The Chaebols of South Korea
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Case Code: ECON013 Case Length: 15 Pages Period: 1961-2004 Pub Date: 2004 Teaching Note: Available |
Price: Rs.400 Organization : - Industry : - Countries : South Korea Themes: Business Environment- |
Abstract Case Intro 1 Case Intro 2 Excerpts
"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.
"'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.
Introduction
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.
But when the Asian financial crisis struck in 1997-1998, Korean Chaebols started crumbling. 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.
South Korea approached the International Monetary Fund (IMF) in 1998 for a relief package. The IMF package was provided under certain conditions; restructuring and modification of the working of the Chaebols and the introduction of professional management in the Chaebol organizations. By the early 2000s, South Korea tackled the economic downslide, and not only recuperated from the financial crisis, but in the process also managed to restructure its Chaebols to make them more profitable and more competitive than ever before.
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