The Downfall Of Daewoo 13146d

THE FALL OF DAEWOO MOTORS Case Study

Ahsan Khan Roll no. 02 1|Page Karachi University Business School

Q) Comment on Daewoo Motor’s International expansion Strategy in several developed and developing markets; briefly explain how the company built its presence in these markets. Do you agree with the approach adopted by the company? DAEWOO MOTOR’S INTERNATIONAL STRATEGY: Daewoo’s business strategy was its orientation toward exports. Unlike other large familyowned business conglomerate, Daewoo championed an international focus from its beginning. The group prided itself on its ability to spearhead the opening of new markets overseas. By 1979, it became the largest exporter in Korea. Daewoo launched a Global Management Strategy in 1993 to further expand its operations across the world. By 1998, they established many subsidiaries. Over thousands of employees worked worldwide in 85 countries. The company promised to different countries government that if they provide leverages then they facilitate their people with employee opportunities and help them to build infra structure. In this way they expand the roots of their companies in different countries. BUILDING PRESENCE IN DEVELOPING MARKETS: They also introduce very affordable cars in markets which are almost Pocket friendly for middle class people but their profit margin is very low as compared to their manufacturing reasons are:     

Large discounts Interest free financing options Establish factories and manufacturing plants in developing countries with low investments False promises to concern governments regarding jobs creating Political leverage

MY OPINION ON ADOPTION OF APPROACH BY COMPANY: My opinion regarding to the approach of company that they expand world wide in this very short span of time and by hooks and crook is not favoring to the company’s side. Following are the reasons of my disagreement:    

Reckless No sustainable strategy or long term plan High debt Lack of market research

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No clear Vision Lack of clear objectives Poor Corporate Governance No emphasis on building Brand name and Image No reputation

Q) To what extent was the promoter responsible for Daewoo’s downfall? Comment on the culture, the ethical standards, and the corporate governance standards of the company. RESPONSIBILITY OF PROMOTER FOR THE DOWNFALL OF COMPANY: Kim Woo was greatly responsible for Daewoo’s Downfall. Corrupt Corporate governance Practices like:     

False ing Asset swap Mismanagement Emphasis on political leverage Covering up their failures

CULTURE, ETHICAL STANDARDS AND CORPORATE GOVERNANCE STANDARDS OF THE COMPANY: There are Very low standard of corporate governance observe in Daewoo like:  Untrustworthiness  Allowing ing malpractices  Presenting a false picture to the customers, governments and debtors  Overpricing of assets There are very Low ethical and cultural standards like:  Making false promises  Withholding information  Forging false documents  Lack of job security  Wage cuts and lay offs

Q) Analyst seems to be divided over GM’s decision to acquire Daewoo Motors. Briefly describe the synergies GM can achieve through the acquisition. What challenges will the acquisition pose for GM? Do you think acquiring Daewoo Motors was good move on GM’s part? SYNERGIES GENERAL MOTORS CAN ACHIEVE THROUGH ACQUISITION: GM owned 50% stake in Daewoo till 1992, Daewoo’s vehicle designs based on General motors technological based. Increase market share in developing markets. There working in developing markets are:  Use Daewoo to gain foothold in Asia  Use Daewoo’s expertise in developing small cars By this GM can market high quality, low-cost products for Asian markets. CHALLENGES FOR GENERAL MOTORS FOR ACQUISITION: The challenges after acquisition face by GM are:  Daewoo’s low brand image  Restoring Daewoo’s reputation and brand image  Requires huge investments in time and money  Earn customer loyalty and trustworthiness  GM already had its hands full with problems they faced in US  Decreasing net earnings  Struggling with overseas alliances OPINION ON ACQUIRING DAEWOO BY DAEWOO: It is a calculated move by General Motors that would find it easy to synergize due to same product design they are dealing with many years. And it gives an edge over competitors in developing countries. And they want to deliver high quality low share product in market and gain market share by that. If this acquisition works out for GM it would strengthen its position on the top of the pyramid.