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.

  1. Conglomerate

    A conglomerate is a company that owns a controlling stake in ...
  2. Conglomerates Sector

    The Conglomerates Sector refers to the market sector inhabited ...
  3. Conglomeration

    Conglomeration describes the process by which a conglomerate ...
  4. Kimchi Premium

    Kimchi premium is the gap in cryptocurrency prices, notably bitcoin, ...
  5. Financial Structure

    Financial structure refers to the specific mixture of long-term ...
  6. Conglomerate Merger

    A conglomerate merger is a merger between firms that are involved ...
Related Articles
  1. Investing

    Emerging Markets: Analyzing South Korea's GDP

    South Korea's transition from a war-devastated poor country to an affluent developed nation presents a phenomenal growth story.
  2. Insights

    North and South Korean Reunification: What Would the Economic Consequences be?

    What would Korean unification mean for the global economy?
  3. Tech

    Why South Korean Bitcoin Price Is $1,000 Over Global Price

    Surging trade volume among South Korean Bitcoin exchanges has pushed prices $1000 higher than the global average.
  4. Investing

    Following Buffett Into South Korea

    At Berkshire's annual meeting, Warren Buffett highlighted South Korea as an attractive market. We examine some key players.
  5. Tech

    South Korea May Tax Cryptocurrency Trades

    The country has one million daily traders of cryptocurrencies and accounts for a major chunk of overall trading volumes.
  6. Financial Advisor

    How To Invest In Samsung

    Just what options are open to American investors who want to invest in South Korean electronics giant Samsung?
  7. Tech

    Why Is Cryptocurrency Trading Popular In South Korea?

    South Korea has become a hub for cryptocurrency trading. Why are South Koreans enamored with cryptocurrency trading?
  8. Retirement

    Find The Top Retirement Cities In South Korea

    South Korea's busy, modern capital, Seoul, has traffic signs in Korean writing only and English is not widely spoken. Check retirees' visa rules closely.
  9. Tech

    South Korea to Ban Anonymous Cryptocurrency Trading

    The South Korean government plans to implement new rules targeting anonymous crypto-trading on January 20.
  10. Investing

    Will South Korea Devalue the Won?

    Learn why the largest countries in Asia are devaluing their currencies. Discover how South Korea may respond and what this means for Asian economies.
  1. How is an economy formed and why does it grow?

    Find out how an economy forms and why it grows, including the role that financial markets play and how productivity increases ... Read Answer >>
  2. What are the typical day-to-day responsibilities of a Chief Operating Officer (COO)?

    Learn how a country's debt crisis affects the world, including how currency values, inflation and output are affected on ... Read Answer >>
  3. How does the balance of trade impact currency exchange rates?

    Find out how the balance of trade affects a country's exchange rates and how those exchange rates can, in turn, affect the ... Read Answer >>
  4. What are some advantages of a market economy over other types of economies?

    Learn what a market economy is, the main assumption behind a market economy and some important advantages it has over other ... Read Answer >>
  5. What are some examples of free market economies?

    In a free market economy, the law of supply and demand, rather than a central government, regulates production and labor. ... Read Answer >>
Trading Center