Introduction
During the last decades Korean companies have shown an increasing economical development which has leaded them to acquire an important participation in the international market. This accelerated growth which started in the 60's, has become study material for international analysts especially given the circumstances in which Korean economy was before that decade. Korea has changed from an agriculture-led economy to an industrial one and has adopted an export-led strategy.
Many people have given to this situation the name of “The Korean Miracle”, because although several development countries have applied similar strategies, the effect has not been the same for all, and the one with better results has been Korea.
Although state has played an important role on economy development and there are other many variables that have given a boost to this growth, for this paper's purpose we are going to make an emphasis on the influence the changes in organizational structure of Korean companies have had on the Korean economy development. It is important then to make a comparison between the Korean companies before and after 60's and determine the strategies they have implemented since that decade.
Korean Industrial Development
Korea officially known as Republic of Korea is the 15th economy in the world. Although in territory is small, it has a population of more than 50 million and a PIB per capita of almost U$19.000. Nowadays, Korea has worldwide known companies characterized for their quality and innovation in technology.
Industrial politics in Korea is characterized by governmental intervention in the economy. The level of centralization of decision and the amazing success it has in comparison to other countries can be classified in four stages. However, focusing on the causes of economical growth through industrial structure it is only needed to make a comparison between the time before and after 1960.
Korea Before 1960
Korea started as an independent country after 1945 when they liberated from Japanese rule. After its liberation there was such political, social and economic confusion that any attempt to restore them could not be made after 1948 when the government was finally established. Although government had some advances due to its great effort, Korean War in 1950 was a big crash to the country, not only because it took with it two-thirds of production facilities but also because of the high population lost (Almost 1.5 million people died in this three-year war). (Soon, 1994)
After the war, United States helped Korea to recover from damages and leaded the country to finish its reconstruction and to control the hyperinflation caused by war after three years. Still, Korean economy was highly dependent on United States aid and did not have a plan to achieve a sustainable growth in the long-term.
Korea had several economical issues as a PIB per capita lower than Mozambique's or Senegal and a surplus in labor. However, there were also some specific conditions that along with an appropriate intervention from government created the perfect environment to achieve an accelerated growth. Among these conditions there are:
It was after 1960 that Korea started a strategy to achieve a sustainable growth thanks to the first five-year economic development plan, which was the first step to a high growth rates history.
Five-Year Development Plans
At the end of the war Korea was highly dependent from United States aid, and after reconstruction ended this aid began to decrease which made mandatory to create a strategy to gain economic independence and to a sustainable growth.
This strategy was based on five-year plans (Soon, 1994). The First Five-year development plan was created in 1962 and had as main target to establish a self-sufficient economy. In this plan there were also included some principles that became guidelines for further economic policies. After this plan, there have been more than six other five-year plans in which the main targets have been defined in order to develop industry and establish an economic growth based on exportations.
These plans have been more efficient in Korean market due to the close relationship government have with private sector. While government policies and investments created the path to follow, private sector responded to these economical incentives and played their role as economical development creators.
The Korean Miracle
Some economist labeled the south Korea´s development as a “miracle”, when in fact it is not a miracle by default. The Korean economy had a switch from an agrarian orientation to an industrialize one. It receives the label of “miracle” because on the past three decades, Korea grew at a level that other industrialized economies did during one century.
The key is to understand how the country reached a structural transformation that took South Korea to play at the big leagues getting an important role on the world international market.
This structural change is observed on how the production turned from agricultural to manufacturing, giving as result that the primary activities that represented the 40% of the production on the beginnings of 60`s declined to 13%, and that manufacturing, passed from 18% to 30% of the total production. (King, 1991)
In the next chart it is shown how the economy decreased the percentage of the production of basic products, and how it increased the percentage of manufacturing products.
Entrepreneurship And Industrial Structure
Korea's economic development could not be achieved only through government policies. Industrial development was needed and the only way to achieve this was by creating new industries focused on manufacturing activities. These new industries were created mostly by new businessmen that appeared after liberation from Japan and that along with an entrepreneurial mindset and innovative spirit drove Korea to its later economic development.
As economy was changing from agricultural to industrialized, private sector structures and government policies had to change. The main change in the private sector structure was given by Chaebols, which are large scale industrial conglomerates created to make larger investments in infrastructure and to achieve economies of scale. Many positive results came with these alliances and technology developments achieved thanks to them brought the international competitiveness Korea needed in order to implement their export-led growth strategy.
From their point of view, the conglomerates are efficient, because they have access to financial resources in order to make research, increase development, and invest. Also they have access to new technologies and there are cases when they improve imported technology: experience has shown advances made by conglomerates in machinery, shipbuilding, automobiles, and electronics. The conglomerates have access to a qualified human and other resources on the country, that includes people who get a trained into another countries, they have good public relations network and they keep the idea that together will work better than if they were working as individuals industries. They are consider as a great power holders, constantly add new companies to their groups, that expansion has been considered as strength.
Next chart shows the main structure of a conglomerate and how diverse it can be.
Source: (García & Menárguez, 2000)
Conclusion
Each country has specific conditions that can accelerate of decelerate economic growth and according to them, strategies are created to achieve a sustainable development. Among the differences Korea had with other developing countries, cultural characteristics could give this country the advantage to reach such high levels of growth. High educational level in people and a great commitment from the private sector helped enormously to government policies and gave better results on growing rates than expected.
The seeds harvested and today it is the time to recognize that Korea appears as a developed industrial country. They have a high participation on the global market and some their products like cars and electronics got an important role on today's worlds economy. They passed through a continuous path of improving and now brands like Hyundai can be found on the top car manufactures in the world.
References
García, F., & Menárguez, B. (2000). Crecimiento Económico en Corea del Sur (1960-2000). Madrid: Ed.Síntesis.
Hoover Institution on War, Revolution and Peace. (2000). An agenda for Economic Reform in Korea. (K. L. Judd, & Y. K. Lee, Eds.) United States of America: Hoover Institution Press Publication No. 465.
King, K. S. (1991, November). The Korean Miracle: Working paper #166. Retrieved Febrero 2010, from Kellog Institute for International Studies: http://kellogg.nd.edu/publications/workingpapers/WPS/166.pdf
Soon, C. (1994). The Dynamics of Korean Economic Development. Washington, DC: Institute of International Economics.
