Daewoo Motors, South Korea's second largest car maker, was on the verge of bankruptcy in September 2000.

The once proud Daewoo Group (the parent company of Daewoo Motors) has been charged with not only being reckless in its investments but also fraudulent in its practice. The government must decide whether to bail out the company or let it fail. Given the importance of the company's contribution to the South Korean economy, however, the decision would have a profound impact on the direction of ongoing market reforms as well as the livelihood of its workforce at home and abroad. This case traces the origins and growth of the Daewoo chaebol within the context of South Korea's economic development framework and highlights the advantages and disadvantages of such a system. Designed for an MBA level course in International Business.

DAEWOO:

Daewoo was founded by Kim Woo Choong, whose father had been the teacher of Park Chung Hee. Kim Woo Choong, who was born in 1936 in Taegu, is one of the youngest of the heads of the major chaebol. Kim started his company on what might be best described by the Yiddish word, chutzpah. Kim was a salesman for a trading company that imported yarn and fabric. On one trip to Singapore he picked up fabric samples in Hong Kong and Saigon which he told potential clients were the product of Korean manufacturing. He got $300,000 worth of orders and went back to South Korea and had the samples duplicated and the order filled. At age thirty Kim borrowed $5,000 and started his own trading company with an total investment of $18,000. He named his company Daewoo (great universe). In its first year, 1967, Daewoo exported $580,00 in textiles and in 1968 Daewoo opened its first textile factory, in the city of Pusan. By 1970 Daewoo was exporting $8 million worth of fabrics. Kim perceived that the U.S. was likely to establish quotas on textile and clothing imports from South Korea. Kim increased Daewoo's sales to the U.S. as much as possible. When quotas were established in 1972 Daewoo received one third of the South Korean quota. Daewoo began acquiring other companies and by 1975 it included 23 companies with 35,000 employees and had annual sales of $250 million. Kim's agressive business success attracted the attention of Park Chung Hee and Park encouraged Daewoo's entry into heavy industry. Daewoo acquired Hankuk Machinery, a company originally setup by the Japanese to build submarines. Daewoo also revived a joint venture with GM for producing automobiles which had not been successful under another company Shinjin. President Park then order Kim to take over another failure, the Okpo shipyard project. The Okpo shipyard was a government sponsored project that

couldn't be completed by the company that it was assigned to and was only one fourth completed and swamped with debt. As a result of Daewoo's takeover of these failed government projects Daewoo became a company of heavy industry rather than the light industrial company it started out as. Kim Woo Choong became an icon, an ideal entrepreneur, a role model for Korea. He was reputed to work 100 hours per week, getting by on four hours sleep per night. He never took a vacation. The only time off he took was one morning for his daughter's wedding. His fatal flaw, however, is that he does not distinguish between expansion and profitability. He strove to expand his company into new industries and new markets, but often that expansion was not profitable. When his companies did not earn a profit he relied upon borrowed funds for expansion. The concepts emphasized at Daewoo were creativity, challenge and sacrifise. Kim, rather than talking about profit, talked about a company creating coprosperity, which meant that the company should create benefits for its workforce, its suppliers, its customers and its government. Kim emphasized that Daewoo was fexible and innovative, ready to adjust to changing circumstances. Although this might sound like a virtue, it is only a virtue is its innovations and adjustments are subject to constraint that they need to be profitable, at least in the long run. When hard times came to Daewoo laying off workers was not an option Kim considered acceptable. The other side of coprosperity was that in times of trouble the community of interests would support each other and that included the notion of the government supporting the company.