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 large South Korean private business groups. Chaebols were involved in activities ranging from farming to ship building. The separate companies within Chaebol held shares in each other. The major contributors to the Countrys economy.

INTRODUCTION
All the financial transactions were subject to Government scrutiny. Decision-making was top-down with top management exerting strict control. 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.

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

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

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

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

The Five year Plan

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

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

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.

Result of the Economic Plan

Korea is the 11th largest economy in the world. The export-import trade increased from 230 million$ from 1948 to 857.84 billion$ in 2008.

Result of Economic Plan

The GDP of Korea increased from 1.3 billion$ to 1,239 billion$. The per capita income increased from 60 $ to 20,000$. The average income of the workers increased from 5990 won to 3.895 million won.

Chaebols post President Park

Civil unrest, labour strikes post assassination of President Park led to Military rule(1979-1988). By 1988, South Korea adopted democracy and things started falling into places. The Chaebols got the new democratic governments full backing. Chaebols started expanding into new industries and markets No fears of risks as they had government and banks backing them

Total Government backing totally misused

Chaebols explored new markets and new industries and didnt care about the possible monetary losses Chaebols started new firms instead of new division under the same company. Many ventures of Chaebols started yielding low returns and government had to divert all available funds with the banks to finance these ventures and this led to huge decrease in foreign investments into South Korea. Even fiscal and monetary Policies were frequently modified as per the needs of the Chaebols Avoidance of foreign companies in favour of Chaebols

CHAEBOLS IN TROUBLE
Trouble started in late 1990s.Initially the slowdown in international semiconductor, metals and petrochemical businesses. Further with the rise in wages, by this south Korea lost its competitive edge in international markets.

Asian financial crisis played a important role in the downturn of Chaebols.

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

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

Result of Sever Measures

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