Daewoo
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Daewoo (Korean for "Great Universe") was a major South Korean chaebol (conglomerate). It was founded in March 22 1967 as Daewoo Industrial and was dismantled by the Korean government in 1999. On May 30 2006 the founder of Daewoo, Kim Woo-jung, was sentenced by a court in Seoul to a fine of approximately 22 billion dollars and 10 years in prison on charges including fraud and embezzlement.
History
Kim Woo-jung was the son of the Provincial Governor of Daegu. He graduated from the prestigious Kyonggi High School, then finished with an Economics Degree in Yonsei University in Seoul. Kim Woo-jung founded the Daewoo Group in March 1967. It became one of the Big Four chaebol in South Korea. An industrial and multi-faceted service conglomerate, Daewoo was prominent in expanding its global market through joint ventures all over the world.During the 1960s, after the end of the Syngman Rhee government, the new government of Park Chung Hee intervened to promote growth and development in the country. It increased access to resources, promoted exports, financed industrialization, and provided protection from competition to the chaebol in exchange for a company's political support. In the beginning, the Korean government instigated a series of five-year plans under which the chaebol were required to achieve a number of basic objectives.
Daewoo did not become a major player until the second five-year plan. Daewoo benefited from government-sponsored cheap loans based on potential export profits. The company initially concentrated on labor-intensive clothing and textile industries that provided high profit margins. The most significant resource in this plan was South Korea's large workforce.
The third and fourth of the five-year plans occurred from 1973 to 1981. During this period, the country's labor force was in high demand. Competition from other countries began eroding Korea's competitive edge. The government responded to this change by concentrating its effort on mechanical and electrical engineering, shipbuilding, petrochemicals, construction, and military initiatives. At the end of this period, the government forced Daewoo into shipbuildings. Kim was reluctant to enter this industry, but Daewoo soon earned a reputation for producing competitively priced ships and oil rigs.
During the next decade, the Korean government became more liberal in economic policies. Small private companies were encouraged, protectionist import restrictions were loosened, and the government reduced positive discrimination, to encourage free market trade and to force the chaebol to be more aggressive abroad. Daewoo responded by establishing a number of joint ventures with U.S. and European companies. It expanded exports of machine tools, defense products, aerospace interests, and semiconductor design and manufacturing. Eventually, it began to build civilian helicopters and airplanes, priced considerably cheaper than those produced by its U.S. counterparts. It also expanded efforts in the automotive industry and was ranked as the seventh largest car exporter and the sixth largest car manufacturer in the world. Throughout this period, Daewoo experienced great success at turning around faltering companies in Korea.
In the 1980s and early 1990s, the Daewoo Group also produced consumer electronics, computers, telecommunication products, construction equipment, buildings, and musical instruments (Daewoo Piano).
Factors that affected Daewoo's performance
- Government intervention: Government policy served as a double edged sword: it protected the chaebol, providing them with massive subsidies, unlimited cheap credit, and protection against foreign competition. However, the price for these services was total loyalty to the government. Chaebol were forced to take over industries against their will. The government was constantly involved in their businesses and stifled their creativity.
- Labor market: The traditional work ethic that helped Korea reach economic prosperity has been threatened as workers have begun increasingly violent protests against years of long hours and low pay. Daewoo shipbuilding suffered heavy losses due to workers' demands for pay raises.
- Operating in a global economy: International demand for free trade is forcing the Korean government to open its market. The chaebol will lose its protectionist import controls. Most recently, the North American Free Trade Agreement and the European Economic Community imposed trade limitations.
- Product quality from Korea: Korean products were considered to be of low quality. Companies are trying to improve that image.
- By the 1990s, Daewoo Group was heavily leveraged, major markets were stagnant, expenditures on R&D were increasing, labor unrest was continuing, and government policy was turning against the company.
- Kim was most recently charged with allegedly paying campaign contributions to former president Roh Tae Woo in exchange for a large government contract to build a submarine base.
Kim's vision
Kim Woo-jung was an excellent entrepreneur. He led the company's growth from an $18,000 initial capital value to $25 billion in annual sales. Some of the solutions he employed to counter problems his company faced are as follows:
- He used organizational politics to work with the government. He understood that to gain power, resources, and growth, he needed the protection of the government.
- Daewoo Group was excellent at turning around faltering companies due to a well-managed, highly centralized organizational structure. Under Kim's vision, he developed a unique culture in his chaebol known as the "Daewoo Spirit". This spirit meant a commitment to creativity, challenge, and sacrifice. Kim believed in co-prosperity whereby the company provides value to employees, customers, suppliers, partners, and the country as a whole.
- Daewoo enlarged its capital supply sources by diversifying its method of securing funds, including leasing and deferred payments. It raised funds successfully overseas for large foreign investment projects.
- Daewoo established a number of joint ventures with U.S. and European companies. Under the Vision 2000 campaign, Daewoo established joint-venture production facilities, invested in foreign facilities, established sales and local subsidiaries, and localized component production and other operations. This campaign was aimed at strengthening Daewoo's international competitiveness.
- After two workers committed suicide in 1987, Kim developed a unique program to mend management-labour relations. Managers and company presidents were required to work on the assembly line, and assembly line workers could be promoted to management level. This policy was aimed at improving the management-labour relations as well as helping managers to understand the difficulties and problems on the assembly line.
- Daewoo increased their R&D expenditures to be more internationally competitive. To boost this effort, Daewoo established a technology R&D team called the Institute for Advanced Engineering. This team used three strategies in technical development: competitiveness, managerial system development, and the use of a technology network.
Corporations
There were about 20 divisions under Daewoo Group, which was once the second largest conglomerate after Hyundai and followed by LG and Samsung in Korea before the crisis. Daewoo Group, as was the official name, had under its umbrella several major corporations:- Daewoo Electronics, a strong force both internationally and in Korea
- Daewoo Heavy Industries, excelling in creating heavy duty machinery
- Daewoo Ship Building, which boasted and still boasts one of the highest levels of production of containers and oil tankers in the world today
- Daewoo Securities, a financial securities company
- Daewoo Telecom, concentrating on the telecommunication aspect of electronics
- Daewoo Construction, an international company famous for building highways, dams and skyscrapers for countries, especially those in the Middle East and Africa
- Daewoo International, which remains a successful trading organisation
Crisis history
Daewoo Group ran into deep financial trouble in 1998 due to the Asian financial crisis, increasingly thin relationships with the Korean government under President Kim Dae Jung, and its own poor financial management. With the Korean government in deficit, traditional reliance on access to cheap and nearly unlimited credit was severely restricted. According to an article by the "Economist," dated August 19, 1999, not long after Daewoo's insolvency, "Its failure was a long time coming. [In 1998], when the economic crisis forced most of the chaebol to cut back, Daewoo brazenly added 14 new firms to its existing 275 subsidiaries—and this in a year where the group lost a combined 550 billion won ($458m) on sales of 62 trillion won ($51 billion). At the end of 1997, South Korea’s four biggest chaebol averaged debt of nearly five times their equity. But while Samsung and LG [two other considerable chaebols] cut back during the subsequent year of economic crisis, Daewoo acted as if nothing had changed: it added 40% more debt." [link]By 1999, Daewoo, the second largest conglomerate in South Korea holding interests in approximately 100 countries, went bankrupt, with debts of about 80 billion won (84.3 million USD).
Soon after the company's demise, Chairman Kim Woo-jung fled to France, and many former Daewoo factory workers put up "Wanted" posters with his picture. Kim Woo-jung returned to Korea in June 2005 and was promptly arrested, after spending six years abroad. Mr. Kim was charged with masterminding accounting fraud worth 41 trillion won ($43.4 billion), illegally borrowing 9.8 trillion won ($10.3 billion) and smuggling $3.2 billion out of the country, according to South Korea's Yonhap News Agency.[link] On May 30 2006 a court in Seoul sentenced Kim to 10 years in prison after convicting him on charges of fraud and embezzlement. On the last day of the trial, Mr. Kim tearfully addressed the court, "I cannot dodge my responsibility of wrongly buttoning up the final button of fate." [link]
The downfall of Daewoo was and still is considered highly contentious, due to the integral nature that chaebols play in South Korean life. The collapse caused billions of dollars in losses for both South Korean banks and the government. However, the bankruptcy of the company was not merely a financial but also a political crisis, and came as a large shock to much of the nation's population.
Daewoo Motors
- For specific Daewoo vehicle models, see
Daewoo was forced to sell off its automotive arm, Daewoo Motors, to General Motors by the Kim administration. Since then, GM has been moving to rebadge Daewoo cars as the low-end models for many brands, including Chevrolet. GM was sued by Daewoo's former U.S. dealer network over this practice, since they no longer had new Daewoo cars to sell.
Daewoo commercial vehicles division was sold to Tata Motors of India.
- See also Daewoo Motor Sales
Current status
Daewoo Electronics survives to this day despite bankruptcy, with a new brand logo "DE", but many of the other subsidiaries and divisions have become independent or simply perished under the "reorganisation" of the Korean government under Kim Dae Jung.The group was reorganized into three parts: Daewoo International, Daewoo Engineering & Construction and Daewoo Corporation. It is active in many markets; the most important are steel processing, ship building and financial services.
In 2004, Daewoo pulled out of Australia and New Zealand, citing irreparable brand damage. Later that same year, GM announced that Daewoo Motors in Europe would change its name to Chevrolet as of January 1, 2005. In 2005, it was announced that Daewoo cars would have a Holden badge in Australia and New Zealand. In South Africa, Thailand and the Middle East, Daewoo models were already being sold as Chevrolets. Only in South Korea and Vietnam does the Daewoo marque survive.
See also
External links
- [Daewoo International Corporation]
- [Daewoo cars at topspeed.com]
- [Daewoo founder sentenced to 10 years in prison] Asia Times online
- [Daewoo founder Kim gets 10-yr term] CNN.com
- [The Death of Daewoo] The Economist
- [Daewoo Founder Gets Prison Term] Wall Street Journal (subscription required)
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