This argument's validity can be deduced from the experiences of some of Japan's keiretsu, which share many characteristics with Korea's chaebol. For example, contrast the successes of Toyota Motor Corporation and Nissan with the failure of Mitsubishi.
While Toyota and Nissan returned to profitability after just a few years of reorganization and streamlining, perenial laggard Mitsubishi has delayed and implemented half measures in ways that are similar to most of Korea's chaebol.
Toyota was Japan's most profitable company for the March 2001 account-settlement term. It achieved these results mostly through cost reductions. Costs declined for vehicle development, production and parts procurement among its subsidiary groups. On the revenue side, it was able to cash in on its strong domestic and overseas sales networks by offering innovative new models. No more "business as usual" at Toyota.
For its part, Nissan Motor underwent a wrenching overhaul and has been able to announce its first annual profit since 1997, after registering a huge loss in the previous financial year. Its reported net profits were a record for the group and occurred despite a loss in domestic market share. These earnings allowed it to pay its first dividend in three years, ?7 per share for fiscal 2000.
Its restructuring plan began in October 1999 and led to cutting 21,000 jobs and the closure of five plants in Japan. Nissan also shed non-essential affiliates while cutting costs to reduce its massive debts so that more financial resources could invested in it core business. Aggressive streamlining efforts included the closure of manufacturing plants, job cuts and severing many of exclusionary ties with affiliates that characterized the keiretsu production model.
The results of these efforts speak for themselves: procurement costs declined by 11 per cent, exceeding target cuts of 8 percent during the first year of a three-year revival plan. It was these and other cost reductions that offset the negative impacts of the strong yen against the euro and US dollar that weakened profits denominated in the local currency. All this took place during a period of record unemployment and a stagnant economy. The simple fact is that the restructuring took place when Japan's overall economic situation was much more grave than Korea's is today.
Hard questions should be asked of Korea's politicians and corporate bosses as to why they are unable to muster the will to carry out the needed changes? With its hardworking labor force and competent managers, Korea should have a very bright future. However, chaebol owners must behave more responsibly by imitating Japan's successful corporate reformers. Although their industrial empires may shrink, it will move the economy forward and restore national pride to Korea.
Christopher Lingle is Global Strategist for eConoLytics.com and author of "The Rise and Decline of the Asian Century."
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