It's one of the smallest and least populated countries in Europe. Korean Air will give you 5,467 frequent flyer miles for going there. It takes eleven and a half hours. It has declined to join its neighbors in the European Union. It is the base for many of the United Nations' organizations, yet it is not a member itself. So how did Switzerland become the seventh largest investing country in Korea in 1996, the eighth in terms of cumulative investment since 1962, and a top-20 trade partner?

The answer is not a simple one, but lies partly in the fact that Switzerland long ago realized that the path to success involves high value added and an export driven economy-deja vu. Switzerland is a country with few natural resources that has managed to build strong engineering, precision machinery, chemical, and pharmaceutical industries, to name a few. And it's reputation as a financial center hasn't hurt its economic prospects either.

Bilateral trade has been rising steadily since 1993 to reach nearly $2.9 billion in 1996, but the numbers are somewhat misleading since gold (HS 7108) made up about 47.9 percent of that volume. Swiss exports to Korea excluding gold reached $1.21 billion, while Swiss imports from Korea were $295 million, still giving Switzerland a significant trade surplus-but barely a drop in the bucket that was Korea's $20 billion deficit in 1996.

Switzerland is, in fact, an export oriented economy that the "Asian Tigers" that espouse such a philosophy today could do worse than to emulate. In 1995, Switzerland's exports per capita reached approximately $13,703, the highest in Europe and far outdistancing Korea, at about $2,800, Hong Kong ($4,300), and Japan ($2,600).

Investment is the watchword of the '90s in Korea, however, and Switzerland is no slouch in that department either. In 1996 Swiss companies were authorized to invest $162 million in Korea in thirteen cases. Since 1962, Swiss investment has reached nearly $544 million in 94 cases, making Switzerland the eighth largest investor in Korea, even ahead of nations like France and the U.K.

As one of the world's premier financial centers, some of the investment figures are skewed in Switzerland's favor because it's the source of the transaction, if not actually the home of the investing company. But Swiss firms certainly make their presence known here as well. According to the Swiss Embassy in Seoul, at least 46 Swiss companies have some sort of presence in Korea, including globally recognized firms like Nestle, Ciba-Geigy, Roche, Sandoz, Swatch, and host of financial institutions.

One of those well recognized global names is Asea Brown Boveri, an energy and engineering firm that has been investing heavily in emerging markets where infrastructure and energy consumption is mushrooming. ABB is using its technological edge to make new inroads into Korea by constructing a major new power transmission/distribution investment in the Chonan Industrial Park for Foreign Enterprises.

ABB: Swiss or Korean?
The "Think Global, Act Local" motto may sound clich today, when nearly every company with an international bone in its body proudly pastes it into their PR materials. But when ABB hangs it on the wall of their offices, it's something that every employee takes to heart.

The ABB group has about 1,000 companies in 140 or so countries, with about 215,000 employees and sales revenue upwards of $34.5 billion in 1996. Its main business is power generation, transmission, and distribution, and industrial and building systems development in fields such as process automation, drives, air handling and others.

In Korea, ABB involves itself in exactly those fields as well, with manufacturing or project assembly facilities near Inchon, Chongju, and Suwon, and a turbocharger workshop in Pusan. Its five operating companies are Asea Brown Boveri Ltd., ABB Industrial Systems, Co. Ltd. (process automation and power plant control), Hyosung ABB Co. Ltd. (a 50-50 joint venture supplying system drives), ABB Turbocharger Co., Ltd., and ABB Combustion Engineering Korea Branch. ABB has been active in Korea since 1955, first with its parent companies, ASEA af Sweden and BBC of Switzerland, then as ABB after the companies' merger in 1988. The group employs about 400 people in Korea and its fingerprints reach a wide range of products and projects, a few examples of which include equipment for the Young- gwang and Ulchin nuclear power plants, combined cycle power plants in various locations, a 154KV capacitor bank and CCPP generator breakers for the Korea Electric Power Company (KEPCO), the COREX plant control system at POSCO's stainless steel plant, robotic systems for some of the country's largest conglomerates, HVAC systems and advanced technology fans in Korea's most modern buildings, and turbochargers for the nation's shipping industry. ABB also supported Korea's nuclear self-reliance goals by transferring nuclear technology and working jointly with Korean companies to design the Younggwang 3 and 4 nuclear power plants. These plants served as the basis for the Korean standard nuclear power plants currently being built in Korea and which will be built for the Sinpo Project in North Korea.

With such seemingly large and important operations worldwide, as well as in Korea, ABB maintains a surprisingly decentralized organizational structure that works well for the local managers.

Mr. Yunsok Han, vice president in charge of human resources and communications for ABB's Korean operations, says that the company is hardly Swiss at all when it comes to day-to-day routines and decision making. "The localization is one of the things that makes ABB most successful," he says. "I think we are very much down-to-earth in the way we deal with our customers directly, and our organization is thin enough that we can make decisions very quickly."

ABB is well known for is "matrix" system of management. The company is basically divided into three business segments (industrial and building systems, transmission and distribution, and power generation) along with three regional classifications (Americas, Asia-Pacific, and Europe), so the lines of management divide and cross in a way that everyone reports to at least two higher-up managers. It is a system that permeates every level of the organization, including the local operations.

"Visitors from Korean companies always ask me about this matrix system and how we can maintain such a lean organization," says Han, "and when we tell them how it works, they are really surprised. We can operate more or less independently of Zurich and we have decision-making authority, so everything can be done very quickly. Many of the Korean conglomerates have shown an interest in our system. I even arranged about ten visits last year for Korean companies to ABB."

Mr. Han says that the matrix system means that managers have to work hard and understand everything that falls under their authority, but that it is very efficient. He indicates that the typical Korean company is somewhat top-heavy, with many layers of management.

He explains, "At a Korean company where I once worked, we had a typical open workspace. A foreign executive visited the office and asked, 'How can you work like this? It's so noisy with everyone shouting and talking on the phone.' When our Korean management visited the same foreign company, where they had individual offices and partitions separating employees, they said, 'How can they supervise all these people when they can't see them? How do they know if somebody is sleeping?' At the time, I wondered the same thing, but now that I am working at a foreign company I understand better. Even if they ask me to sleep I can't because I have so many things to do. Efficiency-wise, this matrix system is very good. Korean companies often need ten tojangs (signature seals or stamps) for every letter or memo being generated, but why all these middle managers need to approve everything is beyond me. Efficiency and productivity are lost. The matrix system is no big magic, but it works."

But when asked if the Korean companies that have shown some interest in the system might change to it in the name of productivity and much touted need for greater competitiveness, Han admits that change is difficult, especially in the well-entrenched traditional systems of Korea.

Technology Control
When probed as to what the key to success has been for ABB in Korea, the immediate response you'll receive from anyone in the company is "technology." "We believe that ABB is the leader in technology," says Han. The group as a whole puts about eight percent of its revenues into research and development and employs approximately 17,000 scientists and engineers for its R&D activities.

Thus far, though, Korea has lagged behind other parts of Asia in procuring much of that technology because of the nature of the industry in Korea and its relatively closed market for investment. Mr. Y.Y. Song, vice president and division manager of the transmission and distribution division argues that the protected market has served to slow down technology development among the local companies, which were simply content with playing alone in the domestic market. They neglected technology development while in the mean time, the rest of the world increased their lead.

Now that the investment rules have been relaxed, companies like ABB are able to come in with their cutting-edge technology and find a hungry market for it. The company is set to begin construction on a manufacturing facility in Chonan's Foreign Investor's Industrial Park that will produce medium and low voltage switchgear for the local market.

On the reasons for the new investment, Mr. Song explains, "For the transmission and distribution side, we have never had any local engineering or manufacturing activities. We covered only a limited niche market of special components because it was impossible to sell complete systems on a competitive basis in this market. But the fact is that we are going to manufacture state-of-the-art products in Korea and we shall find our place in the market as a local player."

ABB has been eyeing this market for quite some time, though, and has been trying to increase its investment, without much luck up to this point. In the past, with the protected nature of the industry, the only feasible inroad was through a joint venture. "We had been looking for partners, for joint ventures and the like, and found it very difficult," says Han. "It's not that Korean companies don't want a relationship with ABB or the opportunity to advance their own technology, because in fact they do. Most know that ABB is an industry leader, but they also want control. ABB invests a huge amount to develop new technology, so naturally they don't want to come here and just give it away."

"The business we are in is handled by the large conglomerates in Korea, and it isn't always easy to reach an agreement with them about such management control," Han continues. "When we are introducing all the know-how, we want to maintain some administration over it, otherwise it's risky for us. It's always a tricky issue to try and solve. In the case of our new investment in the power transmission and distribution sector, we also looked for a partner, but eventually gave up and decided to start on our own."

The Investment
A total of 58,000 square meters has been secured in the Chonan Industrial Park for ABB's new factory, with groundbreaking expected to take place in May. "We are aiming to produce three or four products, but they can all be lumped together as 'distribution equipment and systems,'" says Song.

In 2001, when the factory is up and running at full capacity, ABB expects to have added 400 employees to the local workforce and be well on the way to reaching its targets. The simplification of the investment procedures and the government's active recruitment of foreign investors, offering lower-cost land alternatives in places like the Chonan Industrial Park, have cleared many of the roadblocks for investment, but there are still risks.

"The new business in Chonan worries us a little because we don't know the labor situation there," says Han. "Perhaps the current economic slowdown and higher unemployment rate will work in our favor when trying to staff the factory."

In Chonan, officials say there is no need to worry. The area has seven universities and colleges, as well as three junior colleges, providing a steady output of well-educated workers. And with its close proximity to Seoul, it won't be difficult to lure workers from the capital area-or from the Taejon metropolitan area to the south. Chonan lies in between the two cities, less than 90 km south of Seoul, which by 2001 will be only a 20 minute high-speed train ride away. Seoul's subway system will also extend to Chonan by that time.

ABB is very confident of its technology and of the market and its customers for the switchgear coming from the new factory are expected to be Korean industry and utilities. "The other companies are looking cautiously and carefully at what we're up to at the moment," says Song. "I'm afraid that local manufacturers often see more dangers than opportunity, but when they see what this investment is all about, there should be no objections, mainly because of our localization. "We will be importing less than 5 percent of the parts and components. That means over 95 percent will be procured locally. So we are basically only importing the technology to use in our local operation," he says. "This competition will be a chance for Korea's companies to work on their own technologies in order to become better global competitors. With the market open, they can't afford to be lazy any more.

ABB is breaking new ground by being the first foreign electrical engineering company to attempt such a large-scale investment in Korea.

by Don Hackney


Foreign cuisine in Korea has come a long way from the not so distant days of spaghetti laced with Spam. The nation's import liberalization and its globalized young travelers have brought about a taste for foreign foods and the introduction of a flood of foreign restaurant franchises.

One of the newest is Marche a division of Switzerland's Morenpick, offering Koreans something different than the run-of-the-mill family restaurant. Marche is the French word for "market," which reflects the kind of atmosphere the restaurant aims to produce. Guests walk around to different stations to order and pick up their food, then return to their tables to rendezvous with the rest of their friends or family.

Steve S.H. Park, managing director at the Korean franchisee, Dukwoo Inc., says that Marche' s basic formula has been transplanted in Seoul, with only a few modifications. "Marche's basic concept is what we call the 'four F's,'which stand for fresh, few (few menu choices at one time), front (made in front of your eyes), and friendly," he says.

"The Swiss headquarters provides us with about 4,000 Western menu items that we rotate every couple of weeks, but provided we have approval, we may add our own items so that we can localize the menu to a certain extent," continues Park. "So we always have Korean items available, along with the sushi bar, as local choices."

The only other differences that you would find between Seoul's Marche and ones in Switzerland, Germany, or Canada, for example, will be a slightly larger bar and a children's play area, with a babysitter on hand during peak hours. Today's Korean kids tend to be doted upon, somewhat spoiled by their parents and often given free reign of restaurants-sometimes a shock to foreign visitors who aren't used to it. So Marche addresses the issue by giving them something to do.

"At first I was very concerned about the nature of Korean people being in a hurry all the time," says Park. "I didn't think they would want to wait in line for food. But the concept has worked out quite well, since instead of waiting they found freedom to move around and look at everything, then come back and get their food when it is ready."

Park maintains that the secret to success for a foreign franchise in Korea is to keep the restaurant's concept in tact, while adapting it to local tastes and conditions. Two high profile franchises have closed their doors recently-Planet Hollywood, which opened amidst great fanfare and closed less than a year later, and most recently, Denny's.

"Their failures certainly have nothing to do with a lack of demand in the marketplace," says Park. "In Denny's case, they tried to take the concept of a reasonably priced family restaurant, as it is positioned in the U.S., and make it a high-end expensive restaurant here in Korea. And for Planet Hollywood, they came in with a kind of Hollywood arrogance, expecting that they could open anywhere in the world and succeed. They failed to take local customs and conditions into consideration. They didn't take reservations. They didn't have enough parking spaces. It was hard for people to get there and meet.

Whatever Marche is doing seems to be working. Park says that the restaurant averages 1,500 guests daily, about 15 to 20 percent of which are non-Korean. Another restaurant will open in a Seoul suburb in August with land for one more already available. The long term plan is to have 10-12 restaurants opened in Korea.

And as the first Marche to open in East Asia, Seoul's restaurant has become a model for the Swiss franchisor. Park says, "Marche's future partners in other countries are brought here to see how well we are doing, so when they return to their countries, they sign a contract." New restaurants are opening on Victoria Peak in Hong Kong, in Singapore, Jakarta, and a contract is now being finalized with a partner in Thailand.