A monthly column from the Asia Pacific Management Forum
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Review focus: "The typical foreign view is that once you negotiate an agreement and sign a contract, that's it; the relationship proceeds forward on mutually acceptable, solid ground. That is not the case at all in Korea."
Asian Business Code Words Index NTC/Contemporary Publishing Company Asian Business Strategy and Street Intelligence Ezine
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The basic Korean concept of contract, particularly the view of government bureaucrats, differs fundamentally from the way Westerners view and use contracts. The typical foreign view is that once you negotiate an agreement and sign a contract, that's it; the relationship proceeds forward on mutually acceptable, solid ground. That is not the case at all in Korea. The signing of the contract is usually when trouble begins because from the very beginning the contract is interpreted one way by the Korean side and another way by the foreign side. Generally speaking, Koreans sign contracts with foreign executives to get the relationship started officially. Thereafter everything is subject to change and negotiation. Koreans do not regard the provisions of contracts as written in stone, or as the fundamental basis of a business relationship. They regard the personal relationship and the desire for mutual benefits as the foundation of any business arrangement. A contract is essentially nothing more than a symbol of this relationship. In the Korean view, contractual obligations must change in the same way that business conditions and political situations change, in order for the relationship to be kept current. Being personal agreements rather than immutable laws, the terms of a particular contract become meaningless when the signers or the managers of a contract change. From this point, any contract is subject to the interpretations and expectations of the new managers, who devise a new set of unwritten terms to govern the relationship with the second party - and often implement these changes without informing the other side. This is a vital difference in the concept of a contract that foreign business people must understand. The essence is that when a Korean executive signs a contract with a foreign company, they are not necessarily obligating their own corporation to uphold the provisions of that contract. The corporation may not accept the obligation if it has any reason not to do so. It may be regarded as a personal matter between the managers who negotiated and signed the contract, and the foreign party. The sanctity of contract is even less assured where government officials are concerned. Not being a direct party to the agreement, they have no qualms about declaring any contract they do not like as no longer appropriate and needing renegotiation (so as to be more favorable to the Korean side) or null and void, eliminating the responsibility of the Korean party to contract. Government bureaucrats are shifted around regularly, often on an annual basis, so contracts between Korean and foreign executives constantly come up for review by people who know nothing at all about them but who have the power to require that they be altered or scrapped. Incoming bureaucrats frequently feel compelled to demonstrate their efficiency and patriotism by questioning relationships between Korean and foreign companies, and ordering significant changes in their contractual arrangements. Not all contractual problems between Korean and Western companies are on the Korean side. Western companies frequently play musical chairs with their top personnel in Korea, breaking the personal relationships that foreign managers have established with their Korean counterparts, and making it necessary for their replacements to virtually start over in developing new ties for their companies. If these transitions are not handled thoughtfully and carefully over a period of time (and many of them are not), the switch in personnel gives the Korean side and opening to make unilateral, fundamental changes in the terms of the relationship. It is especially important for any contract with a Korean company to be as clear, as comprehensive, and yet as flexible as possible. A major challenge is to anticipate changes that are likely to occur that would affect the operation of the agreement, and to make sure that they are covered in the contract. Again, a shift in managers involved in implementing a contract can affect its status. Basically, the contract represents the intentions and understandings of the two participants at the time of signing, and if these are clear and complete, the two sides are off to the best possible start. One problem is making sure that both sides do indeed understand what the other is saying. This may entail a great deal of extra effort in bridging the cultural differences, overcoming communications problems, and really getting down to the facts. There is always the possibility that both sides will agree to something they really do not like just to get the contract signed, intending to deal with the issue later. This especially applies to the Korean side, and it behooves the foreign participant to make a special, patient effort to draw out the true feelings and intentions of the Korean partners. The main thing once a contract is signed is to maintain an ongoing dialogue with your Korean counterparts to stay up-to-date on their thinking and to make the adjustments invariably necessary to keep the relationship on an even course. This is often the area in which the Western partner fails because it requires a conscious commitment - that is time and energy - consuming (and often costly)to adequately nurture the relationship. |
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Boye Lafayette de Mente is one of our regular monthly columnists at the 
| This month's column is excerpted from Korean Etiquette & Ethics in Business, by Boye Lafayette De Mente available from NTC/Contemporary Publishing Company |
© Boye Lafayette De Mente & the Asia Pacific Management Forum 2002