Social and Cultural Environment for Foreign Business in South Korea - Case Study Example

Institution : xxxxxxxxxxx Course : xxxxxxxxxxx Title : Social and Cultural Environment for Foreign Business in South Korea Tutor : xxxxxxxxxxx @2013 Social and Cultural Environment for Foreign Business in South Korea Summary South Korea is a country located in the Asian Peninsula. It has developed very fast compared to other Asian countries. It managed to do so through governmental intervention. They are a people who value their culture and live by it. The family and personal relationships are considered very highly and as a result the start of chaebols (Samsung, Hyundai etc) which form the basis of their economy. Koreans regard education very highly and as such have an educated workforce with a powerful working culture. Their corporate culture is bureaucratic and they are very sensitive to age. Their verbal communication is indirect and their negotiation tactics entail persistence and the exchange of business cards. For foreign businesses to flourish in South Korea, they need to abide by the Korean culture for instance take care of their partners’ kibun, ensure that they pass their business cards and look to be introduced by a party who is already known. Table of Contents` ▪ Introduction ▪ Demographic Trends Changes ▪ Social Institutions ▪ Cultural Analysis ▪ Corporate Culture ▪ Informal Trade Barriers ▪ Recommendation ▪ Conclusion Introduction Amsden (1992) reports that for a lot of its long history, South Korea has been an independent kingdom. After the Russo-Japan war Japan occupied Korea in the beginning of 1905. In 1945, Korea obtained its independence. It is located in Eastern Asia on the South of the Korean Peninsula bordering the yellow sea and the Japan Sea. (south korean background). Kwon Tai Hwan (2013) reports that South Korea's demographic transition began in the 20th century. It was instigated by the introduction of Western medical systems. There was a decline in mortality rates and the Korean's life expectancy was seen to increase from 37 years to 52 years which was in the 1925-30 period.The population increase lay a toll on the land resources. The population stabilization process started in the 1960s. The government became very involved in family planning and fertility started to decline. The fertility transition took 20 years to finish. By 2000 fertility reduction had led to a 30% population reduction (aging problem and population decline). Kwon Tai Hwan (2013) reports that the fertility transition process was closely related to urbanization, governmental intervention and economic development. It was also attributed to Korean holistic factors. South Korean's female fertility rate in the period 2005 to 2010 was estimated at 1.21 (Female fertility rate between 2005 to 2010 was 1.21). Mortality declined with fertility transition. In 1960 life expectancy was seen at 52.4 years but by 1999 it had reached 75.5 years. Population aging was as a result of the change in the demographic trends. The proportion of 65 year olds was seen at 2.9% in 1960. It increased to 5.1% in 1990 and to around 7.2% in 2000. In 2009 its elders over 65 years of age increased from 3.3% to 10.7% (elders over 65 old, increased). A reduction in family size was as a result of the fertility transition. The average South Korean household decreased from around 5.5 to 3.3 individuals between the periods of 1960 to 1995. South Korea's major labor proportion is middle aged workers (major labor proportion is middle age workers). Its prevailing demographic trends manifested with the following problems; an increase in the healthcare cost, the young generation is unable to cover the positions, there was late retirement for elders, the cost of retraining and upgrading skills increased and there was a lack of innovation and vibrancy (problems). Cultural Analysis Terpstra (1994) suggest that culture is beliefs and inner values that are relatively stable and are upheld by a number of people in regions or countries. Culture also touches on the noticeable impact values on people and beliefs. Morrison (2002) reports that cultural symbols are constituted of religious rituals, language and art. Czinkota (2007) states that cultural factors have a huge bearing on business flow. Culture elements are manifested via; religion, language (verbal and non verbal), education, social institutions, material elements, values and aesthetics. Morrison (2002) explains that Koreans speak one language and belong to one ethnic family (language). Koreans share distinct physical appearances. Their language is spoken by around 65 million people who live in the Peninsula and by 5.5 million Koreans in the diaspora. Koreans have various religious beliefs that range from Confucianism, Shamanism, and Buddhism to other religions for instance Islam and Christianity. (beliefs)Shamanism and indigenous folk beliefs have evolved together and share a fundamental belief of the existence of a number of gods (for instance fire god, mountain god and house gods). They also believe in dead people's spirits which they believe have an influence on people's fortune. Korean Buddhism is comprised of both meditative and doctrinal traditions. Buddhists are in belief that human suffering is as a result of desire. As a consequence some Buddhist attempt to get enlightenment by using a detachment attitude. On the other hand a number of them fulfill their desires through prayers to Kwanum who they refer to as the Bodhisattva of compassion. (Confucianism) Confucianism is a social and political philosophy which lays emphasis on in and hyo virtues. It refers to the human heartedness while hyo refers to filial piety. Confucianism emphasizes social concerns including an obligation loyalty and honor. The Confucian take on heaven is one that is impersonal and yet has willful force in society and nature that is beyond the control of humans. Confucianism emphasizes on social concerns including an obligation loyalty and honor. Czinkota (2007) explains that the most important national holidays in Korea are Ch'usok and New Year's Day. Koreans keep both the lunar and solar New Year's Holidays in which people put on hanbok (a traditional dress), observe ancestor rites, play traditional games, eat ttok-kuk and practice the sebae to their parents. During Ch'usok, special foods are eaten and graves are visited with food and fruit offerings (traditions). Terpstra (1994) states that personal relationships take precedence over business. Social networks are vital in business and also in various life aspects. In Korea elementary school reunions take place more often than not. People maintain their childhood relationships and prefer to conduct business with those they have known for long. Businesses that are family owned are very common. For instance during a tough time for a friend the proper protocol can be broken. An example is given of a manager who does not advertise for a job opening and gives the position to a friend in need (personal relations take precedence over business). Czinkota (2007) explains that kibun is a Korean word that describes face, mood, pride and mindset (kibun). If a person's kibun is hurt then their pride is hurt which causes them to have a lose of dignity and as such lose face. The Korean interpersonal relationships take place on the harmony principle. It is very vital to maintain a comfortable and peaceful atmosphere each and every time. Even if it results into coming up with a white lie. Kibun transcends every Korean facet of life. It is important to avoid hurting someone else's kibun while keep your own intact. In business, the kibun of a manager can be damaged easily if he is not shown respect by his subordinates. On the other hand criticizing a subordinate in public damages his kibun. The use of the eye to determine another person's kibun is referred to as Nunchi. Nunchi is accomplished by reading a person's body language. Morrison (2002) states that South Korea is constituted of an educated workforce and a powerful working culture (An educated workforce and powerful working culture). Koreans are well educated. They attach a lot of importance to the obtained degrees and to academic excellence. Korean universities' admission examinations are very vital as they determine young koreans' future. The networks formed during college and high school years play a huge role throughout life and especially in careers. According to Morrison (2002) South Koreans use various terms to describe certain social aspects. Hahn describes the motivation to overcome obstacles. Koreans realize that there are a number of obstacles thrown in a person's way in their day to day life experiences and they as such coined a word for it. Since Koreans are big on respect and the proper functioning of their society they coined the term Inhwa. Inhwa refers to a Korean's approach to harmony. Harmony is very important in the running of their traditional system which is mostly based on family and the people's age (Inhwa and hahn). Social Institutions According to Self (2013) a Korean's life most important part is the family. The Confucian's tradition views the father as the head. The father is thus vested with the responsibility of providing shelter, clothing, food and approving family member marriages. The eldest son is vested with special duties first and foremost to his parents, then his brothers (in the older to younger system), then his sons, followed by to his wife then lastly to his daughters. Family welfare takes precedence over individual needs. Family members are tied to each other since a family member's action reflects on the entire family. Chang (2006) suggests that the lacking English language skills is one of the barriers in business conduction in South Korea. As a result of this difficulty the education system in Korea lays emphasis on the improvement of oral English teaching. It has as such been realized that a great number of the available business people can perform proficiently in English. According to Nahm (1993) the Japanese Korean relationship is still tense after a conflict history between the two countries. Korea is still unhappy with the Japanese occupying their country in the 20th century. It is therefore not advisable to use commercial material or brochures written in Japanese in Korea despite the older Koreans being able to speak Japanese. However, most of the way their businesses are run is based on the Japan's zaibatsu system. A zaibatsu system refers to Japan's vertical business monopoly which is prevalent as from the period of Meiji era. A zaibatsu was from a single family. It would make use of all the business components essential for the manufacture of a product or commodity. For instance, a given zaibatsu might be involved in the manufacture of industrial machinery. The company would be the owners of the iron mines used as the metal source, smelters in which iron was developed into steel, factories in which the machinery was developed and such like things. The zaibatsu would further own a bank. This it would do to ensure that it could plan for its very own in-house financing, it would also maybe include a shipping company used for the exportation for their finished machinery. Mitsui and Mitsubishi are examples of zaibatsus developed in the early twentieth centuries (Japan's zaibatsu system). Kim (2008) explains that the chaebol are a South Korean type of business conglomerate which are family controlled and own a large number of international enterprises. Even though the chaebol function as independent entities, they have strong governmental agency ties. Chaebol receive financial support from the government and are also guided by the government in their policy creation endeavors. They are powerful corporate groups which are recognized internationally. Examples of these multinationals are LG, Hyundai and Samsung (chaebol, characters). Hofstede (1991) states that over the decades there has been a direct relation between the chaebol and South Korean's politics. Business leaders for instance Hyundai's President Chung Mon jun have served in the National Assembly. In the same breath Hyundai's group president was given the opportunity to travel to North Korea to talk about economic cooperation. In 2002 Hyundai started to manage various projects for instance road building operations, tourist resorts and the Industrial Park in Kaesong. Hyundai has generally played a vital role in inter-Korean affairs. Chang (2006) states that although the chaebol play a pivotal role in the economic success and the country's development its organizational form has numerous shortcomings. The factors that require to be examined carefully so as to mitigate problems are; bribery, inefficient resource allocation, no timely decision making, increase in exit costs, high management cost as a result of it being bureaucratic and high business risk as a result of the CEOs autocratic method of decision making. Chang (2006) provides that as indicated in the above paragraph the chaebol's major weakness is its not having business transparency. Its problems come from the chaebol's governance coming from the CEO acting as both the manager and the owner. Managers who have a large ownership stake in the diversified Korean chaebols take part in expropriating dispersed minority shareholders. Also, its management which utilizes autocratic decision making experiences unfavorable effects on its corporate performance as a result of the under utilization of its employees experiences and knowledge. The chaebol's cross subsidies also delay its exists. The delay in exists has been witnessed in the collapse of Ssangyong and Daewoo. Kim (2008) explains that there a number of differences between the chaebol and the zaibatsu. There major difference is in their source of capital. The zaibatsu were formed around a given bank as their major source of capital. On the other hand the chaebol's were not allowed to own banks. The Park regime in Korea did not nationalized their banks and they could channel their limited capital to firms and industries they saw as essential for their obtaining of their national objectives. As such the chaebol's survived as a result of their strong governmental ties. However the zaibatsu survived because they were self sufficient. They handled everything from their production to their export (fundamental differences). Corporate culture Kwan Tai Hwan (2013) explains that South Korea's corporate business structure shows its vertical social structure, which is social status (for instance if you are a governmental official or a relative to one of the top management then your agenda will be given precedence) and age are very important. The hierarchy in the large South Korean companies is structured and multi-layered. Employees begin from the bottom and advance their way to the top. However, there are exceptions to this for instance when past high level government people retire from their governmental work and get a job at the very top of one of the large South Korean companies. Another exception applies when there exists a person with high academic qualifications and if the employee in question happens to be the president's relative. (structure and hierarchy in korean companies). Korean companies are extremely centralized with its authority concentrated at the most senior levels (high centralization effect decision making). Respect for authority serves as an overriding phenomenon in South Korea's business practices and culture. Members who are highly ranked in the company are vested with a lot of power over their respective subordinates which are more than is depicted in the Western countries. Power over subordinates is not confined to the workplace or to the official business hours. Decision making is bureaucratic in that nothing happens until approval comes from the top. This is usually time consuming. Once a decision is passed by superiors then its execution is passed to subordinates. The lower ranks are usually the people who break or make a policy through the way in which they implement or interpret it. Korean employees are extremely loyal to employers. They will ensure that their employers’ kibun is protected at all times which may put them in a position that conflicts their company's long term interests. (Age is an essential component)Age is very important in the Korean society and it is also reflected in business. Most of the business corporate ladder moves are more often than not based on seniority and age within the company. The business responses are thus delegated to the aged. (responses)Korean companies rarely hire on the basis of merit. Women have not been a part of the corporate world but rank and age still outrank gender. (personal ties)Personal ties for instance school, birth places and kinship more often than not take precedence over rank, job seniority and other factors that have an influence on the management and structure of Korean companies. In the event that a Korean is given a choice to hire a person who comes from his alma mater or an experienced person or a better qualified person then he will hire the former. It is therefore prevalent that a person may be surrounded by colleagues from a similar educational institution like that of the CEO. It is also important to maintain respect as a result of rank in business unrelated matters. It is accepted that a person would not own a car that is of greater value or size than of his/her superior. It is also not appropriate for a subordinate to live in a better neighborhood or live in a bigger home than that of his superior. Informal Trade Barriers Young-gwan (2002) explains that first impressions matter greatly in Korea. They are very formal during social interactions compared to other Scandinavians. It is vital to uphold a dress code that is formal. A tie and suit is a must for a business meeting. In an informal setting Koreans can depict a humorous, relaxed personal side. Their style of verbal communication is indirect and their language uses unclear response. Silence is emphasized as vital in South Korean verbal communication. It therefore follows that South Koreans are attracted to people who do not take part in lots of verbal communication. Silence is appreciated in the following four meanings: defiance, social discretion, truthfulness and embarrassment. (verbal communication). They are very indirect communicators and they also avoid touching during communication. They are indirect so as to maintain harmony. Koreans have two dimensions of conversation indirectness. The first one is that people can differ from each other in terms of what they look for and get direct meanings in other people's remarks. The second aspect of indirectness is the tendency of a person to use indirect speech. South Korea is a low uncertainty avoidance and high context culture country. Koreans take topic management passively. They use back-channelling which is the use of brief vocal responses, "I see", "uh-huh". (Negotiating traits) Hwang (2009) says that it is of upmost importance to carry business cards during meetings with Koreans (Business cards). The business cards are brought forth after small bows or a handshake. The card presentation is of ceremonial character and it will be seen that Koreans receive and give business cards with a single hand supporting the giving hand at the wrist or with both hands. After the card is received, it is looked at closely. The close examination is of importance as Koreans refer to people with their status and title. The received business cards are put on a table in the course of a meeting and in the invent that more than a single card is received then they are placed in a vertical line for all the cards to be visible. The cards received are put in breast pockets after meetings. The omission of business cards presentation is deemed as an insult by Korean businessmen. Business people who frequently go to Korea are advised to print cards that are written in both English and Korean. The different languages should take different sides of the card. Grayson (1995) stipulates that business deals in Korea take place very quickly and they may preferably take place straight away. South Koreans are very impatient and as such make spontaneous and emotional decisions. Foreigners are advised to interact with South Koreans in the aforementioned terms. It is therefore noted that a signed agreement in the event of changes that exist in the underlying circumstances, will not be deemed as an obligating agreement but the beginning of further negotiations. Business agreements are concluded on the basis of mutual trust and confidence than on written word. South Koreans do not want to interact with aggressive negotiating partners despite their wanting to experience fast results. They prefer partners who are not too pushy and who are persistent (pushy, persistent). (Negotiating traits) Hofstede (1991) writes that Koreans have been heavily influenced by Buddhism which values listening abilities and body language. Maintaining confidence and mutual trust during business relationships is of utmost importance. If the core issue entails a partnership agreement then South Koreans might organize for an exclusive agreement. Koreans value their social aspect and as such their businesses are conducted after developing a rapport with their partners that is over dinner or lunch. Recommendations (recommendations) New enterprises or existing companies looking to enter the South Korean market should; be flexible and prepared in adapting to cultural differences, seniority, status and they should definitely show respect. They should be prepared to do this since relational ties take precedence in South Korea more than anything else. They should keep patience by adjusting their planning and using alternative strategies since South Korean company structures are vertical and highly bureaucratic. Decisions take time and always come from the top. The new businesses should also look to form relationships by involving the new community, building trust and have a drinking culture. The building of a rapport is important as they are at a better chance of forming a business relationship by being introduced by a person who is already known than championing their cause alone. Their interactions should also be marked with the exchange of business cards which serves as an important part of business etiquette. While they form a rapport they are also required to maintain their business partner's kibun at all times. The informal interactions will go a long way in building trust which is essential in conducting business. Conclusion (conclusion) South Korea obtained its independence in 1945. It has developed at a very fast rate compared to its neighboring countries. Its government played an active role in this. It has seen an incredible growth rate and integration into the modern world economy. Its success was obtained by close business/government ties which included import restrictions, direct credit, strong labor effort and specific industry sponsorship. South Korean's economy is characterized by low unemployment, moderate inflation, fairly even income distribution and an export surplus. South Koreans demographic transition began in the 20th century and was instigated by the introduction of western medical systems. With it came a reduction in family size and an increase in the elderly population. Other problems associated with the change in demographic trends are costly healthcare, difficulty for the young generation to cover the positions, late retirement of elders, lack of innovation and costly retraining and upgrading of skills. Cultural factors have a huge bearing on business flow. Culture elements are manifested through; religion, language, education, social institutions, material elements, values and aesthetics. Koreans speak one language and belong to one ethnic family. They have a number of religions with confucianism emphasizing on social concerns which include an obligation loyalty and honor. Personal relationships take precedence over business in South Korea. Social networks are thus vital in business and in various life aspects. Networks formed during college and high school years play a huge role throughout life and especially in careers. The keeping of face (kibun) is very important in Korea. South Korea is constituted of an educated workforce and a powerful working culture. A Korean's life most important part is the family. Persons of higher rank or age are accorded explicit respect in business matters and also socially. Chaebol is a form of family owned business conglomerate make up most of South Korean businesses. Studying the chaebol's shortcomings it is seen that they require improving their management, establishing business transparency and creating cooperation between management and labor in order to develop their economic growth and their global competitiveness. Examples include; LG, Hyundai and Samsung. They have close governmental ties and their major weakness is the lack of business transparency. South Korea's corporate business structure shows a vertical social structure in which social status and age are very important. Rank can be pulled all the time both in business and in social endeavors. First impressions matter a great deal in Korea. A formal dress code is kept during the conduction of business. The presentation of business cards is deemed highly. Business agreements are concluded on the basis of mutual trust and confidence than on written word. References Amsden, H.A.(1992). Asia's Next Giant: South Korea and Late Industrialization. Oxford University Press: New York Chang, S. (2006). Financial Crisis and Transformation of Korean Business Groups and the Rise and Fall of Chaebols. Cambridge, UK: Cambridge UP. Czinkota, M.R. (2007). International Marketing. 8th edition, USA: Thomson Grayson, J.H. (1995). Elements of Protestant Accommodation to Korean Religious Culture: A Personal Ethnographic Perspective. Missiology: An International Review 23, no.1 Kim, Y. (2008). Bureaucrats and Entreprenuers: The State and the Chaebol in Korea. 1st ed. Jimoodang. Kwintessential (2013). South Korea - Language, Culture, Customs and Etiquette. Retrieved September 13th from http://www.kwintessential.co.uk/resources/global-etiquette/south-korea-country-profile.html Kwon Tai Hwan (2013). Population Change and Development in Korea. Retrieved September 11 2013 from http://asiasociety.org/countries/population-change-and-development-korea Hansen, J.V. (2000). Korean Business Culture. Retrieved September 14th from http://sydkorea.um.dk/en/the-trade-council/korean-business-culture/ Hofstede, G. (1991). Cultures and Organizations. McGraw-Hill, London Hwang, I. (2009). Corporate Governance and Chaebol Reform in Korea. Seoul Journal of Economics. Retrieved September 13th 2013 from http://findarticles.com/p/articles/mi_qa5411/is_200010/ai_n21465466/ Morrison, H.G. (2001). Culture's Negation: Comparing Values, Behavior, Institutions and Organization Across Nation. USA: Sage Publication. Nahm, A.C. (1993). Introduction to Korean History and Culture. Self, R. (2011). Intercultural Human Resource Management: South Korea and the United States. International Journal for Management & Information Systems, volume 15. Terpstra, V. (1994). International Marketing. USA The Dryden Press Young-gwan, K. (2002). The Confucian-Christian Context in Korean Christianity. B.C. Asian Review. Read More