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Issue Report

Collection of full-length papers and in-depth analysis of economic and management issues.

New Growth Strategy of Korean Companies

New Growth Strategy of Korean Companies

SHIN Hyung-Won

Feb. 26, 2010

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Originally released on January 27, 2010

ABSTRACT

Korean companies lost their growth momentum after the 1997-98 Asian currency crisis, and the need to seek a growth strategy. Their sales growth rate decreased from 9.0% between 1987 and 1996 to 4.6% between 1997 and 2007. What's sobering is that once growth stagnates, it is easy to stay in that way. Among the companies that experienced stagnation in the previous year, 59% stagnated in the next year, and after two years of stagnation, 68% of companies stagnated. This "swamp of stagnation" threatens the survival of companies. If companies stagnate for four straight years, the possibility of their exit from the market rises to 40% among domestic companies and 14% among foreign companies. This study analyzes the growth strategy of global leading companies and proposes ways for continuous growth of Korean companies.

The study finds paradigm changes for corporate growth by examining 50 leading companies in industry groups. In terms of growth objective, companies are seeking to expand and minimize volatility due to increased volatility of raw materials, and corporate performance. In terms of growth method, companies are seeking vertical integration of the value chain by increasing the self-sufficiency of raw materials, and providing services after sales. There is also a change from organic to inorganic growth through M&A activities. Businesses form alliances with other major market players to reduce the risk from operating alone. In terms of raising capital for growth, businesses raise capital for growth by cutting off their own tails. Companies that grow through acquisitions also stress continuous sale of business units. Accumulated capital that the top 500 global companies raised through sell-offs from 1999 to 2008 accounted for 58% of the money they spent on acquisitions. Companies also raise capital by using t echnology-based cost competitiveness.

The study classifies the status of Korean companies in major industries and proposes the strategy direction for Korean companies by each type. In type Ι (steel and energy), it is necessary to pursue vertical and horizontal expansion of value chain at the same time. Companies that belong to this category need to seek enlargement and strengthen business-developing capability. Companies in type Ⅱ (information electronics, auto, and heavy industry) need to seek relation-type business in combination with services. Companies that belong to type Ⅲ (medicine, food, and retail) need to secure paradox management capability. Businesses that belong to type Ⅳ (telecommunications, construction) should work on making overseas inroads after securing flagship model, and play a pivotal role in the market.

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