Motivation

I. Research Motivation

1.1 Motivation

South Korea has witnessed an incredible transformation in the three decades spanning from the 1960s to 1990s, evolving from an impoverished country to a developed high-income economy today. This remarkable turnaround was achieved through an aggressive, outward-oriented strategy, focusing on developing large-scale industrial conglomerates or chaebols.

The incredible economics change gave naturally people stereotypes. The widespread biases in terms of businesses in South Korea have two things:1) Korean big business was portrayed as being created and managed by the state. 2) The appearance of a new Chaebol will be no further.

Firstly, many statist analysts have attempted to demonstrate that economic performance for national development has been led by the "autonomous state (Jones and Sakong, 1980).‖ In these statist analyses, the Korean state is conceived as being a unitary and internally cohesive actor driven by insulated bureaucratic competence, and the bureaucratic state has maintained close ties with big business (Kim, Y T, 1999). A number of social scientists have paid

attention to centralized state power in industrial capitalist societies. The statist perspective attributed Korea‘s remarkable economic growth to the strong state‘s role in the economy,

focusing on the industrial and financial policies carried out by the state. This explains the

2

crucial role of the state in the making of large business conglomerates under the Chung-hee Park regime since the early 1960s (Stephen Krasner, 1979). The statist analysts also demonstrate that it is a mistake to interpret the advent of the Korean business conglomerates as the only critical breakthrough in the expansion of the free market as a whole. They explain that Korea‘s state officials sought to harness the capability of private corporations by assisting

them and inducing them to invest in prioritized industries (Amsden, 1989). Thus Korean big businesses were portrayed as being created, managed, and regulated by the state, and were regarded as having limited autonomy. These views are closely connected with a political logic for nationalist economic strategies as well as greater state intervention in the economy (Stephen Krasner, 1979). They argue that a high degree of state supports was a key factor for big businesses growth since many social scientists tend toward highlighted advantages of dictatorship under the pretense of the so-called developmental dictatorship.

Secondly, Chaebol are Korea's vertically integrated industrial conglomerate controlled by a founding family. While the chaebol have hired an increasing number of professional managers in recent years, family members continue to dominate the top executive positions (Kim, 1991).

Dozens of chaebol were formed during the rapid growth period through highly preferential treatment extended by the government to industry champions (Woo, 1991). By the mid-1980s, the chaebol, with 20 to 40 companies in each group, had become domestic powerhouses that

3

had transformed into fully-fledged multinational corporations with billions of dollars in annual revenue (Kim, 2000). The pace of their growth was such that by the mid-1980s, the top 50 chaebol accounted for almost a fifth of Korea's gross domestic product and some 45% of mining and manufacturing sales. This was achieved by aggressive diversification and expansion into new industries, while forming oligopolist positions in major industries (Zeile, 1991: 306). Therefore, there will be happen no further the appearance of a new giant in Korea since big businesses occupy whole market shares in the different segments. For example, Samsung group has many subsidiaries in various different segments such as electronically parts (semiconductor, LCD etc), electronics goods (TV, Camera etc), machinery (shipbuilding etc), constructions, Life insurance, others (Theme park, Hotel, Economic Research Institute) and so on.

The STX (System Technology eXcellence), however, had destroyed two biases in terms of businesses in Korea because a just medium-size business became one of the biggest companies without any privileges from the state within very short period. In South Korean history, its company is the only one which transformed a medium size firm into one of the biggest businesses without the state support in the space of just 10 years. In 2009, another bigger Chaebol, Gumho-Asiana group (ranked 9^th, Korea) had tried to do M&A as their growth strategy but their experience was added to the statistic data as a failure example.

4

Besides the owner of STX was one of ordinary salaried workers for 27 years and then became one of richest men in Korea. Thus, this study not only breaks up the prejudices in terms of business in the Korean Peninsula, but also shows a possibility as a good exemplar that Chaebols may be not necessarily fully correlated with the dictatorial government.

Now questions have surfaced over how STX became a Chaebol in Korea. After observations by author for years, one of secrets was M&A since STX have used acquisitions as a central post of its overall growth strategies, transforming its firm achieve one of the biggest businesses in Korea. However academic research has consistently shown that 50 percent to 75 percent of all M&A activity destroys value for the acquirer‘s shareholders (Langford and Brown, 2004).

Therefore this study focuses on STX as a case study and its growth strategies, which were driven by serial acquisitions rather than examine other strategies. The study set out to answer two questions: How STX became a Chaebol in Korea though the owner of its firm was not a rich guy, and What are the key success factors for merger and acquisition in the view of STX? Also this study provides a good understanding of the key factors in M&A through the

case study of STX.

5