Chaebols & Economic Development

The CBS Chazen Korea ’19 Organizers at Hyundai Steel

Here at the Hyundai Steel plant, the vast majority of the automotive steel produced here goes to into Hyundai and Kia automobiles.  This particular plant in Dangjin also has an electric arc furnace (Hyundai is the 2nd largest EAF steel producer) that turns scrap and iron byproducts into rebar, h-sections and heavy machinery that has applications in Hyundai’s construction and shipbuilding businesses.  The result is a well oiled cog in the vertically integrated Hyundai “machine”. During our tour of the facilities, we saw the end to end “integrated” process that begins with raw material from the port, and transforms iron ore and coal into coke, then molten metal, and finally various finished steel products.  While we were not allowed to take pictures inside the facility, the pure scale and size of the operations was immediately obvious.  The casting and rolling processes alone were housed in facilities that were at least the size of several football fields.

Senior Leadership at the Hyundai Steel Factory present their business

Hyundai is one of the largest conglomerates or “chaebol” in South Korea.  The sales from Hyundai and the other top four chaebols in aggregate is more than 50% of the nation’s GDP.  These economic powerhouses have powered the “Miracle on the Han River” but started in a time when North Korea outpaced South Korea in economic output.  In post World War II South Korea, well before it became Asia’s 4th largest economy and a member of the G20, chaebols began their starring role in economic growth.  During the 1960s, the government began to actively intervene in and work closely with private companies via rolling five year plans, giving birth to the chaebol era. 

The Steps of HQ at the Steel Mill

After decades of rapid export driven growth (exports are ~70% of Korean GDP today), numerous chaebols failed during the Asian Financial Crisis due to unsustainable debt burdens.  In the aftermath, reforms were undertaken and the remaining chaebols quickly recovered, grew significantly larger, and remain intertwined in daily South Korean life.  Looking forward, the South Korean economy will undoubtedly be shaped by these economic institutions.  Historical criticisms of these firms include corruption, political entrenchment, and the potential lack of competition. While rapid progress can be made when power is concentrated in a few hands, scandals and inter-generational hand-offs could be catalysts for re-thinking the current model as the South Korean economy enters its next stage of growth.

Vincent Su (CBS ’19) is an MBA Candidate at Columbia Business School

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