Many ventures have ended in a complete break down.  Creating and maintaining a joint venture can be a lot of work.  You must use wisdom and street smarts in order to keep both parties  happy.

A Profitable Marriage

Just like a marriage has give and takes, so must a joint venture.  You must know both your own and your partner’s limits.  There was a story about a Korean conglomerate which agreed to do a joint venture with an American company fifty-fifty.  The vice president of the American company was asked if he could get their company 51%.  He said yes and once he asked the Korean company about it all bets were off and the deal stopped cold turkey.  Both the benefits to both companies and the vice presidents jobs went down the tubes.  Do not promise impossible things, seek out possibilities and make decisions likewise.

National Dominant Traits

Koreans, like most others, are afraid that after becoming part of a joint venture that they will lose influence.  You will need to have someone mature who is ready to deal with the partner so that they can resolve any concerns regarding this.

Expectations from a Foreign Partner

Position and Status

Every company is concerned with money, but other major concerns are company image, sustained growth, and “face.”

Sources of Conflict

Make sure to identify areas of potential conflict so that you are not baffled when they come (and they will come).

Priority Differences

The three most common priority differences with Korean companies are:

• Profit vs. market share
• dividend declaration and profit remittance
• Marketing strategy

Management Style

Some areas to watch out for are:

• Employment and promotion policies
  • Salary increases
• Management information system
  • Customer relations
  • Marketing and selling practices
• Transfer pricing in rare cases is another source of conflict

Prevention of Conflict

At the start of a venture, both parties need to consult about how they can go about to resolve conflicts which will come up.

Procedure Formula

Many companies set plans to record minutes and have yearly meetings to decide whether it is in the companies best interests to continue in the venture.  It is recommended for the non-Korean company to volunteer to keep minutes.

Communication Channels

Just like it has been iterated before, communication and building relationships of trust are very important.

Status Position

Great importance is places on ones status and ego.  Make sure that you always give your partner a role that will keep him or her engaged in a cause that is worthy of fighting for.  This shares the responsibility and gives them more reason to stay with you.

Extracurricular Activities

Take your partner out for tennis or golf, it is a great way to resolve conflict.

Mutual Family Interest

Share what you are dealing with your family.  Your partner might have advice to share and in doing so will build the relationship.

Mutual Respect

If you want respect, give it.  Unconditionally.

Resolving Conflicts

Personal Considerations

You must consider the other individual first.  Don’t make him or her lose face.  Take care of everything on a personal level.

Control Emotions

Don’t ever lose control of yourself.  Once you do you have already lost.  Also make sure to help others to control their emotions, try to control the situation and timing to help the other party be in a calm state when you discuss things.

Compromise Diplomacy

Again, use a give and take model.  One example of this was one company who was given more than half of the control in the company but the Korean partner had veto rights over the representative to the company.

Home Office Support

One must create a balance between dealing with the home office and the local office.  Getting support for what one intends to do is important.  It is also important that the local authorities have enough power to make quick decisions that are needed.

Confidential Negotiations

Keep things under wraps until negotiations are finalized, you don’t want to ruin things before they actually happen.

Proper Protocol

Pay close attention to time, place and the general environment.  Following correct form is very important.

Neutral Negotiator

Sometimes getting a third-party to help resolve conflicts can be very useful.

Expected Conflicts

There will be conflicts, you can be sure of that.  The difference in how you handle it is the only thing you can choose.

Top 10 Pointers

1. Keep control of the CFO position.
2. The Korean CEO is a god in his employees’ eyes, don’t make him lose face but don’t be a pushover.
3. There must be motivation for both companies to enter into a joint venture.  Just doing out of necessity or ease will likely lead to issues.
4. The expatriate director must have a clear-cut mission and complete backing from his company.
5. Expect a 18 month period of trial and error before becoming competent foreign director.
6. After switching foreign directors, the new director must come in with a game plan, clear objectives, and a defined role.
7. Don’t ease into the role, take it it immediately or you may not ever receive the authority you assumed you would get.
8. From the beginning, make it clear that you must receive all information, even bad news, but make sure everyone is comfortable being able to share it.
9. Develop relationships and get networked.  Spending time out of work with each other is the best way to accomplish this.
10. Consider hiring a second-generation Korean totally on your payroll as a part of the joint venture.  They can both contribute their business knowledge and report about what is happening beneath the surface.

Go to the next chapter, Hiring and Firing or select a chapter.

We negotiate every day in our interactions with others.  Sometimes it’s easy and sometimes it’s hard, negotiating between culture boundaries is something that will not come immediately and will take a lot of practice and determination (that good old Korean 열심).

Different Rules

“Comparative International Law is really simple. In England, anything that is not legally forbidden is permitted.  In Germany, anything that is not legally permitted is forbidden.  In Russia, everything is forbidden, even that which is permitted.  In France, everything is permitted, even that which is forbidden.  And in Korea, anything that is either forbidden or permitted is subject to negotiation”

Problem Points

The following is based off of a study involving 22 countries and 55 nationalities.

A. Finding a Common Ground

Common ground is essential in order to resolve conflicts and differences.  Most good things start off from common ground so it is wise to invest some time into knowing this.

B. Mutual Trust

Studies have shown that two parties must develop a relationship of trust in order to benefit.  Especially across national borders it is important to first gain this trust and to give it before trying to negotiate.  Without trust, both parties will perceive any move by the other as hostile.

C. Communication Barriers

Although language barriers generally always arise, the more important factor is understanding what the other party is actually saying.  Americans can sometimes seem impolite and too much on-your-face while Koreans too polite and not direct enough.  These issues can even arise between parties who speak the same language, like America and Britain.

D. Cultural Business Etiquette

When dining with the opposite party, the best advice is to follow the hosts and do what they do.

(chapter 6 deals with some of these)

E. Legal and Practical Distinctions

Legal systems around the world are very different.  While one thing may be considered a legal document or promise in one country may not be in another.

Korean Concepts of Negotiating

In Korea, a contract is more like an unwritten understanding between the two parties.  This partly explains why so much time is taken in the early stages to understand each other.  This can frustrate Westerners who feel like a promise was broke when the Korean company changes the terms after it was written.

Negotiating Pointers

Build the Right Climate

Like previous chapters have already iterated, it is important to let one’s hair down and entertain and be entertained to gain trust.

Communication

Make sure to prepare everything beforehand that will be used and review afterwards to make sure that all your ideas were put across in a manner you wanted.

Allow for Sufficient Time

Many foreigners feel rushed when negotiating with new partners.  This is expected since the Korean companies have less experience with foreign companies, so they are more cautious at coming to a conclusion.  Make loose flight schedules that can change when doing opening negotiations to allow enough time for both parties to come to a reasonable understanding.  Once the relationship and history is developed one may make more precise schedules and assume the long negotiations won’t last quite as long (depending on who you’re dealing with).

Be Innovative

Don’t just prepare one suggestion and present it, constantly be thinking of and suggesting potential alternatives.  Sometimes the other parties motive isn’t what you think it is, so you need to find sources to figure out what they are and play towards them.

Use a Facilitator

Sometimes it is useful to use a third-party to facilitate negotiations.  They can hold both parties to ground rules and be a mediator.

Find the Right Fit

When offering solutions and benefits to the other party, do what is in their best interests.  Find out what they need and offer it.  You’ll find things turn out much easier if you actually care about and tend to the needs rather than just offering a de-facto deal.

Maintain Relationships

Don’t burn your bridges, always maintain a good relationship even if negotiations don’t end up in good terms.  You may need to come back a second time and your reputation is at stake.

Process Rather than Substance

To Koreans, the process of negotiations is just as important as the substance of it.  There’s a Korean saying, 폼생폼사, which means to live and die by the form.  It is sort of a joke among Koreans, but they do acknowledge the fact that it is important.

Tough Bargainers

Koreans are very tough when it comes to bargaining prices down.  They see their job as buyers to negotiate a price where the seller is almost ready to not go through with the deal.  Because of this, it might be important for a company to keep their profit margin confidential so that the other party doesn’t have a certain goal they want to get the price down to.

Playing by the Local and International Rules

Although it was stated before that verbal contracts are seen as more important, it is nonetheless important to make a written contract that is simple to read and understand and has important items like pricing and dates included.  This can help prevent errors of confusion later on.

Keeping a Practical Balance

Apply all of these rules in proper balance.  Adapt to local circumstances but don’t fall into the error of being too lenient and letting things slide and not taking care of details.  When you learn new things, try it out and ask people you know well to get feedback.

Go to the next chapter, Getting Joint Ventures Right or select a chapter.