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Canadian-Korean Business Contract Negotiations Essay

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Updated: Jun 24th, 2020

Introduction

Culture refers to the “system of knowledge, beliefs, attitudes, and experiences shared by a large group of people such as an ethnic community” (Luger, 2009, p. 12). In business, culture is important because it determines the way people think, communicate, make decisions, and solve problems. This paper will focus on the importance of culture in business in the context of South Korea. Specifically, it will discuss the elements of South Korea’s culture that a Canadian should consider when doing business with a Korean.

Hofstede’s Cultural Dimensions

Power Distance Index (PDI)

This cultural dimension “measures the extent to which members of a society accept unequal distribution of power” (Luger, 2009, p. 47). Figure 1 in the appendix shows that Korea’s PDI is 60. By contrast, Canada’s PDI is 39. This means that South Korea is a relatively hierarchical society where people accept unequal distribution of power (Lee, 2012). However, in Canada people expect equal distribution of power due to their low PDI. Canadian companies use a horizontal organizational structure to facilitate sharing of power between the management and employees. Thus, a Canadian should consider the fact that in South Korea senior employees have more power than their juniors. Moreover, junior employees have to address their seniors using their titles rather than their first names (Lee, 2012). During negotiations, South Koreans deal only with senior managers. Thus, a Canadian company that intends to negotiate a contract with a South Korean firm should use senior members of its management such as the CEO to ensure success.

Individualism vs. Collectivism (IDV)

This dimension measures the level of interdependence among members of a society. Figure 1 shows that South Korea’s IDV is 18, whereas that of Canada is 80. This means that South Korea is a collectivist society, whereas Canada is an individualist society (Ting & Ying, 2013). South Korea’s collectivist culture requires its citizens to live in harmony. Thus, people are not expected to engage in behaviors that lead to embarrassment in the community (Lee, 2012). Thus, a Canadian should avoid criticizing or arguing with his South Korean counterpart in public. Disagreements and negative feedback should be given in private using indirect communication to avoid embarrassment. A Canadian should be aware of the fact that negotiations in South Korea take a long time because Koreans have to consult all relevant stakeholders before making a final decision. Moreover, Canadians should prioritize the interests of the whole team rather than individual benefits in order to negotiate a business deal successfully in South Korea.

Masculinity vs. Femininity (MAS)

Figure 1 indicates that South Korea’s MSA is 39, which means that it is a feminine society. By contrast, Canada’s MAS is 52. Thus, the country has a masculine culture. The implication of this cultural difference is that Canadians value competition and achievement, whereas Koreans prefer cooperation and modesty. Koreans focus on maintaining their loyalty by respecting their seniors and avoiding to challenge their supervisors. Thus, a Canadian should avoid direct competition and conflicts when doing business with a Korean (Lee, 2012). Specifically, Canadians should focus on cooperation and ensure that their Korean counterparts are satisfied with the outcome of negotiations.

Uncertainty Avoidance Index (UAI)

UAI shows the “extent to which members of a society can tolerate uncertainty and ambiguity” (Luger, 2009, p. 52). According to figure 1, South Korea’s UAI is 85, whereas that of Canada is only 48. This shows that Canadians are more likely to accept uncertainty than Koreans (Luger, 2009). In particular, Koreans are likely to accept new ideas, innovation, and different ways of doing things. Given their high UAI, Koreans are always reluctant to do business with foreigners or individuals who are not well known to them. Foreign companies and business executives have to be introduced to Koreans through a third party in order to be given adequate attention. After the introduction, foreigners have to focus on building strong relationships by sharing pertinent business information through official documents such as proposals and brochures. In this respect, a Canadian should know that building personal relationships is the key to securing a business deal in South Korea. Therefore, he/ she should consider forming long-term relationships with Koreans to address any uncertainty that might lead to failure in business partnerships.

Long-term vs. Short-term Orientation (pragmatism)

Figure 1 indicates that South Korea’s pragmatism index is 100. This score means that the country has a long-term oriented culture. By contrast, Canada scores only 36 in this cultural dimension. This indicates that Canada is a normative society where people focus on establishing an absolute truth and respecting traditions (Luger, 2009). Moreover, Canadians focus on quick results such as achieving quarterly revenue targets. Since South Korea is a long-term oriented society, a Canadian should know that Koreans use a pragmatic approach to doing business. Koreans prefer to invest their own capital rather than borrowed funds in their businesses. Moreover, they prefer to maintain a consistent increase in revenue rather than achieving short-term profit objectives. Therefore, a Canadian should set long-term rather than short-term objectives when dealing with a Korean business partner. Moreover, he should focus on managing risks and ensuring stability to enhance the success of any business venture that involves a Korean.

Indulgence

According to figure 1, Korea scores 29 in this cultural dimension, whereas Canada scores 68. This means that South Korea is a restraint society where individuals’ actions are controlled by social norms. Koreans also value thrift and avoid engaging in expensive leisure activities. Canadians, on the other hand, prefer to enjoy life (Luger, 2009). Thus, a Canadian should be aware of the fact that Koreans are likely to consider leisure activities such as an expensive business party to be a waste of resources. Generally, a Canadian should exhibit modesty when doing business with Koreans to create a good rapport that eventually leads to successful business deals or partnerships (Lee, 2012).

High Context vs. Low Context Culture

In a high-context culture, individuals have to observe protocol when communicating with each other. Furthermore, communication begins from a general to a specific topic. By contrast, individuals use explicit statements to illustrate the meanings of their messages in low context cultures. Canada is one of the countries with a low context culture. Canadians look for literal meanings when communicating with each other to avoid misunderstandings. However, Korea is a high context society where people prefer to use indirect communication. Since Koreans strive to avoid conflicts and embarrassing situations, they often give ambiguous responses to express their divergent opinions (Lee, 2012). Thus, giving positive feedback even when a person is dissatisfied is commonplace in Korea. The actual meanings of the messages conveyed by Koreans are understood based on body language.

Therefore, Canadians must understand Koreans’ body language and tone in order to interpret their messages correctly. This will help in avoiding the misunderstandings that are likely to hurt business relationships. Canadians should also learn to convey messages to South Koreans in a polite manner. In this case, indirect communication should be used to discuss sensitive issues that might cause embarrassment or discomfort among Koreans. This includes avoiding being too aggressive when negotiating a business deal or resolving a dispute (Lee, 2012). Generally, a Canadian should look for the implied rather than the literal meanings of the messages or feedback obtained from Koreans to communicate effectively.

Business Etiquette in South Korea

Greeting

Greeting is an important part of introduction among South Koreans. However, the greeting style in South Korea is very different from that used in Canada. In particular, Canadians greet each other by shaking hands only. By contrast, Korean men greet each other by bowing and shaking hands. Moreover, the left hand has to be “placed below the right forearm when shaking hands to show respect” (Lee, 2012, pp. 184-190). A Canadian should learn and use this unique greeting style when doing business with Koreans. Since Korea is a high power distance country, showing business partners respect by using the right greeting style can significantly strengthen business relationships.

Giving Gifts

In Canada, business partners do not regularly give gifts. In addition, the gifts are often given after finalizing a negotiation to celebrate success rather than to obtain favors. Giving gifts during negotiations in Canada is discouraged because it is associated with corruption. However, foreign business partners are expected to provide gifts to establish strong relationships and get favors from their Korean counterparts (Lee, 2012). In this respect, a Canadian should consider giving Koreans the right gifts to succeed in business. Generally, Koreans prefer gifts that are inexpensive but have a good quality. In addition, senior managers should be given gifts with higher value than those given to junior employees to show respect.

Business Cards

Koreans have a unique way of exchanging business cards, which Canadians should learn in order to avoid showing disrespect to their partners. In South Korea, business cards are exchanged after the handshake. Foreigners are expected to provide cards that are written in both English and Korean. The card should be given using both hands and the side written in Korean should face up (Lee, 2012). Moreover, the card receiver has to thank the giver. Following these procedures can help Canadians to strengthen business relationships with their South Korean counterparts. Specifically, South Koreans will consider Canadians to be respectful people who they can trust in business.

Conclusion

South Korea has a unique culture that greatly influences the way they do business. The country has a high power distance and uncertainty avoidance index. Moreover, the country’s culture promotes collectivism. The country also has a high context culture that promotes the use of an indirect communication style to avoid hurting other people’s feelings. Clearly, South Korea’s culture is very different from that of Canada. Thus, Canadians should learn the country’s culture in order to succeed when doing business with South Koreans. This will prevent the cultural conflicts that are likely to prevent effective cooperation.

Appendix

Cultural dimensions
Figure 1: Cultural dimensions

References

Lee, C. (2012). Korean culture and its influence on business practice in South Korea. Journal of International Management Studies, 7(2), 184-190.

Luger, E. (2009). Hofsteede’s cultural dimensions. Norderstedt, German: GRIN Verlay.

Ting, S., & Ying, C. (2013). Culture dimensions comparision: A study of Malaysia and South Korea. Review of Integrative Business and Economics Research, 2(1), 535-543.

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