CASE: 1 RESTRUCTURING AT KOREA'S DAEWOO (ORGANIZING)

Daewoo was founded in 1967 by its hardworking, sentlessly driven chairman, Kim (surname) Woo-Chong. After its initial success in exporting textiles, be company expanded into trade, autos, machinery, consumer electronics, construction, heavy shipping, computers, telephones, and financial services, becoming Korea's fourth largest business group. The company became, for example, a textile supplier for Sears, Cristian Dior, Calvin Klein, and London Fog. Daewoo also engaged in a joint venture with General Motors to build the Le Mans car. However, labor and their problems limited the car shipments.

Chairman Kim's philosophy of hard work and to value placed in people were important factors in firm's success. However, in the late 1980s and early 1990s, the company faced several problems. for the, Kim was concerned that with the increasing prosperity of Koreans, the work force might lose the spirit of hard work. Moreover, there was a growing discontent among the younger workers and a lessening of convention.

Through Kim's hands-off approach to manage some of the companies in the Daewoo business went out of control. For example, in the unfitable heavy shipping industry, he noticed many necessary expenses. The elimination of company sponsored barbershops saved the company $8 million year.

In general, Daewoo's work force is young and educated. In contrast to similar positions in many Korean companies, top positions at Daewoo are supplied by managers with no family ties.

Although Daewoo is a manor company with its 91,000 employees, it is not dominant in any one industry. The strategy of being a supplier for major foreign companies, such as Caterpillar, General Motors, and Boeing, may have led to bypassing opportunities for becoming a major marketer of its own brands. Now, in the 1990s, Kim is also looking at opportunities in Europe; for example, he formed a joint venture with a distribution company in France.

The massive restructuring has already had some positive effects. Kim sold some steel, financial, and real estate units. The hands-off managerial style has been replaced by a hands-on style, resulting in recentralization. Managers were "retired" or otherwise let go. Thousands of positions were also eliminated.

Things were looking better in 1991. The company lost money in 1988 and 1989 but made some profit in 1990 partly because of the sale of some major assets. The joint venture with GM registered a healthy growth. The company was also optimistic about the future of the new compact car Espero. Still, in the early 1990s, Daewoo has had to cope with the strong Korean currency, its labor costs, Japanese competition, and recessions in various countries in which it operates.

Questions

1. What are the advantages and disadvantages of a hands-off, decentralized management approach?

2. How can Daewoo stay competitive with the Japanese?

3. What are some of the controllable and uncontrollable factors in this case? How should Mr. Kim respond to those factors?