Difference between revisions of "Chaebol" - New World Encyclopedia

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'''Chaebol''' is a [[South Korea]]n form of business [[conglomerate (company)|conglomerates]]. The [[English language|English]] word is a [[transliteration]] of the [[Korean language|Korean]] word 재벌, which is [[Revised Romanization of Korean|now romanized]] as '''Jaebeol'''. The Korean word means business group, trust (as in [[Standard Oil|Standard Oil Trust]]), and is often used the way "Big Business" is used in English.
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'''Chaebol''' refers to a [[South Korea]]n form of business [[conglomerate (company)|conglomerate]], an [[English language|English]] [[transliteration]] of the [[Korean language|Korean]] word, 재벌, [[Revised Romanization of Korean|now romanized]] as '''Jaebeol.''' The Korean word means business group or trust (as in [[Standard Oil|Standard Oil Trust]]).
 +
{{toc}}
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The Chaebol originates from [[Culture of Korea|Korea's culture]] and society. Korean society, since it's beginnings, has been a village-based, clan-based, and region-based society. Koreans live and work together in a community that is created out of the village, clan, and region identifications. The Chaebol, likewise, has been created from those roots. Unlike western business enterprises which, although huge, center on the individual, the Korean Chaebol is community-based, deriving from the worker's membership in a village, clan, or province. The upside of the Chaebol is the capacity to create a powerful vertical economic system. The downside of the Chaebol is that massive capital, both human and financial, are subjected to the caprice of economic downturns and the group worker is valued more than the creative individual.
  
−
Chaebol refers to the several dozen large, family-controlled [[South Korea|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 name]]s, such as [[Samsung]], [[Hyundai]], [[SK Group|SK]], and [[LG Group|LG]] .  
+
==Overview==
 +
[[Image:Chung Ju-yung.jpg|right|thumb|220px|South Korean Chung Ju-yung, founder and honorary chairman of Hyundai Group]]
 +
<!--[[Image:Neckarsulm-Hyundai-Zentrale-20060611.JPG|thumb|right|250px|Hyundai Headquarters Germany]]—>
 +
Chaebol refers to the several dozen large, family-controlled [[South Korea|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 name]]s, such as [[Samsung]], [[Hyundai]], [[SK Group|SK]], and [[LG Group|LG]]. The chaebol stood as powerful, independent entities acting in the economy and politics, but sometimes they cooperated with the government in the areas of planning and innovation. The government worked hard to encourage competition among the chaebol in certain areas, to avoid total monopolies, although, as with defense contractors for the United States government, the South Korean government often finds options limited to the few companies they can work with.
  
−
The chaebol were powerful independent entities acting in the economy and politics, but sometimes they cooperated with the government in the areas of planning and innovation. The government worked hard to encourage competition among the chaebol in certain areas to avoid total monopolies.
+
The Chaebol influence has extended to the political arena. In 1988, a member of a chaebol family, [[Chong Mong-jun]], president of Hyundai Heavy Industries, successfully ran for the National Assembly. Other business leaders also won popular elections to the National Assembly. [[Hyundai]] played a leading role in the slight thawing of relations between [[North Korea|North]] and South Korea since 2000, helping to promoted Kim Dae-jung's [[Sunshine Policy]].
  
−
The role of big business extended to the political arena. In 1988 a member of a chaebol family, Chong Mong-jun, president of Hyundai Heavy Industries, successfully ran for the National Assembly. Other business leaders also were chosen to be members of the National Assembly through the proportional representation system. [[Hyundai]] even played a role in the slight thawing of relations between [[North Korea|North]] and South Korea since 2000.
+
[[Samsung]] ($89.1 billion), [[Hyundai Motor Company]] ($57.2 billion), [[LG Group|LG]] ($50.4 billion), [[SK Corporation|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 Group|Kumho Asiana]] ($2.8 billion) stood at the top of the Chaebol list in Korea in 2004 by total revenues.
−
 
 
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The top 10 largest chaebol in Korea in 2004 by total revenues were [[Samsung]] ($89.1 billion), [[Hyundai Motor Company]] ($57.2 billion), [[LG Group|LG]] ($50.4 billion), [[SK Corporation|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 Group|Kumho Asiana]] ($2.8 billion).[http://www.g4b.go.kr/com/agendaAction.do?method=agendaView&seq=141]
 
  
 
==Management structure==
 
==Management structure==
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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.
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[[Image:Hitachi Group Pavilion 01.jpg|thumb|right|200px|Japanese Keiretsu Hitachi]]
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Some chaebol constitute one corporate entity while others have broken up into loosely connected groups of separate companies sharing a common name. Even in the latter case, the same family group almost always owns, controls, and manages each smaller conglomerate or Chaebol. Economists often compare South Korea's chaebol with [[Japan]]'s [[keiretsu]] business groupings, the successors to the pre-war [[zaibatsu]]. While the "chaebol" bare similarity to the "zaibatsu" (the Korean and Japanese terms constitute pronunciations of the same Chinese characters), major differences between chaebol and keiretsu exist:
  
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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:
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* Founding families largely control Chaebol, while professional managers control Keiretsu.
−
 
+
* Centralized ownership characterizes Chaebol, while a decentralized ownership through cross-shareholdings characterizes Keiretsu.
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* Chaebol are still largely controlled by their founding families, while keiretsu are controlled by groups of professional managers.
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* Chaebol often form subsidiaries to manufacture components for exports, while large Japanese corporations often employ outside contractors.
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* Chaebol are centralized in ownership, while keiretsu are more decentralized and connected by cross-shareholdings.
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* The South Korean government has prohibited Chaebol from owning private banks, partly to increase leverage over the banks in areas such as credit allocation. In 1990, government regulations prohibited Chaebol from developing an exclusive banking relationship. Keiretsu have historically worked with an affiliated bank, giving the affiliated companies almost unlimited access to credit, although recent government regulations have regulated Keiretsu's dealings.
−
* Chaebol often formed subsidiaries to produce components for exports, while large Japanese corporations often employed outside contractors.
 
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* 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. In 1990, government regulations made it difficult for a chaebol to develop an exclusive banking relationship. 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==
 
==History==
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South Korea's economy was small and predominantly [[agriculture|agricultural]] well into the mid-[[20th century]]. However, the policies of [[President of South Korea|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]].
 
  
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Although South Korea's major industrial programs did not begin until the early 1960s, the origins of the country's entrepreneurial elite were found in the political economy of the 1950s. Very few Koreans had owned or managed larger corporations during the Japanese colonial period. After the departure of the Japanese in 1945, some Korean businessmen obtained the assets of some of the Japanese firms, a number of which grew into the chaebol of the 1990s. These companies, as well as certain other firms that were formed in the late 1940s and early 1950s, had close links with Syngman Rhee's First Republic, which lasted from 1948 to 1960 (see The Syngman Rhee Era, 1946-60 , ch. 1). It was alleged that many of these companies received special favors from the government in return for kickbacks and other payments.
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===1945-1960===
 +
South Korea had a small and predominantly [[agriculture|agricultural]] economy well into the mid-twentieth century. The policies of [[President of South Korea|President]] [[Park Chung Hee]], following his seizure power in 1961, spurred rapid [[industrialization]] by promoting large businesses. Government industrial policy set the direction of new investment, and the Chaebol received guaranteed loans from the banking sector. In that way, the Chaebol played a key role in developing new industries, markets, and [[export]] production, helping place [[South Korea]] as one of the "[[Four Asian Tigers]]."
  
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When the military took over the government in 1961, military leaders announced that they would eradicate the corruption that had plagued the Rhee administration and eliminate injustice from society. Some leading industrialists were arrested and charged with corruption, but the new government realized that it would need the help of the entrepreneurs if the government's ambitious plans to modernize the economy were to be fulfilled. A compromise was reached, under which many of the accused corporate leaders paid fines to the government. Subsequently, there was increased cooperation between corporate and government leaders in modernizing the economy.
+
Although South Korea's major industrial programs began in the early 1960s, the origins of the country's entrepreneurial elite originated in the political economy of the 1950s. Few Koreans owned or managed large corporations during the Japanese colonial period. After the departure of the Japanese in 1945, some Korean businessmen obtained the assets of some of the Japanese firms, a number of which grew into the Chaebol of the 1990s. Those companies, as well as certain other firms formed in the late 1940s and early 1950s, had close links with [[Syngman Rhee]]'s [[First Republic of South Korea|First Republic]], which lasted from 1948 to 1960.<ref>The Syngman Rhee Era, 1946-60 , ch. 1</ref> Allegedly, many of those companies received special favors from the government in return for kickbacks and other payments.
  
−
Government-chaebol cooperation was essential to the subsequent economic growth and astounding successes that began in the early 1960s. Driven by the urgent need to turn the economy away from consumer goods and light industries toward heavy, chemical, and import-substitution industries, political leaders and government planners relied on the ideas and cooperation of the chaebol leaders. The government provided the blueprints for industrial expansion; the chaebol realized the plans. However, the chaebol-led industrialization accelerated the monopolistic and oligopolistic concentration of capital and economically profitable activities in the hands of a limited number of conglomerates.
+
===1960s===
 +
When the military took over the government in 1961, military leaders announced that they would eradicate the corruption that had plagued the Rhee administration and eliminate injustice from society. The government arrested some leading industrialists for corruption, but the new government realized that they needed the help of those entrepreneurs to achieve ambitious plans to modernize the economy. The government reached a compromise, permitting many of the accused corporate leaders to pay fines instead of serving prison time. Cooperation between corporate and government leaders to modernize the economy increased.
  
−
Park used the chaebol as a means towards economic growth. Exports were encouraged, reversing Rhee's policy of reliance on imports. Performance quotas were established.
+
Government-Chaebol cooperation proved essential to the subsequent economic growth and astounding successes that began in the early 1960s. Driven by the urgent need to turn the economy away from consumer goods and light industries toward heavy, chemical, and import-substitution industries, political leaders and government planners relied on the ideas and cooperation of the Chaebol leaders. The government provided the blueprints for industrial expansion; the Chaebol realized the plans. The Chaebol-led industrialization accelerated the monopolistic and oligopolistic concentration of capital and economically profitable activities in the hands of a limited number of conglomerates. Park used the Chaebol as a means to advance economic growth. Park's administration encouraged exports, reversing Rhee's policy of reliance on imports, and established performance quotas.
  
−
The chaebol were able to grow because of two factors—foreign loans and special favors. Access to foreign technology also was critical to the growth of the chaebol through the 1980s. Under the guise of "guided capitalism," the government selected companies to undertake projects and channeled funds from foreign loans. The government guaranteed repayment should a company be unable to repay its foreign creditors. Additional loans were made available from domestic banks. In the late 1980s, the chaebol dominated the industrial sector and were especially prevalent in manufacturing, trading, and heavy industries.
+
===1980s===
 +
The Chaebol grew because of two factors: Foreign loans and special favors. Access to foreign technology also proved critical to the growth of the Chaebol through the 1980s. Under the guise of "guided capitalism," the government selected companies to undertake projects and channeled funds from foreign loans. The government guaranteed repayment should a company fail to repay its foreign creditors. Domestic banks made available additional loans. In the late 1980s, the Chaebol dominated the industrial sector, especially manufacturing, trading, and heavy industries.
  
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The tremendous growth that the chaebol experienced, beginning in the early 1960s, was closely tied to the expansion of South Korean exports. Growth resulted from the production of a diversity of goods rather than just one or two products. Innovation and the willingness to develop new product lines were critical. In the 1950s and early 1960s, chaebol concentrated on wigs and textiles; by the mid-1970s and 1980s, heavy, defense, and chemical industries had become predominant. While these activities were important in the early 1990s, real growth was occurring in the electronics and high-technology industries. The chaebol also were responsible for turning the trade deficit in 1985 to a trade surplus in 1986. The current account balance, however, fell from more than US$14 billion in 1988 to US$5 billion in 1989.
+
The tremendous growth that the Chaebol experienced, beginning in the early 1960s, closely tied with the expansion of South Korean exports. Growth resulted from the production of a diversity of goods rather than just one or two products. Innovation and the willingness to develop new product lines became critical. In the 1950s and early 1960s, Chaebol concentrated on wigs and textiles; by the mid-1970s and 1980s, heavy, defense, and chemical industries had become predominant. While the heavy industries played an important role in the South Korean economy in the early 1990s, real growth occurred in the electronics and high-technology industries. The Chaebol played a key role in turning the trade deficit in 1985 to a trade surplus in 1986. That reversed slightly between 1988 and 1989, when the current account balance fell from more than US$14 billion to US$5 billion.
  
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The chaebol continued their explosive growth in export markets in the 1980s. By the late 1980s, the chaebol had become financially independent and secure—thereby eliminating the need for further government-sponsored credit and assistance.
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The Chaebol continued their explosive growth in export markets in the 1980s. By the late 1980s, the Chaebol had become financially independent and secure—thereby eliminating the need for further government--sponsored credit and assistance.
  
−
By the 1990s, South Korea was one of the largest [[Newly industrializing economy|NIE]]s, and boasted a standard of living comparable to industrialized countries.
+
===1990s===
 +
By the 1990s, South Korea numbered among the largest [[Newly industrializing economy|NIE]]s, boasting a standard of living comparable to industrialized countries. President [[Kim Young-sam]] began to challenge the Chaebol, but the weaknesses of the Chaebol system awaited exposure with the [[Asian financial crisis]] in 1997. Of the thirty largest Chaebol, eleven collapsed between July 1997 and June 1999. The Chaebol heavily invested in export-oriented [[manufacturing]], neglecting the domestic market, and exposing the economy to every downturn in overseas markets. In competing with each other, they had built up unsustainable overcapacity. On the eve of the crisis, South Korea's population ranked #26 in the world, yet seven major [[automobile]] manufacturers operated in South Korea.
  
−
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 failed to 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 US$80 billion in unpaid debt. At the time, Daewoo constituted the largest corporate bankruptcy in history. Investigations exposed widespread corruption in the Chaebol, particularly fraudulent [[accounting]] and bribery.
  
−
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 [[United States dollar|US$]]80 billion in unpaid debt. At the time, it was the largest corporate [[bankruptcy]] in history.
+
==Reforms in the 1990s and 2000==
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Investigations also exposed widespread corruption in the chaebol, particularly [[fraud]]ulent [[accounting]] and bribery.
 
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==Reforms==
 
 
Under President [[Kim Dae-jung]], elected in the wake of the crisis, the government made several efforts to reform the economy.
 
Under President [[Kim Dae-jung]], elected in the wake of the crisis, the government made several efforts to reform the economy.
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* Instead of competing in every industry, the chaebol were pressured to focus on core businesses and spin off unrelated enterprises.
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* Instead of competing in every industry, the government pressured the Chaebol to focus on core businesses and spin off unrelated enterprises.
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* The chaebol were to decentralize their management and encourage the hiring of professional managers.
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* Government regulators pressured the Chaebol to decentralize their management and encourage the hiring of professional managers.
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* Accounting regulations were strengthened to limit the ability of chaebol to hide losses and debt at under performing subsidiaries.
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* The government required the strengthening of accounting procedures to limit the ability of Chaebol to hide losses and debt at under performing subsidiaries.
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* A crackdown on antitrust laws and [[inheritance tax]]es would impede the ability of families to retain control over their chaebol.
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* A crackdown on antitrust laws and [[inheritance tax]]es impeded 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.
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[[Roh Moo-hyun]], and predecessor Kim Dae-jung, has 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==
 
==List of chaebol==
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|----
 
|----
 
|2
 
|2
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|[[Korea Electric Power Corporation]] (KEPCO)<ref name="pe">This is a public enterprise. A public enterprise is usually not considered a chaebol in Korea.</ref>
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|[[Korea Electric Power Corporation]] (KEPCO)
 
|11
 
|11
 
|11
 
|11
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|----
 
|----
 
|6
 
|6
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|[[Korea Highway Corporation]]<ref name="pe"/>
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|[[Korea Highway Corporation]]
 
|3
 
|3
 
|3
 
|3
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|----
 
|----
 
|8
 
|8
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|[[Korea National Housing Corporation]]<ref name="pe"/>
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|[[Korea National Housing Corporation]]
 
|2
 
|2
 
|2
 
|2
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|----
 
|----
 
|13
 
|13
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|[[Korea Land Corporation]]<ref name="pe"/>
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|[[Korea Land Corporation]]
 
|2
 
|2
 
|1
 
|1
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|----
 
|----
 
|16
 
|16
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|[[Korail|Korea Railroad]]<ref name="pe"/>
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|[[Korail|Korea Railroad]]
 
|12
 
|12
 
|12
 
|12
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|----
 
|----
 
|19
 
|19
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|[[Korea Gas Corporation]](KOGAS)<ref name="pe"/>
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|[[Korea Gas Corporation]](KOGAS)
 
|2
 
|2
 
|2
 
|2
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The rest are:
 
The rest are:
−
[[Dongbu Group]], [[Hyundai]], [[Shinsegae]], [[CJ Corporation|CJ]], [[LS Group|LS]], [[Daelim]], [[GM Daewoo]], [[Hite|Hite Brewery Company]], [[Daewoo Construction]], [[Dong Kuk Steel Mill]], [[Daewoo Shipbuilding and Marine Engineering]](DSME), [[STX Corporation|stx]], [[Korea Agricultural & Rural Infrastructure Corporation]]<ref name="pe"/>, [[Tong Yang]], [[KT&G]], [[Hyosung]], [[Hyundai Oilbank]], [[Hyundai Department Store]], [[Kolon]], [[Hyundai Development Company]], [[KCC]], [[Hanjin Heavy Industries]], Seah, [[Young Poong]], [[Taekwang]], [[Booyoung]], [[Hanaro Telecom]], [[Taihan Electric Wire]], [[Ssangyong]], [[Hansol]], [[Nong Shim]], [[Daesung]], [[E-Land]], [[Dong Yang Chemical]], [[Samyang]], [[Munhwa Broadcasting Corporation]](MBC), [[Taeyoung]], [[Hankook Tire]], [[JoongAng Ilbo]] Corp.
+
[[Dongbu Group]], [[Hyundai]], [[Shinsegae]], [[CJ Corporation|CJ]], [[LS Group|LS]], [[Daelim]], [[GM Daewoo]], [[Hite|Hite Brewery Company]], [[Daewoo Construction]], [[Dong Kuk Steel Mill]], [[Daewoo Shipbuilding and Marine Engineering]](DSME), [[STX Corporation|stx]], [[Korea Agricultural & Rural Infrastructure Corporation]], [[Tong Yang]], [[KT&G]], [[Hyosung]], [[Hyundai Oilbank]], [[Hyundai Department Store]], [[Kolon]], [[Hyundai Development Company]], [[KCC]], [[Hanjin Heavy Industries]], Seah, [[Young Poong]], [[Taekwang]], [[Booyoung]], [[Hanaro Telecom]], [[Taihan Electric Wire]], [[Ssangyong]], [[Hansol]], [[Nong Shim]], [[Daesung]], [[E-Land]], [[Dong Yang Chemical]], [[Samyang]], [[Munhwa Broadcasting Corporation]](MBC), [[Taeyoung]], [[Hankook Tire]], [[JoongAng Ilbo]] Corp.
−
 
 
−
Note that some of these are not considered a chaebol in the strictest sense.
 
  
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== See also ==
+
Note that some of these are not considered a Chaebol in the strictest sense.
−
 
 
−
* [[Economy of South Korea]]
 
−
* [[Family business]]
 
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* [[Holding company]]
 
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* [[Keiretsu]], reorganized zaibatsu after WWII
 
−
* [[List of Korea-related topics]]
 
−
* [[List of South Korean companies]]
 
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* [[Zaibatsu]], [[Japan]]'s conglomerates (linguistically cognate in [[Japanese language|Japanese]] with ''jaebeol'')
 
−
* [[Vertical integration]]
 
−
* [[Cabal]]
 
−
* [[The Hongs]]
 
−
* [[Mega Corporation]]
 
  
 
== Notes ==
 
== Notes ==
Line 232: Line 217:
  
 
== References ==  
 
== References ==  
 +
* Beck, Peter M. " Are Korea's Chaebol Serious About Restructuring?" Presentation at the Korea 2000 conference, May 30, 2000. Korea Economic Institute of America.
 +
* ''Business Week Magazine.'' "KOREA: CHAEBOL—Daewoo's bankruptcy—and that of other Chaebol—could kill legions of small and midsize suppliers." 2000.
 +
* Chwa, Sŭng-hŭi. 2002. ''The Evolution of Large Corporations in Korea a New Institutional Economics Perspective of the Chaebol.'' Cheltenham: E. Elgar. ISBN 9781840648836
 +
* Oh, Ingyu. 1996. Making an octopus the rise and development of the South Korean Chaebol and the Japanese Keiretsu. Thesis (Ph. D.)—University of Oregon, 1996. 
 +
* Whitmore, Stuart and Laxmi Nakarmi. "[http://www.asiaweek.com/asiaweek/97/1010/aa5.html Guide to the Groups: The pecking order of the top 20 Chaebol]." ''[[Asiaweek]].'' October 10, 1997.
  
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{{loc}}
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==External Links==
 +
All links retrieved December 3, 2023.
 +
* [http://www.economist.com/displaystory.cfm?story_id=1697767 Unfinished Business: The Economist, April 17, 2003].
 +
* [http://www.sjsu.edu/faculty/watkins/chaebol.htm The Chaebol of South Korea].
 +
  
−
* Beck, Peter M. "[http://www.keia.com/chaebol2000.pdf. Are Korea's Chaebol Serious About Restructuring?]" Presentation at the Korea 2000 conference, May 30, 2000. Korea Economic Institute of America
 
  
−
* "[http://www.economist.com/displaystory.cfm?story_id=1697767 Unfinished Business]," ''[[The Economist]]'', April 17, 2003
 
−
 
−
* "[http://www.economist.com/displaystory.cfm?story_id=109064 Web site: South Korean conglomerates]," ''[[The Economist]]'', December 11, 1997
 
−
 
−
* Whitmore, Stuart and Nakarmi, Laxmi. "[http://www.asiaweek.com/asiaweek/97/1010/aa5.html Guide to the Groups: The pecking order of the top 20 chaebol]," ''[[Asiaweek]]'', October 10, 1997.
 
  
 
{{Chaebol}}
 
{{Chaebol}}
  
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[[Category:Chaebols|Chaebol]]
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[[Category:Politics and social sciences]]
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[[Category:Economy of South Korea]]
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[[Category:Economics]]
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[[Category:Korean words and phrases]]
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[[Category:Industry and business]]
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[[Category:Korea]]
 
{{credits|139793691}}
 
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Latest revision as of 00:11, 4 December 2023

Chaebol
Hangul 재벌
Hanja 財閥
Revised Romanization Jaebeol
McCune-Reischauer Chaebŏl


Chaebol refers to a South Korean form of business conglomerate, an English transliteration of the Korean word, 재벌, now romanized as Jaebeol. The Korean word means business group or trust (as in Standard Oil Trust).

The Chaebol originates from Korea's culture and society. Korean society, since it's beginnings, has been a village-based, clan-based, and region-based society. Koreans live and work together in a community that is created out of the village, clan, and region identifications. The Chaebol, likewise, has been created from those roots. Unlike western business enterprises which, although huge, center on the individual, the Korean Chaebol is community-based, deriving from the worker's membership in a village, clan, or province. The upside of the Chaebol is the capacity to create a powerful vertical economic system. The downside of the Chaebol is that massive capital, both human and financial, are subjected to the caprice of economic downturns and the group worker is valued more than the creative individual.

Overview

South Korean Chung Ju-yung, founder and honorary chairman of Hyundai Group

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, SK, and LG. The chaebol stood as powerful, independent entities acting in the economy and politics, but sometimes they cooperated with the government in the areas of planning and innovation. The government worked hard to encourage competition among the chaebol in certain areas, to avoid total monopolies, although, as with defense contractors for the United States government, the South Korean government often finds options limited to the few companies they can work with.

The Chaebol influence has extended to the political arena. In 1988, a member of a chaebol family, Chong Mong-jun, president of Hyundai Heavy Industries, successfully ran for the National Assembly. Other business leaders also won popular elections to the National Assembly. Hyundai played a leading role in the slight thawing of relations between North and South Korea since 2000, helping to promoted Kim Dae-jung's Sunshine Policy.

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 ($2.8 billion) stood at the top of the Chaebol list in Korea in 2004 by total revenues.

Management structure

Japanese Keiretsu Hitachi

Some chaebol constitute one corporate entity while others have broken up into loosely connected groups of separate companies sharing a common name. Even in the latter case, the same family group almost always owns, controls, and manages each smaller conglomerate or Chaebol. Economists often compare South Korea's chaebol with Japan's keiretsu business groupings, the successors to the pre-war zaibatsu. While the "chaebol" bare similarity to the "zaibatsu" (the Korean and Japanese terms constitute pronunciations of the same Chinese characters), major differences between chaebol and keiretsu exist:

  • Founding families largely control Chaebol, while professional managers control Keiretsu.
  • Centralized ownership characterizes Chaebol, while a decentralized ownership through cross-shareholdings characterizes Keiretsu.
  • Chaebol often form subsidiaries to manufacture components for exports, while large Japanese corporations often employ outside contractors.
  • The South Korean government has prohibited Chaebol from owning private banks, partly to increase leverage over the banks in areas such as credit allocation. In 1990, government regulations prohibited Chaebol from developing an exclusive banking relationship. Keiretsu have historically worked with an affiliated bank, giving the affiliated companies almost unlimited access to credit, although recent government regulations have regulated Keiretsu's dealings.

History

1945-1960

South Korea had a small and predominantly agricultural economy well into the mid-twentieth century. The policies of President Park Chung Hee, following his seizure power in 1961, spurred rapid industrialization by promoting large businesses. Government industrial policy set the direction of new investment, and the Chaebol received guaranteed loans from the banking sector. In that way, the Chaebol played a key role in developing new industries, markets, and export production, helping place South Korea as one of the "Four Asian Tigers."

Although South Korea's major industrial programs began in the early 1960s, the origins of the country's entrepreneurial elite originated in the political economy of the 1950s. Few Koreans owned or managed large corporations during the Japanese colonial period. After the departure of the Japanese in 1945, some Korean businessmen obtained the assets of some of the Japanese firms, a number of which grew into the Chaebol of the 1990s. Those companies, as well as certain other firms formed in the late 1940s and early 1950s, had close links with Syngman Rhee's First Republic, which lasted from 1948 to 1960.[1] Allegedly, many of those companies received special favors from the government in return for kickbacks and other payments.

1960s

When the military took over the government in 1961, military leaders announced that they would eradicate the corruption that had plagued the Rhee administration and eliminate injustice from society. The government arrested some leading industrialists for corruption, but the new government realized that they needed the help of those entrepreneurs to achieve ambitious plans to modernize the economy. The government reached a compromise, permitting many of the accused corporate leaders to pay fines instead of serving prison time. Cooperation between corporate and government leaders to modernize the economy increased.

Government-Chaebol cooperation proved essential to the subsequent economic growth and astounding successes that began in the early 1960s. Driven by the urgent need to turn the economy away from consumer goods and light industries toward heavy, chemical, and import-substitution industries, political leaders and government planners relied on the ideas and cooperation of the Chaebol leaders. The government provided the blueprints for industrial expansion; the Chaebol realized the plans. The Chaebol-led industrialization accelerated the monopolistic and oligopolistic concentration of capital and economically profitable activities in the hands of a limited number of conglomerates. Park used the Chaebol as a means to advance economic growth. Park's administration encouraged exports, reversing Rhee's policy of reliance on imports, and established performance quotas.

1980s

The Chaebol grew because of two factors: Foreign loans and special favors. Access to foreign technology also proved critical to the growth of the Chaebol through the 1980s. Under the guise of "guided capitalism," the government selected companies to undertake projects and channeled funds from foreign loans. The government guaranteed repayment should a company fail to repay its foreign creditors. Domestic banks made available additional loans. In the late 1980s, the Chaebol dominated the industrial sector, especially manufacturing, trading, and heavy industries.

The tremendous growth that the Chaebol experienced, beginning in the early 1960s, closely tied with the expansion of South Korean exports. Growth resulted from the production of a diversity of goods rather than just one or two products. Innovation and the willingness to develop new product lines became critical. In the 1950s and early 1960s, Chaebol concentrated on wigs and textiles; by the mid-1970s and 1980s, heavy, defense, and chemical industries had become predominant. While the heavy industries played an important role in the South Korean economy in the early 1990s, real growth occurred in the electronics and high-technology industries. The Chaebol played a key role in turning the trade deficit in 1985 to a trade surplus in 1986. That reversed slightly between 1988 and 1989, when the current account balance fell from more than US$14 billion to US$5 billion.

The Chaebol continued their explosive growth in export markets in the 1980s. By the late 1980s, the Chaebol had become financially independent and secure—thereby eliminating the need for further government—sponsored credit and assistance.

1990s

By the 1990s, South Korea numbered among the largest NIEs, boasting a standard of living comparable to industrialized countries. President Kim Young-sam began to challenge the Chaebol, but the weaknesses of the Chaebol system awaited exposure with the Asian financial crisis in 1997. Of the thirty largest Chaebol, eleven collapsed between July 1997 and June 1999. The Chaebol heavily invested in export-oriented manufacturing, neglecting the domestic market, and exposing the economy to every downturn in overseas markets. In competing with each other, they had built up unsustainable overcapacity. On the eve of the crisis, South Korea's population ranked #26 in the world, yet seven major automobile manufacturers operated in South Korea.

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 failed to 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 US$80 billion in unpaid debt. At the time, Daewoo constituted the largest corporate bankruptcy in history. Investigations exposed widespread corruption in the Chaebol, particularly fraudulent accounting and bribery.

Reforms in the 1990s and 2000

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 government pressured the Chaebol to focus on core businesses and spin off unrelated enterprises.
  • Government regulators pressured the Chaebol to decentralize their management and encourage the hiring of professional managers.
  • The government required the strengthening of accounting procedures to limit the ability of Chaebol to hide losses and debt at under performing subsidiaries.
  • A crackdown on antitrust laws and inheritance taxes impeded the ability of families to retain control over their Chaebol.

Roh Moo-hyun, and predecessor Kim Dae-jung, has 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

According to KFTC, there are 59 companies in Korea whose total assets in Korea exceeds 2 trillion won. (As of April 2006) The top 20 is:

Rank Name # of subsidiaries Non-financial subsidiaries Financial&insurance subsidiaries Asset(billion won)
1 Samsung Group 59 49 10 115,924
2 Korea Electric Power Corporation (KEPCO) 11 11 0 102,932
3 Hyundai Automotive Group 40 38 2 62,235
4 SK Group 56 54 2 54,808
5 LG Group 30 30 0 54,432
6 Korea Highway Corporation 3 3 0 34,638
7 Lotte 43 41 2 32,961
8 Korea National Housing Corporation 2 2 0 30,834
9 POSCO 21 20 1 30,183
10 KT 12 12 0 27,520
11 GS Group 50 50 0 21,827
12 Hanjin 22 21 1 20,702
13 Korea Land Corporation 2 1 1 17,592
14 Hyundai Heavy Industries 7 4 3 17,267
15 Hanwha 31 24 7 16,526
16 Korea Railroad 12 12 0 14,270
17 Doosan Group 18 16 2 13,659
18 Kumho Asiana 23 21 2 12,982
19 Korea Gas Corporation(KOGAS) 2 2 0 11,371
20 Hynix 5 5 0 10,358

The rest are: Dongbu Group, Hyundai, Shinsegae, CJ, LS, Daelim, GM Daewoo, Hite Brewery Company, Daewoo Construction, Dong Kuk Steel Mill, Daewoo Shipbuilding and Marine Engineering(DSME), stx, Korea Agricultural & Rural Infrastructure Corporation, Tong Yang, KT&G, Hyosung, Hyundai Oilbank, Hyundai Department Store, Kolon, Hyundai Development Company, KCC, Hanjin Heavy Industries, Seah, Young Poong, Taekwang, Booyoung, Hanaro Telecom, Taihan Electric Wire, Ssangyong, Hansol, Nong Shim, Daesung, E-Land, Dong Yang Chemical, Samyang, Munhwa Broadcasting Corporation(MBC), Taeyoung, Hankook Tire, JoongAng Ilbo Corp.

Note that some of these are not considered a Chaebol in the strictest sense.

Notes

  1. ↑ The Syngman Rhee Era, 1946-60 , ch. 1

References
ISBN links support NWE through referral fees

  • Beck, Peter M. " Are Korea's Chaebol Serious About Restructuring?" Presentation at the Korea 2000 conference, May 30, 2000. Korea Economic Institute of America.
  • Business Week Magazine. "KOREA: CHAEBOL—Daewoo's bankruptcy—and that of other Chaebol—could kill legions of small and midsize suppliers." 2000.
  • Chwa, Sŭng-hŭi. 2002. The Evolution of Large Corporations in Korea a New Institutional Economics Perspective of the Chaebol. Cheltenham: E. Elgar. ISBN 9781840648836
  • Oh, Ingyu. 1996. Making an octopus the rise and development of the South Korean Chaebol and the Japanese Keiretsu. Thesis (Ph. D.)—University of Oregon, 1996.
  • Whitmore, Stuart and Laxmi Nakarmi. "Guide to the Groups: The pecking order of the top 20 Chaebol." Asiaweek. October 10, 1997.

External Links

All links retrieved December 3, 2023.


Chaebol

Aju Group • Byuck San • CJ Group • Dong Ah • Daelim Group • Daesang Group • Daewoo • Dongbu Group • Dongkuk Group • Dongwon Group • Doosan Group • Eugene Group • GS Group • Halla • Hana Financial Group • Hanil • Hanjin Group • Hansol • Hanwha • Hyosung • Hyundai • Hyundai Kia Automotive Group • Haitai • Isu Group • Jinro • KBS • KB Group • Keopyeong • Kiswel Group • Kolon • KT Group • Kumho Asiana Group • Kyobo • LG Group • Lotte • LS Group • Munhwa Broadcasting Corporation • Nong Shim Group • On-Media • Samlip Group • SBS • Shinhan Financial Group • Shinsegae Group • SK Group • Samsung Group • SsangYong Group • Taekwang Heungkook Group • Taeyoung • Tongyang Orion Group • Woongjin Group • Woori Financial Group • YTN Group

See also List of South Korean companies & Economy of South Korea

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