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Balancing the Labor Equation

The nature of Korean labor relations is in transition as Koreans develop a more global perspective and foreign investors discover the need to communicate to their employees more effectively what is necessary to achieve business success Wearing identical red headbands and vests, the strikers sit cross-legged in neatly organized rows, brandishing raised fists and chanting slogans in unison. Sometimes the images are more dramatic: marches with banners, dissolving to clashes with riot police in a haze of tear gas.

Such televised scenes of militancy often erupting into violence have become stereotypes of Korean labor relations, conveying the impression to a worldwide audience of Korean unions as intractable obstacles to the otherwise smooth running of an operation. Certainly, union action has traditionally headed the list of concerns foreign corporations have harbored about doing business in Korea. But how seriously should such images be taken both from the point of view of their intent, and the likely impact on any operation in Korea representing a significant foreign investment?

"They shouldn't be taken at face value," said Vincenzo Binaglia, director for the Seoul branch of William M. Mercer an international firm of consultants specializing human resources. "It's all rather symbolic and symbolism is important in this society. What is seen is not necessarily the content," he said. "The headbands, etc., are too often associated with the period of intense union activity in the 1980s, a completely different scenario, a different political environment, when Korea was coming from years of low wages."

"Certainly, Korean strikers look impressive," said Jean Loudenot, managing director, Administration, FAG HANWHA Bearings Corp., and the former chair of the Human Resources Committee of the French Chamber of Commerce in Korea. "They [the strikers] act as a group, Asian-style, and look more exotic. Beyond, the images, though, is the situation [of labor militancy] that is much different from Europe"

For foreigners, such scenes of industrial action mask the profound relationship between Koreans and their work, their only source of security in country with a social support network far less developed than in advanced countries. Korean workers will typically work overtime on returning to work from a strike to make up for lost time, and, to the surprise of foreign executives, in most cases tend to bear few grudges against management. "Koreans work more than any other nationality and do more work than any other activity except sleep," observes Mr. Loudenot. "Whereas for Europeans, their main relationship is with family and leisure, for Koreans, it's with their work. Korea," he added, "is at that certain stage of development."

Behind the images, Mr. Loudenot, points to the huge changes in Korean labor relations during his nine years in the country, where management has traditionally been based on the Confucian-based "hobong," the Chi-nese/Japanese model which rewarded loyalty and where compensation was determined by seniority.

"Korea has become much more open to the world since the 1988 Olympics," he said. "Ten years ago, most Koreans didn't travel abroad, since except for business purposes it was impossible to get a passport." What's more, they didn't have good English skills." Since that time the number of Koreans working and studying overseas has soared while the level of competency in English has improved remarkably. "More Koreans can now listen to new ideas and are open to new ideas and are becoming part of the global world," he said.

The exigencies of the Korean economic crisis and the subsequent two years of economic discipline imposed by the International Monetary Fund (IMF) brought a new consciousness to Korean labor and a new willingness to be flexible and adapt to changing circumstances. Foreign-invested companies, often better financed and equipped and with more advanced management techniques than their Korean counterparts, have worked with their employees to maintain competitiveness and at the same time reached new levels of understanding with them. One of the most outstanding examples in this regard is that of Yuhan Kimberly, a disposable paper product joint venture formed between Korea's Yuhan Corporation and the American paper giant, Kimberly-Clarke. As a result of its commitment to maintaining excellent labor relations, Yuhan-Kimberly won this year's New Management/Labor Culture Award, presented by the Ministry of Labor.

The company's labor relations have improved dramatically since the company was hit by a 10-day strike in 1996, explained D. J. Lee, senior executive director, Human Resources, for Yuhan-Kimberly's Non-woven Division. The turning point came during 1998, the worst year of the recession. "Some of the machinery had to be shut down because of reduced demand," he said. "Our employees became anxious over job security but the company announced it was committed to full employment during this period and we had faith that these difficulties would be overcome in a couple of years."

Creating a Contact

Having made its declaration, the company introduced a number of creative solutions closely involving the workforce to help get over the worst of the situation. They included dispatching operating line employees to large retailers and wholesalers to promote Yuhan-Kimberly products but the most radical was switching from a three-crew to a four-crew work schedule in the 24-hour per day operation of the company's plants. The move represented a work sharing initiative that meant reduced overtime, but employees received compensation via a higher base salary and use of the extra time for additional training. Salaries in fact increased every year from 1997 through 1999 at rates higher than the industry average.

"Thanks to this kind of restructuring and cooperative activity we could successfully overcome the worst time without layoffs or strikes," said Mr. Lee. "In 1999, before the economy picked up, Yuhan-Kimberly started to recover from the recession in contrast to the rest of the industry."

Yuhan-Kimberly has been rewarded for its engagement with its workforce by a strike-free industrial relations record since 1996.

"You have to create a contact with the unions and get their trust,"said Mr. Binaglia. "How do you get trust? By talking openly and frankly to your employees. You have to get your hands dirty." If new foreign management is considering job cuts, then it is best advised to tell the unions it is "Discussing with a consulting company the possibility of introducing an early retirement package (ERP)," he said. "If management doesn't do this, then a widespread sense of instability will permeate the firm."

Establishing channels of communication with employees is vital to foreign investors seeking to introduce new systems in their acquired operations to enhance and assure profitability. William M. Mercer Korea performs human resources due diligence analysis on behalf of foreign investing companies and includes Rhone Poulenc, BASF and the GE-Newbridge Capital consortium in its takeover of Korea First (Jeil) Bank among its clients. "Our job is basically helping companies develop the right communications approach," said Mr. Binaglia. With the aid of the largest compensation survey in Korea, the consultancy assists foreign investors, in concert with unions, to shift the compensation system within their acquisitions from the hobong, seniority system to one that is job-based. Between 30 to 60 percent of remuneration in the hobong system is in the form of fixed bonuses unrelated to performance. The process of building a management structure into one that is job-oriented involves understanding the value of a job to the organization, putting a value on it, and then appraising the employee regardless of age or gender.

"Until 1996, labor negotiations focused basically on living standards, i.e., what should be given to employees," said Mr. Binaglia. "In discussions with unions, the concept of 'the job' is the most difficult to accept since it represents a more complex value." However, the introduction of job-based compensation is essential to building the international competitiveness of acquired Korean assets. "No competitive player in world markets uses a seniority system ," said Mr. Binaglia. The consultancy uses a variety of approaches to communicate its message: the forming of a "function team" involving line managers, union leaders and the consultancy itself; hotlines to gain feedback; newsletters; and certain clusters of employees who will act as ambassadors for the new system to others more sceptical.
 

The Need for Preparation

Where there is insufficient preparation prior to a foreign takeover union militancy can fill a vacuum created by fear and uncertainty. In 1998, Swiss agribusiness and pharmaceutical giant Novartis bought the money losing fertilizer division of minor chaebol Oriental Chemical Industries located at Iksan near Jeonju, Jeollabuk-do. Jean Luc Scalabre, president of Novartis Agro Korea Ltd. said that in September 1998, two months of discussions with the plant union suddenly broke down. Union representatives then delegated negotiating rights to the Korea Confederation of Trade Unions (KCTU), the most militant of the Korean union groupings, but one that claims a membership of only 500,000. Negotiations again broke down when the outside representatives presented the fledgling management with a list of demands it was impossible to accede to. They included a 40-hour workweek, lifetime employment, and that the union approve all management decisions. A strike was called in early March 2000, which lasted two weeks.

"We signed an agreement to resume discussions in good faith but negotiations stumbled because they wanted us to fire the manager of a branch office in Jeonju," said Mr. Scalabre. "That was a breach of the right of management. When we refused, they went on strike again." The plant employees returned to work after three months with no improvement in compensation and the basic situation unchanged.

Mr. Scalabre said the root of the problem was that the Korean company didn't prepare its employees when the division was to be spun-off.

"There is a feeling of belonging in a company like this , and life-time employment. When it's sold to another company, the employees feel at the mercy of the new company," he said. While a new foreign owner may be compelled to restructure the company to ensure its survival, a Korean company would eventually do the same. Mr. Scalabre said in retrospect, the Korean workers should have been informed by their previous employer that the division was being sold because their future would be better with a foreign company. Also, he said, there could have been "More preparation and awareness by the investor in regard to Korean management culture."

For the future Mr. Scalabre said management will "Convince our people that they have nothing to fear, that our company is a world leader and that there is no reason we can't achieve in Korea what we have achieved in the other 140 countries we operate in. That is high returns, high employee longevity, and high compensation."

Mr. Binaglia notes that while strike activity against foreign invested companies is up this year from nine cases in 1999 to 27 by the end of August (see box), their contribution to GDP has also risen. Over the last two years, the participation of foreign invested companies in the economy has grown from 2 percent to 8 percent as the influx of foreign capital has swelled. As the Ministry of Labor points out, the recent rise in industrial action has impacted companies across the board, foreign and Korean-owned, as unions reassert themselves after two years of suppressed demands while the economy was in recession.

The presence of foreign capital in the Korean economy is growing, a trend which is irreversible as Korea becomes a progressively more integrated part of the world economy. To reduce risk, the huge sums that now characterize foreign investments, a relatively new development in Korea's 40-year history of inbound capital flows, have necessitated investors taking special steps to "Koreanize" their human resource systems and bringing labor on board to assist in their formulation. While Koreans themselves become more global in their outlook, and as foreign investors become more cognizant of the needs of Korean labor, a new paradigm of labor/management relations is emerging in Korea based on communication, awareness, and the need to survive in an increasingly competitive world.    

by Charles Duerden(cad@kotra.co.kr)