Korean Reform Efforts Give Chaebol Strength

Family-run businesses now look to expand

WHEN South Korean President Kim Young Sam took office in 1993, he made it politically incorrect to play golf. For the elite, the golf course was a place to do business and a haven from the stress of life in the ruling class.

But Mr. Kim, a jogger, said golf was an emblem of old regimes, in which autocratic rulers colluded with businessmen, sometimes on the fairway. In the new, democratic Korea, Kim promised no such collusion. For a while, it became easier to get tee-off time at country clubs and harder to get into health clubs, but no longer. Golf-course construction is on the rise, and the links are again crowded with businessmen and politicians.

"The hard line on golf was a symbolic expression of his will to carry out reforms," says Kim Young Bae, an editor at Joong-ang Daily News. "If Kim Young Sam had carried through [in the reforms], the golf situation would not be as it is now." Instead, the president has diluted the strength of his reform agenda, particularly where big business is concerned.

South Korea's huge family-run conglomerates (chaebol) had prospered under the old system, but Kim has tried to root out corruption that gave some firms unfair advantages. He is credited with at least some success; one step was to ban the use of false names in banking transactions. He also said he would encourage the chaebol to become leaner and more competitive to succeed in the global economy.

Globalization has become a watchword during Kim's tenure, and many analysts have criticized the chaebol for inefficiency and a lack of specialization.

The irony is that Kim's efforts to deregulate parts of the economy, in part to comply with international standards, have curtailed the government's ability to reform the chaebol. "The government still wants to have the chaebol focus on competitive sectors," says Choi Nakgyoon, an economist at the Ministry of Trade, Energy, and Industry. But it is also "losing control of the private sector."

At the same time, businesses enjoy an export boom driven by the rising yen. This makes Korean goods comparatively cheaper. Exports rose 32 percent in the first quarter of 1995, compared to that period a year ago. The economy is growing at a rate of just under 10 percent.

The boom has generated a lot of cash, and many chaebol are expanding their range of businesses, rather than concentrating on key industries.

Of course, not everyone feels the chaebol need to streamline. Economist and Ajou University president Kim Duk Choong, whose family founded Daewoo, is bullish on big chaebol. "Today," he declares, " 'multinational corporation' means 'many markets, many products.' " In addition to their foray into innkeeping, Daewoo companies make heavy machinery, build ships, manufacture automobiles, and sell financial services, among other things.

A year ago, government officials were worried about a plan by the Samsung group to enter automotives. The country already has three major vehicle manufacturers, and bureaucrats were worried about too much competition. In many of East Asia's powerhouse economies, where bureaucrats guide growth, "excessive competition" has been used to prevent firms from expanding into certain industries. But recently Samsung launched a $5 billion project to make cars and announced plans to enter the airline industry. It also spent $378 million to buy a 40 percent stake in the California personal-computer maker AST Research.

"This drastic deregulation," says Kim Ha Doi, an official in the government's Fair Trade Commission, when asked about Samsung's automotive expansion, "might seem ... very advantageous to the chaebol, but we feel it is necessary to pursue liberalization."

Dr. Choi feels a shakeout is inevitable for Korean carmakers. "Some of them may lose worldwide market share rapidly," he warns, particularly when foreign manufacturers begin to make headway in the Korean market. Although one rarely sees foreign cars in Seoul, the government has lowered tariffs and restrictions on imported cars.

"I'm afraid one or two [domestic automakers] may be removed from the Korean market in the 21st century," he says.

You've read  of  free articles. Subscribe to continue.
QR Code to Korean Reform Efforts Give Chaebol Strength
Read this article in
QR Code to Subscription page
Start your subscription today