Who Will Benefit From Global Fiscal Crisis?

SEOUL, South Korea, Oct. 30, 2008 — -- While the global financial markets fall and South Korea's economic growth dwindles, the country's business conglomerates, known as "chaebols," may be some of the few companies worldwide that stand to gain from this crisis.

One reason is the chaebols largely avoided taking on excess risk after being forced to clean up their balance sheets and accounting during the Asian financial crisis of the 1990s.

"They've learned their lesson back then," said Kim Kyeong-won, senior vice president of Samsung Economic Research Institute.

Through aggressive corporate reform in the last decade, "the chaebols are not only safe in this turmoil but have indeed saved enough ammunition to start buying up strong companies abroad," said Kim.

Rhee Zu-sun, the director-general of Korea Economic Research Institute, said: "The big players are on top of a very healthy financial structure and looking for companies to buy up. There's potential for lots of M&As especially of foreign companies, in the near future."

Chaebols such as Samsung, Hyundai and LG have played a major role in the South Korean economy since the 1960s. These family-controlled firms have grown into big business conglomerates assisted by the government's export-driven policies.

In many cases, the chaebols grew during the years of Korean economic boom of the '70s and '80s because they could channel funds from the nationalized banks by winning favors from the ruling governments.

Profitability was not necessarily their priority, but expansion was. When the Asian financial crisis hit in the mid-'90s, some debt-ridden chaebols went belly up while others were forced to downsize and spit up their operations.

Today's chaebols each still own a broad range of businesses. For example, Samsung's interests range from electronics, heavy machineries and financial services to medical centers, amusement parks and museums. Samsung Electronics is also the largest maker of memory chips in the world. LG Electronics is the world's fourth largest mobile phone maker and Hyundai Motor ranks the world's fifth largest in automaking.

The chaebols were a major factor in South Korea's economic implosion in the 1990s. As foreign reserves hit rock bottom in November 1997, foreign lenders halted credit and urged debtors to repay existing loans, which forced South Korea to borrow millions of dollars from the International Monetary Fund to keep bankruptcy at bay. The banks, then nationalized, had for decades been lending heavily to chaebols though the firms were suffering from poor management and lagging investment.