Crisis and collapse of Daewoo Company

CRISIS AND COLLAPSE OF DAEWOO COMPANY
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(19, December, 2011)
Crisis and collapse of Daewoo Company
In1998 Daewoo Group landed in a great financial crisis, which was mainly brought by Asian financial crisis due to poor relationship of the financial institution with the Korean government and its poor financial management. According to Ramstad, (2010) when the government of Korean started having deficit, it restricted access to cheap and unlimited credit to the company. This act made many companies in the country to cut down their expansion. Contrary to this, Daewoo increased fourteen new firms in one year. This made the company to incur many expenses. By the end of 1997, the biggest Korea Companies had a dept of about four times their equity. This made companies such as LG and Samsung to cut down their expenditures but in the contrary, Daewoo Company solicited a 40% more debt.
In 1999, the company went bankrupt with a dept of about eighty five million dollars. This made the chairman of the company to free the country, as his arrest warrant was issue for claims of embezzlement and misappropriation of the company’s money. He was being charged of masterminding accounting fraud, illegal borrowing and smuggling the country billions of money.
Factors leading to Daewoo failure
Government intervention was one of the causes of the company’s failure. This because it used to gives the chaebol protection, unlimited cheap credit, massive subsidiaries and protection against foreign competition. The company in return was supposed to be royal to the government and this experienced where they are made to take over industries contrary to their will. This interference of the government made the company to stagnate and their creativity was stifled making the company to fail.
The labor market also contributed to its failure as the workers constantly strike in pursuit of high salaries. They claimed to have been exposed in long hours of work and were paid low salaries. They company was very much affected by this salary increase increasing their production expenses that they could not meet thus failing.
Globalization is another effect that made this company that was protected by the government to fail terribly. This is because operation of global economy makes the company to lose its protection in import control that they previously enjoyed. This is through opening of channels to other international companies to trade in the country (Choi, 2003). This made the company to fail, as it had not initiated any plan to cater for this.
Otherwise, the failure of the company could have been predicted usin...