Being a foreign company can be a liability in a market where powerful, long-standing informal networks give domestic companies an advantage. By leveraging their competitive strength and global reach, however foreign companies can turn foreignness from a liability into an asset.
Foreign companies can be at a disadvantage when competing against domestic companies strengthened by informal networks developed over years and even lifetimes. In Korea, for example, two types of informal networks play a major role in the success of Korean companies. The first of these networks is the more personal Yongo, which is built on family, education, and regional origin connections. The second is Inmaek, which is based on ties developed in workplaces, professional communities, and even local neighbourhoods.
Using Korea as a case study, a team of researchers with global experience suggests that companies can use pursue two strategies to overcome the advantages of domestic informal networks. The first, a reactive strategy, is to essentially follow the old maxim of doing in Rome as the Romans do. That is, foreign companies can attempt to develop domestic connections by closely learning and following the traditions, practices, and regulations of the country in which they are operating. Over time, they can change their routines and behaviours to align with local norms, and pursue relationships with local actors. For example, a French logistics company hires Korean mid-term career professionals from certain universities, recognizing which universities have the largest informal networks that relate to the company’s business.
The second strategy is proactive, approaching the challenge of competing with domestic companies from the opposite perspective. Rather than attempting to fit in and replicate the behaviours of domestic companies, the proactive strategy calls for foreign companies to see their foreignness as an asset, and to build on their differences with domestic companies. For example, because they are not Korean, foreign companies do not face the same expectations of conforming to Korean norms. This “permission” to break norms gives foreign companies the opportunity to develop their own inmaek—business-based informal networks—based on their foreign status and competitive strength.
While in some industries, domestic informal networks play an important role, in other industries, Korean companies are looking to benefit from the competitive might of foreign partners. Thus, the Korean affiliate of German science and technology powerhouse Merck has an M-labs collaborations centre that serves as a hub for Korean biotech companies, where they not only explore Merck’s products and services, but also get training and have the opportunity to develop their own processes in fully equipped surroundings. Korean SMEs are also anxious to partner with Korea-based foreign companies in a bid to expand their global networks. Foreign chambers of commerce with offices in Korea also help to connect Korean companies with partners from their countries.
The power of informal networks can be a two-edged sword. The obligations of paying attention to personal or long-standing business ties, for example, can sometimes lead to less-than-optimal decisions. How does one favour a non-family member for a top position in a company when family connections are valued so highly? Korean companies have pressures that foreign companies do not face. In addition, foreign companies have competitive strength and global reach that can benefit domestic companies eager to break out.
In sum, the researchers argue, foreignness should not be viewed as a liability but as an asset. Rather than reactively trying to change their practices and behaviours to conform to domestic practices and behaviours, foreign companies should proactively take full advantage of their foreignness—combining their freedom from pressure to conform with their competitive advantages to build their own new but powerful networks.
Jong Min Lee’s profile at LinkedIn
https://www.linkedin.com/in/jongmin-lee-ba2b95181/
Yongsun Paik’s profile at Loyola Marymount University
https://admission.lmu.edu/about/facultyprofiles/yongsunpaik/
Sven Horak’s profile at Tobin College of Business, St. John’s University
https://www.stjohns.edu/academics/faculty/sven-horak-phd
Inju Yang’s profile at RMIT University
https://www.rmit.edu.au/contact/staff-contacts/academic-staff/y/yang-dr-inju
Turning a liability into an asset of foreignness: Managing informal networks in Korea. Business Horizons, forthcoming. Jong Min Lee, Yongsun Paik, Sven Horak and Inju Yang. Business Horizons (May-June 2022).
https://www.sciencedirect.com/science/article/abs/pii/S0007681321000872
Further Relevant Resources:
Jong Min Lee’s profile at LinkedIn
https://www.linkedin.com/in/jongmin-lee-ba2b95181/?originalSubdomain=uk
Yongsun Paik’s profile at Loyola Marymount University
https://admission.lmu.edu/about/facultyprofiles/yongsunpaik/
Sven Horak’s profile at Tobin College of Business, St. John’s University
https://www.stjohns.edu/academics/faculty/sven-horak-phd
Inju Yang’s profile at RMIT University
https://www.rmit.edu.au/contact/staff-contacts/academic-staff/y/yang-dr-inju
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