Reference no: EM133375566

Carry out a case Study

Restructuring of the Korean company Daewoo Daewoo was founded in 1967 by its incessantly diligent president Kim Woo-Choong. After its initial success in exporting textiles, the company expanded into trade, automobiles, machinery, household appliances, construction, large ships, computers, telephones, and financial services, making it the fourth largest largest consortium in Korea. It became a supplier of textiles for Sears, Christian Dior, Calvin Klein, and London Fog; it also undertook a joint venture with General Motors (GM) to build the Le Mans car; although some labor and other problems limited car shipments. Chairman Kim's philosophy of "hard work and valuing people" was an important factor in the company's success; However, in the late 1980s and early 1990s, the company faced several problems: First, Kim was concerned that with the increasing prosperity of Koreans, the workforce would lose its spirit of hard work, and among young workers there was growing discontent and lack of motivation. Because of Kim's hands-off management approach, some of the Daewoo group companies spun out of control; For example, in the unprofitable unit of heavy vessels, there were many unnecessary expenses. Eliminating company-sponsored hair salons saved the company $8 million a year. In general, Daewoo's workforce was young and educated. In contrast to similar positions at many other Korean companies, top positions at Daewoo were held by managers without family ties. Even though it was a major company with its 91,000 employees, it was not dominant in any industry. The strategy of being a supplier to important foreign companies such as Caterpillar, GM and Boeing could have led it to miss out on opportunities to become an important marketer of its own brands. In the 1990s, Kim was also looking for opportunities in Europe; for example, he formed a joint venture with a distribution company in France. 2 The massive restructuring had already shown some positive effects: Kim sold some real estate, financial and steel units; replaced the hands-off management style with a contrary style, which led to recentralization; some managers were retired or otherwise liquidated, and thousands of positions were eliminated. Things seemed to be looking up in 1991; in 1988 and 1989 the company lost money, but made some profit in 1990, partly from the sale of some important assets. The GM joint venture showed healthy growth and there was optimism about the future of the new compact car; however, Daewoo had to face its labor costs and Japanese competition. What looked good in the early 1990s changed significantly at the end of the 1990s, and especially between 2000 and 2002. In 2000, Ford planned to buy Daewoo Motor for about $7 billion; however, the deal fell through that same year, and the company filed for bankruptcy in November 2000. Chairman Kim mysteriously disappeared, he liked to think big, and he also left behind a company with huge debts and several billion dollars. which were not accounted for. With Ford out of the picture, GM began serious negotiations with Daewoo, once Korea's second-biggest automaker. On April 30, 2002, GM agreed to buy the bankrupt company renamed GM-Daewoo, but what did GM get out of it? The acquisition is a key component of its global strategy. On the other hand, restructuring Daewoo would be a monumental task: the brand's image had to be restored and the Korean market share of 10% (from 37% in 1998) had to improve; the product line also had to be revised and supplemented with new models, in addition, GM-Daewoo had to expect difficulties with the hostile Korean unions. 3

Questions

1. What are the advantages and disadvantages of a hands-off, decentralized management approach?

2. How can Daewoo stay competitive against the Japanese?

3. What were some of the controllable and uncontrollable factors in the case? How should Mr. Kim have responded to these factors?

4. What do you think about Daewoo's expansion in Europe? What are the advantages and disadvantages for the company?

5. Why do you think it was GM that acquired the company and not Ford? 6. What problems can GM-Daewoo expect in the future?