Similarities and differences between japan's keiretsu and south korea's chaebol - Essay Example

These enterprises were established by the Meiji government in the late nineteenth century, as a way to invigorate Japan’s industrialization. Therefore, the main reason for the formation of these business enterprises was to respond to failures in the market. Companies owned by these zaibatsu’s were vertically organized and owned by families and sometimes, holding companies. According to Rosati (1993), trading companies and banks were the most powerful industries among the zaibatsu. This is because they controlled the distribution of goods and operations among the zaibatsu’s.

The zaibatsu were abolished at the end of the Second World War by the Allied Occupation Forces, when their shares were allocated to the Japanese public, in order to promote competition and equality. Rosati points out that “during this period, however, the private sector had little funding capacity, and corporations among themselves unable to raise the capital they needed” (1993, p. 85). It was during this time that the practice of raising funds through loans from banks was embraced. Due to the low prices of shares and accumulation of capital in the private sector, corporations were exposed to acquisitions.

This was further compounded by the fact that the stock owning capacity of banks was limited by the 1947 Antimonopoly Act (Rosati, 1993). Consequently, corporations had to invest somewhat equal amounts of capital among themselves to create stability among shareholders although there was no physical exchange of the money. In the 1960s, Japan joined the Organization for Economic Cooperation and Development (OECD) and this led to a relaxation of capital transaction policies by the government. Since the owners of the corporations feared being taken over by foreign investors, they conducted cross ownership that brought back the links that had existed among zaibatsu groups prior to the Second World War and this led to the formation of Keiretsu groups.

Keiretsu groups were very significant in rejuvenating the economy of Japan after the Second World War. Small industries in Japan were able to develop, despite the fact that Japan’s economy was detached for the world markets and highly monitored. Examples of keiretsus include Mitsui and Mitsubishi. South Korea's Chaebols: Origins and Features Chaebols were established by the Japanese colonial rule in Korea during the 1920s and 1930s. In fact, Korea’s Chaebols were formed in a similar way to the Japanese keiretsus.

The main reason for the establishment of Chaebols was so that Japan could benefit from Korea’s economic development. The establishment of chaebols began when Japan set up privately owned businesses in Korea, but strictly controlled business procedures, license applications, and credit. Japanese rule in Korea eventually came to an end, and this gave the Korean’s freedom to adjust the business procedures and processes of the Chaebols. Dubois (2004) points out that “the effort was coordinated by president Park Chung Hee, the president of South Korea from 1961 until his assassination in 1976” (p. 42). Under the concept of chaebols, conglomerates usually controlled by a family were formed under a sole holding company.

Each company held another company’s shares and through this, they were all interlinked. The chaebols however had no financial institutions and this required financial support from the government, since South Korea’s banks are joined together and controlled by the government.