Friday, August 29, 2014

Korea Commentary: Car Industry Strikes 2014

Labor issues abound in Korea.  None more public than those in the car industry.  As for my thoughts on when this year's Hyundai and Kia Motors’ strike will be resolved…. it’s hard to make a prediction.

My concern is that the Strike vote was late this year, in late August vs. July, and Chuseok is very early this year.  Many years, Union and Management conclude negotiations before the Chuseok Fall Harvest holiday, which begins next week on Sept. 6.  

Nearly 70 percent of the 47,000 + workers in the Hyundai union voted to strike, joining Kia’s workforce of 30,000.

The Union’s primary demand is that bonuses and other compensations now be included in determining workers’ base pay. Currently this base pay is an hourly compensation. In turn, this wage plus bonus base would be used to calculate allowances for overtime and holiday shift pay and other benefits, such as vacation pay and pensions. The inclusion of bonuses would raise workers’ overall income by an average of 10%.

The Company’s position has been that the ordinary wage/bonus demand should not be part of the current contract talks until there is a final court decision ruling on the issue. The country’s Supreme Court ruled in December 2013 that periodic bonuses and other compensation must be included in workers’ base pay. The court deferred   to companies and their unions to carry out specifics of the ruling.  Acting in response to the ruling, Hyundai and Kia and the Union entered into its own legal battle over the inclusion.  Results of this legal review by the Courts are still pending.

Other key contract issues include an extension of the mandatory retirement age from the current 58 to 60. Frankly, this is an issue with older workers throughout South Korea.

Meanwhile, Renault Samsung Motors Co., the local unit of French automaker Renault S.A reached a tentative agreement on this year's pay increase, pending a local court's decision on a sticky labor-management issue on ordinary wages.

In addition, carmakers, such as GM Korea and Ssangyong Motor, decided to include bonuses and other fixed benefits in their ordinary base pay.

My hope is Hyundai and Kia Unions and Management either follow a path similar to Renault Samsung and defer to the courts ruling on the issue of determining the base for ordinary wages or come to a mutual agreement while pushing the vote to after the holiday.

Best case scenario... labor unions and management reach an agreement by as late as the middle of next week.  Meanwhile, normal tactics are in play.  Shift walkouts are underway as well as planning for a rally planned for outside the Hyundai and Kia Motors HQ.

More to come... as it unfolds.



Tuesday, August 26, 2014

Korea Commentary: the Won

So what’s all this concern over a strong Won?

Well, frankly, similar to what Korea facing business experienced in the mid 2000’s, today, Korean-made products are more expensive in other currencies as the Won continues to strengthen. As a result, US Dollar profits repatriated back to Korea are worth less in Won.

Attributed to the strong Won… 
1. The strength and stability of the Won compared to other nations’ currencies is driven by sound economic fundamentals in the Korean economy.

2. There is an improved overall global perception for Korea Inc. and their brands. Today there is high demand for products from leading Korea exporters: Samsung, Hyundai, Kia Motors and LG. Korean brands are now seen as market leaders in quality, design and value. The brands also capitalized on a weak Won between the global financial crisis of 2007 and 2012. This allowed South Korea brands to offer greater value and lower price points than the competition and in turn dramatically increased their market share globally.

3. Global investors searching for yield have bought South Korea assets this year.

The Impact of the Yen…
Many countries, including Japan and China, have engineered weaker currencies to help make their goods more competitive.

South Korean carmakers fared well between 2007 and 2011 as the Won fell as much as 50% against the Yen. That trend reversed in the middle of 2012, and the Won's climb accelerated after Japanese Prime Minister Shinzo Abe came to office, backing a new wave of monetary easing that depressed the Yen.

South Korean companies are looking for ways to address the Won crisis, including moving more business overseas, just as Japanese companies did during years of Yen strength.  Additionally, for component and parts used in overseas plants they are planning to increase local sourcing vs. exporting Korean parts to the manufacturing facilities.

Meanwhile, in an attempt to reverse a slowdown in growth, policy makers are pumping up the economy through all possible means.  For example, the Bank of Korea issued its first rate cut in over a year, lifting South Korea stock prices.

Long Term
There are both long term solutions and challenges to Korea’s economy enduring a cycle of weak and strong Won.  First, there needs to be a move to high worth and margin exports (like Apple iPhones, for example) that are less price sensitive.  Cost driven value goods with low margins are highly impacted by fluctuations in currency when consumers buy product based on the lower price points.

 Second, as noted above, many Korea companies have moved key manufacturing overseas but still export substantial parts they produce in Korea.  These operations, too, need to be permanently relocated in the local markets.  The challenge here is that the domestic Korean economy would suffer from the loss of jobs and industry.

All Said
As in 2006, I feel that most Korean firms approach to the Strong Won will be to push the company to reduce cost and "boost productivity." That means " work harder."


Sunday, August 24, 2014

Korea Commentary: Chaebol Succession

Recent Korean media has highlighted accounts of Succession moves within the Korean chaebol such as the Hyundai Motor Group and Samsung.  This has included a round of restructuring with smaller sister companies merging to strengthen key companies within the Group.

As I have shared in chats, this comes as no surprise and is part of a long term strategy built around two words—Work Funneling.

In this process, most Korean chaebol families have considerable ownership stakes in many of the privately-held sister companies.

Next, the other subsidiaries give these smaller companies a huge amount of business to increase their revenue. Finally, these smaller companies grow considerably over time and can move to an IPO or sell some of their holdings to outside investors.

The families can then use the revenue stream to buy stock in other key publically traded subsidiaries and their chaebols defacto holding company. This ownership stake along with circular, cross and pyramid (radiant) shareholdings give them direct and indirect control over the entire Group.  

That said, despite the chaebols' dominance and influence, they are increasingly coming under pressure from new laws and regulations designed to increase financial transparency and accountability of family members.


For instance, the government recently enacted a “deemed inheritance tax,” so that family members can’t get around South Korea’s inheritance tax laws, and has revised commercial laws to tighten requirements for reporting internal transactions.

Questions, comments, concerns? Feel free to ask.

More to come as I prepare an update on my take on a strengthening Korean Won to US Dollar, as well as what I perceive as a timeline on this year’s Union strikes.  


Thursday, July 31, 2014

CEO Tenure in Korea

I often share that non-family Korea CEO tenure being considerably less than their overseas operations.

By comparison internationally the non-Korean CEOs tend to stay in the job lots longer ... and a more performance based model.

Of course, the organizational dynamics in Korea with everyone in the ranks ever-moving upward forces those at the top out to make room for the next generation.

This excerpt notes CEO tenure at many of the top Korean Groups.

SEOUL, July 30 (Yonhap) -- The average term in office of South Korean CEOs is 2.63 years, shorter than the minimum three years endorsed by the country's commercial law, a finding by a local corporate research firm showed Wednesday.

The report was compiled by tracking the tenures of 576 CEOs at listed companies belonging to the country's 30 largest conglomerates from 2000 onwards, CEO Score said. The results exclude chief executives who actually run the conglomerate or are family members of these tycoons.

The data showed that 367, or 63.7 percent of the total, stepped down in less than three years, with 102, or 17.7 percent, staying on for less than a year.

CEOs at Hyosung Group had the shortest term, 17 of them staying on the job for an average of 1.7 years during the measured period.

Mirae Asset and CJ had 1.79 and 1.97 years, each.

Others such as Kolon, Hyundai, KT, GS, POSCO, Doosan, Kumho Asiana and Dongbu had CEOs staying for less than 2.6 years on average


Friday, July 18, 2014

Vintage MacGregor Golf, and Craftsmanship that Endures

It was time for a Golf article.

Vintage MacGregor
Walking into a curio and antique shop in Golden, Colorado, my attention was drawn to an aged golf bag. A hand-written sign priced the clubs and irons at $3.00 each.

Working extensively in the golf sector, I attend high profile and prestigious events, such as the annual PGA Show in Orlando and last October the President’s Cup in Columbus, Ohio. More so, I provide daily support to retailer Golfsmith for their entry into the South Korea market with Korean partner Golfzon. As a result, I am often given the opportunity to try the latest cutting edge clubs, both those in development and those on the market.

Pleasantly surprised, I found the time-battered golf bag contained clubs and irons branded MacGregor. In short order, I grabbed a 4 Wood and a 3 Iron and became the proud owner of classic 50s clubs.

Don Southerton and MacGregor 4 Wood
MacGregor Golf, which began making clubs in 1897, pioneered many of the advances in golf equipment. MacGregor’s prowess as a maker of forged blades was passed down from one generation of heralded craftsmen to the next.
Ad from the late 1950s
The MacGregor name, however faded over time. Fortunately the respected brand was acquired by a company I know well-- retailer Golfsmith International. Today, Golfsmith offers a revamped lineup of drivers, irons, wedges, and putters.

Now the “new clubs” are displayed prominently in my Golden, Colorado office. I must say, they feel and swing great. The classic 4 Wood and 3 Iron may be aged and worn but the craftsmanship endures. 


Friday, July 11, 2014

Korean Global Business, Golf and Cars

This week i'm stringing together...some quotes. 

Don Southerton
"Among them includes powerhouse Bridging Culture Worldwide, global consulting firm dedicated to market entry into Korea’s business economy."

Golfsmith Korea, Paju
"Wonder who helped US Korea Connect with this Success Story?"

"Don, You are a wealth of knowledge. I greatly appreciate you so freely sharing your expertise in Korean economy and business environment "


Monday, June 16, 2014

Seoul’s Travel Library—Haven for Both Armchair and Intrepid Trekkers

The Travel Library, Hyundai Card’s new brand experience, was at the top of my “to do” list as I ventured from the hotel to explore Seoul during my most recent trip to Korea. An affiliate of the Hyundai Motor Group, Hyundai Card offers a number of exclusive benefits to their cardholders—most often with breakthrough creativity to raise brand awareness. For example, in 2006, Hyundai Card unveiled PRIVIA, a web-based shopping mall, which offers various products and services exclusively to members. The company also in past years sponsored a Lady Gaga performance and they continue to promote regular summer concert series headlined by rock legends, including Metallica, Iggy Pop and Ozzie Osborne.

Similar to their Design Library, which showcases design culture from around the world, the Travel Library is now home to 94,324 books and 14,700 volumes of publications with a focus on the Arts, Architecture, Adventure and Travel Photography.

Don Southerton Hyundai Card
Store Front
Re-confirming the location on my Google map app and arriving there with little effort, the library has an eye catching storefront on a side street in the trendy Cheongdam area of Gangnam. Once inside and explaining my interest to the staff, the manager was kind enough to provide a personalized tour.

Don Southerton Korea
Travel Cave
Conceptually, the uber cool design featuring vaulted wood ceilings and a maze-like layout provides a truly unique “travel cave” experience, beckoning one to explore further. With tightly packed floor- to-ceiling walls of books, archetypical chairs from around the globe and a world class café, the space provides an armchair haven for the novice tourist or the seasoned trekker.

World Cafe
The library collection was compiled by a distinguished team of travel industry media professionals who acted as curators. The entire set of the 126-year-old National Geographic magazine is housed in the library. Another hidden treasure pointed out by my guide is the Transactions of the Royal Asiatic Society Korea Branch collection. Reaching back to the early 1900s, the collection has long been a valuable source of Korean culture and history through the eyes of the first Westerners living and traveling in Korea. Reminiscing, I recall tracking down the volumes of publication in the basement archives at USC and the University of Colorado for my Korea facing historical writing projects. Outside Korea, the complete collection is rarely found all in one location and is typically neglected and in poor condition.

Enhancing the experience is the travel memorabilia décor. This includes several world globes—one thought to be from the World War II era, well-worn travel trunks, and even a prominently displayed old style airport flight board that is synchronized with the modern digital display at Incheon International Airport.

Stepping back for a moment and gazing at the library, I pondered on how this dedicated space to travel actually would connect its visitors to Hyundai Card’s brand image. It is apparent that the company strives to go beyond common perception of what a credit card provider offers its customers. With this in mind, I feel the Library is the perfect platform to showcase the Hyundai Card brand in an original way. Based on my understanding of the brand, I would expect something different and out of the box, visually appealing, and delivered in a very refined design. The Library certainly does match these corporate creative guidelines. For their customers taking advantage of the exclusive service, I feel many would find the Library exceeding expectations not only as a travel resource, but also as a haven in a fast paced urban Seoul.

In a recent Korea Times’ interview, Lee Mee-young, senior vice president of Hyundai Card's Brand Division, shared that the company is also planning a third library in Hannam-dong in northern Seoul. Mr. Lee noted, "The theme for the third library is not fixed yet. But we will put our customers' appetites such as music and food as a top priority when we decide on the next theme.”

Until my next adventure in Seoul, Bon Voyage, or in Korean—An nyeong ha sae yo—go in peace.

About the author Don Southerton
With a life-long interest and a frequent traveler to Korea, Southerton has authored numerous publications and articles centering on the Korean global business. His firm Bridging Culture Worldwide provides strategy, consulting and training to Korea-facing global business, including long time support of the Hyundai Motor Group. His most recent publication is Hyundai Way: Hyundai Speed. His current work looks at Korean corporate brand image and direction.


For more info, questions, comments, etc.