Doing business in Korea- Contractual Agreements
Contracts, legal agreements and negotiations go hand in hand with global business. I was once told that in Korea the purpose of signing a contract or agreement was essentially to formalize the partnership. Over time, terms would be subject to change and re-negotiation.
My Korea facing experience has been that the contract fundamentally solidifies the working relationship. However, to maintain the partnership contractual obligations, the contract will require on-going changes to reflect business conditions. In contrast, a legal agreement in the West is immutable.
Challenges
Major differences in how Korean and Westerners perceive legal agreements can surface during the negotiation stage and even after the contract is in place. In particular, requests by Korean teams for change after change and alterations to a Western company’s standard agreements and contracts can cause considerable frustration, especially for their legal counsel. In the West some “red lining” of a document may take place, but legal teams may see unprecedented levels of questioning the most basic contractual language. Great patience may be required to walk Korean teams through the Western legal terminology and clarifications of what cannot be changed within the document to maintain compliance with international laws.
Finally, it is not uncommon for terms to be re-visited and questioned by other departments – often with limited or no international legal or business experience – despite months of work between the Western and Korean lead teams!
As the Ink dries…
Perhaps of more concern is that terms mutually agreed upon within the binding agreement can be subject to re-interpretation. Most often, Korean and western senior leadership teams did a great job gaining mutual trust. Both negotiated well. The deal is signed and its time to perform.
Sadly, the honeymoon is over. Challenges arise, what appeared to be clear expectations could now seem murky with poor alignment and weak communications. Why?
There are a number of reasons. Over time, as Korean team members are reassigned to the project, the new staff will be unfamiliar with previous compromises and understandings. This new staff, often in response to changing business conditions, will have different expectations and want to implement fundamental changes that alter the agreement. This will require amending the original agreement with all of the associated time and costs. In the worst cases, Western companies will not be open to altering what they feel is fair and binding, resulting in seriously jeopardizing the relationship and creating potential legal action.
Conclusions
In dealing with Korea-facing business partnerships ensuring success and sustainability will require well-communicated expectations and cross-cultural understanding. In particular, any business plan and strategy needs to take into account differences the cultural realities between the West and Korea.
Excerpt from: https://www.globalsuccess-club.net/newsletter-april-2015
https://www.globalsuccess-club.net/business-in-korea?utm_source=april+Newsl