Daewoo: Exile Of The Patriarch

Clouded by scandal, the company's founder is headed for Vienna--but don't count him out

Armed with just $10,000 in capital, Kim Woo-Choong started the Daewoo business group in the late 1960s by making cheap shirts for Sears, Roebuck & Co. and other U.S. mass marketers. Partly thanks to his connections with a series of South Korean governments, he was able to build Daewoo into a $57 billion industrial powerhouse, making autos, ships, electronics, and a wide array of other goods. The chain-smoking, silver-haired tycoon became a roving ambassador for his group and his country, circling the world in search of the next business deal.

Now, the 59-year-old Kim is headed into exile. Officially, Daewoo says the boss's decision to base himself in Vienna is not connected with his current trial on two charges of paying bribes to former President Roh Tae Woo, who is at the center of a $650 million corruption scandal. In court, Kim has repeatedly said that his payments to Roh were political contributions, not bribes. If Kim is convicted, he is expected to be fined or win a suspended sentence instead of facing jail time.

"WE ARE WORRIED." Despite company denials, the conclusion appears inescapable that Kim's plans to depart from Korea after his trial reflect his feeling that the investigation into past links between Korea's chaebol and its military-backed governments has been overtly political. Kim was not available for comment, but one source says going on trial after having built such an important business group is "sickening" to him.

As his replacement, Kim has appointed Yoon Young-Suk, previously chairman of Daewoo's heavy-industry unit, to take over the whole group and manage its global businesses, with the exception of autos, from Seoul. Kim will concentrate on Daewoo's worldwide auto strategy. In his first interview since being appointed chairman, Yoon said: "It is not really true that Chairman Kim is leaving Daewoo. He wants a break to concentrate on overseas automotive ventures." Yoon, 57, is a trusted ally who graduated from the same high school Kim did, two years later, and then worked his way up Daewoo's management ranks.

Kim's decision, quietly leaked in mid-January, has brought mixed reactions from shocked employees. Some younger employees, who joined Daewoo because of Kim's charisma, are wondering whether Yoon and his team will possess the same raw drive Kim displayed over the past 29 years. "We are worried that his absence could create a managerial vacuum and indecision," says T.K. Kim, an employee of Daewoo Corp., the group's flagship trading company.

OLD SORE. But most Daewoo watchers don't believe the group will begin to drift. For starters, Kim's full-time presence in Europe will turn up the heat on competing auto makers. Kim, who spent nearly 250 days in Europe last year, wants to spend even more time there to knit together his daring auto investments of nearly $3 billion (table). In the past 12 months, Kim has taken over Romania's Rodae Automobile, Poland's state-owned FSO auto maker, and the Czech Republic's Avia. He earlier invested $650 million to build a brand-new auto factory in Uzbekistan. Kim's plan is to use these countries as manufacturing platforms for cracking Western Europe.

That's already a crowded marketplace, and economic growth is lagging. But Kim is convinced his low-cost manufacturing bases will allow him to dramatically undercut such rivals as General Motors, Ford, Volkswagen, and others. Daewoo is committed to investing an additional $2 billion in the next five years to make these plants capable of producing quality cars on a commercially viable scale. "Without Kim's personal attention, these plants, with a likely workforce of 75,000 within the next few years, could face difficulties in terms of financing, relationships with governments, and marketing," says Yoon. Daewoo Motor's ultimate goal is to break into the ranks of the world's top 10 auto makers by manufacturing 2 million cars a year by the turn of the century.

Another driving force in Kim's decision to concentrate on autos is an old score with General Motors Corp. GM and Daewoo entered an alliance in the late 1980s, with the American giant buying 50% of Daewoo Motor. The Koreans hoped the deal would catapult them into global status. But the venture fell apart in 1991 amid acrimony, and--as part of a divorce settlement--Daewoo Motor was barred from the U.S. market until 1996.

That left Kim with little alternative but to develop a strategy of focusing on developing markets. Now that Daewoo Motor has edged into profitability and is close to reaching critical mass globally, it could be payback time. A key target is GM's position in Europe. "He wants to prove to GM that his strategy of concentrating in Third World markets does work," says one source close to Kim. That's one reason beating out GM to win control of Poland's FSO Motor Corp. was so sweet for Kim.

Kim's new role also could help the group in Korea because it improves Daewoo's public image in the aftermath of the Roh corruption scandal. With recent changes in the management of LG, Hyundai, Kumho, and other groups, "the trend in Korea is to get rid of the founders," says a senior Daewoo executive. Kim personally owns stakes in Daewoo Heavy Industries and two other units but does not exercise majority financial control of the whole group, which consists of 24 companies.

YOUTH MOVEMENT. Moreover, Kim's departure could help rejuvenate the ranks of management. When Daewoo announced its annual round of promotions in early January, nearly 100 younger managers were appointed to senior posts. Some of the newly appointed CEOs of Daewoo's companies are in their 40s, a bold move in Korea's highly tradition-bound, seniority-based system. If Kim and his dominating personality were still in place in Seoul, that might discourage the younger managers from assuming greater autonomy in their decision-making.

These managers are expected to hammer away at the group's "global management" strategy with even greater vigor than before. That strategy, in place since 1994, calls for Daewoo to build hundreds of wholly owned subsidiaries and joint ventures in the emerging markets of Asia, Europe, and Latin America and realize total sales of $200 billion by 2000. Although that target may be unrealistically high, there's little question that Daewoo is going to continue to grow rapidly.

So although Kim will be in self-imposed exile, his move doesn't appear to reflect a blunting of Daewoo's global competitive push. Company sources say the boss isn't likely to slow down appreciably. For three decades, he has never taken a single day off from his work. "He won't be enjoying opera in Vienna, but watching operations," says Yoon. Most likely, the world hasn't heard the last from Chairman Kim.

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