The Strategic Management of Korean and Japanese Big Business Groups

489 Pages·2009·2.34 MB·English

by  Jun In Woo

THE STRATEGIC MANAGEMENT OF
KOREAN AND JAPANESE BIG BUSINESS GROUPS:
A Comparison Study between Korean General Trading Companies and
Japanese Sogo Shoshas

by

IN WOO JUN

A thesis submitted to
The University of Birmingham
for the degree of
DOCTOR OF PHILOSOPHY

Department of Management
The Birmingham Business School
The University of Birmingham

August, 2009
University of Birmingham Research Archive

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ABSTRACT

This research is an in-depth study of Korean GTCs (General Trading Companies)
and Japanese Sogo Shoshas (the Japanese version of General Trading Companies),
which are unique big business conglomerates but not well-known in Western countries.
It investigates and compares several of their features, such as their history,
characteristics, functions, organisational structure, corporate culture, human resource
management, their impact on national economic development, strategic management
and decision-making process.

First, it examines a wide range of literature to show the functions of Korean GTCs
and Japanese Sogo Shoshas as transaction intermediaries, information gatherers, project
organisers, international marketers, financial providers, etc. With these varied
functions, they have played significant roles not only from the macro aspect, but also
the micro aspect. To rationalise their theoretical existence, they are approached from
four perspectives: transaction cost economics, informational economics of scale,
international marketing, and as financial intermediaries.

Second, many elements were examined to scan the general management system
within the two groups. Compared to Western countries, both Korea and Japan
traditionally have a collectivist culture with low individualism. However, there have
been transformations in the culture in terms of employee values, attitude, behaviour and
management style. These cultural changes have been reflected in human resource
management practice. Traditional human resource management practices lost their
effectiveness, as they proved to be unfit for the changing business environment.
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Traditional features such as lifetime employment, seniority-based pay and recruitment
patterns have been changing since the slower growth of these economies in the 1990s.
Corporate governance and ownership structure were also examined. In Korea’s case,
control power has been centralised to group owners and their excessive power over
ownership has caused problems, especially in the decision-making process. But
ownership and management in Japan have traditionally been separated.

Third, as a main purpose of this research, a field survey was carried out to examine
the strategic management of the two groups by analysing the relationships between the
business environment, competitive strategy, organisational structure and performance.
As in the previous literature, this research also found that the variables are not
independent, but interdependent with the other variables. Environment influences a
firm’s competitive strategy and strategy affects its organisational structure. Then,
performance is influenced by strategy and structure. For instance, a firm’s employment
of differentiation strategy is positively associated with environmental uncertainty and
complexity. A differentiation strategy is positively correlated with organisational
decentralisation. Consistent with the previous literature, a cost leadership strategy is
statistically positive with organisational formalisation. A hybrid strategy and new
market development are positively correlated, since the main purpose of this strategy is
to offer high-quality products or services at lower prices than competitors do. The
research also found that organisational decentralisation motivates and encourages
employees’ satisfaction and retention.

Fourth, the decision-making process within the two groups was compared. Top
executives in Korean GTCs still play important roles in the decision-making process,
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whilst, team leaders and middle managers are positioned as main bodies in Japanese
Sogo Shoshas. As primary factors influencing decision-making, ownership and
corporate culture are the most important factors in Korean GTCs, whilst corporate
culture is a primary component in Japan. Korean decision-makers tend to be
individualistic, but Japanese decision-makers practice collectivism. There have been
significant changes in decision-making both in Korean GTCs and Japan Sogo Shoshas
since the 1990s.

Fifth, in totality, some differences in the general management system were found
between the two groups. These may be caused by cultural differences, history,
organisational size and/or the degree of business scope and diversification.

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ACKNOWLEDGEMENTS

I wish to thank the many people who have encouraged, or assisted in, the
preparation of my PhD. thesis. This work would not have been possible if it had not
been for the help and support of many people. In this short preface I am not able to
acknowledge everyone by name.

First and foremost, I would like to express my deep and sincere thanks to Professor
Jim R. Slater, who has supervised my study for the past three years. His expertise in
Strategic Management, as well as his assistance in many other phases, was especially
beneficial in completing this dissertation. No amount of words can express my gratitude
to him. My special thanks and gratitude are extended to Professor David Bailey. I am
greatly indebted to him for his endless efforts and warm assistance in clarifying and
refining this dissertation. The useful comments he has given me on Japan-related
research were particularly helpful.

For my field survey, I am indebted to many people. I especially thank the contact
people in Korean GTCs and Japanese Sogo Shoshas, in particular, Mr. Ki Sung, Cho, a
manager of Lotte Group, and Mr. Keisuke Sasaki, a senior manager of Tomen
Corporation. I also thank all the respondents who participated in my field survey. Most
of them gave their total support and encouraged me.

I would also like to acknowledge my gratitude to my family. Without their
devotion and sacrifice, I could never have finished all my academic journey in the U.K.
I especially thank my mother, Gae Soon, Lee, and my brothers and sister, Hong Woo,
Young Woo, and Gae Sun, who have given me their emotional and financial support
over the years. Finally, I should not forget my only daughter, Eun Chae, who has given
me emotional encouragement during my study. With all my heart, I dedicate this
dissertation to my family.

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LIST OF TABLES

Table 2.1. Definitions of the GTCs/Sogo Shoshas 18
Table 2.2. Market Governance Structure 27

Table 3.1. Changes of Requirements for GTC Designation 4
Table 3.2. Samsung Corporation’s Management Philosophy 47
Table 3.3. Daewoo International Corporation’s Management Philosophy 50
Table 3.4. LG International Corporation’s Management Philosophy 52
Table 3.5. Hyundai Corporation’s Management Philosophy 54
Table 3.6. SK Networks Co., Ltd.’s Management Philosophy 57
Table 3.7. Hyosung Corporation’s Management Philosophy 59
Table 3.8. Sangyong Corporation’s Management Philosophy 60
Table 3.9. Organisational Structure of Korean Major GTCs in 2008 65
Table 3.10. Number of Overseas Branches of Korean Major GTCs in 2008 65
Table 3.11. Impacts of Traditional Social Values on Corporate Culture 67
Table 3.12. Sahoon of Korean Major GTCs 68
Table 3.13. Insider Ownership of Major Chaebols 71
Table 3.14. Traditional and Newer Characteristics of HRM within Korean
Big Business Groups 79
Table 3.15. Profitability of Korean GTCs in 2007 85
Table 3.16. The Top 30 Korean Chaebols in 208 8
Table 3.17. Convictions by the Park Regime for Illicit Wealth Accumulation 95
Table 3.18. The Amount of Exports made by the GTCs 99
Table 3.19. The Chaebols’ Ownership of Commercial Banks in 1997 102
Table 3.20. Korea’s FDI by Destination 107
Table 3.21. Total External Liabilities of Korea 13
Table 3.22. Changes in the Debt-Equity Ratios of the Top Five Chaebols 116
Table 3.23. Big Deals Programme in Industries 117
Table 3.24. Infusion of Public Funds to the Financial Sector :
November, 1997 ~ October, 2006 120

Table 4.1. Mitsui & Co., Ltd.’s Management Philosophy 129
Table 4.2. Mitsubishi Corporation’s Management Philosophy 131
Table 4.3. Sumitomo Corporation’s Management Philosophy 134
Table 4.4. Marubeni Corporation’s Management Philosophy 136
Table 4.5. Itochu Corporation’s Management Philosophy 138
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Table 4.6. Sojitz Corporation’s Management Philosophy 140
Table 4.7. Tomen (Toyota Tsusho) Corporation’s Management Philosophy 141
Table 4.8. Organisational Structure of Japanese Major Sogo Shoshas in 2008 144
Table 4.9. Number of Overseas Branch of Major Japanese Sogo Shoshas in 2008 145
Table 4.10. Five Major Dimensions of Culture: Japan, Korea and the UK 146
Table 4.11. Comparison of Corporate Culture and Management System: Korea,
Japan and the West Firms 149
Table 4.12. Profitability of Japanese Sogo Shoshas in 2007 167
Table 4.13. Comparison of Stability between Major GTCs and Sogo Shoshas
in 2007 169

Table 5.1. The Balancing Considerations between Centralisation and
Decentralisation 26
Table 5.2. The Hypotheses and Results Summarised 244
Table 5.3. The Hypotheses and Results Summarised 246
Table 5.4. The Formation of the Sample 268
Table 5.5. A Population Number: Total Marketing and Sales Employees
within Korean GTCs and Japanese Sogo Shoshas 272
Table 5.6. The Environment Scale 27
Table 5.7. The Strategy Scale 279
Table 5.8. The Structure Scale 281
Table 5.9. The Performance Scale 282
Table 5.10. Statistical Techniques to be used for each Hypothesis 283
Table 5.11. Mean and Standard Deviation of Variables 284
Table 5.12. Correlation Matrix : Korean GTCs 285
Table 5.13. Corelation Matrix : Japanese Sogo Shoshas 286
Table 5.14. Results of Pearson Coefficient of Correlation for H.1.1 287
Table 5.15. Results of Multiple Regression for H.1.2 289
Table 5.16. Results of Simple Regression and for H.2.1 : Korean GTCs 290
Table 5.17. Results of Pearson Coefficient of Correlation for H.2.1 :
Japanese Sogo Shoshas 291
Table 5.18. Results of Pearson Coefficient of Correlation for H.2.2 : Korean GTCs 292
Table 5.19. Results of Simple Regression and for H.2.2 : Japanese Sogo Shoshas 292
Table 5.20. Results of Multiple Regression for H.3.1 294
Table 5.21. Results of Pearson Coefficient of Correlation for H.3.2 295
Table 5.22. Results of Pearson Coefficient of Correlation for H.3.3 : Korean GTCs 296
Table 5.23. Results of Simple Regression and for H.3.3 : Japanese Sogo Shoshas 297
Table 5.24. Results of Pearson Coefficient of Correlation for H.4.1 298
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Table 5.25. Results of Pearson Coefficient of Correlation for H.4.2 298
Table 5.26. Results of Pearson Coefficient of Correlation for H.4.3 299
Table 5.27. Results of Frequency Analysis for Types of Strategy 300
Table 5.28. Questionnaire Survey Results Summarised for Korean
GTCs’ and Japanese Sogo Shoshas’ Strategic Management 313

Table 6.1. Comparison of Decision-making Models 30
Table 6.2. A Sample of the Standard Table of Duty of Arbitrary Decision
within Korean Firm 340
Table 6.3. An Example of Standard Table for Decision-making within
Japanese Firms 347
Table 6.4. The Basis of Ethical Preference of Korean and Japanese Managers 352
Table 6.5. Statistical Techniques to be used for each Hypothesis 365
Table 6.6. Results of Frequency Analysis for H.1.1~1.2 366
Table 6.7. Chi-square Test for Top Executives 368
Table 6.8. Chi-square Test for Team Leader 369
Table 6.9. Chi-square Test for General Staff 370
Table 6.10. Results of Frequency Analysis for H.2.1 371
Table 6.11. Chi-square Test for Power and Politics 372
Table 6.12. Chi-square Test for Corporate Culture 373
Table 6.13. Results of Frequency Analysis for H.2.2 374
Table 6.14. Chi-square Test for Expertise 375
Table 6.15. Chi-square Test for Ownership 376
Table 6.16. Results of Frequency Analysis for H.3.1~3.2 377
Table 6.17. Results of Frequency Analysis for H.4.1~4.2 379
Table 6.18. Chi-square Test for Top Management’s Change of Mind 380
Table 6.19. Chi-square Test for Decentralisation 381

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LIST OF FIGURES

Figure 1.1. Organisation of the Thesis 13

Figure 2.1. A Diagram of the GTCs’/Sogo Shoshas’ Functions 21
Figure 2.2. A New Model of the GTCs’/Sogo Shoshas’ Major Functions 24
Figure 2.3. Distributorship and Agency Contractual Structures 3
Figure 2.4. Financial Services Provided by the GTCs in Trading Transaction 37

Figure 3.1. The GTC as an Absolute Main Force of the Group 61
Figure 3.2. The GTC as One of the Main Forces of the Group 62
Figure 3.3. The GTC as a Supplementary Force of the Group 62
Figure 3.4. The GTC as One of the Main Forces: Samsung Group 63
Figure 3.5. An Illustration of Cross-Shareholding in Korean Chaebols 73
Figure 3.6. Changes of Korean GTCs’ Sales Volumes 82
Figure 3.7. Movements of Exchange Rates and Stock Market Index, and
Number of Bankruptcies 10

Figure 4.1. The Position of the Sogo Shosha in the Keiretsu : Mitsubishi Group 143
Figure 4.2. Average Annual Working Hours per Worker 148
Figure 4.3. Changes in the Cross Shareholding Ratio Among Japanese Firms 152
Figure 4.4. Comparison of the Agency Problem 154
Figure 4.5. Changes of Japanese Sogo Shoshas’ Sales Volumes 163
Figure 4.6. The Structure of the Sogo Shoshas’ Busines 165
Figure 4.7. The Ownership Structure of Zaibatsu : Pyramid Structure 173
Figure 4.8. The Structure of a Horizontal Keiretsu 177
Figure 4.9. The Structure of a Vertical Keiretsu : Electronic Firm 179
Figure 4.10. Crossholding of Shares among Four Major Mitsubishi Group Firms 180
Figure 4.11. Japan’s Postwar Economic Growth 190

Figure 5.1. A Co-alignment Model of Performance 200
Figure 5.2. The Elements of Strategic Management Process 202
Figure 5.3. The Five Forces that Shape Industry Competition 209
Figure 5.4. A Combination of Five Resources 221
Figure 5.5. A Functional Structure 29
Figure 5.6. A Multidivisional Structure 230
Figure 5.7. A Matrix Structure: Multinational Organisation 231
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