By Mark L. Clifford
Daewoo was once a multibillion-dollar, globe-girdling enterprise with the grandiose name "Great Universe." That was before the South Korean company collapsed three years ago in one of the world's largest-ever bankruptcies. Daewoo's erstwhile chairman, Kim Woo Choong, disappeared from the public stage in disgrace.
Now, Kim has resurfaced, offering a lengthy interview with Fortune's Louis Kraar, who some years back wrote the introduction to Kim's saccharine autobiography. Kraar's article has caused a firestorm in Seoul. The conservative press, which dominates the newspaper scene, has jumped on Kim's contention that former President Kim Dae Jung (no relation) advised the Daewoo boss to leave the country in 1999 and lie low until the political heat surrounding Daewoo's collapse blew over. Kim Dae Jung's opponents think that the ex-Daewoo boss could spill dirt on Kim Dae Jung's backdoor dealings with the company.
That misses the real point. To hear Kim tell his story, he was simply a hard-working Korean businessman who was left out in the cold when the rules of the game changed. My view of Kim is simpler -- and unflattering. (Since Daewoo's collapse in 1999, Kim's lawyer has repeatedly rebuffed BusinessWeek's requests for an interview.) Korea needs to face facts if it's to stay the course with free-market reforms that will curtail the corrosive power of the chaebol, the Big Business groups that dominate the country.
History shows that Kim Woo Choong had long been a poor businessman, one who sowed the seeds for his own fall -- not in 1999, but as far back as 1985. If the government had found the guts to act decisively a decade earlier, when Daewoo needed a bailout to survive a brush with bankruptcy, the horrible economic crisis of 1997-98, which forced Korea to turn to the International Monetary Fund for a humiliating bailout, might have prevented.
The characteristics that made Kim a success and then a failure were evident from the beginning of his business career. When he set Daewoo up as a textile-trading company way back in 1967, his hyperkinetic personality made him an ideal trader, hustling orders from around the globe. But he was political from the start. Almost alone, he saw that the U.S. would impose quotas on South Korean textiles and apparel. So he pumped up exports to make sure that he got a big chunk of the quotas. When the quotas were slapped on in 1972, Daewoo ended up with almost one-third of South Korea's total. Owning the quotas became a license to print money.
A DICTATOR'S PAL.
Kim emerged as an acquisition acrobat. In the first nine years of Daewoo's existence, he snapped up 11 companies, from textiles to finance to machinery to cosmetics. That may not sound so impressive next to Tyco's (TYC ) acquisition binges in the U.S., but remember that Daewoo was a tiny trading company operating out of a minuscule office.
Cheap credit from banks and the government in a country where only favored companies could get loans helped Daewoo grow. How did Kim get those loans? Well, his father, a schoolteacher killed during the Korean War, had been dictator Park Chung Hee's teacher.
Kim was always good at talking big. He was inspirational. He epitomized the can-do spirit of the first quarter century of Korean economic development. A teetotaler, his habit of drinking barley tea in a country famed for its boozy evenings gave him an edge.
By the mid-1980s, however, even Kim knew that his time was passing. During a fairly mild slump, government officials considered bringing his empire down, which they could have done with the stroke of a pen. Instead, Kim left the country for a time, avoiding government emissaries sent to summon him home. On his return, he pledged to put all his assets into a foundation and, within a few years, turn over the reins to professional managers. But as the economy boomed again, those promises were forgotten, and Kim's go-go expansion instincts returned.
In 1989, only a government-led bailout of his shipbuilding unit, which had been wracked by labor disturbances, salvaged Kim's empire. Once again, politically inspired loans saved him.
Emboldened, he took on the auto market. Daewoo had long had a joint venture with General Motors (GM ). Daewoo chafed at the restrictions GM put on the venture and provoked a rupture. Freed of market constraints, Kim went on yet another global expansion binge, but at a time when the world economy was awash in autos. Time and again, he cut secret deals with governments -- and then failed to deliver on promises of investment or localization.
In short, Kim was a swashbuckling hero during Korea's period of frenzied growth. But that era has passed. The bubble has burst, and now Korea should move on, wiser for the experience.
The Kim story contains a lesson for China, too. Some of its fledgling entrepreneurs are every bit as gung-ho as Kim. Take Yang Bin, the former Chinese flower seller whose vast real estate ambitions brought him down.
For better or worse, Chinese banks have been leery of providing credit to private entrepreneurs. But as they start to extend loans to the private sector, they'll have to keep a better watch on risk management than Korea's banks did. After all, it's a universal business truth: The first burst of entrepreneurial zeal inspires people with great ideas but often little management ability. Korea and China both need to heed the warning lesson of Daewoo's Kim Woo Choong.
Asia Regional Editor Clifford lived in Seoul in 1987-92 and is the author of Troubled Tiger: Businessmen, Bureaucrats and Generals in South Korea
Edited by Douglas Harbrecht