What Are Family Owned Conglomerates in Korea Known as
There was a joke in South Korea dorsum in the 1990s. Information technology went like this:
What would employees of the mighty Korean conglomerates -- the so-called chaebols -- do if they were accidentally confronted by a fearsome bear while strolling through the forest?
Hyundai employees would club the comport to expiry without hesitation. Daewoo would phone call its Chairman Kim Woo-jung and await his command. Samsung would concur a meeting -- with the conduct however in front of them -- to hash out how to proceed. LG would wait for Samsung's response, and and then practice the same.
Many spin-offs of the joke nonetheless be today, and it shows how deeply the chaebols are embedded in the South Korean consciousness. Though Daewoo Group -- most famous for its line of cars -- is at present defunct, the other conglomerates are still very much living, animate parts of the globe's 13th-largest national Gdp. Chaebols are quite numerous, but the largest -- dubbed the "Big 4" by the South Korean press -- are Hyundai Motor Visitor, SK Group and perennial rivals, Samsung and LG.
The chaebols were instrumental in pulling Republic of korea out of its poverty-stricken state later the Korean War. In doing so, many became global players and household names along the way. Who hasn't heard of a Samsung Milky way smartphone? Or purchased a washing machine from LG? Or watched Hyundai cars bulldoze down the road? For companies that are and so deeply rooted in Korean civilization, their influence is felt around the world.
Despite their mostly dissimilar, but sometimes overlapping business interests, the chaebols all share in the belief that it will be their strides in it that volition determine whether they wither away like Daewoo, or become institutions that will last "hundreds of years," as they similar to say.
Public opinion of the chaebols has swayed in the past, depending heavily on the changes in the political, social and economic atmosphere -- but it'due south impossible to deny that these conglomerates accept played a cardinal function in the development of today'south Southward Korea.
Money clans
The word chaebol translates to "coin faction" or "wealth clan," but a chaebol is more than a company. In South Korean civilization, chaebols are dynasties. The chaebols are responsible for such an extreme portion of the Southward Korean economy that their chairmen are celebrities.
Key managerial posts within a chaebol are almost always given to the relatives of the chairman, the patriarch. LG Electronics' current CEO, Koo Bon-joon, is the younger brother of its parent LG Group's chairman, Koo Bon-moo.
Not only must a conglomerate be family unit-endemic to exist considered a truthful chaebol, the conglomerate must have businesses in at to the lowest degree 2 disparate areas: for instance, Samsung Grouping, South korea'due south largest chaebol, is known for its flagship subsidiary, Samsung Electronics -- manufacturer of TVs and the Milky way S6 smartphone -- just it as well owns subsidiaries that run a luxury hotel, build rough oil tankers and sell life insurance.
Some other important factor is the complicated cross-shareholding of the component companies within the chaebol. At its elevation in 1999 and prior to increased authorities regulation, the cross-ownership of subsidiaries inside chaebols was at 43 percent, according to the Fair Trade Commission [Korean]. Loans betwixt unrelated companies inside a chaebol were also guaranteed -- done to protect buying and maintain command by the ruling family unit.
"It is very difficult to find similar counterparts away to South Korea's chaebols today," said Park Sang-in, professor at Seoul University's Graduate School of Public Assistants. "In English-speaking countries, there really are no business groups, just atypical companies that own its subsidiaries 100 percent. In Europe, conglomerates are never as big equally the chaebols and ownership and management is commonly strictly divided.
"On the other hand, the chaebol is compromised of multiple companies with robust internal transactions, all controlled by a single, near all-powerful chairman that act every bit both manager and the de facto owner of the entire enterprise."
A lot of chaebols trace their origin back to the menstruation of Japanese occupation of South Korea, which lasted from 1910 to 1945. Others, like the heavy-industries-focused Doosan Group, trace it back further, to the country'due south final dynasty. Just these narratives conveniently surfaced afterwards the chaebols became true titans of industry.
The discussion chaebols, as well every bit their formation, is widely believed to have been influenced by Japan'south zaibatsu -- the two words are even spelled the aforementioned in Chinese. Similar the chaebols, zaibatsu were family-owned conglomerates, even so, "family unit" to them meant those who y'all form close bonds with, rather than strictly referring to claret relations. The zaibatsu disbanded later on World War Ii, and their successors today are loose federations of companies, rather than centralized conglomerates like the chaebols.
Wealth and power to the nation
In 1953 the S Korean national GDP per capita stood at a mere $67 [Korean]. The US Gdp per captia for the same year stood at an unadjusted $2,449. After the political turmoil that followed Japanese occupation and the Korean War, the country was in dire poverty. The threat of Democratic people's republic of korea was real -- espionage on both sides of the aisle was commonplace, and the South Korean government of the time was either unable or unwilling to aid its people recover.
And then came Gen. Park Chung-hee, the controversial landmark leader of South Korea, who staged a coup, and through a armed forces junta became the president in 1963. Post-obit official recognition of his regime by the Usa, Park decided that for South korea to go a strong nation, information technology needed a strong economy.
Similar the corporate trusts of the US in the tardily 19th and early 20th centuries, a relationship between the authorities and the individual sector was formed that yet defines South Korean politics and economy today. Park coaxed, wheedled, intimidated, manipulated and outright threatened the companies for cooperation. But the president as well offered incentives -- government and foreign loans, relaxed regulations and taxation cuts.
"S Korea can be defined equally a 'developmental-state,' where the regime actively intervened and worked closely with companies," said Cho Dong-keun, a professor at the section of economics of Myongji Unversity. "In some ways, it was necessary, because the market place was imperfect. And the chaebols were built-in."
The Federation of Korean Industries was formed by the chaebols in 1963 to promote their interest and support Park's drive. It acted as the phonation of the chaebols, and its mission was to foster coordination among them. Though influence has somewhat declined, the chairman of the Federation was at ane indicate referred to as the "Prime Government minister of Economy" by the press and wielded considerable political power.
Samsung and LG were already flourishing, both among the tiptop x companies in South Korea fifty-fifty before Park'due south government took charge, and the pair didn't always welcome the authorities'south initiatives. For instance, Samsung founder Lee Byung-chull and Park disliked each other: Lee, who was older than Park (seniority being very of import in Korean culture), thought of the president as an upstart, uneducated thug. President Park, on the other hand, thought of Lee equally a homo born with a silver spoon in his mouth.
During Park's v-yr plans -- rolling periods of regime-outlined economical development -- the government sometimes took successful subsidiaries away from the chaebols: On Park's orders, Samsung would cede a bank, a fertilizer manufacturer and a broadcaster, much to its dismay.
The government policy would also bring in new claret -- most famously Hyundai, which began as an unimpressive, middling construction house, but become a powerful chaebol during Park'south presidency. Hyundai's famed founder Chung Ju-yung, a peasant's son and an uncomplicated school dropout, had a do-or-die spirit that Park felt was needed in South Korea. The charismatic Chung clinched projects and showed feats that were considered impossible. With Park'south support, Hyundai congenital the 400km-long Gyeongbu State highway that connected the capital letter city Seoul to South Korea's southern city in less than two and a half years.
When the chaebols began to wait overseas in the '70s, Hyundai congenital a shipyard without e'er having fabricated a ship before. Daewoo, a relatively small trading visitor in the '60s, came into power in the '70s cheers its founder Kim Woo-jung's father beingness a mentor to President Park. Given first rights to purchase debt-ridden public companies -- another do good offered to the chaebols by Park -- Daewoo transformed itself into a mega-conglomerate.
Lacking a traditional entertainment industry, the chairmen and founders of the chaebols became celebrities and heroes for a still-developing country. Gossip ran amok on what the chairmen did or didn't do. Self-aggrandizement and publicity were mixed with real achievements, and the diverse personalities and concern philosophies of the chairmen trickled down to their employees. Hyundai employees became known for their "shoot first, retrieve after" approach to business; their motto was if it doesn't work, brand it work. Samsung developed a reputation for reviewing every possible choice earlier making a choice. The two chaebols are considered polar opposites, even today.
Park's strategy won wide support from the people. Many looked at Republic of korea's increasing wealth with pride, and working for the chaebols meant contributing to the national cause. This was the grand narrative of the chaebols. Their success was Southward Korea's success. The sentiment has since waned, just the story still has a strong thread even so. In 1996, the state's GDP per capita hit $10,315.
Global Transformation
The biggest instigation for change was the Asian Financial Crisis in 1997, which was a wake-upwardly phone call for the chaebols and the South Korean economic system. The precise cause of the crunch is even so controversial: the foreign printing blamed the chaebols for expanding into unrelated businesses without a proper rationale, and their cross-subsidizing structure that prevented them from ending unprofitable businesses. They as well blamed Korean banks for providing unchecked loans to chaebols -- considered "also big to fail." [Korean] The local press, post-obit very dissimilar logic, blamed foreign financial institutions for withdrawing their "speculative" investments as well quickly. Both blamed opening up of the capital market place without proper regulation.
The won, Republic of korea's currency, depreciated -- the exchange charge per unit doubling in 1997 [Korean] -- and the mighty Daewoo chaebol fell. At the low's worst, 3,500 companies were declaring bankruptcy every month. Chaebols that were expanding overseas or into non-related businesses made up most of these numbers.
The government proceeded to liquidate unprofitable companies. It initiated what is known equally the "Big Bargain" in S Korea, and ordered chaebols to sell their non-core businesses to other chaebols. The chaebols initially refused, simply post-obit connected pressure, finally agreed. LG had to sell its semiconductor business and Samsung sold its motorcar business. The crunch cooled down when the disaster spread to other nations, and Usa lowered its involvement rate.
Even earlier the crisis, the chaebols themselves were calling for alter: despite their size, profitability was extremely low compared with their counterparts in the US and Europe. The chaebols proceeded to decrease their expenses, and sold off unrelated businesses. Both voluntarily and forcibly, the chaebols began to focus on related core businesses -- which some had vocally opposed in the '80s and '90s -- which would work to the advantage of Samsung and Hyundai. At the aforementioned time, each company within a chaebol was given more than autonomy.
"The Asian Financial Crunch was a sort of stress-test for the chaebols," said Myongji University's Cho. "Out of the 30 superlative chaebols, 16 went bankrupt. Those who thoughtlessly diversified their businesses collapsed."
The chaebols themselves felt confident in their own technology and know-how when it came to manufacturing. What they needed now was great design, branding and marketing. Nearly of their corporate identities were renovated. Samsung and LG made strategic investments into manufacturing TVs, handsets and home appliances before their Japanese or US counterparts. Hyundai branded its cars as luxury vehicles. Thanks to the regime's continuing back up, SK began to develop the fastest broadband in the globe.
The chaebols even so enjoy the support of many people, who believe they led Southward Korea out of another fiscal crisis.
Source: https://www.cnet.com/tech/tech-industry/the-chaebols-the-rise-of-south-koreas-mighty-conglomerates/
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