South Korean business environment: 'chaebol' organizational structure of the firms

In order to do prescreening of the Korean business environment for getting an understanding of any potential obstacles for marketing KONE solutions there, let's look at the organization structure that is typical for biggest Korean firms. 

According to Tu et al. (2002), an organizational structure called ‘chaebol’ is common in South Korean business environment. Chaebol is a family-owned conglomerate, containing groups of vertically integrated firms. Each group may operate in a different industry and the only common link between these groups is the ownership. The internal trading between firms within a chaebol is typically high. E.g. in 1998, chaebols’ internal trading was 28 % of their total business transactions (Tu et al., 2002).

Tu et al. (2002) further explain that the South Korean government has had an important role in creating chaebols. Due to government policies, e.g. pricing in certain industries or financial incentives to enter new industries in South Korea, chaebols have often entered industries that are just emerging in the country. In the initial phase, there has been typically a lack of suppliers and uncertain customer demand, and for this purpose chaebols have acquired or established the supplier function themselves and integrated it vertically to their own business. One interesting fact here is also that government has usually given financial support for the firms which have the biggest market share in the particular industry. This has lead chaebols to have market share as one of their main financial objectives. 

When looking at this issue from our project’s point of view, it seems that big part of the value chains in several industries may be located within the same chaebol.  This could be a limiting factor to market our product, if the solution we plan to market is already available for the customer within their own chaebol. This factor will need to be included in the further analysis of our potential customers.   

References

Tu, H.S., Kim, S.Y. and Sullivan, S.E. (2002). Global strategy lessons from Japanese and Korean business groups. Business Horizons (March-April): 39-46.

Exploring South Korea’s cultural dimensions

Factors to take into account when thinking about business in South Korea.

Power Distance (score 60)

Korea is a hierarchical society, therefore, they are accepting of hierarchical structures where and individual has specific role and place. Subordinates in are most likely expecting to be told what to do and what the boss says, goes.

Individualism (score 18)

Korea is overall a collectivist society. Some of the inherent characteristics may be:

-          Long-term commitment to the member “group”

-          Loyalty is of highest importance, often outweighing other social rules

-          Shame and loss of face can occur from offenses, which is avoided at all cost

Masculinity/Femininity (score 39)

Korea is considered a feminine society. This leads to the attitude of “working in order to live” and seeking consensus, equality, solidarity and quality. If conflicts were to arise, they most probably will be resolved by compromise and negotiation. Free time and flexibility are well favored as incentives, and managers are characterized as supportive.  Status is not of high significance and focus is on the well-being.

Uncertainty avoidance (score 85)

The high score represents the grave importance of avoiding uncertainty in the Korean culture. There is intolerance for “unorthodox behavior” and ideas, and a specific need for the set of rules and conducts that are closely followed. Hard work, precision, punctuality and security are highly valued while innovation may be resisted.

Long term orientation (score 75)

Being a long-term oriented society, Korea gives priority towards a steady growth of market share, instead of a quarterly profit. The underlying idea isn’t for companies to make money every quarter for the shareholders, but to serve the stakeholders and the society as a whole for the future generations.

Source: http://geert-hofstede.com/south-korea.html

Project Introduction

About Kone

Kone Corporation, founded in 1910, is one of the biggest international corporations in the world elevator and escalator industry. During its history, Kone has been involved in different businesses such as textile manufacture, medical technology and the design of hydraulic piping systems. However, the company’s focus has always been the elevator and escalator business. Kone’s head office is in Helsinki, Finland.

Products and services

Kone’s offering is divided into two business lines: Service Business and New Equipment Business.

Basically, the New Equipment Business line provides customers with new products and services that are directly related to products (e.g. installation) and solutions customized for customers. Meanwhile, the Service Business line is in charge of modernizing and maintaining customers’ installed products.

Locations

Kone is currently operating in some 50 countries around the world and has authorized distributors in over 60 countries. The company’s locations come into five geographical areas: Central and North Europe, West and South Europe, Greater China, Asia-Pacific and Middle East, and the Americas. It is therefore apparent that the company has a competitive advantage of being internationally experienced.

Internationalization potential – Target country

Due to the growing demand of space and the lack of areas in newly urbanized cities, buildings are growing upwards or downwards instead of expanding more widely, which results in a rising potential need for Kone’s products/services. Finland as the company's host country does not offer same kind of growing possibilities as the bigger markets in Asia and Latin America, where new buildings are being built everyday.

Within the scope of this project, we will focus on making marketing plan for Kone going to South Korea where the urbanization trend is taking place (perhaps) the most strongly in Asia besides China, India, etc.

Source: www.kone.com