Korean companies have become globally renowned for their ingenuity and innovation. Why is this, and what attributes can foreign companies gain by entering the Korean market?
For the past 50 years, South Korea has undergone nothing short of an economic miracle.
In 1960 on the heels of the Korean War, South Korea was one of the poorest countries in the world with GDP per capita stood at just US$1,765. As of 2011, the nation’s GDP per capita has grown to US$32,100 – comparable to the standard median figure of European Union countries.
Korean leading conglomerates such as Samsung, Hyundai and LG have also evolved from being low-cost local manufacturers to innovative global companies. Their success is largely attributed to the nation’s ability to develop strong business leaders. Just what do Koreans do differently from other nations and how can multinational companies benefit from the Korean system? Janet Chang explores.
Talent development, Korean-style
It all starts with a rigorous and competitive recruitment process. This is especially important for South Korea, where hiring and firing is fairly restricted by closed labour market and strict labour laws. Many of the top conglomerates conduct large-scale recruiting events once or twice a year. The social pressure to join big firms has helped Korean conglomerates recruit the best and the brightest talent.
Once selected, the new recruits are put through four to six weeks of training and are tested on the founding family’s history and values. In the subsequent years, employees are rotated to different functions depending on the company’s needs, rather than individual career aspirations.
Korean firms are often known to ask employees to take up long-term international assignments on short-notice. Moreover, employees are encouraged to make this move without their family, so as to reduce distractions from work. Implicitly, this unilaterally executed rotational program by a company is a continuous test of employee loyalty and patience. In addition, a general practice by many companies is to factor in seniority when allocating performance grades in the quota system. Korean conglomerates clearly seek to mould leadership talent for the long haul, thus creating a cadre of loyal leaders committed to the company’s values.
Upon demonstrating loyalty and resilience, employees are then developed for global competency, with overseas experience being a key part of this development. Hence, high performers are often selected for an overseas MBA education, with full scholarships provided by the company. Interestingly, Korean firms allocate more scholarship funds to emerging markets where their businesses are rapidly expanding, so as to encourage employees to apply for schools in such strategic growth regions. High performers are also sent to overseas offices to gather market intelligence.
Aside from the overseas experience, use of the English language is emphasized. For example, in evaluating mid-level managers for promotion to the C-suite office, Samsung allocates five out of 100 points to English speaking ability. When one point can make or break a candidate’s prospects for promotion, five points can mean the world of difference.
EMPLOYEES ARE OFTEN ASKED TO TAKE UP LONG-TERM INTERNATIONAL ASSIGNMENTS ON SHORT-NOTICE AND ARE ENCOURAGED TO MAKE THIS MOVE WITHOUT THEIR FAMILY, SO AS TO REDUCE DISTRACTIONS FROM WORK.
In terms of policies and practices, Samsung and LG lead the pack by using English as the official language of internal communications. Many Korean firms either run English language programs in-house or reimburse tuition fees for external language institutes to encourage enrolment.
Despite a relatively captive, static workforce that is loyal, hardworking, resilient and increasingly competent in the global arena, Korean firms adopt practices that continuously challenge their employees. Samsung, for example, brings in external talents at various levels of hierarchy to prevent staff complacency. This talent take up 10% of annual recruits, which also include foreign elites who typically serve as internal consultants for two years and are assigned to high-level positions within the company.
Despite its many merits, the Korean system is often criticized for an underutilization of women talents. It is an open secret that the Korean system disadvantages women talents. In the rigid Korean labour market where re-entry and flexible work arrangements are not readily available – coupled with the lack of the governmental support – women with family obligations have a hard time staying employed, let alone rising to the top of Korean firms.
According to the Korea Women’s Development Institute, only 61% of female Korean graduates aged between 25 and 64 are working, making educated South Korean women the most underemployed in OECD countries with an average rate of 82%. At Korean conglomerates, women comprise only about a quarter of the entry-level workforce. With the odds stacked against them, women rarely make it to the executive board.
Opportunities for foreign companies in Korea
Understanding the Korean-style talent development model leads to opportunities for multinational companies (MNCs) seeking to enlarge and enrich their global talent pool.
First, MNCs have the opportunity to turn the closed local labour market to their advantage by recruiting laterally from Korean firms. The systematic training and tough work environment at Korean conglomerates ensure talent that is loyal, hard-working, and resilient. In addition, by leveraging their global competency and overseas experience, lateral hires can offer insights on how to penetrate other emerging markets.
For example, former Samsung employees with overseas experience in Brazil can help Chinese firms localize their products for Brazilian consumers. To lure competent individuals from Korean firms, foreign firms can offer incentives that are hard to find at Korean firms. Specific career guidance or two-way communication that takes into account what an individual employee wants for their career is one example. Another is flexible work arrangement that does not call for a clear-cut tradeoff between career and family.
Second, MNCs can greatly benefit from hiring the most underutilized resource in Korea – women talent. In 2011, Harvard Business School Professor Jordan Siegel published a research based on employment statistics collected by the Korea Labor Institute. It suggested that a 10% nominal increase in the number of female managers results in a 1% nominal increase in return on assets at Korean firms.
According to Statistics Korea – the nation’s office of national statistics – women who combine work and family find themselves squeezed between too little time and too much guilt. Because of this, only 24% of working mothers are satisfied with their married life. By actively hiring qualified women and providing them with what is needed to keep them in the labor market, by means of providing childcare and flexible work arrangements, MNCs will gain not only in the Korean market, but also in other global markets where talented leaders are in dire need.
Big firms embrace the English world… Employees hard to survive, Yonhap Daily, 2008.02.03
Khanna, Tarun, Song, Jaeyong, Lee, Kyungmook, The Paradox of Samsung’s Rise, Harvard Business Review, July-August 2011
Freeman, R., Beyond Flexibility: Roadmaps for Korean Labor Policy. (Jaeho Keum, Sunwoong Kim, Eds.), KLI Press Monograph, 2008
TOEIC score gap of 130 between big and mid-sized firms, Hankyerae 21, 2010. 05.07
This article was first published in HQ Asia (Print) Issue 04 (2012).
Janet Chang was a lead researcher of the HCLI-supported project “Leadership Lessons from South Korea”. She is an MBA from the Johnson Graduate School of Business, Cornell University.