Thoughts on Korean Business by Don Southerton

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 o...

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 the...

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 chaebol ’ s defacto holding company. This ownership stake along with circular, cross and pyrami...