Keys to Doing business in korea
06/01/1997
Keys to doing business in Korea
Robert G. Postle,
PRI Automation, Billerica, Massachusetts
Over 5000 years of Korean history has led to a series of unique challenges for suppliers of capital equipment. More than 36 years of military occupation has created an attitude of mistrust and self-reliance. Unlike in the US, where a manager`s orders are often questioned, subordinates in Korea are trained to accomplish the task no matter what it takes.
During the last 10 years, Korean engineers have been primarily trained by Japanese equipment suppliers (see table). The Koreans feel that overall risk is more effectively managed by maintaining primary supply chains with Japan. To achieve even modest levels of success in the Korean marketplace, US and European suppliers must understand the people and culture, and learn to do business the Korean way.
One of the more important lessons that needs to be learned is the cultural emphasis on commitment and trust. Within the realm of Korean culture, commitment includes a number of metrics such as rapid response, local manufacturing, or value-added assembly and aggressive pricing. As manufacturers of high-volume DRAM devices, Korean engineers are looking to their suppliers to offer cost-effective solutions capable of delivering the repeatability and reliability needed to maintain their market leadership position.
Business relationships
In Korea, emotion plays an enormous role in the decision-making process. Although quantitative data is required, emotional considerations far outweigh it. For example, the key success factor is the establishment of long-term relationships. Once formed, these relationships create the necessary level of confidence to allow Korean decision makers to entrust billion-dollar factories to a given supplier. These relationships must be established at all levels within the targeted company. Ignoring high-level purchasing contacts in favor of engineering or general management personnel could prove to be a fatal error.
Often fab personnel who have risen through the ranks of domestic corporations are long-time friends or associates of sales personnel. It is extremely important for a company`s country manager to have graduated from the right university and to have come from a high-level position in one of the country`s major chaebols. Strong ties are also derived simply from coming from the same town as an individual with whom you desire a meeting.
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Decision making
Korean decisions are made primarily at the engineering level. A common mistake made by US and European equipment suppliers is to overemphasize the importance of high-level selling. Although
senior-level managers clearly have influence over a particular sale, they will rarely
overturn an engineering decision unless there are compelling reasons to do so.
Major Korean semiconductor manufacturers always qualify more than one vendor, and they are fully prepared to accept either as their supplier of choice. During the engineering review process, and even into the final negotiation session, suppliers competing for a particular job are never aware of who is favored. In fact, purchasing managers are quite skilled at making someone believe that they are not the supplier of choice. This tactic works heavily in purchasing`s favor as they attempt to secure the best possible price for their company. Typically, one can expect to achieve gross margin results of 10-12% below US and European sales.
Still another factor that must be considered when selling to Korea is that price is highly inelastic. The price set in 1996 may also be the price in 1999. Furthermore, expected product delivery time is shorter than anywhere else in the world. Korean customers will expect their suppliers to be capable of handling their high-volume requirements (see figure), and therefore, they will tend to disregard stated lead times. Equipment failure or poor after-sale support could result in a company being denied any further access for a one- to two-year period.
Other considerations
As discussed earlier, Korean customers demand extremely high levels of support in both the pre- and post-sales cycles. Asian customers respond most favorably to dedicated team selling. Supplier teams generally consist of sales, marketing, support, project management, and engineering personnel. It is imperative that these teams remain constant throughout the entire sales process.
The team must have a certain range of authority to answer on an engineering and corporate level those questions and requests that are made by the customer. If this authority is not granted, the customer will experience increasing levels of frustration and will eventually determine that the supplier is not yet adequately prepared to do business in Korea.
A supplier`s commitment will be judged upon the investment level that is ultimately made. The higher the investment level, the more the Korean customer base will believe that the company is there for the long term and consequently the more willing they will be to commit business.
Communication
Perhaps the most daunting challenge to successfully doing business in Korea is effective communication. In this regard, the most important point to remember is that written communications should always be short and simple. It is also important to communicate frequently, and to develop an effective means of tracking all communication between companies.
It is essential to know what not to say when communicating with a Korean customer. Whether a supplier is in a technical or commercial negotiation, one does not have to say yes; however, one should never say no. If the request is unreasonable, the customer`s perspective needs to be acknowledged before the drawbacks to taking such an approach can be expressed.
Finally, establishing the proper protocol for meetings is critical to accomplishing business objectives. Title and age are extremely important. Supplier and customer meetings must take place with individuals of similar title and rank.
All suppliers must be prepared to accept criticism, in particular in the early stages of the evaluation process. In many cases this criticism is simply a test to determine how committed the supplier is to doing business in Korea. It is extremely important that the supplier accept comments gracefully, and endeavor to fulfill requests no matter how unreasonable they may seem.
Conclusion
The Korean marketplace offers tremendous opportunity for growth for those suppliers who are willing to make the effort to truly become "Korean." While there are certainly unique cultural and business rules to learn, success in the Korean semiconductor industry is ultimately quite achievable. Endurance, patience, and proper communication will provide the keys to business success. What is learned in Korea can be effectively applied to other foreign markets, leading to a competitive advantage anywhere in the world.
Robert G. Postle is VP of marketing and sales for PRI Automation, 805 Middlesex Turnpike, Billerica, MA 01821; ph 508/663-8555, fax 508/663-9755, e-mail bpostle@ pri.com.