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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

SEPTEMBER 24, 1999 VOL. 25 NO. 38

A Few Kind Words
Some things the chaebol did right
By TIM HEALY and LAXMI NAKARMI Seoul

    ALSO IN ASIAWEEK
Putting on the Kid Gloves
Hyundai is no Daewoo, which is probably why Seoul is giving it a break

A Few Kind Words
Some things the chaebol did right

Petroleum Power
Will rising crude-oil prices halt Asia's turnaround?

Property Poker
Malaysia is playing for high stakes as it looks for solutions to a massive real-estate glut

'We Have Too Many Banks'
The Philippines' new central banker looks ahead

By 1987, Samsung Electronics had reached a crossroads on whether it should continue competing in the semiconductor business. It was manufacturing 256-kilobyte DRAM (dynamic random access memory) chips and losing heavily. Its new products were often a year late to market, which was a problem only new money -- and lots of it -- could fix. The late Chairman Lee Byung Chull, perhaps the strongest proponent of continuing the production of semiconductors, was on his death bed. When Lee passed away in November 1987, pressure mounted on his son and successor Lee Kun Hee, who is still chairman, to quit the business entirely. But the younger Lee bulled ahead by pulling massive financial resources from other Samsung affiliates. The gamble paid off. Samsung is now the world's largest maker of memory chips and a star performer.

The question now: Is the chaebol model that once provided capital to Samsung Electronics and other units of the big chaebol a relic with no place in the modern business world? Surprisingly, given the number of critics who blame the system for the stifling chaebol debt and surfeit of capacity that led to the near-collapse of the South Korean economy in 1998, some want the old system restored.

They argue that it is possible to modify the chaebol to eliminate the excesses but save what was positive. Yoo Han Soo, executive director of the Federation of Korean Industries, a chaebol lobby group, says a new law that sets tighter limits on cross-chaebol investments would mean that once-capital-starved companies like Samsung Electronics would never flourish. Yoo thinks a strengthened board of directors within a chaebol could decide.

Another characteristic of the old chaebol system that, even today, has some support, is the all-powerful nature of the chaebol boss, illustrated by the Samsung chairman's ability to pursue whatever strategy he thought appropriate. One former Hyundai executive recalls, almost wistfully, that there used to be no meetings of the company's board of directors. "The chairman called the presidents of the [various units] to a meeting at which he conveyed what he wanted. No ifs or buts."

It is difficult not to see such nostalgia as merely an attempt to revert to an authoritarian system in which the thinking was done by only a handful of people. The fact is, there can be no turning back in South Korea. President Kim Dae Jung has staked his reputation on making the chaebol reform their autocratic practices of the past. And in the case of Daewoo, where founder Kim Woo Choong resisted change, the president has demonstrated his resolve by forcing a break-up of the company.

This edition's table of contents | Asiaweek home

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