Koreans in business

THE NEW IMMIGRANT WAVE

Koreans in Business

Edna Bonacich, Ivan H. Light, and Charles Choy Wong

A nyone familiar with the city of Los Angeles who has not driven through the downtown area in the last two or

three years would be astonished at the transformation of the Olympic Boulevard area between Crenshaw and Hoover. The change has been dramatic enough to attract the attention of a national news magazine. Small business is flowering among the Koreans in Los Angeles.

Immigrant Entrepreneurship

The Korean community in the United States (and in Los Angeles in particular) is by and large a new one, a product of the change in American laws in 1965. Prior to the 1965 Immigration Act the number of Koreans in this country had always been exceedingly small; but an unanticipated conse- quence of the new law has been a sharp rise in immigration from Asia, one-fifth of which is Korean, Asians now com- prise over one-third of all entering immigrants, and Koreans are the third largest group entering the United States--behind only Mexicans and Philippinos. The 1970 census reported 70,598 Koreans in the United States, 9,395 of whom lived in the Los Angeles-Long Branch area. These figures are widely believed to be undercounts, the national figure at that time probably exceeding 100,000. Recent immigration has raised the national estimate to 270,000.

Asian immigrants who came to the United States before 1924, when immigration was effectively cut off, showed an unusual propensity to enter small business. The new Asian immigrants, however, of whom Koreans are one example, are very different from the old in two important ways. First, the immigrants themselves are no longer a largely unedu- cated peasantry. The second change has occurred not among the immigrants, but in the context into which they are moving.

Since 1924 the American economy has been transformed from one in which there was considerable small business and self-employment to a highly centralized economy with a small number of owners of large amounts of capital. The vast majority of the population have become wage earners. This shift in the economy has had a direct effect on traditional areas of Asian enterprise. But despite these two factors, Korean immigrants show a marked movement into small business.

The question of how Korean immigrants get into small business is problematic because most come without prior experience. Entrepreneurship is not something they fall into "naturally" or out of habit, but must be learned on arrival. In this sense, despite higher levels of education, the new Korean

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immigrants are not unlike the pre-1974 Asian immigrants who tended to be laborers lacking in business skills, but who nevertheless were able to move into the petite bourgeoisie.

The old immigrants relied on two major mechanisms for advancement into business: thrift and the efficient utilization of community resources. The Koreans use both of these means and some new ones, too. Four factors aid in the movement to entrepreneurship: thrift, the use of communal resources, the use of public resources, and the role of the Korean government.

Thrift

Koreans are thrifty in two important ways. They amass capital by saving their earnings, and they and their families work long hours for little immediate remuneration.

Regarding capital, despite government restrictions on the amount one can take out (the upper limit is $1,400), some Koreans do come with capital in hand, sometimes with $50,000 to $60,000 cash. Apart from smuggling it out ille-

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gaily, an important segment of the Los Angeles community comes indirectly from Koreans working in Germany and Vietnam as coal miners, nurses, and engineers, and may collect some capital there. The most common pattern, however, is to come with little and work hard for two or three years until one has saved about $20,000 to invest in business. The wife typically works in a garment factory, and the husband may carry two jobs. Wages in these jobs are low, making it difficult to save. The aspiring entrepreneur must sacrifice living standards for awhile.

Korean thrift is shown not only in lack of spending, but also in hard work. A Korean family is likely to put in more time at work than the American family before it acquires a business of its own. The pattern continues after self- employment has been attained. Korean businesses stay open long hours and on weekends and holidays. They make use of unpaid family labor. In addition, the business may receive unpaid outside support in the form of babysitting by a grand- mother, either here or in Korea. The immigrants may work so hard that their health suffers.

September/October 1977 55

Communal Resources

The Koreans form a highly organized community. There are numerous associations and organizations which form hierarchies and overlap. According to one source, there are between five hundred and six hundred associations; nine out of ten Koreans in Los Angeles belong to at least one, and most to more than one. TheKorea Times reports that there are over seventy community organizations, while the Korean consul has provided a list of fifty-six. The discrepancy may be accounted for by the level of organization enumerated. For example, the consul's list includes the All-Korean University Alumni Association of California, a body which coordinates the activities of fifty-four individual alumni associations.

Among early Chinese and Japanese immigrants, the pool- ing of capital--especially through rotating credit associ- a t ions -was an important advantage in gaining a foothold in business. Rotating credit is found among the Koreans and is called gae. A group of friends or members of an organization pool money together and give it to one member. They do this on a regular basis, shifting the recipient until everyone has had a turn. While a gae may be used to purchase consumer items, such as cars, they are also used to raise business capital. A large gae will include about twenty participants and raise $10,000 for each. The system serves to provide interest-free capital, and depends on trust and the honor of the participants in continuing to contribute after they have been the beneficiary. The high degree of organization of the community encourages honor, since a person is visible in many roles and is dependent on others in many contexts. Despite this, people do occasionally default on a gae, and one finds ads in the Korean newspapers trying to locate defaulters.

Apart from rotating credit, partnerships and private loans from family and friends are other means of acquiring capital

which rely on communal resources. However, the sole pro- prietorship based on the saving up of one's own capital is probably the most common form.

The early Asian immigrants developed a system of labor paternalism which is still evident among Koreans. Preference is given to members of the ethnic group in hiring, but work conditions are poor, the hours long, pay low and irregular, and membership in unions not contemplated. Indeed, in the garment industry violations of labor standards have received some state agency attention.

Despite these conditions, the employees have something to gain. They receive employment in a job market where unemployment is high and where poor English may be a severe handicap. In addition, they may receive on-the-job training and aid toward setting up a business of their own. In exchange, the employer obtains a reliable, loyal, and cheap worker. The employer ' 'bargain" is cemented through ethnic allegiance.

Another feature of old Asian enterprises was a special relationship with ethnic community clientele. Fellow Asians would patronize Asian stores when they could, and would in turn get a special price or better credit arrangement. Among Koreans this does not occur overtly; however, Korean clients do receive preferential treatment through indirect channels. One mechanism is through advertising in the Korean press; a second is through referrals.

Information and training are important resources which the community can effectively mobilize. The ethnic press plays an important role in the process. In Los Angeles there are four Korean daily newspapers, two weeklies, and two Korean television stations each broadcasting a two-hour weekly pro- gram. Through these channels Koreans are given up-to-date information on business trends. They can read articles on

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how to manage a business, how to avoid being cheated, and so on, and they can advertise. Community organizations are also important sources of information.

Private Korean concerns also aid in the efficient distribu- tion of information. There are businesses which specialize in providing information as a service. For example, there is a real estate agency that locates small businesses being sold around the city, providing this information to prospective Korean buyers. Needless to say, there are businesses (such as law firms) outside the Korean community which specialize in information too. The point is that, by focusing on a specific ethnic clientele, the amount of business-related information generated in the Korean community far exceeds that available to the average Los Angeleno.

Another resource which is efficiently passed around the community is businesses themselves. Once a shop is in the hands of a Korean, the chances are that the next owner will be a Korean.

Control and Exploitation

Apart from distributing resources efficiently and cheaply, the Korean community could perform the function of control- ling internal competition, as did trade guilds in earlier Asian communities. Korean businessmen and leaders of the community are aware of the advantages of agreements over spacing and price policy. While some attempts have been made to institute them in the grocery business, for example, the pressure of competition, and the continued influx of new immigrants anxious to get established in similar lines, makes such agreements almost impossible to sustain. In addition, some of the most recent immigrants are coming with more capital, making it less essential for them to join in agreements with their poorer compatriots. In the long run, however, internal competition will come under organizational control.

The ability of the Korean community to mobilize its own resources is impressive. However there is another, less rosy, side to the picture. Not only does the community "help its own," but it exploits them. There is a flowering of adjust-

ment services, such as business or immigration consultants, whose living depends on the problems and aspirations of newly arrived countrymen. There is a tendency to charge high fees for all services.

The labor contractor takes advantage of the difficult cir- cumstances of new immigrants to turn a good profit. Indeed, the use of unpaid family labor, or nonunion low-wage workers, is a form of exploitation. In general, older immigrants climb up the economic ladder on the backs of newer immigrants, a prevalent practice among pre-1924 European immigrants in the East. It is a system that works to everyone's advantage so long as immigration continues. Should the influx from Korea suddenly be curtailed, however, the latest arrivals could be trapped at the bottom of the economic ladder.

Public Resources

Unlike earlier Asian immigrants, who developed a reputa- tion for low dependence on the public, the Koreans are determined to make use of all resources. They want to get full value for their tax dollar, and are not reluctant to use political means to get it. In other words, there has been a shift from the "quiet Asian" image. For example, aspiring Korean businessmen do not only rely on their own or friends' savings to finance their enterprises. Many turn to American banks or to the Small Business Administration. The community helps tap noncommunal resources; community organizations and the press help direct people to the appropriate public agencies which can provide them with business assistance.

The Korean community tries to exert political pressure to further its interests. There is an attempt to get the community to support particular political candidates and to deliver the votes on election day. The community also tries to gain access to government officials to make sure that its needs are met. In addition, the ethnic press urges that Koreans be good citizens and encourages them to exercise the rights of citizen- ship.

Korean Government

Another resource Korean immigrants can use, which was not available to earlier Asian immigrants, is aid from their home government. The South Korean government encourages emigration, with the idea of sending its less wealthy elements overseas and helping them to get rich there. They will either come home or send back some of their wealth, enriching Korea either way. Korea sets a very low limit on the amount of money an individual can take out. There is also a limit on who can emigrate, restrictions being erected against those with assets of $25,000 or more.

The government of Korea helps local businesses in at least two ways. First, it aids in training and dissemination of information; some of the classes in entrepreneurship run by the Korean Association are taught by visiting dignitaries. Second, and more important, it helps provide capital. There are now two Korean banks in Los Angeles, one specializing


in international trade, the other concerned with local-oriented business. In addition, the government provided matching funds to help the local community purchase a community center building which houses some of the top organizations of the community.

Korea benefits from the development of local business because it helps establish export outlets. Two lines of exports are of special importance: hair products and clothing. Korea produces most of the world's wigs, and its dominant position depends on the use of cheap female labor which is paid about 50,000 won ($100) per month. There is vertical integration in this line in that Korean importers use local Korean small businesses as their chief retail outlet.

The scale of clothing importation is much larger and of far greater potential importance. According to a number of sources, the Los Angeles garment industry is now controlled by Jews, but the Koreans are starting to make a crack in the edifice. Although there is some local manufacture, the Jews depend on importing from cheap labor countries such as Brazil and Taiwan. As yet they do not import from Korea, leaving that trade to Korean importers. About 20 percent of the clothing imported to the United States now comes from Korea. Unlike the wig business, the major outlets are not Korean small shops, but large-volume Jewish-owned retail- ers with multimillion dollar annual sales.

The local Korean press plays a role in Korea's efforts to establish export outlets. Three of the local papers are versions of Seoul newspapers, with a section changed to provide local news and advertising. In turn, the Seoul papers are sponsored by major corporations and conglomerates in Korea. The Los Angeles newspapers send back three to five copies to their parent paper, which reproduces about one-hundred copies and distributes them to corporate executives. In this way Korean corporations come to learn about commercial pos- sibilities here. The local press plays the role o f " an eye on the U.S. economy." Another benefit to Korea in aiding local business is the sending back of remittances to families in the homeland.

It should be noted that the Korean government's activities in the local community are not all viewed in a positive light. There is considerable negative sentiment toward the Park regime, which is not surprising given that a number of local

Koreans emigrated for political reasons. There is concern that the Korean CIA has operatives in Los Angeles, based in the consul general's office, to make sure that the emigrant community is not too critical of Park Chung-hee. However, strong business ties with Korea lead many community members to subdue their criticisms of the government in the interests of perpetuating good economic relations.

Success of Businesses

We have been describing four mechanisms by which Ko- reans succeed in business. But how successful are they really? There is some disagreement over the answer to this question. Some contend that the failure rate is high, and that even apparently affluent businesses are hollow successes, more show than substance. However, money-lending agencies seem to disagree.

The truth probably lies somewhere between these ex- tremes. While Koreans' businesses may have a better chance of survival than other minority-owned businesses, bank- ruptcy and failure are not unknown among them. The Small Business Administration, for example, reports that it faced a problem of a series of failures in Korean-owned liquor stores. However, this record did not extend to other business lines.

If by "success" we mean making millions of dollars, or even hundreds of thousands, Korean enterprise could not be deemed successful except in rare instances. Typically the firm must struggle and its owners work excessively hard in order to keep it going. If, on the other hand, we mean by "success" survival and modest growth to the point where many people can make a decent living by American standards, we must conclude that Korean immigrant enterprise is largely successful. Indeed, their great overrepresentation in small business would seem to put it beyond dispute.

Success in business is not instantaneous. It typically takes two or three years of very hard work and abstinence to get established. But after this initial breaking-in period, many Korean families are well on the road to becoming established. A study by some accountants found that, after three years of residence in the United States, Korean families had an average income of $14,000, a rapid rise from the first year. The researchers believed this was rare among minority groups. Another indicator of success is the rise in value of Korean-owned businesses. Of course this may in part also reflect taking advantage of new immigrants who are anxious to get started and are, therefore, willing to pay inflated prices.

This evidence should not be taken to mean that there is no poverty in the Korean community. There is, especially among the most recent immigrants; and many people are underemployed and earning below their capacity. In particular, many Koreans enter the United States with professional training and are given preference by the immigration au- thorities because of these skills, only to find on arrival that they cannot pass state licensing examinations in part (and perhaps entirely) because of language difficulties. In one notorious case, pharmacy, they are not even permitted to take

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the examination. Success in small business must therefore be seen in the context of failure to become established in one' s chosen profession.

Another sign of success is that Koreans are able to climb up a kind of business ladder. They typically start with a business which requires little capital, such as a gas station or wig shop. As their stake increases, they move on to a grocery store. Requiring still more capital are liquor stores and restaurants. At the top of the ladder is real estate. They also purchase rental real estate, suggesting a middleman role. This kind of business succession helps explain the preference for liquidity of assets, apart from sojourning. Koreans want to "get rich quick," and the way to do it is not to sink too much capital in any particular business. Businesses turn over rapidly, the owners switching from one to another as quickly as they accumulate sufficient equity.

Korean success in small business must be seen in the context of failure to become established in one's chosen profession

It is difficult for small business to compete successfully with efficient, capital-intensive, large corporations. How then are the Koreans able to succeed? How these four factors help lower the costs of Korean enterprise relative to compete effectively with big business is another question. In some cases (for example, grocery stores) Koreans are unable to undersell the supermarkets, and depend for survival on carry- ing special products such as Korean foods, staying open long hours, and location. Similarly, Korean restaurants depend less on cheapness than on the exotic quality of their meals and catering to the ethnic clientele. In other cases (for example, wig shops) their success depends on advantageous access to the sources of supply. In still others Koreans have capitulated to corporate control and have purchased franchises from big business rather than trying to fight against it.

However, there are still cases where the cheapness of the Korean firm enables it to be competitive. For example, janitorial services and sewing factories, which subcontract from big business, must be cheaper than the corporations could provide for themselves by hiring directly. The cheapness here lies in being able to mobilize cheap immigrant labor, to utilize paternalistic ties with the workers in order to subvert discontent and avoid unionization, and to bear the costs of management. The profit margins of such enterprises are often slim, and the owner may work alongside his employees, making it difficult for the workers to develop a working-class consciousness against him. If they did, of course, the costs of the enterprise would rise and it would cease to exist.

The efficiency of Korean use of resources makes their small businesses as cheap as they can possibly be. In some cases this may be sufficient to make them competitive with big business. In others they may only be able to undersell other small businesses.

Friction of Growth

There has been a startling growth of small business among Korean immigrations in Los Angeles within an economy which is generally moving away from individual entrepreneurship. Korean small business shares many common elements with "o ld" Asian immigrant business, despite the fact that the new immigrants are more highly educated. Koreans still use thrift and communal resources to run efficient, and hence relatively cheap, shops.

Two questions relating to the future remain. First, what will happen to Korean entrepreneurship if monopoly capitalism continues to extend its influence into all branches of the economy? One possibility is that this process will never be complete, since new competitive industries will always be emerging; another is that Koreans will adapt in the form of running semiindependent shops. Franchising is a system in which monopoly capital can utilize the initiative, energy, and resources of the small entrepreneur, and we may come to see more Koreans following this path.

The second question concerns the issue of race relations. Middleman minorities have been notoriously ill received by the communities in which they reside. They face antagonism from their clientele, business competitors, and organized labor. Already some signs of irritation are emerging, especially in the ghetto.

While the signs of friction are minimal so far, the potential for intergroup conflict seems large, especially if Korean business continues to grow at the current rate and spreads all over the city. At the moment Koreans do not particularly stand out amid the cultural heterogeneity of an immigrant center like Los Angeles. But the day may come when a new anti-Asian agitation surfaces in Southern California.[]

READINGS SUGGESTED BY THE AUTHORS:

Bonacich, Edna. "Middleman Minorities." American Sociological Review 38 (October 1973): 583-94.

Cohen, Abner. Custom and Politics in Urban Africa. Berkeley: University of California Press, 1969.

Gee, Emma, ed. Counterpoint: Perspectives on Asian America. Los Angeles: University of California at Los Angeles, Asian-American Studies Center, 1976.

Light, lvan H. Ethnic Enterprise in America: Business and Welfare among Chinese, Japanese, and Blacks. Berkeley: University of California Press, 1972.

Yu, Eui-Young. "Koreans in America: An Emerging Ethnic Minority." Amerasia Journal 4, no, 1 (1977): 117-31.

Edna Bonacich is associate professor of sociology at the Univer- sity of California at Riverside. Her work has been in the area of race and ethnic relations and has appeared in the American Sociological Review.

Ivan H. Light is associate professor of sociology at the University of California at Los Angeles. He is the author of Ethnic Enterprise in America and several articles on ethnics in illegal business.

Charles Choy Wong is a doctoral candidate in sociology at the University of California at Los Angeles and a lecturer in ethnic studies at the University of Southern California. His work has appeared in the American Journal of Sociology.


Koreans in business

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