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Management Report

Management reports, briefs issued by Samsung Economic Research Institute

Two Decades of Korea's Management Reform

Two Decades of Korea's Management Reform

KANG Won

July 17, 2006

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Korea's corporate management began weaning itself away from the patronizing arms of government support from the mid-1980s. In the face of rapidly changing environment brought on by globalization, Korea was coming under growing pressure from rest of the world to end its government-led growth policy in favor of greater initiative on the part of the private sector.

As part of this process, the Industrial Development Act was enacted in 1986 to pave the way for greater independence for the private sector management. It was against this backdrop of increasing market-opening steps and globalization that Korea hosted the Olympic summer games in 1988 and joined the world's rich-nation club of Organization for Economic Cooperation and Development in 1996.

The corporate world responded to these developments with reform. Prior to the 1997 financial crisis that pushed Korea to the brink of default, Korea's industrial titans were bent on expansion at all cost by borrowing and borrowing. Not only were they investing for expansion of giant projects such as shipbuilding, steel-making and car production, they were rapidly branching out to new areas such as production of semiconductors, liquid crystal displays, mobile phones.

When a massive financial crisis descended on Asia in 1997, it left Korean corporate world with no alternative but to restructure. Struggling under a mountain of debts, business companies faced the choice of death or survival through slimming. Many survived, by selling off unprofitable holdings to pay back loans. The labor had to accept layoffs or firings for the sake of labor market flexibility. From then on, Korean companies had to place profit ahead of market share and volume sales. The new paradigm called for putting quality ahead of quantity in the corporate management.

Some giant companies survived by swallowing the bitter pills of painful restructuring; others collapsed and died under the piles of debt. Those that survived have regained their international competitiveness. The slim list of companies traded on the Korean stockmarket bears witness to the harsh price the country's corporate world had to pay for survival. The number of listed companies has dropped, but in a sign of successful corporate surgery, the market capitalization itself has grown.


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