Extent of Development of HRM in Korea has been shaped by Chaebols
Korea is regarded by some as “the country that achieved more economically in a shorter period of time than any other county in modern history” (Lee, 2000). Some explain this exponential growth as a result of the expansion of chaebols a Korean form of conglomerate which takes the structure of a central management console which is family owned and run. Chaebols in the early stages would diversify their business to many subsidiaries. In doing this, the chaebol obtained a competitive advantage from economies of scale and scope under the centralised control of their owners. Others however argue that chaebols are responsible for the recent economic crisis of 1997 which led to the International Monetary Fund (IMF) providing South Korea with a $60 billion aid package .
TRADITIONAL HRM IN SOUTH KOREA
Traditionally, chaebols had spent enormous amounts of resources promoting corporate values that were fixed on a paternalistic corporate culture. This paternalistic culture included seniority based remuneration, group training, company slogans and company songs all aimed at harmonising the workplace. The traditional focus for a Korean firm was that with standardised employment policies, with little differentiation and competition in the labour market. Remuneration was based on seniority rather than competence or performance, employee selection preference was given to graduates from prestigious universities and those with certain personal reference were selected to work at top performing chaebols. Promotion systems traditionally were based on a number of variables including personality, family background, educational credentials, performance, seniority and even regional ties(Pucik, et al., 2001). HRM in chaebols consisted of a centralised human resources department encompassing the strategies for all subsidiaries. It was only post the 1997 economic crisis when many chaebols decentralised these departments known as “Group Planning Offices”(Kwon, et al., 2001).
In the initial stages of economic development during 1960 to 1970, chaebols acted as the engine for rapid economic growth. They received exclusive preferential support and protection from the government. The chaebols led rapid industrial growth via monopolistic access to resources. The government gave the right for chaebols to engage in markets exclusively. An expansion policy was continuously employed which favoured the chaebol in the form of financial assistance, tax benefits, foreign exchange allocations, low interest rates, import and export licenses and foreign investment incentives. Additionally, small and medium sized Korean firms whose existence were dependent upon the chaebol, provided them with quality parts and components at the lowest cost possible in order to maintain a working relationship with them. This beneficial treatment by the state drove the chaebol to develop the primitive Korean economy at an extraordinary rate. The average annual growth rate since the 1960s has been 8% and since 1962 per capita income has risen approximately one hundred times from eighty dollars to eight thousand dollars.
Despite the chaebol’s phenomenal growth, the Korean entrenched system of state and business collusion was believed to be the reason for the economic crisis of 1997. Between 1960 and 1997, the state and the chaebol have existed in symbiosis, linking preferential treatment and political funds(Kim, et al., 2004). Major projects and concession had been handed from the politically powerful to the chaebol which in return provided the fund that politicians needed to maintain their positions. Under this corrupt structure the domestic economy did, undeniably, experience tremendous growth, but this has been merely an expansion of external structure without increasing core strength. South Korea has seen little accumulation of solid technology. The basic framework of industrial development has consisted of assembling imported components and equipment using low cost labour for exports. Thus, the Korean economy took the form of a subordinated economic system, one which benefited advanced industrial countries, rather than the Korean people. The closeness of the state and the chaebol had caused the Korean economy to lose it competitiveness. The lack of technology caused the Korean export base to crumble and the economy underwent structural stagnation. At the same time Korea was targeted by foreign investors and faced “a critical shortage in the foreign exchange reserve needed to fight back” (Lee 2000; 3-4). The South Korean economy was caught in crisis.
It was the chaebol that pushed the economy onto the track of fast growth and it was the chaebol that pushed the economy into the turmoil of the IMF crisis. The chaebols had grown so large that they reached the point where they could exploit the national economy for their own benefit. They grew so strong that they even placed banking institution under their control. For forty years the chaebol experienced unrestrained market power and expansion, which caused enormous damage to the Korean economy. The results of: excessive and illegal debt financing; boundless expansion of capacity; charging excessively high prices; suppressing technological advancement; persuading the state to restrict open market policies and illegal inheritance or transfer of property led to the ruin of the national economy and eventually heralded the IMF crisis.
Since the economic crisis in 1997, the Kim Dae-Jung government has broken down the state and chaebol relationship. Jung followed the IMF aid package by acknowledging that the chaebols were to be blamed for the nation’s economic crisis. To re-iterate this stance, the state imposed five rules for chaebol reform. They were: business consolidation into core competence areas; capital structure improvement; elimination of cross-debt guarantee; enhancement of management transparency and improvement of management accountability . These five rules were deemed pivotal in inducing a full recovery from the country’s economic crisis and that they will be a platform for the corporations’ transformation into globally competitive companies.
SOUTH KOREAN TRADE UNION MOVEMENT
Relationships between chaebols and trade unions have been inconsistent throughout the last fifty years. The first sign of a trade union movement in South Korea was post liberation from Japan. The Chun Pyung grew substantially and began a surge of industrial conflict which led to the first restrictions of political and industrial activities within the workplace (Kwon and O’Donnel 2001).
June 1987 saw the forming of the first independent trade union movement at a workplace level and this development of an independent trade union movement presented challenges to the protected and monopolistic market position of the chaebol. In 1995 independent trade unions organised their own national body called the Korean Confederation of Trade Unions (KCTU) and has now become the central countervailing power to the state, employers and the FKTU, especially post general strikes of 1996 and 1997. The result of the general strike was that the government allowed multi-unionism at national level thus legally recognising the KCTU. This legal recognition was a milestone in the industrial relations between state and chaebol. This was the first time that the government had allowed an organisation to structure that had so many issues with the management strategies of the chaebol. The IMF demanded as part of their aid package that Korean banks restructure their operations. This combined with economic crisis in 1997 saw a reduction in employment size by thirty percent. The KCTU were powerless in this situation and had to concede that jobs were going to be lost.
NEW HRM IN S.KOREA
Several factors such as the worsening chaebol-state relationship and the development of an independent trade union movement have brought about a need for reforms of Korea’s HRM system. Additionally, the founders of the chaebols retired, passing ownership onto their sons usually. The inadequacy of management of the second generation has also required a shift in HR practice via a professionilisation of top management. As the workforce grew younger and wiser, a demand for a shift in HRM was required. A paternalistic culture no longer appealed to these younger generations. A generation was forming of individuals with talents and ambitions. The goal for chaebols was to therefore accommodate two extremely different generations of employees.
In the 21st century it is recognised the basis for competition is rapidly changing. This has resulted in chaebols changing their approach to selection. The emphasis is now on the applicants willingness to take entrepreneurial risk, their creativity, foreign language skills, computer skills and readiness for globalisation. Physical appearance and grade-point averages are no longer such a determining factor in white-collar employment selection within Korean chaebols. Additionally, interviews are now structured to highlight an applicant’s creativity, logic, planning and capabilities.
New characteristics of HRM within chaebols began to appreciate and respect the quality of each employee. The new system encourages fairness and flexibility within the workplace and creating a comfortable work environment(Pucik, et al., 2001). Pay systems have been inverted to ability and performance measured as oppose to age and popularity. Additionally, employees are being encouraged to take an interest in the firm through information sharing, group participation and the offering of employee profit-based pay.
In the 21st century, chaebols have been wounded financially by democratic actions and global capitalism. As the country’s HRM has developed towards a more westernised system, chaebols have come under increasing pressure from the state to reform. Chaebols are continually facing investigation due to corrupt dealings during the past fifty years which is ever worsening their relationship with the Korean government who try to distance themselves from the chaebols and their unfavourable practices.
Two sorts of effects from global capitalism have created a new institutional environment. On the one hand, there is the direct effect from global capitalism on chaebols’ financial behaviour and on the other hand, there is the mediated effect from the decline of a developmental state. Global capitalism has deepened the crisis of chaebols which were buffeted by global standards in the financial markets and the shift in state policies. This effect is entangled with the dynamic relationship between state and chaebols .
Finally, the interrelation of effects of an independent trade union movement, economic crisis, intimate relationship between state and chaebol, market dominance of chaebols and reform following the IMF aid package have forced through a new regime of HRM in South Korea. The role of trade unions was to present a constant demand for change; they conquered against suppressive authoritarian rule to give employees a voice. The role of the chaebols in the development of the new HRM system has been critical; the owners of these companies along with political leaders have caused extraordinary economic growth at the detriment of the Korean workforce. It was only a matter of time before the Korean people would succeed in their attempts to push through reforms in chaebol management and human resource management.
BBC Collapse of the Korean Chaebol [Online]. – December 19, 2000. – Feburary 17, 2008. – http://news.bbc.co.uk/1/hi/in_depth/business/2000/review/1037276.stm.
Kim Dong-One and Kim Hyun-Ki A comparison of the effectiveness of unions and non-union works councils in Korea: can non-union employee representation substitute for trade unionism? [Journal] // The International Journal of Human Resource Management. – 2004. – pp. 15:6, 1069 – 1093.
Kim Seongsu and Briscoe Dennis R. Globalization and a new human resource policy in Korea [Journal] // Employee Relations. – [s.l.] : Employee Relations, 1997. – pp. 298-208.
Kwon and O’Donnel The Political Economy of South Korea [Book]. – 2001.
Lee Phil-Sang Economic Crisis and Chaebol Reform in Korea [Online] // Columbia University. – October 2000. – Feburary 27, 2008. – http://www.columbia.edu/cu/business/apec/publications/PSLee.PDF.
Pucik Vladimir and Lim Jun-Cheol Transforming Human Resource Management in a Korean Chaebol: A Case Study of Samsung [Journal] // Asia Pacific Business Review . – 2001. – pp. 7:4, 137 – 160.
Rowley Chris and Bae Johngseok Globalization and transformation of human resource management in South Korea [Journal] // The International Journal of Human Resource Management. – 2002. – pp. 522-549.
University of South Wales Industrial Relations in South Korea [Journal]. – 1997. – pp. 1-31.