What is the Chaebol Structure
The Chaebol structure is a business conglomerate structure that originated in South Korea in the 1960s, creating global multinationals with huge international operations. The Korean word chaebol means "business family" or "monopoly." The chaebol structure can encompass a single large company or several groups of companies. Each chaebol is owned, controlled or managed by the same family dynasty, generally that of the group's founder. Samsung, Hyundai and LG Group are among the biggest and most prominent chaebol.
BREAKING DOWN Chaebol Structure
A charge often leveled against the chaebols is that they have impeded development of small and medium-sized businesses in South Korea, creating massive imbalances in the economy. While the South Korean government has made occasional attempts to curb the power and influence of chaebols over the years, these efforts have met with mixed success.
The Economic Role Chaebols Play
Another concern surrounding chaebols is that by consolidating significant market resources into these conglomerates puts the economic stability of South Korea at risk should they fail. Samsung, for example, on its own has grown to represent some 20 percent of the gross domestic product in South Korea. Chaebols are often accused of hoarding profits and expanding their operations and factories overseas rather than reinvesting in the domestic economy. This is contrasted by about 90 percent of workers in the country working for small and medium-sized businesses, meaning a small portion of the overall population is employed by conglomerates that hold considerable sway over the country’s economy.
The concentration of market power and reliance on chaebols has made South Korea dependent on these conglomerates to the point of the government granting support to these entities during financial crises. This is also problematic as smaller, more nimble businesses from other countries are offering more competition. Though chaebols often comprise a multitude of business units with extensive manufacturing capabilities, the sheer size of the overall organization can be a detriment when swiftness is needed. Furthermore, their ability to innovate and grow may not keep pace with the speed and dexterity of smaller companies from other nations. When chaebols suffer from such slow or stagnating growth, the effects can be felt significantly across large segments of South Korea’s economy.
While the chaebol structure is often compared with Japan's keiretsu business groups, there are some fundamental differences between the two. Chaebols are generally controlled by their founding families, while keiretsu businesses are run by professional managers. Chaebol ownership is also centralized, while keiretsu businesses are decentralized.