 (Nikkei BP Group)
 (No.1 High-Tech News Site in Japanese)
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Korea's Electronics Giants Try to Shed Weight with Spin-Offs
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November 16, 1998 (SEOUL) -- Korea's conglomerates are turning to a strategy
of spin-offs to restructure and restore profits.
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Although big mega-mergers tend to grab headlines, there are a growing
number of small moves such as spin-offs inside Korea's giant "chaebols"
that are quietly changing the way these corporate titans do business
in Korea and in the world.
One year after the eruption of the financial crisis in Korea, none of
the big deals proposed for the country's seriously overbuilt industries,
such as semiconductors, has actually taken place.
In the semiconductor sector, which accounts for roughly 10 percent of
Korea's exports, the intense rivalry between Hyundai and LG as well
as the power struggle between these chaebols and the increasingly impatient
government is preventing the proposed merger of Hyundai Electronics
Industries Co., Ltd. and LG Semicon Co., Ltd. from going forward.
The merger, if realized, would create one of the world's largest memory
chip makers. Samsung Electronics Co., which is the world's biggest producer
of DRAM (dynamic random access memory) devices, is not included in the
big deal, because its financial condition is comparatively healthier.
With big deals aside, the conglomerates are already busy trying to get
leaner and meaner through spin-offs. The size of the spin-offs varies
from a small business section to a whole division with thousands of
employees. Analysts said the cumulative effect will be significant in
the long term.
The companies are using a combination of management buyouts, employee
stock ownership plans and outsourcing arrangements to separate business
operations they can no longer afford from cost and efficiency points
of view. Some of the new outfits are allowed to retain the names of
Hyundai or Samsung with a token investment from their former parents,
but most of them are run on their own.
Samsung Electronics has created more than 20 independent companies this
year to separate distribution, purchasing, customer service and other
non-productive functions from its core activities of making semiconductors
and multimedia products. The company is also consolidating overseas
operations, selling marginal operations and closing down many home appliance
factories.
Hyundai Electronics Industries has spun off six companies, which took
over satellite equipment, personal computers, home automation systems,
copiers, semiconductor assembly and cable channel operation. Hyundai
also plans to separate telecommunications, liquid-crystal displays and
other businesses in order to concentrate resources on its semiconductor
business.
LG Electronics is making its domestic customer service network an independent
unit with its 2,000 service workers moving to the new company. The company
is also creating a new service company that will handle its administrative
functions. Daewoo Electronics Co., Ltd. has already detached its administrative
staff as a separate company to reduce overhead.
The trend is part of the conglomerates' downsizing efforts, which are
sweeping from top management suites to production floors. According
to industry estimates, the four electronics companies have eliminated
about 14,000 jobs in the first nine months of this year. Executive ranks
have been the hardest hit, with an average 20 percent reduction in numbers.
Analysts forecast that spin-offs will become more common as an alternative
to layoffs, which are still difficult in Korea. For workers being transferred
to new companies outside the roof of conglomerates, cuts in wages and
other benefits are the norm.
(James Lim, Asia BizTech Correspondent)
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