Since 1977, I have observed the rise and fall of many foreign companies in South Korea. I have witnessed the trials and tribulations as a bank employee, a high-tech salesman, a country manager and as a business consultant of foreign and Korean companies doing business in Korea .
Bluntly speaking, while some foreign ventures have had some unlucky breaks, those companies that have succeeded in the Korean market have done so for good reasons. And those who have failed have done so, largely, because of their own inadequacies and often the lack of understanding of the needs of businesses in the Korean market.
Those companies who for a period “succeed” do so by largely having some kind of a monopoly in technology, a lock on a particular resource, or an overwhelming marketing advantage that makes Korean copycats look decidedly second class. But many initially successful companies ultimately fail by not getting adequately close to the Korean market to fully realize current and future opportunities in this rapidly changing country.
One of the traditional causes for eventual failure is that many companies rely on too few expatriate staff from their home countries and accept realities as defined by their Korean country managers. Often the bilingual Korean manager is the ideal person for the position, and in many ways easily capable of outperforming a foreign executive. At the same time, there comes an intrinsic problem of a local business unit, being managed by only local executives, eventually spinning out onto its unique orbit, separate from the rest of the parent and its overseas ‘solar system’ of foreign operations. Because of the language barriers, often the parent company is unable to sufficiently monitor festering problems until years later when small matters evolve into major disruptions that place the Korean operations in jeopardy.
Most long-term, succeeding foreign ventures in Korea are made up from very large multinational corporations. These huge companies have the expertise, depth of knowledge and experience to have the financial staying power to stick it out within the volatile Korean market. These large foreign companies doing business in Korea not only have critical partnerships with Korean companies, they also have the size to counterbalance their Korean partners when push comes to shove.
Smaller overseas companies, also, partner with Korean companies, but Korean companies tend to look at small- and medium-sized foreign entities in Korea as merely suppliers rather than partners. If the Korean company is also a small-medium-size enterprise, there can be a better parity. But even the smaller Korean company look at Korea as its exclusive market and the foreign partner as simply a competitive advantage vis a vis the local competition. This difference in perceptions and expectations often is a cause of friction that can be impossible to overcome.
Perhaps the most common kind of inquiry I field comes from small-or medium-sized companies wishing to increase sales in the Korean market. Too often the request for assistance is prefaced with explanations that they are already in the Korean market. But their sales/ROI is considerably less than expectations given the size of the Korean economy, market niche, etc. Furthermore, these foreign companies have serious misgivings about their locally hired country managers whom seem incapable of getting on board with the rest of their companies. In any case, their Korean operations are providing inadequate results. While the problem may rest with the local country managers, I have often witnessed foreign home office managements being at least equally responsible for their lack-luster performances in Korea.
First of all, serendipity too often plays too large a role in selecting the first country manager for Korea. The CVs may look appropriate, but the hiring authorities often lack an understanding of how well the Korean prospects are regarded or skilled (as opposed to being simply experienced) in the Korean market. It is critical that the local executives not only know the key players in market niches but have the dexterity to move into unfamiliar territories, as needed, to appropriately position foreign products or to respond to shifts in their markets as technologies and other factors force all companies to evolve with the times.
Too often small startup beach heads in Korea are never successful enough to grow large enough to have or recruit the talent resources needed to adjust to market changes. At such junctures, home office managers need to consider to pulling out of Korea or replacing key Korean personnel. Normally only large companies can afford more than one bite at the Korean apple. Smaller companies usually retreat.
So, are there opportunities for smaller offshore companies in Korea? Yes, but in most cases, services are more likely to succeed than consumer products companies. The obvious key to consumer products is distribution. While it is possible to gain entry into prestigious department stores, it is extremely difficult to break out into mass distribution channels, with the exception of highly skilled Korean Internet selling. Services are less logistically confined, but still finding the right Korean partner is usually critical. But finding an appropriate Korean partner takes much more time and ultimately money than many small-and medium-sized companies are willing to invest.
When I suggest to prospective clients how much they will probably have to invest to be successful in Korea, I often get some kind of push back. To which I counter, if Mr. Kim came into your market with your market entry budget, how likely would you expect him to succeed? Why do you think you are going to do better?
And so it goes. But this is not to suggest that the smaller players should stay away from this prosperous Korean market. They just have to be smarter, more determined, and sometimes, better financially committed than other foreign companies.
by Thomas Coyner. Thomas Coyner is a business advisor for IPG.
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