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
Excerpts
Background Note
Chaebols were first introduced in South Korea during the 1920s when the country was under Japanese rule. In fact they were designed on the lines of a Japanese Keiretsu. Japan had designed Chaebols as private companies that were owned and run by a family but were strictly controlled by the central government (at that time, Japan formed the central government in Korea.) Initially Chaebols were designed to meet the requirements of the Japanese government and were encouraged to provide raw materials and supplies to Japanese industry...
The Late 1980s and Early 1990s
The period between 1979, (after President Park's death), and 1988 (the year when South Korea adopted a new constitution and a democratic government was established), was a period of social unrest, labor strikes, student radicalism and political tension. Maj. Gen. Chun Doo Hwan had taken over as President of South Korea and the country was under martial law. In 1988, President Roh Tae-Woo assumed office after winning the general elections and normalcy returned to the country. Beginning in the late 1980s, the Chaebols were again at the center of South Korea's economic development. In order to build a strong industrial economy, South Korea encouraged its Chaebols to invest heavily in highly capital-intensive industries, such as petrochemicals, steel, ship building, cars, semi conductors, etc...
Chaebols in Trouble
South Korea's economy had enjoyed a strong growth period in the first half of 1990s. South Korea was one of the "Four Dragons" of East Asia - alongside Taiwan, Singapore and Hong Kong. In the 1960s, South Korea's GDP had been on par with the poorer countries of Africa and Asia. But by the mid 1990s, it was seven times that of India and 16 times that of North Korea...
The Restructuring
In early 1998, Kim Dae Jung took over as the President of South Korea. He defined a clear strategy to correct the weaknesses in South Korea's economic setup. In 1998, the South Korean government approached the International Monetary Fund (IMF) for assistance to bail the country out of the crisis. The IMF offered $58 billion as a relief package to South Korea on the condition that the government would take measures to restructure the Chaebols and their functioning...
The Recovery
Although the measures adopted by the government were severe, they were certainly effective. Of the 30 biggest Chaebols, 16 underwent radical transformation. Out of the 2,100 financial institutions before the crisis, 500 had to close down...
Exhibits
Exhibit I: Number of Affiliates of Largest Chaebols in South Korea in 1988
Exhibit II: Debt-Equity Ratios of Major Chaebols: 1995-99
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