chapter  3
10 Pages

Competitive strategy and the challenges for the chaebol

ByMyeong Hyeon Cho, Jonghoon Bae, Jaiho Chung, Sungchoon Kang, Daesoo Kim

This chapter examines how the chaebol have imprinted upon developmentalist legacies, and how this has constrained their competitiveness. The chaebol have maintained organizational structures and cultures, human resources practices and operations that support a fast-follower strategy. Control remains concentrated in the hands of the founder or his heirs, facilitating the redeployment of capital from one large-scale investment to another according to his (or her) strategic directives. However, the fear of losing control causes chairpersons to avoid emerging sectors characterized by high uncertainty. Also, the chaebol rely on informal internal networks among employees embedded into the same corporate culture, leaving core processes underdocumented. While this modus operandi has been excellent for cutting through bureaucracy to speedily execute the chairperson’s directives, it hinders attempts to work with external partners or conduct mergers and acquisitions; a reliance on shared corporate culture rather than documented formal processes makes it difficult for outsiders to understand how things are done, as informal culture is far more opaque to outsiders than formal processes. In terms of human resource management, the chaebol rely on internal labor markets, separating insiders from outsiders. While this approach has increased trust among core chaebol employees, increasing execution speed and efficacy, it has also hindered them from accepting knowledge from sources external to the organization. Together, these limitations force the chaebol to rely upon a few close partners that understand their unique cultures and informal processes, preventing them from broadening their supply chains to reduce cost and improve quality. Overall, this chapter proposes that the organizational structures, human resources practices and supply chains that had been so effective at pursuing a fast-follower strategy have become maladaptive and require substantial reform.