THE CHAEBOLS OF SOUTH KOREA

Presented byDarshan Bhatt Deepa Khanna Neena Aneja

INTRODUCTION
Chaebols Chaebol is a Korean name meaning a group with a lot of money. It was a la
rge South Korean private business groups. Chaebols were involved in activities r
anging from farming to ship building. The separate companies within Chaebol held
shares in each other. The major contributors to the Countrys economy.
INTRODUCTION
All the financial transactions were subject to Government scrutiny. Decision-mak
ing was top-down with top management exerting strict control. Most Chaebols had
close ties with the government and were involved in policy making. Chaebols had
a support of banks to bail them out of financial crises.
http://www.sjsu.edu/faculty/watkins/chaebol.htm
BACKGROUND
Chaebols was first introduced in 1920s under Japanese rule. It was designed on t
he lines of Japanese Keiretsu. The companies were controlled by Central Governme
nt. Initially designed to meet the requirements of Japanese Government. South Ko
rea became independent in 1945.
BACKGROUND
In 1961 Park Chung became the President. The economy dependence was converted fr
om agrarian economy to industrial one. All banks were nationalized. To encourage
growth of economy a Law was passed Dealing with Illicit Wealth Accumulation. Many
leading businessmen were arrested. Five-year economic plans was implemented rel
ated to export and import. Idea was to make South Korea independent in all manuf
acturing fields.
 Goal- Increase wealth and strengthen Political stability. Three 5 year plan were
induced under Economic Planning board since 1962. 1st- 1962-1966 2nd- 1967-1971
3rd- 1972-1976
The Five year Plan
Economic Plan(1960-1966)
Korea was a poor country with inadequate savings. It focused on developing texti
le and light manufacturing industries to make South Korea selfsufficient.
Economic Plan(1967-1971)
It focused on heavy industries such as iron and steel, automobiles, shipping etc
, to make South Korea competitive in world market. 1972, US-China opened for imp
ort gave them more marketplace.
Economic Plan(1972-1976)
The 3rd five year plan was referred as Heavy Chemical Industrialization Plan(HCI
). To fund the plan Government borrowed heavily from foreign countries.
Result of the Economic Plan
Korea is the 11th largest economy in the world. The export-import trade increase
d from 230 million$ from 1948 to 857.84 billion$ in 2008.
Result of Economic Plan
The GDP of Korea increased from 1.3 billion$ to 1,239 billion$. The per capita i
ncome increased from 60 $ to 20,000$. The average income of the workers increase
d from 5990 won to 3.895 million won.
Chaebols post President Park
Civil unrest, labour strikes post assassination of President Park led to Military
rule(1979-1988). By 1988, South Korea adopted democracy and things started falli
ng into places. The Chaebols got the new democratic governments full backing. Cha
ebols started expanding into new industries and markets No fears of risks as the
y had government and banks backing them
Total Government backing totally misused
Chaebols explored new markets and new industries and didnt care about the possibl
e monetary losses Chaebols started new firms instead of new division under the s
ame company. Many ventures of Chaebols started yielding low returns and governme
nt had to divert all available funds with the banks to finance these ventures an
d this led to huge decrease in foreign investments into South Korea. Even fiscal
and monetary Policies were frequently modified as per the needs of the Chaebols
Avoidance of foreign companies in favour of Chaebols
CHAEBOLS IN TROUBLE
Trouble started in late 1990s.Initially the slowdown in international semiconduc
tor, metals and petrochemical businesses. Further with the rise in wages, by thi
s south Korea lost its competitive edge in international markets.
Asian financial crisis played a important role in the downturn of Chaebols.
PROBLEMS
HUGE DEBTS LACK OF TRANCPARENCY IN CHAEBOL CORPORATE GOVERNANCE PROLIFERATION OF
UNPROFITABLE SUBSIDAIRIES THROUGHOUT THE ECONOMY INADEQUATE FINANCIAL REPORTING
AND CONTROLLING WITHIN THE CHAEBOLS ABSENCE OF A FREE MARKET SYSTEM
Restructuring
Improve transparency in management of Chaebols. Cross-Debt gurantees within Chae
bols were banned. Debt to equity ratio to be 2:1) Advised to get rid of unprofit
able subsidiaries. Management instructed to appoint outside director.
Result of Sever Measures
Out of 50 Chaebols, 16 underwent radical transformation. Early 2000 unemployment
rate was 3.1% and foreign exchange currency reserve $107 billion.