[VIEWPOINT]In search of Korean excellence

More than 20 years ago, Thomas Peterson and Robert Watson authored a best-selling book, “In Search of Excellence,” which remains one of the most widely read books on business management. In this book, the authors identified what they believed to be America’s best business firms and analyzed why these firms were “excellent.”
Do any Korean firms meet this standard of excellence? Speaking as a non-Korean and recognizing that excellence is subjective, I would say yes, and that there is more than one excellent Korean firm. Which are these then, and why are they excellent?
In fact, there are more excellent Korean firms than I can name in a short article. My short and incomplete list is Samsung Electronics, Posco, LG Electronics and possibly Hyundai Motor.
Samsung has emerged as a truly global company in electronics. It produces and sells, under an internationally recognized brand name, an excellent and diversified line of electronic products. Samsung is also the world’s leading producer of semiconductor memory devices. It is probably the best-known Korean company outside of Korea.
LG Electronics is not too far behind in consumer electronics and electrical products, both in terms of quality and brand recognition; LG is probably best regarded internationally for its “white goods” (washing and drying machines, etc.). Posco is the world’s leading steel producer, and I would argue was the first of Korea’s companies to become excellent.
Hyundai Motor I would judge as potentially excellent, but it is not yet quite at this level, in my view. Nonetheless, it is moving in this direction quite rapidly. Indeed, this firm would not have met any criterion of excellence just five years ago. Hyundai Motor thus is to be commended for a fast turnaround, but one that is not yet complete.
These firms join a list of other firms that are globally recognized as excellent. A short (and again very incomplete) list would include Toyota and Sony of Japan; Intel, General Electric and Microsoft of the United States; BMW of Germany; Novartis and quite possibly Renault of France (Renault, in the same industry as Hyundai Motor, is moving toward excellence but probably has not yet fully achieved this); British Petroleum of the UK; Nokia of Finland; possibly Embraer of Brazil; and many others.
Comparing the short lists of Korean and non-Korean excellent firms, one thing in particular stands out: The Korean list contains two firms (out of four) that are part of conglomerate groups and one more that was recently part of such a group, while the international list contains only one (out of 11) that is a conglomerate. Moreover, the international conglomerate, General Electric, participates only in businesses that, while diverse, are interrelated.
Also, General Electric operates only in sectors where it can be an internationally leading or even a dominant firm. It divests itself of activities that prove not to meet these standards. This has not historically been the case of the Korean jaebeol; rather, these groups continue to operate in industries where they are weak as well as ones where they are strong.
Thus, I would worry that both Samsung and LG, even in sectors where they are excellent, could be weakened by continuance of this outmoded organizational form. Conglomerates have, in international experience, not generally been successful in the long run, and indeed the record is littered with failed conglomerates (Textron, IT&T and Litton Industries in the United States, and DaimlerChrysler in Germany, which tried during the 1980s to become a conglomerate but found that continued success required divestiture from unrelated businesses).
Moreover, I would go so far as to say that Hyundai Motor’s recent ascent toward excellence was made possible by the breakup of the Hyundai jaebeol and the resulting new independence of this motor firm.
Also, Korea’s first firm to become excellent, Posco, achieved this by becoming a world-class producer of steel and steel products and not by seeking to be a diversified producer of many unrelated products.
So excellence can certainly be found among Korean firms, including ones not mentioned here. My worry is that continuation of this excellence might require further restructuring within the Korean industrial sector, so as to abandon the conglomerate form of organization.
In addition, and to conclude, I note that a number of the internationally excellent firms are relatively new (Microsoft, Intel, Nokia). A challenge for Korea will be to create new entrants into sectors such as biotechnology and software, such that these firms grow to become excellent. By “new,” I don’t mean that these will be yet another new subsidiary of an established jaebeol. The international record shows that most new firms that achieve excellence are not part of larger and older business groups, and there is no reason why this should not also be the case for Korea in the future.

* The writer is a senior fellow at the Institute for International Economics in Washington, D.C.

by Edward M. Graham