The Chaebols of South Korea
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Case Details:
Case Code : ECON013
Case Length : 15 Pages
Period : 1961-2004
Pub Date : 2004
Teaching Note : Available
Organization : -
Industry : -
Countries : South Korea
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"If one wants to do any worthwhile business in Korea, one first needs to
make the acquaintance of officials of the relevant government agencies,
officers of banks, congressmen, and officers of law enforcement agencies. If
one wants to do a really profitable business, one has to be connected to the
power center around presidency because business opportunities which generate
big rents are distributed at the top and loans of big amounts have to be
approved at the top."
- Sue Chan Chae, Professor of Economics, Rice University, USA in
September 1997.1
"'We sacrificed our lives for the economic development of the country, now
the Chaebols are being blamed for having close ties with politicians, for
taking advantage of economic development to be personally rich. That is not
fair."
- Lee Sang Hoon, Senior Managing Director, Daewoo Corp. in December 1998.2
Introduction
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Kia Automobiles, a powerful Chaebol of South Korea,
declared bankruptcy in 1998. The bankruptcy came as a shock to Koreans
and to the outside world. For years, Korean Chaebols had thrived under
the South Korean government's protection. They were backed by the
government and were protected from all business risks and if ever a
financial crisis arose, they would easily turn to one or the other of
the Korean banks for support. What, then, could have gone wrong?
Kia Automobiles was one of the ten most powerful Chaebols of South
Korea. Together these ten entities had structured South Korea's economy
and made it one of the most remarkable success stories in the world. |
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But when the Asian financial crisis struck in 1997-1998,
Korean Chaebols started crumbling.
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As the state of the economy worsened, many Chaebols
seemed to be heading towards collapse. In the late 1990s, leading South
Korean car manufacturer, Daewoo Motors (Daewoo), was in deep financial
trouble. Other Chaebols like Hyundai Motors, Samsung and LG were also in
trouble. Financial crisis, labor strikes, huge piling debts, massive
foreign borrowings, overcapacity and underutilization of resources were
the common problems they all faced.
As South Korea's economy was driven by the success of its Chaebols, the
poor performance of the top Chaebols had repercussions throughout the
economy. |
The Chaebols of South Korea
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