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Category: Business and Industry
Date Submitted: 04/29/2011 11:20 PM
Lessons of the Daewoo Failure
Robert Dobbs
LDR 531
03/14/2011
Chris Lewis
Lessons of the Daewoo Failure
The Daewoo Group, the mother company of Daewoo-FSO and RODAE, was founded on March 22, 1967 by Kim Woo Choong, the son of the Provincial Governor of Daegu, Korea. The company’s original focus was in the clothing and textile industries. The Daewoo Group consists of twenty sub-groups or divisions and by first sight almost appears to be as diversified as a mutual fund. The Daewoo Groups assent into prominence came from the infusion of capital by the South Korean government through various 5 year plan loan funds. These loans were cheap and the profit margins in the clothing and textile business were high; this all attributed to the dramatic increase of the size and capital of the Daewoo Group. During the 1990’s, the Daewoo Group continued its growth through several joint ventures and by diversifying its own holdings in various industries.
In 1998, the Daewoo Group began to have financial difficulties, as in conjunction with the overall Asian financial crisis. However, more of Daewoo’s financial difficulties were tied to the close relationship with the South Korean government led by President Kim Dae Jung and this government was suffering from its own poor financial management. Daewoo’s financial problems were made worse by a management team that basically “doubled down” by purchasing 14 new firms and adding 275 additional subsidiaries. Then in 1999, Daewoo Group declared bankruptcy with 80 billion won or $84.3 million in debt (Wikipedia). Shortly after declaring bankruptcy, Daewoo employees wanted to get the Chairman, Kim Woo-Choong, for fraud and had even posted “wanted” posters for him. Chairman Choong fled to France for 5 years and returned to South Korea to face arrest and prosecution. Choong was charged with accounting fraud worth 41 trillion won ($43.4 billion), illegally borrowing 9.8 trillion won ($10.3 billion) and smuggling...