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Nov 20, 2012

7 Musts to Succeed in Business in Korea

We have the unique pleasure to have a bird's-eye view of numerous clients' businesses in Korea.  At this stage of our experience in Korea we are, typically, able to determine which companies will succeed and which companies will fail. 

Companies that succeed in Korea, normally, do/have the following 7 Things:

1.  Comprehensive Understanding of the Korean Market by a Neutral Local Consultant

This understanding, normally, comes from one of the few business consultants, in Korea, that are
capable of providing a decent market overview with a detailed list of potential targets and contacts within these targets.  We work with a handful of consultants, since many don't have the skills necessary, but still sell market research reports that seemed to be, only, obtained through a Google search.

2.  Great Initial Representative Director for the Korean Venture

The first representative director doesn't, necessarily, need to be a permanent hire.  Often, when a company is, initially,  growing a six month specialist to open an office is necessary, then, the specialist may bring in a permanent representative director.  This is the same for winding-up a company. 

3.  Good Cultural Understanding of Korea

We see too many companies handle matters in a way similar to the way they handle matters in Japan and China.  Japanese and Chinese are different nuts to crack, than, Koreans.  Maybe Japanese and Chinese look similar to Koreans, but they definetly don't think or act in a similar manner to Koreans, thus, don't rely on other Asian experience as a guide for doing work in Korea.

4.  Risk Assessment Tailored to Korea

Your business in China and Japan have different risks and compliance requirements than you will have in Korea.  Thus, your in house lawyer or outside counsel should not be utilizing the same agreements, compliance system etc.  as what was used in other Asian companies. 

5.  Full Commitment to Korea

Korea is an opportunity, but don't even think about coming into Korea if you are looking to enter on the cheap.  If you don't have the resources, time, personnel and patience you will find the "opportunity" a fast closing door.  Also, the home office should be fully behind the effort and should be willing to place a home office guy or local expat hire on the ground in Korea.  Too many people think that opening an office and hiring a sales manager is enough-----it is not enough. 

6.  Comprehensive Cost Assessment

Do you know how much it will cost to hire, run an office and manage your staff in Korea? Marketing budget?  Consultant budget? Contingency budget?

7.  Make a Concerted Effort to Avoid the: Top 10 Mistakes of Companies Doing Business in Korea

IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Nov 19, 2012

How May the Visit by Obama to Myanmar Help Your Company?

Myanmar is opening to foreign investment and the visit by Obama will increase trade and investment opportunities for Western companies. At present most investment is coming from other Asian nations and some large players in the oil and gas industry. The next decade will see a far different Myanmar than we see today. Prior to the present government, Myanmar was the second richest nation in Southeast Asia. As experience in Southeast Asia predicts, these opportunities will be largely won by those that enter the Myanmar market first. The best JV partners will be, largely, won over the next few years. Additionally, the best concessions will be given to first comers. A visit to a hotel in the capital, that just a few years ago contained only a handful of foreign tourists, is now full of foreign business people mainly from Europe, America and East Asia. Some hotels are, now, fully booked. This situation was unheard of only last year. At present, international sanctions in Myanmar prohibit most exports from the country, however, few imports are prohibited from being exported to Myanmar and America and otehr nations have been lifting sanctions of the nation. However, few companies have been willing to export to Myanmar because of fear that selling to the nation may harm companies brand image and the wrongful impression that few export opportunities exist. Once all major sanctions are lifted, it is expected that American, European, Southeast Asian and East Asian companies will follow the handful of companies doing business in Myanmar at this time. The nation has large reserves of oil, gas, timber, fish, rice, and precious and semi-precious gems that have not been exploited effectively in decades. The major challenge to exploitation, as is normally the case, in this part of the world, is infrastructure. The World Bank and Asian development bank are working on projects at this time. The nation, additionally, desperately needs basic consumer products, industrial machinery, and skilled professionals in the service sectors. The country has the resources to purchase these goods and services, but few are selling. At present only a handful of international companies are selling products to Myanmar. The companies include Unilever, Total SA, PTT, CNOOC, and Jebsen & Jessen. China's CNOOC seems to have a very active presence in Myanmar, but the details of their projects are not known. Also, it seems Myanmar businesses have not had good experiences dealing with the Chinese. We will be writing more articles on Myanmar on this blog over the next couple of weeks. As a law firm that loves to do work in Myanmar and loves the kind people, we are looking forward to more benefits trickling down to the people, while assisting clients entering a country with a bright future, proud past and an energetic population. ______ IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Nov 16, 2012

Corruption Not to End Soon in Korea: Why?

Whenever I read a news item regarding Korean corruption, I have mixed feelings. Usually the article is based on the latest finding by a well-meaning NGO that focuses on corrupting influence of big business on government without adequately addressing the root causes or even the breadth of corruption. Korean corruption doesn’t limit itself to envelopes and car trunks of cash being paid by business people to government officers.

So one may ask oneself, "Can Korea end its many forms of corruption?" That is the essential question, and the obvious answer is "no."

I don't mean that as a cynical observation. Rather as much as I recognize Korean corruption having greatly disappeared from its much higher levels of thirty years ago, the very nature of Korean society precludes corruption from being significantly reduced from its present levels.

When I was a Peace Corps Volunteer in the Korean countryside of the 1970s, virtually everyone lived in poverty by US standards. Some lived in squalor, but the overwhelming majority lived simply and frugally. Those who were considered well off at that time and place would nonetheless have been considered to be poor by then American standards. However, the relatively well off often had an attitude that could be haughty given their well being was measured within the context of their villages and towns.

At the other end of the scale, Korean public servants were paid ridiculously low wages, as is the case of many developing countries. They actually needed outside income to live relatively comfortably and to send their children to schools and universities. Often, the only plausible means for this large societal segment was to receive "gratuities." One could normally count on having to pay a pretty consistent ten percent as unofficial gratuity to get various matters handled. Eventually, the Korean government realized that low public sector wages were a poor value.

Today, Korean public sector workers overall get decent wages, steady employment and superior retirement benefits - so much so, the competition to get these jobs by often over-qualified applicants is quite severe. In any case, wealth, which many people may assume to the end goal of corruption, is only relative and not absolute. Rather social power, again as defined within one's social context, is the real corrupting influence. And the corruption is not limited between government officials and business tycoons. NGO executives, particularly when the left wing is in power, find themselves in privileged positions; and unsurprisingly, as we witnessed under Presidents Kim Dae-Jung and Roh Moo-hyun, there was a ten-year spike in corruption involving NGOs.

If corruption was measured by money or goods, we may consider a limit on luxury handbags and gold watches. But the fact is, on the other extreme, if someone has ten gold watches and two dozen luxury handbags, etc., there will be a quest for even more. One may say the motivation is greed, but it's obviously not greed for yet more handbags and watches. More likely these well off individuals are driven by envy, should there be anyone else possessing the same number or greater number of goods and of newer or higher quality or status.

The fundamental problem is that being a member of South Korean society is very much a status-conscious undertaking, partially based on insecurity as to whether any individual or family truly deserves its presumptive ranking. What is less controversial is whether a Korean is in possession of enviable goods or amounts of money. And to make matters even more competitive; success, achievement, and social ranking are more narrowly defined in South Korean than in many western and advanced societies. Consequently, once an individual or family feels secure they are not in danger of being left behind from the mass average, they immediately recalibrate their insecurity so as to try to catch up to, if not lead, other people in the next higher levels of society.

Ergo, my conclusion is this: Some improvements in reducing corruption will likely be made by new legislation, regulations, enforcement, etc. But, until South Koreans essentially ease up on themselves and learn to be happier with who they are and what they possess, envy and insecurity will drive otherwise intelligent individuals to partaking in foolish acts -- including corruption.
So can corruption be effectively reduced in large measure from present levels? Perhaps. Will we see substantial reductions? I’m doubtful.

On the other hand, South Koreans have surprised both the world and themselves many times over. At the same time, the causes of corruption rest on the bedrock of Korean cultural and group psychology fundamentals. At best, I can only hope matters may improve over time. And who knows? They just may.

by Tom Coyner.  Senior Adviser to IPG.

IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Nov 14, 2012

Manufacturing Agreements in Korea: Limit your Risk through Payment Terms

My friends over at the China Law Blog has a good post entitled China Manufacturing Payment Terms.  Limit Your Risks.  We find a similar situation occurs with goods manufactured in Korea, but the situation in Korea is less dire, than, in China, since Korea has a much more transparent legal system and much more efficient pretrial enforcement mechanisms.

The China Law Blog post notes that:

"Many companies continue to purchase container load quantities of product from small manufacturers located on the southern coast of China. This trade has developed a standard form of payment, often termed 30/70 TT. This means: 30 percent down payment on placement of the order, with the remaining 70% due upon shipment. This means 30% of the price is paid before the product is manufactured and 100% of the price is paid before the product is shipped.
Here are some common result of this system:
  • Product arrives in the United States. Upon inspection, it is determined that a substantial percentage of the product is defective. The buyer demands a refund and the Chinese manufacturer refuses. In the alternative, the manufacturer offers a discount on the next order. If this offer is accepted, the buyer is forced to continue to do business with a manufacturer that makes defective product.
  • The buyer arranges for an inspection during the production process or prior to shipment. The inspection reveals a substantial number of defects. The buyer demands a refund of the deposit and the manufacturer refuses, stating that they have already spent the deposit to manufacture the disputed goods. In the alternative, the manufacturer offers to correct the defects and provide a discount on the existing order. If this offer is accepted, the buyer is forced to continue to do business with a manufacturer that makes defective product.
The foreign (usually U.S.) company buying the product then contacts my law firm about filing a lawsuit against the Chinese manufacturer, rather than accept the unacceptable terms. In virtually every case, however, the buyer ultimately determines that the cost of litigation is not justified by the amount of the potential recovery. The buyer is then forced either to abandon the manufacturer and take its losses or accept the terms proposed and continue to work with a bad manufacturer."
The China Law Blog's answer for this conundrum:
  • Do not make the second, 70% payment until after an inspection of the goods. In this way, the buyer’s risk is limited to the 30% down payment.
  • Inspect the product as early possible. Time is a major factor in China business. If you find defects early, it is possible that you will be able to resolve the issue in time to save the shipment. If the issue cannot be resolved, then you at least can probably move on to a different manufacturer early enough to obtain acceptable product in time to meet your business needs.
  • Treat the 30/70 TT method as the price for testing out the Chinese manufacturing system. As soon as possible, move to a different method of payment. Use one that does not require payment of any funds until after an inspection has been made. There are many alternative methods of payment in China. Of course, the use of such a method will require a quantity and timing commitment from the buyer that extends beyond the spot, single container type of purchase that is typical for the 30/70 TT method of payment. If you are not Wal-Mart, you are not going to get Wal-Mart like terms.
I completely agree with the assessment and the answer to the assessment, for Korea, but I would add that it is best to have someone on the ground in Korea to assist with the inspection when the products are being manufactured and, also, have a Korean-tailored agreement.  Agreements may be less important in China than in Korea, thus, I agree that "foreign companies operating in China (replace Korea with China) must account for these risks in their business planning,"  but, for Korea, I must note that the risk must, also, be reflected in the supply agreement, since Korean court system, often, is a useful tool for resolving disputes. 

Other articles that may be of interest to the reader:

IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Nov 13, 2012

Will Korea Bite Apple's Double Irish with Dutch Sandwich

Apple employs a popular tax reduction scheme called a Double Irish with a Dutch Sandwich.  The scheme is legal under Korean law.  Some media sources, in Korea, have been engaging in a relentless assault on Apple, possibly, motivated by issues that Samsung is having in courts abroad.  I worry that Korea will, again, harm its reputation abroad by engaging in some reactionary measures against Apple and other foreign competitors of Korean conglomerates.  The Lone Star fiasco has done its damage and another handling of a matter in such a fashion may, again, damage the image of Korea as foreign-capital friendly nation.

The Double Irish with a Dutch Sandwich is a well-known strategy to reduce the tax liabilities of companies headquartered in nations with high corporate tax rates.  The strategy has allowed Apple to pay low corporate taxes in the United States and most of the countries that it operates in through this strategy.  

How to make a Double Irish with a Dutch Sandwich.

Ingredients for Double Irish
  1. Irish Company with a tax residence in Bermuda
  2. Irish Company with a tax residence in Ireland
  3. High Corporate Tax Nation 
Ingredients for a Dutch Sandwich
  1. Irish Company with a tax residence in Bermuda (Top Slice of Bread)
  2. Dutch Company (Slice of Cheese)
  3. Irish Company with a tax residence in Ireland (Bottom Slice of Bread)
  4. High Corporate Tax Nation Company
Basic Receipt for a Double Irish with a Dutch Sandwich.  
You won't find this one in Starbucks.
  1. Irish Company with tax residence in Ireland wholly owns the Irish Company with tax residence in Bermuda.
  2. Transfer IP from High Corporate Tax Nation Company to Irish Company with a tax residence in Bermuda.  No transfer price concerns under Irish Tax Law.  Have a cost sharing relationship between the two companies.  Irish Company with tax residence in Bermuda does not have a tax residence in Ireland, since Irish Tax Law specifies that a company's tax home is where a company's management resides - not the place of incorporation.
  3. Sub license the IP held by the Irish Company with a tax residence in Bermuda to the Irish Company with tax residence in Ireland in exchange for royalties.  No transfer price concerns under Irish Tax Law.  Now we have some deductible expenses and taxes under the Irish 12.5% corporate tax rate. 
  4. Irish Company with tax residence in Bermuda licenses the IP to a Dutch Company in exchange for royalties. No transfer price issues under Irish Law and exclusion under Irish law for withholding taxes for Dutch companies.  Book the production costs within the Dutch company.
  5. Irish Company with tax residence in Ireland sub licenses the IP to companies outside of Ireland.

A detailed article on this tax structure can be found at: The U.S. Companies & Their Use of The Double Irish Dutch Sandwich

Get a tax lawyer to do this to avoid the Subpart F Income (Controlled Foreign Corporations) and please don't look for one in Starbucks.

IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Nov 11, 2012

Seoul International Arbitration Center to Open in Korea

The London Court of International Arbitration, Singapore International Arbitration Center, Singapore International Arbitration Center and the Korean Bar Association has come to an agreement that the Seoul International Dispute Resolution Center (Seoul IDRC) will be formed.  The government has approved the formation of the Seoul IDRC and the center will be housed in the Seoul Global Tower Building.

The Korean language Legal Times has reported, in part, that:
"By providing an international arbitration space for the worldwide arbitration agencies, the Seoul IDRC is acting as a ‘department store for international arbitration.’
The role model for South Korea was Singapore’s Maxwell Chamber, a 5 story international arbitration facility that opened in 2011, hosting the American Arbitration Association (AAA), International Centre for Dispute Resolution (ICDR), International Chamber of Commerce (ICC) etc.  Maxwell Chamber has rose to become Asia’s leading center for international arbitration.
Byung-Joo Lee, the coordinate and planning director of the KBA state that: 'As Korean corporations are expanding overseas, international arbitration cases have increased greatly. The Korean Commercial Arbitration Board (KCAB) is also ranked 6th~7th in the world for arbitration cases. The fact that South Korea is going to be the first to have an international arbitration center, which was nonexistent in Northeast Asia, is a significant act showing that it is going to be a center of legal activities in Eastern Asia.'
The Korean Commercial Arbitration Board (Director Dae-su Kwon) is an international arbitration agency just like HKIAC.  However, Seoul IDRC has the notion of ‘sharing facilities’ for international arbitration cases, which will act to supplement each other. Once the Seoul IDRC opens, the international arbitration fees that were usually remitted overseas can now be remitted into Korea. As Korean companies are expanding overseas, the legal problems overseas are also increasing.  These companies, presently, are seeking only foreign law firms, which result in a deficit of USD 500 million. . . 
Do-il Sohn, international director at KBA, noted that: 'Before, Korean companies used foreign arbitrators from foreign law firms even for cases they were directly involved in. However, if international arbitrators take care of the arbitration cases in Seoul, there is a higher possibility for them to use arbitrators from local law firms.'
Once the Seoul IDRC opens, we can also see an indirect economical effect of international arbitrators visiting Korea. The coordinate and planning director said,              'Maxwell Chamber has allowed many arbitrators to visit Singapore and brought in foreign law firms that helped to vitalize the market.  KCAB, the only local arbitration agency is excited to market with other international arbitration agencies coming into Korea.
Hyun-suk Oh, manager of KCAB, said 'By educating and marketing with foreign arbitration agencies, we can expand the international arbitration market as well as see an increase of having the place of arbitration as ‘KCAB’ or ‘Seoul’ in contracts between local and foreign companies.
The location of the international arbitration center was originally to be in Songdo with the help of the Songdo government, as this was president Young-Moo Shin’s campaign promise. However, because of international awareness and accessibility reasons, Seoul was decided to be the site location. The chairman of the board of Seoul IDRC will be president Shin and the chief operating officer will be Hee-Taek Shin (60, 7th class), professor at the law school at Seoul National University."
The full article, in Korean, may be found at the website of Legal Times. 
________ IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Top 10 Destinations in Asia for FDI in 2012 According to Financial Times

The Financial Times, yearly,  posts on its Financial Intelligence site a ranking of the top 10 destinations in Asia for Foreign Direct Investment.  One Korean city appears on the list, three Chinese cities and four Australian cities along with the usual characters.  

1.   Singapore
2.   Melbourne
3.   Hong Kong
4.   Brisbane
5.   Sydney
6.   Busan
7.   Auckland
8.   Perth
9.   Guangzhou
10. Chengdu
IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Oct 29, 2012

Release of an Arrested Ship in Korean Waters

We wrote an article about the Arrest of Vessels in Korean waters in a post last week.  The article is a useful guide for those considering arresting a ship in Korean waters.  The post may be found at: Arrest/Attachment of Vessels in Korean Waters: Maritime Liens for Creditors in Korea.

This post describes how you may obtain the release of a vessel arrested in Korea waters.  The Korean Courts have put in place an efficient post-arrest procedure that, often, quickly allows the release of an arrested ship.

Post-Arrest Procedures in Korea for Ships Arrested in Korean Waters
In the post-arrest procedures in Korea, the burden is on the arresting party to establish that the order of arrest, initially granted, should not be vacated.   These hearings are often a tool to persuade a judge that the arresting party should post a security or the security should be increased.  In all but the most exceptional of cases, shall a Korean court release an order of arrest. 

If a preliminary attachment was granted (not a maritime lien), the defendant may demand that the trial procedure promptly commence.  The Korean Courts, usually, will demand that the arresting party/plaintiff files its case on the merits within 14 days of the first post-arrest hearing.  If the arresting party/plaintiff fails to file its case within 14 days, the defendant should promptly request the court to hold a hearing to confirm that the arresting party/plaintiff has not complied with the court's demand.

Liability for Wrongful Arrest of Vessel in Korea
In the majority of cases of an order of arrest being invalidated by a Korean court, the arresting party will, also, be deemed to have acted negligently, since the burden of proof is placed on the arresting party to establish that he did not act negligently.  Korean courts are, however, often reluctant to reward the "full" damage amount.  I will deal with this issue in a future post entitled: Damages for the Negligent Arrest of Vessels in Korea.

If you ship has been arrested in Korean, it is advisable to get contact with a local attorney promptly.  While the action of arresting a ship may be done by a member of your staff in Korea with basic knowledge of the court procedure, the procedure to release an order of arrest and obtain damages should, always, be conducted with the assistance of an experienced attorney in Korea.  It is, always, recommended to hire a retired Korean judge that works alongside an international attorney in order to assist in guaranteeing that your case will get the full attention of the court.
IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Oct 26, 2012

Maritime Liens in Korea: How to Arrest a Ship at a Korean Port

The arrest of vessels in Korea is a common tool to satisfy judgements against debtors.  Korean courts allow the ex-parte arrest of ships.  The court, normally, does not request from the Korean counsel of the creditor/claimant evidence of how long the ship will remain in Korean waters, as is, sometimes, the case in other neighboring jurisdictions.

We find Korea to be a much easier destination for arresting vehicles than many other Asian nations, because of the efficiency focus of the Korean court system and the less than efficient other Asian jurisdictions.    Typically, the arrest action will take a few days to complete. 

The major ports in Korea that an arrest may executed at are: Busan ,Jinhae, Incheon, Gunsan, Masan, Mokpo, Pohang, Donghae, Ulsan, Yeosu, and Jeju

There are two different ways to arrest a vessel in Korean waters. 

1.  Preliminary Attachment
The Korean Civil Enforcement Act allows the arrest of a ship or attachment of an asset through a preliminary attachment.  The attachment, normally, requires the posting of a security.  The amount of the security is, normally 10% to 15% of the claimed amount.  Often the court allows the posting of the majority of the amount in the form of a bond.  Normally, the court will not grant a preliminary attachment if a maritime lien is available to the complainant.  Foreign parties, often, have a difficult time obtaining a bond in expedient fashion.  We have, even, failed to obtain bonds for some foreign creditors. 

2.  Maritime Lien
A creditor or claimant in Korea may exercise the right to arrest a vessel.   The Korean court, under Korea's Conflict of Laws Act, will look to the law of the nation of the vessel's flag.   Normally, the court in Korea will not grant a preliminary attachment if a maritime lien is available to the complainant.

A maritime lien, in Korea, is also available for time-chartered vessels, sister vessels and even when an arbitration clause exists.

The sheriff of the court, upon the disposition of the court, will arrest the vessel by serving on the ship master the notice of arrest and, also, attaching the order to the vessel.  It is, also, advisable to arrange with the sheriff to advise the port authorities to not allow the vessel to leave the port.

Upon arrest, in most cases in our experience, the owner of the vessel or charter party will provide a letter of undertaking from the the P & I club of the arresting party.  The arresting party is not required, under Korean law, to accept the letter of undertaking and many demand 100% of the claimed amount in cash before granting the release of the vessel.

I will draft a post entitled: Release of an Arrested Vessel in Korean Water and it will be posted in the next few days.
IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Oct 23, 2012

License Agreements in Korea: 9 Musts Before Licensing in Korea

License Agreements in Korea are too often, simply, a spinning of license agreements used in the West.  Your foreign license agreement, in most cases, is not adequate for your needs in Korea. 

Our 9 Musts before Engaging in a License Arrangement in Korea

1.  Due Diligence
Say it three times and read my posts:  Doing Business in Korea:  Due Diligence, Agreements, Attorneys and Street Smarts

2.  Royalty Clause 
Include in your license agreement a royalty clause.  The clause should detail, at a minimum:
  •  Currency conversion rate or payment in the currency of your home nation
  •  Payment terms
  •  Accounting and audit particulars
  •  Tax treatment
3.   Inspection  
An inspection of the first batch of goods is a necessity and periodic inspections are recommended for most products.  Agents are available to conduct these inspections.

4.  Choice of Law
If the license is for a smaller value, often, it is best to simply utilize Korea as the choice of law.  It will save you expenses, since, hopefully, you will be having someone experienced in license agreements in Korea drafting your license agreements.

5.  Choice of Jurisdiction
Again, to save on costs, often, the best choice is to simply utilize the Seoul Central District court as the jurisdiction for the resolution of the dispute.

6.  Arbitration
We, always, recommend litigation in all cases where the costs justifies arbitration.  Often, arbitration will lead to greater legal feels than having a dispute resolved at a Korean court.  However, arbitration, as explained in numerous posts on this and other blogs is beneficial to both parties in most cases.  Our choice is, always, Hong Kong with NY as our second choice. 

7.  Protect your IP.  Say protect your IP three times and read my short post entitled:  Don't Just Trust Us: Trademarks in Korea.

8.  Listen to my Mother and Read her Advise at: Listen to My Mother: JVs in Korea.  Ok a license is not a joint venture, but the advice holds true.

9.  Language.  Have the governing language be English, but draft the license agreement in English and Korean.  Make sure that you don't have an argument in the future that the Korean licensee didn't understand the particulars of the agreement.

______ IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Oct 18, 2012

Foreign Corrupt Practice Act Basics for Korean-Based Companies

If you are working for a U.S. Company with an office in Korea or you are working for a company from most other developed and developing economies you may be subject to punishment under the laws of your home country related to the interactions of you or your employees with foreign government employees.  If you want to say out of the clink and avoid embarrassment to your company by actions of your employees in Korea, please read and understand the following.

Prior to engaging in any activity that may be construed as a "corrupt payment" under law, please consult with an attorney in order to decide whether the action may be construed as a "corrupt payment."  The terminology "corrupt payment" is the term utilized under the U.S. Foreign Corrupt Practice Act.  Other like terminology is used by other nations.  

Under the U.S. Foreign Corrupt Practice Act a Corrupt Payment is defined, inter alia, as giving anything of value with the intent to:
  1. Influence an act or decision of a foreign government official in the official capacity of the foreign official;
  2. Induce a foreign official to act or not to act in violation of his/her lawful duty;
  3. Induce a foreign official to improperly use his/her influence or power in the organization to impact any act or decision; and
  4. Obtain an "improper" advantage (catch-all). 
Please note that many "foreign officials" may include "quasi-government" officials.  The Korean government has many "independent" companies that are controlled, in fact, by the Korean government.
Acts in Korea that may be deemed a "corrupt payment" under law include:
  1. Compensating a government official travel expense if certain specific protocol is not met and the family of the government official travel expenses are, also, paid or the primary purpose of the trip is not "business," but "entertainment."
  2. Gifts that are over US$ 25 in value or are given frequently to the same individual.
  3. Meals over US$ 50 per person or that are frequently meals provided to the same individual.
  4. Providing employment to a family member of a government official
Actions by agents or third-party representatives may, also, be deemed a violation of law.
 _______ IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Oct 16, 2012

Do you Need a Joint Venture to Succeed in Korea?

One of the major parts of my law practice for international clients, in Korea, is the structuring of joint ventures and the resolution of joint venture disputes in court and through arbitration.  I find, in most of these cases, the non-Korean party is not in need of a joint venture with a a Korean party to succeed in Korea and the Korean party does not realize or has no intent in satisfying obligations under the joint venture agreements.  

Thus, many disputes are caused by the realization by the non-Korean party that he/she doesn't need the Korean party and the realization by the non-Korean party that the Korean party had no intent in following the joint venture agreement.  

We find that a joint venture is, normally, only successful in a few situations.  The following are the major situations that we encounter that tend to make sense for both parties.
  1. The Korean party has instant access to a proven distribution network (retail outlets) or supply chain and the non-Korean has a product that easily fits into this supply chain.   Often this, however, is best addressed through a distribution/license agreement and, not, a joint venture agreement, but in some cases the joint venture makes sense.  Be careful, often a joint venture is not necessary and changed circumstances can kill the relationship.
  2. The industry is an industry closed to foreigners (few industries in Korea as closed to foreigners - ie. publishing) and the Korean party needs the expertise or money of the non-Korean party in order to succeed in the industry.  Be careful, needs often quickly change and, often, these industries are heavily regulated and, often, lead into a money pit that you will never dig anything out of.   Knowing the governor does not mean that you will receive government support.  Everyone in Korea has contacts, however, few are able to capitalize on these contacts, thus, don't be sold a can of hooks.
  3. The non-Korean party is broke and, thus, unable to commercialize an invention and the Korean party is in need of a new product line or has spare manufacturing capacity.   Be careful, the learning curve may not be as great as you think and this you may not be needed for too long.
  4. The industry is a niche industry with only a handful of players and the non-Korean can receive instant access to one of the main players through the joint venture and the Korean is able to gain access to the technology through the joint venture.  Typically, this is a joint venture between a Korean conglomerate (chaebol) and a multinational company.  Often these relationships are fleeting and lead us to many hours in arbitration.   
If you have money, have the expertise in doing business in Korea (or can hire experts), are not in a  regulated industry, carefully consider the market, have a local guide and are not in a need of joint venture because of the nature of the business - forgo the risk of a joint venture and hit road in Korea on your own. 

Other articles that may be of interest;
Sean Hayes may be contacted at:

Sean Hayes is co-chair of the Korea Practice Team for one of the leading international law firms. He is the only non-Korean to have worked as an attorney for the Korean court system (Constitutional Court of Korea). IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Oct 15, 2012

Is Korea Still an Immature Democracy and Why does it Matter for your Business?

No matter which direction the electorate turns, the choices seem to be disintegrating with each passing day.

The presumptive first woman president, conservative Park Geun-hye, has watched her chances for election fall just short of going down in flames. First, there were the corruption scandals among her campaign organizers that did a brilliant job of reminding folks that Ms. Park comes along with all the sordid baggage of the conservative camp. Then her belated apology to the victims of her father’s excessive abuses of power as president, which came across as too late and too cynical as a means to prop up her sagging polls numbers. And now, there is the least-expected development - major infighting in her campaign, as a result of Ms. Park trying to widen her appeal to the anti-Park family Jeolla region.

During the recent holidays and at a relative’s wedding, I talked with my in-laws, who have generally supported the opposition camp even though they hail from arch-conservative Daegu. They are ardent Ahn Cheol-soo supporters. When I asked them about whether Ahn was truly qualified to serve as president given his absolute zero experience in government and politics, I was told that Ahn is very intelligent and that they expected him to surround himself with equally intelligent advisers.

Okay, I said, but can Ahn beat Park if Moon Jae-in is also running? Of course not, was the reply, but Moon will certainly join up with Ahn in order to beat Park; or in a worst case, Ahn will join forces with Moon.

I responded that both Ahn and Moon are exceptionally intelligent men, but no one has really tested their emotional intelligence. High IQs are often dwarfed by giant-sized egos. If this was a game of chicken to see who would succumb first and offer to join forces, we would have major blood on the highway. And so far, my dire forecast seems to be fulfilling itself.

The fundamental problem, however, may not be the individual psychologies of these leading candidates. The underlying problem is the relative immaturity of Korean democracy that lacks strong political platforms on which candidates stand and for which they volunteer to support. Instead, we have strong personalities that form cliques with lesser politicians. And surrounding these cliques are many hopeful hangers-on who have much to lose should their candidate bow out and support another candidate.

These low-profile power groups place huge amounts of pressure on their candidates that often preclude the politicians from being adequately flexible enough to do the right thing for overall good of the country, or to risk taking turns holding power, by chancing deals where this year’s dominate candidate will support the subordinate candidate during the next major election.

In some ways, one may say that the candidates are figureheads for large vested interest groups that may not actually be all that different on policies but fiercely competitive to gain power. Picture if you can, a three-team rugby match with scrums made up from three teams. The primary difference is one cannot easily see the whole team but only the team captains in these scrums.

Sadly, most of the electorate would very much like to see a change from the current administration of corrupt conservatives who overly favor chaebol and seem incapable to adequately serve the rest of society - regardless of their actual intentions. At the same time, the so-called progressives are proving to be remarkably unreliable and possibly implausible.

But right now, the electoral choices look much less appealing than they did even a month ago. The only person who has proven to be universally popular in Korea these days is, of course, Psy. I joked with my in-laws that perhaps he should run for president. The more I quipped about this outrageous idea, the more practical it seemed, much to my surprise and dismay. But consider the following:

First, Psy does not have a cadre of hangers-on, expecting political spoils. Sure, some want to share in the current limelight. But Psy is not closely affiliated with any political camp.

Second, Psy has as much experience in governance as Ahn Chol-soo. The two men share rock star-like fame. But if only because fame is more recent, Psy seems to be handling his popularity better, recognizing that while his global recognition is well earned, his fame is also a bit of a fluke.

Third, across political lines and generations, Psy is someone that almost everyone in Korea is proud of.

Fourth, Psy has proven exceptional leadership around the world in motivating hundreds of thousands of people to do the horse dance.

Fifth, if elected, we could have one of the most amazing North-South summits. Kim Jong-un is about the same age, size and build as Psy - and has only a year or two more of political experience. What we could be witnessing would portend the future of a unified Korea. Eventually we may even see a “cool” walk-off on live television. We could see who has the better moves, postures and body language - with and without sun glasses.

While I’m not genuinely sincere about a Psy presidential candidacy, we need to also look at where are today. If the election were to be held today, we might expect low voter turnout with the conservatives retaining power as those who desire stability are more likely to turn out in greater numbers than the disheartened idealists who are looking for genuine change in governance.

But it is still a long, long while in political time until the December elections, so matters could very well turn upside down quite unexpectedly. Perhaps Psy entering the fray on one level or another is just what this election needs.

* The author is a Senior Adviser to IPG.  The article appeared in the Korea Joonang Daily on October 16, 2012.

Sean Hayes may be contacted at:

Sean Hayes is co-chair of the Korea Practice Team for one of the leading international law firms. He is the only non-Korean to have worked as an attorney for the Korean court system (Constitutional Court of Korea). 
IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Myanmar (Burma) Ban Lifted by the United States

During a landmark visit to the United States by President Thein Sein of Myanmar to the United Nations General Assembly, the United States Government this week announced it would lift the last remaining sanctions that have been imposed on Myanmar (Burma) which have mostly been in effect since 1990 which adds impetus to the rapid and sweeping progressive reform over the past year of a resource rich albeit impoverished country. 

The sanctions which have been gradually lifted this year covered visa and travel restrictions, restrictions on financial services, prohibitions of goods from Myanmar, prohibition of any local investment as well as limitation on any assistance by the United States Government.

This latest announcement follows a number of positive political steps in Myanmar which include the dissolution of the former State Peace and Development Council in March this year with power transferred to the new quasi-civilian Union Government.

In addition, other steps made by President Thein Sein of the Union Government has been the release of political prisoners and ceasefire talks with various ethnic-based militias along with amendment of the national laws which allowed opposition parties to participate in the parliamentary elections this year.

The complete lifting of the sanctions follows similar moves taken by the international community to equally roll back tough sanctions. 

In July, an economic announcement was made giving the green light for United States investment which enabled a US trade delegation to visit the country just a few days later.  Earlier this month, the Coca-Cola Company announced it had begun to ship drinks to businesses in Myanmar, and some reports say that it is projected to invest USD100 million over the next three years generating about 2,000 jobs for Myanmar citizens.

The latest political development underlines the remarkable pace and new direction taken for economic and political development in Myanmar and normalizing a commercial relationship giving opportunities for Myanmar nationals to export their goods into the United States.

According to the Myanmar Garment Association, the lifting of the import ban this week will especially assist garment exports to the United States - which had been the largest market before the ban was imposed back in 2003.  Apparently some 72% of garment exports in 2011 were exported mostly to Japan and South Korea totaling about USD558 million.

IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Oct 4, 2012

What can Korea Learn From Ireland? by Senior Advisor Tom Coyner

My recent essay, “Denuclearization – Korea’s Red Herring,” stirred much discussion. Most reaction was favorable, but there was also some heated controversy. I had a chance to engage at depth with two ambassadors to Korea. Both diplomats were quite familiar, of course, with North and South Korea.

I will try to fairly represent both ambassadors’ perspectives since one man was skeptical and the other was encouraging of my ideas. Readers may draw their own conclusions.

The first ambassador is from Eastern Europe. He began his career under a socialist government and is therefore in a privileged position of viewing North Korea both from the perspective of a once sympathetic ally and from what may now be assumed to be a more balanced vantage point. This ambassador’s argument was that my recommended shift in diplomacy attacks the political ideology of North Korea. In any country, he maintained, “that is the last to go.” In other words, my approach would have to be a nonstarter.

And, in general terms, I’m sure he is right. But negotiators have been tiptoeing around Pyongyang’s refusal to accept the legitimacy of South Korea for some 60 years – roughly the time covered by two complete generations. The obvious question is: given the glacial pace of change in the North, shall we allow for three or four generations to pass before the matter is properly addressed? Meanwhile, be it a red herring or not, the North Korean nuclear program will continue to develop “defensive” weapons capable of wrecking global mayhem should matters get desperately out of hand.

Today’s enlightened perspective, held by many, is to recognize that North Korea is changing. The theory goes that constant exposures to the outside reality are needed to eventually cause internal reform. That approach comes across as entirely sensible. But, this same strategy has been tried for multiple decades, and the results have been and continue to be remarkably uninspiring. It is like different nations and organizations have been building bonfires in front, around and on top of a glacier. These fire builders are quick to point out the minor indentations that have melted away. Yet, when these efforts are viewed in their totality, one is likely to ask, “So what?”

Back in the 1960s, ’70s and ’80s, there was merit to the current approach. But, the current strategy, to put it kindly, is getting rather long in the tooth. At the same time, there has been little creativity other than to do the same strategy over and over again.

And, I would guess by now, the North Koreans may have caught on to what the West is really up to. The Germans recently closed their Pyongyang branch of the Goethe-Institut upon realizing that the North Korean authorities were intimidating its citizens from entering those facilities.

Some diplomats may declare: “Small sparks of light are better than none in the darkness!” Perhaps so, but I can’t help wondering who is actually fooling who when one party is controlling the entire game.

Before I move on to the second ambassador, I need to relate that other readers noted that the South has never made any public move to formally recognize the North. But, since the end of the military governments, particularly from the time of Kim Dae-jung, there has been open discussion in South Korea about a federation of two governments on the peninsula, which I assume would require mutual recognition. In earlier times, such discussion would have landed advocates in jail. Today, such ideas are openly aired. All of this suggests much greater flexibility on the part of the South Korea’s government.

I had a long discussion over lunch with another EU ambassador. It turns out he spent several years contributing to the successful Northern Ireland peace accord. While I was aware that the accord took several years of negotiations, I was surprised at how long it took to be fully implemented – almost a decade in fact. In other words, peace building is obviously a very difficult and tedious process, but only when an agreement is signed does the real work begin.

The diplomat cautioned about applying lessons from one conflict to another, but said that there were clear lessons learned from the Northern Ireland peace process. In essence, the Northern Ireland peace process was based on multiple, related negotiation tracks done in full concert with each other. All issues were put on the table and addressed. There were negotiations between Catholics and Protestants; Northern Ireland and the Republic of Ireland; and the U.K. and the Republic of Ireland. The U.S. played a critical broker role as a friend to all parties. In any event, no one negotiation tracks could have ever been truly successful without the successful conclusions of the other two.

In all three tracks, the cornerstones were mutual respect and prolonged meetings leading to personal friendships and empathy, all of which led to mutual acceptance and understanding. But, without achieving these qualities, ancillary issues could not be effectively addressed.

If we may learn from the Irish example, what could be possible?

First, there needs to be an open discussion, such as in forums jointly sponsored by South Korea, the EU and the U.S. to discuss whether a similar approach may work with the North. Rather than focus on resulting issues such as human rights and nuclear proliferation at six-party talks, perhaps multitrack negotiations could be more effective. Confidence building measures would be needed, not least a verifiable freeze on the North Korean nuclear weapons program.

Specifically, there may be the following negotiations: South-North cooperation, which would include humanitarian and commercial matters, bilateral relations, which would address diplomatic and military matters, and Korean foreign relations, which would result in a comprehensive peace treaty involving all parties, including the U.S., the UN, the South and the North. But, it would need to be clear that all three negotiations would have to show substantial progress.

Upon the development and agreement among South Korea and its allies to something similar to the above, this approach would be brought to the UN for further discussion and introduction to North Korea.

To conclude with the obvious, we know what has not been working. Perhaps the powers that be could do better by emulating something that has proven to be successful.

The article appeared in the Korean Joonang Daily and can be found at:  What Can Korea Learn From Ireland?
IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, the Philippines, Myanmar, Vietnam and the U.S.

Sep 20, 2012

Why won't the Japanese Emperor Apologize to Koreans?

President Lee Myung-bak’s recent demand that the Japanese emperor formally apologize prior to a future visit has been considered belligerent by vocal Japanese commentators. And yet the emperor needs to stand up and do the right thing, if only for the overall welfare of the Japanese.

While Japanese right-wing extremists often attract media attention, most Japanese are eager to put Japan’s differences with its neighbors behind them. In fact, most Japanese are shocked when they realize the latent antipathy the rest of Asia still holds toward them. This shock comes from most Japanese possessing friendly sentiments toward the world in general and towards Asia in particular. I have repeatedly witnessed Japanese individuals and groups sincerely express their remorse on behalf of their country to Koreans – even if they were born after World War II. Last week, some 1200 Japanese women publicly apologized for Japan’s past sexual slavery.

While most Japanese may not feel compelled to make overt apologies to Koreans or anyone else, I dare say most are willing to put a past generation’s sins behind them, even if it means that someone of authority displays the courage to stand up and do the right thing. There is a precedent. The current emperor’s father broke ranks in 1945 and asked the Japanese people to “bear the unbearable” in accepting defeat.

Shortly after MacArthur arrived in Tokyo, Hirohito presented himself to the American general-in-chief, taking full personal responsibility for all that Japan had done. Asking his son to do something less courageous is not out of line. I suspect that he may be willing to do such a thing. Though the emperor is officially the head of Shinto, he was tutored and greatly influenced by two Quaker women after World War II, most notably by Elizabeth Gray Vining with whom he emotionally bonded. The present emperor has been greatly influenced by Western and even pacifist values that place a premium on understanding and respecting others different than oneself.

So, given all of this, one may ask what the hold up has been after all these years? The problem has not been with the average Japanese. Even Tokyo politicians are not truly liable. The problem is with a small number of people who work in the national ministries. Japan’s modern-day mandarins possess all the group arrogance of their 19th century Chinese counterparts. Their primary concern is not for the overall welfare of Japan but their own insular and elitist well-being. To be fair, this group is really not all that out of keeping with the rest of the country.

Contrary to Japan’s highly valued wa, or social harmony, the society actually consists of highly competitive power groups, often denominated by university affiliation and professional organization. At the top is the Tokyo University/Ministry of Foreign Affairs faction or batsu, consisting of the very best university graduates. As much as this group goes through the motions of taking care of the “little people,” their primary mission is to serve and protect their own interests. That includes honoring and protecting their seniors or sempai, who have served before them – including those who made up the Japanese Government during the 1930s and 1940s.

Japanese politicians, including prime ministers, dare not go against the Ministry of Foreign Affairs, given their wide-ranging political influence in Japan’s public and private sectors. Formal statements, including equivocating “apologies” must first be vetted by the ministry. And to date, no statement has even implied dishonor on prior, now long-deceased government leaders, including senior bureaucrats. To do so would potentially weaken the elitism of these government officials and potentially set a precedent that may hold them accountable in the future.

Given this context, a small number of bureaucrats are holding back better relations with Japan’s neighbors. And today, given China’s rising hegemonic power, Korea and Japan can ill afford squabbling over historical matters when they have much more to gain in cooperating more closely. What is needed is for Emperor Akihito, as head of state, to stand above the cynical concerns of an elite few and do what is right and best for the Japanese people.

 He needs to make a short and sincere apology to the victims of World War II once and for all, and then step down to resume his low profile duties. Only he can unilaterally take this action. His father displayed greater personal courage in 1945.

Can the present emperor do even less today? * The author is president of Soft Landing Korea, a business development firm, and an alliance partner of Odgers Berndtson Japan.

by Tom Coyner.  Senior Adviser for IPG.
Korea JoongAng Daily August 21, 2012

IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Sep 13, 2012

Korean Criminal Case Judgments to be Public Record from Next Year

The Korea Times has reported that all court rulings in criminal cases, starting next year, will be disclosed to the pubic in writing.  Civil cases will, all, be reported starting in 2015.  The Korea Times notes that:
All courts here, including the appellate and highest courts, will be obliged to provide access for citizens to the texts of their rulings in all criminal cases via online or offline, the top court said, noting the system will be expanded to civil cases from 2015.

So far, the Supreme Court makes public the verdicts of “major cases” online on a case-by-case basis, and those who want to have details of a case need to make a separate request, causing inconvenience to the public and controversy over rulings’ transparency and the public rights to know.

The highest court said it will devise relevant rules within the year for the official launch of the system next year.

From 2014, details about evidence and relevant documents for a criminal case ruling will also be available both via online and offline, it added.

“The decision follows last year’s law revision to disclose all details about the rulings,” a court official said. “We are pushing to open all court rulings on civilian cases starting in 2015.”

To protect the privacy of those directly involved in a case, names in the judgment will go anonymous, he added.

“The disclosure will allow the public to see how judges rule differently over each case, which is expected to boost transparency in the legal system and better protect victims’ rights and interests,” said Roh Young-hee, a spokesman of the Korean Bar Association.

IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Sep 12, 2012

Korean Distribution/Agency Agreement Basics

Prior to going into any relationship with a distributor/agent in Korea, please read my post entitled: Finding a Korean Distributor: The Top 10 Things to Know Before Going to Bed with a Distributor in Korea. Please read that post in combination with this post, prior to engaging a distributor.

We see too many distribution agreements that are mere spun U.S. agreements.  Please have your distribution agreement and all agreements you have in Korea drafted by an experienced and proactive attorney that has on-the-ground experience in Korea.  We see too many issues that could have been easily resolved by a carefully drafted agreement and a little due diligence.

Issues to consider for your Korean Distribution Agreement:
  1. Will your distributor in Korea be your agent?  If the distributor is an agent, generally, you will, only, be paying your agent a commission and you will be directly invoicing the client.  Liability and other issues to consider.
  2. Will you Korean distributor be your exclusive distributor?  How long will the relationship last?  How can the relationship be terminated?  Territory?  Scope?
  3. What occurs after termination of the relationship with the Korean distributor?  Return of products, buy back inventor etc.?
  4. Dispute resolution mechanisms? Venue? Arbitration?
  5. Have you created a franchise?  If so, we have some more talking to do.  The requirements for franchising in Korea is much more cumbersome than a mere distribution relationship.
  6. Have you registered your trademarks?  Korea is a first-to-file nation.  If you have an agreement with a distributor - you may be protected even without registering your trademarks - however- register and avoid issues with others. 
  7.  Did you conduct a thorough due diligence on the distributor?
  8. Who handles warranty claims, distribution, support, marketing etc.? 
  9. Is the party signing the agreement authorized to sign the agreement?  Make sure the agreement is properly executed.
We see too many distribution agreements that are mere spun U.S. agreements.  Please have your distribution agreement and all agreements you have in Korea drafted by an experienced and proactive attorney that has on-the-ground experience in Korea.  We see too many issues that could have been easily resolved by a carefully drafted agreement and a little due diligence. 

Other articles that may be of interest:
Sean Hayes, IPG's Co-Chair of the Korea Practice Team, may be contacted at:
IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Sep 10, 2012

Vetting Out a Korean Distributor

Too often we deal with clients looking to collect on unpaid invoices to distributors/customers in Korea and resolve IP and other disputes between these distributors/customers because of clients rushing into relationships without vetting out the anticipated distributor or having a very poorly drafted distribution agreement.

Many distributors in Korea are fantastic, while, others are nothing more than order processors -they, simply can't or don't want to sell.   Additionally, in these tough economic times, too many companies, in Korea, are struggling to stay afloat.  If your distributor doesn't know the market, you will find yourself with unpaid invoices from customers and issues with your distributor.  

Do yourself a favor and consider the following before engaging a local company to distribute your products.

10 Ten Things to Consider Prior to Doing Business with a Distributor in Korea

  1. Has the Korean distributor worked with other foreign companies?  If not, you are dealing with a very inexperienced distributor.  Ask for references.
  2. Has the Korean distributor worked with major Korean companies?  If not, you may be talking to the wrong distributor.   Ask for references.
  3. Is the Korean distributor solvent? Does he/she have an office and staff? Too many distributors in Korea are nothing more than a man with a briefcase and a mobile phone.  A successful distributor, normally, has an office with staff.
  4. How long has the distributor been in business?  Sometimes you can find distributors with, only, a few years experience with access that you may need, however, this is the exception and far from the rule.  This exception is, normally, in products that may be new to Korea. 
  5. Has the distributor provided you with a marketing and distribution plan?  If not, he may be just an pamphlet pusher and order taker.
  6. Does the Korean distributor have a capable sales force?  Don't just talk with the company's CEO - talk to the day-to-day sales staff.
  7. Did the Korean distributor provide sales targets for the short, intermediate and long-term? If not, he may, again, be just a order taker.
  8. Have you conducted a background check on the distributor and the distributor's management?  This should be performed by someone who is intimate with the realities of doing business in Korea.
  9. Have you drafted a distribution agreement that is tailored to the Korean market?  Yes, your overseas agreements are not good enough for Korea.
  10. Have you done a market study by a professional in Korea and does the distributor seem to understand the market that you now understand from the study?  Get the market study done by someone on the ground in Korea and coyly review the market study with the distributor in order to gauge his understanding of the market. 
Other posts that may be of interest:

IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

European Union Chamber of Commerce Not Longer Doing Business in Korea by Tom Coyner

This has not been a good year for foreign chambers of commerce in Korea – particularly for their executive employees. This spring the Korea German Chamber of Commerce & Industry conducted a forensic self audit and found its senior executive employee had been regularly using moneys for his personal use without prior approval of the president and board. That led to that employee’s immediate dismissal.

The Korea European Union Chamber of Commerce, often regarded as being more of a private consulting company in that it did absolutely nothing without charging a fee, not to mention the irregularities in not paying value added tax on its magazine advertising, found itself in such tax difficulties for itself and for its top executives’ personal taxes that it had no choice but to shut down. Abusing metaphors, there may be other shoes to drop, given the overall environment. The long unspoken suspicion among long-term business professionals in Korea has been that the larger and wealthier chambers have been corrupt as they have developed increased budgets with insufficient oversight and disregard of their own constitutions when it come to financial transparency.

Huge amounts of membership fees have been collected, executive employees’ total compensations have met and often surpassed those of their largest member representative directors’ levels, and what one may call “interesting” expenditures have been made annually to lobbyists – all without transparent accounting to their members. This situation has continued since the chambers roles, while important, have been in the overall context much less significant than what they claim to be for their members.

Consequently, for good reason, when individual expatriate members eventually start putting “one and one together,” the rational conclusions have been not to blow the whistle, since risking the political blow backs have not been worth it, and in a few months, the newly aware executives would be transferred out of Korea. So none have been motivated to shake their hornet nests. What changed this year has been a major personality clash between an elected president and his executive employee and the Korean tax authorities deciding to look into the finances of a chamber.

I have no idea if there have been any whistle blowers involved, and if there were, I have no idea what may have been their motivations. But the first two shoes have fallen – and dramatically. So, how may this phenomenon be prevented? I have two or three simple suggestions:

 First, the chambers of commerce need get out their constitutions, take long hard looks and enact their articles in terms of the letter and intent, with a special concern on financial transparency to the memberships. The glossing over annual public statements of accounts has been providing too much cover for both real and imagined shenanigans.

Second, develop and maintain proper relationships between the elected presidents and the hired executive managers that is cooperative and yet not too buddy-buddy, along the wink, wink, nudge, nudge variety. These cordial relationships must also serve as check-and-balance functions and not allowed to be perceived as possible partners-in-crime fellowships. Third, the boards of directors should consider conducting discreet forensic audits.

Yes, there are annual audits being conducted, but one wonders about the auditors’ distance from those he or she is auditing and whether the past audits’ criteria have been sufficient. In the case of the German and European chambers, proper, preemptive audits would have prevented much of what has happened this year. The other chambers could well be sitting on their own time bombs.

by Tom Coyner.  Senior Commercial Adviser to IPG.  

IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Sep 5, 2012

Korean Constitutional Court Declares Privacy Protection Law Unconstitutional

The Korean Constitutional Court, unanimously, declared Clause 5 of Article 44 of the Act on the Promotion of Information and Communication Network Utilization and Protection implemented in 2007 unconstitutional.  The law was declared unconstituional in late August of this year.

his Korean law was passed in reaction to suicides of Korean celebrities. These celebrities were criticized online for various alleged improprieties. The law required, on certain websites, the logging into the website with one's national identification number, thus, limiting the ability to speak anonymously.

Numerous Constitutional Law scholars and free speech advocates emphatically argued that the law was nothing more than an attempt to stifle political speech. Since, naturally, posters would fear the wrath of the government if criticism was levied against the government or heads of Korean corporations.

The Constitutional Court, in striking down the law, noted that: "Restriction on freedom of expression can be justified only when it is clear that it benefits the public interest." This vague tests, inter alia, was applied to strike down the law.

IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Sep 2, 2012

Seonbei-hubei and Greying Radicals: Why it Matters for your Business in Korea

As an American who has spent half my life in Northeast Asia, it has taken me some time to get my head around why we see so many more graying radicals on the left and the right in this part of the world than we see in the West.

Last week, I was reminded about this widespread political phenomenon while reading an article about Kim Young-hwan in this paper’s companion, the International Herald Tribune. Kim Young-hwan was an iconic student leader of the 1980s who essentially embraced the juche, or self-reliance, ideology. He jumped at the opportunity to secretly visit North Korea, where he met Kim Il Sung. What should have been the highlight of the trip unexpectedly turned out to be the nadir.

What the student leader encountered was an old dictator remarkably unfamiliar with a political philosophy purported to summarize his wisdom. Disillusioned, young Kim returned to South Korea. Unlike a number of leftists who have visited North Korea and simply come back home greatly disappointed, Kim Young-hwan has publicly repudiated his earlier politics and actively criticized the North. If he had been a prominent American making a similar reversal, this would not have been quite so remarkable. But as a Korean, he has done what many would consider to be unthinkable. Given that this is a South Korean presidential election year, that article had some additional important, if latent, meanings for observers of Korean politics.

Westerners may scratch their heads as South Korean leftists continue to act as unabashed apologists for the Pyongyang rulers given the plethora of evidence that has steadily arrived in Seoul from many sources over the past years. The previously referenced newspaper article gave some insight in that most of South Korean leftists have never been to North Korea.

But there is another, perhaps even greater, factor at play that is not unique to Korea, but one many say is endemic to various societies in this part of the world. That is the vast and interlocking webs of seonbei-hubei (or in Japanese, sempai-kohai) relationships. These master-follower relationships make it remarkably difficult for a master, such as Kim Young-hwan, to do a 180 given his obligations - political, psychological, social and otherwise - to his followers. The fact that he reversed himself - and kept active in politics - is simply incredible. It takes real guts and tremendous gumption to make a flip-flop like this in East Asian culture. Normally, the aftermath of this kind of reversal is a loss of face for the entire group and often has much worse consequences for the master. So one can imagine the thousands of hangers-on associated with far left legislators and political activists in South Korea.

When they eventually realize they have made a gigantic wrong turn, many have - or will - opt to quietly drop out of sight. Others, such as professional politicians, usually do not have that option. They must go blindly forward, hoping against all the evidence that they may somehow eventually be proven right. In their wake trail their “true believer” followers. And over time, many of these followers develop their own cadres of followers.

This is the very dangerous flipside to the many positive attributes of the Asian master-follower relationship. When the relationship is based on virtue and reality or whatever constructive paradigm, these relationships can be extremely valuable to both society and the directly concerned individuals. However, even when such relationships are discovered to be essentially anchored to lies and ignorance, it is nearly impossible to change if the relationships have become established over the past decade or more. The concerned parties are pitifully roped into fallacies that most East Asians cannot expect to escape.

All they can do, such as with South Korean leftists, is to gather for drinks and ineffectually sing revolutionary songs, pretending they are protectors of an imaginary flame. It’s all very sad - and it is also much more common than many folks care to recognize, on both the left and the right. But more importantly, this kind of social inflexibility can have a significant impact on the political process. All of this makes it particularly difficult for East Asian societies to have responsibly functioning democracies.

The fact that South Korea probably has the best operating democracy in this part of the world is a real achievement given the cultural foundation. Why is this posting appearing on a law blog? How does this seonbei-hubei relation affect your business in Korea? by Tom Coyner. Senior Commercial Adviser for IPG.

IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Aug 24, 2012

Bankruptcy in Korea: Winding Up your Company in Korea

Any business in Korea that are registered at a corporation must wind-up their company to legally close their business.  Many companies, however, choose to forgo this step thinking that no repercussions will be felt.  This belief is far from the reality.  I know a pending case that has lead to prosecutions, a lawsuit of a related company and a tax audit of an individual shareholder.

The following is the procedure to close a company in Korea.  Please note that this is not intended as an exhaustive explanation of the procedure.

Step 1
First, execute a special resolution to dissolve the Korea-based company at a general shareholder meeting.  The special resolution, in most cases, must be adopted with an affirmative vote of 2/3 of the shareholders present with 1/3 of the shareholders in attendance.

Step 2
Then, unless the articles of incorporation of the Korean company notes a different procedure, the directors may act as the liquidators.  However, in most cases it is more efficient to elect another liquidator at the aforementioned general shareholder meeting.  If you are unable to find an adequate liquidator, the court will appoint one. 

Step 3
Within two weeks from the date of the aforementioned general shareholder meeting, the Korean company should register with the court a motion to dissolve the company.  The company after filing is treated similarly to a company that is in U.S. Chapter 11 bankruptcy protection.  The company must file the motion at the court that has jurisdiction over the locale of the primary place of business or registered address of the company. 

Step 4
The Korean court will, then, request the liquidator to file a brief to the court explaining the reason for the company dissolution.  The liquidator will be required to consult and receive approval of the company shareholders prior to filing this brief.  The brief will need to include, at a minimum, a list of assets, debts and a balance sheet.  The liquidator will, also,  commence the closing of accounts and the paying off of creditors.   The liquidator should file the brief to the court within 14 days of his/her appointment as a liquidator.  The liquidator should, also, publish in a daily newspaper two times a notice of dissolution within two months of his/her appointment as a liquidator.   The notice should contain the contact details of the liquidator and request that all creditors contact the liquidator in order for the creditor to be placed on the list of creditors.

Step 5
The liquidator, at least two months after the second publication, will, then, settle all debts with the creditors up to the ability of the company to settle the debts.  If the liquidator is unable to settle the debts, the court will declare that the company bankrupt.  The priority, settlement and bankruptcy procedures shall be addressed in a separate post.  Upon completion of Step 5 the liquidator shall compile the closing report.  The report should be approved by the shareholders.  The liquidator should file the report to the Korean court within two weeks of obtaining approval.

Step 6
The liquidator is, then, required to file documents to the National Tax Services.  A separate post will detail these requirements.

This procedure is typically done with the assistance of a law firm.  Please hire, only, an experienced law firm in Korea or you will produce more grey hair.
IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Aug 22, 2012

National Trade Commission of Korea on Korea-EU FTA Damage to Korean Companies

The National Trade Commission of Korea has awarded damages to a Korean pork processor for injury it has sustained as the result of the Korea-EU FTA.  The pork processor will, now, be able to receive Korea government support.  Hopefully, the support will be used to lower the price of Korean pork and not just pad the coffers of the processor.

Prior to the implementation of the Korea-EU FTA, Korea pork has a near 85% market share.  Today, the share stands at around 70% and is expected to further decrease.  Three other cases have been filed to the National Trade Commission.
_________ IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Operating in Compliance with U.S. and British Law in South Korea: Guardian

The Guardian has posted an interesting report entitled Operating Responsibly in Emerging Markets: South Korea.  The report, rightfully, notes that corruption is still a major issue for companies doing business in Korea.  The report, emphatically notes that its:  "imperative for companies operating in South Korea – particularly for those with a presence in the UK – to ensure that there are strong anti-bribery and corruption policies and procedures in place."

The report notes in part that:
Corruption continues to be a key challenge for a business seeking to operate responsibly in South Korea. Ranked by Transparency International in 2011 as the 43rd most corrupt country out of 182, recent reports have questioned the effectiveness of anti-corruption law in South Korea and its enforcement. According to a report from Herbert Smith on anti-corruption in Asia, South Korea's Act on Preventing Bribery of Foreign Officials in International Business Transaction has only led to nine convictions in 13 years. Few Korean companies are revealing data on political 'donations' (comparable to facilitation payments in the West) in their CR reports.
However, there is evidence that combating corruption is moving up the South Korean agenda. Just this week, the country's anti-corruption agency announced that it will seek to introduce a law that would mean government officials caught accepting more than 1 million won ($883) worth of bribes or entertainment could face punishment of up to three years in prison even without evidence of influence peddling. Disgraced officials would also need to pay back five times the amount they received. In addition, lobbyists and civil servants will incur significant fines if they are found to have sought illicit favours from public officials, whether or not any money was involved. It is therefore imperative for companies operating in South Korea – particularly for those with a presence in the UK – to ensure that there are strong anti-bribery and corruption policies and procedures in place.
Other articles that may be of interest:

The full report may be found at: Operating Responsibly in Emerging Markets: South Korea Corporate Compliance.
__________ IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Aug 21, 2012

Protecting Brands in Korea Getting Easier?

This week a Seoul Central District Court awarded damages to Chanel for defamation inflicted on Chanel by a room salon that was branded as Chanel Business Club.  The court noted that: "The defendant, by using Chanel’s image for his business which is commonly associated with a negative image, inflicted damage to the brand value of Chanel."  The defendant never responded to the suit.

A room salon is a type of bar where girls entertain men in private rooms by engaging in friendly banter.  Some of the clubs allow girls to leave the bar with the bar patrons.

This trend of allowing damage for damage to the business reputation is welcome, however, the damages awarded are, often, so trivial, that few brands are willing to file suit.  Chanel seems to want to, merely, warn others from using its brand in a nefarious manner.

The court awarded damages to Chanel in the amount of KRW 10mil (USD 8,900).
_________ IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Aug 16, 2012

CEO/Chairman of Chaebols Serving Time in Jail in Korea?

Things may be changing in Korea. The Chairman of Hanwha Group was sentenced by the Seoul Western District Court, today, to a KRW 4 billion fine and four years in jail for misappropriating/embezzling Hanwha Group funds. Hanwha's Chairman Seung-youn Kim, a few years back, was convicted of beating a young man with a pipe and threatening the life of other individuals. The Korean Court System sentenced Kim to no time in jail for that offense and the president, eventually, pardoned Kim with a number of other presidents and chairmen of Korean conglomerates.

Is this a sign that things are changing in Korea? Will the Seoul High Court uphold the judgment? Will the President pardon Kim?

As we know, many chairman and presidents of companies have been convicted of embezzling company money and have received no time in jail. It will be interesting to see if this judgement will be upheld and if he and the other individuals being tried will receive jail sentences and will, actually, serve time in jail.
_________ IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.

Aug 15, 2012

Keeping your Job in China: New Laws Crackdown on Illegal Foreign Workers in China

China has passed a new law to take effect July 1, 2013. According to government officials, these rules are not new but simply codify current law enforcement practices. In summary, non-Chinese citizens who are found to be working in China without a work visa or residence permit will be fined and possibly deported. The employer will also face fines for having a foreigner working for them.

One large change is that the requirement for remuneration has been removed from the law, now focusing on whether the foreigner is “working.” The new law does not repeal theForeigners in China Provisions, which does retain the definition that working is social work for the benefit of labor remuneration. Calls to law enforcement and immigration ministries have provided no detail on what is considered “social work.” All departments have replied that they will determine each case on an individual basis. From our experience, working has meant receiving payment for goods or services from a Chinese company or individual. The new wording implies that simply being seen in an office on a computer will be enough for the police to question you although we won’t know until next year.

Worse, the new law now expressly authorizes deportation for foreigners for illegal work. In comparison, those who simply stay in China longer than their visa allows will be given a warning and on subsequent violations a fine of up to 10,000RMB. Severe cases, which are at the government official’s discretion to determine, can incur a 100,000RMB fine and detention for 15 days. Those who are “unsuitable” to remain will be given a deadline to leave, and will not be allowed to return for 1-5 years. In severe situations (again, at the discretion of the government office), the foreigner will be deported. After deportation, the foreigner will not be allowed to enter China again for 10 years. This is in addition to a fine on any company the foreigner worked with of 10,000RMB plus the confiscation of any income earned by the company from such work.

This new law will also likely make receiving a visa more difficult as well. The regulation states that a visa should not be issued to a person who is likely to engage in activities prohibited by their visa (link in Chinese). Thus, anyone entering China on an L visa (also known as a tourist visa) that has been renewed several times without leaving China for a significant amount of time will be suspect. The new law also forbids officials from stating the reason for denying a visa, leaving foreigners with little ability to appeal denials.

So what can a foreigner do to avoid the penalties and possible deportation? The best thing a foreigner can do is get an employment visa instead of the common tourist or business visa, especially if they are planning on staying long term in China. For those people who stay in China for business reasons, the best option is often to set up a company in China and work as the manager. While the initial investment to set up a company will vary depending on the industry, people who plan on staying in China for more than a year find the investment will pay for itself in peace of mind. This strategy has the added bonus of making sure Chinese partners can’t report you as working illegally in order to take over your business.

With experienced legal counsel, a foreigner can live and work in China without fear of Immigration for many years.
IPG is engaged in projects for companies and entrepreneurs doing business in Bangladesh, Cambodia, China, Korea, Laos, Myanmar, the Philippines, Vietnam and the U.S.