Chaebol Case Essay

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International Business & Economics Research Journal – January 2008 Volume 7, Number 1 Advantages And Shortcomings Of Korean Chaebols Hong Y. Park, (Email: hyp@svsu.edu), Saginaw Valley State University Geon-Cheol Shin, (Email: gcshin@khu.ac.kr), Kyung Hee University, Korea Sung Hahn Suh, Kyung Hee University, Korea ABSTRACT The prevalent form of business organizations in Korea is a chaebol. The chaebol is a diversified conglomerate. This paper addresses the following issues concerning Korean chaebols: 1) reasons for diversification, 2) advantages and shortcomings of chaebols, 3) issues facing Korean chaebols, and 4) chaebols’ managing the crisis and making reforms. We found that Korean chaebols managed to learn from the economic crisis and made successful reforms. 1. Introduction M ost large Korean firms are diversified conglomerates (Jung and Yang, 1992). The four largest of which are Samsung, LG, Hyundai Motor and SK based on sales in 2004. Samsung is the largest in sales; 63 companies make up the Samsung group. LG consists of 46 companies; Hyundai Motor has 28, and 59 companies make up the SK group. Diversified conglomerates dubbed chaebol in Korea, are the prevalent form of business organizations. As Khanna and Rivkin (2001) point out, such business groups are more common in emerging economies than in advanced economies. Studies on firms‟ product portfolios focus on the why, where and what of diversification. The why of diversification is to discover determinants of product diversification. Teece (1980, 1982) has summarized that transaction costs, excess resources and scope economies account for product diversification. Studies on the where of diversification focus on the direction of firms‟ product diversification. Numerous studies report that related diversification contributes to firms‟ profits more than unrelated product diversification
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