Free Essay

Emerging and Transition Economies

In: Business and Management

Submitted By salsa100
Words 717
Pages 3
What is the contribution of government policy at the broad macro level and at the sector level in Samsung’s technological learning?

By the 1980s, Korean government had made it clear through a “pre-announcement system” that quantitative control and tariff cutting would be eliminated. Firms were thus given time to prepare and to adjust production systems for efficiency

Protection and subsidies were not without a prize. The State imposed performance standards by which export performance was the “ultimate criterion of performance for the contest”, Lee (1997). Export criterion was in fact the key determinant of the relationship between the state and the enterprises. In other words, protection did not translate to complacency but was used to facilitate maturation and the attainment of international competitiveness.

Still, the government of South Korea has had and continues to have a strong influence on business development in the nation. Beginning in the 1960s the government of South Korea began to formulate an industrial policy by which it established target industries and even target companies. These target industries and companies received special aid from the government to help nurture their growth. Under both Presidents Park Chung Hee and Chun Doo-Hwan, five-year plans were established to ensure the economic well-being of these companies through subsidies, tax relief, and protective tariffs. These policies contributed in part to the subsequent success of the Korean giant trading companies or chaebols. Following the economic crisis, the South Korean government forced the restructuring of the financial industry of the nation. More importantly, the government has forced the great chaebols to concentrate more on core businesses, pressured them to trade less profitable divisions among themselves to consolidate, and banned their practice of maintaining mutual debt payment guarantees among chaebol member firms.

Samsung, the largest chaebol, consists of over 30 individual enterprises, each of which would be considered an independent company in the United States. Some of these Samsung "firms" are publicly held and others are privately held. The enterprises themselves cover an enormous array of industrial areas ranging from Samsung Electronics (the second-largest semiconductor manufacturer worldwide) to insurance companies (Samsung Life Insurance, Ankuk Fire & Marine Insurance); from ship-building to petrochemicals, and so on.
The government-favored chaebol had special privileges and grew large. This gave the impression of economic success for the chaebol that was not always valid. In some cases chaebol grew not because they were profitable but merely because they could borrow vast funds. When the international economy took a downturn these debt-ridden businesses were in trouble. In 1999 one quarter of the manufacturers in South Korea did not earn enough to meet the payments required for their debt.

Samsung's companies benefited from the import-substitution policy that the government pursued. Domestic producers were encouraged and imports were discouraged. By the end of the 1950's Lee had acquired control of several commercial banks and insurance companies.

The chaebol benefited greatly from this arrangement but the nature of the economic system of South Korea was closer to a centrally planned socialist state than the capitalism that it purported to be. The success of Samsung or any of the other chaebol in selling products cannot be taken to be proof of their success in profit making. It could just as well be a result of the South Korean government subsidizing in one way or another a money-losing venture.
As a result, firms needed government support in order to succeed; they couldn't receive loans without government favor
"Donations" to government officials and the close -- often blood-related -- ties between government officials and chaebol owners created a market for government influence in South Korea that was, if nothing else, more transparent than similar markets in other open economies. Information flows both from government into industry and from industry into government through informal networks and official relationships in South Korea

Supportive & destructive

What policy have been in put and provides a fair playing field for all the chaebols.
Why & justification

Read more: Korea, Doing Business in the Republic of - benefits http://www.referenceforbusiness.com/encyclopedia/Kor-Man/Korea-Doing-Business-in-the-Republic-of.html#b#ixzz1eRhiQ2Af

Read more: Korea, Doing Business in the Republic of - benefits http://www.referenceforbusiness.com/encyclopedia/Kor-Man/Korea-Doing-Business-in-the-Republic-of.html#b#ixzz1eRgQWpAb

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