THE CHAEBOLS OF SOUTH KOREA

Presented byDarshan Bhatt Deepa Khanna Neena Aneja

INTRODUCTION
Chaebols • Chaebol is a Korean name meaning “a group with a lot of money”. • It was a la
rge South Korean private business groups. • Chaebols were involved in activities r
anging from farming to ship building. • The separate companies within Chaebol held
shares in each other. • The major contributors to the Country‟s economy.

INTRODUCTION • All the financial transactions were subject to Government scrutiny. • Most Chaebols had close ties with the government and were involved in policy making. • Chaebols had a support of banks to bail them out of financial crises. . • Decision-mak ing was top-down with top management exerting strict control.

http://www.edu/faculty/watkins/chaebol.htm .sjsu.

BACKGROUND • Chaebols was first introduced in 1920s under Japanese rule. • It was designed on t he lines of Japanese Keiretsu. • Initially designed to meet the requirements of Japanese Government. • South Ko rea became independent in 1945. . • The companies were controlled by Central Governme nt.

BACKGROUND • In 1961 Park Chung became the President. • Many leading businessmen were arrested. • The economy dependence was converted fr om agrarian economy to industrial one. • To encourage growth of economy a Law was passed “Dealing with Illicit Wealth Accumulation”. • Idea was to make South Korea independent in all manuf acturing fields. • All banks were nationalized. . • Five-year economic plans was implemented rel ated to export and import.

1962-1966 2nd. • Three 5 year plan were induced under Economic Planning board since 1962.Increase wealth and strengthen Political stability. 1st.• Goal.1972-1976 The Five year Plan .1967-1971 3rd.

Economic Plan(1960-1966) Korea was a poor country with inadequate savings. . It focused on developing texti le and light manufacturing industries to make South Korea selfsufficient.

to make South Korea competitive in world market. automobiles.Economic Plan(1967-1971) It focused on heavy industries such as iron and steel. shipping etc . US-China opened for imp ort gave them more marketplace. . 1972.

Economic Plan(1972-1976) • The 3rd five year plan was referred as Heavy Chemical Industrialization Plan(HCI ). • To fund the plan Government borrowed heavily from foreign countries. .

84 billion$ in 2008.Result of the Economic Plan • Korea is the 11th largest economy in the world. • The export-import trade increase d from 230 million$ from 1948 to 857. .

• The per capita i ncome increased from 60 $ to 20.239 billion$. • The average income of the workers increase d from 5990 won to 3.000$.3 billion$ to 1.895 million won. .Result of Economic Plan • The GDP of Korea increased from 1.

• By 1988. • Cha ebols started expanding into new industries and markets • No fears of risks as the y had government and banks backing them . labour strikes post assassination of President „Park‟ led to Military rule(1979-1988). South Korea adopted democracy and things started falli ng into places. • The Chaebols got the new democratic government‟s full backing.Chaebols post President “Park” • Civil unrest.

• Even fiscal and monetary Policies were frequently modified as per the needs of the Chaebols • Avoidance of foreign companies in favour of Chaebols . • Many ventures of Chaebols started yielding low returns and governme nt had to divert all available funds with the banks to finance these ventures an d this led to huge decrease in foreign investments into South Korea.Total Government backing totally misused • Chaebols explored new markets and new industries and didn‟t care about the possibl e monetary losses • Chaebols started new firms instead of new division under the s ame company.

• Asian financial crisis played a important role in the downturn of Chaebols. metals and petrochemical businesses. • Further with the rise in wages. .CHAEBOLS IN TROUBLE • Trouble started in late 1990s. by thi s south Korea lost its competitive edge in international markets.Initially the slowdown in international semiconduc tor.

PROBLEMS • HUGE DEBTS • LACK OF TRANCPARENCY IN CHAEBOL CORPORATE GOVERNANCE • PROLIFERATION OF UNPROFITABLE SUBSIDAIRIES THROUGHOUT THE ECONOMY • INADEQUATE FINANCIAL REPORTING AND CONTROLLING WITHIN THE CHAEBOLS • ABSENCE OF A FREE MARKET SYSTEM .

• Cross-Debt gurantees within Chae bols were banned. • Management instructed to appoint outside director.Restructuring • Improve transparency in management of Chaebols. • Debt to equity ratio to be 2:1) • Advised to get rid of unprofit able subsidiaries. .

16 underwent radical transformation.Result of Sever Measures • Out of 50 Chaebols. • Early 2000 unemployment rate was 3.1% and foreign exchange currency reserve $107 billion. .