Costco: The Culture Fit In The South Korea

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Case Study

Costco: the Culture fit in the South Korea

Contents

Introduction        1

Costco        1

Costco’s HR Policies and Practices        1

Costco in South Korea        2

South Korea’s economy        3

The economy fit about Costco’s HR policies and practices        4

South Korea’s culture        4

The culture comparison between South Korea and the United States        4

The culture fit about Costco’s HR policies and practices        7

Conclusion        9

References:        10

Introduction

Costco

Costco Wholesale Corporation is the largest membership warehouse club chain in the United States. As of July 2009, it was the third largest retailer in the United States. As of May 20, 2011, Costco has 581 warehouse locations including both those domestic and abroad.^[1] As of July 2012, it is the second largest retailer in the United States, the seventh largest retailer in the world and the largest membership warehouse club chain in the United States.^[2]

Costco’s HR Policies and Practices

In the United States, the main competitor of Costco is Walmart. Unlike Walmart’s low cost strategy, Costco treats its employees more generously. Costco pays its employees $20.89 an hour which is much higher than the minimum wage of $7.25 an hour. Besides, Costco does its best to cover its employees’ health care insurance. What’s more, even suffering the big recession, Costco still increased the payment to its employees.^[3] In return, employees in Costco help it bring in a lot of profit. (See Table 1^[4]).[pic 2][pic 3]

A prevalent view held by executives and economists is that a company cannot keep its price low if it pays high wages and benefits. But Costco believes that perks such as high wages, benefits and opportunity for growth allow Costco to attract a large pool of high quality candidates who are committed to their jobs. Actually, Costco provides its employees much higher wages, various benefits and a lot of promotion, while its revenues had grown 70% and its stock had doubled since 2005 to 2010.[pic 4]

Costco supports and respects its employees. In the long run, the decreased turnover rates save the labor cost and allow it to keep offering these benefits and payments. At the same time, when the employees feel important about what they do, they will be highly engaged in their jobs, which will result in a higher productivity and better customer satisfaction.

Costco always promotes from inside and does not hire business school graduates. It cultivates employees who work the floor in its warehouses and sponsors them through graduate school. As a result, the retention rate is very high, and the company culture has been preserved well.

Costco in South Korea

In 1994, the first Asia Costco opens in Seoul, Korea. As to 20th December 2013, Costco has 9 locations in South Korea. For the further expansion, Costco needs to adjust its culture and strategy to the culture and economy in South Korea.

South Korea’s economy

In 2012, South Korea's market economy ranks 15th in the world by nominal GDP (US$1,129,536 million) and 34th by GDP per capita (US$22,589). South Korea's economy was one of the world's fastest-growing from the early 1960s to the late 1990s, and South Korea is still one of the fastest-growing developed countries in the 2000s. Even during the recession, its economic growth rate reached 6.2 percent in 2010.^[5]

According to the Global Competitiveness Report 2013 – 2014, South Korea ranks 25 out of 148. As to the 12 pillars of competitiveness, most pillars of South Korea are above or very close to the level of innovation driven economy (See the Chart1). However, the institutions and the financial market development pillars are far below the level of innovation driven economy. Actually, South Korea is the most corrupt developed nation in Asia. Transparency level of government policymaking is very low and people don’t trust in politicians, which result in a relatively low score for institutions pillar. As to the financial market development pillar, one explanation is that South Korea suffers damage to its credit rating in the stock market because of the belligerence of North Korea in times of deep military crises.^[6][pic 5][pic 6]

The economy fit about Costco’s HR policies and practices

There are three most problematic factors for doing business in South Korea: Hard to access to finance, Inefficient government bureaucracy and Policy instability. Since Costco is a mature and successful retailer in the United States, it doesn’t necessarily need much local finance to operate its business. Then, Costco’s HR policies and practice have to focus on how to deal with the rest two problems.

Doing business in Asia is very different from doing business in western countries. Using American business model to operate its stores in South Korea will not be easy and fluent. If the company has a good relationship with the government, it will be granted a lot of favors for doing its business. In order to manage the relationship with local government, Costco has to hire talents who are sophisticated in making contact with government. Besides, hiring such talents can also help Costco react to the instable policies in time, by getting the latest information from government.

South Korea’s culture

Historically, the culture of Korea has been heavily influenced by that of neighboring China, especially by the thought of Confucianism. Although the industrialization and urbanization of South Korea have brought many changes to the way people live, South Korea still keeps its traditional culture and develop a unique cultural that is distinct from both its big neighbor and western countries.^[7]

The culture comparison between South Korea and the United States

The Hofstede’s dimensions analysis in Chart 2^[8] shows the culture differences between South Korea and the United States in six dimensions. These six dimensions are about the values that distinguish country cultures from each other. From this chart, it’s obvious that there are huge differences between South Korea and the United States. If Costco wants to do its business successfully, it will have to fit the South Korea culture.