SOUTH KOREA

FRANCIS PIRON, Ph.D., 2013

KOREA

• HDI – .877 (#12) FINLAND .871, #16, JAPAN .884 #11

• INCOME INEQUALITY– GINI 31.6, R/P 10% = 7.8, R/P 20% = 4.7– FINLAND 26.9; 5.6 3.8– JAPAN 24.9 4.5 3.4– CHINA 46.9 21.6 12.2

• DEMOCRACY INDEX– #20 8.11 FULL DEMOCRACY– FINLAND #7; 9.19– JAPAN #22;8.08– CHINA #136;3.14

• GENDER EMPOWERMENT– #61 .554– FINLAND #3; .902– JAPAN #57; .567– CHINA #72; .533

KOREA

BACKGROUND

• COERCIVE RELATIONSHIPS WITH CHINA, JAPAN & US

• UNIQUE MANAGERIAL APPROACH BASED ON NEO-CONFUCIANISM

• HIGHLY EDUCATED & COMPETITIVE SOCIETY (71% of pop. are internet users!)

• ECONOMY CONTROLLED BY CHAEBOL (similar to Japanese KEIRETSU)

LOCAL ISSUES & EXTERNAL FORCES

INFLUENCING THE S. KOREAN MGMT CONTEXT

• MOSTLY MOUNTAINOUS COUNTRY• HIGH POPULATION DENSITY; 50 MILLION• ANTAGONISTIC AND COLLABORATIVE

RELATIONSHIPS WITH CHINA & JAPAN => COMMON HERITAGE

• SIGNIFICANT NATIONAL PRIDE: NATIONALISM• UNIQUE WORK ETHICS

• COUNTRY UNITED FOR OVER 1,000 YEARS– ESTABLISHED ADMINISTRATIVE SYSTEM– NATIONAL HOMOGENEITY– UNIFIED LINGUISTIC COMMUNICATION

LOCAL ISSUES & EXTERNAL FORCES

INFLUENCING THE S. KOREAN MGMT CONTEXT

• CHINESE INFLUENCE– STRONG & OVER 1,000 YEARS OLD – IDENTIFIABLE IN EVOLVING KOREAN POLITICAL,

LEGAL & SOCIAL SYSTEMS, AND ARTS & RELIGION

• RELIGIOUS & PHILOSOPHICAL INFLUENCES– CONFUCIANISM, TAOISM AND BUDDHISM FROM CHINA– CONFUCIANISM SHAPED CULTURE, SOCIETY,

INSTITUTIONAL STRUCTURES & GOVERNANCE SYSTEMS

LOCAL ISSUES & EXTERNAL FORCES

INFLUENCING THE S. KOREAN MGMT CONTEXT

• NEO-CONFUCIAN SOCIETY– CONFUCIANISM DEFINES SOCIAL RELATIONS AT ALL

LEVELS– HARMONIOUS INTEGRATION OF INDIVIDUALS INTO

COLLECTIVITY AS IN HARMONIOUS NATURE – PURSUIT OF HARMONY IS PARAMOUNT GOAL

– SIGNIFICANCE OF TAOIST’S YIN & YANG – FUNDAMENTAL DUALISTIC RELATIONSHIP

Religious Affiliation, Censuses

1995 1985No Religion 49.3% 57.4Christian 26.3% 20.7Protestant 19.7% 16.1Catholic 6.6% 4.6Buddhist 23.2% 19.9Confucian 0.5% 1.2Other 0.7% 0.8

LOCAL ISSUES & EXTERNAL FORCES

INFLUENCING THE S. KOREAN MGMT CONTEXT

• NEO-CONFUCIAN SOCIETY– OTHER RELATIONSHIPS INDICATE HIERARCHIES WITH

FATHER AT THE HIGHEST– 4 HIERARCHICAL STRATA:

• YANGBAN …… SCHOLARS & OFFICIALS

• CHUNGIN ……..MIDDLE PEOPLE (TECHNICIANS, ADMIN.)

• SANGMIN ……..COMMONERS (75% OF POP.)

• CH’OMMIN …….BOTTOM OF SOCIETY

– THUS, HIGH VALUE OF EDUCATION– MERITOCRATIC & SCHOLARLY SYSTEM– FILIAL PIETY – IMPORTANCE & ROLE OF ELDEST SON

LOCAL ISSUES & EXTERNAL FORCES

INFLUENCING THE S. KOREAN MGMT CONTEXT • INFLUENCE OF CHRISTIANITY

– EARLIER, ROMAN CATHOLICS– 1880s ON, PROTESTANT DENOMINATIONS

• ASSOCIATION TO INDIVIDUALISM

• KOREAN CHRISTIANS TEND TO BE OUTSPOKEN ADVOCATES … “UNKOREAN” BEHAVIOR

• KOREAN SOCIO-CULTURAL VALUES HAVE BEEN THOROUGHLY ASSIMILATED IN KOREAN CHRISTIANITY

– THUS, A RELIGIOUS PLURALIST SOCIETY

– AS A RESULT, KOREAN BEHAVIOR PATTERNS EXHIBIT BOTH INDIVIDUALISTIC & GROUP-ORIENTED ACTIVITIES

LOCAL ISSUES & EXTERNAL FORCES

INFLUENCING THE S. KOREAN MGMT CONTEXT

• JAPANESE COLONIAL PERIOD– ALMOST HALF A CENTURY!– 1905-1945: KOREANS LOST OPPORTUNITY TO

MODERNIZE ACCORDING TO THEIR NEEDS– INDEPENDENT DEVT. ONLY AVAILABLE THROUGH

EDUCATION – COMPLEX NATURE OF KOREAN & NATIONALISM CAN

BE TRACED TO JAPANESE OCCUPATION

• POLITICAL ECONOMY– LIBERAL DEMOCRACY– PRESIDENT IS ELECTED FOR A SINGLE TERM …

SOURCE OF CORRUPTION?

THE MGMT OF S. KOREAN

INSTITUTIONAL INFRASTRUCTURE • GOVT-LED APPROACH TO INDUSTRIALIZATION

– EXTRAORDINARILY RAPID PROCESS OF INDUSTRIALIZATION – CONTEMPORARY INDUSTRIAL POWER

– 1960’s – NEED TO DEVELOP HEAVY INDUSTRIES• SERIES OF 5-YEAR ECONOMIC PLANS

• FOCUS ON DEVT. OF EXPORT ORIENTED MANUFACTURING

• STRONG GOVT. SUPPORT

– 1997 ASIAN FINANCIAL CRISIS => NEED TO ADDRESS FUNDAMENTAL ECONOMIC ISSUES = CLOSE RELATIONSHIP BTW CHAEBOL AND GOVT. = “KOREA INC.”

– GOVT. TYPICALLY CONTROLLED ACCESS TO CAPITAL AND THUS DICTATED STRATEGIES & OPERATIONS OF CHAEBOLS

THE MGMT OF S. KOREAN

INSTITUTIONAL INFRASTRUCTURE • DRIVERS OF GLOBALIZATION & FOREIGN INVESTMENT

POLICY– STRONG FDI POLICY (US, UK, JAPAN, GERMANY)– STRONG OVERSEAS DIRECT INVESTMENT POLICY (ASIAN,

AMERICA & EUROPE)– GLOBAL MARKET ORIENTATION– 4 STRATEGIC MGMT ENABLERS

• GOVT ENABLERS

• DEMAND-SIDE ENABLERS

• SUPPY-SIDE ENABLERS

• MARKET ENABLERS

THE MGMT OF S. KOREAN

INSTITUTIONAL INFRASTRUCTURE • GOVERNMENT ENABLERS

– EXPORT-ORIENTED, PROTECTED DOMESTIC ECONOMY– ATTRACTIVE INVESTMENT CLIMATE

• GRANTING OF DOMESTIC STATUS TO FOREIGN INVESTORS

• FOREIGN INVESTMENT PROMOTION ACT

• FINANCING & TAXATION BENEFITS FOR FDI

– INITIATIVES TOWARDS REDUCING & DISMANTLING RESTRICTIVE TRADE BARRIERS

Doing Business 2011 Rank

Doing Business 2010 Rank

16 15

Topic RankingsDB 2011

RankDB 2010

RankChange in Rank

Starting a Business

60 55 -5

Dealing with Construction Permits

22 22 No change

Registering Property

74 72 -2

Getting Credit 15 14 -1

Protecting Investors

74 73 -1

Paying Taxes 49 48 -1

Trading Across Borders

8 8 No change

Enforcing Contracts

5 5 No change

Closing a Business

13 12

THE MGMT OF S. KOREAN

INSTITUTIONAL INFRASTRUCTURE

THE MGMT OF S. KOREAN

INSTITUTIONAL INFRASTRUCTURE • DEMAND-SIDE ENABLERS

– GROWING IMPORTANCE AS A GLOBAL PLAYER– GLOBAL COMPANIES HAVE DEVELOPED KEEN

INTEREST IN KOREAN PC MARKET– AS A CENTER OF INDUSTRIAL INNOVATION, FOREIGN

MNCs ARE EAGER TO ENTER KOREAN MARKET IN SEARCH OF COMPETITIVE ADVANTAGE (HI-TECH & SERVICE SECTORS)

– HOME OF THE FUTURE

THE MGMT OF S. KOREAN

INSTITUTIONAL INFRASTRUCTURE • SUPPLY-SIDE ENABLERS

– NO LONGER A LOW LABOR-COST COUNTRY– WELL-EDUCATED, HIGHLY TRAINED WORKFORCE

PROVIDES OPERATIONAL EFFICIENCIES– ADVANTAGE IN ABILITY TO ADOPT AND DEPLOY

TECHNOLOGY– CONTINUOUS UPGRADE OF GOVT. INFRASTRUCTURE

=> ATTRACTIVE BUSINESS LOCATION

THE KOREAN INNOVATION SYSTEM: OVERALL EVALUATION

• STRENGTHS:STRONG COMPETITIVENESS IN SOME HIGH-TECH INDUSTRIES

RAPID EXPANSION & SKILL

FORMATION COMPREHENSIVE STRUCTURAL ADJUSTMENT

STRENGTHENEING SCIENCE BASE

• WEAKNESSES:STILL HEAVY CONCENTRATION OF RESOURCES ON CHAEBOL

SME/VENTURE SECTOR NEEDS

FURTHER DEVELOPMENT OPEN NETWORK CULTURE / INTERORGANIZATIONL LINKS SLOWLY EVOLVING

THE MGMT OF S. KOREAN

INSTITUTIONAL INFRASTRUCTURE • MARKET ENABLERS

– HIGHER DISPOSABLE INCOME• RISE IN LIVING STANDARDS

• CHANGE IN CONSUMER TASTES & PREFERENCES

• YOUNGER CONSUMERS – INTERNATIONAL GOODS

– GROWING POPULATION (50 MILLION 2008-2009)– WELL-ESTABLISHED FOREIGN COMPANIES: KFC, PIZZA

HUT, PHILIPS, SIEMENS, ETC.– WELL-OPENED DISTRIBUTION NETWORKS– GOVT. WANTS TO INCREASE COMPETITION IN

DOMESTIC MARKET TO STIMULATE CHAEBOLs

THE MGMT OF S. KOREAN

INSTITUTIONAL INFRASTRUCTURE • ORGANIZATIONAL CHARACTERISTICS OF CHAEBOLs

– GROUP OF LARGE COMPANIES OWNED & MANAGED BY FAMILY MEMBERS & RELATIVES

– DIVERSIFIED BUSINESSES– 3 TYPES OF CHAEBOLs

• LATE 1950s CHAEBOL CREATED BY SELF-MADE MEN WHO BENEFITED FROM GOVT. RELATIONSHIPS

• 1960s CHAEBOL FORMED WITH THE HELP OF FOREIGN LOANS

• 1970s CHAEBOL RESULTS OF THE RAPID GROWTH IN EXPORTS & LOCAL DEMAND

THE MGMT OF S. KOREAN

INSTITUTIONAL INFRASTRUCTURE • CHARACTERISTICS OF CHAEBOLs

– NOT ASSOCIATED/RELATED TO BANKS AS JAPANESE KEIRETSU

– MORE DEPENDENT ON GOVERNMENT APPROVAL– SPREAD ACROSS MANY INDUSTRIES– HIGH LEVEL OF ENTREPRENEURSHIP– FAMILY-DOMINATED: STRICT BLOOD RELATIONSHIP– 3 TYPES OF CHAEBOL OWNERSHIP

• DIRECT & SOLE OWNERSHIP – DESCENDANTS OF FOUNDER

• DOMINATED BY A HOLDING COMPANY

• INTERLOCKING MUTUAL OWNERSHIP – FOUNDER & FAMILY OWN THE HOLDING COMPANY

CRITICAL TRADITIONAL, TRANSITIONAL &

TRANSFORMATIONAL ISSUES IN KOREAN MANAGEMENT • INSIDE THE CHAEBOL

– PRESENTLY - RADICAL CORPORATE RESTRUCTURING

– ORGANIZATIONAL STRUCTURE• OWN MGMT STYLE – “K-TYPE MGMT “– INTERPETATION

OF NEO-CONFUCIAN IDEAS + JAPANESE & AMERICAN INFLUENCES

– UNIQUE BLEND OF WESTERN & EASTERN MGMT PHILOSOPHIES & PRACICES

– TRADITIONALLY HARD-WORKING PEOPLE– CONCEPT OF EUI-YOK PROVIDES INTERNAL DRIVE,

MOTIVATION TO SUCCEED & ACCOMPLISH SOMETHING OF VALUE … FROM WHICH THE GROUP OR COMPANY CAN BENEFIT

– CONTRASTS WITH PROTESTANT WORK-ETHIC OF INDIVIDUAL PERFORMANCE

CRITICAL TRADITIONAL, TRANSITIONAL &

TRANSFORMATIONAL ISSUES IN KOREAN MANAGEMENT • INSIDE THE CHAEBOL

– NEO-CONFUCIAN VALUES

• ABSOLUTE LOYALTY TO HIERARCHY

• TRUST BTW FRIENDS & WORKING COLLEAGUES

• ALLIANCE & RESPECT TO PARENTS; ORDERLY, CLEARLY DEFINED CONDUCT BTW CHILDREN & ADULTS

• SEPARATION OF HUSBAND & WIFE IN TERMS OF ACTIVITIES

– CORPORATE CULTURE – SAHOON – K-TYPE MGMT• TOP-DOWN DECISION-MAKING, PLANNING, COORDINATION

• AUTHORITARIAN, PATERNALISTIC LEADERSHIP

• HARMONY-ORIENTED CULTURAL VALUES - INHWA

• CENTRALIZED MANAGEMENT

• FLEXIBLE LIFETIME EMPLOYMENT

• COMPENSATION BASED ON SENIORITY & MERIT

• HIGH WORKER MOBILITY

CRITICAL TRADITIONAL, TRANSITIONAL &

TRANSFORMATIONAL ISSUES IN KOREAN MANAGEMENT

• HUMAN RESOUCE MGMT– RECRUITMENT & TRAINING

• 3 CATEGORIES OF EMPLOYEES:– CORE – TOP MGMT– BASIC – PERMANENT STAFF– TEMPORARY

• MOST HIRING IS DONE THROUGH WORD-OF-MOUTH• JOBS ARE NOT CLEARLY STRUCTURED, NO JOB DESCRIPTION• IN-HOUSE TRAINING - FOCUS ON MOULDING & NURTURING

TOWARD BLENDING WITH COMPANY’S CORE VALUES & CULTURE• EXPECT UNRESERVED COMMITMENT TO THE COMPANY

– COMPENSATION & PROMOTION• BASED ON SENIORITY & MERIT

• PERFORMANCE APPRAISAL IS DIFFICULT • PROMOTION IS BASED ON SENIORITY, PEFORMANCE,

PERSONALITY, FAMILY RELATIONSHIPS, SCHOOL & REGION