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ASIA PACIFIC BUSINESS AND SOCIETY (BSP2005)

ASIA PACIFIC BUSINESS AND SOCIETY (BSP2005). Class Admin. No class next week Office hours today cancelled. A Note about the Project…. To quote carefully the sources and references To have a proper well-defined structure executive summary methodology conclusions exhibits

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ASIA PACIFIC BUSINESS AND SOCIETY (BSP2005)

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  1. ASIA PACIFIC BUSINESS AND SOCIETY (BSP2005)

  2. Class Admin • No class next week • Office hours today cancelled

  3. A Note about the Project… • To quote carefully the sources and references • To have a proper well-defined structure • executive summary • methodology • conclusions • exhibits • To indicate group names

  4. On the style of teaching so far… • Brief background • Discussion • External studies/surveys

  5. In the news… • Hyundai CEO • convicted of embezzlement, 3 year jail term • Hyundai and Kia: >70% of country’s vehicle exports • World’s 6th largest automaker • similarity to CEO of top oil refiner SK Corp

  6. Business Groups • Collection of firms • Linked by commonality in ownership • Usually engaged in wide range of activities

  7. Advantages of Business Groups • Cross-subsidization • Access to internally generated resources • Reciprocal buying & selling • Access to complementary resources, • distribution outlets

  8. Some examples from lecture • Pre-war Japan • Mitsubishi, Mitsui, Sumitomo, etc. (Zaibatsu: ending with single family in control) • Post-war Japan • The same old ones (Horizontal keiretsu) + Sony, Hitachi, Toshiba, etc. (vertical Keiretsu: meaning subsidiary) • Mitsubishi: Banking, Motors, Atomic Energy, Chemical, Nikon, Electric • Korea • Samsung, Hyundai, Lotte, LG, Hanjin, etc. (Chaebols) • Taiwan • Tatung, Formosa (Jituanqiye) • India • Tata, Aditya Birla, Reliance, etc. (Trading houses) • Southeast Asia and HK: • Hutchison Whampoa (HK); Hong Leong (Malaysia); CP (Thailand); Lippo (Indonesia) (Bamboo networks)

  9. Quick check… • Asahi Breweries • Fuji Photo Film • Mitsubishi • Toshiba • Toyota • Mazda • NEC • Canon • Nissan • Fujitsu • Takashimaya • Konica Minolta

  10. Japan’s Keiretsu

  11. Korean Chaebol… • Family controlled, more centralized than Keiretsu • Assisted by government financing and policy • foreign loans • local banks • Involvement in government, e.g. Hyundai & N.Korea • As of 1998, had 37-63 subsidiaries • each • Samsung, Hyundai, LG, • Daewood (collapsed)

  12. Korean Chaebol… • Willingness to develop new product lines • textiles • defense and chemical • high-tech electronics

  13. Discussion • Reasons for ineffectiveness of business groups, e.g. chaebols, keiretsu

  14. Ineffectiveness of Keiretsu….. • 1990 Japanese Recession • Sony

  15. Failure of chaebols… • Asian financial crisis • 11 of 30 collapsed between 1997-1999 • also linked to forex (refusal to devalue the Korean Won) • Heavily invested in export-oriented markets, increasing vulnerability to overseas economic effects • Severely indebted to banks • Daewood US$80 billion debt • Bought 70% of one mid-sized firm’s output • Corruption and fraudulent accounting

  16. Diversification and Growth Performance Focused Firm Related Diversified Firm Unrelated Diversified Firm

  17. Discussion • Why diversification? • Does diversification really hinder performance? • Diversification and Performance • Does size of business group matter?

  18. Why Diversification? • Performance-based • Empirical research says otherwise • Transaction costs • Management Choice-based • Growth instead of profitability • Strategy in declining profit markets

  19. Why Diversification? • Greater flexibility in capital performance • More access to internally generated resources • Synergies in production, distribution, marketing, research • To reduce risk

  20. Why not Diversification? • Firms with unused borrowing power tend to undertake value-decreasing investments • Stages in firm contemplating diversification • Next most profitable investment • Lose competitive advantage • Cross-subsidization of failing segments • True that diversification lowers firm • performance, subject to structure

  21. Business group size and performance • Across all firms, diversification lowers firm performance • Within business groups, diversification improves performance in a larger business group compared to a smaller entity

  22. Other random points • Group-affiliated firms are more diversified than non-group firms • What does Samsung produce? • Mazda and Ford

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