Management Practices in South Korea PDF

Management in South Korea: a review Tony Morden University of Teesside, School of Business and Management, Middlesbrough, UK David Bowles Director of Operations, North...

Management in South Korea: a review Tony Morden University of Teesside, School of Business and Management, Middlesbrough, UK David Bowles Director of Operations, Northern Development Company, Newcastle-upon-Tyne, UK The purpose of this article is Daewoo – General Motors, Vauxhall-Opel. to analyse and illustrate South Korea Samsung – Nissan, Sanyo. selected aspects of manage- An overview Ssanyong – Mercedes Benz. ment in South Korea. South South Korea has a population of 44 million Religious and philosophical beliefs include Korean management is people. It is a relatively newly industrialised Confucianism, Buddhism, and Christianity. placed within its South East country. It has experienced rapid growth in Koreans also share a Taoist tradition of Asian context; but western output, productivity, and per capita income influences on it are also holism with their South East Asian neigh- since the 1960s. It was in 1995 the world’s bours. identified. Parallels with eleventh largest economy and twelfth most French management are There is a very strong commitment to edu- important trading nation (Far Eastern Eco- cation, with high levels of literacy and high drawn. The article describes nomic Review, 1996). In 1962 its per capita the national and business levels of achievement. South Korea is build- income was $87; by 1995 it was $10,000. The ing a strong reputation for the quality of its culture of South Korea. It country has become a key global player in the analyses prevailing education. The country now boasts a high manufacture of cars, electronic products, proportion of engineers and scientists per approaches to organisation steel, textiles, and shipbuilding. It is one of and communication. It dis- head of the population. About 70 per cent of the emergent Asian “Tiger” economies. the South Koreans who make up the coun- cusses and illustrates the Korea was annexed by the Japanese changing role of the taipan, try’s work force graduate from high school. between 1910 and 1945. While relationships the family, the clan, and Under the government of President Kim between South Korea and Japan have offi- professional management Young Sam (elected for a five year term 1993- cially been normalised, this former Japanese within the context of the 1998), the South Korean government colony regards Japan as an important eco- ownership and management embarked on a programme of economic revi- nomic rival. Competing directly with Japan of Korean enterprises. It talisation and deregulation (in part forced on has become a national and cultural priority examines working practices it by a desire to join the Organisation for of the Koreans, who are driven by a desire to and relations. It analyses and Economic Co-operation and Development achieve more than that attained during comments on style of man- (OECD)). Government controls on private recent decades by the Japanese. Many Kore- agement. It deals with issues sector business activity are selectively being ans still feel (and display) deep suspicion and of internationalisation and cut back. The present government is proceed- resentment towards the Japanese. For globalisation. The article ing with deregulation, economic restructur- instance, a Japanese attempt to annexe a concludes by analysing a ing and liberalisation, internationalisation, rocky island in the Sea of Japan during 1995 number of issues that are and foreign inward investment. Financial led to large and violent demonstrations in likely to affect South Korean and banking reforms aim to reduce the high Seoul. management after the crisis level of government interference that has Nevertheless, Japanese influence on South of 1997-1998, and more hitherto characterised the country’s business Korean business organisation has been sig- generally in the foreseeable affairs, and to improve access to capital for nificant, for example because of: future. The analysis is illus- the SME sector. Small firms employ about 70 infrastructure developments put into place trated by a variety of case per cent of the South Korean workforce. during the colonial period; examples. South Korea joined the OECD in December the cumulative experience of the many 1996. The country experienced a major eco- Korean emigrés who had lived in Japan nomic crisis during 1997-1998, and was forced prior to repatriation in 1945; to seek financial assistance from the Interna- the influence of post-war Japanese indus- tional Monetary Fund (IMF) in order to re- trial policy, and its selective imitation by establish economic stability. South Korean governments (especially that of President Park Chung Hee); National culture the widespread application of Japanese South Korea is characterised (Hofstede, 1991) technology and techniques of operations by: management. large power distance, and authoritarian- Management Decision Indeed, paradoxically, much of South Korean ism; 36/5 316–330 industry has developed from a base of collectivism and communitarianism (asso- © MCB University Press acquired but dated post-war Japanese and ciated with family and clan membership); [ISSN 0025-1747] strong uncertainty avoidance. Western technology, for example: [ 316 ] Tony Morden and Morden (1996) suggests that the South Kore- Fukuyama (1995) comments (p. 131) on “the David Bowles ans are: very strong Protestant Christian influence in Management in South Korea: monochronic – polychronic (that is, they are the twentieth century”. He notes (pp. 141-2) a review that “Korea is the only country besides the at the same time persistent, focused, time- Management Decision constrained, organised, flexible, and oppor- Philippines in East Asia that has a significant 36/5 316–330 tunistic); Christian population. Christian conversion relatively high context in character (that is, got underway during the Japanese occupa- they tend to obtain information from, and tion, when it constituted a somewhat less place more reliance on, personal and family dangerous form of protest against Japanese networks, rather than formal research base power. After the Korean War, Korea’s vital or information sources that are available to strategic tie with the USA proved a gateway them). for American cultural, and hence religious, influence. The Christian population of Korea While sharing holistic characteristics with mushroomed after the war, and it now alone its eastern neighbours, South Korea’s uncer- constitutes upwards of 20 percent of the total tain political relationships with Stalinist … Christians have been out of proportion to North Korea, and its long-standing contacts their numbers in the political and social life with the USA, have induced a strong streak of of the country. The South’s first president, pragmatism. Syngman Rhee, was a Christian; Christians South Koreans do not easily forgive slights were very active in the democratic protest to their personal or national pride, and are movements that led ultimately to the fall of not embarrassed about giving vent to their the military government in 1987; and three of feelings. For example, there was a strong and the best universities in Korea today are hostile public reaction to the 1997 French Christian sponsored. Korean Protestants Government decision not to sell Thomson have certainly participated enthusiastically CSF to Daewoo after agreement had in princi- in economic life”. ple been reached between the two companies. South Korea shares with Japan the fierce The widespread public anger over labour market competition and the characteristic of law changes made in December 1996 that “competitive oligopoly” between large con- erupted into violent street demonstrations glomerates. The South Korean business represents the Korean concept of han, which groupings or conglomerates (the chaebol) is resentment or frustration felt over unjust have typically received government backing, or inequitable treatment. A manager with and tend to follow the prevailing strategy of Hyundai commented (Burton, 1997a) that “we concentrating on key areas of industrial want to get rich together or poor together. development. Otherwise we become deeply resentful.” Prestige attaches to employment with the The economic events of 1997-1998, and the large chaebol corporations. These are able to need to seek IMF assistance, were perceived recruit the best graduates from the most by South Koreans as a major national humili- prestigious universities. ation. They represented a massive loss of face Personal qualities of respect, tolerance, self- relative to the rest of the international com- confidence and patience should be adhered to munity, and have stung the Koreans into a in any business situation. Esteem is attached robust and disciplined response to restore to educational attainment and job status. their prestige and status. Anecdotal evidence The South Koreans are determined and indicates that in excess of £700 million has persistent negotiators. They have a reputa- been contributed to national funds by the tion for aggression; and often base their nego- private donation of gold and jewellery by the tiating stance on a win-lose philosophy in South Koreans themselves. which they will attempt to secure the result they want even if it is obtained at the expense Business culture of the perceived failure of the other party to Chen (1995) notes (p. 213) that the Korean the negotiation. On the other hand, outside of management system has three major sources the negotiating arena the South Koreans are of influence. The first is Confucianism, which hospitable, taking their role as hosts seri- was the state philosophy of Korea for more ously. Personal entertainment and the giving than 500 years, beginning in the Yi Dynasty of gifts play an important role in the building in 1392, and ending in 1910 when Korea was of successful relationships. annexed by Japan … the second and third sources are the more recent Japanese and American influences. Many Korean individu- Three styles of Asian capitalism als and companies have close business ties Chen (1995) describes the emergence of three with both of these countries. dominant systems of Asian capitalism, each [ 317 ] Tony Morden and of which is represented by a particular type of able to take the long perspectives needed to David Bowles organisation. These are: foster large corporations handling highly Management in South Korea: the large and complex networked Japanese complex industry. a review business, known as the kaisha or in its Other features older and deeper than Management Decision extended form the kieretsu; modern policies have helped large Japanese 36/5 316–330 the large and complex family or clan based and Korean organisations to co-ordinate human skill, capital, technology, and market South Korean conglomerates or chaebol; know-how and produce world-beating prod- the smaller but strongly networked and ucts … these extra features include social inter-connected overseas Chinese family norms supporting acceptance of authority business or CFB. and discipline, a sense of the importance of Redding (1997) comments of these dominant the organisation in one’s life and a conse- organisation structures that: quent wish to belong to it, an association of Each of these instruments for bringing individuals with the collective good of the together the components of economic behav- group and intense competitiveness on behalf iour has emerged as a distinct response to of the nation via the company. its circumstances. They are embedded in the cultures and development histories of their societies. They are not copies of Western Contemporary South Korean forms and their behaviour may not follow management Western rules or ideals. In simple terms they exist for different reasons. Business organisation: the chaebols The main reason for the existence and the There are two levels of organisation in South driving logic of the large American corpora- Korea: individual firms, and larger networks tion is return to shareholders but that of the which unite these individual corporate enti- kaisha is to employ people. The chaebol has ties. The Korean conglomerate networks or derived much of its dynamism from its business groupings are known as the chaebol. contribution to the national development goals of Korea. The Chinese family business Virtually the whole of the large business exists primarily to create and sustain family sector in south Korea is part of one or other of fortunes. the chaebol networks. The outcome of these routes to modern The chaebol have usually been family- capitalism is that the Japanese form is a owned (or family-controlled) and kinship- large, professionally managed and highly based, recruiting from certain clans and complex enterprise with wide ownership; regions. They include such corporations as the Korean is a huge family business run Samsung, Hanjin, Daewoo, Hyundai, and like a regiment; and the Chinese is a small family business networking to escape the Lucky-Goldstar (LG). limitations of its scale and doing so success- Chen (1995, p. 4) notes that “the chaebols fully. have led Korea’s revival from a war-devas- When a society develops a form of organi- tated, agriculture-dominated economy into sation that is … widespread, it usually one of the most dynamic economies of the … means there is a shared heritage of influ- tigers. Like the keiretsu, they are extremely ences … these influences are historical, and large and sophisticated. They have main- the more recent are those connected with tained” (or been forced to maintain) “close the way a country modernises itself, in particular the way it organises access to relationships with the Korean government … capital and to human skills. Whether you also, like the Japanese, the chaebols have get your capital from a market, from the expanded very rapidly in the world market government, from banks or from your and produce major international brands. friends will make a big difference to how Despite their pronounced success, these you go about using it and accounting for its groups are still dominated by founding family use. Capital from the market drives Anglo- members and seem to be even more closely- Saxon companies to meet the quarterly knit and competitive in spirit than their expectations of a ravenous investing public, and also directs investment rationally to Japanese counterparts”. areas of maximum return in the short run. The chairman and senior staff of chaebol For the Japanese, capital from the market is companies are typically proud of their hum- of less account than that from companies in ble origins. It is not unusual for visitors to be the same group or from banks, and their reminded of the comparatively recent found- interests are less in short-term gain than in ing of their business, many of which (such as accumulating long-term strength. Korean Daewoo or Lucky Goldstar) were only estab- chaebol have a history of dependence for capital on government and of a consequent lished after the Second World War or the need to accommodate government guidance Korean War. Boundless ambition is demon- on strategy … the result in both cases is that strated. Colleagues and visitors are each of these systems of capitalism has been frequently told of the company’s global [ 318 ] Tony Morden and ambitions, or of the desire to become one of a point of focus and power such that activities David Bowles the largest firms in the world in its sector. are co-ordinated and decisions are made. Management in South Korea: There is often competitive (and clan-based) The taipan is defined by Cragg (1995) as the a review “supreme ruler” or “big boss”. The title of tension between chaebol groupings. For Management Decision instance, Lucky Goldstar will not locate near taipan is accorded in the East to those leaders 36/5 316–330 Samsung. This syndrome of inter-company considered worthy of great respect, in the distrust extends deep into the management strictest of Confucian traditions. This respect hierarchy. A confrontation occurred in the is paid to the taipan’s position; and to his automotive sector when Samsung’s attempt business acumen, experience, and achieve- to acquire the assets of the former Kia Motor ment. Company resulted in public condemnation by Cragg (1995) describes taipans as sharing other companies in that sector. such characteristics as being: As with the Japanese keiretsu, the member strongly autocratic in style; firms in a Korean chaebol own shares in each strongly entrepreneurial and opportunis- other and tend to collaborate with each other. tic; However, unlike Japan, the South Korean risk-takers (for whom “there is no shame in networks are not centred around a private attempt or failure; only in a failure to try”); bank or other financial institution. This is exponents of decisive or rapid decision because all South Korean banks were state making; owned until the 1970s, and have been used users of networks and connections directly by the South Korean government as a (guanxi); tool of economic, industrial, and developmen- keen to nurture creativity and encourage tal policy. innovation; The predominance and power of the large persistent attenders to detail; Korean corporations; and South Korea’s skilled at managing and manipulating face; highly concentrated and focused industrial steeped in the ways of both the East and the structure can, in particular, be explained by West, and being capable of managing the the catalytic role played by the South Korean cultural schizophrenia and dilemmas to state. State policy deliberately promoted which such a dual focus gives rise. conglomerate structures as a development Cragg (1995, p. 137) comments that “the strategy in the 1960s and 1970s. taipans of Korea and their business culture are said to be the world’s toughest. These Ownership and management businessmen are fearless in their ability to Ownership and management have not been use pae-gi, that is, aggressive determination, separated in many large South Korean corpo- to overcome obstacles from any quarter … rations. The owner family has actively partic- traditionally, the taipans are above all aggres- ipated in the management process; and fam- sive in business, demanding results”. ily or clan members have tended to dominate In order to consolidate their early gains in the positions of power. the world marketplace, the South Korean Koreans value blood relationships very taipans persistently set about improving the highly. They are members of an extended education and skill of their workers, to clan, the chiban, which provides broad-based ensure that quality, rather than low cost, security for family and clan members. The would allow them to maintain their competi- larger the chiban, the broader based is the tive edge. security for members of the clan; and the greater the pool of relatives from which Professional management recruitment can take place. Professional managers and executives (many Business founders are expected not only to of whom have studied or been trained in the take care of their own immediate family USA) are becoming an increasingly powerful members, but other relatives also. The force in South Korean companies. Chen (1995, kinship-based relationship with the owner is pp. 215-16) notes that “many of these man- called hyul-yun. agers are … recruited through open competi- tion” from élite social groups. Common geo- Taipans graphical and school/university ties also play The lynchpin that has traditionally held the an important role in the formation of man- different activities of the chaebol together, agement power groups. Chen (1995) and given them direction, has been consistent comments that “a common practice is for and assertive leadership by the autocrat or owners to bring their school (or university) taipan. No matter how great the variety of and hometown friends into management. In family or clan affiliation, or the level of opera- some Korean companies, top management tional diversification, the taipan has provided positions are predominantly filled by those [ 319 ] Tony Morden and who are from the same geographical area … Layoffs in large companies are more com- David Bowles in other companies, graduates from élite mon than in Japan, for instance as a result Management in South Korea: universities, like Seoul National or Yonsei, of the current wave of delayering and down- a review sizing being experienced in South Korea. dominate top management”. Management Decision The growing importance and influence of The group of core employees to whom the 36/5 316–330 professional managers has been recognised company feels strong commitment is typi- by the Korean Stock Exchange, which is try- cally smaller than in a Japanese corpora- ing to promote stock option schemes for com- tion. pany managements (Saragosa, 1996a). Labour-management relationships are more Certain parallels with French professional adversarial than in Japan, following a more management are described in a later section western model of conflict. The managements of this article. of chaebol companies tend to be anti trade union, in the past preferring (if possible) not Working practices and relations to recognise them if such an option was avail- Organisations reflect the prevailing social able. Industrial relations disputes sometimes pattern in being hierarchical and disciplined. degenerate into hostile confrontations and There is traditional respect for authority, violent public demonstrations. There is no seniority, and job status. A significant degree effective state social security system. Family of loyalty to the employer or taipan has been groupings are expected to cope with unem- expected. The South Koreans display human- ployment and its consequences for individual ist characteristics in that employees are members. regarded as an important asset. Training is Fukuyama (1995, p. 135) suggests that in seen as an integral part of the business activ- general “Korean corporations have never had ity; and companies above a certain size are the sense of managerial paternalism (amae) required by law to provide training for their that exists in Japan or Germany, with (their) staff. extensively … developed welfare for employ- Chen (1995, p. 218) comments that “Koreans ees”. On the other hand, “individual corpo- are highly motivated workers and known for rate cultures … to some extent override the enduring long work days. The motivation of broader tendencies. Thus, for instance, Sam- Korean workers is influenced by traditional sung’s founder, Lee Byung Chul, made values as well as by realistic needs. The key greater efforts to create a collegial atmos- Confucian values of diligence and harmony phere within the company than did have contributed to a relatively high work Hyundai’s more authoritarian Chung Ju ethic. The instinct for survival has also been Young”. As a result, Samsung has experi- an important driving force among Koreans, enced a significantly lower level of strike who have been haunted by instability and activity or employee unrest than for example poverty throughout most of their recent his- Hyundai. tory … while the specific motivations of Korean employees vary dependent on the size Style of management of the company and the level of seniority, high Fukuyama (1995, p. 134) comments that “vir- wages and job security tend to be the most tually all comparative studies of Korean man- important motivational factors”. agement (have indicated) that Korean busi- The reward and promotion system in South nesses tend to be run in a hierarchical, Korean companies is traditionally based on authoritarian, and centralised manner … this seniority, but performance is becoming an was particularly true of … chaebol still run by increasingly important factor. Wages are founding entrepreneurs, who insisted on generally based on seniority, but bonuses may making all major management decisions be awarded based on performance. Promotion personally … the authoritarian nature of is based on a number of criteria, including decision making in Korea makes it easier for seniority, performance, family ties, region of Korean companies to move quickly and deci- origin, and university attended. sively; they are not bogged down by the Fukuyama (1995) suggests however that Japanese style need to develop extensive forms of communal solidarity that permeate consensus throughout the hierarchy before the Japanese corporation tend to be less making a move. This more decisive style, developed in South Korean ones. For exam- however, can also mean that decisions are not ple: adequately vetted by staff and (may) be made The rate of employee turnover, the raiding on the basis of insufficient knowledge’. The of other companies’ skilled labour, and the Financial Times (Merchant, 1996) notes in a incidence of employee unrest and indus- similar vein that “the family ownership of the trial action, are all higher in Korea than in chaebol means that investments are mainly Japan. decided by the top man and are made [ 320 ] Tony Morden and quickly …” says Park Tae-ho, vice president family, the father is the unquestioned and David Bowles of the Korea Institute for International Eco- respected head. He has almost absolute power Management in South Korea: nomic Policy. He added that such decisions to wield if he so wishes. The traditional a review may be made “without long and careful Korean father also had the responsibility of Management Decision preparations”. feeding the family and deciding the future of 36/5 316–330 On the other hand, the process of invest- his children. One legacy of such a family ment decision-making has become more tradition for business leadership in Korean sophisticated in character as South Korean companies has been the strong authoritarian companies gain experience of Western style of superiors in the managerial process. approaches to facilitating globalisation and Chen (1995, p. 217) comments that “a top-down inward investment into other countries. decision-making style is fairly typical … Korean companies have found that they can- usually, 80 percent of the authority lies in the not “dictate” the terms on which inward upper management level, with middle or investments are to be made in the same way lower level management having very limited as they have been able for instance in devel- authority … nevertheless, the authoritarian oping countries such as Mexico and China. style is not despotic. Corporate leadership in The organisational structure of many Korean companies is also heavily influenced South Korean companies has been charac- by a key value of Korean behaviour, inwha, terised by a high degree of formalisation and which is defined as harmony and is similar to centralisation. Authority is concentrated at the Japanese wa. However, inwha does not senior levels in the managerial hierarchy, emphasise the group element as in wa. Inwha with major decisions (especially financial emphasises harmony between unequals in ones) requiring kyul-jae, a formal procedure rank, power and prestige” (a classic Confu- of approval from top levels of management cian concept). “Korean managers cherish which involve taking many chops (personal good interpersonal relationships with their stamps of approval). Chen (1995, p. 214) com- subordinates and try to keep the needs and ments that “the Samsung group in the past feelings … of subordinates in mind”. used a process of 21 chops, which took several South Korean managers tend to make deci- months to get a project approved. After Kun sions with the consultation of subordinates. Hee Lee took over the group, he demanded The Korean process of informal consensus that these 21 chops be cut down to three”. formation is called sajeonhyupui, and has South Korean companies have usually had similarities to the Japanese nemawashi. Chen a “tall” hierarchical organisation structure. (1995, p. 218) notes that “managers maintain Chen (1995, p. 214) notes that “executives tend various interactions on an informal basis to be supported by deputies and assistants with … subordinates as a way … to achieve (in) line positions … this increases the layers harmony-orientated leadership, which is of vertical hierarchies conducive to a cen- based on mutual trust and benevolent author- tralised and tall organisational structure. itarianism”. Another outstanding organisational feature of Korean companies is that their vertical and Communication hierarchical control is supported by strong Given the character of the traditional man- functional control from staff departments agement style described above, it is not sur- like planning, finance, and personnel. Korean prising that formal communication is mainly companies attach great importance to func- achieved along vertical hierarchies. In this tional specialisation, allowing the planning vertical communication process, superiors and finance departments to exercise signifi- are expected to give directives while subordi- cant functional control under the leadership nates are expected to understand and imple- of the chief executive. Many chaebols have (or ment those directives. Superiors tend to issue had) a planning and co-ordination office general directives, as opposed to specific and under the group chairman, which is responsi- detailed ones. Subordinates then use their ble for allocating major internal resources own judgement about how to implement. within the group. Therefore, many Korean They may be reluctant to ask for explanations companies have a combined organisational from superiors when directives they have structure placing a vertical concentration of received are not clear-cut, or are ambiguous. decision-making power at the senior levels of This reluctance may be explained by the fear management; and a horizontal concentration of the potential humiliation or loss of face to of functional control in staff departments”. either party involved in such a request for Leadership and decision making has been clarification. influenced by family tradition. Korean corpo- Chen (1995, pp. 219-20) comments that “the rate leaders, especially founders, tended to superiors’ preference (for) communicating in manage on the basis of the principles govern- general terms, combined with a relatively ing family or clan. In the traditional Korean large power distance, comprises a major [ 321 ] Tony Morden and source of misunderstanding in Korean com- visits to retail outlets in the United States, David Bowles panies. It is very important for subordinates Japan and Germany, where they (may) have Management in South Korea: to develop the ability to decipher the inten- to endure twelve-hour lectures followed by a review tions of the superior from general directives. the handing out of tapes for regular at-home Management Decision review. His idea is that management should Good personal relations with superiors tend 36/5 316–330 familiarise themselves thoroughly with to help overcome hierarchical barriers to the their market, and also that they should be subordinates’ communication with them. exposed to the sort of harsh criticism that he Blood relationships as well as (college) and knows will be forthcoming from overseas regional ties may further enhance mutual customers. So committed has Lee been to understanding and trust, thereby contribut- this commercial revolution that he has ing to (more effective) communication”. Chen vowed that if any of the empire’s companies (1995) adds that “those who share better com- should suffer as a result, the loss will be munication tend to develop an informal man- compensated out of his own pocket. If his policy changes work, on the other hand, he agement clique within the company”. has promised to donate two-thirds of his Chen (1995) comments that South Koreans considerable personal wealth (estimated to are reticent about open communication in be about $1.6 billion) to a foundation for the formal meetings and have difficulty in airing good of company employees. He declares that their views, especially opposing ones. Kore- he has staked his honour, his life and his ans are not culturally encouraged to share assets on his own … corporate coup d’état. information openly with others except within Lee has also introduced into his factories close personal relationships. However … the Japanese practice of stopping produc- Koreans are … good at communication on tion lines when problems occur, and he thinks nothing of having as many as 20 informal occasions, especially on a one-to-one percent of a plant’s workers correcting basis with a superior. There are many oppor- production hitches. He believes that prac- tunities for informal communication tice makes perfect and that the underscor- between superiors and subordinates; sophis- ing of errors makes them less likely to hap- ticated superiors will constantly make such pen again. In a surprise move he has opportunities available”. Chen (1995) con- adopted a policy of positive discrimination cludes that “the use of informal occasions or in the employment of women as managers, settings for open communication is very and has also limited all workers to a strict important for mutual understanding and eight hours per day, insisting that everyone trust between superiors and employees”. leaves at 4pm. Internal meetings, he stipu- lates, must not last for more than one hour, and internal reports must say what they Samsung: a case example have to say in just one page. All forms of Cragg (1995, pp. 144-5) comments that: waste are to be purged. He insists that every- founded by the late Lee Byong-Chull during one should “think global” and concentrate the Japanese era, the Samsung group has most heavily on boosting trade with main- now grown into Korea’s largest … chaebol, land China and Russia. Lee believes that and … is the largest non-Japanese conglom- rather than just taking orders, everyone erate in Asia. It operates companies with should work together to improve production controlling local and important interna- and find solutions … tional market shares in semiconductors, consumer electronics, food-processing and Samsung Electronics was cited by the Korean pharmaceuticals, as well as shipbuilding, Management Association as the country’s (automobile manufacturing), construction, best run listed company during the year 1995 media, electronic components, chemicals, (Burton, 1996a). However, Samsung are expe- life insurance, non-life insurance, hospitals, riencing significant financial problems hotels and textiles. brought about by recent falls in world semi- The Samsung group in 1993-1994 comprised 24 conductor prices (semiconductors contribute companies which employed 180,000 people, significantly to Samsung’s profitability), by and achieved net sales of $49 billion. The their investment in the Pusan car plant taipan of Samsung is Lee Kun-Hee, the which has yet to meet projected expectations, founder’s third son. and by the wider economic crisis of 1997-1998. Cragg (1995, pp. 145-6) notes that in order: to strengthen Samsung’s competitive advan- tage, Lee Kun-Hee is engaging in a Parallels with France programme of what he terms corporate This article contends that developments in “shock therapy”. This therapy … entailed expenditure (during 1993-1994) of more than the process and practice of South Korean $1 billion, or 42 percent of the company’s management may in part be suggested on the capital budget, on equipment to fine-tune basis of comparison with the model of French efficiency. Lee has also arranged a campaign management described by Barsoux and of overseas education for his staff, involving Lawrence (1990, 1991), Hampden-Turner and [ 322 ] Tony Morden and Trompenaars (1994), (and summarised by A continuing strong belief in the value of David Bowles Morden, 1996). using functional authority in key areas Management in South Korea: such as strategic planning, finance, and a review Cultural parallels with France personnel. Management Decision Both South Korea and France appear to be An approach to strategy formulation that is 36/5 316–330 characterised by: rationalist, deliberate, logically incremen- A relatively high degree of power distance tal, long termist, and planned down. This and authoritarianism. centralised and top-down model is Strong uncertainty avoidance. currently unfashionable in the USA and the High context. Anglo-Saxon world. Monochronicity – polychronicity. A continuing belief in rational models of Relatively low trust of others. The Koreans strategic planning and resource allocation have their clan (the chiban), while the (again unfashionable in the West) driven by French have their circle (cercle). Each can a powerful and interventionist corporate look out on other people in the outside centre. world from behind these defensive walls. A strong managerialist emphasis. This Emphasis on hierarchy and discipline, and contrasts with the fashionable emphasis on respect for job status and seniority. the delegation of authority and the con- A continuing belief in the merits of the cepts of “empowerment” in some US and formalisation, centralisation, and control Western companies, who are at the same of their affairs. time delayering or “right-sizing” manage- Experience of military conscription (albeit ment structures to achieve short term cost discontinued in France) and reservist duty; reductions, whilst attempting to emphasise Strong family owned or controlled business leadership qualities among employees in sectors. order to make up for the resultant “manage- A (sometimes very determined) history of ment deficit”. interventionist government policy towards An increasingly powerful and well qualified industry and trade. professional management. Given the A Colbertiste orientation to economic pol- rapidly growing national and political con- icy. Colbertisme is a mercantilist philoso- cern in South Korea about the potential phy in which the interests of the nation effects of the continuing grip of family state are the driving force of industrial ownership and control of the country’s key policy, competition policy, and international economic activities (and the degree of con- trade. External (that is, foreign) interests centration of power this represents), the should be manipulated or controlled in the development of the country’s professional best interests of that nation state. The oper- managers into an increasingly powerful ation of market forces or the level of returns élite group is likely to continue. This group to stockholders are of subsidiary impor- is likely to emerge with a status that paral- tance within the wider political context. lels that of les cadres in France. A degree of political and industrial conflict; An alumni/network based selection of but at the same time a degree of holism and managerial recruits. communitarianism. The enterprise is to a The beginnings of an acceptance of women considerable extent viewed as a community, into management roles, within a context in to which managers are responsible. This which management has traditionally been communitarianism embodies a more conceptualised as a masculine activity. It is humanistic approach to the management of likely that there will be more of the positive people and resources than the instrumental discrimination described in the Samsung one characteristic of the US or the Anglo- sub-section above, especially as the chaebol Saxon world. internationalise their activities. Organisational and managerial parallels with France Future issues South Korean management appears to share A number of future issues affecting South with its French counterpart: Korean management are analysed below. A continuing belief in the value of vertical communication, organisational formalisa- The changing impact of familism tion, hierarchy, and centralisation (despite Fukuyama (1995) analyses the relationship their generally being unfashionable in between trust, social capital, and the develop- Western countries). ment of organisation and management. He A continuing strong belief in the value of identifies and compares low trust and high functional and role specialisation. trust societies. [ 323 ] Tony Morden and Fukuyama (1995) categorises South Korea succession; David Bowles as traditionally low trust and family/clan bridges to sociability; Management in South Korea: orientated. The Confucian value of filial piety the weakening impact of familism. a review is strongly emphasised in Korea; and hence Management Decision Each is described below. primary loyalties go to one’s family or clan, 36/5 316–330 rather than to the state or society in general. Succession Korea’s social structure was similar to that Succession may prove to be a problem in of China. There was a ruler and a mandari- South Korea. Founding entrepreneurs have nate at the top, and families and lineages typically wanted to hand on their businesses below; but relatively few intermediate organi- to their eldest sons (with for example the sations between (and of those, even fewer Daewoo chaebol, as an exception, which were not based on some form of kinship). adopted a policy of not turning to family The primary social structure standing members for leadership). Fukuyama (1995, between the family and the state is based on p. 134) notes that as a result “the proper edu- kinship. This takes the form of lineage. cation of a founding entrepreneur’s children Korean lineages (and hence the clans based becomes extremely important, a need that on them) are large. People claim descent from dovetails nicely with Korean Confucianism’s a common ancestor going back many genera- strong emphasis on education”. He also adds, tions. Lineages can come to include hundreds however, that “the familistic principle of of thousands of people. succession leads to substantial problems if Therefore, as South Korean companies the eldest son is incompetent or uninterested grew in size (under pressure from the state), in taking over the corporation’s leadership”. it was logical to their owners to recruit from Bridges to sociability lineages, clans, localities, and regions once Several bridges to sociability permit the immediate family options were exhausted. South Koreans to transcend the limits of the In this way, a basic family control could be most narrow familism. These are: maintained, even if expansion meant that Lineage and clan: large kinship groups have professional management had to be intro- meant that kinship-based recruitment can duced. Such professional managers would at draw on extensive pools of individuals, first be recruited from lineage, clan, or thereby mitigating the negative region. consequences of nepotistic employment. Fukuyama (1995, p. 133) comments that the Regionalism: whereby recruitment is “Korean chaebol started as family businesses; region-oriented (and especially from the (many) remain family owned and, at the southern Kyongsang provinces, Kyonggi, upper reaches, family managed … giant and the Seoul area). enterprises like Daewoo … have long since The armed forces: under conditions of outstripped the ability of any one family to almost universal male conscription and manage in their entirety, and so they are reserve duty, South Koreans have a widely (now) populated by legions of professional diffused experience of the prototypical middle managers. But family control remains large, rational, impersonal, hierarchical, relatively tight at the top”. non-family organisation. (The discipline of He suggests that “behind the imposing serving within its ranks is said by many to exteriors of corporate behemoths like carry over into business life and business Hyundai … lie familistic interiors that are culture – an experience with which there slowly … accommodating themselves to pro- are clear parallels in the culture of man- fessional management, public ownership, the agers in the UK and USA during the period divorce of management and ownership, and 1945 up to the 1980s). Military service also an impersonal, hierarchical corporate form allows individual conscripts to build up a of management”. network of contacts which they may use in Fukuyama (1995, p. 144) contends that “the later life. relatively low-trust character of Korean cul- University alumni: large corporations ture does not allow (the) Korean chaebol to recruit heavily from Korea’s most presti- exploit the same economies of scale and scope gious universities, such as Seoul National. in their network organisations as do the There are parallels with French recruit- Japanese keiretsu. That is, the chaebol resem- ment patterns in this respect. bles a traditional … conglomerate more than a keiretsu network: it is burdened with a The weakening impact of familism headquarters staff and a centralised decision- Fukuyama (1995) suggests that the impact of making apparatus for the chaebol as a whole”. familism on South Korean industrial struc- The traditional familism of the South ture has been weakened for instance because Korean company gives rise to a number of of consistent and aggressive government issues. These are: policy since the 1960s; and the desire to [ 324 ] Tony Morden and imitate/compete with Japan as the key indus- decentralised groups within Hyundai that David Bowles trial model for the South Koreans. This policy amount to a confederation of allied Management in South Korea: was very much the result of the ambition and companies. Such a confederation would have a review drive of President Park Chung Hee (1961- similarities to the Japanese kieretsu group- Management Decision 1979). This interventionist policy was based ings described in an earlier section, above. 36/5 316–330 on: (Hyundai’s restructuring could serve as an The deliberate attempt to create large example to Korea’s other chaebol conglomer- national champions that would be capable ates. Government officials have long urged of competing directly with the Japanese them to abandon their marginal businesses keiretsu in international markets. and to concentrate on a limited number of Fukuyama (1995, p. 138) notes that “the Park industrial sectors in order to improve their regime intervened in a microeconomic competence and global competitiveness. The fashion to encourage particular companies tension to which this aspect of industrial and particular investment projects”. policy gives rise is described below.) State policies that rewarded or punished Dividing Hyundai into smaller groups is private companies through the granting of expected to help achieve these goals. Each subsidies, licences, protection from foreign mini Hyundai will focus on only a few indus- competition; and even the direct reorgani- tries, and these units will be less able to sup- sation of companies and the transfer of port unprofitable activities than they were assets between them. within the former monolithic company struc- State control of the banking and financial ture. sector. The formal break-up of Hyundai is however Regulation of the economy through the likely to take some time since the group is control of credit (South Korean companies held together by a complex web of cross-hold- have until the recent crisis been very ings. Family solidarity is also expected to highly geared and reliant on loan finance, prevent an early break-up of the company. but do not have the advantage of having Such ties may eventually weaken if the their own core bank as is usually the case government succeeds in attempting to impose within the Japanese keiretsu). limitations on cross-holding arrangements Growing scope has outstripped the capabili- within a grouping, in a political attempt to ties of most founding families to supply the reduce the economic dominance of the chae- scale and depth of required management bol in South Korea; and more recently in competence. Most have had to adopt institu- response to the conditions of IMF support for tionalised recruitment systems by which the country’s economic recovery. competent professionals and graduates can be selected on a relatively impartial basis. Chen (1995, pp. 215-16) comments that “with Professional tensions There is growing evidence of tension between the passage of time, internally promoted career executives and managers will grow the practitioners of the traditional style of in number and power”. Korean management described in this article, The global importance of companies such and professional managers (in particular as Samsung means that internal conflicts those who have been educated or worked in that arise from family feuds or succession western countries and the USA). There is a squabbles constitute an unacceptable blow growing belief on the part of such managers to government policy and national pride. that features of Western style management, such as decentralisation and the wider Hyundai: a case example devolvement of control, are becoming of The Financial Times (Burton, 1996b) notes increasing importance as the South Korean that “Mr Chung Mong-Koo, Hyundai’s new economy matures, government liberalisation chairman, is likely to preside over the grad- proceeds, and Korean companies face the full ual break-up of the giant family-owned South force of global competition. This belief has Korean industrial group established by his been strongly reinforced as a result of the father in 1947. That is the way Mr Chung Ju- economic crisis faced by South Korea in 1997- yung, the Hyundai founder, wants it. In an 1998. attempt to avoid a family fight over the Increasingly influential middle and upper Hyundai empire after his death, Mr Chung level professional managers will argue for the decided several years ago to divide it among development of a management style that several of his sons and nephews by transfer- combines the traditional potential for speed ring his stock in most of Hyundai’s 45 compa- and the decisiveness of South Korean man- nies to them”. agement practice with: The Financial Times comments that the The performance benefits that derive from result will be the creation of smaller and the operation of a strong, effective, and well [ 325 ] Tony Morden and motivated cadre of professional managers dismiss employees. This law reduces job David Bowles recruited from the widest possible source; security rights in an attempt to improve Management in South Korea: Appointment to management posts on the labour market flexibility. a review basis of competence and merit. Existing bans on multiple unions in any Management Decision Greater transparency and openness of cor- one workplace, which are not to be lifted 36/5 316–330 porate affairs. until at least the year 2000 (Financial Times, The improved information flow and staff 1996a). commitment that come from controlled The Financial Times noted (Burton, 1997b) decentralisation and the devolution of oper- that “the government said the new labour ational autonomy. laws were necessary to make the labour mar- The situational relevance and localised ket more flexible and enable companies to cut understanding needed for decision making costs by sacking surplus workers, who have in companies with international or global been protected by a tradition of lifetime activities. The inevitable need to involve senior non- employment in (the) big industrial groups”. Korean managers in high level decision The Financial Times also commented (Bur- making as Korean corporations become ton, 1997a) of the new labour law that it had multinational in scope. Facilitating and instead been interpreted by some within developing such involvement may however South Korea to represent “the end of an prove problematic in the medium term in almost feudalistic arrangement under which view of the loss of control it may still be workers are strongly loyal to their company perceived by the corporate centre in South in return for job security and generous bene- Korea to represent. fits” in a context within which, outside of the world of work, there is effectively no social Industrial relations security net provided by the state. Sohal and Ferme (1996) comment that “the The industrial relations climate has wors- current industrial relations climate is still ened drastically as a consequence of the mass sensitive”. For instance, in discussing the unemployment that resulted from the eco- Hyundai Motor Company, they state that “in nomic crisis of 1997-1998. This unemployment recent times industrial relations … (had) includes new structural features, for instance been disastrous. In 1992 a week-long occupa- associated with the delayering, downsizing tion of the company by the workers ended and redundancy of many managerial and when 15,000 riot police stormed the factory. administrative staff. This is likely to increase This event proved disastrous, breaking down the prevailing level of uncertainty and insta- the notion of a family spirit with everyone bility. working together for the common good”. A significant increase in strikes and labour Strategic management unrest occurred during 1996 and 1997. This Strategic parameters unrest was associated with: Strategic parameters for the foreseeable Requests by the OECD and the Interna- future may be described to include the follow- tional Labour Organisation (ILO) for a ing. reduction of statutory curbs on trade union Strategy and structure. There is increasing activity. uncertainty as to whether organisation struc- The eventual recognition of the Korea Con- ture (and hence the enterprise strategy to federation of Trade Unions (KCTU), a new which it will give rise) is likely to remain and more militant labour organisation than characterised by the continuing family and the Federation of Korean Trade Unions clan ownership or control of the chaebol (FKTU), a moderate organisation that was groups. Dominant and cross share holdings, hitherto the only legal representative of the the use of holding companies, family founda- trade union movement in the country. The tions, and family trusts may continue to be KCTU has demanded higher pay rises and used to institutionalise family ownership, but shorter working hours than those sought by are likely to attract increasing government the FKTU. The Financial Times (Burton, hostility. The threat of intervention or 1996c) noted that “Korean industrial work- takeover by foreign companies will increase ers are already the highest paid on the as government policy on the issue becomes Asian mainland, with an average monthly more liberal, and the country responds to wage of Won 1.2m (£980). The KCTU is also pressures from the OECD and IMF. This issue seeking the right for unions to participate is described in a later section. in management decisions concerning per- Competition strategies. Despite current sonnel and plant location…”. difficulties, competition strategies are likely New labour laws, passed in December 1996, to continue to be forward looking, and which make it easier for companies to strongly attacking or proactive in character. [ 326 ] Tony Morden and Korean industry is likely to remain preoccu- and contingencies that emerge to confront David Bowles pied with an adherence to high volume, low the enterprise); Management in South Korea: cost strategies. opportunistic (in which strategic moves and a review strategic choices are contingent on the Globalisation. Processes of internationali- Management Decision sation and globalisation are likely on the business opportunities that become avail- 36/5 316–330 medium term to continue. Central and East- able to the enterprise over time). ern Europe, Russia and China have been Planning style is likely to remain “top-down” added to the EU and NAFTA as critical for the foreseeable future. Morden (1996) regional targets. Countries such as Vietnam describes a top-down or “planning down” and India also figure in the calculations of the style as one “in which missions, objectives chaebol; who at the same time can be expected and strategies are determined centrally by to shoulder much of the financial burden of top or senior management, the board of direc- modernising the obsolete infrastructure and tors, the proprietor, the taipan, or the family” collapsing command economy of neighbour- (p. 348). The strategic planning process how- ing North Korea. ever is informed by input from the functional Issues of globalisation and international planning specialists whose role has already structure are dealt with in more detail below. been described above. These planning spe- Capability and competitive advantage cialists are directly responsible to owners In line with current strategic thinking on the and senior management, and their activities subject, South Korean corporations are are predicated on a high level of active strate- attempting to increase the competitive advan- gic involvement from the corporate centre. tage that they can derive (“leverage”) from The planning style of South Korean compa- their capability and competence resources. nies may be categorised as “centralised” The example of Samsung has already been under Goold and Campbell’s analysis (1987). described above. Cragg (1995) comments that High levels of corporate influence over strate- the South Korean companies are now adopt- gic planning activities are combined with ing en masse the techniques of operations strong control over strategic and financial and quality management “brought in by management processes. However, the grow- legions of American management consul- ing scale and scope of the chaebol companies, tants” (p. 137). She suggests that in order that together with the globalisation described they should become lean, mean corporate above, may cause some corporations to start machines, many taipans are honing the com- to move towards what Goold and Campbell petitiveness of their companies by introduc- categorise as a “strategic planning” style. In ing total quality management and lean manu- this case the corporate centre continues to facturing programmes; implementing world play a dominant and determinant role in class manufacturing strategies; re-engineer- formulating strategic choice and direction, ing, “right-sizing”, downsizing; or spinning but increasingly delegates the responsibility off non-core companies. This trend has been for local adaptation, decision-making, imple- further encouraged by the difficulties experi- mentation and control to unit management enced by the South Korean economy during under a form of controlled decentralisation. 1997-1998. The success of such a change, forced on the At the same time, reference has already chaebol by the globalisation of their activi- been made in this article to the South Korean ties, will depend on localised management commitment to the education and training quality and the degree to which the corporate processes on which the country’s developing centre is prepared to trust a wider range of entrepreneurial technological expertise and professional (and increasingly non-Korean) operational competence depend. managers than hitherto. This issue is dealt with below. Planning style Approaches to strategy formulation in the World class chaebol companies are likely to continue to be Sohal and Ferme (1996) describe the Pohang categorised (Mintzberg, 1989; Mintzberg et al., Iron and Steel Company (POSCO) as “perhaps 1995; Morden, 1996) as being: South Korea’s most striking success … it is … rationalistic (in which there is a formalised one of the few big steelmakers to make prof- and centralised approach to strategy for- its. (Nippon Steel, the world’s largest steel- mulation and strategic decision making); makers, admits that POSCO is also the deliberate (in which an attempt is made to world’s most efficient). POSCO was estab- realise strategies exactly as intended); lished in 1968 and is currently 65 percent logically incremental (in which strategy privately and 35 percent government owned. evolves on a dynamic and step by step basis POSCO produces high-quality steel products over time in response to the opportunities at low cost using the most modern facilities [ 327 ] Tony Morden and and advanced technologies … POSCO’s size the year 2000, and to generate 60 percent of its David Bowles has enabled it to make South Korea the output outside South Korea. Samsung’s Management in South Korea: world’s sixth largest steelmaker … (POSCO’s) group-wide strategy lays down that by 2000 at a review management style, employee education, least 70 percent of the company’s global Management Decision training and welfare and environment protec- production of electronic goods should be 36/5 316–330 tion are second to none. In 1993 POSCO outside Korea. changed its management team in order to South Korean companies have also been create a culture … in which the creativity and involved in a series of takeovers of Western self-reliance of individual employees are fully companies. Some examples include: respected and encouraged. In the new Zenith, a US television equipment manufac- POSCO, customer satisfaction and the turer (LG Electronics). employees themselves are management’s top AST Research, a US manufacturer of per- priority. POSCO’s management philosophy is sonal computers (Samsung). based on the “three-best” and “three-zero Rollei, a German camera company (Sam- principles”. The three-best principle includes sung). best quality, best productivity and best (low) A variety of East German companies pur- cost. The three-zero includes zero waste, zero chased from the Treuhand (the former East defects