Understanding the Korean Thought Process - Intro to Korean Culture 6

 

Understanding the Korean Thought Process

 

Source: pixabay

 

How Korean people think, classify, and organize differs from many other countries.  These differences stem from language, Confucianism and traditional units of measure.

 

"One must listen till the end of a Korean sentence!" is a famous Korean saying, because most often, the main message is at the end. In business, this can delay getting to the point. However, this is embedded in culture and is not likely to change. Listening till the end of the sentence in conversation and reading till the end of the email are important for effective communication.  

 

Grammar is a key element of communication.  The verb is found at the end of the sentence.  In English, the sentence structure is 'subject, verb, object'.  In Korean, the sequence is 'subject (often omitted), object, verb'.  The relevant action appears at the end of the sentence.

 

The Korean numbering system can also be confusing to foreigners.  Large numbers are grouped into 10,000 (Man만) while Western countries group them into thousands (1,000).  When a Korean wishes to express a large number, in his brain, the number is a multiple of 10,000, say 35,0000,0000 or 35 X 10,000 X 10,000.  When he wishes to express this number into English, he must first calculate it into 1000s and then translate it into English 3.5 X 1000 X 1000 X 1000.  During this process, it is easy to misplace the comma / decimal point.  When the conversation is about money, mistranslations can lead to confusion and distrust. Therefore, if a Korean is slow to communicate numbers, keep in mind that they have to go through a multistep calculation process. One solution is to write out numbers in full with the correct number of zeros to reduce the possibility of error.

 

Units of weight and measure are another potential for confusion.  Korea uses the metric system and Koreans are unfamiliar with imperial measures such as inches and feet, ounces and pounds.  On top of this, there are still some traditional units commonly used in Korea. A 'geun' (근) is a unit of weight approximately 600 grams.  This unit is primarily applied to meat and especially in butcher shops.  Supermarkets will use grams and kilos. Land area was traditionally measured in 'pyeong' (평) which is approximately 3.3 m² or 36 square feet.  Although official documents now require that all real estate records and transactions be measured in m², pyeong is commonly used in conversation and the official Statistics Korea database still categorizes real estate in pyeong. There are other traditional units and values used for classification in Korea than can also contribute to confusion and mis-communication.

 

Confucianism was introduced to Korea many centuries ago but became the official philosophy of the Chosun Dynasty (1392 ~ 1910).  While Confucian principles are ebbing to a degree, they form the foundation of interpersonal interactions.  Many Confucian principles continue to have significant influence on behavior. The most visible vestige of Confucianism is hierarchy and the respect for the elderly.  There is a firm line between older and younger (even for minor differences in age), where the younger is required to respect the older (and the older is supposed to look out for the younger). In business, this is evident in meetings when the most senior person does all the talking and everyone else sits in silence (unless asked to explain something).  Employees are hired straight out of university and remain with the firm for life.  Promotions are based on age / longevity with the company.  This tradition is certainly breaking down so the 'old rules' don't always apply.  In some teams, the leader is not always the most senior.  New hires are brought into the company at mid or even executive levels for their expertise. In fact, business has become more complicated, not less as skill and experience are required to ascertain whether traditional rules apply or if the company has adopted a more progressive organizational structure.

 

Difference in classification, organizing and thinking can lead to misunderstandings and poor decision making. IRC Consulting has a 40-year history navigating the complexities of the Korean market.  Let IRC guide your way to reach your destination safely, efficiently and effectively.

 

 

contact@ircconsultingkorea.com  

IRC CONSULTING 

Suite 1705, Officia Building, 92, Saemunan-ro, Jongno-gu, Seoul, Republic of Korea 03186 

서울시 종로구 새문안로 92 광화문 오피시아빌딩, 1705호 Tel: +82-2-737-3222,  https://www.ircconsultingkorea.com

 

Korean Relationships - Intro to Korean Culture 5

 

Relationships Trump Profits

 

Relationships are important everywhere but in Korea, they can drive business decisions even at the expense of profitability.  A closer look at Korean history and culture helps us to put this into perspective.

 

Relationships and personal connections in Korea can be divided into four major categories: family, education, region and politics. There are others such as military unit, workplace and group activities but the four main types are most important.

 

So, why are relationships disproportionately important in Korea? We would like to focus on two main reasons: traditional farming culture and the modern competitive environment.

 

Rice is the main crop in Korea and mutual support was a key element of rice farming. Korea has a harsh climate for farming and there is only one rice harvest per year (unlike many southeast Asian countries that enjoy multiple harvests). Given the massive effort required in a short period of time for planting and harvesting, group effort was required. Floods, typhoons and other natural disasters also required farmers to work together to save their individual plots.  Man-made challenges also demanded cooperation, marauding bandits and the occasional corrupt official were better confronted by working together. Small groups were formed and participating in the group was essential to access help when it was needed. These types of group endeavors and the related values are embedded in the Korean psyche.

 

The importance of relationships was further reinforced in the modern, post-Korean war era.  Exploited during 35 years of Japanese colonial rule and then devastated by the internecine Korean war that twice swept across the length of the peninsula, by the late 1950s, the economy was in tatters.  Excess population swelled by refugees from the north lived on scarce land without any mechanization, natural resources or functioning infrastructure.  Life was a highly competitive struggle for survival.  Korea's only resource was 'human capital'.

 

Korea became the 'factory of Asia' converting (imported) raw materials into (exported) finished goods.  Jobs meant the difference between eating and starvation.  Education became an obsession as the means for economic advancement.  Access to jobs and education determined an individual's potential.  With industrialization came migration to the cities (concentrated in Seoul, the capital) lead to competition for limited housing.  Allocation of jobs, admission to schools, access to housing were all highly competitive.  Standing alone was overwhelming.  The tradition of relying on groups was reinforced in the industrial Korea.

 

As one benefited from membership to a group, contributing to the group became equally important.  The West is often defined as a 'transaction' culture where giving and receiving favors was 'quid pro quo'.  Korea is defined as a 'relationship' culture, advancement was achieved by contributing to and being supported by a group.  Thus, promoting the success of the group was the key more than the outcome of a specific transaction. 

 

A corollary of group orientation is indirect communication which evolved out of group dynamics.  Many people are aware of the concept of ‘face’ or chemyun (체면), a key to maintaining good relationships within the group.  Harmony is important for cohesion of a group so it became important to avoid hurting other peoples' feelings and to preserve their chemyun.  To this end, people tended to avoid direct communication in favor of indirect expressions, nuances and suggestions. While it may help to preserve harmony, it can have a negative impact on business as it can lead to vague and ambiguous communication. This increases the need for understanding indirect and non-verbal communication. This is called nunchi (눈치), the art of guessing your counterpart's intentions. This culture emerged because it could be less confronting to be more truthful in nonverbal communications than verbal communication. 

 

Many Western business people misinterpret indirect, non-confrontational communication as agreement sometimes leading to disastrous outcomes.  Likewise, the transaction-based approach to business at the expense of nurturing relationships can lead to lost opportunities. Learning how to deal with group values and strengthening personal relationships in Korea will smooth the way to better business.  Let IRC guide your way; avoid the pitfalls and capitalize on the opportunities to achieve your ambitious targets in Korea. 

contact@ircconsultingkorea.com  

IRC CONSULTING 

Suite 1705, Officia Building, 92, Saemunan-ro, Jongno-gu, Seoul, Republic of Korea 03186 

서울시 종로구 새문안로 92 광화문 오피시아빌딩, 1705호 Tel: +82-2-737-3222,  https://www.ircconsultingkorea.com

 

Post Covid-19 and Regulations Changes in the Alcoholic Beverage Industry

Covid-19 Effect on the Beer Industry.

As social distancing is an ongoing phenomenon, meetings with friends and colleagues for a drink have been pushed back or canceled. As the period of social distancing has been prolonged, it has started to create Covid-19 stress, also causing the "Corona Blues Effect", where people are stressed out due to Covid-19. Global analysis Nielsen Company announced a 291% increase in global alcoholic beverage sales, which we can understand is not only an issue in Korea.

With this effect, instead of visiting bars and restaurants, people are heading to convenience stores for drinks and snacks, which is increasing the Hon-sool & Home-sool (drinking alone / at home phenomenon. For more information visit- Link).

General Beer Distribution

Before Covid-19, restaurants, pubs and bars covered 60% of distribution which decreased to 40% as household and retail took the larger portion of the sales pie. Major beer companies are focusing on hon-sool promotions and increasing their distribution to retailers.  The government has made an Emergency Relief Fund payment to all households to ease the impact of COVID-19.  However, these funds cannot be used at hypermarkets so they are not enjoying the current sales boom.

Regulation Changes in the Alcoholic Beverage Industry

In the1990s, although Korea was 10^th in the global economic market and over 90% of consumption was limited to two types of alcoholic beverages, soju and beer. Starting from 2010, as imported beers entered the market, consumers started to realize that there was no diversity in the Korean alcoholic beverage market. To Increase the quality and diversity, changes were planned by the Ministry of Economy and Finance.  

Liquor Tax Law Renewal

The taxation of beer and rice wine (탁주) was changed for the first time after 50 years. Starting from 2020 beer and rice wine are taxed based on the alcohol ratio and volume, compared to ad valorem which was based on price.

Alcoholic Beverage Regulation Improvement Plan

On May 19^th, 2020, the Ministry of Economy and Finance (MOEF) announced the Alcoholic Beverage Regulation Improvement Plan focusing on five sectors: manufacturing, distribution, sales, tax, and traditional alcoholic beverages.

Manufacturing:

Alcoholic beverage license was linked to the specific distilleries/breweries and does not allow manufacturing outside of the premises. However, the improvement plan is planning to allow OEM production of alcoholic beverages.

The improvement plan also suggest, if there is no safety risk, a simple change such as mixture ratio or change of alcohol percentage will not require a full approval but merely submitting a report which simplify changes in the manufacturing process.  

Other (non-alcohol) production activities in an alcoholic beverage manufacturing line is restricted. This restriction will be lifted to make by-product manufacturing more efficient and reduce cost.

Currently, when manufacturers do not produce a specific alcohol beverage for more than 2 calendar years, they would lose all alcoholic beverage licenses.  The improvement plan suggests only limiting the license suspension to the product which is no longer being produced.

The plan will facilitate the introduction of new products.  The time consuming ‘manufacturing process approval’ and ‘quality inspection’ process which takes about 15 days each but under the new improvement plan, they can be processed simultaneously cutting the time to introduce a new product in half to 15 days.

Finally, nitrogen gas can now be used in alcoholic beverages manufacturing.

Distribution

Distribution of alcoholic beverages have been limited to exclusive ‘alcoholic beverage delivery vehicles’. However, the improvement plan will allow the distribution of alcoholic beverages on any distribution vehicle. This will allow parcel delivery services to transport alcoholic beverages. (This excluded B2C delivery)

Non-store retail sales of traditional alcoholic beverage has required a special report to the tax office (including the social security number of buyers). Under the improvement plan, if the purchaser has proof of age, the report will be unnecessary.

Sales

Alcoholic beverages can be delivered to consumers together with food but the limits on how much could be delivered was not clear. The improvement plan straightens out the confusion by allowing the value of alcoholic beverages up to the cost of the food being delivered.

Alcoholic beverage distribution for any product is strictly segregated between on or off-premises channels (and the containers have the channel on the label). As this involves unnecessary inventory cost, the plan suggests eliminating the distinction.

Currently, alcoholic beverage manufacturers are permitted to allow visitors to sample their products only in their original state without making any changes such as blending soju with other drinks to make cocktails.  This regulation will be changed to allow it in the future.

Tax

As alcohol tax has been based on ad valorem, any change in price or introduction of a new product required a report to the Director of the National Tax Service. However, as the tax computation is changed to alcohol content, this will no longer be required.

Soju and beer are sold through three channels, household use (e.g. supermarkets, department stores and convenience stores), large discount stores and foodservice. This will be simplified to two channels.

Currently, a brewer of beer or traditional wine is required to pay a minimum revenue tax for each type of beverage produced regardless (for example, equivalent to 50,000 bottles) regardless of the quantity produced.  This is a handicap to craft beverage makers and therefore, the plan is to simplify the requirement.

Traditional alcoholic beverage makers must also pay a revenue tax regardless of the quantity produced.  Producers of small quantities of traditional alcoholic beverages will be exempt from the tax.  (The quantity has not been announced yet.)

Under the current law, a liquor store larger than 1,000 cm³ must submit a sales record. Under the plan, this will be increased to stores of 3,000 cm³ or larger.   

Traditional alcoholic beverage

 

Alcoholic beverages supplied to the military and foreign crews are tax exempt. This will be expanded to include the traditional and small distillery/brewery onsite sales to foreign tourists.

Tasting events are only allowed for licensed alcoholic beverage manufacturers and importers. However, under the plan, this will be expanded to include licensed alcoholic beverage distributors and retailers such as traditional alcoholic beverage promotion centers.

Changes and Outcome

More improvements are needed in the industry but the improvements will provide more diversity in the alcoholic beverages market while increasing the quality of products. Overall, the renewal will eliminate unnecessary costs of manufacturing, tax, transportation, and inventory and therefore improving efficiency. Moreover, traditional alcoholic beverages were handicapped under the old regulations but with the changes the possibilities for growth will increase.

   

contact@ircconsultingkorea.com  

IRC CONSULTING 

Suite 1705, Officia Building, 92, Saemunan-ro, Jongno-gu, Seoul, Republic of Korea 03186 

서울시 종로구 새문안로 92 광화문 오피시아빌딩, 1705호 Tel: +82-2-737-3222,  http://www.ircconsultingkorea.com

KOREA'S PLACE IN THE POST COVID ERA

 

Uncertainty best describes the future of the economy of Korea and across the globe.  Any forecast can at best anticipate some general trends.

 

Nationalization:  Prior to the emergence of COVID-19, the pendulum (both economic and political) had already begun to swing away from decades of globalization. The drive for cheap labor is running its course as sources become increasingly limited.  The complex supply chains of global sourcing expose downstream manufacturers to substantial risk of interruptions. Korea, too has experienced significant supply chain challenges of late due to political clashes with our two giant neighbors, China and Japan. Korean firms are already well advanced in efforts to reduce their dependence on Japanese technology diversifying sources and encouraging local vendors. 

 

Diversification: With respect to cheap labor, Korea is probably more dependent than most on China.  Even though geographical proximity makes the supply chain issues in China easier to manage than for most industrialized countries, Korean industrials are already heavily diversified into the populous Southeast Asia and the Indian sub-continent. (Four countries, Indonesia, Bangladesh, Pakistan and Vietnam combined offer a workforce that exceeds 50% of China's.)   

 

Rebalancing:  'On-shoring' was coined to describe the wave of factory re-locations as industrial enterprises encourage suppliers to locate close-by.  While the global dependence on China is too imbedded to orchestrate any sudden rebalancing, "China plus one" has been in play for over a decade.  Disruptions arising from COVID are driving companies to accelerate their diversification away from China and established alternative production bases.  Korea is likely to benefit from this realignment of supply lines as local industrial giants like Samsung, Hyundai and LG promote local vendors.  Furthermore, industrial firms in the West are likely to find Korea a more reliable supplier than China.  The more that China displays a penchant for retaliatory trade policies (to wit imposing tariffs on Australian barley following its demand for greater transparency on the origins of COVID-19), the more attractive Korea becomes as an alternative for high quality, high tech manufactured goods. 

 

Shift to Reliability:  Priorities are changing from low cost production to reliability. Unexpected interruptions are costly and often erode the benefits of labor savings.  Safety, stability, and consistency will become more important strategic drivers in the future. Korea's sophisticated and successful response to Coronavirus has demonstrated that this country is a dependable and reliable partner. Collective civic mindedness and discipline of Korea's population that were demonstrated during the pandemic contribute significantly to Korea's positive image.   There is renewed investor confidence in this country. Western companies seeking alternatives to China are likely to tap Korea's responsive, resilient and flexible workforce.

 

The future is uncertain but for Korea, there is considerable scope for optimism. 

Peter Underwood, Managing Partner

For up to date information: Korean Ministry of Health and Welfare Infection Rate Tracker 

http://ncov.mohw.go.kr/ 

   

contact@ircconsultingkorea.com  

IRC CONSULTING 

Suite 1705, Officia Building, 92, Saemunan-ro, Jongno-gu, Seoul, Republic of Korea 03186 

서울시 종로구 새문안로 92 광화문 오피시아빌딩, 1705호 Tel: +82-2-737-3222,  http://www.ircconsultingkorea.com