DAEWOO GROUP AND THE ASIAN FINANCIAL CRISIS

NITIN YADAV SHIVA YADAV MOHD UMAR MEHUL AHUJA RAVI PRAKASH NISHANT GARG

CASE FACTS
Kim Woo-Choong started Daewoo in 1967 as a small textile company. By 1997, Daewoo group had 30 domestic companies and 300 overseas subsidiaries. Government blocked capital to highly diversified companies like Daewoo which failed to consolidate its business focusing on core competencies during the Asian Financial Crisis. Daewoo diversified into 6 major divisions- i) Trading ii) Heavy Industry and Ship Building iii) Construction and Hotels iv) Motor Vehicles v) Electronics and Telecommunications and vi) Finance and Service. In 1998, Daewoo debt: $50 billion (13% of Koreas GDP); debt-equity ratio: 5:1. Failed to pay its home and overseas creditors.

Founder Kim Woo- Choong abandoned Daewoo and fled the country. In 1999, Daewoo Group collapsed under $57 billion debt. Korean Government dismantled Daewoo Group; sell-off Daewoo Motors to GM. Government reduced the number of Chaebol from 30 to 14 to compete globally. Korean economy recovered from the AFC by 2002 growing at 3%.

PESTEL ANALYSIS

Political
Government emphasis on exports; policy of import substitution. Government controlled banks offering loans to even financially unhealthy companies. The government defending the fixed exchange rate; protectionist policies. Government blocked capital to highly diversified chaebol like Daewoo.

Economical
Economic system of government intervention modeled after the Japanese system. Lower corporate income tax, tariff exemptions and tax holidays for domestic suppliers of export firms. Government raised interest rates to support won as per IMFs advice.

Technological
Government policies to shift from light to heavy and then to technology oriented industries to promote exports

Environmental
Mexican peso crisis of 1994; western investors lost confidence in securities in East Asia and began to pull money out Thai Baht devaluation in July, 1997 followed by Korean won which was 46.2% lower. IMF encouraged banking reforms and restructuring of chaebol. Raising of U.S. interest rates to head off inflation. This made the U.S. a more attractive investment destination relative to Southeast Asia. Thai and Indonesian currencies were closely tied to the dollar, which was appreciating in the 1990s. Western importers sought cheaper manufacturers and found them, indeed, in China whose currency was depreciated relative to the dollar.

About Daewoo Motors

Kim Woo-Choong
10/21/2012 8

NATIONAL MOTORS 1937

SAENARA MOTOR 1962

SHINJIN MOTORS 1965

TOYOTA

DAEWOO MOTORS 1978

TOYOTA Withdrawal, 1972

General Motors Korea

SAEHAN MOTOR 1976

10/21/2012

Renamed

SHINJIN MOTORS

Debt/Equity Ratio Hyundai vs DaeWoo

700 600 500 400 300 200 100 0 Dec 95Dec 96Dec 97Dec 98 Jun 99 Dec 99
Hyundai

Daewoo

Daewoo Groups Domestic Borrowings

unit: billion won

25,000 20,000 15,000 10,000 5,000 0

Commercial banks Non-bank financial institutions Corporate notes Commercial papers
Dec-97 Dec-98 Jun-99

Source: Korea Financial Supervisory Commision

10/21/2012 11

Conclusion
BusinessGovernment Relations
Ownership Structure

Shareholders & Stakeholders

Lack of Oversight

Daewoos Fall

Related-Party Transactions

Concentrated Decision Making Ineffective Enforcement

Financial Structure

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