Korean chaebols - Outdated model requires reform

The Korean chaebol - giant conglomerates still run by founding families - has transformed the Korean economy but they are now the source of problems which need to be corrected. Chaebols need to be updated for the modern world, not only for their future prospects but for the Korean economy as a whole. Reform of the system is required and the relationship with government must become more distant if smaller companies are to be given a better chance and corporate governance be improved.

Key Highlights

- The culture surrounding chaebols is deleterious to the wider economy. Consuming every industry they enter, chaebols, whilst heavily responsible for an economic miracle, are preventing small and medium companies from growing. A low degree of transparency cements the chaebol dominance and entrenches a culture adverse to business creation and growth.

- Chaebols are in need of reform in order to provide shareholders with the degree of value and influence in the running of companies they are accustomed to across many areas of the world.

- The present scandal surrounding Samsung and the now departed president must be used as impetus to create transparency in ownership and business practices.

Scope

- Examines the impact chaebols have on small and medium business

- Asserts that the present system does not provide shareholder value

- Calls for the current scandal surrounding Samsung to be used as a means to improve transparency

Reasons to buy

- What is the impact of chaebols on the wider economy?

- Why are chaebols discounted on the global market?

- How can chaebol corporate governance be improved?

Table of Contents

Table of Contents

Overview 2

Catalyst 2

Summary 2

Dominance threatens small and medium companies 6

Small and medium sized businesses often marginalized by giant ...

Table of Contents

Overview 2

Catalyst 2

Summary 2

Dominance threatens small and medium companies 6

Small and medium sized businesses often marginalized by giant family run conglomerates 6

Structural problems within the Korean economy caused by Chaebol business culture 7

Bakeries showed how the government can be a force for good 8

Chaebols have too much political influence - this must change 10

Chaebols have been allowed to create their own rules to the detriment of the wider economy 10

Bad for business: Chaebols and the political elite engage in shady activities 10

Reform is happening, but progress is slow and more needs to be done 12

Chaebols do not provide value to shareholders 14

Eradicating the ‘Korean Discount’ would improve the deal for shareholders 14

Hyundai was profligate in $10bn land purchase - shareholders deserve better 16

Family ownership of the giant chaebols does shareholders no favors 16

Chaebol criminality hints at failing leadership 19

If found guilty, Samsung’s Lee Jae-yong must be made an example of 19

Charges of insider trading at Hanjin shipping suggest chaebol leadership is of a poor standard 20

Conclusions 21

Chaebols are an outdated model - for the good of Korea they must change 21

Appendix 22

Sources 22

Further Reading 22

Ask the analyst 23

About MarketLine 23

Disclaimer 23

List of Tables

List of Figures

List of Figures

Figure 1: Chaebol internal transactions (KRWtn) 6

Figure 2: Number of chaebol affiliates, 2012 8

Figure 3: Vezzly Bakery 9

Figure 4 ...

List of Figures

Figure 1: Chaebol internal transactions (KRWtn) 6

Figure 2: Number of chaebol affiliates, 2012 8

Figure 3: Vezzly Bakery 9

Figure 4: Percentage of voting rights held by founding families of chaebols, 2015 11

Figure 5: Percentage of stock held in chaebols by founding families, 2015 12

Figure 6: Percentage of high-risk businesses, 2015 13

Figure 7: Price to earnings multiples (2017 and 2018 estimated) 14

Figure 8: Percentage Korean chaebol affiliate earnings growth relative to stock market, 2015 15

Figure 9: Shin Kyuk-ho, Lotte Group founder 17

Figure 10: Structure of company directors 17

Figure 11: Lee Jae-yong 19

Figure 12: Choi Eun-young 20

    Pricing

Discounts available for multiple report purchases.

reportstore@marketline.com
+44 (0) 161 359 5817

Saved reports