INTERNATIONAL REGULATORY ENVIRONMENT

DAEWOO GROUP AND THE ASIAN FINANCIAL CRISIS

GROUP: 1

AMIT DUBEY C-07

PRANJAL J BORAH C-32
SUMEET RATTAN C-
SHIRISH JAIN 3C-16
RAHUL GOEL C-71
ABHINAV GUPTA C-72
 CASE FACTS
 Kim Woo-Choong started Daewoo in 1967 as a small textile company.

 By 1997, Daewoo group had 30 domestic companies and 300 overseas subsidiaries

 Government blocked capital to highly diversified companies like Daewoo which failed to
consolidate its business focusing on core competencies during the Asian Financial Crisis

 Daewoo diversified into 6 major divisions- i) Trading ii) Heavy Industry and Ship
Building iii) Construction and Hotels iv) Motor Vehicles v) Electronics and
Telecommunications and vi) Finance and Service

 In 1998, Daewoo debt: $50 billion (13% of Korea’s GDP); debt-equity ratio: 5:1. Failed
to pay its home and overseas creditors

 Founder Kim Woo- Choong abandoned Daewoo and fled the country

 In 1999, Daewoo Group collapsed under $57 billion debt

 Korean Government dismantled Daewoo Group; sell-off Daewoo Motors to GM

 Government reduced the number of Chaebol from 30 to 14 to compete globally

 Korean economy recovered from the AFC by 2002 growing at 3%

 PESTEL ANALYSIS

Political
 Government emphasis on exports; policy of import substitution
 Government controlled banks offering loans to even financially
unhealthy companies
 The government defending the fixed exchange rate; protectionist
policies
 Government blocked capital to highly diversified chaebol like Daewoo

Economical
 Economic system of government intervention modeled after the
Japanese system
 Lower corporate income tax, tariff exemptions and tax holidays for
domestic suppliers of export firms
 Government raised interest rates to support won as per IMF’s advice

Social
 Family ties played an important role in running Daewoo, very loyal to
the government
 Family Businesses were secretive of its financial health
 limited availability of data and a lack of transparency
 Charges of corruption
Technological
 Government policies to shift from light to heavy and then to
technology oriented industries to promote exports

Environmental
 Mexican peso crisis of 1994; western investors lost confidence in
securities in East Asia and began to pull money out
 Thai Baht devaluation in July, 1997 followed by Korean won which was
46.2% lower
 IMF encouraged banking reforms and restructuring of chaebol
 Raising of U.S. interest rates to head off inflation. This made the U.S. a
more attractive investment destination relative to Southeast Asia
 Thai and Indonesian currencies were closely tied to the dollar, which
was appreciating in the 1990s. Western importers sought cheaper
manufacturers and found them, indeed, in China whose currency was
depreciated relative to the dollar

Legal
 RECOMMENDATIONS
FOR DAEWOO