Chaebol - Explained
What is a Chaebol?
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Table of ContentsWhat is Chaebol (Korea)?How is a Chaebol Structured?Academic Research on Chaebol (Korea)
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.
Academic Research on Chaebol (Korea)
- Enterprise and the State in Korea and Taiwan, Fields, K. (1995). This paper examines the concept of chaebol business in South Korea and Taiwan. The authors present that while chaebol structure of business has dominated the South Korean economy, suck kind of business are not encouraged in Taiwan. In this regard, business-state relations, forms of financing, and the organization of trading companies in various forms. Taiwan offers instead an innovative institutional approach that focuses on the complex linkages between social networks and political power.
- From dominance to symbiosis: State and Chaebol in Korea, Kim, E. M. (1988). Pacific Focus, 3(2), 105-121. This study analyzes the dynamic changes in the state-chaebol relationship during the rapid economic development period. According to the author, the state plays an important role in the development of the South Korean economy. The author argues the strong autonomous state is the most important factor that determines economic development.
- Corporate governance in South Korea: the chaebol experience, Campbell II, T. L., & Keys, P. Y. (2002). Journal of corporate finance, 8(4), 373-391. This article explores the effects of corporate governance in the emerging markets in the economies characterized by few companies dominating the market. According to the authors, chaebol sometime exhibits low performance and higher sales compared to small firms. Moreover, the performance of the business in the economy is not guaranteed to perform for top chaebol firms. The internal corporate governance seems to be more useful for companies that are not related to chaebol since the managers who perform poorly in non-chaebol firms are likely to lose their jobs. This means that non-chaebol companies lack proper functionality and thus may perform dismally.
- Chaebol capitalism and the currency-financial crisis in Korea, Krueger, A. O., & Yoo, J. (2002). In Preventing currency crises in emerging markets (pp. 601-662). University of Chicago Press. This paper examines the relationship between chaebol capitalism and the currency-financial crisis that occurred in Korea. The paper investigates factors that contribute to the exchange rate depreciation, weak financial system, financial and capital account liberalization, and "crony capitalism that eventually led to financial crisis. According to the author, various factors have been identified to have led to the financial crisis among them are a weakness of the banking system pre-crisis, crony capitalism, nominal exchange rate regime, and financial liberalization and the opening of the capital account.
- Approaching the innovation frontier in Korea: the transition phase to leadership, Hobday, M., Rush, H., & Bessant, J. (2004). Research policy, 33(10), 1433-1457. This paper examines the innovation frontier both for the larger companies and the upcoming companies. The article focuses on the problems facing the upcoming firms as they strive to catch up with established firms in the industry. According to the author, the upcoming companies have begun to create competition threats to the established chaebols regarding innovation in research and development.
- Global strategic alliances: Payoffs and pitfalls, Lei, D., & Slocum Jr, J. W. (1991). Organizational Dynamics, 19(3), 44-62. Over the past few years, there has been a tremendous surge in the types and number of strategic alliances formed among the international companies across various industries. This paper examines various strategic alliances that have been formed by the international companies across various industries. The article further explores the benefits and drawbacks of these alliance with regard to international business. According to the authors, the upcoming corporation has devoted to forming joint ventures between the local and foreign industries in order to compete favorably in the international market.
- The effect of financial liberalization on firms' investments in Korea, Koo, J., & Maeng, K. (2005). Journal of Asian Economics, 16(2), 281-297. This paper examines the impacts of financial liberalization on the investment of Korean firms. The study explicitly investigates the effects of financial liberalization on the investment behavior of a firm. According to the authors, several studies have presented that the investment of firms depends on the availability of the company`s finance. The point out that companies face financial constraints due to the high cost of external funds in the imperfect capital market. The study revealed that the effects of cash flow on the investment of a firm decrease by the liberalization of financial markets.
- Business groups and product variety in trade: evidence from South Korea, Taiwan and Japan, Feenstra, R. C., Yang, T. H., & Hamilton, G. G. (1999). Journal of International Economics, 48(1), 71-100. This paper analyses the effects of market structure on the performance of trade of Taiwan, Japan, and South Korea. The study presents that South Korea has a large number of chaebols while Taiwan has many small firms that specialized in the production of the intermediate resources. The study discovered that Taiwan exports most of its products from the US compared to South Korea. It was also found that Taiwan import high-quality inputs from the US while South Korea export high-quality final products. Besides Japan was found to have more product variety in its sales to the US compared to Korea or Taiwan which is attributed to its larger size.
- Economic crisis and chaebol reform in Korea, Lee, P. S. (2000). APEC Study Centre, Discussion Paper Series, 14. This paper examines the problem of Chaebol and evaluates government policies in conjunction with the IMF crisis in 1997. Besides, the paper also discusses the new role of the Chaebol in Koreas business and economic system, proposing suitable policy measures for improving competitiveness and the constructive role of the Chaebol.
- Globalization and a new human resource policy in Korea: Transformation to a performance-based HRM, Kim, S., & Briscoe, D. R. (1997). Employee relations, 19(4), 298-308. This paper examines the transformation that has occurred in the performance-based HRM. According to the author, companies in Korea tend to transform their system of human resource management to attain a competitive advantage in the world market. The study present that a new human resource policy focuses on enhancing human resources performance.