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Samsung and Daewoo were regarded as two different legends in the same city of South Korea by the year 2000. On the one hand, Samsung Group showed revenue of more than $119 billion while on the other hand, Daewoo was being mandated by the Korean government to have a financial arrangement by the year 2001 (Sull, Park & Kim 95). The reflection of the Samsung history exhibits its survival, as powerful chaebols like Daewoo Group dithered.
The famous Asian Contagion (a financial crisis that had affected some Southeast Asian countries in 1997) made Samsung and Daewoo Groups take different approaches. These approaches had a positive and negative impact on Samsung and Daewoo respectively. Sull and colleagues state that the crisis forced foreign lenders to withdraw from issuing credit and replenishing long-term debt obligations as they matured. This led to the decline of the Korean won against the dollar (101). On the other hand, the International Monetary Fund (IMF) financially assisted the Bank of Korea with the promise that Korea would reform its economic and business policies. This deeply affected the chaebols (Samsung and Daewoo Groups) as their major assistance was being withdrawn.
Lee Kun-Hee, the chairman of Samsung Group took drastic measures in regard to the problem. First, he dispersed the secretary’s office and organized it again into a restructuring committee in 1998. The committee was charged with the mandate of improving the financial status of the group. The number of affiliates was decreased to 45 within a span of two years. Further, the employee number was also reduced sharply to 161,000, from 267,000 in 1999 (Sull et. al. 102). The above resources and capabilities used, among others, had a positive impact on the approach Lee took. This is evidently supported by the revenues Samsung acquired by the year 2000. Also, Samsung’s market value of its affiliates was more than the sum of all the affiliates of the other three major chaebols; Hyundai, Lucky Goldstar, and SK listed on the Korean Stock Exchange (Sull et. al. 102).
On the other hand, Kim Woo-Choong contributed to Daewoo’s downfall. Kim ignored advice to reduce Daewoo’s debts through the sale of assets but instead thought acquiring assets at a bargain price was the best opportunity. This made domestic banks to be unwilling to finance Daewoo diversification. Affiliate companies, therefore, were forced to acquire funds for expansion from corporate bonds and short-term commercial papers (CP). The issuing of CP and bonds made the debts from borrowing increase to 5.9 trillion won in 1998. This contributed to the collapse of Daewoo. Consequently, the approach Kim took to deal with the 1997 crisis held a negative impact on Daewoo Group.
The 1997 crisis -Asian Contagion- mentioned earlier has made South Korea be several steps backward. According to the writer’s opinion, South Korean firms do not have the possibility of competing in the world market. This is due to the fact that China has invaded massively into the market Korea once had and it is progressively moving up the technology ladder. Secondly, China has an advantage over Korea in terms of low prices and has made the Chinese market enlarge over the region and in the world. Thirdly, there is uncertainty as to how long the United States will continue to offer support to economic competitors in Asia, and especially Korea (Myers 14).
To conclude, the paper exhibits the effects of decisions made by leaders of two dynamic companies in South Korea; Samsung and Daewoo Groups. The happenings took place at the same time and the impact was totally opposite. This has been outlined by the 1997 financial crisis in Southeast Asian countries. The rule of law highlighted in South Korea in the early 50s had made South Korea partially close its borders for trade with the outside world. This in turn made South Korea lag behind in terms of technology and adoption to the changing business environments.
References
Myers, Robert. The faltering economic reforms of South Korea. San Francisco. 1998. Print.
Sull Donald, Park Choelsoon and Kim Seonghoon. Samsung and Daewoo: two tales of one city. Harvard: Harvard university press. 2004. Print.
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