South
Korea
How not to get ripped off
A must read for small-timers wanting to do business in Korea
(or anywhere). By blogger Andry Jackson
Dec 8, 2005
I found
I couple of the comments in my last post by Brendon Carr
so interesting and informative that I decided that they
deserved their own post. They are certainly sage advice
for anyone wanting to do business in Korea.
One thing I want to point out is that Carr's comments are
not just simple exercises in Korea-bashing. His chief point
is that the Korean legal system allows for con artists to
operate almost with impunity.
It also implies that the human temptation to lie, cheat
and steal is made more appealing in the Korean business
environment, so foreigners have to be very careful before
they make a major investment here.
Everything below is from Mr Brendan Carr with a few noted
edits. Enjoy:
PART
ONE:
I am
constantly consulted by foreign businesses who got suckered
by the Koreans. By that time it's usually too late for these
poor bastards.
My advice
for the next deal: CASH ON THE BARRELHEAD. NO CREDIT, NO
WAY, NO HOW. Not because Koreans can't be trusted (if 99.9%
of 50,000,000 Korean people are completely honest, that
leaves 50,000 bastards you can't trust - lots of ways to
get cheated) but because the legal system leaves no remedies
in the case you are cheated.
The
story always goes thus:
Mr.
Kim: "Here is Kim, CEO of Kimsco World Incorporation,
CO., LTD. We big company in Korea, know many people in government.
Now we have big project bid going and Kimsco will order
10,000 of your esteemed company's prestigious widgets. Please
must to give good price and quick delivery. Project gonna
very urgent now."
Suckercorp:
"Thanks for your inquiry Mr. Kim. 10,000 units at unit
cost $100 each will come to $1,000,000. Please make payment
by telegraphic transfer or irrevocable letter of credit,
or bank guarantee."
Mr.
Kim: "Your price very high. We are contacting
your competitor now. Please to cut price unit cost until
$70 each. We have big order later on; many more projects
here in Korea. Kimsco World Incorporation CO, LTD. now business
very good. Don't worry - my friend Mr Han will sign contract.
I am using his name for company due to unfair government
harassment. But don't to worry about that."
Suckercorp:
"That will be a stretch, Mr. Kim, but we can do it.
Please transfer US$700,000 to us." (Geez, this sale
is kind of a loss leader, but this will be my first inroad
into Korea, and soon I'll be selling to all the Korean companies!
What a goldmine! I'm going to be a hero here at Suckercorp
and the richest salesman in Springfield!)
Mr.
Kim: "Bid very urgent now. Government says
we must have product before bid can be approved. But my
friend (very powerful in government) says we will win if
we have your widgets. Now very urgent. Don't worry about
payment. All under control."
Suckercorp:
"Okay, Mr. Kim. Because this is so urgent and we value
your goodwill, we have shipped 10,000 units to you. I've
upgrade shipping to FedEx air freight; don't worry - we'll
be responsible for that extra cost. We're looking forward
to working with you. Please advise on payment." (The
air freight touch is genius! I'm going to be rich off all
those future commissions!)
Mr.
Kim: "Thank you for quick shipment well received.
Bank L/C or guarantee too expensive. We will pay by T/T
much cheaper. But now economy not so good, all SMEs are
difficult now. Please to must understand our situation.
Can we reschedule first payment $100,000? But still need
10,000 more units of widgets for big contract. Once bid
approved Kimsco will need second supply top urgent."
Suckercorp:
"Umm. Well, I guess so, but what's the date
of this first payment again?" (Should I do some due
diligence on this guy?)
Mr.
Kim: "Cannot schedule first payment now. Economy
still bad. Please you must understand our Korean special
situation."
Suckercorp:
"Hey, Mr. Kim, we are willing to work with you on payment.
Can you make a first goodwill payment of US$50,000?"
(Getting worried now. Maybe I should check this out and
get legal advice. What, that greedy lawyer wants $300 an
hour? Screw that.)
Mr. Kim: [no response]
Suckercorp:
"Mr. Kim, we're becoming concerned. You've not kept
any of your promises to us, and we are considering legal
actions against you." (Hmm, but $300 an hour is too
damn much to spend.)
Mr.
Kim: [no response]
Suckercorp:
"Mr. Kim, respond immediately or we will commence
legal actions against you." (Why isn't this guy answering
e-mails or the phone anymore?)
Mr.
Kim: "So sorry, Mr. Kim is on important overseas
business trip and cannot respond. He will be back in six
months. What hotel he in? We don't know. Please don't to
bother us anymore."
Suckercorp:
What the hell? Maybe we should talk to that lawyer and do
some due diligence. What's the headquarters address of Kimsco
World Incorporation CO, LTD? Oh here it is: Doosan Bears
Craptown Officetel, Guro-gongdan, Guro-gu, Seoul.
Brendon:
Dude, you're (made sweet love to). [Sorry, I could help
but make the Yangban edit.-Andy]
PART
TWO:
I want
to make sure that this information gets recorded so others
might find it later and avoid the disaster foretold by the
typical pattern I describe.
That story I made up last night based on my experiences
here, has about a million screaming red flags in it:
HURRY,
HURRY - Speed kills. Slow it down.
"FAKE
NAME" PROBLEM - Mr. Kim says in passing that
Mr. Han, his friend, has "lent his name" as Representative
Director of the company but that Kim is the real principal.
This is common, but anyone sensible would ask why Mr. Kim
needs to obscure the ownership/management of his company.
What is he hiding from? This is one of the first red flags
one could catch if legal counsel is consulted early.
BUSINESS
ADDRESS - Although this was discovered at the end
of my fictional tale, if Kimsco were indeed a major business
its address would probably not be over there in Guro. A
quick call to a knowledgeable and frank foreign or Korean
lawyer (call the foreign lawyer!) could give one this judgment.
IS
IT A REAL COMPANY? - And of course, we would pull
the commercial register of the supposed "Kimsco World
Incorporation CO., LTD." to check if it exists at all.
It's available on line and costs us $1.00 to pull (and then
my usual hourly rate to analyze and counsel). It's surprising
how often we find the company doesn't actually exist.
NO
CREDIT - If local banks and guarantee insurance
institutions won't extend credit to Mr. Kim, there's probably
a good reason. They know the limits of the local legal system
better than you do - follow them. Any Korean counterparty
who cannot pay in advance by T/T and cannot arrange intermediation
by a trusted financial institution is not worth the risk.
The banks are here in Korea and have much more staying power
than a foreign company selling from offshore; if they won't
extend credit why should you?
BIG
TALK - People who try to get over on you now with
promises to make it up in the future are exploiters and
cannot be trusted. It applies equally to sales of goods
and services. Customers who ask for a concessionary rate
now so that the vendor can get future work at full price
are liars: Giving in to that game establishes one as an
easy mark for exploitation.
MISSED
FIRST PAYMENT - This is the big one. If there is
no first payment, there will be no later payments either.
You wouldn't believe how many foreigners get burned by this
one and reschedule again and again, all the while continuing
to supply more goods or services to the Korean customer.
(There's another version of this one where the canny foreigner
insists on partial advance payment: That first payment is
made, because otherwise goods won't be delivered. After
that, no more money is released.)
ECONOMY
NOT GOOD - We have been hearing versions of "economy
not good" as an excuse for for eight years. You should
translate it into English as "I've mismanaged my company
into bankruptcy."
PLEASE
UNDERSTAND OUR SPECIAL SITUATION - Everyone is
special. This means "I'm not taking responsibility."
UNAVAILABILITY
DUE TO BUSINESS TRIP - This one always cracks me
up. We see it every time. In English, "extended business
trip" means "he's a fugitive from justice".
So,
what to do about it? Number one, although legal services
may be expensive, getting ripped off is far more expensive.
(Of course, it really burns when you choose the wrong law
firm and your lawyers rip you off too. If there are six
lawyers waiting for you in the conference room, run away
-- there are 10 more billing on the case in the back room.)
Consult a lawyer at the beginning of your commercial transactions
and 99% of disasters can be spotted in advance and avoided.
Credit
reporting is becoming available. Use it. Get a credit report
from the National Institute of Credit Evaluation, [hot link
added -Andy] a joint venture with Dun & Bradstreet.
Get reports on both the company itself and its Representative
Director individually.
Never
be an unsecured creditor. Unsecured creditors here have
no recourse other than the criminal system. And the returns
on that are not great: The police here put just about zero
effort into looking for swindlers.
If assets
are offered as security, have the security evaluated by
a lawyer so you can be sure you're getting what you think
you're getting. Last night we counselled someone on the
advisability of accepting a fourth-priority keun mortgage
on 500 sq. m. land and two-story commercial building in
Mapo already encumbered to the tune of W730,000,000. Upon
default and liquidation at auction, the other creditors
would be paid out W730,000,000 before our client would see
a dime of proceeds; they're selling W1,100,000,000 worth
of equipment -- does that sound like a good idea?
Recently
another foreign client who had gotten swindled out of millions
of dollars came to our office with a "guarantee insurance"
policy that their trusted agent had supposedly bought for
them in Korea for a W6,000,000 premium. It turned out to
be a "Silver Insurance" supplemental-health policy
with a W1,000,000 benefit level and a W20,000 premium; the
trusted agent had embezzled the rest of the money to buy
a really swell computer for himself. It took me seconds
to recognise the discrepancy but by that point they had
been relying on the trusted agent as their only source of
information about Korea for years.
Now,
if you're a knee-jerk defensive nationalist like [names
deleted - Andy], these war stories might lead you to shriek
"Brendon hates Korea, to criticize so much!" Far
from it. My own experiences here, especially with the folks
in my firm Aurora Law Offices, have been really positive;
our guys are 100% decent and 110% (too honest, if you ask
me). But like I said earlier, even if 99.9% of Koreans are
completely trustworthy that still leaves a lot of potential
disasters out there.
Forewarned
is forearmed.
Posted by Andy Jackson
Comment:
Well
I'm not saying I have the necessary forsight to run a multinational
company (how easy it is to critique a situation on paper
eh?) but honestly, as soon as someone tries to blame 'poor
economy' as a reason that I should discount my goods offered
to them I'm sceptical.
Add
to this the fact they have said my preferred means of payment
is 'too expensive' (as well as the dodgy business name/the
mysterious Mr Han) and I would not be taking any further
dealings with these people without a man on the ground -
hell what's 5 or 6 (10 or 12?) grand to hire a local foreign
lawyer for a week to iron out the bugs in the contract you've
drawn up for Mr Kim's signature? (I find it hard to believe
a company capable of dealings in the international scene
does not have, if not in house legal counsel at the very
least readily accessible 'trusted legal partners' so to
speak who should be able to knock up a contract for the
sale of goods in a day or two - it ain't rocket science)
Again
though I will readily admit to not knowing squat about Korean
law or International business (I realise the issue in the
post is mostly about the lack of legal remedies for any
- particularly foreign - parties who are wronged, and the
only real solution to that is avoid doing business here
IMO).
Posted by: Hojuin
http://marmot.blogs.com/korea/2005/12/hijacked_commen.html
