How to do business in North Korea

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Two years ago when visiting North Korea, I struck up a conversation with a Western businessman in the Pyongyang bowling alley. Over beers, he told me he preferred doing business in the DPRK over China because the people were more direct and he felt like he didn’t need to worry as much about getting swindled. He’d built good relationships.

This was just one man’s anecdote, and not representative of every experience – certainly not for Xiyang, a Chinese company that invested $40 million to build a mine and reportedly lost tens of millions when North Korean partners didn’t honor payment agreements. And certainly not for Jang Song Thaek either, whose fishing and shellfish interests ended reportedly with a firefight at the fishing grounds between his supporters and the North Korean military before his speedy execution last month.

Stories like these and an authoritarian government saddled with plenty of international sanctions will likely continue to forestall meaningful development in the DPRK. However, there are foreign companies, largely Chinese ones, who’ve forged profitable ventures. Despite the seemingly high-risk, unpredictable environment, some 90 percent of Chinese companies invested in North Korea reported profits in 2007, according to the South China Morning Post (more recent numbers are difficult to come by, since most investors are non-government). And though the tiny Western business community in the DPRK is media wary, those who were open to interviews say doing business in the DPRK is more mundane than the headlines make it seem.

“Basically I think North Korea is like other Asian countries,” Dutch business consultant and outsourcing specialist Paul Tjia says, and of where culture is concerned, “there aren’t that many differences.”

In China, personal relationships are essential and showing deference to authority is imperative; the same is true in North Korea. Tjia, who has experience in the IT sector in China, India and North Korea, said he actually found it easier to have work-related conversations in the DPRK than in India, as Korean programmers were more inclined to speak plainly than to say what they thought the boss wanted to hear.

Westerners who’ve done business in the DPRK tend to agree: The biggest misconception is that North Koreans aren’t interested in business or adept at conducting it.

North Koreans are eager for foreign investment, and they’re savvy enough to research their potential partners. Usually, one businessman said, they know at least what is accessible on the Internet about their foreign counterparts. And they systematically collect information during both formal meetings and informal talks to bolster their knowledge. This can be to their advantage at the negotiating table since it’s difficult for foreigners to gather information within the DPRK.

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Felix Abt, who lived in the DPRK for seven years and managed multiple foreign business interests and also co-founded the country’s first foreign-invested software company during his tenure, says that typically foreigners who find success in the DPRK are those who’ve worked in other Asian countries and have learned to adapt to local cultures. Building personal relationships is both the biggest challenge and the most important factor for success. Since most companies don’t even have websites, would-be investors must either get introduced through connections or go to trade fairs in Pyongyang or Dandong to find potential partners.

A potential investor on a fact-finding visit to Pyongyang will usually be taken to pay respects at the foot of the massive Kim Il-sung and Kim Jong-il statues, but this is a one-time excursion, not necessary on following visits. If there’s time, he might also be taken to the Kumsusan Palace of the Sun to see the two embalmed leaders.

A foreigner is dependent on his local partner for visas, permits and information, so trust is vital. If a dispute arises, there’s slim hope of legal redress as it is up to the local partner to raise the issue with authorities. It’s wise to build multiple relationships, as there are more mundane reasons than execution — sickness, old age — that can compromise a single connection.

Naturally, the biggest point of sensitivity when forming relationships is politics. A meeting between a potential partner and a foreign investor might start with an exchange of pleasantries related to the good relations between the two parties’ respective governments. Asking pointed questions about the DPRK government would likely thwart trust-building.

So how do you build trust? Much the same as anywhere else in the world: Sincerity of purpose is vital. In addition to formal business meetings, a dinner followed by karaoke or a day trip out of town lets potential partners get to know each other outside an office setting. If the deal in question involves a big mining company, then meetings might include high-level officials and could convene at a ministry office. Smaller investors might meet in a restaurant, as a lot of North Korean restaurants have dividers between tables that lend privacy. It’s not unusual to spot serious discussions taking place over lunch at eateries.

“I’d bring souvenirs from my own country, maybe Dutch flower seeds,” Tjia said. “Not necessarily anything expensive, a small gesture is welcome.”

Once a relationship is founded, it must be maintained, and that can be hard for those not based in-country. A lot of things are better decided face to face because people are uncomfortable having frank conversations via email or over the phone. North Koreans know their phone calls and email are monitored, but the preference for face-to-face communication is more cultural, Abt says. Like other East Asian cultures, North Koreans pay attention to body language to gauge their potential business partner’s motives and sincerity.

Inside the DPRK, it’s not just a matter of adapting to the North Korean way, cultural exchange is a two-way street: Abt, cited his experience representing multinational tech company ABB, one of the world’s biggest engineering outfits, in North Korea as example: Initially, Abt observed that the local business culture was always to require full payment from clients upfront. After building a relationship with one customer, ABB allowed one North Korean client to pay within one month of delivery of ABB’s goods.

“North Koreans considered this highly unusual and strange. But it worked well for us with this particular customer,” Abt said in an email. “As long as I took care of ABB’s interests, we realized about one million USD sales per year with a very good profit margin.”

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Abt also points to the proliferation of brochures and leaflets as an example of foreign influence: North Korea’s first pharmaceutical joint venture PyongSu – which Abt once served as CEO of (he is still a shareholder) – made flyers for over-the-counter products and started distributing to pharmacies and retailers in 2006. After that, flyers started cropping up for other pharmaceuticals, traditional medicine, cosmetics and beverages.

While success stories regarding positive changes and profitability exist, the disincentives are still huge: potential North Korean customers or joint-venture partners are often short on cash and resources. Sanctions make doing business difficult if not impossible, and the threat of increased sanctions is always looming.

Ingratiating oneself into North Korean business culture isn’t insurmountably hard, but a foreign investor has to completely trust his local partner to set things in motion and he has to not be bothered by the lack of legal protection — a tall order for a business relationship, anywhere. And if Jang’s fate lends one lesson to investors it’s that the benefit of personal relationships must be weighed against the risk of too much dependence on a single person.

On the flip side, Abt says North Koreans are the hardest workers in Asia, the most eager to learn and the least expensive. Whether navigating the local business culture, bureaucracy and a testy geopolitical situation is worth the risk to reap those benefits is a question would-be foreign investors will have to weigh carefully for the foreseeable future.

Picture by Eric Lafforgue

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