Daewoo

This article is about the South Korean conglomerate. For automobile manufacturer, formerly called Daewoo, see GM Korea. For other uses, see Daewoo (disambiguation).

Daewoo

Former type	chaebol
Fate	Bankrupt
Founded	March 22, 1967
Defunct	August 26, 1999
Headquarters	Seoul, South Korea
Key people	Kim Woo-jung, founder

Daewoo
Hangul	대우
Hanja	大宇
Revised Romanization	Dae-u
McCune–Reischauer	Taeu

Daewoo (Hangul: 대우. Korean for "Great Universe") or the Daewoo Group was a major South Korean chaebol (conglomerate). It was founded on 22 March 1967 as Daewoo Industrial and was dismantled by the Korean government in 1999. Prior to the Asian Financial Crisis of 1998, Daewoo was the second largest conglomerate in Korea after Hyundai Group, followed by LG Group and Samsung Group. There were about 20 divisions under the Daewoo Group, some of which survive today as independent companies.

Former Daewoo Group Headquarters (Now Seoul Square Building).

Corporations

The That-El-Emad towers built by Daewoo Corporations Construction Div. in Tripoli, Libya

There were about 20 divisions in the Daewoo Group, which before the crisis was the second largest conglomerate in Korea after Hyundai Group, followed by LG Group and Samsung Group.

Daewoo Group had under its umbrella several major corporations:

• Daewoo Motor, the motor vehicles division (sub-branch Daewoo Automotive Components Co. Ltd., Daewoo Bus Co., Ltd., Daewoo Commercial Vehicle Co. Ltd.)
• Daewoo Motor Sales, an auto sales company sold Daewoo but also GM cars and others in Korea (Sub-branch : Architectural Iaan Div., SAA-Seoul Auto Auction)
• Daewoo Electronics, a strong force both internationally and in Korea (sub-branch Daewoo Electronic Components Co. Ltd, Daewoo Electric Motor Industries Ltd., Orion Electric Co. Ltd.)
• Daewoo Precision Industries produced small calibre firearms and auto parts. It was spun off in February 2002 and relisted on the Korean stock-market in March 2002. It was renamed S&T Daewoo Co., Ltd in September 2006^[1]
• Daewoo Textile Co. Ltd.
• Daewoo Heavy Industries (DHI), which created heavy duty machinery
  

  A wheel-loader produced by Daewoo Heavy Industries

A Seoul metropolitan car (Seoul Metro Class 3000), by DHI, 1984

• Daewoo Shipbuilding & Marine Engineering produced container ships, oil tankers and planes. It spun off in 2000 and became an independent company, DSME, re-listing on the Korean stockmarket in 2001
• Daewoo Securities, a financial securities company
• Daewoo Telecom Ltd., which concentrated on the telecommunications (sub-branch Daewoo Informations Systems Co. Ltd.)
• Daewoo Corporation, (sub-branch Daewoo Construction, Keangnam Enterprises) which built highways, dams and skyscrapers, especially in the Middle East and Africa
• Daewoo International, a trading organization
• Daewoo Development Co. Ltd., managing Daewoo hotels around the world and had the Hilton Hotels franchise in South Korea
• IAE (Institute for Advanced Engineering) : research and development integrated center

A further subsidiary was the Daewoo Development Company, funded by cash from the Group, and set up to develop hotels. Seven were built in Korea, China, Vietnam, and Africa. They were personally designed and furnished by Kim Woojoong's socialite wife Heeja who was Chairwoman of the company. The most lavish was/is the 5-star Hanoi Daewoo Hotel which cost US$163 million in 1996 and was decorated by Heeja with fine art, porcelain, sculptures, and marble. She invited 3000 guests to the opening, including Russian President Vladimir Putin. There is an 18-hole golf course in the grounds and a swimming pool which is thought to be the largest in Asia. Kim is believed to have spent time there while "on the run".^[2]

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Daewoo Motor Co.,Ltd.

For specific GM Daewoo and Daewoo cars history and details, see GM Korea.

Daewoo Motor's 1997 Leganza

The 'Iran Sadr' ship, built by DSME in 1985

Daewoo Motor Co., Ltd. was founded when the Daewoo Group purchased Saehan Motor in 1978, but the Daewoo Motor name appeared only in 1983.

Daewoo Motor arrived in the UK in 1995. At the time, it was the only manufacturer not using traditional dealerships; it owned and operated its own retail network. It was once considered to be near the top 10 motor companies in terms of production.

Daewoo was forced to sell off its automotive arm, Daewoo Motor, to General Motors in 2001. Since then, GM has been moving to rebadge Daewoo cars as models for many brands, including Chevrolet, Buick, Pontiac, Holden, and Suzuki. The GM Daewoo nameplate was kept only for South Korea and Vietnam until 2011.

Daewoo Commercial Vehicles Division was sold to Tata Motors of India.

See also: Daewoo Motor Sales

History

The Daewoo Group was founded by Kim Woo-jung in March 1967. He was the son of the Provincial Governor of Daegu. He graduated from the Kyonggi High School, then finished with an Economics Degree at Yonsei University in Seoul. It became one of the Big Four chaebol in South Korea. An industrial and multi-faceted service conglomerate, Daewoo was prominent in expanding its global market through joint ventures all over the world.

During the 1960s, after the end of the Syngman Rhee government, the new government of Park Chung Hee intervened to promote growth and development in the country. It increased access to resources, promoted exports, financed industrialization, and provided protection from competition to the chaebol in exchange for a company's political support. In the beginning, the Korean government instigated a series of five-year plans under which the chaebol were required to achieve a number of basic objectives.

Daewoo did not become a major player until the second five-year plan. Daewoo benefited from government-sponsored cheap loans based on potential export profits. The company initially concentrated on labor-intensive clothing and textile industries that provided high profit margins. The most significant resource in this plan was South Korea's large workforce.

The third and fourth of the five-year plans occurred from 1973 to 1981. During this period, the country's labor force was in high demand. Competition from other countries began eroding Korea's competitive edge. The government responded to this change by concentrating its effort on mechanical and electrical engineering, shipbuilding, petrochemicals, construction, and military initiatives. At the end of this period, the government forced Daewoo into shipbuilding. Kim was reluctant to enter this industry, but Daewoo soon earned a reputation for producing competitively priced ships and oil rigs.

During the next decade, the Korean government became more liberal in economic policies. Small private companies were encouraged, protectionist import restrictions were loosened, and the government reduced positive discrimination, to encourage free market trade and to force the chaebol to be more aggressive abroad. Daewoo responded by establishing a number of joint ventures with U.S. and European companies. It expanded exports of machine tools, defense products (under the S&T Daewoo company), aerospace interests, and semiconductor design and manufacturing. Eventually, it began to build civilian helicopters and airplanes, priced considerably cheaper than those produced by its U.S. counterparts. It also expanded efforts in the automotive industry and was ranked as the seventh largest car exporter and the sixth largest car manufacturer in the world. Throughout this period, Daewoo experienced great success at turning around faltering companies in Korea.

In the 1980s and early 1990s, the Daewoo Group also produced consumer electronics, computers, telecommunication products, construction equipment, buildings, and musical instruments (Daewoo Piano).

Crisis and collapse

Daewoo Group ran into deep financial trouble in 1998 due to the Asian financial crisis, increasingly thin relationships with the Korean government under President Kim Dae Jung, and its own poor financial management. With the Korean government in deficit, traditional reliance on access to cheap and nearly unlimited credit was severely restricted.

In 1998, when the economic crisis forced most of the chaebol to cut back, Daewoo brazenly added 14 new firms to its existing 275 subsidiaries, in a year where the group lost a total of 550 billion won ($458 million) on sales of 62 trillion won ($51 billion). At the end of 1997, South Korea’s four biggest chaebol had a debt of nearly five times their equity. While Samsung and LG cut back in the midst of the economic crisis, Daewoo took on 40% more debt."^[3]

By 1999, Daewoo, the second largest conglomerate in South Korea with interests in about 100 countries, went bankrupt, with debts of about 80 billion won ($84.3 million).

Soon after the demise, Chairman Kim Woo-Choong fled to France, and former Daewoo factory workers put up "Wanted" posters with his picture. Kim returned to Korea in June 2005 and was promptly arrested, after spending six years abroad. Kim was charged with masterminding accounting fraud worth 41 trillion won ($43.4 billion), illegally borrowing 9.8 trillion won ($10.3 billion) and smuggling $3.2 billion out of the country, according to South Korea's Yonhap News Agency.^[4] On 30 May 2006, Kim was sentenced to 10 years in prison after being convicted of fraud and embezzlement. On the last day of the trial, Kim tearfully addressed the court, "I cannot dodge my responsibility of wrongly buttoning up the final button of fate."^[5]

Factors that affected Daewoo's performance

• Government intervention: Government policy served as a double edged sword: it protected the chaebol, providing them with massive subsidies, unlimited cheap credit, and protection against foreign competition. However, the price for these services was total loyalty to the government. Chaebol were forced to take over industries against their will.
• Labor market: The traditional work ethic that helped Korea reach economic prosperity has been threatened as workers have begun increasingly violent protests against years of long hours and low pay. Daewoo shipbuilding suffered heavy losses due to workers' demands for pay raises.
• Operating in a global economy: International demand for free trade is forcing the Korean government to open its market. The chaebol will lose its protectionist import controls. Most recently, the North American Free Trade Agreement and the European Economic Community imposed trade limitations.
• Product quality from Korea: Korean products were considered to be of low quality.
• By the 1990s, Daewoo Group was heavily leveraged, major markets were stagnant, expenditures on R&D were increasing, labor unrest was continuing, and government policy was turning against the company.
• Kim was most recently charged with allegedly paying campaign contributions to former president Roh Tae Woo in exchange for a large government contract to build a submarine base.

Analysis

According to an article by the Economist, dated 19 August 1999, not long after Daewoo's insolvency, "Its failure was a long time coming."

The downfall of Daewoo was and still remains highly controversial, because of the sheer importance of chaebols in the national economy. The collapse caused billions of dollars in losses for both South Korean banks and the government, who were forced to stage-manage Daewoo's dissolution to soften the blow. The bankruptcy was not merely a financial, but also a political, crisis, and came as a shock to much of the nation.

Michael Schuman of Time stated that while Daewoo's demise had significant consequences, it would have nonetheless been better than propping it up with fresh funds. There was a persistence of the belief that Daewoo and other Korean conglomerates were "too big to fail". Such belief led many bankers and investors to continually waste money on bailouts, despite the sign that Daewoo was unable to engineer a turnaround and repay these bad loans. Once the too-big-to-fail perception was dispelled, with large conglomerates no longer considered the safest investments, bankers and investors began financing new opportunities in areas which had been starved of capital, such as small firms, entrepreneurs and consumers. Korea's GDP actually rose after Daewoo's unwinding.

Schuman also noted a similar analogy with Japan during its lost decade of the 1990s, where banks kept injecting new funds into unprofitable "zombie firms", on the belief that the firms were too big to fail. However, most of these companies were too debt-ridden to do much more than survive on further bailouts, which led to an economist describing Japan as a "loser's paradise." Schuman states that Japan's economy did not begin to recover until this practice had ended.^[6]

Breakup and present status

The group was reorganized into three separate parts: Daewoo Corporation, Daewoo Engineering & Construction and Daewoo International Corporation. They are active in many markets, most significantly in steel processing, ship building and financial services. The corporate entity known as "Daewoo Corporation" is now known as "Daewoo Electronics" and is focused only in manufacturing electronics.

Daewoo Electronics survives to this day despite bankruptcy, with a new brand logo "DE", but many of the other subsidiaries and divisions have become independent or simply perished under the "reorganisation" of the Korean government under Kim Dae Jung. In North America, Target stores market Daewoo Electronics products under their "Trutech" brand on an ODM basis.

In 2004, General Motors pulled the Daewoo brand of vehicles out of Australia and New Zealand, citing irreparable brand damage. Later that same year, GM announced that Daewoo Motors in Europe would change its name to Chevrolet on 1 January 2005. In 2005, it was announced that Daewoo cars would have a Holden badge in Australia and New Zealand. In South Africa, Thailand and the Middle East, Daewoo models were already being sold as Chevrolets. Only in South Korea and Vietnam does the Daewoo marque survive.

The Daewoo commercial vehicle manufacturer was taken over by Tata Motors - the world's 5th largest medium and heavy commercial vehicle manufacturer.

Involvement in Burma

Daewoo is also moving into oil and gas industry. While Western oil and gas companies were unwilling to conduct business in Burma^[7] on account of the abysmal human rights record of the ruling military junta, Daewoo is one of three oil companies, along with the French company Total and the American company Unocal,^[8] which is already, or is close to, starting gas production in the country^{[citation needed]}(at the Yadana Field). During explorations, Daewoo found one of the largest gas fields in southeast Asia. The field is located at blocks A-1 and A-3 at the Shwe field, about 100 km off Sittwe in Rakhine state. The field will go into production in five years, thereby providing a lucrative (and probably the largest) source of hard currency for the ruling junta. Daewoo has long been one of the largest foreign investors in the country.

Daewoo International President Lee Tae-yong was convicted in South Korea for illegally selling military hardware to the junta.^{[dubious – discuss]}{Burma strikes Gold, Upstream 28 August 2008} Daewoo sold the military hardware apparently in exchange for the award of the offshore concession blocks to Daewoo. In court, Lee defended his actions as being in "South Korea's national interest" (Burma strikes Gold, Upstream 28 August 2008). On 15 November 2007, Lee and thirteen other South Koreans were convicted of illegally exporting weapons technology and equipment to Burma.^{[citation needed]}

The Daewoo brand today

Today six companies remain with the Daewoo brand name:

• Daewoo Electronics (DE) - Specializing in electronics
• Daewoo Engineering & Construction - Specializing in construction
• Daewoo International Corporation - Specializing in trading and investment
• Daewoo Shipbuilding & Marine Engineering (DSME) - Specializing in shipbuilding
• S&T Daewoo - Specializing in small arms manufacture
• Tata Daewoo Commercial Vehicle - Specializing in commercial vehicles, wholly owned by Tata

Corporate websites

• Daewoo Electronics Homepage
• Daewoo Engineering & Construction Homepage
• Daewoo International Corporation Homepage
• Daewoo Shipbuilding & Marine Engineering Homepage
• GM Korea Homepage
• S&T Daewoo Homepage
• Tata Daewoo Commercial Vehicle Homepage

See also

	South Korea portal
	Companies portal

• Chaebol
• Economy of South Korea
• Flanders Loyalty
• List of South Korean companies

References

1. ^ "Company History". S&T Daewoo. http://www.sntdaewoo.com/st/company04.html. Retrieved 2011-08-09. 
2. ^ Source: Which Way Next, by Richard Meredith.
3. ^ "South Korea: The death of Daewoo". The Economist. 19 August 1999. http://www.economist.com/displaystory.cfm?story_id=233562. Retrieved 2008-11-20. 
4. ^ "Daewoo founder Kim gets 10-yr term". CNN. 30 May 2006. Archived from the original on April 8, 2008. http://web.archive.org/web/20080408091248/http://www.cnn.com/2006/BUSINESS/05/30/skorea.daewoo/index.html. Retrieved 2008-11-20. 
5. ^ Ramstad, Evan (31 May 2006). "Daewoo Founder Gets Prison Term - WSJ.com". Online.wsj.com. http://online.wsj.com/article/SB114896838655866106-search.html?KEYWORDS=daewoo&COLLECTION=wsjie/6month. Retrieved 2008-11-20. 
6. ^ Schuman, Michael (2008-12-19). "Why Detroit Is Not Too Big to Fail". Time Inc.. http://www.time.com/time/business/article/0,8599,1867847,00.html. Retrieved 2008-12-23. 
7. ^ "Daewoo to tap Burma gas for China - Upstreamonline". Upstreamonline.com. http://www.upstreamonline.com/live/article157719.ece. Retrieved 2008-11-20. 
8. ^ "Blood Money - Chapter 7, Corporate Citizenship and the Oil and Gas Sector in Myanmar (Burma)". nickyblack.com. http://www.nickyblack.com/Nicky_Black/Corporate_Citizenship_and_Myanmar_files/BM%20Chp%207%20-%20Myr%20O%26G%20industry.pdf. 

External links

• Daewoo cars at topspeed.com
• Daewoo founder sentenced to 10 years in prison Asia Times online