Daewoo Group and Financial Business

Daewoo Group and Financial Business

Problem Definition

Daewoo group started as a small textile company and in just 20 years

developed into second largest Korean chaebol ( family owned

conglomerate). It had over 250000 employers worldwide, over 30

domestic companies and 300 overseas subsidiaries, generating sales of

more than 100 billion dollars annually. However, in 1999 it seemed that

the ‘golden days’ of Daewoo were over as it was faced with over 50

billion dollars dept and had to decide to sell some of its business to carry

on. Can Daewoo really survive and if yes, how?

The roots of Daewoo’s crisis are in:

a) Korean Economic System’s Structure, Chaebols and Asian Crisis

b) Daewoo corporate structure, Kim Woo-Choong and his policies

The main problem is that Korean economic system is ready for change

and already changing, so does the government and its policies. However,

the chaebols such as Daewoo are living in the past and find it difficult to

adapt to changes. The question is whether there is any place in a changing

Korea for chaebols at all or they will be soon replaced by smaller but more

efficient companies?

Problem Justification

Korean Economic System, Chaebols and Asian crisis:

South Korea’s mad rush economic growth was initiated by late dictator

Park Chung-hee in the early 1970. Park saw export growth as the key for

economic growth. He provided cheap loans and tax benefits to nurture

Daewoo and other Korean business into conglomerates that mass

produced for export markets( http://detnews.com/2001/ autos). Most of

Chaebols were family owned and all of this families were connected to the

government which would give them lots of support and get their loyalty.

As a trouble would appear ,as in example of Daewoo problem in the

1980s when Daewoo shipbuilding made losses that threaten the collapse

of the whole group, the government stepped in to save conglomerate and

to provide emergency loans, chaebols could always count on the

government to help. So they would continue to borrow money from

government owned banks. The bank were forced to continue borrowing

money to “Korean Losers” and never got paid back. It continued ...

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...he best solution would be the government to come up with the plan of

restructuring Daewoo ( force it to sell off most of its businesses and

concentrate on the key once) and for Daewoo to accept the plan as soon as

possible. Also government should push on the chaebols to restructure (

mainly to cut off their size and concentrate on the most important

businesses) because there is no place for old-style conglomerates in

changing Korea, if they stay the same they will face the same problem as

Daewoo did and will also badly affect future economic development of

Korea.

Korean government did come up with the plan of restructuring Daewoo in

cutting down its size by selling off its businesses, as an example selling

Daewoo Motors to General Motors and etc., giving independence to some

of its big divisions such as shipbuilding. But this plan came too late and

Daewoo did not implement it until it really got bankrupt. There is not

Daewoo group any more. Most of it was sold and what is left is now

called Daewoo International and has its main businesses in International

Trade, Information, Project Organising, Research Development and some

other ( www.daewoo international.com).