Social and Cultural Influence of Foreign Business in South Korea - Case Study Example

Social and cultural influence of foreign business in South Korea [Name] [Professor Name] [Course] [Date] Table of Contents Table of Contents 1 Table of Figures 2 Introduction 3 Culture factors 4 Social institutions 6 Informal trade barriers 8 Recommendations 10 Conclusion 11 References 12 Appendix A 14 Appendix B 15 Table of Figures Figure 1 A synthesis of cultural influence on buyer behavior: Adapted from Bradley (2002) 14 Figure 2 Top ten destinations for FDI in 2011 in Asia 15 Social and cultural influence of foreign business in South Korea Introduction Social and cultural influences play a critical role in the development of a business in a host country. For instance, language barriers, culture shock and pricing difficulties are prevalent obstacles particularly while setting up a business. South Korean business environment is not an exception (Library of Congress 1999). Before the 1997 financial crisis in South Korea, the country was regarded as one of the most challenging places to set up a business. Many changes have taken place over the years and the country has become a strategic investment country and one of the world’s largest economies. Indeed, it is one of the most populated countries in the world with over 50 million people, which provides an extensive market for manufactured commodities. The population has shot up from around 20,188,600 people in 1949 to 50 million people (Kwon 2002). Unlike other Asian countries like Thailand, China and Vietnam, the country is not a low-cost labor country. Based on OECD statistics, South Korea is a potential business operation base with the major advantages lying in its educated and ambitious workforce (UNCTAD 2012; UNCTAD 2013). Having a long-term and far-reaching target is of great significance in the Korean culture. The country’s GDP grew remarkable form 2.7 billion in 1960 to more than 1 trillion in the 2000s. This paper discusses the Social and cultural influence of foreign business in South Korea (Stenius 2011). Culture factors South Korea has an inimitable cultural and linguistic heritage that has evolved over the years in consistency with tremendous economic growth. The evolution began in the 1960s after the devastative outcome of the Korean War. Today, the country boasts of a rich culture reflected in its business environment (Fung, Lizaka and Tong 2002). Indeed, South Korea is a democratic country that is characterized by coordinated drive for growth and development. Indeed, it can become the fastest growing economies in the world since the 195os. The country boasts of one of the largest domestic markets over of 50 million people and is strategically located near thriving Asian markets of Japan and China. The country has a developed democracy that offers considerably risk-free business environment. Conversely, the country is greatly dynamic and offers a dynamic and aggressive corporate culture (Communicaid 2006). South Korea has an educated workforce and a powerful working culture. When compared to other Asian economies such as Vietnam, Singapor, China and Japan, it is not a low-cost labor country although wages are generally low outside the major cities. However, high-skilled employments have salaries that are compared to those in the Western world ((Stenius 2011; Kwon 2002). Generally, Koreans have extraordinarily ambitious mindset. In addition, their culture is characterized by general ambition to reach high and long-term targets. Indeed, the culture of ambition is apparent at all levels of the society. Across the Korean cultures, the word “han” is generally used to describe the motivation to overcome obstacles. The Key concepts and values in the Korean culture include Kibun, Ihnwa, Confucianism and personal relationships (Library of Congress 1999). The term Kibun is a concept permeating different faces of the South Korean lifestyle. It is a comprehensive term that describes pride, mindset, mood and face. This cultural concept is deeply embedded in Korean, consequently, when operating a foreign business, it is integral that an investor maintains a sense of Kibun (Library of Congress 1999). Inhwa refers to a Korean approach to harmony. Since the South Korean society is basically a collectivist society, reaching a consensus over a decision is considered as a critical element that promotes harmony. In the business environment, this concept manifests in an inherent sense of loyalty. Confucianism is a philosophy in ancient Korean that continuous to permeate the consciousness of many Koreans. The philosophy emphasizes a number of social concerns including an obligation towards others, loyalty and honor. Personal relationships take precedence over relationships. The Korean business culture is firmly embedded in respectful relationships (Communicaid 2006). South Korea also has a rich linguistic heritage. This has promoted a multicultural business setting. Although the Korean language is spoken by most of the South Korean population, English has been fully integrated in most sectors and is widely taught in Korean schools (Stenius 2011). Unlike in the 1960s, South Korea is today a relatively heterogeneous society triggered by its emergence as an economic powerhouse. In 2007, the number of foreign people living in South Korea passed the one-millionth mark due to the growing foreign direct investments in the country (Library of Congress 1999). Social institutions The South Korean economy has in recent times begun to show signals of social institutionalization. This encourages foreign businesses to establish base into the country. There are several factors contributing to the need for institutionalization, one being the South Korean demographics. For instance, the South Korean population is rapidly ageing (Stenius 2011). Additionally, the workforce is drastically shrinking. At the country’s current fertility rate, each successive generation is nearly 40 percent smaller than the preceding one. This means that South Korea will often have to open its doors to foreign workforce and business investments to sustain its financial might even as its domestic demand is drastically decreasing (Communicaid 2006). The emergence of social institutions has in actual fact opened up the possibilities of foreign direct investment (FDI) in South Korea. Indeed, the country’s policy of institutionalization between 1960 and 1983 encouraged the influx of foreign direct investments into the country. South Korea’s economy has been since described as being “outward oriented” (Kim & Hwang 2000). The South Korean government enacted the Foreign Capital Inducement Act (FCIA) to promote foreign business into the country. The aim was to encourage FDI to alleviate the problems of balance of payment (BOP) as well as to attract the much-needed professional expertise (Yong 2008). In 2011, South Korea signed crucial free-trade agreements (FTAs) with the European Union and the United States (Stenius 2011). This further opened up opportunities for foreign businesses to find their ways into South Korea. The FTAs that was signed with the United States and the EU removed tariffs on 95 percent of the commodities entering the country. The estimated impact of the FTA is approximately 40 billion Euros each year. However, there is still risk concerning the opportunities offered by the FTAs (Stenius 2011). This is since even as they are being aggressively utilized by the Korean firms. Foreign firms are not adequately utilizing them because of the perceived soft barriers such as culture and language in the country. This means that understanding South Korea’s social institutions better is crucial for foreign businesses (Kwon 2002). The social significance of education in South Korea is to promote transition of the traditional to contemporary culture. In spite of the impressive increase university enrollments in the country, the importance of education of basically for social enhancements (Stenius 2011). Further, the rising number of Koreans seeking education abroad has meant that English language is deemed as an important language. This has tended to lower language barrier and open up opportunities for foreign businesses looking to employee multi-language employees (Library of Congress 1999). The control of financial institution by the government has encouraged significant inequalities between the chaebol, large South Korean conglemerates viewed to be favored, and the capital-starved smaller businesses (Stenius 2011). Chaebol are today seen as the drivers of South Korea’s economic growth. While this perception has been supported by several perceptions, the benefits of such institutions are persistently being questioned given that they have tended to discourage growth of foreign businesses in the country. The chaebols have often attracted some of the best workforce in South Korea, this alongside the fact that they compete with foreign entrants has made it difficult for foreign businesses to operate in the country (Communicaid 2006). Koreans have traditionally been eclectic in their religious dedication. Their religious outlook is not conditioned by exclusive faith but a variation in indigenous and contemporary beliefs such as Korean Shamans, Daoism, Buddhism and Christianity. Because of the diversity in religious beliefs, the role of religion in the country’s social development has been critical. The religious impact on the business environment has meant that Koreans give consideration to social and business ethics. For instance, Confucianism remains a crucial element in ethics (Library of Congress 1999). Informal trade barriers The major informal trade barriers include the social and cultural differences, the wealth gap, the negotiation styles and the communication style differences between the trading partners (Anderson 2001). Operating a business in South Korea has been a major challenge due to the country’s little diversified business culture (Porto 2005). Indeed, the sense of nationalism that is widely encountered in job selections pervades the South Korean business environment. For instance, foreign companies have generally been confronted with great barriers in finding clients. Some observers have suggested that this is generally because South Korean conglomerates (chaebols) have tended to show preference to Korean suppliers and local productions rather than the imports (Stenius 2011). For such a country dominated by a large number of multinational corporations, the business environment is astonishingly little diversified (Anderson 2001). Further, language barrier is a major informal barrier to trade. Indeed, knowledge of the Korean language is a major requirement for foreign investors or market entrants. Besides, Korean language is the basic business language in the country. Further, the Korean society is greatly networked, which means that knowing the right people is vital in building business relationships (Stenius 2011). An additional informal trade barriers lies in attracting the right workforce. This is because of the South Korean mindset. For instance, Most Koreans perceive that chaebols are the most lucrative employers. Stenius (2011) discusses that the university graduates have tended to view chaebols as the highly respectable corporations to work for since they offer relatively high wages and long-term career paths. This is further perpetuated by the Korean cultures. For instance, the Korean culture gives high regard to respect of authority. Besides, honor to seniority and commitment to one’s employment is vital. Therefore, employees are motivated to seek lifelong career paths in the same organization (Stenius 2011). The workers at chaebols are obligated to implement the corporate vision of aligning their career objectives with those of the corporation. A case in point is that entry-level recruits at top chaebols are often instructed to spend the first few working days aligning their career development vision with the corporate strategies. Afterwards, a mentor is assigned to the new recruit on a monthly basis to review the recruit’s career progress in relation to the set out goals (Kwon 2002). It can therefore be observed that the South Korean business environment makes it difficult to recruit the right candidates, which is as essential factor to market entry. The best qualified employees are less likely to seek for employment in novelty foreign firms that have not yet established brand and reputation (Stenius 2011). Conversely, the country’s business culture is greatly dependent on personal relationships, which makes it a difficult market since the firm has the advantage of a superlative staff that is accustomed to the local business environment and cultures as well as the right network or people and businesses (Stenius 2011). Recommendations Since chaebols dominate the country’s business environment, foreign business face challenges in posing as direct competitors. Market entry could however be successful when the right niche is targeted that seems too specialized for chaebols through supplier network or even directly. This is because chaebols use generic suppliers. Further development in the country’s IT-startup sector has also the potential to open up new opportunities for foreign business to gain clout in the South Korean market (Communicaid 2006). The cultural differences between the foreign business and the South Korean business environment can be solved through combining and synthesising cultural differences. This is possible when the foreign business analyses and copes with the cultural differences and subsequently manages the tension to ensure reconciliation to sort the differences (Deari, Kimmel and Lopez 2008). This enables the foreign business to integrate various cultural perspectives and to acquire a dynamic solution to cultural problems that may arise (see Appendix A) (Bradley, 2002). To beat some informal barriers such as cultural barriers, it is critical that even as foreign businesses seek market entries, they should pay attention to local cultures. A possible strategy is through an effective employee training program to foreign workers on the local cultures. The training program can be effective in enabling the employees to comply with some elements of the South Koren cultures and philosophies such as social and business ethics, as emphasized by the Korean Confucianism. Other areas may involve building personal relationships (Deari, Kimmel and Lopez 2008). Foreign investors can also beat the barriers of entry by acquiring local production facilities and developing the manufacturing process to be of first-rate quality. Success in this area establishes a systematic development of world-class commodities to compete those produced by chaebols. Further, it enables an unknown foreign business to establish brand repute. This enables the business to beat recruitment barriers, as the company will be able to recruit the right people (Stenius 2011). Conclusion In conclusion, South Korea remains a top destination for foreign businesses (see Appendix B). However, its potential is often neglected due to its inherent informal trade barriers. South Korean represents a relatively closed economy because of the cultural and language barriers. Additional barriers include the control of financial institution by the government which has encouraged significant inequalities among the chaebol, the capital-starved smaller businesses and foreign businesses. However, the unique features of the market present foreign business entrants with a gateway to the wider Asian economies such as China and Japan. In any case, successful business operation in the market calls for careful attention to the quality and efficiency in addition to aggressive marketing, building of brand and hiring the right people through informal networks. In any case, foreign businesses that survive entry into the market are presented with an opportunity to operate one of the world’s fastest growing economies. References Anderson, J 2001, Trade and Informal Institutions, viewed 20 August 2013, https://www2.bc.edu/~anderson/TradeInstitutions2.pdf Bradley, F 2002, A synthesis of cultural influence on buyer behaviour, International Marketing Strategy, 4th ed, Pearson Education: London. Communicaid 2006, Doing Business in South Korea: Korean Social and Business Culture, viewed 20 August 2013, http://www.communicaid.com/pdf/doingbusiness/Doing%20Business%20in%20South%20Korea.pdf Deari, H, Kimmel, V & Lopez, P 2008, Effects of cultural differences in international business and price negotiations, International Marketing Strategy, viewed 20 August 2013, http://lnu.diva-portal.org/smash/get/diva2:206119/FULLTEXT01.pdf Fung, K, Lizaka, H & Tong, S 2002, Foreign Direct Investment in China: Policy, Trend and Impact, Paper prepared for an international conference on China’s Economy in the 21st Centuryî to be held on June 24-25, 2002, Hong Kong. We would like to thank Alan Siu and Richard Wong for their encouragement. Kim & Hwang, S 2000, ‘The Role of Foreign Direct Investment in Korea’s Economic Development Productivity Effects and Implications for the Currency Crisis,’ National Bureau of Economic Research, Vol. 9, p.267-294 Kwon, Y 2002, Recent Changes in Korea’s Business Environment: Views of Foreign Business People in Korea, Griffith University: Brisbane Library of Congress 1999, South Korea - The Society, viewed 20 August 2013, http://www.mongabay.com/reference/country_studies/south-korea/SOCIETY.html Porto, G 2005, Informal Export Barriers and Poverty, The World Bank, viewed 20 August 2013, http://elibrary.worldbank.org/docserver/download/3354.pdf?expires=1377029541&id=id&accname=guest&checksum=ED7A70622C810A242E9C793C682BA253 Stenius, P 2011, Discovering business opportunities in South Korea, Reddal.com, viewed 20 August 2013, http://www.reddal.com/our-thinking/fresh-thoughts/discovering-business-opportunities-in-south-korea UNCTAD 2012, World Investment Report 2012, Viewed 29 July 2013, http://unctad.org/en/PublicationsLibrary/wir2012_embargoed_en.pdf UNCTAD 2013, World Investment Report 2013, Viewed 29 July 2013, http://unctad.org/en/PublicationsLibrary/wir2013_en.pdf Yong, C 2008, “New Direction of Korea’s Foreign Direct Investment Policy in the MultiTrack FTA Era: Inducement and Aftercare Services,” Paper delivered at the OECD Global Forum VII on International Investment, March 27-28, 2008. Appendix A Figure 1 A synthesis of cultural influence on buyer behavior: Adapted from Bradley (2002) Appendix B Figure 2 Top ten destinations for FDI in 2011 in Asia Source: FDI Intelligence (p5) http://ftbsitessvr01.ft.com/forms/fDi/report2012/files/The_fDi_Report_2012.pdf Read More