Daewoo
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This article is about the chaebol Daewoo Group. For the Korean auto company Daewoo Motors that is associated with Chevrolet, see GM Daewoo. For Daewoo Automobile Romania see Oltcit, for Daewoo Automobile in Uzbekistan see UzDaewooAvto.
Template:Koreanname logo Daewoo (Korean for "Great House") was a major South Korean chaebol (conglomerate). It was founded in March 22, 1967 as Daewoo Industrial and was dismantled by the Korean government in 1999.
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History
A street vendor selling newspapers, gum and sweets as a youngster in Daegu, Kim Woo Choong founded the Daewoo Group in March 1967. It became one of the Big Four chaebol in South Korea. An industrial and multi-faceted service conglomerate, Daewoo was prominent in expanding its global market through joint ventures all over the world.
During the 1960s, after the end of the Syngman Rhee government, the new government of Park Chung Hee intervened to promote growth and development in the country. It increased access to resources, promoted exports, financed industrialization, and provided protection from competition to the chaebol in exchange for a company's political support. In the beginning, the Korean government instigated a series of five-year plans under which the chaebol were required to achieve a number of basic objectives.
Daewoo did not become a major player until the second five-year plan. Daewoo benefited from government-sponsored cheap loans based on potential export profits. The company initially concentrated on labor-intensive clothing and textile industries that provided high profit margins. The most significant resource in this plan was South Korea's large workforce.
The third and fourth of the five-year plans occurred from 1973 to 1981. During this period, the country's labor force was in high demand. Competition from other countries began eroding Korea's competitive edge. The government responded to this change by concentrating its effort on mechanical and electrical engineering, shipbuilding, petrochemicals, construction, and military initiatives. At the end of this period, the government forced Daewoo into shipbuilding. Kim was reluctant to enter this industry, but Daewoo soon earned a reputation for producing competitively priced ships and oil rigs.
During the next decade, the Korean government became more liberal in economic policies. Small private companies were encouraged, protectionist import restrictions were loosened, and the government reduced positive discrimination, to encourage free market trade and to force the chaebol to be more aggressive abroad. Daewoo responded by establishing a number of joint ventures with U.S. and European companies. It expanded exports of machine tools, defense products, aerospace interests, and semiconductor design and manufacturing. Eventually, it began to build civilian helicopters and airplanes, priced considerably cheaper than those produced by its U.S. counterparts. It also expanded efforts in the automotive industry and was ranked as the seventh largest car exporter and the sixth largest car manufacturer in the world. Throughout this period, Daewoo experienced great success at turning around faltering companies in Korea.
In the 1980s and early 1990s, the Daewoo Group also produced consumer electronics, computers, telecommunication products, construction equipment, buildings, and musical instruments (Daewoo Piano).
Factors that affected Daewoo's performance
1. Government intervention: Government policy served as a double edged sword: it protected the chaebol, providing them with massive subsidies, unlimited cheap credit, and protection against foreign competition. However, the price for these services was total loyalty to the government. Chaebol were forced to take over industries against their will. The government was constantly involved in their businesses and stifled their creativity.
2. Labor market: The traditional work ethic that helped Korea reach economic prosperity has been threatened as workers have begun increasingly violent protests against years of long hours and low pay. Daewoo shipbuilding suffered heavy losses due to workers' demands for pay raises.
3. Operating in a global economy: International demand for free trade is forcing the Korean government to open its market. The chaebol will lose its protectionist import controls. Most recently, the North American Free Trade Agreement and the European Economic Community imposed trade limitations.
4. Product quality from Korea: Korean products were considered to be of low quality. Companies are trying to improve that image.
5. By the 1990s, Daewoo Group was heavily leveraged, major markets were stagnant, expenditures on R&D were increasing, labor unrest was continuing, and government policy was turning against the company.
6. Kim was most recently charged with allegedly paying campaign contributions to former president Roh Tae Woo in exchange for a large government contract to build a submarine base.
Kim's vision
Kim Woo Choong was an excellent entrepreneur. He led the company's growth from an $18,000 initial capital value to $25 billion in annual sales. Some of the solutions he employed to counter problems his company faced are as follows:
1. He used organizational politics to work with the government. He understood that to gain power, resources, and growth, he needed the protection of the government.
2. Daewoo Group was excellent at turning around faltering companies due to a well-managed, highly centralized organizational structure. Under Kim's vision, he developed a unique culture in his chaebol known as the "Daewoo Spirit". This spirit meant a commitment to creativity, challenge, and sacrifice. Kim believed in co-prosperity whereby the company provides value to employees, customers, suppliers, partners, and the country as a whole.
3. Daewoo enlarged its capital supply sources by diversifying its method of securing funds, including leasing and deferred payments. It raised funds successfully overseas for large foreign investment projects.
4. Daewoo established a number of joint ventures with U.S. and European companies. Under the Vision 2000 campaign, Daewoo established joint-venture production facilities, invested in foreign facilities, established sales and local subsidiaries, and localized component production and other operations. This campaign was aimed at strengthening Daewoo's international competitiveness.
5. After two workers committed suicide in 1987, Kim developed a unique program to mend management-labor relations. Managers and company presidents were required to work on the assembly line, and assembly line workers could be promoted to management level. This policy was aimed at improving the management-labor relations as well as helping managers to understand the difficulties and problems on the assembly line.
6. Daewoo increased their R&D expenditures to be more internationally competitive. To boost this effort, Daewoo established a technology R&D team called the Institute for Advanced Engineering. This team used three strategies in technical development: competitiveness, managerial system development, and the use of a technology network.
Kim also wrote a book in 1992 on how he brought Daewoo from a 20-man company to an international group in his Every Street Is Paved With Gold (ISBN 0688113273) or in Korean, The World Is Big And There's Lots To Do, 세계는 넓고 할 일은 많다
Corporations
There were about 20 divisions under Daewoo Group, which was once the second largest conglomerate after Hyundai and followed by LG and Samsung in Korea before the crisis. Daewoo Group, as was the official name, had under its umbrella several major corporations:
- Daewoo Electronics, a strong force both internationally and in Korea
- Daewoo Heavy Industries, excelling in creating heavy duty machinery
- Daewoo Ship Building, which boasted and still boasts one of the highest levels of production of containers and oil tankers in the world today
- Daewoo Securities, a financial securities company
- Daewoo Telecom, concentrating on the telecommunication aspect of electronics
- Daewoo Construction, an international company famous for building highways, dams and skyscrapers for countries, especially those in the Middle East and Africa
- Daewoo International, which remains a successful trading organisation
Crisis history
Daewoo Group ran into deep financial trouble in 1998 due to the Asian financial crisis and conflicts with the Korean government under President Kim Dae Jung. The Korean government could not control its deficit, so it could not longer support companies like Daewoo. The result was the destruction and dismantling of the Daewoo Group without much opposition. Chairman Kim Woo Choong was exiled overseas and was labeled a fugitive after he did not return. The government released information on how he had "fled" the country from possible prosecution. President Kim Dae Jung had apparently promised Kim that Daewoo would be restored if he left the country under the auspices of the government. Much to Chairman Kim's dismay, the creditors and the government did not carry out their promise, and managed to dissolve the second largest conglomerate in South Korea, which held interests in approximately 100 countries.
The main argument as to why Daewoo was completely liquidated was that at the time President Kim Dae Jung was appeasing the North Korean government with financial aid and other materials. He expected the leaders of the Top 5 conglomerates to cooperate in his government's "Sunshine Policy." When Chaiman Kim Woo Choong did not agree with the massive "no return on investment seen ahead" investment, he refused to cooperate with the President. Chairman Kim was in fact one of the pioneers in setting up new ways of doing business with the North, being one of the few who understood the Northern way of business. He insisted on a "give and take" policy to which the President did not yield. This response prompted the Korean government under Kim to literally destroy Daewoo instead of helping the group in a time of financial turmoil. The company that was exploited for the "North Expedition" was in fact Hyundai. It was during this time they began massive North Korean investments, including the famous "Cow Shipping" that sent around 1,000 cows to the North. Hyundai was considerably weakened financially due to this, but the government did not sabotage it due to its policy on loyal companies.
Kim Woo Choong returned to Korea in June 2005 and was promptly arrested.
Daewoo Motors
Daewoo Motors arrived in the UK in 1995. At the time, it was the only manufacturer not using traditional dealerships; it owned and operated its own retail network. It was once considered to be near the top 10 motor companies in terms of production.
Daewoo was forced to sell off its automotive arm, Daewoo Motors, to General Motors by the Kim administration. Since then, GM has been moving to rebadge Daewoo cars as the low-end models for many brands, including Chevrolet. GM was sued by Daewoo's former U.S. dealer network over this practice, since they no longer had new Daewoo cars to sell.
Current status
Daewoo Electronics survives to this day despite bankruptcy, with a new brand logo "DE", but many of the other subsidiaries and divisions have become independent or simply perished under the "reorganisation" of the Korean government under Kim Dae Jung.
The group was reorganized into three parts: Daewoo International, Daewoo Engineering & Construction and Daewoo Corporation. It is active in many markets; the most important are steel processing, ship building and financial services.
In 2004, Daewoo pulled out of Australia and New Zealand, citing irreparable brand damage. Later that same year, GM announced that Daewoo Motors in Europe would change its name to Chevrolet as of January 1, 2005. In 2005, it was announced that Daewoo cars would have a Holden badge in Australia and New Zealand. In South Africa, Thailand and the Middle East, Daewoo models were already being sold as Chevrolets. Only in South Korea and Vietnam does the Daewoo marque survive.
See also
External links
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