Launching Businesses in Nations of Cultural Introversion
However, in parts of Asia, especially in Japan and South Korea, there is often a distinct lack of diversity and risk taking is perceived as being foolish. One reason is the inherent cultural introversion of these nations and the shared values in which people often are punished for questioning the status quo. Respect is given towards tradition, and people often possess an avoidant, non-confrontational way of interpersonal communication. Navigating around these differing cultural values may frustrate foreign companies attempting to make deals or penetrating these local markets.
Earlier this month, I had a chance to speak with Tobias Jerling, who has successfully launched his own company called South Trade in South Korea. Originally from South Africa, Tobias now considers Seoul his new home. He is also the Vice Chairman of the South African Chamber of Commerce. South Trade focuses on importing high end wine, beers, cider and brandy from South Africa and distributes them into various hotels, restaurants and bars in the Seoul Metropolitan area. Tobias’ story is quite an interesting one with many twists and turns.
When he first arrived in South Korea in 2006, Tobias told me that he had actually never been to any part of Asia before. He worked as an English teacher for one year and learned much about the nuances of Korean culture before he returned to South Africa to continue to work in logistics as what he had originally planned as his lifelong career. Then, in 2011, he had decided to make a dramatic change and launched a company, South Trade, in the heart of Seoul. It was during a time when South Africa was becoming internationally recognised for its wine industry, and when there weren’t many foreign offerings in drink present in the South Korean hospitality industries.
One of the ways South Trade is different from most import companies is that Tobias focuses on the technology to preserve the wine. He worked with a company called KiKate on the dispensing method and designed and tweaked existing patents in order to be able to control the temperature of the wine, so that more attention was paid to the quality of the wine than the packaging.
The Challenges of Small Businesses Competing with Korean Chaebols
Two years after he started his company, in 2013, he began to import cider and beer to major retailers, and it would become ⅔ of his revenue. However, a large Korean corporation lobbied retailers to take over the cider and beer import, and pushed him out, leaving him without the majority of his new revenue. This is one of the typical ways in which Korean chaebols (large corporations) often band together to oppress smaller companies, making it hard for startups and small businesses to thrive in an atmosphere where all the business eventually becomes dominated by the larger companies who often lobby (and often bribe) members of the government or retailers in order to take over an existing sector of business.
Although this was a big loss for Tobias, it also allowed him to move into Plan B. No longer having the majority of his revenue from the cider and beer import, he moved to less expensive offices to Haebangchong, an up-and-coming area at the time, and decided to set up a retail shop. He turned it into a bar called the Hidden Cellar, and on the first floor, he opened a pop up shop focused on pilsners called the Workshop, which was converted from a previous car maintenance workshop space. The Workshop is a gastropub that is a casual neighbourhood hangout filled with many locals located nearest to the Noksapyeong subway station. One of the things Tobias focused on was the community. He was not only interested in the people who lived in the area, but would specifically cater to their demographic by keeping up a dialogue with many different sectors of the population, from the people who would clean the streets, to the local landlords and business owners. The Hidden Cellar became a runaway success and Tobias, along with his business partners, recently opened a new restaurant called 1842 in the Itaewon district of Seoul.
Haebangchong is now a vibrant community with many new restaurants and bars that have opened since Tobias moved into the area many years ago, however, as with all up-and-coming areas that suddenly become gentrified, the problem begins when greed might step in, Tobias told me. As businesses become successful, there had been a tendency for landlords to suddenly raise the rent which then lead to a paradoxical situation in which businesses become less successful due to the cutting down on employment, which then turns into cutting down on the quality of product, which then also affects service due to a lack of staff. This vicious cycle of landlord vs. the retail shop then leads to a situation in which the businesses have to close and the landlord is stuck with real estate that is empty. However, recent laws in South Korea have passed in which landlords are allowed to raise a maximum of 5% per annum. Despite this however, Tobias has still seen multiple businesses close within the past year.
In regards to dealmaking, contracts, distribution and legal obstacles, the law is quite clear and Tobias has found that he was often luckier as a foreigner in getting contacts signed. The only major problem he has encountered is that some retailers that take a longer time to pay after the products have been delivered.
Currently, in South Korea, foreign wines, beers and liquors have become commonplace in distribution although it wasn’t so ten years ago when Tobias started his company. In many ways, it had been easier then because there weren’t too many choices, and when he would have meetings with retailers, they would want to begin straight away, whereas it has become much more competitive in recent years.
The Negotiation Style of South Koreans
Koreans have a particular style of negotiation style which many foreigners, especially Americans, may not be used to. In dealmaking, Americans like to get things out of the way quickly, come to a compromise and have the deal signed as quickly as possible. The opposite is true in South Korea and for a contact to be signed, typically it takes many meetings and possibly many months or even years before people are willing to sign. This is partially due to the introverted nature of Korean society, in addition, many may have what is considered an avoidant style of negotiation. In this negotiation style, which is referred to as being passive-aggressive, people will not talk directly about the issue and avoid conflict. Sellers will frequently call less often on high compete buyers and may choose to invest marketing money and share their best ideas and prize promotions with non-avoid profiles. The avoidant style of negotiation is in direct contrast to the typically competitive American style of negotiation. If in situations in which American businesses mention other better deals of their competitors to the Korean people they are negotiating with, Korean people will not make a counteroffer and instead tell them to take the other offer. Instead, what Koreans prefer in negotiation is adding value to their organisation and creating friendships by taking time to get to know them as individuals, and not simply a one-deal signoff. This is because contracts are considered malleable in Korean society and changes and adjustments can be made at any time by either party. Hence developing trust through friendships with the people one is signing contracts with is considered very important in Korean culture. Tobias also utilises a compromise style of negotiation with the businesses he signs contacts with, and told me he would often say to them, “if everyone makes money, then everyone is happy.”
I asked Tobias the advice he would give to foreigners if they wanted to start businesses in South Korea and he had the following things to say:
Firstly, to compete with larger corporations, it was necessary to have strength in numbers, for small retailers to band together and form a co-op of sorts. Secondly, especially in the realm of retail and import, it was much easier to go to existing importers and pitch them the idea to set up the contract so that there is a delegation of responsibility. And lastly, Tobias told me, cash is king. Having adequate cash flow was important for businesses such as his, in which there was often a large overhead, especially for restaurants and bars.
In the next ten years, Tobias would like to open more restaurants and bars. However, success to him is not about launching as many restaurants and bars as possible, but to enjoy his life and spending time getting to know his community and serving his clients with thought-provoking concepts and ideas that might alter the way Koreans think about food and wine.
By Sierra Choi