Chaebol

Chaebol are South Korea's business conglomerates. The English word is a transliteration of the Korean word 재벌, which is now romanized as Jaebeol. The Korean word means business group, trust (as in Standard Oil Trust), or plutocrat, and is often used the way "Big Business" is used in English.

Chaebol refers to the several dozen large, family-controlled Korean corporate groups, assisted by government financing, which have played a major role in the South Korean economy since the 1960s. Some have become well-known international brand names, such as Samsung, Hyundai, and LG. Hyundai even played a role in the slight thawing of relations between North and South Korea since 2000.

The top 10 largest chaebol in Korea in 2004 by total revenues were Samsung ($89.1 billion), Hyundai Motor Company ($57.2 billion), LG ($50.4 billion), SK ($46.4 billion), Hanjin ($16.2 billion), Hyundai Heavy Industries ($10.5 billion), Lotte ($6.3 billion), Doosan ($4.5 billion), Hanhwa ($4.4 billion), and Kumho Asiana or Kumho ($2.8 billion).^*

Management structure

Some chaebol are one large corporation, while others have broken up into loosely connected groups of separate companies sharing a common name. Even in the latter case, each is almost always owned, controlled, and/or managed by the same family group.

South Korea's chaebol are often compared with Japan's keiretsu business groupings, the successors to the pre-war zaibatsu. While the "chaebol" are similar to the "zaibatsu" (the two words are Korean and Japanese pronunciations of the same Chinese characters), there are major differences between chaebol and keiretsu:

Chaebol are still largely controlled by their founding families, while keiretsu are controlled by groups of professional managers.
Chaebol are centralized in ownership, while keiretsu are more decentralized and connected by cross-shareholdings.
Chaebol are prohibited from owning private banks, partly in order to increase the government's leverage over the banks in areas such as credit allocation. Keiretsu have historically worked with an affiliated bank, giving the affiliated companies almost unlimited access to credit, although this is no longer a universal feature of keiretsu.

History

South Korea's economy was small and predominantly agricultural well into the mid-20th century. However, the policies of President Park Chung Hee spurred rapid industrialization by promoting large businesses, following his seizing power in 1961. Government industrial policy set the direction of new investment, and the chaebol were to be guaranteed loans from the banking sector. In this way, the chaebol played a key role in developing new industries, markets, and export production, helping place South Korea as one of the East Asian Tigers. By the 1990s, South Korea was one of the largest NIEs, and boasted a standard of living comparable to industrialized countries.

President Kim Young-sam began to challenge the chaebol, but it was not until the Asian financial crisis in 1997 that the weaknesses of the system were widely understood. Of the 30 largest chaebol, 11 collapsed between July 1997 and June 1999. The chaebol were heavily invested in export-oriented manufacturing, neglecting the domestic market, and exposing the economy to any downturns in overseas markets. In competing with each other, they had built up unsustainable overcapacity—on the eve of the crisis South Korea, with a population only ranked at #26 in the world, had seven major automobile manufacturers.

Many of the chaebol had become severely indebted to finance their expansion, not only to state industrial banks, but to independent banks and their own financial services subsidiaries. In the aftermath of the crisis when they could not service their debt, banks could neither foreclose nor write off bad loans without themselves collapsing. The most spectacular example came in mid-1999 with the collapse of the Daewoo Group, which had some States dollar|US$" target="_blank" >^*80 billion in unpaid debt. At the time, it was the largest corporate bankruptcy in history.

Investigations also exposed widespread corruption in the chaebol, particularly fraudulent accounting and bribery.

Reforms

Under President Kim Dae-jung, elected in the wake of the crisis, the government made several efforts to reform the economy.

Instead of competing in every industry, the chaebol were pressured to focus on core businesses and spin off unrelated enterprises.
The chaebol were to decentralize their management and encourage the hiring of professional managers.
Accounting regulations were strengthened to limit the ability of chaebol to hide losses and debt at underperforming subsidiaries.
A crackdown on antitrust laws and inheritance taxes would impede the ability of families to retain control over their chaebol.

Both Kim and his successor, Roh Moo-hyun, have had mixed success. The chaebol continue to dominate South Korea's economy. Hyundai and SK Group have been implicated in separate scandals involving both presidents.

The Federation of Korean Industries, a consortium of chaebol, has taken a leading role in resisting changes.

List of chaebol

Some of the more notable present and former conglomerates include the following:

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Management structure

History

Reforms

List of chaebol

The "Big Four"

Other notable chaebol

See also

References