The Fall of Daewoo Motors


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Case Details:

Case Code : BSTR034
Case Length : 13 Pages
Period : 1990 - 2001
Organization : Daewoo Motors
Pub Date : 2002
Teaching Note : Available
Countries : South Korea
Industry : Automobile & Automotive

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This case study was compiled from published sources, and is intended to be used as a basis for class discussion. It is not intended to illustrate either effective or ineffective handling of a management situation. Nor is it a primary information source.

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Background Note

There were five major business conglomerates or Chaebols3 in South Korea - LG, Samsung, Sunkyong, Hyundai and the Daewoo Group. In 1967, Kim established the Daewoo Group as a textiles business.

The then Korean President Park Chung Hee4 (Park) helped Kim by handing over the management of bankrupt companies, which were slated for restructuring by the Korean government. Park also helped Kim with essential resources and official assistance. Kim also developed close contacts with politicians and managed to get huge amounts of funds from several Korean banks. Funded by government-approved borrowings, the Daewoo Group witnessed significant growth and diversified into several businesses during the 1970s and 1980s. In the early 1990s, the Group expanded overseas and soon became the 18th largest corporation in the world. The Group had investments in more than 400 projects in about 85 countries.

The Daewoo Group consisted of 24 companies, the major ones including Daewoo Motors, Daewoo Shipbuilding, Daewoo Telecom, Daewoo Engineering and Construction, Daewoo Electronics, Daewoo International, Daewoo Heavy Industries, Daewoo Securities etc. Of the 24 companies, nine were listed while the remaining were privately owned.

The Group's management believed that expansion equaled success. However, little attention was paid to the profitability of the new businesses. In the mid-1990s, the Daewoo Group was charged for corrupt corporate governance practices. Reportedly Kim, along with 34 executives and accountants of the Group, had generated $20 billion officially and $38 billion unofficially in the form of illegal foreign exchange loans. They also pooled funds from the different subsidiaries of the Group through false documents. The Daewoo Group had also reportedly manipulated its accounts to show fictitious profits and decrease liabilities (See Exhibit I) to present a rosy picture of its overall financial performance. The Group seemed to have hidden many of its failed ventures and also swapped assets among the Group's companies...

Excerpts >>

3] In South Korea, large family-owned conglomerates were called Chaebol. The system, which Japanese colonialists first started in the 1920s and 1930s - was greatly expanded by President Park Chung Hee in the 1960s and 1970s. In this system, the central government selected a few companies and granted them all kinds of preferential treatment.

4] Park was a student of Kim's father.

 

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