Three of the biggest names in the Wall Street, Bear Stearns, Lehman Brothers, and Merril Lynch have disappeared in a blink of an eye. Goldman Sachs and Morgan Stanley are left alone, and even they are fighting for survival. The mysterious slumps in prices have people wondering if the world as we know it is really crashing down. Donald Trump told CNN that, “I think it has the chance to be the worst period of time since 1929.” The trauma made in America has become a global crisis with no clear cause for the beginning, and the responsibility for correcting the overindulgence of early years has suddenly hit the back of our heads with a brick. They say there is simply no conclusion. However, the Nobel Prize winner in economics, Joseph E. Stiglitz, stated that financial markets are only supposed to be a means to an end. We will never achieve perfect stability because the markets will not be self-corrected, nor will governmental intervention bring perfect solutions. Hence, a new mindset is required to deal with the financial market and our economy. The world needs to look towards a stable and prosperous 21st century with a new frame of mind. We must believe that a time of crisis can be a time of opportunity and observe our past experience and apply it to the current market.
This is not the first time for Korea to face economic difficulties, making it necessary to observe the past. The 1997 bankruptcy in Korea led to support from the IMF. It was a time when family dreams, and homes were being destroyed along with industry revenues. However it was also a time for some industries to branch out. In 1999, the four giants of Korean economy Hyundai, Samsung, LG and SK moved through restructuring operations to different administrative reforms in accordance with the needs of each firm. Let us take the example of Samsung. From 1997-1999, Samsung carried out structural reform, shedding subsidiaries, improving the structure of financial affairs and focusing only on its major enterprises. With a new corporate focus on becoming a leading company that provides the world’s best quality products and services, Samsung put great expectations on its investment in hiring professionals with advanced degrees in the R&D department, and concentrated on recruiting the best brains of Korea. Also, they introduced a new form of profit distribution policy by drastically increasing the distribution of income from excess returns. Furthermore in 2000, scale of recruiting members doubled from 4,000 to 8,000 personnel. As a result of such efforts to push through the financial hardship through the power of its employees, from 1999 standards its debt ratio had decreased to 180% of capital and its floating debt had decreased by 11 trillion won.
With this successfully established base from the restructuring of financial affairs, Samsung had reached a stable branching point from by the year 2000. The debt rate continued to decrease down to 130% of capital, and this allowed Samsung to invest 5.5% of its sales in research and infrastructure. It was an appropriate time to propel the company towards change, and the net profit was 5.8 trillion won. During the year 2000, 50 world best products were developed and net profits grew 10% each year. Samsung Electronics, by 2004, had come to represent the resurgence of Korean businesses with a leap in its stock price from 30 thousand won per share in 1998 to 600 thousand won. By overcoming the economic crisis of 1997 with specialized administrative management, Samsung Group had become Korea’s top company. It is a clear illustration of a “Crisis opportunity” that Korea can look to as a model.
Now some say that financial chaos will hit Korea soon, and that we will entering a second IMF period due to the lack of foreign currency and the presence of the same political figures of 1997 still in government. But we have experienced in the past time of crisis, this can be a second opportunity for certain industries. Let us examine the possibilities in the auto industry, specifically for Hyundai.
The opportunity for Hyundai lies in the global economic slowdown and the U.S. economic misery that resulted in the worst U.S auto sales month in 25 years this October. Automakers have been hit hard as General Motors (GM) reported a $2.5 billion third-quarter loss last week. They are running the company with minimum amount of cash and currently lobbying the U.S. government for $25 billion in low-interest loans to improve the auto industry. However, economists suspect bankruptcy, and, even with the help of the U.S government, there will not be an easy way out.
There are times when we fall and twist our ankle, but we can always get back up. The global financial crisis may be unsolved and it stands as a great obstacle at the national level and international level, the micro and macro level. However, as illustrated by Korea’s past encounter with economic setbacks in the case of Samsung, which now stands as the biggest conglomerate in Korea, we may use this time wisely to move forward in the midst of the current financial shake up. The illustration of Hyundai’s prospects telling turn this time into one of opportunity and create a branching-out leafing point should not be limited to the auto industry, but applied to all industries. In such time of crisis industries must find a way out by tackling small openings in the brick wall. Molding the new mindset will provide them with the clear vision they need to seek opportunity in trauma.