A division of Soft Landing Korea Ltd.
By Tom Coyner
May 23 & June 13, 2008
It goes without saying that entertaining customers and prospects is a big part of doing business in Korea. But since the enactments of various overseas anti-corruption laws in the North America and Europe, many foreign businesspeople hesitate trying understanding this topic. It is better to allow your Korean partner company to handle this part of the business process. They best know the market, the culture and the language. Best of all, it is often legally prudent to pursue a policy of “don’t ask so my Korean partner doesn’t tell” should anything hit the fan down the road with your home office auditor.
But as wise as that attitude may be for Western business professionals, it can place one on the edge of a metaphorical cliff should one have to pre-authorize payment of business entertainment for one’s Korean sales managers or whomever. Since many foreigners do not know how far the “drop” may be from that cliff, the natural reaction is to say “no.” This naturally can frustrate any Korean salesperson if (normally) he or (rarely) she feels it is required to win a major deal.
So as to shed some light on the topic, as your dedicated columnist, I have gone beyond the call of duty to find out what Korean business entertainment is really all about. Yes, it has been a nasty undertaking, but dog gone it, someone had to do it.
At first glance, all this business entertainment seems like an expensive way for Korean men to expand livers and shrink brain cell count under the guise of developing relationships that lead to sales and (wink, wink) having some fun in the process. But only if it were truly the case. It may start out that way when one is young, but by the mid 30’s, serious entertaining is actually hard work.
To put all of this into proper perspective, let’s consider how a traditional Korean salesman uses various forms of entertainment to capture a major business-to-business sale. (I will be using the term “salesman” since “saleswomen often have to drop out of the process and do team selling through their male counterparts)
While personal introductions are critical, often even with such introductions, the Korean salesman starts out dealing with strangers. Often the second sales call is scheduled just before lunch so that salesman can take his prospects out to a modest lunch. If the sales process is continuing well, later on the sales calls will be in the late afternoon. Sometimes – not regularly – the salesman may offer to take the prospect’s staff member or two out to a modest dinner followed by a few beers. As both sales cycle progresses and personal relations improve, dinner may be followed by reserving a private room, drinking beer while playing “go-stop” card games. Alternatively, a salesman may take his guests to the local sauna and play card games for hours there.
From this point a good Korean salesman should be earning the trust and candor from his prospects to pick up “inside information.” And I can tell you from having sold in Japan and the U.S., it can make for a startling comparison to elsewhere in how much inside info that comes out of these informal sessions. Not only can a salesman learn who the competitors are, how they are viewed by the decision-makers, but even at times what are the competition’s price offerings.
While the above schmoozing continues to and past contract signing, we now reach the point when serious business entertainment begins. Contrary to many foreigners’ opinions, expensive entertainment is not rampant. When serious money is spent, both the seller and buyer take such opportunities seriously. On the seller’s part, it is important, of course, not to inflate the cost of sales. But also on the buyer’s part, it is equally important not to mislead vendors. Buyers’ corporate auditors consider acceptance of excessive entertainment as a form of corruption. In fact, it is not unknown if a seller concludes they have been “had” by buyer’s manager who is not seriously interested in buying from them, they may notify that manager’s auditing department. So offering -- and accepting -- a night out on the town is not a lackadaisical affair.
Before we go any further, this is a good place to consider some common errors in this process. For foreigners, a common error is to pick up a prospect after dinner for drinks. Entertainment always starts with dinner and ends whenever, depending on the circumstances. A much bigger error can be entertaining the “foreigner handler” rather than the real decision-maker. Once the mistake has been discovered, the foreigner will probably need to entertain once more but at a more expensive level, since the foreigner handler is almost always of a lower rank and to entertain the decision-maker at the same level would be considered a slight. For junior Korean salesmen, they almost always can correctly identify the right person whom they should entertain, but they can misgauge the proper timing to do so.
So timing is important, but so is frequency. Actually, major entertainment frequency has decreased. Prior to the so-called IMF Crisis of 1997~8, the common pattern was to conduct major entertainment two or three times prior to contract signing, followed by one very big celebratory entertainment upon consummation of the deal. These days, however, most companies expect one major night out on the town prior to contract signing and one more time if the deal is done, but today that often includes the buyer team members as well as the key decision-maker.
But getting back to timing, the matter is predicated on when the salesman is sure he is likely not to get turn down. At other times, when in doubt, suggesting going out together can be a sales qualification process. A buyer is unlikely – and it can be considered unethical – to cynically allow oneself to be competitively wined and dined by two or more vendors. It is also good to remember by the time he reaches decision-maker status, the buyer has seen it all and done it all -- years ago. This is not to say there is no enjoyment to be found, but after so much work and work-related entertainment, it all remains simply being at best one of the more pleasant forms of, well, work.
We will now scale the ladder of Korean business entertainment establishment categories. It may be a bit of a climb, but it should be an informative as well entertaining exercise.
So let’s start climbing the formal entertainment ladder. At the bottom rung are the humble stand bars and nore-bang or karaoke bars In the latter case, girls can be included at the additional charge of W20,000~W30,000 per hour per girl. Beverages are normally limited to beer and soft drinks. This relatively cheap and clean entertainment where the girls are quick to admonish the clientele should a customer get a bit “handsy.”
Next rungs up are the “Business Clubs.” Actually, there are two rungs here. The lower rung is the dan-ran ju-jeom, which is essentially a nore-bang with private rooms, serving hard drinks such as whisky, vodka, etc. here, too, an option is to order girls to join in the fun. The difference with the nore-bang is the price goes up while the girls are much less inclined to be protective of their physical privacy. The added surcharge or “tip” comes roughly these days to W200,000 per girl.
The swankier business clubs are proper keul-leob or “club.” These are actually what some consider to be a light version of the room salons, which we will later explore. These establishment work on a pre-determined number of hours – usually two or three for a set room price that includes drinks and snacks at about W300,000+ per guest plus W200,000 tip for each de rigueur hostess per guest. So, you should budget at least W500,000 per visitor. (I should state from this point up the ladder, personal physical privacy becomes even less of a concern with the ladies with options being often available to spend more money with these women afterwards, elsewhere.)
The next higher station is occupied by the room salons. This is essentially the same as the clubs but women are younger and generally prettier, often with college degrees – or at least often able to speak English, Japanese and/or Chinese. The prices vary considerably depending on location but including tips to the ladies, one does well to get away with as little of W500,000 per person and often the tab comes out to W700,000 or more. Besides the obvious upgrades of these establishments over the lower rungs, there real value is there are no real time limits on enjoying ones selves at this level.
Going up one more level, one encounters the yo-jeong which are combined restaurants and clubs. Traditionally these were the giseng-jip or Korean geisha houses of yore. Today, the girls may be just or even more beautiful, often well educated, but generally lacking in the cultural refinements of the nearly extinct giseng. Considering that one gets a nice dinner thrown in, these are pretty reasonable options compared to the values offered by the immediately lower establishments. The price per person runs roughly between W600,000~W700,000. The “gotcha” is that there is normally a four-guest minimum.
At this lofty height, one wonders where one may go. But the real question is whom should you entertain at the top? Well, the rule of thumb is that anyplace that deals with professional female entertainment is appropriate to the department manager (bu-jang) level or below. When one needs to entertain true executives, it is usually a different game. In fact, it is a game called golf.
An ideal golfing entertainment takes place at a golf club not too far out of town – ideally the course should not be much longer than an hour from Seoul or the departure point. Tee-off timing should be predicated on 18 holes, including a light lunch, not take more than five hours. Then one hour should be devoted to showering and relaxing before piling back into the cars to arrive back in Seoul at about 7:00 PM. From there, an acceptable option is to carry on at a yo-jeong.
Finally, there is one last detail that probably should be addressed – kickbacks. As with many things in Korea, standard kickbacks are different than in most countries. For example, there is a standard money-back rate that comes to approximately one won kickback for each US dollar of sale. The money is paid, of course, in cash, but it is done in an open and transparent manner to the purchasing department. The money doesn’t go into any one person’s pocket but into a pool of like money. When special holidays, such as New Year or Chuseok, roll around, this money is used to buy gifts for the purchasing company’s employees. So in a sense, one may say these sales rebates are a form of entertainment and certainly are included in the costs of sale.
I hope the above gives at least the foreign reader a better understanding what happens during after-hours business. It may possibly give some insight to home office visitors who may be aghast by how much money is used in this regard. One can discuss the merits and faults of the system, but the system is in place – and it is business entertaining that keeps Korea’s business world spinning.
Tom Coyner is president of Soft Landing Consulting, a consulting group focusing on sales and human resources issues. He is co-author of Mastering Business in Korea: A Practical Guide.
Click here to return Sales & Marketing in Korea White Papers