Hyundai's Gutsy Gambit

Few Koreans believed Hyundai group founder Chung Ju-Yung when he announced last December that he would dismantle the Hyundai Group, the country's largest chaebol, or conglomerate. Chung had just finished a dismal third in the country's presidential election, but as head of Hyundai he remained one of the most powerful men in South Korea. And in the past, similar promises to reform the mighty Korean chaebol had resulted in few changes.

"Big Chung" proved the skeptics wrong on May 22, when he detailed his plan to break up the $52 billion Hyundai empire. Chung's proposals call for spinning off some of Hyundai's companies, unloading his family's controlling interest in others, and consolidating those that are left. Hyundai sources say that even more drastic changes will follow.

Chung's move should have sweeping impact on other conglomerates facing pressure to loosen their stranglehold on Korea's economy. The chairmen of other chaebol, such as Daewoo, Samsung, Lucky-Goldstar, and Sunkyong, also will be forced to reorganize if Chung's gambit works. Their goal will be partly to offset criticism from the new government of President Kim Young-Sam. But at the same time, they want to revitalize their management ranks to compete globally.

AFTER 55 YEARS. Dismantling Hyundai's network, which accounts for about 10% of Korea's gross national product, will be painful for Chung, who in his 55 years at the helm has made it Korea's biggest chaebol. He will sell his family's controlling interest in Hyundai Heavy Industries Co., Hyundai Merchant Marine Co., and three other companies. The group will also sever ties with its insurance, hotel, and department store companies. By yearend, Hyundai could be broken into seven groups managed by Chung's sons, says a company source.

The drastic plan is a bold move by Chung to salvage whatever he can of Hyundai. A government crackdown has led to an imposition of millions in back taxes and the jailing of Chung's fifth son on tax-fraud charges. Big Chung himself is facing trial on several counts of election-law violations and embezzlement of corporate funds. With so many troubles, Chung needed to make a dramatic gesture to satisfy Kim. "The changes should be for real," says an aide to Kim.

Other tycoons have also accepted that it's time to alter their groups' centralized structures. The Lucky-Goldstar Group, the electronics and petrochemicals giant, has given autonomy to many of its company presidents and merged several subsidiaries. Chairman Kim Woo-Choong of Daewoo is bringing in a corps of younger managers. By 1994, a source says, he will reduce his 20 member companies to five major independent units: trading, electronics, machinery, autos, and finance. The Samsung Group has also given its managers more authority and will focus on electronics, machinery, and chemicals.

THE NEW ORDER. Kim Young-Sam is expected to keep the heat on the chaebol. He has the support of a Korean public fed up with the conglomerates' domination of the economy. The new government expects chaebol families to do more than just sell assets in some of their companies. "Founding families should pass the reins of management to professionals," says a government official, "in order to cope with the rapidly changing business reality."

Even without Kim, the chaebol would feel pressure to downsize. Democratic reforms have emboldened the country's once passive work force, and higher manufacturing wages have made Korean exports less competitive. As a result, the conglomerates need to focus on areas where they can be leaders, rather than spread themselves too thin. "We are ready for change," says Chey Jong-Hyun, chairman of Sunkyong.

Indeed, the dismantling of Hyundai may prove to be the group's salvation. By shedding some of his family's companies, Chung is betting that the Hyundai that remains will be better prepared to focus on autos and construction, its core businesses. "It looks like a very astute paring down," says Phillip D. Grub, professor of international business at George Washington University. "The core industries will still remain, and Hyundai will end up a slimmer and trimmer organization." Hyundai is giving up its dominant position in Korea's economy. But Big Chung's group is hardly down for the count.

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