Three Ways Contracts in Korea Are Different: Think of an Agreement as a Roadmap
By KBC Creator Steven S. Bammel
From the Korea Business Advisor column in the March 2012 issue of Seoul Magazine.
There are many business opportunities in Korea today. This is especially true when a foreign company holds intellectual property, such as advanced technology, which is complementary to the manufacturing prowess of a Korean enterprise.
However, many foreigners heading to Korea on business think too much of the potential and not enough of the risks. One area that continues to confound our best efforts is legal agreements. It’s important to keep several points about contracts in mind when doing business with Koreans.
1. Keep it Short and General
The major Korean conglomerates, such as Samsung, LG and Hyundai, employ teams of lawyers with Western backgrounds and their legal practices resemble (thought don’t exactly duplicate!) international standards. This works well for contracts where every T is crossed and and every I dotted before business gets underway.
However, once you get past the multinationals, agreements with smaller Korean companies tend to be much shorter and leave more room for manuever later. All those T’s and I’s for resolving specific issues get summarized into Korean-isms like “mutual benefit”, “mutual agreement” and “mutual discussion”. In other words, typical agreements in Korea foresee the need to figure out “win-win” outcomes (or in some cases it seems, “I-win-you-lose” outcomes) on the fly.
2. Expect Changes
A reason Koreans don’t clarify everything in advance is that they see these agreements as working roadmaps, not as final, fixed contracts. This matches the Korean “Can do!” approach (immortalized in former Korean President Jung-Hee Park’s saying, “하면 된다”) to business and makes sense when considering how businesses and relationships evolve in unexpected ways. After all, how can you prepare for every eventuality in advance?
But by not going to great effort to nail everything down in advance, a written agreement with a Korean often seems to come down to this, in hindsight:
“Let’s start working together on such-and-such a basis but considering that we haven’t really thought through everything yet, we’ll just see how things go and course-correct later. In fact, there are several things I’m kind of expecting but I’m not ready to tell you at this point because you might not want to do business with me if you know. But we’ll maintain the relationship on good terms and once we both see how great it is to do business together, we’ll work it out.”
Such an approach leads to many misunderstandings when the implied understanding is not shared by both parties and/or to abuse when one party manages to shift the business advantage midway in the relationship.
3. It Comes Down to the Relationship
Considering that contracts in Korea are generally short and vague, but that even on the points where they are clear, things can be fluid, it’s more important than ever to work to maintain good communications with your Korean partners. That’s why I’ve been so persistent in emphasizing the importance of business relationships in other articles in the Korea Business Advisor column.
And don’t forget that the relationship building is made even harder by language and cultural issues. But hey, you didn’t come to Korea to do business the easy way, right?
While the Korean court system is getting better all the time, foreigners still find themselves at a disadvantage and, even more than back home, should be a last resort for disputes. In the end, it’s the relationships you cultivate and maintain with your counterparts in Korea, not the contracts you sign, that will determine the success of your business.