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Part I
Introduction
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1
Tiger Management
The growth and competitiveness of Korean firms
In a time when only the stars existed, a time before the dawning of the Sun and the Moon, there was a poor peasant woman, who sold rice-cakes for a living. The peasant woman had two children, a son and daughter. (…) One day, while returning home, the mother encountered a tiger in her path on top of a hill. The tiger demanded a rice-cake and in exchange he would spare the woman’s life. She was frightened and gave him the best rice-cake from her basket, so the tiger left the woman to continue on her path. (…) However on the next hill the tiger came back and was more hungry than ever before, he kept reappearing and the woman kept feeding him all the rice-cakes she had made, until finally the food ran out, and her basket was empty.
The woman pleaded with the hungry tiger, and begged for him to spare her life for the sake of her two young children who were waiting for her at home. At the thought of having not only one but three people for dinner, the tiger devoured the poor mother and left no trace of her, other than her clothes, which he kept. The hungry tiger knew that the children would be at home, waiting for the mother’s return from the village, so he disguised himself in the woman’s clothes and set off for their house.
From the Korean legend “The Sun and the Moon”1
Tigers are fierce animals. So are Korean companies, particularly when they compete with you. Over the last several decades, Korean companies, seemingly coming from nowhere, have built strong or dominant positions in a wide range of global industries ranging from semiconductors and mobile phones to automobiles and ships. None of their American, European, or Japanese competitors could stop them, and some were forced out of business. It, therefore, appears high time to gain a better understanding of these companies’ miraculous rise and to consider what can be learned from them.
Korean management: basket case or role model?
Following the long lasting economic boom in East Asia, the management of companies in some leading economies of this region has attracted significant global interest. After the emergence of Japanese companies on the world markets, Japanese management techniques and practices have been studied intensively by international scholars.2 Japanese management remains an established research topic, even though the enthusiasm about this topic has somewhat cooled following the stagnation of the Japanese economy since the 1990s. More recently, in the wake of China’s transformation into a global manufacturing powerhouse, many observers have also become interested in the management of Chinese firms.3
Compared with these two countries, South Korea (subsequently: Korea), as the third largest East Asian economy, has received relatively little attention by researchers and managers. Consequently, Korean management has not been a topic of high interest.
This situation was not always the same. Noticing the rise of Korea as an industrial power and the global emergence of its business groups (chaebols), a certain interest among business researchers emerged from the late 1980s and throughout the 1990s. Alice Amsden labeled Korea as “Asia’s next giant.”4 Gerardo Ungson and his co-authors emphasized the dynamic transformation and globalization of the Korean economy and Korean firms.5 In general, while not becoming a mainstream topic in business research, the management of Korean firms received some attention because of the Korean economic miracle that led observers to ask for its origins.
Then, however, the Asian financial crisis struck Korea in 1997. Its currency and stock market crashed, and the government had to seek the IMF’s (International Monetary Fund) assistance to escape default. Many Korean companies went bankrupt and had to be reorganized or were taken over by foreign firms. Not surprisingly, the crisis also changed the overall perception of Korean management. The structure and organization of chaebols were commonly blamed for not being up to the standards of an advanced country and being one of the underlying reasons for the country’s economic crash. Korean management became a synonym for bad corporate governance, lack of transparency and professionalism, and reckless diversification. Korean and foreign observers agreed that fundamental changes had to be made in the management of Korean firms to allow them to restore their competitiveness and prevent further disasters in the future.6 In other words, “Korean management” became almost a basket case in the eyes of researchers and analysts – a striking example of what must be avoided in the management of companies in emerging economies.
This perception prevailed even after Korea had overcome its economic and financial crisis. Korean companies have been mostly analyzed regarding the degree to which they have been successfully restructured and whether their fundamental weaknesses have been eliminated or not.7 In other words, many observers still believe that Korean companies and managers need to continue their homework of shedding bad and inferior practices from previous times and converging to presumably superior “global standards.” Korean media reinforce this perception by constantly emphasizing the problems and shortcomings of Korean businesses and delivering the impression that the Korean economy at large is in a permanent state of crisis.
Is Korean management, then, a basket case? The central argument of this book is that it is not. Rather, it will be shown that Korean management has much genuine strength that gives the country’s firms and business groups a high amount of global competitiveness. Furthermore, it will be suggested that management researchers and practitioners should examine Korean management from a different viewpoint. From a global perspective, instead of focusing only on the question of “How can Korean firms improve their management systems?” it should be seriously asked, “What can we learn and adopt from Korean firms?” In other words, Korean management, at least regarding certain aspects, could be regarded as a role model for the management of firms in other countries, particularly in emerging economies. While Korean firms are quite diverse as regards their organizational cultures and fine-grained managerial policies, they share a set of distinctive and widely successful management practices which are labeled as Tiger Management in this book. Four Asian economies are often described as “tiger”8 or “dragon”9 economies: Korea, Taiwan, Hong Kong, and Singapore. However, whereas the dragon is primarily a Chinese emblem and can therefore be broadly associated with Taiwan, Hong Kong, and Singapore, which all have populations with predominantly ethnic Chinese origin, the tiger is mostly used as a Korean national emblem.10 The tiger metaphor also embodies many features of Korean management that will be discussed in this book: speed, aggressiveness, flexibility, and resilience. Furthermore, Korean management practices have been substantially overhauled in recent years, reinforcing the competitive strength of Korean companies. In other words, the initial Tiger Management which emerged between the 1960s and the 1980s has been transformed into more advanced and globalized managerial practices which enabled Korean companies to preserve the core strengths of Tiger Management while adapting to a rapidly changing business environment, both domestically and globally.
The performance of Korean firms and the case for Tiger Management
A review of the recent performance of Korean firms is instrumental to make the case for Tiger Management. As can be seen from Figure 1.1, all of the largest six Korean business groups have grown strongly over the last fifteen years in terms of their overall revenues. Samsung, the largest group, has more than doubled its revenue size within this period. Some other groups have even grown more rapidly. For example, the revenue of Hyundai Motor Group grew more than tenfold and that of Lotte Group more than fivefold.
Moreover, as shown in Figure 1.2, all of these groups have been consistently profitable throughout the whole period of fifteen years – remarkably none of them has ever posted an annual loss since the turn of the millennium. The groups’ profits often exceeded 5 percent and sometimes even 10 percent of their revenues. Recently, the profitability of Korean firms has been strongly growing in general. The total operating profit of all stockmarket listed firms is expected to amount to KRW 175.9 trillion in 2017, up from KRW 100.7 trillion in 2014.11
Figure 1.1 Revenues of the six largest Korean business groups
Figure 1.2 Profit/revenue ratio of the six largest Korean business groups
However, the rise of Korean companies can also be observed on the level of individual firms and industries. Many Korean companies have advanced to leading or strong positions in a number of important manufacturing industries.
One well-known case is the electronics industry. Here, two Korean firms, Samsung Electronics and LG Electronics, have emerged in recent years from second tier OEMs (original equipment manufacturers) to leading global players. Samsung Electronics was founded in 1969 when the Samsung Group expanded into the electronics business. In its early days, it depended on technological support from Japan’s Sanyo and concentrated on producing relatively simple electronic products such as TVs, refrigerators, and microwave ovens. After the company entered the semiconductor business in the late 1970s, it achieved global leadership in the memory chip industry as early as in 1992 and has never given it up since then.12 More recently, Samsung also ascended to the highest market share in the world market for smart phones in a close race with Apple.13 LG Electronics’ success, while not being as spectacular as Samsung’s, is also quite remarkable. It was founded in 1958 as GoldStar and was the first Korean producer of radios, TVs, refrigerators, and other household electronics. Over the years, the company has become a strong global player in the consumer electronics industry and is leading in various product categories, such as premium TV monitors, where it achieved global market leadership.14
The success of Korean companies is not limited to the electronics industry, however. Another well-known example is Korea’s leading carmaker, Hyundai Motor. It was established in 1967 and initially assembled vehicles for Ford under a licensing agreement before manufacturing its own models since 1976. ...
