Lessons from Daewoo

If the 20th century was the American Century, the 21st belongs to emerging countries. China’s economy will be larger than that of the United States in a few years. If it keeps up its current pace, India can also surpass the United States by the middle of the century. Africa, Latin America, and Southeast Asia are getting bigger and bigger. At current rates, emerging markets, including South Korea, will help run the global economy. Once a front runner, South Korea now lags behind in the emerging market group. Korea has been outpaced by China in Africa and Myanmar, where it had been investing since the 1980s. In Southeast Asia, Japan is making fast strides to regain its past glory while Korea has been dithering.

Under former President Lee Myung-bak, Korea expanded cooperation and aid funds as well as consultancy in industrial know-how to emerging and underdeveloped countries, pledging to serve as a bridge between the G-20 and the developing world. But progress has been slow. The government and private sector worked separately and ended up delivering little help to countries in need.

Private enterprises cannot make inroads or work alone in developing economies. They need introductions, guidance and a little backing from their own governments when they venture into developing countries. Often, everything must go through the governments of either side. To pursue a major investment in China, a foreign enterprise must deal with its Communist Party. It is the same in the Middle East and Africa. To do business in developing countries, the government, public sector and private enterprises must work together in a package deal or consortium.

Daewoo Group, which was dissolved 15 years ago, was Korea’s pioneer in the developing world. Through its sprawling business network, it provided textbook lessons on how to succeed in developing countries in the global context. An industrial enterprise from a middle-income country like South Korea must have a winning strategy to compete with multinational giants from advanced countries that are unmatched in technology and financial resources. Daewoo found the answer in mixing with the locals and developing a symbiosis.

Daewoo Group founder and chairman Kim Woo-choong won big state projects by promising developing country leaders that he’d help “create a South Korea” in their countries.

The leaders would have not have been very moved, and might even have felt offended if chairmen of multinational juggernauts like IBM and GM offered to build their countries into something like the United States. The multinationals were good in business, but they lacked experience in industrializing from scratch. Developing nations also aren’t that naive to believe they would one day become the likes of the United States

But South Korea’s case was different. It achieved a rags-to-riches miracle. Its state-driven capitalism was a realistic model they could grasp and aspire to follow. Daewoo had a diverse business network, from light and heavy engineering to trade, resources development and finance. It was equipped with all necessary instruments to assist in economic development. South Korea also has built a heavy chemical industry with scant natural resources. It had the expertise to shift away from state planning to a free market and capitalist system.

Since it set foot in Africa in the 1980s, Daewoo maintained equal, 50:50 business partnerships. Half of its revenue was re-invested in the host country. Daewoo invested in the basic education and medical infrastructure the host countries needed. Kim recalled that this was all for business purposes. “In the longer-run it was better business because we could earn more money when developing countries prospered and they grew fast,” he said. Kim said it was a business strategy to minimize investment risks. When a business helps and provides what the people of the country need, it won’t be ripped off. In fact it can be rewarded with bigger deal later.

With such a business strategy, Daewoo became the biggest multinational corporation from a developing economy by 1996. If Daewoo survived into the 21st century, when emerging economies stepped onto the central stage of the global market, it may have become a bigger global brand.

The business model of Daewoo is applicable today. The Korean economy hinges on its performance in other emerging or developing economies. The private sectors are still immature in these markets. Companies must join with the public sector. They must approach the markets with package deals and a symbiotic mindset as Daewoo did.

There have been many debates about globalization and emulating the West’s economic model and talk about reforming the chaebol structure and ending business-officialdom connections. But we neglect the fact that the chaebol structure and business-officialdom collaboration, in fact, can be winning assets in advancing into the developing world. Daewoo proved it. We must coolly re-examine our strengths and weaknesses to decide what’s best for our economy.

Translation by the Korea JoongAng Daily staff

JoongAng Sunday, Sept. 28, Page 31

*The author is an economics professor at the National University of Singapore.

by Shin Jang-sup