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  • Korea's Electronics Giants Try to Shed Weight with Spin-Offs
  • November 16, 1998 (SEOUL) -- Korea's conglomerates are turning to a strategy of spin-offs to restructure and restore profits.
    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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    Updated: Sat Nov 14 17:19:13 1998 PDT