The new competitive landscape + building the
entreprenual machine OECD
• Economic performance
• Country data
• Assessment & recommendations
KEY CHALLENGES FACING KOREAN ENTERPRISE
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Despite its success Korea today faces serious economic and political challenges.
EXISTING PROBLEMS
- political corruption
- overconcentration of wealth and abuse of power
- labor unrest, a lowered competitive position in world market
- a lack of trained personnel in the more advanced industries
- limited access to state-of-the-art technologies
- antiquated management structures
While Korea has clearly arrived as a newly industrialized country these problems are
seriously impending its progress toward becoming a twenty-first century global power.
Korea’s desired end state is a country characterized by global industrial strength, continued
economic growth, technological prowess, political democracy, and international respect
To achieve this end state, Korea will have to meet seven key challenges. They are
KEY CHALLENGES FACING KOREAN ENTERPRISE
1. Reframing industrial policy and developing a new economic covenant.
2. Restructuring the ‘chaebols’
3. Enhancing the competitiveness of small and medium-sized firms
4. Meeting the requirements of globalization
5. Developing and acquiring new technologies
6. Developing new management structures, and
7. Developing the human resources that will be needed in the twenty-first century
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Reframing industrial policy and developing a new economic
covenant
(At home in Korea)
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There is a need to further develop internal markets and to satisfy the increased consumer
demands of a more prosperous society.
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Throughout the expansion of both their internal and external markets, Korean corporations
will have to find new ways to secure the necessary financing for their growth because
government-controlled sources have diminished significantly.
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As the government moves toward more open capital markets, corporations will need to be
much more responsive and competitive in their financial transactions.
2. Restructuring the ‘chaebols’
• The second major challenge facing Korea today is the need
to restructure its corporate enterprise system
• The economic growth of Korea has frequently taken the
form of special treatment and protectionist policies.
• With globalization, there is need to reexamine extant
policies of protectionism and economic concentration.
3. Enhancing the competitiveness of small and medium-sized firms
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Can the ‘chaebols’ be reduced in financial size and concentration and still compete in
higher-value-added industries with larger and better financed rivals?
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What is the new role for the small and medium-sized firms that have been exploited in the
past?
4. Meeting the requirements of globalization
• A major challenge facing most Korean firms today is to keep up with the
worldwide trend toward globalization in both production and marketing.
• Another challenge is the increasing competition from other countries. At
the low end of the market, Korea is being seriously challenged by lowercost manufactures in China and Southeast Asia.
• Although Korea still ranks as the world’s second-largest producer of
consumer electronics, behind Japan, its firms have competed principally
on price, not product innovation.
5. Developing and acquiring new technologies
• In the past, Korean firms found it relatively easy to
acquire aging technology, and to compete in the
international marketplace based on price
• Today, however, as the half-life of technology-based
products declines and labor costs escalate, it has
become increasingly important for Korean
companies to develop their own technology and to
be the first to market.
6. Developing new management structures
• The manner in which corporate managers respond
to challenges will determine in large measure how
well the companies perform and, indeed, whether
they even survive.
• While traditional neo-Confucian management
practices may have served Korean firms well in the
past as they grew their companies within the walls
of protective barriers,
7. Developing the human resources that will be needed in the twenty-first
century
• The seventh and final challenge facing Korean firms today is how best to
develop their human capital so they will have the intellectual resources
to compete successfully in the twenty-first century.
• The quality of a firm’s (and a country’s) human resources will likely
determine who succeeds and who fails under the new competitive rules.
- Lester Thurow, Economist • The quality of a firm’s employees emerges as a key potential
differentiator between competitors.
KEY CHALLENGES FACING KOREAN ENTERPRISE
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While we have presented these challenges in a particular order, we do not mean to imply
that one or the other has greater priority or that they have evolved sequentially.
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In fact, the challenges are very much intertwined and interrelated. The restructuring of the
‘chaebols’, for example, will have far-reaching consequences for their ability to become
players in the global economy as well as for their effort to develop their human resources.
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While Korean leaders and politics may change over time, the current shift toward
globalization, market liberalization, and political democratization creates a long-standing
and irreversible challenge that will occupy Korea well into the next century.
Emergence of the chaebols
• What is Cheabol?
• business group consisting of large companies
and managed by family members or relatives
in many diversified business areas
The 10 largest in terms of sales
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Hyundai
Samsung
LG
Daewoo
Sunkyong
Kia
Hanjin
Lotte
Hanwha
What makes chaebols unique competitors in the
international market and how it evolved and
developed
• The rise of chabols in Korea is closely
associated with President Park Chung Hee,
beginning in the early 1960s.
• At the end of the Korean War there was two
types of firm which existed in Korea
Two types of firms
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First was specialized and oriented toward
cotton weaving and spinning.
Second the predecessor of the modern
cheabols - involved entrepreneurs who had
gain access to specific business lines
confiscated from the Japanes or acquired
using American aid – related loans and
foreign exchange.
After world war II, Korean firms had to
industrialize
• By borrowing and improving technology that
already had been developed by experienced
firms in more advanced economies.
• Most Korean firms began their rise by
combining reengineered technology and mass
production with competitive labor costs.
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Lee Byung – Chull and Samsung.
Fallowing the Korean War , the Company focused its effors on providing basic necessities to resupply a
war – torn country.
Cheil Sugar and Co. was founded in 1953
Samsung moved into the service sector witch such businesses as insurance, broadcasting, securities and
department stors.
By the end of 1960 samsung had an annual turnover of $100 milion.
1970 company entered electronics and heavy industries .
By the end of decade Samsung turnover hed reached 3 billion.
1986 samsung aerospace wasdesignate by the government as systems integrator for Korea-built F- 16
plane
Samsung has also achived its goal of becoming a truly international corporation.
Since founder Lee’s death in 1987 , Samsung has been managed by his third son Lee Kun Hee. The firms
field can be divided into five key area:
electronics,
engineering,
chemicals,
finantial
information services and consumer products and service.
Samsung hiring executives from other countries. Its goal is to became one of the worlds top five
electronics firms.
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Chyung – Ju Yung and Hyundai
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Until about a decade age, Hyundai was almost unknown in the west. Then came the Hyundai Excel – the fastest selling
import in both the United States and Canada when introduced.
Chyung – Ju Yung was born in 1915 in a poor family.
He had little formal education , he set about learning various manual labor skills.
1940 s established a truck and motor service business.
By 1947 he formed Hyundai Engineering and Construction Company.
Then Hyundai undertook highway projects in Thailand , harbor dredging in Soth Vietnam and Australia, bridges in Alaska
and housing complexes in Guam.
1968 Chairman decided to enter automobile industry and established Hyundai Motor Company to assemble Ford passenger
cars to be sold locally.
1983 the midsize steller model was introduce d and by 1988 hyundai was producing a luxury sedan, the Grandeur, under
licence from Mitsubishi.
In 1994 U.S sales of Hyundai cars topped 125,000a company record.
In 1973 hyunday heavy industries Co. was formed as a major shipbuilding enterprise..
Because of increasing size and opportunities facing Hyundai , many units were spun off as independent companies like
Hyundai – Engine and Machinary Co. Hyundai Electrical Engineering Co. Hyundai Rolling Stock Co. Hyundai also acquired
Inchon Iron and Steel Co. and Aluminium of Korea.
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Today:
Hyunday is thriving enterprise, consisting of forty- seven companies with eighty – three branch of offices in 46 countries.
Annual sales reached for 94’ $ 49 billion
More than 161,000 employees worldwide.
• Definition : “A Business Group consisting of
large companies that are owned and managed
by family members in many diverse business
areas”
Lee Byung-Chull
Koo Family
Chung family
• LUCKY GOLDSTAR FOUNDED 1947 – MANUFACTURED
COSMETICS AND PLASTICS
• AFTER THE KOREAN WAR – BRANCHED OUT TO
DETERGENT AND WASHING POWDERS
• 1958 – CREATION OF GOLDSTAR.CO – TELEVISIONS,
ELECTRICAL APPLICANCES
• “DUAL TRACK ENTITY” – MANUFACTORING COSMETICS
AND ELECTRONICS
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39 AFFILIATED COMPANIES
39 JOINT VENTURES
130 BRANCHES AND OFFICES
$25 BILLION TOTAL SALES FIGURE – 1994
100,000 EMPLOYEES
Little personality cult
Decentralized : “An organizational structure in which decision-making authority is located not
at the center but at the nodes”
Efforts have been made to recruit professional managers to oversea various different sections
of the company.
Major strategic decisions still made only in the office of the head chairman. Individual
companies are free to go in any direction they see fit
Conservative : “people who generally like to uphold current conditions and oppose changes.”
Avoid “risky” ventures
Chemicals and Energy
-Lucky LTD
-- Honam Oil
Construction and
Services.
-Lucky
engineering
-- LG mart
-- LG Leisure
development
Electricals
-Goldstar Software
-- Goldstar
information and
communication
Public Services and
Sports
-Yonam Foundation
-- LG sports
• Founded in 1967 – Small textile company
• $18,000 investment – four employees
• Now – 100,000 employees
• 19 domestic companies
• $31 billion – sales figures 1994
• Korean culture – Entrepreneurship
• Daewoo is a good company to examine this
culture!
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1967 – Export fabrics – South East Asia
Sale figures $580,000
Sales figures $4 million – 2 years later
Gained positive reputation – cheap cost, great
quality
• 1972 – Awarded 30% of US import quota!
• 1975 – One of the most profitable companies
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Expansion!!!!!
Strategy – “FIT”
Daewoo electronics televisions
Take over of OKPO SHIPBUILDING COMPANY
SAEHAN MOTOR COMPANY
STRATEGIC MANAGEMENT
• “Strategic management is that set of
managerial decisions that determines
the long-run performance of a
corporation”
• (Hunger and Wheelen, 2007)
Organisational Behaviour
INDIVIDUAL
(Rubingh, 2005)
F
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ORGANISATION
F
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SOCIETY
• Partnerships
• General Dynamics – Equipment for F-16,
Boeing 747
• Northern telecom
• Ranked Global 500 - 1994
• DAEWOO SPIRIT – CREATIVITY, CHALLENGE,
SACRIFICE
• BELIEF THAT GUIDES EMPLOYEE BEHAIVOUR
• COMPANY HAS A RESPONSIBILITY TO DELIVER
QUALITY TO WORKERS, SUPPLIERS, PARTNERS.
• MARKET DRIVEN
• FLEXIBLE, READY TO ADJUST AND INNOVATE
• TAKE RISKS – CONCENTRATION IN
CONSTRUCTION IN AFRICA. - $2 BILLION
CONTRACTS
• SAMSUNG, HYUNDAI, LG, DAEWOO –
ILLUSTRATES HOW KOREANS HAVE
CONTRIBUTRED TO RAPID INDUSTRIAL
PROGRESS THOUGH HARD WORK, INITIATIVE,
WILLINGINES TO SIEZE OPPURTUNITIES.
• STROVE TO DEMONSTRATE WORTH AND EARN
RESPECT THOUGH COMPETITIVE SUCCESS
Differences between the characteristics of a korean
based organisation and Japan based.
Size – sales
Mitsubishi – 29 presidents – counsils
160 smaller companies
These companies large enough to fit on Tokyo stock
exhange
$433 billion turnover
400,000 employees
Samsung – 50 companies
$62 billion turnover
150,000 employees
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Nature of ownership:
Korea – family members
Japan – Clan relationships over blood family
Korea – Family members own large share
Japan – Much smaller share
Centralization –
Korea – CEO – quick/decisive decisions – cause for errors / little
adequte information
JAPAN – Collect information – Study carefully, slow process – use
information better than Korean counterparts.
KOREA – CEO /MANAGERS – family members
JAPAN – EDUCATED MANAGERS
• Korea – Ministry of International trade
(Goverment dictating business strategy)
• Japan – Group affiliated banks for funding
• Korea – Banks owned by goverment
• Japan – Banks owned by private business
• Korea – Slowly changed after Korean war
• Japan – Fixed Cost (Fixed Assest)
• Important for managers to tend to these
resources well. Positive attitudes towards
employee wellbeing (training costs, bonus
payments, retirement policies).
• Korea – Variable costs. – Minimize such cost to
increase a return on investment. Employees are
NOT a return on investment. Not highly valued,
little recognition towards input process.
• This is slowly changing to a more western style
approach
Country Data
Korea
•One of the few countries in the world who had made
transition from rural, undevelopment society to modern
economy in just one generation
• Growth of economy and GDP have been unpresented
sharp
•Without natural resources, Korean’s cornerstone of
economic growth have been it’s icredible hard working
citizens
1973- 1979
*Heavy and Chemical Industry Drive
1980
*Korea is faced a downturn because global oil crise
*Economic liberalisation was pursued in the following period
1981 –1990
*Price control was repalced by the Fair Trade Act to promote
competition
*Goverment encourage more open competition
*Economic anual growth rate is 7.7%
1990-1997
*Economic growth is continuing
*Korea is having year after year good economic growth. Economic
growth for anual year 7.5%
1997
*Korea hit by financial crisis
•Korean economy was hammered by collusive ties between
goverment,businesses, arbitrary regulation and corruption
•1998*Korea wakes up
*Labour untilisation was reduced significantly for the first time since
1980
Enplyment rate increase again
*Korean’s economic is increasing again
Growth GDP per capita, anual year
Korea
OECD Total
1970-2006
5.7%
2.1%
2001-2006
4.4%
1.6%
Assessment and recommendations
• The Korean economy
has faced a number
of shocks in 2008
• Government is
implementing a
supplementary
budget and tax
rebates totalling
almost 1% of GDP
Assessment and recommendations
• Monetary policy faces large
challenges
• It is important to restrain the
growth of public spending in
coming years to prepare for
population ageing
• And implement a
comprehensive tax reform,
which would boost revenue
through consumption taxes
in the longer term
Assessment and recommendations
(Youth)
• The employment rate of
youth between the ages
of 15 to 29 has been
falling and is well below
the OECD average.
• Key problem for youth
employment is the
degree of mismatch
between skills provided
in tertiary education and
those required in the
labour market.
Assessment and recommendations
(Retirement)
• It is important
to raise the age
at which
employees
leave firms,
which is
typically around
55
Facing the key challenges ahead in Korea
• Setting an appropriate macroeconomic policy to
cope with the severe external shocks
• Raising additional tax revenue as rapid
population ageing puts upward pressure on
public spending
• Promoting the development of services, where
productivity growth and levels lag significantly
behind manufacturing
• Reforming the labour market and the education
system to address the growth and equity
problems related to labour market dualism and
population ageing
The End
Thank you for your attention