnership stays on course. Addressing how that may be done will have to wait for a future column.
Tom Coyner is a senior advisor to the IPG and runs Softlanding Consulting Korea. www.softlandingkorea.com
- Is the Korean Market Open to Foreign Businesses by Tom Coyner
- Succeeding in Business in Korea
- Retail Business in Korea by Tom Coyner
- Starting a Manufacturing Business in South Korea: Top 14 Things to Know Before you Start a Business in Korea
- Establishing a Company in Korea: New Korean Corporate Forms Available under Revised Korean Code
- Finding a Korean Distributor: Top 10 Things to Know Before you Jump into Bed with an Agent in Korea
- Starting a Company in Korea: Establishing a Foreign Capital-Invested Korean Company, Branch or Liaison Office
- Why do Some Foreign Companies Fail and Some Companies Succeed in Korea?
- Credit Rating Agencies in Korea: Due Diligence of Your Supplier, Franchisee, Joint Venture Partner & Distributors
- Selling Traditional Korean Products to the World by Tom Coyner