1. Chaebol Expansion in Post-War Korea:
Diversification Patterns of the Korean Conglomerates, 1962~1979
Kim, Y.

2. Presentation Outline Characteristics of the Chaebol Part 1
Factors in Early Chaebol Development
Part 1
Part 2
The “Big Four” Chaebol Examined
The Chaebol: Diversification Strategies
The State’s Role

3. Characteristics of the Chaebol
Company1
Company2
A Business
Group
Company4
Company3
“Family”

4. Characteristics of the Chaebol con’t
The largest conglomerates: Hyundai, Daewoo, LG, Samsung
→ one-fifth of total manufacturing output
→ 8.1 % of Korea’s 1978 GDP
Distinguished features
Horizontal corporate expansion
Close relationship with the state and financial intermediaries → expansion of the Korean large firms
Acting as near-oligopolies
Using corporate profits as a device for reinvestment and expansion

5. Factors in Early Chaebol Development: 1910-1962
Incorporated into the chaebol by an elite Korean bourgeoisie
Korean banking institutions and managerial systems
The zaibatsu corporate structure
Japanese Control
Demonstration effect
Japanese Entrepreneurs

6. The “Big Four” Chaebol Examined
LUCKY-GOLDSTAR (LG) GROUP
1931, Mr. Huh In-hwoi
started as a dry good store → textiles, chemicals, electronics
export agency was created (1953) → entered the international market
entered the oil industry (1970s)
Strategies: gradual diversification, making its own distribution networks
The State, President Park’s order: “concentrate on textiles, chemicals, and electronics!”
Maintained monopolies in 21 markets
Sales in 1970: $ million → Sales in 1979: $ 5.2 billion

7. The “Big Four” Chaebol Examined con’t
2) DAEWOO GROUP
1967, Mr. Kim Woo-Choong
Started as a small textile exporter, with $6,700 start-up capital
Expansion: textile → shipbuilding, construction, financial services, …
Initial expansion: acquisition of troubled companies
1971, the first substantial growth: maximized the exports in 1970~1971 ← U.S. textile quota
Relatively little family management control

8. The “Big Four” Chaebol Examined con’t
3) HYUNDAI CORPORATION
1977, Mr. Chung Ju-Yong
“Hyundai Engineering and Construction Company”
Korean government’s steady supply of dam, road, harbor construction
1960, diversify into related industries
1970, began to expand rapidly: automobile, shipbuilding → diversification and globalization
Overseas construction contract: Southeast Asia, the Middle east
Highway projects: Thailand, South Vietnam, Saudi Arabia

9. The “Big Four” Chaebol Examined con’t
4) SAMSUNG GROUP
1951, Mr. Lee Byung-Chull
1953, initial operations: sugar
1954, wool production: established key contacts in the U.S. armed forces → entered into American markets
1969, annual turn over: $ 100 million
1970s, expanded into electronics
1978, semi-conductor and telecommunications
1979, development of the world’s first 64K DRAM chip
Korean government Mr. Lee
→ became a government industrial favorite
→ preferential financial treatment

10. The Chaebol: Diversification Strategies
Hyundai Group
Samsung
Construction → cement manufacturing and shipbuilding
Shipbuilding → shipping and metallurgy
Diversified horizontally: electronics, computer peripheries, entertainment goods

11. The Chaebol: Diversification Strategies con’t
Lucky-Goldstar
Hyundai Group
Cosmetic cream factory → plastics → manufacturing of chemicals, electrical and electronic products
Acquisitions to grow due to its belated beginning

12. The Chaebol: Diversification Strategies con’t
1962~1979, the chaebol maintained impressive growth schedule
Long-term growth strategy could be maintained ← relatively little pressure for dividend payments, stockholder demands, concern for short-run losses on long-term investments
Less risk-averse expansion
- subsidized loans
- advantageous exchange and labor rates
- overseas markets
- entrepreneurial managers

13. The Chaebol: Diversification Strategies con’t
Other factors that affected the diversification strategy
1) Industry-specific technical expertise from foreign firms ← joint ventures, reverse engineering efforts
2) External financing: governmental credit guarantees, low interest loans
3) Korean government’s intervention

14. The State’s Role Subsidized loans The most prominent ramification
Large chaebol could operate with high debt-equity ratios
National incentive schemes, laws, economic plans
coordinated state + private sector funding + resource allocation
Rapid diversification of the chaebol