A Capitalist in North Korea

by Felix Abt

  The proposal was embarrassing to the Chinese, who didn’t want to get involved in any brewing disputes with the Western countries. Nor did they want to be accused of taking a lax stance on North Korea. Luckily, we found suppliers within North Korea, so we could avoid the headache and legal risks of importing the supposedly “illegal” products ourselves.

  In the end, the rise of PyongSu was a rigorous project that, of course, was not free of the disputes that affect most businesses. I quarreled much more often with its foreign investors who had misconceptions about doing business in North Korea. One of the disputes was over how I treated my staff.

  PyongSu had, like most if not all Korean companies, a canteen where the staff could eat. Some staff brought food to the workplace which they had prepared at home. It was usual that workplaces fed the staff and their families, provided they were able to generate the necessary revenues.

  This was an important part of the remuneration. We regularly bought rice for our staff and the raw materials to make kimchi, sometimes in China for their lower price. Another important food item was edible oil. But the quantity of the oil we had was higher than the presumed consumption. This is because unused portions were often traded as barter.

  Apart from giving away food items, we also paid salaries. As a foreign-invested joint venture company we were obliged by law to pay 35 Euros per month for ordinary workers, but higher salaries for specialists and managers, in a convertible foreign currency. I kept the salaries, fixed in Euros, as low as possible. As we had to pay them out in the domestic currency at the official exchange rate, which was numerous times below the black market rate, the salaries of our staff became almost worthless.

  To compensate for that, we were allowed to add incentives which could be paid in hard currency to our staff—provided it was not paid by the joint venture company but by the foreign investors alone. Incentives had to be declared a “gift” in acknowledgement of extraordinary performances. The incentives were indeed linked to performance targets defined by myself for all staff, from the cleaning women and machine operators up to my deputy. The incentives assured a nice income for our staff, and gave them an incentive to do a good job.

  The government did, in principle, not agree with “replacing” the (worthless) salaries with performance-related incentives, a full-blown capitalist concept. It allowed this only, if paid and declared as a gift by the foreign investors and not by PyongSu, a company under DPRK-law. Call it a face-saving way out of a political dilemma. The foreign investors did not understand this background and insisted on having the company pay the incentives. For several months I did not pay any as they did not agree. Only when the morale of the staff dropped to its lowest, and well-trained staff started looking for other jobs, did they agree to pay.

  Another dispute was about the necessity to have our own microbiological laboratory as is usual in pharmaceutical factories. They thought it wasn’t necessary for North Korea, as the standard offered by PyongSu would be higher than anything else in that country. We had to outsource bacteriological testing to university laboratories, a bureaucratic hassle. Only when the WHO inspection concluded that this was a major shortcoming on the way of becoming GMP-compliant, the group changed its mind and agreed to forward the necessary funds.

  What was amazing, though, was when the North Korean board members embraced, in a written letter to the owners of the company, the business strategies that I had pushed for, like my emphasis on service and quality. I sincerely enjoyed working with the Korean directors, managers and staff of PyongSu and it seemed they felt the same way. I will always keep a good memory of these people, who were skilful and diligent, worked very hard – much harder than me in any case – and remained loyal even in difficult periods.

  Here are some extracts of the North Korean directors’ letter:

  Chapter 5:

  Same Bed, Different Dreams

  “Shallow understanding from people of good will is more frustrating than absolute misunderstanding from people of ill will.” — Martin Luther King, Jr.

  “Mr. Abt, hire sales women with miniskirts!” the scion of a family of multibillionaires, who had invested in PyongSu, told me in his office in Europe. He thought this tactic would boost sales, an ill-given word of advice before I took the post.

  The dilemma, though, was that miniskirts were completely banned in North Korea. The law was then either strictly enforced, or women took it upon themselves to follow it. I have never come across any North Korean woman wearing a miniskirt, unlike their more revealing cousins in Seoul. Still, as a caveat, North Korean girls sometimes donned short skirts during government-authorized parades, like the Arirang Mass Games.

  I didn’t challenge his words on the spot. As a third-generation-entrepreneur, he did not build up his fortune but inherited it. Unlike me, he could afford to run a business as a hobby for which he could hire anybody who wore miniskirts. People close to him told me that he considered North Korea not to be a real profit-making opportunity, but a so-called “intellectual” challenge.

  I’m not sure if you could even call it that. With his background, he must have reached the top of Maslow’s pyramid of needs, which is self actualization. I was still struggling on the lowest level, called physiological needs, as I had to feed my family before anything else.

  Like any sensible businessman, I ignored his misinformed advice and, it turned out, he also ignored my advice too on doing business in North Korea. But I wanted to give this investment a try, even if he didn’t know what was best for his family’s money. I would defend his family fortune to the best of my abilities, because that’s what I was being paid to do.

  There’s a Chinese saying, “Sleeping in the same bed and dreaming different dreams.” It’s a meditation on the tendency of people to see things in a radically different light. This was the beginning of a rather long sleep in the same bed with a sloven who dreamt strongly differing dreams.

  The business was unprofitable with a monthly sales income of $10. In the back of my mind, I feared that I would become the only consumer of our own painkillers. I knew things could not continue like that as the investors were running out of patience. They were ready to let the company go bankrupt if no quick turnaround was achieved.

  I responded to a question from my staff. “Yes, we are a Korean pharmaceutical company,” I answered. “But nobody is going to donate raw and packaging materials, and nobody is going to pay salaries and electricity bills if we cannot do it ourselves.

  The foreign shareholders have fulfilled their obligations as they have made their investment according to the joint venture contract. The new company is operational. It’s up to us now to make this company stand on its own feet and succeed.”

  I could see the huge disappointment on the faces of our staff. I had the impression they did not believe what I said. I repeated myself. “We must sell our pharmaceuticals and from the sales revenues we will purchase the materials, pay salaries, electricity and other bills.” I stressed: “Yes, we have to find customers able and ready to purchase and pay for our pharmaceuticals. And we must produce, import and sell those pharmaceuticals they want.” It was a bitter pill to swallow.

  Gradually, after the many sleepless nights, we arrived at the same dream of producing highest quality pharmaceuticals and services. It looked like a goal that would never come true. But it did, and after my work was done, I departed.

  A clean-cut Belgian, 31 years old, arrived on April 14, a day before the birthday of Kim Il Sung. During that holiday North Koreans took a few days off work. The young man, my successor as the PyongSu director, inquired about the holidays and made a quick assessment. “They have so many holidays, they hardly work at all,” he said.

  When I picked him up at the airport, I wanted to learn more about this kid’s knowledge of North Korea. Was he up to the task of managing a company in this isolated nation?

  I asked him if he was familiar with the Chollima mythical horse, and the meaning of the Arch of Triumph, both key la
ndmarks of the capital. It was something anybody who read the entry on North Korea in Wikipedia would know (at least, as of August 2012). These were questions I also asked to size up the various engineers visiting from Europe and Asia, who I had to work with. I was, even to my surprise, often impressed by how much these people knew. They knew much more than the young Belgian who had graduated from London’s prestigious School of Oriental and African Studies and spoke Korean.

  He was offended at not knowing the answers, and during his first company meeting he got subtle revenge on me by speaking only Korean. It was a childish way of keeping me out of everyday proceedings. But the Korean language skills didn’t help him. Because he was confrontational, and lacked respect for the older and wiser staff, he clashed during the first few days in Pyongyang with the North Koreans.

  From my office, I overheard them shouting and yelling at times, and, of course, he tried to challenge me over the most ridiculous and trivial issues, such as whether or not to introduce work incentives that already existed. Best of all, he already talked about changing things in a big way before he knew how things operated, a sign of his misguided youth in a country he only understood from a language course.

  To quote the former French president, Jacques Chirac, “This shameless boy is so much convinced of himself that he shits the world anew each day into his diapers.”

  The North Koreans, offended and angry, approached me before I packed my bags in May 2009. “We have never experienced such an ignorant and arrogant foreigner. We want to get rid of him!” announced one assistant manager at PyongSu. The group of managers surrounding him concurred.

  “I think the foreign investors who have chosen him will not agree and may not send anybody else,” I answered. “Think what that means for the company. So try to get along with him as much as you can. I am sure you can handle this.”

  A couple of days later they got back to me saying: “Yes, we think we can handle him.” Of course, I was sure they could. North Koreans are pragmatists when it comes to “managing” all kinds of people, including foreigners who travel in and out for a few years at a time.

  The North Korean managers didn’t see their own competence as an issue: they were not only fully able to produce pharmaceuticals at the international GMP standards, but had built up experience professionally marketing them as well. The Belgian didn’t see it. After I left and he had settled in Pyongyang he wrote on his Facebook page, “I am surrounded by retards.”

  The advantage of having a foreign manager like this youthful Belgian, though, had less to do with his professional competence. His task was to keep communication lines open with foreign suppliers and customers, who needed a Western link to this “hermit state.” He was a foreign messenger, no matter what he called himself on his business card, and a figure like that was absolutely necessary to keeping the outsiders in the loop.

  He must have been perceived as a gift sent by the foreign investors, clearly preferred to somebody like me who was strongly—perhaps too strongly—involved in the corporate strategy and operational matters. With the foreign boss around, the company gets privileges that regular North Korean groups don’t: it has its own international phone line and an e-mail system. For the foreign majority shareholders, there were even more cost-cutting benefits in hiring an inexperienced worker in his early thirties.

  It allowed the North Koreans now to switch to a principle so dear to them: “You invest, we manage!” Thus, the pragmatic Koreans accepted the trouble of having a foreigner speaking Korean, even though this is not welcome in North Korea because he could spread subversive ideas in the native language. But they were angrily willing to go along with the fact that he hated the North Korean system and was behaving rudely throughout his stay.

  Culture and Etiquette

  North Koreans are staunch in their abeyance to right speech and right action, Eastern norms that are dying in industrializing countries such as China and Vietnam. South Koreans, to them, appear more “decadent” and outgoing, in an appropriate way that seems improper to most Pyongyangites.

  For instance, foreigners visiting the embalmed corpse of Kim Il Sung must bow in reverence to him, although it does not literally mean they must express agreement. The sophisticated North Koreans are, in fact, aware that the political beliefs of foreigners may strongly differ from theirs, but that this is merely an emic difference in values similar to taking off shoes before entering temples and mosques.

  North Korean hosts appreciate genuine interest from foreigners. Outsiders can discuss controversial topics as long as they do not do not “teach” or try to “save” their hosts. One foreign business man suggested to North Koreans to “at last normalize relations with Japan and become friends.” That’s an outrageous idea to North Koreans because Japan has not apologized and compensated for Pyongyang for crimes during its colonization.

  Nevertheless, the word “yes” does not mean a North Korean agrees: she or he may be confirming what was heard, or showing respect even if he or she did not understand the English.

  Straight talk, and “calling spade a spade,” is generally valued by Westerners but not by North Koreans and other Asians. It may threaten another person’s face or the group’s harmony. And to go into an even deeper area, displays of anger are considered offensive by North Koreans (and most East Asians). Such a debacle would cause a loss of “face,” which is a serious matter in this region that values the self-worth of every human being. Patience, calm and humor can help overcome the most challenging and unnerving situations, as I found at PyongSu.

  To finish, in the Confucian tradition, respect for people who are older, or are higher ranking than you in terms of scholarship, wealth or knowledge, is an important part of the culture. North Koreans appeared to me to be self-controlled and disciplined. They queued in front of counters and at bus stops, showing more deference to hierarchically higher persons, and even bowing in front of them. They were also thorough in their fulfillment of social obligations, such as keeping the environment clean.

  Under this hierarchy, you would therefore not pour your own drink but pour for others at the table first—starting with the oldest or most senior ones. Ladies do not go first, as in the Western tradition. Exchanging business cards or gifts are done with both hands, and business cards received should be read with attention before putting them away. And, in a similar sign of respect, people should not be waved over with fingers crooked upwards but with the palm down.

  The banker and the economist

  Foreigners often remarked to me, in exasperation, that they couldn’t figure what the furtive North Koreans expected from them. The country, and its practices, was a break from anything they were familiar with back home. Business dealings were generally non-transparent, and this tendency caused outsiders to make wild assumptions about their partners. The results were foolish speculation and faulty assessments—two hindrances to getting any work done.

  To North Koreans, though, the intentions of the foreigners were also unclear—although they were, by and large, better informed about outsiders from their own work experience and perhaps thanks to their quasi-intelligence gathering.

  There was a typical story that unfolded: business partners were in high spirits after dining together at their welcoming dinners. They shared the confidence that their projects would be successful. But frequently, misunderstandings, suspicions and frustrations emerged. Even seasoned executives, representing multinational corporations, took intercultural training courses, and had experience working in remote cultures, but lost their temper.

  Take a few examples. Dr. J.H. was a quirky fellow, a Hong Kong-born Chinese man who moved to Great Britain as an adolescent from a wealthy family, and then studied to be a psychiatrist. In his twenties, he set up a business with the promising name Global Group, which supposedly reached a good deal of success—but only if you believe what the conglomerate reported about itself.

  In 2004, the twenty-something, perhaps getting too confident, told the media that he
would take over the country’s only foreign joint venture bank, Daedong Credit Bank. His proclamation came to a surprise even to the bank managers themselves. The group didn’t issue a public statement denying it, but its general manager and co-owner told me that he was taken aback when learning from the press about the supposed buy-out.

  In another twist, shortly after he publicized the future opening of his own bank, the Koryo Global Credit Bank, he told the media that the supposed 2,000 business people in Pyongyang would constitute a potential customer base. Taking into account the dozens of Chinese business people, most of whom would not need banking services in Pyongyang, the figure would have been more accurate at a hardly sustainable 200 customers.

  Dr. J.H., who was a donor to the British Labour party, had photographs splashed all over his website with former Prime Minister Tony Blair, Margaret Thatcher and a line-up of royalty and dignitaries from the UK and China. In fact, he always seemed to make sure a photographer just happened to be standing nearby to take a picture of the global elites shaking his hand.

  On his conglomerate’s website, he even claimed that world leaders ask him for advice—although he remained vague as to whether they approached him for his business “acumen” or whether they needed psychiatric help. One hint, though, is that this figure holds the post of “Honorary Consul General” representing Grenada in Hong Kong. Maybe a few Grenadian leaders desperately need his input on the island’s pressing national security matters? Nobody was fooled by the titular tendency.