INTERNATIONAL REGULATORY ENVIRONMENT INTERNATIONAL REGULATORY ENVIRONMENT

DAEWOO GROUP AND THE ASIAN FINANCIAL CRISISDAEWOO GROUP AND THE ASIAN FINANCIAL CRISIS

GROUP: 1GROUP: 1

AMIT DUBEYAMIT DUBEY C-07C-07

PRANJAL J BORAH PRANJAL J BORAH C-32C-32

SUMEET RATTANSUMEET RATTAN C-C-

SHIRISH JAINSHIRISH JAIN 3C-163C-16

RAHUL GOELRAHUL GOEL C-71C-71

ABHINAV GUPTAABHINAV GUPTA C-72C-72

CASE FACTSCASE FACTS

Kim Woo-Choong started Daewoo in 1967 as a small textile company.Kim Woo-Choong started Daewoo in 1967 as a small textile company.

By 1997, Daewoo group had 30 domestic companies and 300 overseas subsidiariesBy 1997, Daewoo group had 30 domestic companies and 300 overseas subsidiaries

Government blocked capital to highly diversified companies like Daewoo which failed to Government blocked capital to highly diversified companies like Daewoo which failed to consolidate its business focusing on core competencies during the Asian Financial Crisisconsolidate its business focusing on core competencies during the Asian Financial Crisis

Daewoo diversified into 6 major divisions- i) Trading ii) Heavy Industry and Ship Daewoo diversified into 6 major divisions- i) Trading ii) Heavy Industry and Ship Building iii) Construction and Hotels iv) Motor Vehicles v) Electronics and Building iii) Construction and Hotels iv) Motor Vehicles v) Electronics and Telecommunications and vi) Finance and ServiceTelecommunications and vi) Finance and Service

In 1998, Daewoo debt: $50 billion (13% of Korea’s GDP); debt-equity ratio: 5:1. Failed In 1998, Daewoo debt: $50 billion (13% of Korea’s GDP); debt-equity ratio: 5:1. Failed to pay its home and overseas creditorsto pay its home and overseas creditors

Founder Kim Woo- Choong abandoned Daewoo and fled the countryFounder Kim Woo- Choong abandoned Daewoo and fled the country

In 1999, Daewoo Group collapsed under $57 billion debtIn 1999, Daewoo Group collapsed under $57 billion debt

Korean Government dismantled Daewoo Group; sell-off Daewoo Motors to GMKorean Government dismantled Daewoo Group; sell-off Daewoo Motors to GM

Government reduced the number of Chaebol from 30 to 14 to compete globallyGovernment reduced the number of Chaebol from 30 to 14 to compete globally

Korean economy recovered from the AFC by 2002 growing at 3%Korean economy recovered from the AFC by 2002 growing at 3%

PESTEL ANALYSISPESTEL ANALYSIS

PoliticalPolitical Government emphasis on exports; policy of import substitutionGovernment emphasis on exports; policy of import substitution Government controlled banks offering loans to even financially Government controlled banks offering loans to even financially

unhealthy companiesunhealthy companies The government defending the fixed exchange rate; protectionist The government defending the fixed exchange rate; protectionist

policiespolicies Government blocked capital to highly diversified chaebol like DaewooGovernment blocked capital to highly diversified chaebol like Daewoo

EconomicalEconomical Economic system of government intervention modeled after the Economic system of government intervention modeled after the

Japanese systemJapanese system Lower corporate income tax, tariff exemptions and tax holidays for Lower corporate income tax, tariff exemptions and tax holidays for

domestic suppliers of export firmsdomestic suppliers of export firms Government raised interest rates to support won as per IMF’s adviceGovernment raised interest rates to support won as per IMF’s advice

SocialSocial Family ties played an important role in running Daewoo, very loyal to Family ties played an important role in running Daewoo, very loyal to

the governmentthe government Family Businesses were secretive of its financial healthFamily Businesses were secretive of its financial health limited availability of data and a lack of transparencylimited availability of data and a lack of transparency Charges of corruptionCharges of corruption

TechnologicalTechnological Government policies to shift from light to heavy and then to Government policies to shift from light to heavy and then to

technology oriented industries to promote exportstechnology oriented industries to promote exports

EnvironmentalEnvironmental Mexican peso crisis of 1994; western investors lost confidence in Mexican peso crisis of 1994; western investors lost confidence in

securities in East Asia and began to pull money outsecurities in East Asia and began to pull money out Thai Baht devaluation in July, 1997 followed by Korean won which was Thai Baht devaluation in July, 1997 followed by Korean won which was

46.2% lower46.2% lower IMF encouraged banking reforms and restructuring of chaebolIMF encouraged banking reforms and restructuring of chaebol Raising of U.S. interest rates to head off inflation. This made the U.S. a Raising of U.S. interest rates to head off inflation. This made the U.S. a

more attractive investment destination relative to Southeast Asiamore attractive investment destination relative to Southeast Asia Thai and Indonesian currencies were closely tied to the dollar, which Thai and Indonesian currencies were closely tied to the dollar, which

was appreciating in the 1990s. Western importers sought cheaper was appreciating in the 1990s. Western importers sought cheaper manufacturers and found them, indeed, in China whose currency was manufacturers and found them, indeed, in China whose currency was depreciated relative to the dollardepreciated relative to the dollar

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