International Management Paper

The Knight ConsultantsInternational Management: Country Analysis

11/23/15Wednesdays 6:00 P.M.-9:00 P.M.

The Knight Consultants: A Country

Analysis

A paper by:Austin GaylordJamie PittsTravis BortonPaul LlerenaBrian Carrico 1

Table of Contents Part 1Introduction………………………………………………………..Page 5 Chinese History……………………………………………………Page 5

Chinese Culture, Business Customs……………………………….Page 6

Chinese Ethics………......................................................................Page 7

Chinese Political, Legal, and Regulatory Environment...................Page 8

Chinese Economic Environment..…………………………………Page 9

Chinese Technology……………………………………………...Page 10

Thai History……………………………………………………...Page 11

Thai Culture, Business Customs………………………................Page 12

Thai Ethics……….........................................................................Page 13

Thai Political, Legal, and Regulatory Environment.......................Page 14

Thai Economic Environment..…………………………………...Page 15

Thai Technology………………………………………................Page 16

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South Korean History…………….………………………………Page 17

South Korean Culture, Business Customs……………………….Page 17

South Korean Ethics………...........................................................Page 19

South Korean Political, Legal, and Regulatory Environment…………………………………………...................Page 19

South Korean Economic Environment..………....………………Page 21

South Korean Technology………………………………………Page 22

Conclusion………………………………………….……………Page 23

Table of Contents Part 2

Introduction………………………………………………………Page 25

Entry Strategy…………………………………………………….Page 25

Human Resources and Organizational Principles………………..Page 27

Organizational Structure…………………………………………Page 29

Negotiations……………………………………………………...Page 32

Leadership………………………………………………………..Page 34

Motivation and Compensation…………………………………...Page 34

Recruitment and Selection……………………………………….Page 35

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Conclusion………………………………………………………..Page 37

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Introduction

This paper is for the benefit of Dura-Cast incorporated and Ms. Marilyn Lacey. It

provides a comprehensive analysis, to the best of our knowledge and abilities of the countries

specified here within. Utilizing the knowledge provided, we believe that at very least, Ms. Lacey

may be able to better understand these great Asian nations. This essay covers a brief history of

China, Thailand, and South Korea. Also available is information on their customs, business

culture, and ethics, as well as their political, legal, and regulatory environments. Additional

information is enclosed detailing the economic and technological environment of each country so

that a more informed decision may be reached, in regard to corporate international expansion.

Chinese History

According to the Researchers Starters database, “[t]he People’s Republic of China (PRC),

known informally as China, is a nation in East Asia” (Saunders). The People’s Republic of China

has the largest population in the world reaching over 1.3 billion people and with Standard

Chinese or Mandarin as their official language. China’s capital is Beijing and is one of the oldest

cities in the world. It has been occupied by the Chinese people for over four thousand years and

served as the capital of multiple Chinese dynasties. “[i]t borders the Pacific Ocean and twelve

countries, including Russia, Kazakhstan, North and South Korea, Laos, India, and Afghanistan”

(Saunders). Early century A.D. China stood as a civilization that outpaced the rest of the world in

the arts and sciences; however, in the 19th and early 20th centuries the country was affected by

civil conflict, military defeats, foreign occupancy, and famines. World War II impacted China

afterwards because the communists in power under Mao Zeodong established an autocratic

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socialist system that imposed strict controls over people’s lives, including the massacre of

millions to secure his ascension to power. Deng Xiaoping, Mao Zeodong successor, and other

leaders concentrated on market oriented economic development which quadrupled output in the

economy by the year 2000. Living standards have improved dramatically for much of the

population in China as well as increased its global outreach and participation in international

organizations, yet political controls remain tight (The World Factbook).

Chinese Culture and Business Customs

Chinese business is primarily done through referrals from associates. Traditionally,

business relationship is struck based upon a recommendation from a local well-known

businessman. However, with ever increasing western influence, Chinese businesses are

increasingly allowing inquiries through direct contact methods such as email or phone call, and

straying away from the necessity of having a local insider (chinese-culture.net). This is due to a

growing dissonance between Chinese companies and their desire for western business. The

relationship business partners develop will nearly always become social relationships over time

(chinese-culture.net). Unlike their western counterparts, who remain professional and distant

over time, Chinese businessmen express a desire to understand their business partners on a much

more personal level, including details about family, hobbies, and aspirations. A huge emphasis

on social outings with business partners is stressed as a way to understand each other

(Schulman).

Chinese customs dictate that seniority is extremely important, and addressing the other

party by Mr. or Mrs. instead of a more formal moniker they may have taken for themselves, is

considered to be extremely rude and ill-mannered. Generally, a business meeting or discussion

takes place after a meal at a restaurant, even if it is just a formality (Schulman, Miriam). Subjects

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to refrain from when conversing with the Chinese are topics about Taiwan or praise for the

Japanese (Schulman).

Chinese Ethics

China is not known for its ethical business practices. The Corruption Perception Index

score for China indicates that aside from potential unethical businesses, there are corrupt

governmental agents or institutions in the mix as well. This means any foreign company seeking

opportunities in China must potentially work around some established institutions that are likely

to be unethical. Foreign companies working inside China are held to higher standards than

equivalent state owned or private Chinese companies (siliconhutong.com). As such, maintaining

competitiveness with local businesses is far more costly for foreigners. The Chinese government

is much more likely to use foreign enterprise as an example, even if they are equivalent or

behaving more appropriately than their local counterparts (siliconhutong.com).

In business meetings, lies are not uncommon. A “white” lie is used to save face and

respect, which can lead to unrealistic promises from Chinese companies. This can lead to

misunderstandings with ethical implications (Schulman). The Chinese business environment

does not want to be enveloped by western standards, and many Chinese businessmen wish to see

their own standards, developed from their cultural background, to become the Chinese standard

(Schulman).

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Chinese Political, Legal, and Regulatory Environment

“U.S. Ambassador to China Gary Locke has told National Public Radio (NPR) that the

political situation in China is “very, very delicate” (CNBC). The situation worsened because the

President of the United States opted to rotate 2500 marines to Australia, to combat the Chinese

expansion into the East China Sea. The expansion is a result of artificial islands the Chinese have

been building in an effort to strengthen their political and military hold on the pacific. This

worries allies of the United States, such as Japan and Taiwan. (CNBC)

Xi Jinping, the current leader of the People’s Republic of China is a member of the

communist party of China. China prefers domestic growth among everything else, but views the

partnership it has with the United States as pinnacle to its continued international ambitions. It

wants the relationship it has with the United States to remain peaceful. (americanprogress.org).

“Other than the role of the CCP and the lack of competitive elections, China's

government structure is similar to Western parliamentary systems, with both a president and a

prime minister appointed by a parliament and a semi-independent judiciary.” (uschina.org) These

two primarily preside over governmental affairs, while the State Council acts primarily as a kind

of Chinese Congress. It has oversight into many regulatory affairs, while keeping track of the

many different branches, agencies and bureaus within the government.

Doing business in China is highly risky, because of the need for upfront investment,

business licenses, and the risk of intellectual property damage. But, according to CNN money

(Yan), with big risk comes big reward, and though it has its ups and downs, many firms in China

earn over half their revenue from doing business there. There are various laws and regulations

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that people doing business in China must follow, such as labor and tax regulations in regard to

intellectual property. However, because of the disconnect in the Chinese government when

enacting laws and practicing them, there is little to no protection for international managers.

Chinese Economic Environment

At 1.3 billion residents, China boasts the world’s second largest economy. Pair that with

an average GDP growth of approximately 10 percent annually and you have arguably the most

influential developing country on the planet (World Bank). China has a GDP of about $17.62

trillion, an unemployment rate at 4.1%, and an inflation rate hovering around 2%. China’s

leading industries include mining, ore processing, various metals, textiles, petroleum, chemicals,

and a vast array of consumer products. A 2012 breakdown of the domestic labor force shows

33.6% agriculture, 30.3% industry, and 36.1% services (World Factbook).

Much of China’s recent increase in global presence can be attributed to the decision in

the late 1970’s when the economy was transformed from an isolated and centrally planned

system to a more international market friendly system that contributes at a worldwide level

(World Factbook). China has progressed rapidly through implementation of economic reforms

and greater participation in global market trading through various financial outlets (Heritage

Foundation). China is currently closing out its latest “Five-Year Plan” in 2015 that has

successfully addressed obstacles such as wealth inequality, pollution, healthcare, education, and

energy.

Just as rapid growth can be positive, it can also bring about many difficulties. Such

problems include excessive urbanization, social and political injustices, economic disparities,

and other threats to the overall well-being of the Chinese economy (World Bank).

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Chinese Technology

China has spent enormous amounts of time and money developing their own technology

infrastructure by gaining technological intelligence from foreign countries, and investing in

development domestically. China’s rapid growth in innovation can be directly linked to the use

of the internet. (Chen 2015) China has the largest number of global Internet users at a staggering

389 Million users according to CIA World Factbook. Although China does rate high according

to Bloomberg’s most innovative countries, any company looking to do business in China should

proceed with caution. Personal data of more than 4 million U.S. government employees was

stolen from the Office of Personnel Management, according to U.S. officials. The recent hacking

of U.S. computers was attributed to Chinese regime-sponsored hackers. (Yu 2015)

In addition to privacy and security concerns, China has faced recent deteriorating

economic growth, rising wages, and manufacturing competition from other emerging markets.

Beijing announced in May of 2015, a plan to modernize its manufacturing sector, which had

been responsible for the country’s economic rise in the last three decades. (Yu 2015) This new

plan is called the “The 10-year Made in China 2025 Plan.” The state council unveiled the plan in

late May, which is designed to enhance competitiveness in manufacturing by implementing

automation, innovation, and information systems used in manufacturing. This 10-year strategy

was designed to phase the Chinese manufacturing sector away from labor-intensive production

and low-quality goods toward value-added engineering and higher quality goods, such as

aerospace equipment, robotics, and biotech. (Yu 2015) The strategy puts China in direct

competition, potentially, with Germany, Japan, and the United States, which are the current

world leaders in high-tech manufacturing. This path also means major innovative improvements

are needed in the manufacturing industry, and in high technology. (Yu 2015)

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China is making a major push to attract more start up tech companies by offering these

companies the opportunity to be listed on publically traded exchanges with capital requirements

that are less stringent. China’s biggest hurdle today is trust and security. Advanced machinery

such as airplanes, aerospace equipment, super computers, advanced medical devices, and house

electronics, are Internet-connected, and require subsequent service and maintenance. Any

purchaser of these costly advanced products from China must feel comfortable that such

equipment is not only of quality construction, but does not pose any information security risk.

(Yu 2015) This hurdle will be the biggest obstacle to overcome for China and the program.

Recently, there was a Chinese company called Lenovo Group that preinstalled malware that

could spy on users. (Yu 2015) This case was only one of many that took place in China. As a

company looking to do business in China, you must understand that the technology is up to par;

however, you will need to be very careful using it as you could be putting your business in a

security risk along with your clients.

Thai History

The only Southeast Asian country to have never been colonized by European

powers is Thailand, formerly known as Siam until 1939. A unified Thai kingdom was established

in the mid-14th century (The World Factbook). Thailand’s capital is Bangkok and Thai is the

official language of Thailand with English as a secondary language of the wealthier part of the

population. During World War II, Thailand was in an alliance with Japan. It fought alongside

Vietnam and the United States in Korea from 1950-1955 (becoming a U.S. ally in 1954) because

a communist takeover would threaten the military controlled Thailand. Ever since 2005,

Thailand has experienced political turmoil, including a military coup in 2006. The coup

overthrew Prime Minister Thaksin Chinnawat, and was subsequently followed by protests by

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political factions in 2008, 2009, and 2010 (The World Factbook). Several interim institutions

were created by the interim military government to promote a reform and draft a new

constitution. Early 2016 is tentatively set for the new elections. Thailand has suffered violence in

its Malay-Muslim provinces associated with ethno-nationalist insurgency. Moreover, thousands

of people have been killed and injured ever since the January 2004 insurgency. (The World

Factbook).

Thai Culture and Business Customs

A significant portion of Thai businesses are owned by families, concentrating

most of the corporate power within the owning family. Thai businesses severely limit business to

only people they know and respect; foreigners struggle to obtain this acceptance even after many

meetings. Business meetings are very professional, and initial contact must be through a formal

letter. Sales pitches are often ignored and considered very disrespectful. Negotiations in Thailand

are much slower than the West, as the strong hierarchical structure of most businesses require

approval from the top, rather than the equivalent ranking employee (expatfocus.com). The pace

of meetings is also slower, since conversation about family and other personal topics are required

at the beginning instead of negotiating the deal or contract.

Establishing strong personal relationships is what leads to successful business ventures

within Thailand (expatfocus.com). Respect for age and rank is paramount, and communication is

kept formal at all times between parties (expatfocus.com). Thai people also tend to save face

during business interactions, so agreements are not always set in stone, and a yes doesn’t

necessarily mean yes (bangkok.angloinfo.com).

Women take much longer to climb the corporate ladder in Thailand, and are limited in

what they can achieve (expatfocus.com). Almost all higher management positions are male, and

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women who hold higher positions do experience discrimination in the form of wages

(expatfocus.com).

Buddhism plays a significant role in Thai culture, attaching importance to body language

and gestures. For example, Thai consider the head to be sacred, whereas the feet are dirty

(bangkok.angloinfo.com). When accepting or giving anything handheld, using the left hand is

considered extremely rude and unsanitary (bangkok.angloinfo.com). Thai business is generally

conducted very professionally without much use of emotion (bangkok.angloinfo.com). Yelling

or showing other strong negative emotions is considered very disrespectful and lowly

(bangkok.angloinfo.com).

Thai Ethics

Thailand doesn’t have equal rights laws for employees, regardless of sex, age, or race.

Therefore, when conducting business with Thai owners, their subordinates could face a lack of

ethical treatment (expatfocus.com). There are no direct laws or enforcement of many standards

the west holds, so ethical behaviors must be a top priority (expatfocus.com).

Public opinion for any foreign company should be taken into consideration, and

enforcement of western practices is encouraged. White lies are commonplace, potentially leading

to lack of actual agreement on contracts or requests. Thais rely more on implicit communication

than explicit, and often what is meant is more important than what is said (Victor, David).

Despite a Buddhist background, many Thai do not adhere to principles respecting nature, and

subsequently pollute their environment (Victor, David).

Ethics are not a significant factor when doing business in Thailand. Once respect is

gained and relationships are formed, there is little emphasis on corporate social responsibility.

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This also means that there will be little to no governmental inspection or interference towards

ethical behaviors or lack therein.

Thai Legal, Political, and Regulatory Environment

As a country, Thailand has had quite an interesting history. A number of military coups,

government collapses, and other various exchanges of power have left their mark on the country.

But, as of May 2014 they are under the control of their military, and the military has instituted

sweeping changes to their government to increase their own power and to make sure they do not

lose a grip on the country. In March of 2015, the prime minister, Prayuth Chan-ocha ended

martial law in the country, but maintains rule by executive order.

"Political stability at the moment, compared with, say, last year, is better," Prasarn

Trairatvorakul, governor of the Bank of Thailand, told CNBC. "But looking further [ahead],

certainly people want more continuity. They want a political system to come to a model that

people are more familiar with." Democratic elections have been pushed back until next year, but

they are expected to make a return in the country. According to an analyst at CIMB (Kasem

Prunratanamal) the delay in the referendum is a win-win for the government because no matter

what the results are, the current government stays in power. It is however, bad news for the

marketplace because it creates uncertainty and unease.

Thai policies toward U.S. business have been on hold ever since the military coup. This is

a result of the U.S. failing to utilize effective policies in response to the Asian financial crisis of

1997, and the previous coup in 2006. The United States is effectively waiting for Thailand to

move back to a democracy so that it can resume a partnership with the country. This does not

mean business is frozen, merely that it is in a transitionary period as the world watches Thailand.

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The foreign business act of 1999 restricted some rights and liberties of individuals who

are foreigners in the country. It defines what a foreigner is and goes on to list several

specifications for doing business in the country. Examples of this included the stipulation that

businesses and industries must be majority owned by the Thai people, and the criminalization of

Thai people who held shares for foreigners.

Thailand is a risky country to do business in because it is in a transitionary period. The

military does not plan to stay in power, but at the moment, it has instituted sweeping changes to

ensure that it does. The risk isn’t particularly high because of the amount of regulation for

businesses in the country, but the political future of the country itself is uncertain which adds to

unease of business, particularly for foreigners. Thailand is number 85 on the Corruption

Perception Index, an increase in its position since 2013. (transparency.org)

Thai Economic Environment

Thailand possesses a robust and stable economy that has been supported by its industrial

and agricultural exports throughout much of its history. However, in 2014 about 56% of the

country’s $985 billion in GDP was generated by its service industry. Thailand hosts a pro-

investment free enterprise economy and is the core manufacturing center in the geographical

region (World Factbook). One major factor contributing to Thailand’s economic success is that it

has one of the lowest unemployment rates in the world at less than 1%. Thailand’s top industries

are tourism, textiles, agricultural processing, and beverages. Additionally, the country’s top

exports are industrial and electrical machinery. Thailand’s top 3 trading partners are China,

U.S.A., and Japan, making up roughly 30% of the country’s imports and exports. Thailand has a

strong infrastructure focused on efficient transportation that is constantly being polished through

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improvements to roadways; which is responsible for transporting roughly 80% of the nation’s

freight (Global Edge).

Thailand is not without its faults, nonetheless. Political turmoil and unrest has stunted the

country’s economic growth in recent years which has produced violent clashes resulting in the

deaths of thousands of citizens since 2004. This, in turn, has brought about some political and

economic regulation changes that have slightly dropped the country’s economic freedom index

in recent years. Additionally, a temporary military government was formed and took control of

Thailand to stimulate reform and draft a new constitution; leaving certain aspects of the nation’s

economic future somewhat cloudy (Heritage Foundation).

Thai Technology

One country that is making significant gains in internet and mobile phone usage is

Thailand. The country ranks as the 46th most innovative country in the world according to

Bloomberg. (Bloomberg 2015) Internet usage in Thailand has risen at the highest rate in the

world in 2014, jumping 34 ranks in the latest global study conducted by the International

Telecommunication Union (ITU). (Bangkok Post 2014). This enormous increase in ranking can

be attributed to easy access to the internet. According to Pew Research Center almost half of the

country has access to home computers, internet, and smartphones. (Pew Research 2015)

Thailand was introduced to 3G mobile services later than most countries, but the conversion rate

from the second generation to 3G was the fastest in the world. (Bangkok Post 2014)

What makes Thailand such an attractive country to do business in is that the country has

over 28 million people on Facebook, 4.5 million on Twitter, and 1.7 million people on

Instagram. That’s from a total population of almost 70 million people. (Minh Do 2014) What

separates Thailand from the rest of the Southeast Asian region is that the credit card penetration

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rate is 15 percent in a region where credit card penetration rate is typically scarce! This is an

attractive environment for startup technology companies that are involved in E commerce.

South Korean History

According to the Research Starters database, “[t]he Republic of Korea, commonly known

as South Korea, is an East Asian nation located on the southern half of the Korean Peninsula”

(Salem Press Encyclopedia). South Korea borders North Korea, a now separate nation. South

Korea’s capital is Seoul and their official language is Korean. The end of World War II had a

significant impact in Korea as a whole. A democratic government was set up in the south Korean

Peninsula while a communist government was established in the north (The World Factbook).

This event separated families because the country was divided in half, and even today many

families have trouble because they are not able to reunite with one another due to border

security.

South Korean Culture and Business Customs

South Korean culture is vastly influenced by a deep history of Confucianism. This leads

to a strong conservationist sentiment that doesn’t necessarily make change slow and arduous,

South Koreans are masters of change and adaptation (Worldbusinessculture.com). Therefore, in

Korean businesses, implementing new procedures or standards takes little time. Corporate

structure is extremely hierarchical, with all major decisions made by management personnel, and

delegated down to lower level employees, who retain little to no influence over their orders

(Worldbusinessculture.com). With such importance placed upon family ties and values, it is no

surprise that South Korean companies are largely family run, encompassing most of the power

within the owning family.

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South Korea is collectivistic, with companies taking an interest in the wellbeing of their

staff. This is accompanied by managers inquiring into the personal lives of their subordinates

(Vibe-Hansen, Jesper). Relationships are paramount to success in Korea, knowing the right

individual is the key to penetrating the Korean business market. Respect for seniority is highly

engrained in all business activities (Vibe-Hansen, Jesper). Any meeting between two parties

must have equal representation of rank and standing, otherwise it is considered extremely rude

and one-sided (Worldwide Korean Bloggers).

Women do not achieve the same professional success as their male counterparts, with

almost all higher ranking Korean businessmen being males. Therefore, there can also be a lack of

respect for foreign women interested in partnerships.

Negotiating with Koreans is a much faster procedure and operates at a much faster pace

relative to traditional Asian countries, with business meetings coming a successful conclusion

quickly (Vibe-Hansen, Jesper). Koreans are an emotional people, and if clear communication

was not establish initially, underlying circumstances that were not previously known can lead

Koreans to backing out of a contract (Worldwide Korean Bloggers). Most meetings occur in a

social setting, where each party gets acquainted informally over food or drinks (Worldwide

Korean Bloggers).

South Korean Ethics

South Korean Business practices have a deeply rooted backbone of Confucian values.

This is exemplified by the South Korean desire for collective group harmony, respect for

seniority and authority, and their emphasis on family and friendship (Worldwide Korean

18

Bloggers). South Koreans seek to uphold the ethics practiced by their predecessors, which guides

their moral compasses towards honorable, trustworthy, and respectable business methods and

practices (Worldwide Korean Bloggers).

Most South Korean businesses are very ethical, relative to western standards, and tend to

undertake many forms of corporate social responsibility. Many businesses strive for an

honorable public perception and value individual employees (Vibe-Hansen, Jesper). Ethical

behavior is a strong influence when deciding potential business relationships. South Korean

businessmen are largely upfront and honest with their intentions, and there is an overriding

stigma against deceitfulness (Vibe-Hansen, Jesper). However, employees take the side of their

employer in almost all cases, regardless of logic due to their overwhelming respect for authority

(Worldwide Korean Bloggers).

South Korean Legal, Political, and Regulatory Environment

South Korea has had a bloody history. Most of its political stability arises from its need to

outcompete its neighbor to the north. The years that followed the separation of North and South

Korea are marked by a bitter rivalry that continues to escalate in both countries. The United

States, being one of South Korea’s closest allies, keeps watch over tensions that continue to

mount in both countries.

Park Geun-hye is the current political leader of the country, and has been its president

since 2013, but has served as its first lady since 1974 when her mother was killed by a bullet

intended for her father. (BBC.com) The political stability as indicated by globaleconomy.com is

closely associated with and has even passed that of the United States and United Kingdom at

some points. Currently, it is below them both, but there are no current overriding fears, at least

internationally, of political instability.

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The South Korean government has always held positive relations with the U.S. It

promotes capitalistic business by fostering a community of competition, which has led to growth

in many sectors of the country. ”With ROK-U.S. relations presently so good, it is easy to worry

that they can only get worse. The growing unconventional North Korean threat to the ROK and

the United States challenges the two countries’ efforts to sustain a well-integrated response.”

(Worldpoliticsreview.com)

There are laws restricting entry to various industries in South Korea, such as rice, barley,

and meet wholesale. There are patent and trademark laws similar to the U.S., where, in order to

protect intellectual property, the court can impose injunctions, damages, restoration of business

reputation of patent owner, and confiscation of materials relating to infringement.

(Uk.practicallaw.com)

According to www.gov.uk, “Korea is the world’s 13th largest economy (IMF, PPP basis,

2014), the 4th largest in Asia, and 10th largest trading country in terms of trade volumes of

merchandises and services.” The biggest risks for doing business in South Korea are the

continued escalations with North Korea. A growing cloud of uncertainty lingers over the two

countries and some fear that all-out war may eventually break out. This does not mean that the

country is entirely risky for businesses, however. Bribery is illegal, and it offers great protection

for intellectual property among various other laws due to the amicable relationship it has with the

United States.

South Korean Economic Environment

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South Korea is a highly industrialized and technologically advanced country. The

country’s top industries are telecommunications, electronics, automotive parts, and chemicals.

South Korea has very strong trading ties with the U.S., China, and Japan to whom it exports

mainly electrical machinery and motor vehicles (Global Edge). South Korea has a service-heavy

economic makeup, with their service industry comprising of 70.4% of the nation’s workforce

and 59.4% of total GDP. The country’s overall GDP is ranked 14th in the world at $1.78 trillion.

South Korea’s economy sees a healthy average growth in GDP per year at approximately 3% and

a low unemployment rate of 3.5% (World Factbook).

South Korea has been able to progress from a once relatively poor country to a thriving

technological force through their willingness to participate in global market trade, deregulate

certain industries, and accept an open-market system. Strong relations between businesses and

governments has proven to be another key ingredient to driving the South Korean economy

onward. With this being said, there are still obstacles and threats that must be addressed by the

country in order to continue its positive record. Internal corruption between high level business

executives and government officials has the potential to weaken the upward trend. Additionally,

the issues of labor freedom and power of large corporate multinationals looms over the nation’s

otherwise optimistic future (Heritage Foundation).

South Korean Technology

According to Bloomberg, South Korea, takes the number one spot for most innovative

countries. (Bloomberg 2015) The driving force behind South Korea’s number one ranking was

continuous investments in human resources and research and development. As industry has

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developed and grown more in South Korea, the government’s role in fostering economic

development has grown as well. The National Science and Technology Council (NSTC),

presided over by the president, is the top body responsible for setting the direction for Science

and Technology during the past four decades. By making massive investments in human

resources and R&D, Korea has succeeded in building a unique innovation system. (Interregional

Innovative Development Center INNO-MIR 2015) South Korea is embracing robotics with the

same intensity that made it a force in high-speed broadband, widescreen televisions, and

smartphones. The United States has Disney Land, but in South Korea you can find Robot Land, a

state-subsidized 758 billion won ($735 million) theme park featuring futuristic rides as well as

research and development labs. It is set to open in 2016. The government is making huge

investments to support the nation’s robotics industry. (Rose, Bremner 2014) The robotics

industry has doubled in size since 2009. The government expects to have 600 domestic robot

companies employing 34,000 workers by 2018. (Rose, Bremner 2014) Just this month, South

Korea emerged as the winner of the DARPA Robotics Challenge (DRC) in Pomona, Calif., after

its robot, an adaptable humanoid called DRC-HUBO, beat out 22 other robots from five different

countries, winning the US $2 million grand prize. (Szondy 2015) South Korea is a hot spot for

technology, and any company looking to do business in South Korea should be prepared to use

some of the most advanced and unique technologies in the world.

Conclusion

The Knight Consultants believe that Dura-Cast products can benefit from this

information, in large part because knowledge about a country and its people help the

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transitionary period of any business. Additionally, with the information we have gleaned from

our research, we believe South Korea would be the best choice for this new venture. This is

because it is the easiest market to enter, the most pro-western of the three countries, and the

easiest to use as a base of operations to expand into other markets. Potential expansion into

Thailand and China is an option when further regulation is passed to make these two countries

more transparent and more accessible to foreign private investment.

23

The Knight ConsultantsInternational Management: Country Analysis

11/23/15Wednesdays 6:00 P.M.-9:00 P.M.

The Knight Consultants: An Analysis on

Business in South Korea

A paper by:Austin GaylordJamie PittsTravis BortonPaul LlerenaBrian Carrico 24

Introduction

This paper is for the benefit of Dura-Cast incorporated and Ms. Marilyn Lacey. It

provides a comprehensive analysis, to the best of our knowledge and abilities of the country

specified here within. Utilizing the knowledge provided, we believe that at very least, Ms. Lacey

may be able to better understand this nation, and more readily come to a decision should she

choose to adhere to the information thus specified in this document. This essay includes an

extensive analysis on the business infrastructure of South Korea. It details options and

information for entry into the country, human resources and the use of organizational behavior

principles, organizational structure, negotiations, leadership, and motivation and compensation.

Also included are information and options regarding recruitment and selection.

Entry Strategy

The entry strategy most fitting for Dura-Cast Products Inc. is a partnership with a South

Korean egg distributor. Given the unique culture of South Korea, it can prove difficult for a

foreign company to establish itself within the market. This is why we highly suggest a

partnership with Cheonggyewon Inc. Cheonggyewon Inc. is a combination of four egg farming

& packaging plants with experience in the South Korean egg industry that spans 30+ years. They

possess more than 1.5 million hens with a maximum daily production of over 1.2 million eggs.

The Cheonggywon headquarters is located in the northwestern region of the country just two

hours south of Seoul; the nation’s capital and largest city, with approximately 9.6 million citizens

(NatGeo). Cheonggyewon prides itself on consumer and employee wellbeing and holds its

product quality in the highest regard as demonstrated by their elaborate sanitation practices. They

are constantly awarded health certificates such as the Hazard Analysis Critical Control Point

(HACCP) and the highly touted Governor of Gyeonggi mark of superior quality approval; also

25

known as the G Mark. This company sells their products at supermarkets and convenience stores

as well as large food conglomerates.

Another reason Cheonggywon is an excellent potential partner is that they already offer

specialty products such as red ginseng eggs and kimchi eggs. This shows the company’s

devotion to offering a wide range of products that differentiates them from competitors. A

specialty product such as a free-range American egg would fit well into their current product line

plus Cheonggywon already possesses the experience and knowledge needed to market such a

product to their consumers. Additionally, Cheonggywon boasts a large customer base and has

been featured on national television on multiple occasions, aiding large scale brand recognition.

In 2008, Cheonggywon Inc. expanded their business from South Korea to other international

markets such as Hong Kong and Singapore. Cheonggywon constantly attends global food events

in an effort to grow their brand awareness and secure additional customers. They are currently

targeting Middle Eastern markets for expansion. This translates to a very good outlook for the

future growth of this organization, resulting in higher demand for its suppliers.

We believe the most sensible route to take is partnering with Cheonggywon Inc. as a

supplier and to allow their company to package and label the American products with their own

logo and design. Dura-Cast would produce the eggs in accordance with Cheonggywon’s

sanitation policies, export them to their distribution center, then allow Cheonggywon to set the

price and sell the eggs to the end user. This would allow the eggs to be presented and promoted

by a company with several years of experience in the South Korean market. This permits Dura-

Cast to utilize the already well-established consumer groups and distribution channels.

Human Resources and Organizational Principles

26

The South Korean culture is characterized and influenced by Confucianism.

Confucianism has led to a strong conservationist sentiment, but that doesn’t necessarily mean

that it makes changes slowly and arduously. South Koreans are masters of change and

adaptation. Understanding the culture of South Korea and how it relates to Hofstede and

Trompenaars cultural dimensions will help our client handle problems related to human

resources. Since North American and South Korean culture are different, it is important for

Dura-Cast to understand that these cultural dimensions will affect how they manage people, give

training, motivate employees, and evaluate performance.

According to Hofstede’s cultural dimensions, South Korea has an intermediate score of

60 out of a 100 in the power distance scale (www.geert-hofstede.com). This means that people

accept a hierarchical order where the commands come from top management to lower level

employees that have little to no influence. Individualism is next on the list for Hofstede’s cultural

dimensions on which South Korea has an extremely low score of 18 (www.geert-hofstede.com).

Their scores translate to collectivism in which societies or people have the tendency to belong to

groups. Also, companies tend to take an interest in the welfare of their employees which is led by

managers inquiring about the personal lives of their subordinates. Masculinity for South Korea is

at a low level with a score of 39 (www.geert-hofstede.com). The masculinity cultural dimension

ranges from masculinity to femininity and having a low score means a country is feminine.

Femininity does not have a negative connotation; it means that the dominant values in

society are quality of life and caring for others. The last cultural dimension is uncertainty

avoidance in which South Korea has a high score of 85 (www.geert-hofstede.com). A high score

of uncertainty avoidance means that organization activities are structured rigorously, risk is often

avoided, lower turnover, and employees are less ambitious. Furthermore, a score of 85 puts

27

South Korea in a position as one of the countries with the most uncertainty avoidance in the

world (www.geert-hofstede.com).

According to Trompenaars’ cultural dimension, South Korea is a communitarianism

culture. In this culture people tend to be more collectivistic and form groups. In this society

people build strong relationships where everyone takes responsibility for members of their

group. In the next cultural dimension, South Korean culture tends to be more of a neutral culture.

This comes from Korean behavior with strangers in public situations which are characterized by

indifference and self-centeredness. Furthermore, people often see Koreans as rude because they

do not generally say a word when accidentally pushing or touching another.

(http://www.everyculture.com). However, Koreans can be very outgoing and friendly with

people of equal social status such as acquaintances and friends. South Koreans are inclined to be

more of a specific culture than a diffuse one. Their family orientation culture allows them to

reach this cultural dimension by having their public space open to others, but only opening their

personal space to close friends. Even though Korea is a collectivistic culture where everyone

takes care for each other, Koreans have a personal space where they only allow selected few to

enter. Trompenaars states that ascription cultures are those in which status is based on whom or

what a person is rather than achievement cultures where they give status based on merit and

overall contribution to society. There is a great deal of respect for seniority and high status

personnel in South Korea, which further explains their ascription culture. For example, when

doing businesses the most senior personnel generally enters the room first; Employees of lower

status bow to the person of higher status.

South Korean culture tends to fall under the family organizational culture because of how

important is family to their culture, care for their employees, and collectivism society. Family

28

culture tends to be characterized by hierarchy and orientation to the individual. The South

Korean culture put emphasis on family being the most important thing in life as well as welfare

of family being more important than individual needs. In this organizational culture one could

expect to have family owned companies which add to their organizational structure as well as

caring for their employees that are close relatives.

The most important thing to know for an expatriate is that women do not often reach the

same professional status as their male counterparts. This means that there could be a lack of

respect for foreign women interested in partnerships.

Korea is in the development stage in regards to safety with KOSHA (the Korean

Occupational Safety and Health Agency). Reduction of illness and injuries is unlikely with

companies’ usual business approach. Changes in industries, workforce, and the industrial scene

have led to diversification of work hazards but this does mean that safety issues will not occur

(http://english.kosha.or.kr). A change from the current business model to one pursuing safety is

necessary, but companies still do not look at it as an investment (http://english.kosha.or.kr).

Organizational Structure

South Koreans value structure and organization. Their culture places a large emphasis on

power distance between managers and subordinates. Many, if not all important decisions

pertaining to the business and its functions are carried out at the executive level. An article on

business culture in the country states it as such, “Korean companies have traditionally been

characterized by a high degree of both centralization and vertical hierarchy. Most large chaebols

(large business conglomerates) have been family affairs with the founder's family continuing to

exert a great deal of direct executive authority. This has led to a system where most decisions are

29

executed at the top and delegated downwards along strong lines of authority.”

(worldbusinessculture.com)

The prime driver in the decision making process for organizational culture, will be

whether or not Dura-Cast decides to set up operation in South Korea, or whether it wishes to

remain an overseas supplier to Cheonggywon, having them control operations in the country.

The options described below are written from the perspective that Dura-Cast would be physically

setting up operations in South Korea to better partner with Cheonggywon in order reduce the risk

of transporting product overseas. If that is not the case, or Dura-Cast chooses not to partner or

cannot partner with Cheonggywon, the Knight Consultants recommend that the startup choose to

go with the Eiffel Tower structure (described below).

The most prevalent type of culture in South Korea is the Family structure. This means is

that the values and norms inscribed in the company are similar to that of a family and there are

clear roles within the organization (the top decision makers of the organization are often referred

to as parents, while the lower level employees are more commonly referred to as children and

their relationships denote as much). South Korea is very well known for having a Family

structure in its organizations, and Dura-Cast, should it choose to adopt this type of structure

would meld perfectly with the culture.

Alternatively, there is a more westernized approach to obtain the same hierarchy, without

strictly adhering to the nature of a high power distance country. This structure is called the Eiffel

Tower organizational culture, and it is common among countries such as the United States,

Austria, and Germany. This style, while similar to the family style in their parallels of hierarchy,

is set apart because it is more merit based than ascription based (your accomplishments rather

than who you know or where you have studied). It is also relatively informal, which could help

30

smooth the transition of Western employees into the startup. It is worth noting that, while this

would ease the transition process, many potential business partners and clients would prefer you

to have a Family type culture, as that is the prevalent choice of the country.

The final option is a hybrid between these two cultures which could ease the process of

transition for Western employees (should you choose to establish operations overseas with the

help of the partnership with Cheonggywon), while satisfying your South Korean counterparts.

Dura-Cast products could adopt a Family style culture that is merit based, as opposed to the

standard ascription based recruitment that the Family style employs. Utilizing this would give the

company the edge on competition in the region, because when hiring companies do not often

look for the best candidate, they look for commonalities with the candidate. “If a Korean is given

the choice of hiring a person from his alma mater or someone better qualified or more

experienced who is not, the former is the most likely to be the successful candidate. This is why

you may find yourself surrounded by people who all attended the same university, often the one

from which the company’s president or CEO graduated. “(Korea4expats.com) Utilizing this

hybrid structure also means that in addition to contributing to the competitive nature of South

Korean businesses by opening the hiring pool, Dura-Cast makes it easier for its employees in the

West to transfer if they desire to do so.

Decision making for the company should be from the top, down to the lower levels of the

organization. There are two primary reasons for this. First, it is common practice in South Korea

for the leaders of the organization to be making the decisions and ignoring this practice

altogether would establish the company as an unwelcome foreigner. Second, it makes sense for

the heads of this startup to be making the decisions because they are the ones with the

31

knowledge, wealth, and connections. Any other form of structure (we believe) would cause the

imminent failure of the project.

Negotiations

One of the main agricultural products in Korea is eggs, but in order to capitalize on that

market Dura Cast will need to understand how to negotiate in South Korea. The information

provided, will prepare Dura Cast to enter the South Korean egg market, and successfully create a

lucrative business relationship with contacts in that Industry.

Before the actual deal can take place you will possibly be asked to attend a dinner. Do

not decline this request as this could be a deal breaker. In South Korea, you should never pour

your own drink. It is up to your neighbor to watch your glass to make sure that it is not empty,

you will be required to do the same. As you sit at the table, you will be using chopsticks. Always

rest the food end of the chopsticks on the plate so that it never touches the table. Never place

chopsticks parallel to each other across the top of rice bowl, and never discard pieces of food into

the finished rice bowl. Both of these are considered very rude. Never use your fingers to eat

food; chopsticks should always be used. Allow the most senior person to be served first and start

eating before you take bite. Once the meal is completed, the person who invited you to the dinner

will pay the bill, but it is expected that you as the guest should make an effort to cover the

dinner. (Etiquette Scholar Encyclopedia) Once the socializing is out of the way, you can then

begin your negotiation strategy.

When negotiating in Korea it is key to know that your character is just as important as the

actual contract you are trying to negotiate. Do not expect a fast paced deal to take place as you

would see in the United States. As mentioned above you will need to socialize before any

business dealings actually take place. It is important to get to know the people you are

32

negotiating with in South Korea because they tend to negotiate with a consensus, and the most

senior business person will make the final decision. Try to keep the negotiations harmonious, and

do not pressure them to close the deal too quickly. The Koreans need time to make a decision.

The Koreans are hard bargainers, and will try to obtain many concessions. Although, they are

hard bargainers they do not like to say “no” and will often be very indirect. (Cross Cultural

Communication) This can be discouraging, but remember maintain your patience.

Leadership

South Korean Leadership strategies differ from those of the West. South Korea, like

many other Asian nations has a high power distance relative to the United States (Han, 2011).

This is epitomized by the hierarchical structure in which employees follow a charismatic leader,

and superiors expect to be obeyed, with little free reign among their subordinates (Han, 2011).

Westerners do not focus on this status, and this can lead to Korean employees feeling lost and

helpless for the task at hand (Han, 2011). Since Korea is also collectivist and the desire to save

face embedded is in the culture employees feeling such unease with the current task won’t

necessarily engage their superiors in a line of inquiry to guide them in the right direction. Korean

collectivistic leadership puts high value on solidarity, group based cohesion, and rewards.

Western management practices allow for autonomy and embrace individual performance rewards

(Han, 2011).

An effective leadership style in South Korea includes acting as a father figure, who

provides help and support to subordinates at all time, and receives respect and obedience in

return. Another quality of an effective leader would be to understand the underlying collectivist

mindset, and reward groups rather than individuals, stressing that no single member did all the

work. A leader should be patient, and be able to dissipate anger and blame. Singling out a single

33

employee for poor performance or blame ostracizes that individual from the group as well as

instilling a sense of resentment for their superior (WorldBusinessCulture). The correct approach

would be to ensure good working relationships and involve all members, refraining from

engaging in confrontation of any kind. To form strong and effective bonds with Korean workers,

a leader must extend interest into personal areas of life, such as hobbies, health, and family life

(WorldBusinessCulture). Work and private life shouldn’t be separated to the point of having two

personas; a leader is well respected if they integrate their private emotions and thoughts into the

work place (WorldBusinessCulture). Koreans value leaders who engage in ethical actions, and

who would uphold the image of the company.

Motivation and Compensation

Motivation of employees in South Korea links back to their collectivism. Group

compensation approaches are the correct practice to implement. South Korean employees are

very loyal to their company, potentially working for a single company their entire lives, with

promotions ranging from anywhere from 5 years to 15 (SouthKoreaExpat). High power distance

causes South Korean workers to obey their superiors extensively. Working in conjunction to that

is the fear of ostracism by either their peers or superiors strongly embedded in their cultural

upbringing (SouthKoreaExpat). As such, motivating employees to work hard lies more with their

superiors, as opposed to the Western strategy of monetary compensation. Koreans usually

engage in task oriented teams, and work hard for the success of all group members and to earn

recognition from their superiors on behalf of the whole team.

Compensation of a sales force should be done on a group basis, as singling out one

member for their efforts would cause significant group fracturing, with potential degradation of

work enthusiasm and effort. Koreans value compensation much more in an intangible form due

34

their own loyalty values, accomplishment and pride they feel in their efforts for their superiors

and the company as a whole (SouthKoreaExpat). As such, a paid holiday by the firm due to

group success would be the most effective form of motivation, both short term and long term.

Compensation for a sales force should also be on a salary basis, as commission leads to many

forms of negative competition. Koreans do not act or think as Westerners, and causing an anti-

group cohesion and disharmony atmosphere would be disastrous for employees. Employees also

lose their sense of belonging among a group, and ostracism occurs for both the most and least

successful of the sales team if compensation was based on commission. Group goals and success

motivate Koreans to work hard, recognition of group efforts by superiors also reinforce this

mentality. A sales force would most effectively be motivated by a salary rather than

compensation.

Recruitment and Selection

Recruiting top talent will be essential for a successful business launch in South Korea.

Education is extremely important to Koreans, and they typically have the money to receive

secondary educations abroad. It will be important for Dura-Cast to know how to recruit

employees, train them, and find the right candidate for the job. In order to begin the search for

talent you will also need to understand the type of work ethic South Koreans have.

South Korea is a country that has one of the highest average work weeks and overtime

hours in the world. There is an extremely strong work ethic in South Korea, and finding hard

workers should not be a problem for Dura Cast. It is important to have a leader or manager that is

willing to build a personal relationship with the employees, and earn their trust. If the leader can

be trusted, the employees will be committed to him or her. There were recent laws passed in

South Korea that state employees are to work only 40 hour work weeks on a five day work week

35

unless there are 5 employees, or less. Even if the company has more than five employees the law

is commonly broken. It is possible to hire minors under the age of 18, but there are some

stipulations to that. They must have signed permission from a guardian, and cannot work in the

evening unless the proper permissions are in place from the Labor Ministry. (Working in South

Korea) According to the Minimum Wage Council the minimum wage in South Korea is 5,580

Won per hour which equates to $4.75 per hour. (South Korea Minimum) Depending on what

types of jobs Dura-Cast is going to hire for in South Korea, and if they hire at all, the salaries

could vary significantly between those who were hired outside and those hired inside the

country. It would be beneficial to use a website like www.glassdoor.com to review what other

companies are offering for salaries in South Korea for similar job responsibilities.

Hiring in South Korea should not be an issue regardless if you are looking to hire

someone from outside of South Korea or in South Korea. Websites like Glassdoor, Monster, or

other job search sites will show jobs that are available in South Korea. Dura-Cast could also

attend convention and exhibition shows in Seoul, South Korea. There is a large convention

center called COEX Convention Center that often holds job fairs annually. (Economy News) By

attending the local job fairs, Dura Cast could recruit local talent in South Korea. Dura Cast could

also post jobs in the most popular bilingual newspapers for readers in both in and out of South

Korea which is called “The Korea Herald”. Like the United States, the internet is a

powerful tool for searching for talent. Dura-Cast should research websites that were created for

people interested in possibly living in South Korea. There is a website called the Korea Infogate

(www.koreainfogate.com). This website was designed for people who are attracted to South

Korea, and have a desire to work there. (Working in South Korea). Now that Dura Cast has this

information on the work culture and the resources available to recruit talent for employment in

36

South Korea we believe they will be in a better position when it comes to hiring, and retaining

employees there.

Conclusion

The Knight Consultants believe that Dura-Cast products can benefit from this

information, in large part because knowledge about a country and its people help the

transitionary period of any business. Our team believes that this country provides the most pro-

western atmosphere among the other countries, and by partnering with an egg supplier that the

Korean people are already familiar with, Dura-Cast products will be able to further invest in the

lives of millions of people all over the globe. We would like to thank Ms. Lacey for the

opportunity she provided for us to work for her this semester, and hope that at very least, she

finds the above mentioned information not only informative, but useful.

Works Cited Part 1

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42

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Works Cited Part 2

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Human Resources and Organizational Principles

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Organizational Structure

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“Management Styles and Corporate Culture.” Andrews.edu. n.d. Web. 22 Nov. 2015.

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Negotiation

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Leadership, Motivation and Compensation

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"South Korea Expat Preparation." Business Culture -. Web. Nov. 2015

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Recruitment and Selection

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participate-second-seoul-global-center-job-fair-foreign-residents/ >.

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<www.etiquettescholar.com >.

“South Korea Minimum Hourly Wages.” Trading Economics. Web. Nov 14, 2015.

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