The Other Korea Discount

February 14, 2007

We’ve just completed the review of the Korean data from the 2007 Edelman Trust Barometer and it throws up some interesting findings. A lot of people wiser than I have have already talked about the global implications of the study (see Richard Edelman’s comments here, David Brain’s here and Phil Gomes list here) but I’m going to look at the implications for Korea, particularly in its standing with the rest of the world. This is the first of four planned posts.

Policy makers and economists on the ground in Korea often talk about a “Korea Discount” imposed by foreign investors dealing with Korean companies. Because of poor corporate governance and opaque reporting, it is argued, Korean companies are not able to attract as much investor capital as they might do otherwise and shares trade at lower earnings levels than comparable companies from other countries. Whether the Korea discount is fact or fiction, the Trust Barometer data indicates that Korean companies do indeed face a Trust Discount when dealing with developed markets.

We asked respondents the extent to which they trusted corporations headquartered in each of the 18 countries included in the study. What we learned in repsect of Korea is that Korean companies suffer comparatively low levels of trust in developed markets such as the U.S. , U.K. and Germany while companies from those countries enjoy comparatively high levels of trust in Korea. Conversely, in respect of the BRICs countries in particular (Brazil, Russia, India and China), Korean companies are highly trusted in developing nations but that level of trust is not reciprocated in Korea.

Interestingly, the Anholt/GMI Nation Brand study found Korea to be very low on the list of researched brands, with a poor showing particularly in the U.K.. On examining the data, study leader Simon Anholt concluded that the British saw little or no distinction betweeen North and South Korea, and the the North – not demonstrably the most highly trusted nation on earth – was dragging down the reputation of the South. A topic for another post perhaps.

Anyway, the flip side to the apparent trust deficit is that the three most trusted industries in the study are Technology, Automobiles and Telecommunications – all industries in which, it’s fair to say, Korea has an above average showing.

It has long been a personal bugbear of mine that Korea has great companies and great products let down by marketing that is often developed to appeal to Korean executives at head office rather than the global consumers themselves. The result is often derivative, sometimes confusing and occasionally hilarious (though unintentionally so). However, a consistent theme of Korea corporate communications is the emphasis on global reach and market share (disturbingly often communicated in terms of “conquering”, “attacking” and “overcoming” new markets). However, the Trust Barometer clearly shows that, while the global reach message is compelling in developing markets, developed markets prefer to see a strong local presence as indicative of trust.

To me, the message is clear. Korean companies need to put a lot more effort into building trust-based relationships with important stakeholders in their main target export markets. They need to do this through open and transparent dialogues. And they need to construct their conversations around what the audience wants to hear, not what will appeal the person in the corner office.