What was the role of Chaebol in South Korea?
Where does the word Chaebol come from?
What is the difference between a chaebol and a keiretsu?
Why did Chaebols grow?
How did the Chaebol system fail?
How did Chaebol collide with the government?
What is Chaebol model?
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HISTORY OF THE CHAEBOLS (SOUTH KOREAN CONGLOMERATES)
HISTORY OF THE CHAEBOLS. The Korean economy is dominated by a roughly two dozen large diversified conglomerates known as chaebols — including Hyundai, Samsung, the LG Group and Lotte — which control about 80 percent of the country's gross domestic product (GDP).
chaebol | South Korean corporate conglomerates | Britannica
chaebol, any of the more than two dozen family-controlled conglomerates that dominate South Korea’s economy. While the founding families do not necessarily own majority stakes in the companies, the descendents of the founders often retain control by virtue of long association with the businesses. Among the largest chaebols are Samsung, LG, Hyundai, and SK Group.
What was the role of Chaebol in South Korea?
The chaebol played a key role in developing new industries, markets, and export production, helping make South Korea one of the Four Asian Tigers .
Where does the word Chaebol come from?
The word "chaebol" derived from the McCune–Reischauer romanization, chaebŏl, of the Korean word jaebeol ( 재벌, from jae "wealth or property" + beol "faction or clan" – also written with the same Chinese characters 財閥 as zaibatsu in Japan). The first known use in an English text was in 1972.
What is the difference between a chaebol and a keiretsu?
The major structural difference between Korean chaebols and the Japanese keiretsu is that chaebols do not all have their own financial institutions. Most were heavily dependent on government loans and loan guarantees in their early years, and they still have a closer relationship with government than their Japanese counterparts. Chaebols are largely prohibited from owning private banks, partly to spread risk and partly to increase the government's leverage over the banks in areas such as credit allocation. In 1990, government regulations made it difficult for a chaebol to develop an exclusive banking relationship, but following the cascading collapses of the late 1990s, it was somewhat relaxed. Keiretsu have historically worked with an affiliated bank, giving the affiliated companies almost unlimited access to credit, so the economic problems for which the Japanese have been known is zombie banks rather than a systemic banking crises. However, many of the largest keiretsu have diversified their debt practices, and public bond sales have become somewhat common.
Why did Chaebols grow?
Chaebols were able to grow because of two factors: foreign loans and special favors. Access to foreign technology also was critical to the growth of the chaebol through the 1980s. Under the guise of "guided capitalism," the government selected companies to undertake projects and channeled funds from foreign loans.
How did the Chaebol system fail?
Initially, the crisis was caused by a sharp drop in the value of the currency and aside from immediate cash flow concerns for paying foreign debts, the lower cost ultimately helped the stronger chaebols expand their brands to Western markets, but the simultaneous decline of nearby export markets in Southeast Asia, which had been fueling growth made the large debts incurred, for what was now overcapacity, was fatal to many. The remaining chaebols also became far more specialized in their focus. For example, with a population ranked 26th in the world, before the crisis, the country had seven major automobile manufacturers. Afterward, only two major manufacturers remained intact though two additional continued, in a smaller capacity, under General Motors and Renault. Chaebol debts were not only to state industrial banks but also to independent banks and their own financial services subsidiaries. The scale of the loan defaults meant that banks could neither foreclose nor write off bad loans without themselves collapsing, so the failure to service these debts quickly caused a systemic banking crisis, and South Korea turned to the IMF for assistance. The most spectacular example came in mid-1999, with the collapse of the Daewoo Group, which had some US$80 billion in unpaid debt. At the time, it was the largest corporate bankruptcy in history.
How did Chaebol collide with the government?
Collusion between chaebol members and the government granted preferential statuses to the companies. A chaebol would funnel bribes to politicians and bureaucrats through slush funds and illegal donations. This could help maintain the government's position of power, allowing them to secure contracts for major government projects and provide favorable treatment to the donor firm. Examples of this type of corruption were widespread in the years leading up to the 1997 financial crisis. Many of the firms that benefited from this relationship were too indebted, had poor corporate governance, and were inefficient. There was a huge inflow of capital and bending of regulation in favor of these problematic firms. Hanbo Group, formerly South Korea's second-largest steel-maker, is a good example of this. In the 1990s the company paid for special arrangements with high-ranking politicians so that it could secure contracts for large government projects over its competitors. Hanbo went bankrupt in 1997 after defaulting on debt payments along with other governance issues. Numerous chaebol companies had similar private agreements with the government in this fashion. It would be most common in companies dealing with heavy industries or projects that involved government procurement and urban planning. In the past, most successful political elections were won with chaebol support. Each time a new administration or regime stepped in, it would gear its policy platform towards chaebol revitalization. This was under the claim that in order to be a competitive economy more power must be given to the chaebols. In recent years, the leading political parties of South Korea have reversed their pro-large corporate stance to one of economic diversification.
What is Chaebol model?
The chaebol model is heavily reliant on a complex system of interlocking ownership. The owner, with the help of family members, family-owned charities, and senior managers from subsidiaries, has to control only three of four public companies, who themselves control other companies that control subsidiaries.
Overview
A chaebol is a large industrial South Korean conglomerate run and controlled by an individual or family. A chaebol often consists of multiple diversified affiliates, controlled by a person or group whose power over the group often exceeds legal authority. Several dozen large South Korean family-controlled corporate groups fall under this definition. The term first appeared in English text in 1972.
Etymology
Chaebol derived from the McCune–Reischauer romanization, chaebŏl, of the Korean word jaebeol (재벌, from jae "wealth or property" + beol "faction or clan" – also written with the same Chinese characters 財閥 as zaibatsu in Japan). The first known use in an English text was in 1972.
History
South Korea's economy was small and predominantly agricultural well into the mid-20th century. However, the policies of President Park Chung Hee spurred rapid industrialisation by promoting large businesses, following his seizure of power in 1961. The First Five Year Economic Plan by the government set industrial policy toward new investment, and chaebols were to be guaranteed l…
Corporate governance
Some chaebols are one large corporation while others have broken up into loosely connected groups of separate companies sharing a common name. Even in the latter case, each is almost always owned, controlled, or managed by the same family group.
South Korea's chaebols are often compared with Japan's keiretsu business groupings, the successors to the pre-war zaibatsu. While the "chaebol" is similar to the "zaibatsu" (the words sh…
Criticism
Even though the chaebol system helped bring about rapid growth and helped Korea launch itself on the international stage, it caused negative impacts on the Korean economy.
The origins of the chaebol system in South Korea come as a consequence of the Korean War. The war resulted in much destruction and halted industrial pr…
Reforms
Different reforms have been proposed or enacted to deal with the influence, power, and corruption associated with the chaebols, though it has been questioned whether real reform is possible.
Under Kim Dae-Jung and in the wake of the 1997 Asian financial crisis, many reforms were made to the chaebols. Most of these changes pertained to corporate structure, transparency in financial reporting, cuts in government subsidies, corporate governance, and debt stabilization. In 1997, the
Regulation
Laws were passed to limit the expansion of chaebol:
• Law for separate finance from industry (ko:금산분리법; 金産分離法: Chaebols may no longer have banks since 1982
• Law for the limit of investment (출자총액제한; 出資總額制限: A chaebol's growth by M&A) was limited until 2009
Depictions in popular culture
Like many other conglomerates across the world, Korean chaebols have a presence in popular media. There are a large number of K-dramas that feature chaebols and chaebol family members. Some of these shows include A Business Proposal, Coffee Prince, What's Wrong with Secretary Kim and The Heirs. Many Korean dramas portray the lifestyles of chaebol family members in a comedic manner. Other dramas, however portray them as evil and cunning including Innocent De…