[Contribution] Hyundai stubbornness is national threat

New economic cabinet team members have been appointed through the cabinet reshuffle. However, Hyundai Group still is deeply in crisis, with no visible light at the end of the tunnel.

For resolution of the crisis, there needs to be a swift but effective prescription. At this juncture, a balance of swiftness, direction and methodology must be found.

The direction needed to be taken is fairly clear. It is time to shake off the outdated ideals of owner-management of the conglomerates. This need is necessitated by the paradigm shift, as the international economy has moved on from Korea`s past industrial era to a new age of internet commerce.

During the industrial era, a limited corps of owners and families built large conglomerates consisting of a great number of subsidiaries mutually supporting one another to produce synergetic benefits for all.

However, in this period of flux leading to a new economic paradigm, such cumbersome groups of companies run by non-professional family members cannot quickly enough meet the standards and demands of consumers. In addition, conglomerates with high management overhead cannot compete with the efficiency of the newly sprouting Internet venture companies.

The liquidity crunch faced by Hyundai can be said to be a result of the inherent inefficiency of subsidiary-based conglomerates. Accordingly, it is time for Hyundai to abandon the old management philosophy of fleet leadership and must be dismantled to hand over management independence to its subsidiaries.

Afterward, non-profitable subsidiaries must be allowed to close down, while more investments must be offered to the viable ones. In addition, in order to promote the competitive edge of the surviving companies, a reorganization or a membership to an existing network that includes other related companies in the sector, as well as the customer base, must be effected. This is a direction needed not only for Hyundai, but also other conglomerates.

While an acknowledgment by Hyundai`s management of the new direction is in dire need, Hyundai seems not to be in a position even to consider such a direction. Hyundai management still seems to be dreaming of its glory days and wishes to return to the old days hoping for a brighter economic turn or forgiving market forces.

The brothers of the Hyundai family, currently locked in a battle for the old-styled control of the group, seem to be making every effort to manipulate the market forces and national government for personal benefits and gains.

If such a blind grab for control continues to run through Hyundai management, it may be a road to self-destruction leading to a total loss of control to a third person. Hyundai management needs to humbly acknowledge the necessity of a new direction.

Once the new direction away from the owner-management structure is taken, the next task is to determine the time schedule for the implementation and completion of the new structure. Hyundai quickly must formulate a plan to be submitted for market approval outlining the dismantling of the subsidiaries, the selection of viable independent companies worthy of further investment, and a new structure of modern management of the surviving companies.

The government`s handling of the Hyundai crisis also is not without flaws. First of all, the government must make clear to the public in what degree and in which area it will intervene in the Hyundai crisis.

With the government`s professed advocacy of the free-market economy, it must explain to the public the reason and the justification of its interventions, which overstep the principles of the free market. The public knows well that the 1997 economic crisis and the current Hyundai crisis are in greater part the result of governmental interference.

The public also knows well that it was the inevitable governmental interference that also helped the country overcome the economic crisis. However, the recent flow of public funds to various non-viable financial institutions and industries, along with excessive meddling in the business sector, cannot receive the support of the public.

The government could have well laid the foundation of reform for the businesses if it had maintained a clear and consistent direction through the Finance Supervisory Commission. Instead, as the government has leaned toward acting as managers of the companies, many observers are worried that the current governmental intervention is reflective of the situation during the early 1980s.

An important task for the newly appointed economic team, as it tries to cope with the Hyundai crisis, is to fully adhere to free-market principles and to clearly explain the reason and the justification when it finds it necessary to overstep the principles and intervene. Without such elucidation of its principles, if the government were to begin meddling without clarification, its detrimental effect on the nation could be in an order unseen previously and lead the nation down to a new level of misery.

Kang Chul-Kyu/Economic professor at University of Seoul