Lady Luck Helps Make Changes, Part 2

by Carol on July 11th, 2010

In 1994 I interviewed my friend Klaus about his experience as a German executive connected with a Korean company.

Frankly, I don’t know how everything worked out so well. I’m just grateful that it did. But I can tell you how I proceeded. I was very lucky, but I also had a sense of direction. Right from the from the beginning I realized that before I did anything I would have to spend some time checking out the workplace and the people working for me and with me. So I walked around the factory and the office asking questions and observing and giving people an opportunity to talk to me. I knew something was wrong with the product lines, but I didn’t know what it was. I listened as people told me their stories.

About fifty people mentioned one particular problem, namely that we were manufacturing the wrong products for this market. The decision to make these products had been made in Germany. Of course, if you produce something for a foreign market, you have to produce what that market tells you to and not what is decided in your home office.

The next thing I did was watch people’s behavior. I had heard that, in the typical Korean way, people would treat me like a king and they would deal with their own subordinates in a completely different manner. It was not the kind of management style I was used to in Europe. I knew from my reading that this was going to happen, but it was much more extreme than I had expected. So I knew that I had to behave like a patriarch. People would follow me, but I couldn’t expect to have any colleagues in management. Even the senior director would never express his doubts or objections or even discuss a decision with me. I missed the discussion we had in Europe. There was no one with whom I could share my indecision or go over policies or work out subtleties. I said things, and these were handed down like orders. This is not Western management style. But management principles have to be determined by the country and the people rather than by the business. Two quite different companies can be run the same way in Korea, but in Pakistan or Germany a company would have to be run much differently.

I knew that people would never tell me what they thought if I sat in my glass cage. So I went to them, which at first shocked them. A few pointed out that it was not the Korean way for the president of the company to come to the desks of his subordinates. But I said, “Well, I’m not Korean, and we are a German company, so I want to do it my way.”

Then they had to tell me the truth because I sat at their desks and asked them to show me the papers where what they were telling me was recorded. If someone had just given me some bullshit I would have said, “Please show me your accounts.” This was completely new to people, and at first they were very shy, very confused and very afraid. But then they realized I was not doing this to nail them down, but just to find out how the company operated and what needed to be changed.

At first the listening and observing process was difficult for me. I tend naturally to think that I am right, and I want to just go ahead with whatever I decide. But in this case I really didn’t know, so I had to listen. I discovered that just listening and observing others can be very beautiful. I started really enjoying just sitting there with an employee, knowing that I am the boss and can do anything I want, but just listening to his opinion, without telling him my opinion first. And I think I developed some patience, which I believe is an Asian virtue.

I also had to learn how the Koreans think, which is different from Western people because they have different values and different priorities. For instance, my own number-one priority is my wife and five children. But for a Korean man, his job is his number-one priority. His job defines his status in society and influences the respect he receives from his family and his relatives. When people address each other, they use a title like bujang [manager] or sajang [president of a company]. In Germany we did that in the nineteenth century, but nowadays we would smile at this. Nobody would say, “Please call me Manager.” Everybody would laugh. Here when we have the annual salary increases, people have come to me individually and said they would understand if the company had to be a tight with raises, but could they please have a higher title. You put the title on your name card, and the title determines how people treat you. So if a man’s title is on the low side, it’s quite serious. If a man has reached the age of thirty-five without becoming a bujang, it’s like a woman reaching thirty without getting married. It’s a disaster.

Anyway, during the first six months I made changes in the organization. When I put some people in other places, I said, “Please do this. If you want to be a part of this company, do this job whether you like it or not. After a while I may give you a better job, but do this well first.” Some people were not honest with me and tried to side-step me or wouldn’t give me the proper information, and I told them they weren’t suitable for the company. I knew that making people resign was very un-Korean, but the company was losing a lot of money, and I had been given just one year to either clean up the company or close it. If you have only one year, you don’t have a chance to be nice to people. I had to save the jobs of the good people if I could. This makes sense in Europe or America, but it’s very difficult in Asia. It was a painful process, but it worked immediately. The cost came down and the production went up.

Of course, we had other problems to deal with as well, like government restrictions of various kinds. Companies in Korea have to operate under a lot of restrictions, but there are many ways to side-step them. Because the law is often vague, the restrictions can bounce like a rubber ball. They can go here or there or somewhere else. If you react like a Westerner and complain to the Ministry of Industry or the Ministry of Finance that something is not fair or not in accordance with international trade agreements, you will be told that the restriction is not at all as you interpreted it, but something else altogether.

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So we always did things the Korean way. In Korea the strongest connection you have is to a classmate of the same school or university. So we sent someone to speak to the person in authority who was a classmate of his. Of course there was always a little money under the table too. They would discuss the matter, and our man would be told how the restriction should be interpreted in this particular case. And we would try to follow the suggestion that was proposed, which was never completely according to the law or completely against it, but something in the gray zone. This always worked. We imported everything we wanted to import.

If I had just gone the official way, we would have failed. A foreigner can never solve these problems by himself. It’s impossible. Even if Korea opens up more and more, the bureaucrats will remain strong, and they will find a way to block whatever they want to. You can’t just charge in like a German bull and complain and write letters. The problems will never be solved, and you will lose a lot of money.

So I changed the organization, the product lines, the service and marketing policies—virtually everything. I could do this as president of a company that was 100% foreign-owned. When I first arrived in Korea we were a joint venture, with 40% belonging to the Korean partner and 60% to the German parent company. It was clear at the beginning that this arrangement would not work. We were thinking in terms of long-term investment strategies, and the Korean partner was thinking about making quick money. So I made it clear to him that he would lose money for many, many years, and I offered him a good price for his shares. After he pulled out, I had a free hand to do all the restructuring which was key to the turn-around.    

You often hear of disagreements between foreign and Korean partners. I think when it comes to a legal dispute, the foreign partner has lost from the beginning. The Koreans have connections everywhere, including in the courts. There was one case in particular which I studied in some detail. It was very clear that the German partner was right. It was a matter of not being paid for some supplies. But the Korean partner had the means to see to it that the case was delayed and delayed and delayed. The foreign partner lost a lot of money in the process and finally just wanted to get out. Also, anyone bringing suit here will never do any additional business in Korea. He’ll be blacklisted.

The government allowed us to continue here under foreign ownership because we are a high-technology company. The government doesn’t want to lose any more high-tech investment to other countries. This is a big problem already. However, being a foreign-owned company is a mixed blessing here. Koreans have their han [resentments, pride,  inferiority complex, melancholy], which in this context means “Korea first.” People feel that if a foreign company is making money somewhere, a Korean company is losing. That doesn’t make any sense, but it’s what people think. They assume that foreign companies, because we work more efficiently and usually have better products than the local industry, make a hell of a lot of money. If you don’t declare it on your tax forms, it means you are hiding something. So foreign companies are the preferred targets for tax investigation, tax charges and extra charges. They want to get money out of us. We did very well in the investigations which were directed at us because we have many good local contacts. But I know many foreign companies which have been nearly destroyed by these investigations. There were horrendous claims made against them. And that’s one of the reasons why foreign manufacturers don’t want to come to Korea anymore.

Foreign companies generally are more profitable than local companies because they have better products. You know, without our being here, the quality level of lamps and other lighting products would be extremely poor. But because were had far better quality, we forced the local industry to improve the quality of its products or die. If the local companies hadn’t improved because of competition with us, in ten years they would be gone anyway. So we help the consumers, we help the nation, and we help the other companies in the end too.

I am one of those businessmen who believes that Korea has already missed the train to strategic foreign investment. The opportunity won’t come again because it has gone to other countries—to China or Indonesia. The conditions are not favorable here, and there’s too much red tape. In addition to the unfair treatment I’ve already mentioned, there is the problem of disinvestment. If you want to withdraw your money because you were unsuccessful, you can’t take out the amount you invested in land and property. It’s taxed away. If we were to sell our land and our factory and take the money out of the country, we would have to pay a 60% tax on it. This is outrageous. There is also the low productivity in Korea and the high labor costs, which are still rising and which make Korea uncompetitive as compared to other countries. And then the infrastructure is not good, like the traffic, which means you lose a lot of time and money. Of course, many other Asian cities also have traffic problems, but all of these disadvantages add up.

I have friends and acquaintances who say they have had all kinds of difficulties here that they have never had in any other country. I myself have found Koreans very diligent, very cooperative, very helpful—once you find the right approach. We achieved very good results, and I did it with the Korean employees. We went from a poor company to a very successful company, and after the momentum got going I didn’t have to do very much. It got better and better. I was surprised, but I knew we were on the right path.

I also like Korea. Aside from the pollution and the traffic, I find life here very pleasant. There are many churches I can go to and many wonderful places of natural beauty. There are good places to live. Of course, these are expensive, but usually for a foreign businessman the company pays. In China, people often are forced to live in hotels. My family is happy here. There are good schools—German schools and American schools—and entertainment for the children. It all fits together to make a good place to live.

Looking back over my four years in Korea, I would advise any foreign businessman coming here to free his mind of anxiety and worry. The market is growing. It’s full of activity. There is a lot of opportunity, unlike the saturated European market. Things happen very fast here. Every day I have to change my work schedule because something comes up. For some people, this would be painful. But for a creative person, it can be very exciting. I think people are thankful because we bring them better products which they can’t make themselves. By bringing in this technology, you do the country a favor, and this gives you a good feeling. What you are doing makes sense. You can be proud of it.

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