The South Korean and Taiwanese Business Systems - Term Paper Example

Table of Contents Introduction --------------------- 2 South Korean Business Systems --------------------- 2-4 Taiwanese Business Systems --------------------- 4-6 Comparative Institutional Advantage Of Economies --------------------- 6-7 Conclusion --------------------- 7 INTRODUCTION The South Korean and Taiwanese business systems sometimes reflect similarities in the economies and often prove to be as contrasting economies. The economic systems prevailing in a country are well reflected in the country's business system. The dimensions of government intervention and private independence determine the economic structure prevailing in the country. This essay discusses and debates on the extent to which the economies of the two countries are allowed to flow free on the basis of market, and the dimension of state influence in the economy as well as private business affairs, so as to emphasise the true economy present in both the countries. Furthermore, it further provides a brief indication to the comparative institutional advantage of both the economies with respect to South Korea and Taiwan. SOUTH KOREAN BUSINESS SYSTEMS - The region of South Korea has seen an immense economic growth after the Second World War ever since the country was freed from the claws of Japanese colonialism in the year 1945. According to Michell (1988), the decade of 1960s had been very crucial as the early period of boom in the country's economy, which mostly took place due to advancements in trade and business activities in South Korea. It was the same period when the South Korean government imposed state rule over the privately owned businesses in order to manage the increasing developmental reforms in the country. The government took all the banks under its control, nationalised them and played an important part in allocating funds for financial activities that resulted in great economic development in the country. Thereafter the government introduced a system with semi-liberalisation of market by privatising the country's major banks in the early 1980s. This action of the government however could not be completely implemented and the government instead allowed relaxations to the banking business and facilitated the growth of non-bank financial institutions so as to infuse a market-oriented system in the country. Jones and SaKong (1980) suggest that the South Korean efforts for the development of economy towards a Liberal Market Economy as that of the United States had been initiated soon after the beginning of the year 1980. However, the government found itself unable to get rid of the chaebol system because of the over-reliance of the country's financial system on them. Therefore, the government was forced to retain interference and control in the management of the private business system. According to Root (1999), the South Korean economic system still depends upon government to look over the business affairs in the country. The government controls the corporations' activities and supports the chaebol companies to stay in the market even after they have become insolvent. This governmental support to the chaebol has led to kind of market in South Korea where the chaebol hold a major share in the ownership of non-bank financial institutions and try to confine the entry of foreign multi-national corporations in the country so as to prevent competition. The government did initially introduce some reforms so as to liberalise the market but still the South Korean business reflects a predominating governmental influence in the private business affairs. Although the government claims to have taken a lot of steps in order to introduce market-based economy in the country. But the existing business system indicates as illuminated by Financial Supervisory Commission (1999) that the South Korean government holds the ownership of the shares of financial institutions and also utilises its influence on the banks to support the remodelling of chaebol corporations. The government constantly insists that it will lessen the extent and dimensions of its control over the business in the country, but there seems to be no step taken by the government that can suggest the reduction of governmental power in any business and financial field. The present business system of South Korea suggest that the country does rely mostly on the already established markets rather than the private business owners to discover new business markets. The great chaebol including Hyundai, Samsung, and Daewoo continue to compete with foreign competitors under the government support and assistance. This implies that the South Korean business system still depends on government that influence power over the business affairs in order to maintain the state control. Therefore, the South Korean business system reflects the capitalist side of the economy prevailing in the country. TAIWANESE BUSINESS SYSTEMS- According to Tien (1989), the Taiwanese economy took a new turn of liberalisation and democratisation in the decade of 1980, which greatly re-shaped and remodelled the business ownership and management structure in the country. At that time, the financial markets in the country were deregulated, the monopolistic organisations were privatised and the capital markets were initiated. This change specifically attracted the investment from foreign countries in the Taiwanese business (Useem, 1998). This change led the family-oriented management structure to transform into the professional result-oriented management of the corporations. The privatisation of the previously nationalised organisations strengthened the private business structure to dig into new markets and business fields including telecommunication and banking industry. Field (1997) illuminates that the Taiwanese business system after the revolution of 1980s promoted the privatisation of leading banks and sold these banks to the private owners, which resulted into the deterioration of publicly owned banks and institutions and thus the economy was transformed into a kind of private capitalism. Lee (1998) argues that even after the privatisation of several government-owned banks and financial institutions, the Taiwanese government still holds a share in the ownership of private business and exercises its influence by means of implementing policies over the corporations and providing economic and financial resources to them. The Taiwanese government has played a very crucial role in the economic development of the country that is reflected in the extent and dimensions of control and power influence in the economy. The government intervention in the economy has been reduced after the economic revolution in 1980s, but even then there is lot of evidence suggesting the hints of capitalism in the country's economy. The government maintains great dominance even in the private sector of the economy and the present situation does not indicate any change in the extent of government intervention. A study of the Taiwanese business system suggests that the Taiwanese economy heavily relies on government influence and government owned banks and corporations. According to Amsden (1985), the state-owned corporations in the manufacturing sector produced about 57% and 56.7% of the total industrial and manufacturing production in the country respectively. The current business system in the country reveals that out of the top125 corporations in Taiwan, about 23 companies are owned and managed by the government while the contribution these corporations made to the economy was about 32.29% of the rest of the companies. The Taiwanese business system therefore reflects Schumpeterian type of capitalism prevailing in the country, where the state-run and state-owned corporations do exist but the number of privately owned corporations is also on the rise. COMPARATIVE INSTITUTIONAL ADVATAGE OF ECONOMIES - As indicated by the above discussion, the South Korean and Taiwanese business systems and corporate management structures reflect two varieties of capitalism. Both the countries are under the government control with state-owned corporations and financial institutions. The government happens to be the looking over the financial control of the corporations it owns. Apart from this fact, it is also true that the economies as reflected by the business system, are slightly contrasting in the nature and extent of capitalism exercised by the state. The comparative advantage of Taiwanese economy to the South Korean economy is that in Taiwan, although several corporations remain under the control and influence of the government but the number of private businesses setting up in the country as numerous having an advantage that the private business will look for newer business opportunities leading to economic development in the country. On the contrary, in the South Korean business system, the chaebol corporations continue to exploit government support and keep the foreign corporations away from their markets. In the Taiwanese economy, some of the financial institutions and corporations are free from government control whereas under the South Korean business system, virtually every company has to face direct government ownership and control. The chaebol in South Korean system also harm the financial structure by exploiting their ownership in the non-bank financial institutions in the country. CONCLUSION It is therefore clear that the economies of the two countries are dominated by the state power and control over the business sector. The government act as a provider of resources and controller of activities in both the countries. However the extent of control by the government differs from economy to economy. In Taiwanese economic system, the government influence is limited and there are no institutions other than government exercising influence over the private sector. However, the South Korean economic system reveals that the government intervention in private sector is the maximum and excessive support to chaebols lead to exploitation of resources and power. References Amsden, Alice (1979), "Taiwan's Economic History." Modern China, 5:3 (July) Root, Hilton (1999), "The New Korea: Crisis Brings Opportunity", Los Angeles: The Milken Institute Financial Supervisory Commission (1999), "Bank-led Corporate Restructuring: A New Financial Control by the Government", (Korean) Field, Karl (1997), "Strong States and Business Organization in Korea and Taiwan." in Sylvia Maxfield and Ben Ross Schneider, eds., Business and the State in Developing Countries. Ithaca: Cornell University Press Jones, Leroy P., and SaKong (1980), "Government, Business, And Entrepreneurship In Economic Development: The Korean Case", Cambridge, Mass.: Harvard University Press Lee Zong-rong 1998. "Clientelism and Political Collective Action of Capitalists in Taiwan: The Case of Banking Policy Transformation in 1989." Paper presented at The Fourth Annual North American Taiwan Studies Conference, Austin, TX.s Michell, Tony. (1988), "From a Developing to a Newly Industrialized Country: The Republic of Korea, 1961-82", Geneva: International Labor Office Tien, Hung-mao. (1989), "The Great Transition: Political and Social Change in the Republic of China", Stanford, Hoover Institution Press, Stanford University. Useem, Michael. (1984) "The Inner Circle: Large Corporations and the Rise of Business Political Activity in the U.S. and U.K", New York: Oxford University Press Read More