Hyosung Provides Model for Corporate Restructuring

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Hyosung Provides Model for Corporate Restructuring

In December 1997, right in the middle of Korea‘s financial crisis, a Mr.Choi, assistant sales manager at Hyosung T&C, was told to "go and collect outstanding bills from customers all over the country by any means necessary and by stopping at nothing."

He set out for a 15-day business trip that took him to Taejon, Taegu, Pusan and on to Ulsan and Kumi before returning to Seoul. He did not have the nerve, however, to ask his company to pay for his travel expenses. While calling on customers, he used his credit card to pay for hotel rooms and meals. To make matters worse, every customer was as in as tight a spot as Hyosung. After returning virtually empty-handed, he found it impossible to bill the company for his expenses.

Having to pay the credit card bills out of his own pocket, he decided to fib to his wife: "Because of financial difficulties,” he told her, “the company will stop paying our salaries beginning this month." Several months later when he finally brought home a paycheck and told his wife that the worst was over for the company, she prepared a small pork barbecue dinner to celebrate. He wept unabashedly when his wife consoled him for the difficulties he must have endured during the preceding months.

Rumors of the impending bankruptcy of the Hyosung Corporation, the flagship company of the Hyosung Group, were rampant in financial circles in 1998; the group subsidiaries that stood security for its loans also sustained the risk of triggering a chain of bankruptcies. Some employees decided to leave, reasoning that it would be better to find another job while the name Hyosung was still intact.

In fall of the same year, Hyosung Group Chairman Cho Seok-rai carried out a series of restructuring measures, including the merger of the group's four big companies (Hyosung Corp., Hyosung Living Industry, Hyosung Industries and T&C) into Hyosung Corporation. Cho retained the chairmanship of the merged company. In addition, he sold off Hyosung BASF and Korea Engineering Plastics, the group's next biggest companies. The number of Hyosung's subsidiaries dropped from 20 to 11 while their employee count fell from 10,000 to 7,000. In the trade division, the hardest hit of all, the number of employees was slashed from 1,200 to a mere 180.

Opposition to the unprecedentedly harsh restructuring was fierce. At Hyosung T&C, a secret employee organization was formed to resist the merger. The group, nevertheless, pushed ahead with the restructuring, declaring that it had to "keep from going belly up at all costs." It also sold off every piece of real estate that it could, and paid off 60 billion won ($54 million) of debts in just two years.

In 1998, Hyosung endured the worse yearly loss in its history. But business was swiftly turned around, and Hyosung attained its highest annual profit the following year. Hyosung‘s stock price, which had plummeted to 5,300 won in July 1998, has now topped the 10,000 won level. The reversal of fortune was especially remarkable because it happened in the textile industry, which was in a severe business slump.

"Textiles is a peculiar industry, the entire world market is dominated by three Asian countries, Korea, China and Taiwan," explained Hyosung Corporation President Cho Jung-rae, 54. "It is all about competitiveness, and is definitely not a waning industry."

When asked about the measures a company should take during a crisis, he said, "We still don’t think that the crisis is completely over," and gave following answers:

1) The company should not try to do everything, but do only what it is capable of doing well. There is always at least one area in which even an insolvent company can outdo others.
2) The company must streamline itself. If revenues are low, downsize.
3) Garbage does not sell. If you wish to sell anything at all, sell things of value.
4) Past success can impede future success.
5) Assets or revenues are not important. The key is how much profit you earn, and how much cash you have. Pay special attention to the aggregate value of listed stocks. It indicates the market assessment of the company.

Hyosung sales manager Mr.Choi was later fully reimbursed for his travel expenses. He was promoted to manager last year. He now beams, "I am proud to work for Hyosung."

by Min Byong-kwan

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