-Caveat Lector-
"Daewoo Group, S. Korea's second-largest conglomerate, has been ordered
to hand its subsidiaries over to foreign (US) investors. Samsung and Hyundai
may be next."
Turning Point in Korea Inc.
By SANG-HUN CHOE
.c The Associated Press
SEOUL, South Korea (AP) - For the giants among South Korean conglomerates,
survival had never been an issue: They were simply too big to fail.
That conventional wisdom was shattered this week when government-controlled
credit banks forced Daewoo Group's top managers to sign a deal that would
dismember South Korea's second-largest conglomerate.
``It really hurts our pride,'' said Kang Chang-sok, a 40-year-old worker at
Daewoo Electronics, an electronic home appliance company that will be sold to
a U.S. investment fund.
``But right now, our first concern is to keep our company, our jobs, alive.
It no longer matters who owns it,'' Kang said.
The event marks a monumental change in South Korea, where the government had
always considered big conglomerates the locomotives of Korea Inc.
``Now the message is loud and clear. From now on, even chaebol can be
dismantled when they make wrong investments and lose money,'' said Yi
Sang-seung, an economist at Seoul's Sogang University.
Over a little more than one generation, South Korea rose from the ashes of
the 1950-53 Korean War to become the world's 13th largest economy in part by
providing unlimited credit to a dozen fast-expanding chaebol, or family
controlled conglomerates.
Although chaebol were widely credited with fueling the country's stunning
economic growth, they were also accused of sucking up bank loans to stunt the
growth of young budding companies.
President Kim Dae-jung declared this past weekend that he would help revive
smaller businesses.
``I will become the first president in South Korean history to reform the
chaebol and straighten our economy so that it can grow on the basis of the
middle class,'' Kim said.
It remains to be seen how aggressively Kim will push other conglomerates,
including Samsung and Hyundai, to shed their subsidiaries. Opposition leaders
say his pledge is a ploy to harness anti-chaebol sentiment ahead of
parliamentary elections in April.
Kim's predecessors provided cheap loans, tax breaks and other benefits to
help corporate giants expand and mass-produce cars, television sets,
microchips, and a host of other goods.
That strategy helped South Korea become a trade giant. Chaebols supply
one-quarter of the world's computer memory chips and flat panel computer
screens and account for about 40 percent of the world's commercial
shipbuilding orders. Last year, Daewoo and four other top conglomerates
generated a combined $298 billion in sales, compared to South Korea's gross
domestic product of $375 billion.
A typical chaebol operates a fleet of 30 to 70 cross-funded subsidiaries,
some of which produce goods for their own affiliates, squeezing out new
arrivals on the market.
Banks with credit exposed to chaebol doled out more loans when old ones came
due to keep the conglomerates going. Chaebol grew bigger through their
debt-financed expansion.
Profit became secondary, market share everything. Selling assets, especially
to foreign investors, was considered a big loss of face.
That system proved fatal when Asian economic turmoil hit South Korea in late
1997. When a key chaebol subsidiary buckled under, the whole conglomerate
shook - and so did much of the entire economy.
``The crisis changed everything,'' said Cho Kwang-rae, 34, who has worked for
16 years for Daewoo Heavy Industries Co., a shipbuilding unit. ``Working in a
chaebol company has been like living under a huge umbrella. You had a sense
of safety and job security.''
``But now they are talking about spinning off our company, and we are afraid
of losing jobs,'' Cho added.
Daewoo, with $47 billion in debt, said Monday it will sell all but six
auto-related units of its 25 affiliates to pay off debt. Daewoo's creditors
bailed out the group in return for the restructuring.
Daewoo embodied all the strengths and weaknesses of South Korea's economic
miracle: hard work and entrepreneurial courage, but also reckless expansion
and business-politics collusion.
In a span of 32 years, businessman Kim Woo-choong, 63, had built Daewoo from
a one-room textile exporter to a company with $65 billion in assets that
makes goods from ships and cars to clothes and pesticides.
Now his dream has dissolved.
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