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[OUTLOOK]The Real Meaning of 'Restructuring'

Restructuring is not a talisman, but an economic process that must, at times painfully, be seen thro

June 02,2001
The word "restructuring" has come, since the financial crisis that began in late 1997, to have significance not only for companies, banks and government but also for universities and households. It seems now to be a concept relevant to all sectors of society.

Since the crisis, the word "re-structuring" has attained the quality almost of a mantra. But as we all know, the higher the expectations, the harder the fall. As the national economy slows again and Korea's future seems once more shrouded in uncertainty, the effects of restructuring seem to have weakened. This has given birth to a new vocabulary - this time, containing such phrases as the popular new term "reform fatigue."

The fashion for restructuring now seems passe, as all fashions eventually do. It is not necessary to worry over the decline in the fashion at this stage. What is important is that we turn our current difficulties into a chance for real recovery.

It is time for us to review what restructuring really means.

When asked about "restructuring," many people tend to think of layoffs, downsizing and sell-offs. However, the true result of restructuring is increasing the value of companies. Increasing the market value of company stocks is the key point of restructuring.

Over the past 20 years the Dow-Jones average has increased several-fold. But the Korea Composite Stock Price Index (Kospi) has fallen over the last few years. Why?

The answer lies with our failure to understand restructuring. The word signifies something that companies must achieve if they are to increase the aggregate value of their stocks. But we have dismissed it. We have seen countless businesses trying to claw back from the brink by aimlessly imitating the new business of other companies or by starting a business for the sake of appearances. This is bound to end in failure.

We will never achieve true restructuring without understanding the hard facts of the situation. We have the tendency to be overly optimistic about our future, faithfully reaffirming that "next year will be good."

But this kind of attitude is reckless and wrong. There will be no "good year" or "bright future" ahead without some blood and tears now. In fact, the best way to achieve effective restructuring is to look pessimistically. The facts stand out sharper in the cold light of day.

Doosan, of which I am the chairman, owes much to foreign consultancy firms. True, we handed over several hundred million won and received in return a report only about 10 pages long. However, the advice contained within decided Doosan's fate.

A consultancy cannot give you the "field manual" to every detail of business combat, but it can arm you with an overall strategy - an aerial view of the battlefield.

The first lesson that Doosan received from the consultancy was that "cash flow is king." For example, if Doosan was to choose between expanding its market share and collecting its accounts receivable, it must select the latter.

The second lesson is that Doosan must concentrate on its core competency, which can yield profits and growth in any possible situation. Doosan, we were told, must sell off any business outside its core competency to firms that have expertise in that area. That is the right way to increase the true value of a company.

Of course, it is almost impossible for a company to accomplish successful restructuring solely by its own efforts. The correct government policy and social atmosphere are essential. But in Korea, these are lacking.

Korea's attitude to foreign investments is a good example. Foreign investment is crucial because capital inflow must accompany restructuring. But in Korea, the prevailing attitude toward a "good" domestic company being sold to foreigners has been alarm about "national wealth leaking overseas" and suspicions and rumors of conspiracy involving foreign countries. This bothers both the seller and the buyer.

But look at the facts. The ratio of direct foreign investment to Korea's gross domestic product is just 6 percent. Compare that to Singapore (85 percent), China (27 percent) or Britain (23 percent).

Why are we so proud of Korean companies that advance into foreign markets while we so detest the idea of foreign companies advancing into Korea?

Labor-management relations is another critical Achilles heel. The labor union organization rate in Korea is, as far as I know, about 12 percent. Bowing continually to the will of the unions places the jobs of the remaining 88 percent of the working population in jeopardy. A policy change is desperately needed to increase employment flexibility.

Since I took the position of head of the Korea Chamber of Commerce & Industry, I have been compelled to attend more ceremonies and events than I wish to count. None of them had much practical value, but were held for appearances.

We must make sure that our restructuring efforts are not just an exercise in image. Merely toasting the future health of our economy is not good enough.


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The writer is president of the Korea Chamber of Commerce & Industry.


by Park Yong-Sung




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