Los Mundos Figurados: Las Historias contadas

5.6.1 History

The Daewoo group started as a small textile trading company with an investment of $18,000 and 5 employees in 1967. During its first year, its sales were $580,000 (Kong, 1995, p. 132). In order to promote exports, Daewoo opened overseas branches in Singapore, Australia, and the United States in 1969 and its sales reached $4 million in that year. Daewoo was awarded 30 per cent of the total US import quota in textile products in 1972 (Steers, Shin, & Ungson, 1989, p. 64). Until 1972, the company

depended completely on foreign sales. Under the government’s export policy, Daewoo grew rapidly through its full export concentration.

In 1973, Daewoo acquired or established 10 companies in textiles, machinery, finance, and construction and was designated as a General Trading Company by the government in 1975 (Kong 1995, p. 134). As a result, Daewoo created the Daewoo group as a Chaebol and was one of the most profitable Korean companies by 1975.

The growth strategy of Daewoo was successful and rather different from other Chaebols from the beginning. Like other Chaebols, the company could concentrate more on the domestic market than exports, and then increase exports, but its strategy was fully matched by the government’s export-oriented policy. The government incentives created a market imperfection. If the company wished to concentrate on the domestic market, its growth rate would be much slower. The company, however, took advantage of the government intervention as an opportunity rather than obstacles so that it achieved rapid growth to become a Chaebol group, even as a late starter. In addition, by establishing a General Trading Company, Daewoo could increase exports efficiently and accumulate marketing expertise, which was difficult to be obtained in the small domestic market, through experiences of serving a diversity of larger markets.

Between 1975 and 1978, 5 more firms were acquired in the heavy industrial and chemical sectors. Some of Daewoo’s acquisitions were requested by the government to support insolvent companies in those industries. A state-owned machinery plant, which had been losing money for 37 years, was taken over by Daewoo. Within one year, the company broke even and by the second year it began paying dividends. A shipbuilding company acquired by Daewoo when it was almost bankrupt was developed into one of the largest and finest shipbuilding facilities in the world. In 1978, at the government’s request, Daewoo also acquired Saehan M otor Company (today’s Daewoo M otor

Company) which had experienced serious management difficulties. In general, the Daewoo group had embraced most industries by the end of the 1970s.

This expansion surely benefited from the government’s industrial policies of that period. However, if Daewoo had adopted different strategy and management style, it might have gone bankrupt. The government intervention in take-overs of ill-managed companies was creating huge burdens on the Chaebols. W ithout the government’s incentives, such as tax exemption and cheap long-term loans, any firms which took over those companies could not have survived. Based on its own resources, including managerial skills and government incentives, Daewoo overcame difficulties and successfully diversified into various industries.

In the 1980s, Daewoo undertook restructuring in its organisation. In 1982, the parent companies, Daewoo Industrial Company and Daewoo Construction Company merged into ‘Daewoo Corporation’ as the second foundation of the Daewoo group. From 1984, Daewoo started to reduce its diversification by dissolving more than 7 companies in the light industry sector, such as those in textiles and leather, and focused on the electronics, semi-conductor, and telecommunication industries by acquiring companies in those industries in 1983.

This structural shift has been significant; for example, the share o f the electric and electronics products in the total exports of Daewoo increased from 6 per cent in 1985 to 24 per cent in 1987 (Park, 1990, p. 217). In addition, during the 1980s, Daewoo emphasised research and development (R & D) in order to improve competitiveness. As of 1988, the Daewoo group has established 15 R & D centres in the areas of electronics, telecommunication, shipbuilding, construction, and automobiles.

As Daewoo Group expanded rapidly without developing new competences, the group moved from a ‘widening’ to a ‘deepening’ process. According to Rumelt (1974),

many companies that had previously had narrow product-market scopes elected to diversify into new businesses related to their past strengths, and then move into lightly related or unrelated businesses. However, Daewoo Group diversified into various industries almost at the same time without experiencing a so-called ‘step-by-step diversification process’. The group needed to restructure its organisation in order to gain competitiveness.

Compared to other Chaebols, Daewoo practised a consistent corporate strategy, its concentration on foreign markets, for its growth and development. Daewoo group has developed overseas markets much more aggressively since it was founded, although most Chaebols and smaller companies have grown through exports. Since making a shift to heavy and capital-intensive industry in the 1980s, the Daewoo group has increased its involvement in overseas subsidiaries and joint ventures accordingly.

From the 1990s the Daewoo group has accelerated to pursue this strategy by commencing a new programme. The Group launched its globalisation programme, so- called ‘Vision 2000’, in 1993. Its programme aims at setting up global operations concentrating on three main businesses: motor vehicles, electronics and trading. This programme includes the ambitious goals of:

• the expansion of its production overseas;

• the localisation of management and operation, including a larger number of non- Koreans in its senior management and emphasis on local decision making;

• achieving the development of advanced technology through the expansion of R and D programmes;

• gaining shareholders around the world; and • developing a truly global image.

It seems that the Daewoo Group has already launched detailed implementation plans since 1993. Between 1993 and 1994, the Group focused on increasing the number of overseas operations in trade, production, and marketing (see Table 5.3). It had set up 137 branch and trade offices, and 253 marketing operations and production facilities in its major business areas in the world by early 1995. It also plans to increase the number of overseas subsidiaries to 650.

Daewoo Group plans to expand its branches particularly in general trading and international finance in order to support its subsidiaries in developing and transitional countries, in terms of gathering relevant information, raising project funds, generating foreign currencies by trading, and marketing its products manufactured in those countries.

In the Daewoo Group’s globalisation, it is observed that the group undertook four phases of Dunning’s internationalisation process (1993). In Phase 1, Daewoo Group wished to enter foreign markets, and initially did enter the markets by exports. Daewoo Group underwent Phase 2 by expanding its trade-related facilities in foreign markets (branches of a General Trading division which belongs to Daewoo Corporation have widely expanded since its foundation). Daewoo Group evolved into the Phase 3 process by internalising forwards and backwards manufacturing process by FDI. As Daewoo G roup’s foreign experience was accumulated by investment, it increased investment in foreign countries in order to deepen and widen the value-added network. For example, Daewoo electronics had sales networks in Europe, and then it increased investment in component manufacturing followed by full manufacturing in Europe (France and the U.K.); since Daewoo M otor invested in East Central Europe (the Czech Republic, Poland and Romania), it increased its investment in its other business sectors, including finance, and construction in East Central Europe and in the U.K. (a

commercial car plant and a technical centre). Given the fact that Daewoo G roup’s global operations have increased, the group is likely to evolve into Phase 5: the establishment of the regional or global integration of the value network. Daewoo Groups’ intra-firm product specialisation and integration of markets tends to be accompanied by an increase in the trade between the production units and / or between its affiliates and their parent companies in South Korea.

As observed in the programme, Daewoo Group plans to use local staffs and decentralise its management control to overseas operations. Although its plans are pursued actively, it may be a difficult procedure to decentralise management to foreign operations as this has not been done in South Korea, where the economic activities of the Group have been co-ordinated by the headquarters, rather than the individual business units within the Group running their own organisations separately. The issues of business decentralisation within the Group, as well as in other Chaebols, are still in dispute in South Korea. The company should consider the costs and benefits of management decentralisation and decide to what extent its management can be decentralised.