What is Chaebol (Korea)?

Chaebol is a business corporation structure that has its roots traced to South Korea during the 1960s. Chaebol is a worldwide multinational company with a large number of international operations. In Korea, the term Chaebol is used to refer to a business family or monopoly. This structure can comprise of one large company or many groups of companies. Every chaebol is owned and managed by the same family dynasty that found it. For example, Hyundai, LG, and Samsung group are some of the largest and famous chaebol companies.

How is a Chaebol Structured?

Merging important economic resources by the chaebols have been a matter of concern for a long period of time. The combination of resources to be used by one unit of a company create economic instability risk in case such business dissolve or fail. 

For example, Samsung is considered to cover around 20 percent of the South Korean Gross Domestic Product. In case the company fails, it is likely to create an economic downturn. 

Besides, chaebols are also considered to create result in hoarding profits and increasing their business operations overseas rather than reinventing their income in the domestic economy. This affects the employment, and the employee of the small and medium-sized local companies always argue against this kind of business structure. 

Reliance on chaebols and concentration of market power has made South Korea depend and offer complete support to these organizations especially during the financial crisis. This creates high risks since the small and middle-sized business form other countries offer stiff competition to the firms. 

Even though chaebols are comprised of many business units under one company with high manufacturing capabilities, the overall size of the company can be a disadvantage when flexibility is required. Moreover, their innovative and growth ability may not be swift enough to match the pace of innovation by small flexible firms from other countries. When chaebols face slow growth and innovation, it can have a significant effect across the large segments of the South Korean economy. 

While chaebol business structure can be compared to the world largest organizations such as keiretsu business groups in Japan, some basic differences occur between the two. One of the differences is that the chaebols are managed and controlled by the family owners while keiretsu are managed and controlled by the professional managers. Secondly, the ownership of chaebols is centralized while the ownership of keiretsu is decentralized.