Kumho Asiana Group - the Family Business Tradition in South Korea - Case Study Example

Running Head: Kumho Asiana Group Kumho Asiana Group Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Name Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Course Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Lecture Xxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxxx Date Introduction The Kumho Asiana group is a South Korean conglomerate of companies engaged in various sectors of the economy. The conglomerate has interests in tyre manufacturing, transportation including logistics and chemicals. Most of its products are manufactured from synthetic rubbers, resins and chemicals. It is also engaged in processing of electronic chemicals and manufacture of building materials. Its range of chemical products include monomeric, polymeric, modified and special methylene diphenyl diisocyanate. One of the conglomerates companies is among the top tyre producers in the country. The congramelate also has an engineering and construction division which offers architectural services, civil engineering services, plant engineering and construction of houses. Its other services include urban transportation, air transport and insurance services. It also engages in air refueling services. The company was established in 1946 and has grown from strength to strength since then. The group headquarters are in Seoul, South Korea. The Kumho group started off as a family business owned Park family of South Korea. Recently, the Park Sam-Koo returned to the helm of the conglomerate after 15 months of a legal battle over its ownership. Park Sam Koo has been engaged in a struggle with his brother over control of the group with his brother Park Chan-Koo and responsibility for the groups continued poor economic performance. Big family businesses are a feature of the South Korean economy which is dominated by Conglomerate referred to as Chaebols. In these family businesses the chairman is all powerful controlling all the operations of the company. However, Bloch, Kachaner and Stalk (2012) argues that the family business model is proving to be unsuccessful in today’s competitive business environment. In this paper we analyze how the Kumho Asian group can develop strategically to compete in competitive global environment that is increasingly shunning the family business model. The Family Business tradition In South Korea According to Campbell and Keys (2002), family businesses in South Korea emerged from political economy of the 1950s. Previously, the South Korea has been under the power of its colonial master Japan. After the departure of the Japanese colonialist, assets of Japanese firms passed on to a few South Korean businessmen. Michell and Palihawadana (2008) alleges that these businessmen had close links to the Syngman ruling regime of 1948 to 1960 were favoured by government policy in return for kickback. By the time, the military took power in 1961, these firms were too intergrated into the South Korean economy to be done away with. Although, the military government arrested and prosecuted the owners of these businesses for corruption in the Rhee regime it realized their importance in the growth of the Korean economy. The military regime subsequently charged fines to the corporate leaders and negotiated with them to collaborate in the modernization of the Korean economy. From then onward, Family businesses became an integral part of the South Korean economy. The astounding growth of the South Korean economy in the 19 can be credited to Government corporation with the family businesses. According to Campbell and Keys (2002), the role of the Chaebol was to implement economic footprints formulated by the government. Chang (2003) shows the success of family businesses in South Korea was aided by two factors; access to almost unlimited credit and favourable treatment by the government. Through the 1980s the government enabled the Chaebols to access foreign loans which the government guaranteed just in case the Chaebol failed to pay (Chang, 2003). In comparison to other firms in the Asian economy, the Chaebols are the most family dominated business models. According to Michell and Palihawadana (2008) Chaebol were family founded and continued to be family controlled throughout the 1990s. In South Korean Family business, the founder runs the business and when they retire, they pass on their businesses to their sons and daughters. During his reign the founder grooms his successor and ensures they have the professional qualification to run the firm. Possible successors in family owned businesses are engaged in practically running the business from an early age. After years of government patronage the Chaebol became independent entities that were not reliant on favourable government policy (Chang, 2003). Today, family owned businesses dominate the South Korean economy and but nowadays with trade liberalization taking root in the globe the Chaebol business model is set to become increasingly threatened by other business models. Strategic option and Challenges In competitive business environment, the Kumho Asiana Group has a number of strategic options. One of the most common strategic option available to family businesses is to change their ownership structure. According to Ward (2011) diversification of family owned businesses ownership structure gives the business a better chance of surviving a turbulent global economy. If Kumho Asiana group decides to diversify its ownership beyond the Park family it can offer its shares to the public or asks other investors to buy into the group. If on the other hand, the Kumho Asiana group chooses a strategy of continued family ownership it is likely to be faced some issues. One of the issues that is unique to family business is the problem of successful succession (Sharma 2004). If succession is not successfully managed in family businesses it may lead to the collapse of the family business. According to Chrisman, Chua and Sharma (2005), most family businesses do not survive a transition of leadership from one generation to the next. Where, the predecessor has not prepared his successor for the position of leadership the company risks failure. According to Zahra and Sharma (2004), two succession strategies can be used for inducting sons and daughters in the family business. The first strategy involves a low-level entry strategy where the successor joins the family business in a low-level position. However, the preferred entry strategy in South Korean companies is the Delayed entry strategy and it’s the most likely strategy to be applied in future by Kumho Asiana group when they are confronted by the succession challenge. One of the challenges that is likely to face, the Kumho Asiana group is the increased scrutiny of corporation to ensure they are run prudently (Morck and Yeung 2003). Like other leaders in South Korean big family businesses the Park family that owns the Kumho Asian group has been accused of unethical conduct. The Kumho Asiana group should look beyond the Korean economy where they seem to be above the law, to the global economy where they will be have to adhere to more stricter financial regulations. One of the most serious concerns to family business is an economic landscape that is quickly changing. Price pressure in the Construction and automotive industry where the Kumho groups has significant investment is among the future challenges that will confront the Kumho Asiana group. A more liberalized economy means more players will join the most of the sectors the Kumho Asiana group operates in. Globalization will also be a major challenge to Kumho Asiana group, where smaller companies will merge to confront conglomerates like the Kumho Asiana group (Hargittay and Kleiner 2005). According to Chang (2003) most South Korean companies rely on foreign technology that they access by purchasing patents. However, patented technology is likely to become more expensive in the future and thus Kumho Asiana group needs to innovate its own in-house technology to become more competitive. Kumho must therefore invest in developing its own technological innovations to enable it remain relevant and grow in the modern business environment. One of the most significant challenges to Kumho Asiana group is attracting and retaining appropriately skills (Zahra and Sharma 2004). Indeed, a corporation like Kumho may not be able to attract top talents as the main leadership positions in the organization are set aside for family members. Any ambitious executive would be apprehensive in joining the Kumho Asiana group with the knowledge they will never rise to head the group. On the other hand listed companies offer their employees clearer career paths where they can rise to head the corporation. Conclusion The Kumho Asiana group founded in 1946, is a successful Conglomerate of firms rooted firmly in the South Korean Chaebol family business tradition. Family based business is a dominant feature of the South Korean economy, and they touch every aspect of life in the South Korean economy. Originally the success of family based businesses in South Korea was owed to favourable government policy which allowed this corporation easier access to credit facilities. But in the 1990s, these businesses were able to become independent and stand on their own, but protective government policy enabled them to maintain monopolies and Oligopolies in the sectors they operated. However, the global economy has become more liberalized and Kumho and other South Korean Chaebols are likely to face competition from listed multinational expanding into their markets. Kumho Asiana group can decide to pursue a development strategy where it offers some of its shareholding to the public. Alternatively, Kumho Asian group can choose to remain family dominated, but then handle issues like succession planning, ethical challenges to its financial conduct and other significant challenges facing family based companies all over the globe. References Bloch, A., Kachaner, N., & Stalk, G. (2012). What You Can Learn From Family Business. Harvard Business Review, 90 Campbell II, T. L., & Keys, P. Y. (2002). Corporate governance in South Korea: the< i> chaebol experience. Journal of corporate Finance, 8(4), 373-391. Chrisman, J. J., Chua, J. H., & Sharma, P. (2005). Trends and directions in the development of a strategic management theory of the family firm. Entrepreneurship theory and practice, 29(5), 555-576. Hargittay, P., & Kleiner, B. H. (2005). Effectively Managing Korean-American Businesses. Management Research News, 28(6), 55-65. Michell, P., & Palihawadana, D. (2008). Exploring the components of success for the Korean chaebols. Journal of Business & Industrial Marketing, 23(5), 311-322. Morck, R., & Yeung, B. (2003). Agency problems in large family business groups. Entrepreneurship Theory and Practice, 27(4), 367-382. Sharma, P. (2004). An overview of the field of family business studies: Current status and directions for the future. Family business review, 17(1), 1-36. Ward, J. L. (2011). Keeping the family business healthy: How to plan for continuing growth, profitability, and family leadership. Palgrave Macmillan. Zahra, S. A., & Sharma, P. (2004). Family business research: A strategic reflection. Family Business Review, 17(4), 331-346. Chang, S. J. (2003). Financial crisis and transformation of Korean business groups: The rise and fall of chaebols. Cambridge: Cambridge university press. Read More