Korean Management (1,2) Corporate Strategy

A relatively small country with an area of approximately 100,000 km2 KOREA A relatively small country with an area of approximately 100,000 km2 Fourth largest economy in Asia: GDP of more than US$ 1.4 trillion in 2016, with the population of approximately 50 million Estimated per capita income level in 2016 was approximately US$ 27,540 and US$ 35,790 on a PPP adjusted base Income level per capita has increased by approximately 250 times over the last 50 years Manufacturing and construction sectors amounted to 39% of the total economy in 2016 (with 3% falling to agriculture and 58% to services) Large companies are members of business groups (Chaebols) which dominate the export-oriented industries. SMEs with less than 300 employees accounted for almost 87% of the country’s total business sector employment

Economic Development, Corporate Growth & Business–Government Relations Before 1950s Strongly influenced by Japan’s rule (1910-1945) Split into a Southern half (under USA influence), Northern half (under Soviet influence) Korean war (1950-1953): Deprived of the autonomous achievements and leadership for the previous 50 years 1960s (Chung-hee Park regime) Authoritarian government, rapid economic development: concentration on specific sectors + preferential treatment from the government =>Basic industry: cement, petroleum, light and labour intensive industries such as textiles and footwear => Heavy industries: steel and ship building (late 1960s) => advanced assembly industries: automobiles and electronics (1970s ~) 1970s High growth: Double digit annual growth rate: Korea moved from a developing economy => an emerging economy Numerous business groups (Chaebol) emerged. They expanded into numerous technologically unrelated industries as typically reflected by Lucky-Goldstar group After 1980s Moved into technologically advanced fields, i.e. semiconductors, cellular phones and digital displays Financial crisis and structural reform: Chaebol’s limits, efforts for reforms and Improvements

Financial Crisis of 1997 & Structural Reforms Asian financial crisis in 1997 Seeking financial assistance from IMF Restrictions for international investors removed Restructuring of Chaebols Financially troubled firms were acquired by foreign firms Business models were revised The five leading Chaebols Daewoo ceased to exist Samsung, Hyundai, LG and SK survived, but restructured with improved corporate governance and disposal of unrelated businesses Large business groups continue to play an important role in Korea

Korean Capitalism Chaebol Japanese equivalent of pre-WWII “zaibatsu” – family controlled conglomerates Many large corporations representing various industries Complex web of cross-company ownership to maintain tight management control of their group companies Follow the Japanese strategy paths

Korean Capitalism

Korean Capitalism

Korean Capitalism (2017)

Korean Capitalism

Korean Capitalism

Korean Capitalism Challenges Unequal Distribution of Wealth Family Feuds Similar Minded Educated Management Civil Rights Issue Impeded Development of Small and Medium-Sized Businesses in South Korea

Korean Management Style Korean Confucianism Japanese Management Well-structured corporate ranks Managerial procedures US Management Competition Performance Orientation

Korean Management Style Leadership & Decision Making No separation between ownership and decision making Power is centralized at the top level General and unspecific directions Few open communications in the meetings, and vertical human ties Policies tend to be aggressive and entrepreneurial Risks of managerial errors and unfavorable changes

R&D Expenditures as Share of GDP for Selected Countries (2000 – 2015) Finland Source: https://data.oecd.org/rd/gross-domestic-spending-on-r-d.htm, 2017.

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