[Kaesong Merchants' Still Prospering with Conservative Management Style; Oriental Chemical, Pacific, Sindo-Ricoh Carry on Age-Old Business Tradition ...]
Shakespeare's 'The Merchant of Venice' immortalized the cunning of
Jewish merchants in Renaissance Italy. In Korea today,their counterparts - regarded in a much more positive light than the unsavory Shylock - are proving to be success stories in the crisis-struck Korean economy.
Virtually unknown outside Korea, they are the 'Kaesong merchants'.
This familiar term in Korean refers to merchants and tradesmen who are natives of Kaesong, a historic commercial center in Hwanghae Province, which today is a part of North Korea.
The capital of Coryo Kingdom (918-1392), this once vibrant city is known for the entrepreneurial spirit of its merchants, who ran general trading stores across the country as early as the 1700s.
Historians and financial analysts alike say that the management
know-how of Kaesong merchants are present even today.
A recent analysis showed that despite the current economic downturn,
companies owned and operated by Kaesong natives are alive and kicking. And their successful management tactics rest on sticking to key business areas and minimizing debt - the exact opposite of what chaebols have done over the past three decades.
More interestingly, this conservative management style traces its root to the historic past of Kaesong.
Listed companies founded and run by Kaesong natives include Oriental
Chemical Industries, Pacific Corp., Hankook Cosmetics Co., Su-heung
Capsule Co. and Sindo-Ricoh Co. among others. These companies are
eclipsed in size by chaebols, but in profits and cash flow, they are
clearly ahead.
This is at a time when much of the Korean corporate sector is sinking in the worst recession in decades. According to the Korea Stock Exchange, the country's 543 listed firms piled up a combined 1997 losses totalinng 13.6 trillion won ($10.3 billion).
Pacific shares for some time have been a favorite among foreign stock investors for the PER (price earning ratio) of company shares.
Also referred as EPS (earnings per share), PER measures portion of
company profit allocated to each outstanding share of common stock.
James Rooney, president of Ssangyong Templeton Investment Trust
Management Co. says that there are only a handful companies in the
depressed Korean stock market, including Pacific, which have consistently delivered shareholder value to investors.
'Often times in Korea, shareholder value isn't necessarily related
to the size or name of a company,' he notes.
Su-heung Capsule Co. provides another success story. At 1997 PER of
5,300 won, the company ranked 23rd in shareholder value last year.
The conservative management of companies founded by Kaesong natives
have a shared historical past.
"Kaesong merchants never borrowed heavily. They also frowned on
expansion beyond their means," said Oh Sung, a professor of history
at Sejong University in Seoul.
As seen by the above companies, they have stuck to one key business
area. Pacific is the biggest cosmetic maker in Korea, Sindo-Ricoh
maintains the largest market share in office telecommunication equipment market and Oriental Chemical Industries specializes in
industrial chemicals.
In the aftermath of the Asian financial crisis, the extent of Korean
corporate debt surprised much of the world. At top-30 chaebol groups, their debt-to-equity ratios averaged a staggering 412.6 percent in the first half of the year.
Korea's massive corporate debt is cited as the prime reason for the
ailing banking sector and the problems of overcapacity.
"In the Korean crisis, the sheer size of corporate debt is a central problem", says David Young, country manager for the Seoul office of Boston Consulting Internationaal Inc.
...
tcy, Sindo-Ricoh has been able to widen its market share. In
copy machines, its market share was recently estimated at 40 percent
and fax machines at 32 percent, industry data showed.
These conservative tactics - centering on key business areas in the
virtual absence of debt - are exactly the opposite of what chaebols
have pursued. And these are the reason for the sustained success of
businessmen who are natives of Kaesong, management experts say.
Ironically, their commercial success also rests on segregation they
faced during the Choson Dynasty (1392-1910), which overthrew Coryo.
Because Kaesong was the capital of Coryo, its inhabitants subsequently faced social barriers.
For the early period of Choson, for instance, Kaesong natives were
barred from taking state examinations, which selected government
officials among the literati.
This was a huge blow for the people of Kaesong, considering that the
Confucius society of Choson put utmost importance on academic learning and granted immense power to public servants.
In such a society, tradesmen were regarded as second class citizens.
Ironically enough, this painful past worked to sharpen the business
sense of Kaesong merchants.
"During the Japanese colonial rule (1919-1945), Kaesong was the only place in Korea where Japanese merchants couldn't do business", Oh adds.
The merchants of Kaesong were pioneer manufacturers who also delved
into international trade. In the late part of the 1700s, when the
supplies of natural, mountain-grown ginseng began to run out, Kaesong merchants began to cultivate their own ginseng.
They eventually began to mass produce and process prized red ginseng
in ready-to-eat form. And because the red ginseng could now be preserved, ginseng wholesalers of Kaesong maintained thriving trade
with neighboring countries.
(Kang Yeoun-sun Staff reporter)
1998.10.21
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