The new competitive landscape + The new competitive landscape + building the entreprenual machine building the entreprenual machine

OECDOECD

• Economic performance

• Country data

• Assessment & recommendations

KEY CHALLENGES FACING KOREAN ENTERPRISE

• Despite its success Korea today faces serious economic and political challenges.• EXISTING PROBLEMS - political corruption - overconcentration of wealth and abuse of power - labor unrest, a lowered competitive position in world market - a lack of trained personnel in the more advanced industries - limited access to state-of-the-art technologies - antiquated management structures

• While Korea has clearly arrived as a newly industrialized country these problems are seriously impending its progress toward becoming a twenty-first century global power.

• Korea’s desired end state is a country characterized by global industrial strength, continued economic growth, technological prowess, political democracy, and international respect

• To achieve this end state, Korea will have to meet seven key challenges. They are

KEY CHALLENGES FACING KOREAN ENTERPRISE

1. Reframing industrial policy and developing a new economic covenant.

2. Restructuring the ‘chaebols’

3. Enhancing the competitiveness of small and medium-sized firms

4. Meeting the requirements of globalization

5. Developing and acquiring new technologies

6. Developing new management structures, and

7. Developing the human resources that will be needed in the twenty-first century

1. Reframing industrial policy and developing a new economic covenant

(At home in Korea)

• There is a need to further develop internal markets and to satisfy the increased consumer demands of a more prosperous society.

• Throughout the expansion of both their internal and external markets, Korean corporations will have to find new ways to secure the necessary financing for their growth because government-controlled sources have diminished significantly.

• As the government moves toward more open capital markets, corporations will need to be much more responsive and competitive in their financial transactions.

2. Restructuring the ‘chaebols’

• The second major challenge facing Korea today is the need to restructure its corporate enterprise system

• The economic growth of Korea has frequently taken the form of special treatment and protectionist policies.

• With globalization, there is need to reexamine extant policies of protectionism and economic concentration.

3. Enhancing the competitiveness of small and medium-sized firms

• Can the ‘chaebols’ be reduced in financial size and concentration and still compete in higher-value-added industries with larger and better financed rivals?

• What is the new role for the small and medium-sized firms that have been exploited in the past?

4. Meeting the requirements of globalization

• A major challenge facing most Korean firms today is to keep up with the worldwide trend toward globalization in both production and marketing.

• Another challenge is the increasing competition from other countries. At the low end of the market, Korea is being seriously challenged by lower-cost manufactures in China and Southeast Asia.

• Although Korea still ranks as the world’s second-largest producer of consumer electronics, behind Japan, its firms have competed principally on price, not product innovation.

5. Developing and acquiring new technologies

• In the past, Korean firms found it relatively easy to acquire aging technology, and to compete in the international marketplace based on price

• Today, however, as the half-life of technology-based products declines and labor costs escalate, it has become increasingly important for Korean companies to develop their own technology and to be the first to market.

6. Developing new management structures

• The manner in which corporate managers respond to challenges will determine in large measure how well the companies perform and, indeed, whether they even survive.

• While traditional neo-Confucian management practices may have served Korean firms well in the past as they grew their companies within the walls of protective barriers,

7. Developing the human resources that will be needed in the twenty-first century

• The seventh and final challenge facing Korean firms today is how best to develop their human capital so they will have the intellectual resources to compete successfully in the twenty-first century.

• The quality of a firm’s (and a country’s) human resources will likely determine who succeeds and who fails under the new competitive rules.

- Lester Thurow, Economist -

• The quality of a firm’s employees emerges as a key potential differentiator between competitors.

KEY CHALLENGES FACING KOREAN ENTERPRISE

• While we have presented these challenges in a particular order, we do not mean to imply that one or the other has greater priority or that they have evolved sequentially.

• In fact, the challenges are very much intertwined and interrelated. The restructuring of the ‘chaebols’, for example, will have far-reaching consequences for their ability to become players in the global economy as well as for their effort to develop their human resources.

• While Korean leaders and politics may change over time, the current shift toward globalization, market liberalization, and political democratization creates a long-standing and irreversible challenge that will occupy Korea well into the next century.

Emergence of the chaebolsEmergence of the chaebols

• What is Cheabol?

• business group consisting of large companies and managed by family members or relatives in many diversified business areas

The 10 largest in terms of salesThe 10 largest in terms of sales

• Hyundai• Samsung• LG• Daewoo • Sunkyong• Kia• Hanjin• Lotte• Hanwha

What makes chaebols unique What makes chaebols unique competitors in the international market competitors in the international market

and how it evolved and developedand how it evolved and developed

• The rise of chabols in Korea is closely associated with President Park Chung Hee, beginning in the early 1960s.

• At the end of the Korean War there was two types of firm which existed in Korea

Two types of firmsTwo types of firms

• First was specialized and oriented toward cotton weaving and spinning.

• Second the predecessor of the modern cheabols - involved entrepreneurs who had gain access to specific business lines confiscated from the Japanes or acquired using American aid – related loans and foreign exchange.

After world war II, Korean firms After world war II, Korean firms had to industrializehad to industrialize

• By borrowing and improving technology that already had been developed by experienced firms in more advanced economies.

• Most Korean firms began their rise by combining reengineered technology and mass production with competitive labor costs.

• Lee Byung – Chull and Samsung.• • Fallowing the Korean War , the Company focused its effors on providing basic necessities to resupply a war –

torn country. • Cheil Sugar and Co. was founded in 1953• Samsung moved into the service sector witch such businesses as insurance, broadcasting, securities and

department stors.• By the end of 1960 samsung had an annual turnover of $100 milion.• 1970 company entered electronics and heavy industries .• By the end of decade Samsung turnover hed reached 3 billion. • 1986 samsung aerospace wasdesignate by the government as systems integrator for Korea-built F- 16 plane• Samsung has also achived its goal of becoming a truly international corporation. • Since founder Lee’s death in 1987 , Samsung has been managed by his third son Lee Kun Hee. The firms field

can be divided into five key area:• electronics,• engineering,• chemicals,• finantial• information services and consumer products and service.

• Samsung hiring executives from other countries. Its goal is to became one of the worlds top five electronics firms.

•

• Chyung – Ju Yung and Hyundai

• Until about a decade age, Hyundai was almost unknown in the west. Then came the Hyundai Excel – the fastest selling import in both the United States and Canada when introduced.

• Chyung – Ju Yung was born in 1915 in a poor family.• He had little formal education , he set about learning various manual labor skills.• 1940 s established a truck and motor service business. • By 1947 he formed Hyundai Engineering and Construction Company.• Then Hyundai undertook highway projects in Thailand , harbor dredging in Soth Vietnam and Australia, bridges in Alaska and housing complexes in Guam.• 1968 Chairman decided to enter automobile industry and established Hyundai Motor Company to assemble Ford passenger cars to be sold locally. • 1983 the midsize steller model was introduce d and by 1988 hyundai was producing a luxury sedan, the Grandeur, under licence from Mitsubishi. • In 1994 U.S sales of Hyundai cars topped 125,000a company record.• In 1973 hyunday heavy industries Co. was formed as a major shipbuilding enterprise..• Because of increasing size and opportunities facing Hyundai , many units were spun off as independent companies like Hyundai – Engine and Machinary

Co. Hyundai Electrical Engineering Co. Hyundai Rolling Stock Co. Hyundai also acquired Inchon Iron and Steel Co. and Aluminium of Korea. • Today: • Hyunday is thriving enterprise, consisting of forty- seven companies with eighty – three branch of offices in 46 countries.• Annual sales reached for 94’ $ 49 billion• More than 161,000 employees worldwide.

•

• Definition : “A Business Group consisting of large companies that are owned and managed by family members in many diverse business areas”

Chung familyLee Byung-Chull Koo Family

• LUCKY GOLDSTAR FOUNDED 1947 – MANUFACTURED COSMETICS AND PLASTICS• AFTER THE KOREAN WAR – BRANCHED OUT TO DETERGENT AND WASHING

POWDERS• 1958 – CREATION OF GOLDSTAR.CO – TELEVISIONS, ELECTRICAL APPLICANCES• “DUAL TRACK ENTITY” – MANUFACTORING COSMETICS AND ELECTRONICS

• 39 AFFILIATED COMPANIES• 39 JOINT VENTURES• 130 BRANCHES AND OFFICES• $25 BILLION TOTAL SALES FIGURE – 1994• 100,000 EMPLOYEES

Little personality cult

Decentralized : “An organizational structure in which decision-making authority is located not at the center but at the nodes”

Efforts have been made to recruit professional managers to oversea various different sections of the company.

Major strategic decisions still made only in the office of the head chairman. Individual companies are free to go in any direction they see fit

Conservative : “people who generally like to uphold current conditions and oppose changes.”

Avoid “risky” ventures

Chemicals and Energy-Lucky LTD-- Honam Oil

Electricals-Goldstar Software-- Goldstar information and communication

Construction and Services.

-Lucky engineering-- LG mart-- LG Leisure development

Public Services and Sports-Yonam Foundation-- LG sports

• Founded in 1967 – Small textile company• $18,000 investment – four employees

• Now – 100,000 employees• 19 domestic companies• $31 billion – sales figures 1994

• Korean culture – Entrepreneurship • Daewoo is a good company to examine this

culture!

• 1967 – Export fabrics – South East Asia• Sale figures $580,000• Sales figures $4 million – 2 years later• Gained positive reputation – cheap cost, great

quality

• 1972 – Awarded 30% of US import quota!• 1975 – One of the most profitable companies

• Expansion!!!!!• Strategy – “FIT” • Daewoo electronics televisions• Take over of OKPO SHIPBUILDING COMPANY• SAEHAN MOTOR COMPANY

• “Strategic management is that set of managerial decisions that determines

the long-run performance of a corporation”

• (Hunger and Wheelen, 2007)

STRATEGIC MANAGEMENT

Organisational Behaviour

INDIVIDUAL ORGANISATION

SOCIETYFIT

FIT

(Rubingh, 2005)

• Partnerships

• General Dynamics – Equipment for F-16, Boeing 747

• Northern telecom

• Ranked Global 500 - 1994

• DAEWOO SPIRIT – CREATIVITY, CHALLENGE, SACRIFICE

• BELIEF THAT GUIDES EMPLOYEE BEHAIVOUR• COMPANY HAS A RESPONSIBILITY TO DELIVER

QUALITY TO WORKERS, SUPPLIERS, PARTNERS.• MARKET DRIVEN• FLEXIBLE, READY TO ADJUST AND INNOVATE• TAKE RISKS – CONCENTRATION IN

CONSTRUCTION IN AFRICA. - $2 BILLION CONTRACTS

• SAMSUNG, HYUNDAI, LG, DAEWOO – ILLUSTRATES HOW KOREANS HAVE CONTRIBUTRED TO RAPID INDUSTRIAL PROGRESS THOUGH HARD WORK, INITIATIVE, WILLINGINES TO SIEZE OPPURTUNITIES.

• STROVE TO DEMONSTRATE WORTH AND EARN RESPECT THOUGH COMPETITIVE SUCCESS

Differences between the characteristics of a korean based organisation and Japan based.

Size – sales

Mitsubishi – 29 presidents – counsils160 smaller companiesThese companies large enough to fit on Tokyo stock exhange$433 billion turnover400,000 employees

Samsung – 50 companies$62 billion turnover150,000 employees

• Nature of ownership:• Korea – family members• Japan – Clan relationships over blood family• Korea – Family members own large share• Japan – Much smaller share

Centralization – Korea – CEO – quick/decisive decisions – cause for errors / little

adequte informationJAPAN – Collect information – Study carefully, slow process – use

information better than Korean counterparts.KOREA – CEO /MANAGERS – family membersJAPAN – EDUCATED MANAGERS

• Korea – Ministry of International trade (Goverment dictating business strategy)

• Japan – Group affiliated banks for funding• Korea – Banks owned by goverment• Japan – Banks owned by private business• Korea – Slowly changed after Korean war

• Japan – Fixed Cost (Fixed Assest)• Important for managers to tend to these

resources well. Positive attitudes towards employee wellbeing (training costs, bonus payments, retirement policies).

• Korea – Variable costs. – Minimize such cost to increase a return on investment. Employees are NOT a return on investment. Not highly valued, little recognition towards input process.

• This is slowly changing to a more western style approach

Country Data

Korea

•One of the few countries in the world who had made transition from rural, undevelopment society to modern economy in just one generation

• Growth of economy and GDP have been unpresented sharp

•Without natural resources, Korean’s cornerstone of economic growth have been it’s icredible hard working citizens

1973- 1979 *Heavy and Chemical Industry Drive

1980*Korea is faced a downturn because global oil crise*Economic liberalisation was pursued in the following period

1981 –1990*Price control was repalced by the Fair Trade Act to promote competition*Goverment encourage more open competition*Economic anual growth rate is 7.7%

1990-1997*Economic growth is continuing*Korea is having year after year good economic growth. Economic growth for anual year 7.5%

1997*Korea hit by financial crisis•Korean economy was hammered by collusive ties between goverment,businesses, arbitrary regulation and corruption

•1998-*Korea wakes up

*Labour untilisation was reduced significantly for the first time since 1980 Enplyment rate increase again*Korean’s economic is increasing again

Korea OECD Total

1970-2006 5.7% 2.1%

2001-2006 4.4% 1.6%

Growth GDP per capita, anual year

Assessment and recommendationsAssessment and recommendations

• The Korean economy has faced a number of shocks in 2008

• Government is implementing a supplementary budget and tax rebates totalling almost 1% of GDP

Assessment and recommendationsAssessment and recommendations

• Monetary policy faces large challenges

• It is important to restrain the growth of public spending in coming years to prepare for population ageing

• And implement a comprehensive tax reform, which would boost revenue through consumption taxes in the longer term

Assessment and recommendationsAssessment and recommendations(Youth)(Youth)

• The employment rate of youth between the ages of 15 to 29 has been falling and is well below the OECD average.

• Key problem for youth employment is the degree of mismatch between skills provided in tertiary education and those required in the labour market.

Assessment and recommendationsAssessment and recommendations(Retirement)(Retirement)

• It is important to raise the age at which employees leave firms, which is typically around 55

Facing the key challenges ahead Facing the key challenges ahead in Koreain Korea

• Setting an appropriate macroeconomic policy to cope with the severe external shocks

• Raising additional tax revenue as rapid population ageing puts upward pressure on public spending

• Promoting the development of services, where productivity growth and levels lag significantly behind manufacturing

• Reforming the labour market and the education system to address the growth and equity problems related to labour market dualism and population ageing

Thank you for your attention

The EndThe End