How Korean firms weathered crisis

By Jung Byung-chul

FKI Vice Chairman

Korea Inc. is on a roll. South Korea finished 23rd in the rankings of the recent International Monetary Fund's (IMF) national competiveness report, which represents the country's best standing ever.

Along with Moody's elevating Korea's sovereign rating to ``A1'' in April, reinstating its pre-currency crisis status of 12 years ago, the improved IMF ranking reflects the country's reputation in the international business community.

The newfound respect toward the Korean economy appears to have much to do with the country's top corporate groups weathering the recent global economic crisis in impressive fashion.

In fact, Korea's economic growth rate last year was the third-highest among Organization for Economic Cooperation and Development (OECD) member countries. Korea's wealth of export juggernauts continued to provide the engine for its growth, as the country finished the year as the world's ninth-largest export nation.

Korea's global corporate giants, including Samsung, Hyundai Motor and LG, successfully exploited the softened competition during the economic turmoil to strengthen their positions in their main global markets.

When other companies around the world obsessed with cutting costs and trimming business operations, Koreans attacked the economic crisis aggressively and successfully expanded their business presence.

This take-no-prisoners approach was best epitomized by Hyundai Motor's promotional efforts in the United States. The company saw its share in the U.S. market reach a record 4.8 percent by sweetening its warrantee offers to customers. The company also introduced bold marketing programs such as the ``gas lock assurance,'' which allowed the new U.S. buyers of its cars to lock down a year of gas at a below-market price of $1.49 per gallon for a year.

The deftness of Korean firms in tackling the recent economic crisis was probably enabled by the painful education they endured during the Asian financial crisis that hit the nation in 1997. The troubles of the late 1990s forced Korean firms to improve their financial health and corporate governance and also sophisticated their financial strategies.

The average debt-equity ratio for listed Korean firms was at 336 percent at the end of 1996, but at just 94 percent at the end of last year, while the ratio of their internal reserves to net profit more than doubled during the same period.

The typical Korean brand of corporate leadership, which is based on the balancing of roles between the controlling shareholder and chief executive officer (CEO), also allowed Korean companies to attack the recent economic downturn with pace and purpose, while their competitors in other countries stutter-stepped.

The cohesion between the controlling shareholder and the CEO allowed Korean companies to be quick and bold with their decision-making in times of uncertainty.

A memorable example of this assertive type of leadership was Samsung Chairman Lee Kun-hee's order to collect and burn 150,000 of the company's mobile phones in 1995 after consumer complaints arose over technical glitches. This bold exhibition left a lasting image in public minds of Samsung's determination to improve the quality of its products.

Business Week and other foreign media outlets also pointed out that the Korean brand of corporate leadership, distinguished by the assertive owner, enabled Korean companies to weather the economic turmoil better than their competitors.

Korean companies are also reaping the rewards for their steady investment in research and development (R&D). Most of the major Korean firms refused to cut back on their spending to improve their technology even during the dismal year of 2008, and this is now allowing them to flex stronger muscles.

And the efforts to improve the product design, which had been a weak point for Korean companies in the past, as well as developing localized products that are attentive to the needs of customers in each market, are allowing many Korean brands to become premium household names.

The Federation of Korean Industries (FKI), Korea's biggest business lobby, is proud to say that it did its part in helping the country to resist the economic crisis. The main focus of the organization was persuading Korean companies not to excessively shed payrolls and maintain their thirst to find and acquire highly-skilled workers.

The companies have already experienced the fallout from an exodus of quality talent during the Asian financial crisis in the late 1990s, which was a result of excessive restructuring and talent poaching from foreign firms.

The industry-wide ``job-sharing'' initiatives and other attempts aimed at minimizing layoffs greatly contributed to the country's economy, and also appears to have improved the loyalty and work ethic of employees at companies. Of course, particular zeal for education shared by Koreans, as well as their patriotism, has always contributed to the competitiveness of Korean companies.

The Korean corporate community is ready to contribute in the international discussions to prevent another economic crisis from happening.