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Mega-corporations in Japan & Korea
Leon Z. Lee

Zaibatsu, Keiretsu, and Chaebol to the uninitiated sound like fancy foreign words for Lions, Tigers, and Bears. In reality, these were powerful corporate entities that transformed East Asia into a modern economic powerhouse.

All three entities reflect the socio-political strata of their respective regions. Qualities such as fostering rapid industrialization, lifetime employment, and adherence to certain Confucian-based social doctrines were commonplace.

The concentration of such economic power brought rapid modernization to both Japan and Korea. However, vesting so much power among a few industrial elites also brought periodic socio-political unrest. Here is a quick breakdown of the definitions for these corporate entities:

• Japan's Zaibatsu means economic combine or financial clique. Government-sponsored monopolies enabled domestic companies to specialize in particular industries. It originally formed 500 years ago, but made its major contribution during the rapid industrialization drive of the late-1800s. Famous monopolies included Mitsubishi, Mitsui, and Sumitomo, with extensive holdings in banking, financials, mining, shipping, and manufacturing. The Zaibatsu enabled Japan to fully industrialize within 30 years and is currently the only industrialized nation in all of Asia. However, concentrated wealth and economic power of industrial elites also brought social unrest in the 1930s. Thus, Zaibatsu was formally abolished and outlawed by Allied Powers in the postwar era of the late-1940s.

• Japan's Keiretsu means collaborating enterprises or industrial grouping. After the demise and outlaw of the Zaibatsu, Japanese corporations organized "informal" business relationships by the late-1950s. Participating companies coordinated procurement policies, pricing standards, manufacturing process flow, and research findings. The government assisted Keiretsu via a "Technopolis" strategy of formally coordinating research and resources among governmental, corporate, and academic organizations. Thus, Japan was able to rival the U.S. in consumer products and semiconductors by the late-1980s. The U.S. closely scrutinized its trade relationship with Japan and privately lamented over the perception of "Japan Inc." Then the banking crisis of early-1990s hit and Japan fell into a decade-long recession. Keiretsu structure gradually evolved, as lifetime employment was no longer guaranteed.

• Chaebol is Korea’s version of Japan’s Zaibatsu. These government-sponsored monopolies enabled domestic companies to specialize in particular industries. It originally formed in the 1920s by Japan's colonial policy to industrialize the Korean economy. After gaining independence in 1945, Korean compatriots directly took over the monopolies. The Chaebol made its greatest contribution to the Korean industrial base and export economy by the mid-1980s. In the mid-1990s, the four top Chaebol -- Samsung, Hyundai, Daewoo, and Gold Star -- controlled 60% of the nation's GNP. Business-centric government policies, along with concentrated wealth of industrial elites, created social unrest throughout the 1980s and 1990s. The late-1997 Asian currency crisis severely undermined Chaebol's competitive stance. With government funding cutback and International Monetary Fund demand for corporate reform, Chaebol was forced to sell off non-profitable industries, eliminate cross-subsidiary loan guarantees, and accept foreign buyout or partial ownership. Korean society has been evolving, as lifetime employment is no longer guaranteed. Currently, Chaebol is transforming into financially leaner and market-responsive corporate entities.

Mr. Lee is fluent in Japanese, Chinese, and English with diversified experience in several leading IT companies.

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