One of the major parts of our law practice here at IPG Legal for international clients, in Korea, is the structuring of joint ventures and the resolution of joint venture disputes in Korean courts and through arbitration. I find, in many of these cases, the non-Korean party is not in need of a joint venture with a Korean party to succeed in Korea and the Korean party does not realize or has no intent in satisfying obligations under the joint venture agreements. The parties are commencing a relationship, thus, with an immediate potential for failure.
Additionally, in many cases, the major issue is the lack of a Korean-centric joint venture agreement based on the specific relationship in favor of a form agreement. For an article on drafting of joint venture agreements for Korean joint ventures please see: Negotiating a Joint Venture Agreement in Korea.
Thus, many disputes are caused by the realization by the non-Korean party that he/she doesn’t need the Korean party and the realization by the non-Korean party that the Korean party had no intent, at signing, in following the joint venture agreement.
Do You Need a Korean Joint Venture to Succeed in Korea?
We find that a joint venture is, normally, only successful in a few situations. The following are the major situations that we encounter that tend to make sense for both parties.
- The Korean party has instant access to a proven distribution network (retail outlets) or supply chain and the non-Korean has a product that easily fits into this supply chain. Often this, however, is best addressed through a distribution/license agreement and, not, a joint venture agreement, but in some cases the joint venture makes sense. Be careful, often a joint venture is not necessary and changed circumstances can kill the relationship.
- The industry is an industry closed to foreigners (few industries in Korea as closed to foreigners – ie. publishing) and the Korean party needs the expertise or money of the non-Korean party in order to succeed in the industry. Be careful, needs often quickly change, and, often, these industries are heavily regulated and, often, lead into a money pit that you will never dig anything out of. Knowing the governor does not mean that you will receive government support. Everyone in Korea has contacts, however, few are able to capitalize on these contacts.
- The non-Korean party does not have assets and, thus, is unable to commercialize an invention and the Korean party is in need of a new product line or has spare manufacturing capacity. Be careful, the learning curve may not be as great as you think and you may not be needed for too long.
- The industry is a niche industry with only a handful of players and the non-Korean can receive instant access to one of the main players through the joint venture and the Korean is able to gain access to the technology through the joint venture. Typically, this is a joint venture between a Korean conglomerate (chaebol) and a multinational company.
If you have money, have the expertise in doing business in Korea (or can hire experts), are not in a regulated industry, carefully consider the market, have a local guide, and are not in a need of joint venture because of the nature of the business – forgo the risk of a joint venture and hit the road in Korea on your own.
Other articles that may be of interest:
- Listen to your Mother: Minority Shareholders’ Rights in Korea
- Doing Business in Asia: Due Diligence, Agreements, Attorneys and Street Smarts
- Korea Joint Ventures: The Bare Essentials
- Resolving Korean Joint Venture/Partnership Disputes without an Attorney – Maybe
- Top 10 Mistakes of Companies Doing Business in Korea
Sean Hayes is the first non-Korean attorney to have worked for the Korean court system (Constitutional Court of Korea) and one of the first non-Koreans to be a regular member of a Korean law faculty. Sean is ranked, for Korea, as one of only two non-Korean lawyers as a Top Attorney by AsiaLaw, and IPG Legal is consistently ranked Top Dispute Resolution Law for our litigation services.
If you would like a consultation with an English-speaking lawyer in Korea, please schedule a call at: Schedule a Call with an Attorney.
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