[Viewpoint] Contrasts in restructuring styles

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[Viewpoint] Contrasts in restructuring styles

GM, once the very symbol of U.S. manufacturing power, has finally found a way to survive - by being torn apart.

It long resisted cutting out festering wounds but ended up getting its arms and legs cut off, leaving only its body and head.

Yet, nobody knows the fate of the remaining body, only that the arms and legs that were so badly damaged couldn’t be saved.

There still remains a long and hard road ahead for GM. Even with the best emergency medical treatment, there is no guarantee that it can long survive. The automobile giant with a largely sterling 101-year history today lies on the operating table, waiting for the administrative care of the government. This is the tragic disease caused by the naivety of leaders at GM, who did not have the courage to restructure. And it is the product of an irresponsible government and financial companies that dealt with the matter through half measures.

Across the Pacific in Japan, something different is happening. As Japanese international companies slipped one after the other into the red, they made strong efforts to save themselves. Nissan, Honda and Sony, among others, are making large-scale cuts in production and manpower, and semi-conductor companies are looking for ways to merge with each other. Companies that are hit by the trend of the strong yen and stagnant economy are putting a surgical knife to themselves.

The reason why Japanese companies have volunteered to restructure is because they judge that the recent difficulty in business management is not due to a temporarily stagnant economy. Japanese export companies expanded production facilities in a big way toward the end of the prolonged international boom.

As soon as they expanded, wagering that the boom would continue, the financial crisis and stagnant economy came about.

But as the value of yen appreciated, on top of everything else, Japanese companies could cope no longer. Too much supply and too little demand can only be relieved by reducing the size of a business. It is too late to lose weight through exercise or drugs. There is not enough time left.

Because of this, there is no alternative than the surgical knife of restructuring.

However, voluntary restructuring applied only to export companies that directly faced international competition. Restructuring is still a strange and remote story for domestic Japanese companies.

The Japanese government is busy pouring an enormous amount of financial funds into domestic companies to hide their weaknesses. The justification: reviving the economy.

Not only large companies, but also even small- to medium-size companies can easily prolong their lives with government support. Therefore, there is no need to restructure or shed corporate blood in the process. In the mean time, the weaknesses of companies are accumulating quietly, although they are not visible to most.

What about Korea? There is no voluntary restructuring in Korea. Construction, shipbuilding and shipping companies that were directly affected by the financial crisis did not move a finger until the government forced them to work on restructuring by pressing credit banks. Finally, they accepted the financial structure improvement agreement when they had no other choice. If the government had not pushed them along with a whip of encouragement, corporate insolvencies would have led to insolvencies of financial companies. The same logic applied to the restructuring of big businesses.

Even though there often circulated rumors that big business groups with worsening financial status are in a liquidity crisis due to excessive business expansion, there were only one or two companies that executed voluntary restructuring. In the end, government authorities had to send a few stern warnings. After that, nine big businesses finally started restructuring.

It is unprecedented internationally that the government leads restructuring of companies in this way. After all, as the companies had no intention to restructure themselves voluntarily and are not on the verge of bankruptcy, the government, spurring on the banks, is stepping in to pressure them to promote preventive restructuring.

As we see in the case of GM, even if a company cannot restructure on its own, the government that left it alone can step in after the company becomes critically ill. In Japan, export companies restructured on their own, but companies that run business in the domestic market did not restructure at all. In Korea, the government gave advice to companies in detail how to restructure and even threaten them if necessary. So far, the Korean-style preventive restructuring seems less costly and quite effective. There is also the advantage of showing off our restructuring skills that were acquired through the painful and expensive experience of the Asian financial crisis in 1997. However, the government cannot absorb business failures of private companies endlessly. Nor should it. It is now time for companies to take care of themselves.

*The writer is an editorial writer of the JoongAng Ilbo.

by Kim Jong-soo
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