Business strategy of Korean corp.
week 6
1
Comparative business management:
EGSOP
 clarify the relationship between business structure and
their environments
 explain the external environments & ownership governance structure, strategy, and organization of corp.
 external environments; social system(macro economics·
political system), culture environments( languages,
religions, customs), performance environments(business
markets)
 analyze the environments on 4 different axis;
ownership & governance structure, strategy, and
organization
 To understand the change of mgt’ paradigm
2
Application of EGSOP model on Korean corp.
– Governance: the differences of ownership-governance
structure among corps. of different nationalities
– Strategy: competitive strategy + business strategy + global
strategy
– Organization: innovation of human resource management +
process innovation
Governance
Environment
S trategy
Organization
Performance
3
Definition of globalization
• Globalization means that a company implement
same strategy throughout whole world regarding a
world as a whole market.
• Internationalization means that a company in a
certain country advances to different countries;
markets classified by national border mean nothing
in globalization any more.
• Globalization is especially activated by multinational corps. which have subsidiaries at different
nations
4
Global Industry
• Global characteristics are that competitive advantage
of industry in a certain country have a great influence
on markets in different countries.
• Global corp. create competitive advantage combining
economy of scale, offering services for world-wide
customers with world-wide brand reputation.
• Related key industries are aero-manufacturing, semiconductor, electronic, automobile, copy machine,
and watch.
5
Factors which facilitate globalization
• Homogeneous consumer needs & internet
• Appearance of homogeneous consumer needs because
of development of communication devices in the world
• Decrease of trade barriers
decrease of trade barriers because of inauguration of
GATT, rapid settlement of trade dispute (WTO)
• Liberal movement of funds
movement of funds makes laws, regulations, and
cultural customs of each nations become homogeneous
by global standard
6
Business Strategy of Korean corp.
1987~1996
business
strategy
unrelated diversification
external expansion
global
strategy
external expansion
competitive
strategy
tech. follower
7
1997~2006
choice & focus
substantiality
increase of global
competitiveness
from export to global
focus on Amer. &
south east Asia
hard competitiveness
business specialization
emerging market & others
tech. leader
from quantity
to quality
soft competitiveness
1. Business : choice & focus
change of business strategy paradigm of Korean corp.
8
classification
alternate values
change of paradigm
business
portfolio
diversification
vs.
specialization
orientation of business
specialization
growth strategy
growth
vs.
profitability
focus on profitability
investment
strategy
aggressiveness vs.
conservativeness
tendency of conservative
management
1
1. Business : choice & focus
• from unrelated diversification to business specialization
Status of split-off of listed corps.
classification
2000
2001
2002
2003
2004
2005
2006
number(#)
9
10
17
9
12
14
19
amount(trillion)
18.1
28.9
4.0
0.5
3.4
0.9
3.6
(개)
900
800
700
600
500
400
300
200
100
0
Change of affiliates number of top 30 largest corp.
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
1. Business strategy: choice & focus
• from external growth to internal substance
– disappearance of legend “Large groups of stones are seldom
captured”
– more emphasis on the importance of liquidity after financial crisis
– introduction of global financial system
Cash flow of manufacturing corp.
1999
Business activity cash
income(A)
2000
2001
2002
2003
2004
2005
11,544
10,475
8,493
12,698
11,605
13,967
11,403
Invest activity cash
expense(B)
7,523
9,136
5,949
7,363
8,638
10,700
10,187
Financial activity cash
supply(C)
-4,392
-940
-2,127
-4,758
-1,902
-3,148
-10
Increase of cash(A-B+C)
-371
399
417
577
1,064
120
1,206
Balance cash
3,948
4,025
4,226
4,989
5,521
5,396
6,602
10
1. Business strategy: choice & focus
• From aggressive investment to conservative investment
– decrease of profitable investment by increase of uncertainty
– decrease of investment psychology by over regulation
cash/
assets (%)
Investment & cash possession of Korean
listed Corp.
10
Tangible assets increase
Increase rate
of tangible
assets
(
2
Cash assets/total assets 20
8
6
15
10
5
4
2
0
-5
-10
0
1987 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 2006
11
-15
2. Global strategy: from export to overseas expansion
• Initiation of overseas advance to cope with change of environment
– Deregulation of foreign fund in 1990 & increase of overseas advances
– ‘ World business’ of Deawoo corp.
Change of business environment & choice of
corp. in 1990 yr.
liberalization
• market
liberalization(UR/W
TO)
• OECD affiliation
narrow
domestic
market
12
increase of
manufacturing
costs
emerging of
new markets
• end of cold war
• open of China
•BRICs
unfavorable
situation of
labor union
stagnation of
Japanese corp.
• lost 10 yrs.
• slowdown of digital
overseas
advance of
corp.
2. Global strategy: from export to overseas expansion
• Deploy aggressive overseas expansion by ‘globalization’ slogan of
government in 1993
– Bandwagon effect: major expansion of domestic sewing toy corp. to
Central & South America
– majority of cost effective overseas investment in 1990 yr.
– low profit & no strategies because of inexperience
Investment amount
(billion dollar)
# of investment
Progress of overseas
expansion
12
10
6,000
5,000
8
4,000
6
3,000
4
2,000
2
1,000
0
1980 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 2000 01 02 03 04 05 2006
13
0
2. Global strategy: from export to overseas expansion
• reopening of strategic overseas expansion since financial crisis
– creation of global brand
– diverse market areas
– accumulation of global business know-how
Investment scale of leading nations on China
Japan
Korea
U.S.A
Twain
14
3. Competitive strategy: from quantity to quality
• Mid-1990 intensified global
competition because of over
production
• Loss of cost competitive
power because of attacking
of low cost country like
China
• Overflowing a sense of crisis
to be a top of the world to
survive
15
From simple strategy which
manufacture and sell products
at low cost and high quality to
competitive strategy which
pursuit premium of leaders
3. Competitive strategy: from quantity to quality
• From tech. follower to tech.
leader since 2000 yr.
Profitability of leading semi-conductor
corp. in 2006 yr.
26%
Design competitiveness of export
industry (%)
25%
10%
7%
1%
Elfida
Micron
Infinion
Hynix
Samsung
16
• Initiation of design
management
superior
inferior
1996
9.0
46.0
2000
9.6
36.0
2004
11.9
22.8
3. Competitive strategy: from quantity to quality
• Creation of premium brand
• Upgrade services quality for differentiation
National global brand (billion dollar, %)
2007 yr.
2001년
Increase
rate
rank
nation
1
U.S.A
751.5
65.0
739.8
74.8
1.6
2
Japan
91.8
7.9
67.8
6.9
35.5
3
Germany
91.2
7.9
55.7
5.6
63.8
4
France
61.0
5.3
13.8
1.4
342.5
5
Finland
33.7
2.9
35.0
3.5
-3.8
6
Swiss
32.7
2.8
18.0
1.8
82.1
7
U.K.
28.2
2.4
16.9
1.7
66.8
8
Korea
24.4
2.1
6.4
0.6
283.1
9
Netherland
11.6
1.0
7.2
0.7
62.2
10
Italy
11.0
1.0
7.9
0.8
39.9
11
Sweden
10.1
0.9
14.5
1.5
-30.2
12
Spain
5.2
0.4
0.0
0.0
-
others
3.3
0.3
5.6
0.6
-40.9
1,155.7
100.0
988.4
100.0
16.9
total
17
Brand value
weight
Brand value
weight