Centennial Firms Dry up in Korea
By Kim Jae-kyoung
Birth, growth, decline and death is the typical cycle for people and companies. But for Korean companies, their lifespan is especially short.
Unlike many Japanese firms, which have survived more than one hundred years, many local firms are short-lived. In Korea, centennial firms have dried up, with only two surviving more than a century.
In an analysis on the longevity of Korean and Japanese firms, the Bank of Korea (BOK) said that Doosan Group and Dong Wha Pharmaceutical are the only local companies more than 100 years old.
This is in stark contrast to Japan where 50,000 firms have surpassed the century mark and 3,146 have lasted more than 200 years. Seven firms there have been around for more than one thousand years.
The central bank said that key causes behind short life spans of Korean firms were reckless, sprawling business expansion and family-centered management practices.
``Although there exists outside factors, such as the Korean War, internal factors played the key role in driving many Korean firms into a bankruptcy over a short period of time,'' BOK senior manager Jung Who-sik said.
``Many Korean firms did not focus on their core businesses. Instead they tried to pursue sprawling expansion,'' he added. ``In addition, many failed firms were highly family oriented, transferring the ownership from a father to a son regardless of individual capability.''
He stressed that many Japanese firms were able to stay alive much longer because they had their businesses run by professional CEOs, not by a family member.
This well explains why Doosan Group has survived as the oldest company in Korea. Doosan said it was the first to introduce a professional CEO system in Korea.
``We faced the biggest-ever crisis of going bust in 1995 one year ahead of our centennial ceremony due to a severe cash shortage,'' Doosan Group senior official Shin Dong-gyu said.
``What we first did at the time was to unload many unprofitable and non-core business units, such as 3M, Kodak and Nestle, to streamline our line-up and focus on our key cash-generating businesses,'' he added. ``The professional CEO system was first adopted back in 1973 when Park Too-pyong, the first CEO of Doosan, transferred the helm to Chung Soo-chang, the first-ever professional CEO in Korea, not to his son, Park Yong-gon, the group's honorary chairman.''
Regarding the reason for longevity of Japanese firms, Jung said, ``They didn't look away for business expansion and focused on their core businesses by accumulating and developing unique skills and know-how.''
He also cited management based on the trust of stakeholders, a professional CEO system and conservative management for the long lifespan of the firms.
The world's oldest company is Kongo-gumi, a Japanese construction company founded in 578.
``Since the existence of long-lived firms, shown in Japan's case, have a positive impact on the economy, the government should make more efforts to find companies with unique know-how and support them,'' he said.
Korea's conglomerates, such as Samsung, LG and SK, should not miss the implication of the report if they want to survive as a centennial company.
Many business groups here, especially Samsung, have been severely criticized lately for trying to bypass legal loopholes to transfer group ownership from father to son.