FREE ESSAY ON DAEWOO

DAEWOO

The fall of the House that Kim Built
The collapse of South Korea's second largest conglomerate, Daewoo Motor, is a bankruptcy
that could be good for Asia. The founder of the firm, Kim Woo Choong, could look out over
the South Korean capital and see the enormous headquarters building, of his firm, which
he founded in 1967. He started out as a shirt salesman 30 years ago, and now he has
created Daewoo. Daewoo is a multinational with sales of around sixty billion dollars and
some two hundred thousand employees, which half of them are over seas. The company made
just about anything, anywhere: ships in South Korea microwave ovens in France and
fertilizer in Vietnam. The car business had been Kim's latest and biggest target. He had
been determined to turn Daewoo into a global giant. But a year ago the Daewoo group began
to collapse under it's enormous debts; some parts were broken up, some parts sold. Now,
on November eighth, the dream was finally shattered, when the Daewoo Motor Company was
faced with bankruptcy. The collapse of the company has shocked South Korea. The
government called an emergency cabinet meeting. But the firm's final day of reckoning was
a long time coming. The company had been fighting for months with unions to try to agree
job cuts that might allow it to be sold. Ford had looked the firm over, but walked away.
America's General Motors and its partner, Italy's Fiat, will remain the only likely
suitors.
The bankruptcy of the company, however, has significance beyond South Korea. The company
is one of the many casualties of the 1997-98 Asian financial crisis. Just like other
failed companies in Thailand, Indonesia, and the Philippines and elsewhere, instead of
expiring under a mountain of debt, it has staggered on. By the end of June, Daewoo
Motor's assets had shrunk to 17.8 trillion won; however, its debts had grown to 18.2
trillion won. It is a similar massive overhang of corporate debt throughout Asia that
threatens to undermine the regions economic recovery. While politicians, officials and
banks shy away from making companies bankrupt and continue to prop them up, competitors
suffer and assets cannot be redistributed. The bankruptcy of the company could initiate
the corporate clear-out which Asia badly needs by encouraging governments to allow the
failure of bust firms, despite the pain to both workers and managers that this would
entail. The fate of the company though, is still not, clear-cut. When the group buckled
under debts of around eighty billion dollars last year, it was in effect broken into
separate businesses. Some, shipbuilding, were sold, and others were placed into a
state-backed "corporate workout," to help them survive. More than 40 other South Korean
firms are also in the program. Creditors and banks are meant to help out these ailing
firms by lowering the interest rates on their loans or rolling them over completely. In
return, the companies are supposed to reform themselves; although many have simply cooked
the books in order to make their balance sheets look better. When the company failed to
win agreement from its labor unions for a cost-cutting program, it found no fresh money
was available. The firm then defaulted on loan repayments to its major creditor, the
Korea Development Bank. The pressure to keep propping up busted firms is partly
political: the South Korean government deeply fears an increase in unemployment. The
banks are also concerned about having to make even greater provision for bad loans by
allowing firms to go bust. If, however, Daewoo is liquidated and sold, perhaps with some
parts going to an overseas producer and the remainder to it's main domestic rival,
Hyundai, then a strong message of reform would be sent not only to bankers and managers
in South Korea, but the rest of Asia as well. If South Korea can bite the bullet on such
a large bankruptcy, which in turn would open the door for fresh investment in it's motor
industry and ultimately the preservation of jobs, then other countries might be
encouraged to do the same. The process would have enormous effects in South Korea itself,
where giant companies have long been considered "too big to fail". The country's family
ran conglomerates, are known as chaebol. Successive governments with favors deliberately
fattened them and state directed credit so that they would become the country's main
engines of growth. It helped South Korea to leap from poverty at the end of the Korean
War in 1953, to relative prosperity in a single generation. However, there are flaws. The
cozy links between the chaebols bosses and the country's politicians and bureaucrats
fostered corruption. The chaebol recklessly loaded them up with debt, to expand into all
sorts of unrelated business. The corporate monsters, that emerged, came to dominate, the
economy. A firm like Microsoft could never have emerged in the country, some South
Koreans claim. 
The veteran opposition leader, Kim Dae Jung, was elected president in 1997. It finally
looked like chaebol was going to come to a Holt. The political transition, together with
the shock delivered by the financial crisis, was thought to be potent enough to
restructure the chaebol. To an extent it has, but without genuine bankruptcies, the
process will be far from complete. Hyundai's giant construction division is also in deep
trouble and is teetering on the brink of bankruptcy. But, for Kim Woo Choong, he is
thought to be riding out the storm in Europe, and plotting a business comeback. 
The fall of the House that Kim Built
The collapse of South Korea's second largest conglomerate, Daewoo Motor, is a bankruptcy
that could be good for Asia. The founder of the firm, Kim Woo Choong, could look out over
the South Korean capital and see the enormous headquarters building, of his firm, which
he founded in 1967. He started out as a shirt salesman 30 years ago, and now he has
created Daewoo. Daewoo is a multinational with sales of around sixty billion dollars and
some two hundred thousand employees, which half of them are over seas. The company made
just about anything, anywhere: ships in South Korea microwave ovens in France and
fertilizer in Vietnam. The car business had been Kim's latest and biggest target. He had
been determined to turn Daewoo into a global giant. But a year ago the Daewoo group began
to collapse under it's enormous debts; some parts were broken up, some parts sold. Now,
on November eighth, the dream was finally shattered, when the Daewoo Motor Company was
faced with bankruptcy. The collapse of the company has shocked South Korea. The
government called an emergency cabinet meeting. But the firm's final day of reckoning was
a long time coming. The company had been fighting for months with unions to try to agree
job cuts that might allow it to be sold. Ford had looked the firm over, but walked away.
America's General Motors and its partner, Italy's Fiat, will remain the only likely
suitors.
The bankruptcy of the company, however, has significance beyond South Korea. The company
is one of the many casualties of the 1997-98 Asian financial crisis. Just like other
failed companies in Thailand, Indonesia, and the Philippines and elsewhere, instead of
expiring under a mountain of debt, it has staggered on. By the end of June, Daewoo
Motor's assets had shrunk to 17.8 trillion won; however, its debts had grown to 18.2
trillion won. It is a similar massive overhang of corporate debt throughout Asia that
threatens to undermine the regions economic recovery. While politicians, officials and
banks shy away from making companies bankrupt and continue to prop them up, competitors
suffer and assets cannot be redistributed. The bankruptcy of the company could initiate
the corporate clear-out which Asia badly needs by encouraging governments to allow the
failure of bust firms, despite the pain to both workers and managers that this would
entail. The fate of the company though, is still not, clear-cut. When the group buckled
under debts of around eighty billion dollars last year, it was in effect broken into
separate businesses. Some, shipbuilding, were sold, and others were placed into a
state-backed "corporate workout," to help them survive. More than 40 other South Korean
firms are also in the program. Creditors and banks are meant to help out these ailing
firms by lowering the interest rates on their loans or rolling them over completely. In
return, the companies are supposed to reform themselves; although many have simply cooked
the books in order to make their balance sheets look better. When the company failed to
win agreement from its labor unions for a cost-cutting program, it found no fresh money
was available. The firm then defaulted on loan repayments to its major creditor, the
Korea Development Bank. The pressure to keep propping up busted firms is partly
political: the South Korean government deeply fears an increase in unemployment. The
banks are also concerned about having to make even greater provision for bad loans by
allowing firms to go bust. If, however, Daewoo is liquidated and sold, perhaps with some
parts going to an overseas producer and the remainder to it's main domestic rival,
Hyundai, then a strong message of reform would be sent not only to bankers and managers
in South Korea, but the rest of Asia as well. If South Korea can bite the bullet on such
a large bankruptcy, which in turn would open the door for fresh investment in it's motor
industry and ultimately the preservation of jobs, then other countries might be
encouraged to do the same. The process would have enormous effects in South Korea itself,
where giant companies have long been considered "too big to fail". The country's family
ran conglomerates, are known as chaebol. Successive governments with favors deliberately
fattened them and state directed credit so that they would become the country's main
engines of growth. It helped South Korea to leap from poverty at the end of the Korean
War in 1953, to relative prosperity in a single generation. However, there are flaws. The
cozy links between the chaebols bosses and the country's politicians and bureaucrats
fostered corruption. The chaebol recklessly loaded them up with debt, to expand into all
sorts of unrelated business. The corporate monsters, that emerged, came to dominate, the
economy. A firm like Microsoft could never have emerged in the country, some South
Koreans claim. 
The veteran opposition leader, Kim Dae Jung, was elected president in 1997. It finally
looked like chaebol was going to come to a Holt. The political transition, together with
the shock delivered by the financial crisis, was thought to be potent enough to
restructure the chaebol. To an extent it has, but without genuine bankruptcies, the
process will be far from complete. Hyundai's giant construction division is also in deep
trouble and is teetering on the brink of bankruptcy. But, for Kim Woo Choong, he is
thought to be riding out the storm in Europe, and plotting a business comeback. 
The fall of the House that Kim Built
The collapse of South Korea's second largest conglomerate, Daewoo Motor, is a bankruptcy
that could be good for Asia. The founder of the firm, Kim Woo Choong, could look out over
the South Korean capital and see the enormous headquarters building, of his firm, which
he founded in 1967. He started out as a shirt salesman 30 years ago, and now he has
created Daewoo. Daewoo is a multinational with sales of around sixty billion dollars and
some two hundred thousand employees, which half of them are over seas. The company made
just about anything, anywhere: ships in South Korea microwave ovens in France and
fertilizer in Vietnam. The car business had been Kim's latest and biggest target. He had
been determined to turn Daewoo into a global giant. But a year ago the Daewoo group began
to collapse under it's enormous debts; some parts were broken up, some parts sold. Now,
on November eighth, the dream was finally shattered, when the Daewoo Motor Company was
faced with bankruptcy. The collapse of the company has shocked South Korea. The
government called an emergency cabinet meeting. But the firm's final day of reckoning was
a long time coming. The company had been fighting for months with unions to try to agree
job cuts that might allow it to be sold. Ford had looked the firm over, but walked away.
America's General Motors and its partner, Italy's Fiat, will remain the only likely
suitors.
The bankruptcy of the company, however, has significance beyond South Korea. The company
is one of the many casualties of the 1997-98 Asian financial crisis. Just like other
failed companies in Thailand, Indonesia, and the Philippines and elsewhere, instead of
expiring under a mountain of debt, it has staggered on. By the end of June, Daewoo
Motor's assets had shrunk to 17.8 trillion won; however, its debts had grown to 18.2
trillion won. It is a similar massive overhang of corporate debt throughout Asia that
threatens to undermine the regions economic recovery. While politicians, officials and
banks shy away from making companies bankrupt and continue to prop them up, competitors
suffer and assets cannot be redistributed. The bankruptcy of the company could initiate
the corporate clear-out which Asia badly needs by encouraging governments to allow the
failure of bust firms, despite the pain to both workers and managers that this would
entail. The fate of the company though, is still not, clear-cut. When the group buckled
under debts of around eighty billion dollars last year, it was in effect broken into
separate businesses. Some, shipbuilding, were sold, and others were placed into a
state-backed "corporate workout," to help them survive. More than 40 other South Korean
firms are also in the program. Creditors and banks are meant to help out these ailing
firms by lowering the interest rates on their loans or rolling them over completely. In
return, the companies are supposed to reform themselves; although many have simply cooked
the books in order to make their balance sheets look better. When the company failed to
win agreement from its labor unions for a cost-cutting program, it found no fresh money
was available. The firm then defaulted on loan repayments to its major creditor, the
Korea Development Bank. The pressure to keep propping up busted firms is partly
political: the South Korean government deeply fears an increase in unemployment. The
banks are also concerned about having to make even greater provision for bad loans by
allowing firms to go bust. If, however, Daewoo is liquidated and sold, perhaps with some
parts going to an overseas producer and the remainder to it's main domestic rival,
Hyundai, then a strong message of reform would be sent not only to bankers and managers
in South Korea, but the rest of Asia as well. If South Korea can bite the bullet on such
a large bankruptcy, which in turn would open the door for fresh investment in it's motor
industry and ultimately the preservation of jobs, then other countries might be
encouraged to do the same. The process would have enormous effects in South Korea itself,
where giant companies have long been considered "too big to fail". The country's family
ran conglomerates, are known as chaebol. Successive governments with favors deliberately
fattened them and state directed credit so that they would become the country's main
engines of growth. It helped South Korea to leap from poverty at the end of the Korean
War in 1953, to relative prosperity in a single generation. However, there are flaws. The
cozy links between the chaebols bosses and the country's politicians and bureaucrats
fostered corruption. The chaebol recklessly loaded them up with debt, to expand into all
sorts of unrelated business. The corporate monsters, that emerged, came to dominate, the
economy. A firm like Microsoft could never have emerged in the country, some South
Koreans claim. 
The veteran opposition leader, Kim Dae Jung, was elected president in 1997. It finally
looked like chaebol was going to come to a Holt. The political transition, together with
the shock delivered by the financial crisis, was thought to be potent enough to
restructure the chaebol. To an extent it has, but without genuine bankruptcies, the
process will be far from complete. Hyundai's giant construction division is also in deep
trouble and is teetering on the brink of bankruptcy. But, for Kim Woo Choong, he is
thought to be riding out the storm in Europe, and plotting a business comeback. 
Bibliography
The Economist.com