Despite his diminutive height, Kim Woo-choong was a giant of Asian business but ultimately, his huge achievements were overshadowed by his equally huge hubris.
No corporate figure was as intimately linked to South Korea’s stunning rise and near-downfall amid the 1997 Asian financial crisis as Kim, who died Monday evening, aged 82, in a hospital in Suwon, south of Seoul. He had reportedly been in ailing health for months.
Kim created the Daewoo, or Great Universe, Group in 1967 amid the epic, early days of South Korea’s “economic miracle,” building it into a globe-bestriding “chips-to-ships” conglomerate by the 1990s.
He was the most risk-tolerant of the founders of chaebol – the family-led colossi around which South Korea’s economy rose.
But his ambition over-reached. Kim resisted reform as the 1997 crisis bit deep. In a harsh lesson to other business leaders, Daewoo went under in what was – until the downfall of Enron in 2001 – the world’s biggest bankruptcy, at a time when South Korea was uneasily digesting what was then the IMF’s biggest bailout.
Kim’s huge group, which once employed more than 300,000 people worldwide, splintered. Though several parts remain in operation under new ownership, Daewoo’s biggest affiliate continues to cost South Korean taxpayers money to this day.
Zero to hero
Kim grew up in Korea’s southeast, known for its powerful right-wing political dynasties. His father was associated with Park Chung-hee, the general who seized power in a 1961 coup and whose authoritarian regime engineered Korea’s industrialization.
Park’s economic model, while dirigiste, relied more heavily on privately-run than nationalized businesses. Under Park, three corporations would rise to the top.
Samsung (“Three Stars”) started out under Japanese colonialism, trading in agricultural products. Hyundai (“Modern”) was underway in the post-war period, doing vehicle repairs and construction for US troops. Daewoo started in textiles, before Kim leveraged his contacts with the president to buy up a range of over-leveraged businesses and turned them around, creating a group.
The chaebol were told what sectors to enter and were offered privileged loans by state-run banks. They built competence by copy-catting, reverse-engineering and hiring foreign expertise. Incubated in South Korea under the aegis of protectionist policies, their competitiveness was honed overseas. Park incentivized them to penetrate global markets, notably the US, where South Korea enjoyed preferential trade status.
It proved a tremendously successful model. By the 1980s, South Korea was recognized as an “Asian Tiger” and the chaebol had climbed the value ladder from textiles and construction to electronics, cars, ships and petrochemicals.
Kim acted more like a foot-soldier than a general. A workaholic, he traversed the globe, doing deals left and right. He was highly adventurous and one of the first chaebol to do business with Russia. This writer, who met him only once, found him cheerful, charismatic and energetic.
Kim’s autobiography was characteristically entitled, Every Street Is Paved With Gold: The Road to Real Success. According to its blurb, the book offers Kim’s “surefire strategies, proven tips, simple parables, and amazing stories from his remarkable international business career.”
Hero to zero
But the chaebol – seeking size more than profitability – took on massive debt to fund their empires. This was possible because South Korea’s state-controlled finance sector prioritized long-held, cozy relationships and political connections over credit analyses and risk assessments.
In late 1997, a financial hurricane blowing up from Southeast Asia hit South Korea. Confidence plunged and the won’s value against the dollar fell by more than half. Taking power, the new Kim Dae-jung government accepted a US$58 billion IMF bailout.
Reforms were demanded. The Chaebol were ordered to pare down to core competencies through corporate swaps. Unprofitable units were divested to raise cash. Overstaffed companies laid off people. A new financial regulatory framework was emplaced.
But Daewoo’s Kim – considering the crisis financial rather than economic, as if money was unimportant in business – resisted. Falling back on his customary business model, he expanded Daewoo’s affiliates in 1998.
“He had a track record of aggressive acquisitions whenever a significant business failed and an asset came on the market,” said Hank Morris, an adviser to Erudite Risk. “That is how he grew some of the major companies in the group.”
Kim had further grounds for confidence. Though second-tier conglomerates had foundered, many considered the top-tiers “too big to fail.”
They were not. Daewoo – with a $50 billion hole in its accounts – imploded spectacularly in 1999. Kim, accused of fraud and embezzlement, fled. Broken up, the group’s arms were offered for sale to any bidders.
Meanwhile, reforms were gaining traction. The ultra-weak won and the robust state of the global economy, ex-Asia, led to a surge. Surviving chaebol exported South Korea out of danger. The country underwent a hyper-fast, v-shaped, rather than u-shaped, recovery. It was back in growth mode by 1999.
Today, many South Koreans view the “The IMF crisis” as a catastrophe. The central tenet of the previous social contract, “jobs for life,” disappeared. Newly flexible working systems shattered employment stability. A “haves versus have nots” society emerged.
But macro-economically, the IMF program ticked all boxes. In addition to hyper-speed recovery, the astuteness of the reform drive is evident in national sustainability and Korea has not suffered a single annual recession since 1998.
Related market openings accelerated the globalization of the South Korean high street. Consumer imports, from cars to cigarettes, became commonplace. One Seoulite opined that an era had ended in 1999, when Starbucks opened in Korea – people buying designer coffees were not in an economic crisis.
Moreover, new entrants in a ravaged entertainment sector created a nascent global phenomenon called K-pop and K-dramas.
Daewoo’s downfall had served the chaebol notice. “I think that reinforced the necessity to deleverage and get their groups in reasonable financial order,” said Morris.
Surviving conglomerates refocused on their core lines. Samsung specialized in electronics, Hyundai in cars and ships, LG in electronics. All upgraded from commodities players to global brands.
Today, they are as powerful as ever. Lacking a crisis, no Seoul government has managed to successfully reform the chaebol since.
Kim disappears, Daewoo dissolves
Kim would see little of this. Disgraced, he fled the country and it was rumored he was hiding out at a luxury property in France. Wanted by Interpol, he was also pursued by a group of angry, laid-off workers.
In 2005, he returned to South Korea and in 2006 was sentenced to 10 years in jail. He was freed via a presidential pardon in 2007. His final years were largely spent in Vietnam, where he maintained business and philanthropic interests.
Though Daewoo broke up, much remains operational.
Daewoo’s vehicle arm was acquired by General Motors and its headquarters building by Morgan Stanley, while its electronics arm passed through the hands of multiple buyers.
Its biggest asset, Daewoo Shipbuilding and Marine Engineering, was nationalized. It continues to hammer taxpayers’ pockets, having devoured more than $6 billion in 2015 and 2017 bailouts while being wracked by scandal. In January, Hyundai Heavy Industries sought to acquire it in a merger that would create the world’s largest shipbuilder with a 21% global market share.
Today, with its future in doubt as it awaits the result of a global anti-monopoly audit, DSME remains the largest tangible memory of the 1997 crisis – and of Kim Woo-choong’s once mighty Daewoo Group.