-
This article was downloaded by: [LSE Library]On: 29 January
2012, At: 14:35Publisher: RoutledgeInforma Ltd Registered in
England and Wales Registered Number: 1072954 Registeredoffice:
Mortimer House, 37-41 Mortimer Street, London W1T 3JH, UK
The International Journal of HumanResource ManagementPublication
details, including instructions for authors andsubscription
information:http://www.tandfonline.com/loi/rijh20
Study on human resource managementin Korea's chaebol enterprise:
a casestudy of Samsung ElectronicsSug-In Chang aa Business
Administration, Kongju National University, Kongju,Republic of
Korea
Available online: 25 Aug 2011
To cite this article: Sug-In Chang (2011): Study on human
resource management in Korea's chaebolenterprise: a case study of
Samsung Electronics, The International Journal of Human
ResourceManagement, DOI:10.1080/09585192.2011.579922
To link to this article:
http://dx.doi.org/10.1080/09585192.2011.579922
PLEASE SCROLL DOWN FOR ARTICLE
Full terms and conditions of use:
http://www.tandfonline.com/page/terms-and-conditions
This article may be used for research, teaching, and private
study purposes. Anysubstantial or systematic reproduction,
redistribution, reselling, loan, sub-licensing,systematic supply,
or distribution in any form to anyone is expressly forbidden.
The publisher does not give any warranty express or implied or
make any representationthat the contents will be complete or
accurate or up to date. The accuracy of anyinstructions, formulae,
and drug doses should be independently verified with
primarysources. The publisher shall not be liable for any loss,
actions, claims, proceedings,demand, or costs or damages whatsoever
or howsoever caused arising directly orindirectly in connection
with or arising out of the use of this material.
-
Study on human resource management in Koreas chaebol
enterprise:a case study of Samsung Electronics
Sug-In Chang*
Business Administration, Kongju National University, Kongju,
Republic of Korea
Korean chaebol firms have taken advantage of the ownermanagement
system and todate are still enjoying its strength. I discuss the
characteristics of human resourcesmanagement (HRM) systems in the
context of Samsung Electronics, Koreas largestchaebol following the
Asian crisis of 1997, explaining why the SEC HRM systemshould be
changed and what recent changes have been made, as perceived by
bothrespondents and HR manager interviewees. The study of SEC HRM
practices canprovide real value to Western companies because it
incorporates firm-specificadvantages such as network strength,
emperor-like power over group-wide manage-ment, and an agile
decision-making process.
Keywords: chaebol; human resource management; Korean
conglomerate; Koreanfamily business; Samsung Electronics
1. Introduction
After the Asian economic crisis of 1997, globalization,
competition, mergers, and
acquisitions forced human resources management (HRM) to become
more concerned with
costs, planning, and the implementation of various HR strategies
for both organizations
and their employees (Mathis and Jackson 2004). Under this
rapidly changing environment,
it has become increasingly important to discover whether the
specificities of managerial
systems are systematically and coherently transferable to
different cultural settings.
In fact, the financial crisis has had a profound impact on
business structure and HRM in
Asian countries and enterprises. There has been considerable
academic attention paid to
the importance of HRM in securing corporate and regional
competitiveness and
adaptability because human capital has certain qualities that
make it valuable.
In particular, as Japanese firms have continued to outperform
theirWestern competitors
in the international market in recent decades, considerable work
has focused on Japanese
management style and its philosophy in an attempt to uncover the
underlying attributes
of these organizations. On the other hand, little research
attention has been paid to
characterizingKoreanmanagement styles and practices (Bae and
Rowley 2003; Choi 2004;
Kim, D.B. 2006; Kim, E. 2006; Kwon 2006), despite the singular
performances of Korean
family conglomerates in the global market. Huge family
conglomerates known as
chaebol in Korea, business houses in India, holding companies in
Turkey, and grupos in
Latin America represent a unique business enterprise in such
countries (Kim, D., Kandemir
and Cavusgil 2004; Kim, H., Hoskisson and Hong 2004). As a
symbol of Korean economic
success, Korean family chaebol firms have played an important
role in Korean economic
development.
ISSN 0958-5192 print/ISSN 1466-4399 online
q 2011 Taylor & Francis
DOI: 10.1080/09585192.2011.579922
http://www.informaworld.com
*Email: [email protected]
The International Journal of Human Resource Management,
2011, 126, iFirst
Dow
nloa
ded
by [L
SE L
ibrary
] at 1
4:35 2
9 Jan
uary
2012
-
The unification of ownership and patrimonial control has enabled
Korean chaebol
firms to contribute to the countrys rapid economic growth. In
fact, the Korean government
has continuously employed an expansion policy favoring chaebol
firms in the form of
financial assistance, low interest rates, tax benefits, foreign
exchange allocations, import
and export licenses, and foreign investment incentives (Lee
2000). However, the 1997
financial crisis forced chaebol to reconsider the traditional
Korean management style and
HRM model. Chaebol firms have thus begun to reexamine the
growth-driven strategy to
adopt the profitability-driven strategy (Cho 2000; Chang, S.I.
2006). In particular, HRM
practices in the Korean chaebol firms have undergone an
important change. There is an
extensive amount of Western as well as Asian literature focusing
on the topic of Korean
chaebol firms and their HRM practices (Jwa and Lee 2000; Pucik
and Lim 2001; Kim, D.,
et al. 2004; Kim, H., et al. 2004).
The purpose of this article is to assess the structure and
characteristics of general HRM
practices in Korean chaebol firms with particular attention paid
to an overview of how it
has been changing in the face of rapid business growth and
integration into the global
economy since 1997. Thus, whether the recent changes in chaebol
HRM practices mean
the transformation of HRM paradigm in Korean firms will be
discussed. In particular, the
structure and changing environment of the Korean chaebolHRM
system will be illustrated
with data that were collected in one Korean chaebol enterprise,
Samsung Electronics Co.
Ltd. (hereafter SEC). The reason SEC was chosen as the subject
of this case study is that
SEC shares many common HRM features with Japanese style firms.
Additionally, SEC not
only takes a leading role in developing high-technology
industries but also has introduced
typical models of HRM practice and program development.
Recently, the majority of mid-
sized firms in Korea tend to follow HRM standards implemented by
chaebol firms such as
training programs, promotion system, wage structure, and even
position class (Sohn 2002).
Therefore, this study on the Korean chaebols HRM systems holds
considerable meaning.
This article is organized as follows. In Section 2, the
theoretical approaches to explain
to the rise of Korean chaebol firms and their adoption and
changes to Korean HRM are
discussed. Section 3 illustrates the research design and
background of Samsung
Electronics. Section 4 explains the general characteristics of
Korean corporate HRM.
Additionally, an overview of how SECs HRM practices are evolving
in the face of rapid
business growth and integration into the global economy will be
illustrated. The final
section offers a description of how this study contributes to
new management and insights
into key issues, challenges, and evolution in the field of HRM
in Korea. Also, key
challenges and opportunities faced by scholars and managers are
identified with an
assertion that the various external and internal features of
chaebol firms will substantially
impact the transformation of HRM in Korean business
organizations.
2. Korean chaebol firms
2.1 Theoretical approaches to the rise of Korean chaebol and
their HRM adoption andchange of chaebol firms
Baumol (1959) argued that large firms furnishedwith a large
volume of capital would earn a
higher rate of return on invested capital than smaller ones.
This hypothesis is empirically
supported in the US data presented by Hall and Weiss (1967). As
previously mentioned,
Korean large chaebol firms are a unique business organization,
which is believed to have
contributed significantly to the acceleration of Koreas economic
expansion during the last
four decades (Jeong 2000; Chang, E. 2006; Kim, D.B. 2006; Kim,
E. 2006). All of the
works concerned with chaebol organizations seem to be designed
to support one of the
S.-I. Chang2
Dow
nloa
ded
by [L
SE L
ibrary
] at 1
4:35 2
9 Jan
uary
2012
-
three theoretical approaches: the state initiated approach, the
adaptation approach, and the
institutional approach. The rise of the Korean chaebol seemed to
give the state initiated
approach the ultimate winning position over market theory. For
example, the World Bank,
an epicenter of neo-classical free market economics, accepted
the state model as a
legitimate development model for East Asian countries (World
Bank 1993). Hamilton and
Biggart (1988) argued that the authority structure of
traditional Korea, formed around a
very powerful central state, greatly influenced the
organizational structure of the chaebol
firms. As to the rise of business conglomerates in East Asia,
Cumings (1984) noted the
existence of a bureaucratic-authoritarian industrializing regime
(BAIR) in that region.
The influence of the government in Asian societies has been
strong and, in fact, has actively
engaged in the industrial development processes. In Korea, the
state helps huge business
groups rise by providing preferential treatment to them as their
emergence is conducive to
implementing the BAIR objective of rapid economic development
(Biggart 1997; Park and
Yu 2002). Cumings (1984) even stressed that Korean business
groups were created by the
authoritarian state of Korea. Koo (1984), Kang (1998), andAhn
andHong (2003) suggested
the role of the authoritarian state as being responsible for the
creation of chaebol firms.
After publications concerning the critical role of the Japanese
government in the
implementation of large projects in heavy and chemical
industries (Hirschmeier 1964;
Johnson 1982; Yamanura and Yasuba 1987; Okimoto 1989), similar
case studies for other
Asian countries have proliferated: Korea (Amsden 1989; Woo 1991;
Chang 1993;
Kim 1998) and Taiwan (White 1988; Wade 1990; Aberbach 1994).
State bureaucrats, who have the bureaucratic ability to
initiate, coordinate, and
discipline the market, including the performance of business
organizations, are truly the
architects of economic development. An authoritarian state
favors large and highly
concentrated business groups because they can control labor and
finds it much easier to deal
with the existence of only a few elite capitalists (Hamilton and
Biggart 1988; Park and Yu
2002). The key point here is that collusion between a handful of
elite capitalists and an
authoritarian state is what gave rise to Korean chaebol. The
thesis that an organizational
form can be adopted not because of its efficiency but because of
its instrumentality in
protecting a certain groups interests has been proposed by
Perrow (1981). Following his
logic, the rise of chaebol has had less to do with the
efficiency that the chaebol form is
expected to generate than its instrumentality in serving
privileged class interests. This
approach can be applied to the HRM system of Korean chaebol
firms. Indeed, the incredible
growth of chaebolfirmswas initiated and steered by theKorean
government-led authorities.
As many chaebol owe their success entirely to government
support, a close relationship
between government and business has been inevitable. The impact
of the authoritarian state
on chaebol firms led to changes of HRM in many areas including
leadership, employee
training and development systems, corporate culture, and
organizational structures
(Rowley and Bae 2004). One of the unique and common
characteristics of Korean HRM is
authoritarian but paternalistic leadership reinforced by a clear
hierarchical order and
vertical communication. Since the financial crisis, Korean
governmental policies have
greatly impacted not only corporate culture but also management
behavior and
characteristics, with HRM initiatives such as adopting new HRM
practices, leveling out
of their organizational structures by reducing the grade system
and decision-making
processes, and delegating all necessary authority thus
empowering it (Yu, Park and Kim
2001). These changes can be characterized as an efficient and
flexible utilization of HR.
The adaptation approach seems to have been implicitly taken as
the basis for most
Korean journal articles and chaebol entrepreneurial histories
(e.g. Samsung New
Management Committee 1994). This approach integrates two
related, but somewhat
The International Journal of Human Resource Management 3
Dow
nloa
ded
by [L
SE L
ibrary
] at 1
4:35 2
9 Jan
uary
2012
-
different, opinions by Chandler (1962, 1977) and Williamson
(1975, 1985) into one
theoretical category, as they share many common points regarding
the rise of large US
business organizations. Chandler (1962) suggested that an
organizations growth-oriented
strategy calls for a change in organizational structure and
formulating the strategy on
the basis of the organizations attempts to adjust to changing
market conditions generated
by changing population, changing national income, and
technological innovation.
In The Visible Hand (1977), Chandler further argued that
managerial coordination in
authoritative organizations was superior to market coordination
when industrial firms
integrated mass production and mass distribution. Chandlers
logic is predicated on
changing market forces. Applying Chandlers argument that became
clear in his 1962 and
1977 works on Korean chaebol, one could suggest that the rise of
chaebol firms is primarily
due to the changes in market forces that Koreas economic growth
made possible. More
specifically, Korean business groups pursuing growth-oriented
strategies often utilize the
chaebol form as it coordinates subsidiaries with greater
efficiency than other forms of
organization on account of the office established for that very
purpose.
On the other hand, Williamson (1975, 1985) maintains that when
the market fails to
function efficiently, firms tend to make internal transactions,
which are more efficient than
transactions made through the market mechanism. The
internalization of transactions can
take concrete form through horizontal and vertical integration,
acquisitions, mergers, and so
forth. Such a continuous internalization process generates
organization growth, which
subsequently generates complexity and uncertainty. Ultimately,
organizations reshape their
structure to the multidivisional form (hereafter MDF), a more
efficient form in terms of
suppressing opportunism and result in the lowering of
transaction costs. As for the rise
of conglomerate organizations like Korean chaebol, Williamsons
position is that they are an
extension of the MDF logic of minimizing transaction costs and
maximizing efficiency. The
adaptation approach finds some support in Korean HRM practices.
Following Williamsons
thesis, the size of a business group has a direct and positive
effect on the implementation of
the chaebol form. Chaebol firms become very large and
diversified as a consequence of
continued internalization of business. Indeed, the IMF bailout
program made the western
model a possible choice for the Korean economy, bringing forward
the adoption of global
standards. Such changes, creating a new environment, have
provided the chaebol firmswith a
strategic choice between maintaining the status quo and
reforming the system (Rowley and
Bae 2004). Chandlers logic (1962) suggested that the fit between
structure and strategy
positively affects a firms performance. This perspective
postulates that when an HRM
system is equipped for such organizational strategies, higher
organizational performance is
achieved. As Korean businesses have expanded, chaebol firms have
adopted more open
and systematic HRM policies. Chaebol firms traditionally used
multiple strategies and
segmented employees into groups, each differently approached.
Because it is highly
important that integration and cost advantages are exploited
worldwide, HRM policies of
chaebol firms focus on recruiting the best manager for
international positions, regardless
of their nationality. For example, for core employees or top
talent, firms used attraction
and retention strategies, and for contingent workers, they
employed transactional and
outsourcing (i.e. contract-based, short-term) approaches (Rowley
and Bae 2004). To ensure
that strategic targets of organizations are met, HR managers
adopt systematic use of
individual performance appraisal, individual performance-related
rewards, and implement
outcomes-monitored training and development (Tichy, Fombrun and
Devanna 1984).
Organizational structure is not always affected primarily by
market conditions or
political connections; they reflect general social factors at
the time of organizational
founding (Stinchcombe 1965). Institutional pressures can also be
influential. Nomatter how
S.-I. Chang4
Dow
nloa
ded
by [L
SE L
ibrary
] at 1
4:35 2
9 Jan
uary
2012
-
well those structures may be institutionalized, organizations
continue to be confronted by
environmental uncertainties. Hattori (1987) argued that the
institutional structure that
affected the rise of Korean chaebol firms was the traditional
family structure of Korean
society. DiMaggio and Powells (1983) theory of institutional
isomorphism provides an
institutional prescription for organizations facing
environmental uncertainties. They assert
that three kinds of institutional pressure, mimetic, normative,
and coercive isomorphism,
are likely to make organizations existing in a similar
institutional environment
homogeneous over time. The key point of their argument is that
organizations confronting
environmental uncertainties change their structure by modeling
themselves after the
most popular and successful structures of other organizations.
Thus, organizations can cope
with their problems and subsequently gain legitimacy and enhance
survival capacity
(DiMaggio and Powell 1983).
Relating to the rise of Korean chaebol, DiMaggio and Powells
(1983) argument seems
to be useful. First, their assertion can be applied to the claim
that chaebol is a copy of Japans
family-dominated zaibatsu. This view, shared by Cumings (1984),
seems legitimate, as
Koreawas at one time a colony of Japan.During the uncertainty
surroundingKoreas abrupt
independence in 1945, the proven form of successful organization
was, to Korean business
elites, zaibatsu-like organizations (Biggart 1997). This view
seems to apply the mimetic
isomorphism through colonic legacy to explain the rise and
development of Korean
chaebol. Second, their assertion can illustrate the
proliferation of chaebol firms in the 1970s
and even in the 1980s. According to their argument, business
groups that accumulated
wealth in the 1960s and early 1970s altered their organizational
structures in the late 1970s
(and even in the 1980s) because chaebol, which first appeared in
the late 1950s, was by then
broadly known as the most successful and widely accepted form of
organization. The
institutional perspective can help explain Korean HRM changes
and their adoption. Korean
chaebol have enthusiastically embraced change and transformed
themselves to thrive or
even survive in the years ahead. Family-oriented control
management and employment
systems in chaebol firmswere influenced byKorean institutions
that have a long tradition of
dependence upon central power and reliance on personal
connections and networks. For
Korean chaebol, there is the predominance of one isomorphic
network configuration:
a centralized management and ownership structure controlled by a
founding patriarch and
his heirs. The self-made founders of Korean chaebol inaugurated
and managed their
enterprises under great difficulties such as a lack of capital,
technology, experience, and
education. These difficulties have led to common Korean HRM
characteristics such as
preference for harmony among family members and employees,
preference for stable and
bureaucratic organization, vertical patterns of hierarchy,
top-down decision making, and
preference for management by family. A lot of the HRM practices
in chaebol firms were
adopted, not because of economic effectiveness, but to align
with institutional forces.
In their study on Korean firms management, Nho, Kim and Park
(2003) revealed that
institutional isomorphistic variables were positively related to
the adoption of innovative
HRM practices such as recruitment on demand, career development,
independent career
paths of specialists, 360-degree appraisal, management by
objectives, merit pay, and profit
gain. This purports that the institutional factors still have a
significant influence upon the
innovative HRM practices that are thought to be adopted as a
result of rational choice.
Viewed from an institutional perspective, educational levels of
employees, the roles of
personnel departments and HR managers, the take-up of team-based
practices, and the
employment of personnel experts were heavily influenced by the
specific national
institutional environment. It was made clear, not by economic
effectiveness, but rather by
institutional legitimacy (Rowley and Bae 2004).
The International Journal of Human Resource Management 5
Dow
nloa
ded
by [L
SE L
ibrary
] at 1
4:35 2
9 Jan
uary
2012
-
2.2 Characteristics of chaebol management
Koreas chaebol firms are often compared with Japans keiretsu
business groupings, the
successors of the well-known Japanese zaibatsu in the pre-war
period, as the two are
similar in organization (Kuk 1988; Lee 2003; Ferrus, Kim and
Kitsabunnarat 2003;
Cho 2005). However, there are major differences between keiretsu
and chaebol. Keiretsu
are controlled by groups of professional managers and are more
decentralized and
connected by cross-shareholdings, while chaebol are still
largely controlled by their
founding families and are centralized in ownership (Kuk 1988;
Lee 2003; Chang, E.
2006). Indeed, family-oriented management styles have been
widely used by Korean
firms, especially chaebol firms, to develop long-term
psychological relationships between
employees and management (Kim and Kim 1989; Shin 1992). The most
effective way for
chaebol owners to ensure employee loyalty is to hire their top
officials from among their
family members and loyal friends (Kim, D., et al. 2004; Kim, H.,
et al. 2004; Chang, E.
2006). Family members are the most important sources of trust
and loyalty. Without loyal
subjects who faithfully perform owners orders, control may not
be effectually permeated
within the chaebol. The centralized personnel office helps the
conglomerate chairman or
haejang and maintains control of the collection of enterprises
in the group (Biggart 1997).
The position of haejang is more than that of a mere business
executive (Shin 1996;
Solomon, Solomon and Park 2002). A common characteristic of the
chaebol management
style is patrimonial and authoritarian leadership grounded in
Confucianism (Chang and
Chang 1994). Patrimonialism is a form of domination in which
personal rulership is
executed through a means of administration that predominantly
consists of the personal
desires of the ruler. This leadership is reinforced by a clear
hierarchical order and vertical
communication (Jonathan 1985), and such managerial behavior is
acceptable in a
hierarchy-based Confucian culture (Koo and Nahm 1997). It is
further enhanced by the
centralized managerial structure of Korean firms and by the
generally obedient and
passive attitude of Korean subordinates. Jacobs (1985), Biggart
(1997), and Orru (1997)
argued persuasively that Koreas patrimonial past is the
socio-political basis of modern
South Korea and of its dominant economic structure, the chaebol.
Another traditional
value in Korean culture is yon-go, meaning relation-based
behavior (Chung, Lee and Jung
1997). Chaebol upper management is dominated by people who are
connected to the
owner by family, school, and regional ties because in Korean
society such ties are the
most important connections that bind people into a relationship
of trust and loyalty
(Brandt 1987; Biggart 1990; Whitley 1994). Accordingly, having
attended the same
school or having been born and raised in the same region
promotes a sense of
belongingness and trust. One-setism is an important
characteristic of Korean chaebol
firms. Gerlach (1992), in his analysis of the Japanese
inter-firm relations, briefly describes
the one-set principle as a rule for corporate expansions or
diversification of the Japanese
business groups, keiretsu. One-setism is used as a concept that
encompasses the in-house
production and authority structure of the chaebol (Kwon 2006).
One-setism in the context
of chaebol is not just a matter of one company involved in one
industry, but is a kind of
self-sufficiency logic of the chaebol to avoid dependence on
competitors for production.
2.3 Transformation of Korean HRM paradigm
Korean HRM perspectives, which reflect the features of
traditional Korean management
styles, are based on the socio-cultural background of Korean
society. Indeed, the traditional
Korean HRM system has been defined as one that cultivates
long-term loyalty and
organizational attachment from employees by providing job
security and various
S.-I. Chang6
Dow
nloa
ded
by [L
SE L
ibrary
] at 1
4:35 2
9 Jan
uary
2012
-
seniority-based HRM practices (Kim and Yu 2000), which can be
summarized as
family-oriented paternalistic leadership (Kim andKim 1989; Shin
1992). As a consequence
of rapid economic growth over three decades, a middle class
emerged in Korea. The
expectations of employees changed dramatically, and the
traditional management
techniques and HRM practices that had inspired many Korean
employees in the past
were no longer effective. The paternalistic symbols such as
seniority, group training,
company slogans, and songs, which had once been the core factors
of the HRM system, no
longer appealed to younger generations with individual talents
and ambitions (Puick and
Lim 2001). It was clear that the traditional HRM practices and
perspectives of Korean firms
were no longer effective.
In particular, the financial crisis of 1997 led Korean chaebol
to change their HRM
practices toward becoming more competitive and seeking more
advantages; provoked a
reassessment of traditional HR methodologies (Park and Yu 2002);
stimulated the
initiation of Western management practices to sustain global
organizational competitive-
ness (Lee 1999); and brought to an end an era characterized by
lifetime employment, job
security, and family-based HR practices (Kim 2004; Park 2004;
Chang, S.I. 2006), which
aimed at more flexibility in the workplace. Korean chaebol firms
sought to reduce their
number of employees. They implemented a strategy in which they
hired contingent
workers, such as part-time workers, in an effort to lower the
burden of labor costs and to
achieve numerical flexibility in these costs. At the same time,
internal job posting and
irregular hiring increased. Adoption of internal job posting
practices means that a
company tries to hire employees in the internal labor market
instead of the external labor
market, in an effort to achieve staffing efficiency and to give
employees new career
motivation. Most chaebol firms switched to performance-based pay
systems in a short
period of time. According to the Korea Labor Institute (2002),
although the rate of the
performance-based pay system in chaebol firms was only 1% in
1980, it had changed to
60.3% in 2002. Korean chaebol firms had to adopt global
standards, which induced
fundamental paradigm shifts in HRM such as from people-based to
work-based, from
staff-based to line manager-based, from domestic-based to
international-based, and from
vertical structure-based to horizontal structure-based. Thus, it
seems that the current
pattern of the changes in Korean firms HRM is characterized as a
new transformation
rather than as just a continuous and gradual improvement from
the past HR practices
(Park and Noh 2001). Indeed, researchers dispute whether the
change of Korean chaebol
HRM is a fundamental paradigm shift or a transient change, and
whether it is a part of
global HR convergence or the emergence of newly unique Korean
pattern (Park and Noh
2001; Yu et al. 2001). On one hand, the detailed characteristics
of the HRM paradigm
reveal that each system contains the coexistence of two
paradigms (Jeong 2000; Lee and
Kim 2006). On the other hand, some researchers suggest that the
current pattern of the
changes in Korean chaebol HRM can be characterized as a new
transformation rather than
just a continuous gradual improvement from past HRM practices
(Park and Noh 2001).
The new direction of HRM practices and perspectives is the one
that gives firms more
flexibility in the workplace and the one that emphasizes better
employee performance.
3. Research design and background of Samsung Electronics
3.1 Methodology
Related to Korean chaebol structure and its HRM practice issues,
both qualitative
interview data and simple questionnaire survey data without
detailed reliability and factor
analysis were analyzed. Primary sources of vital information
gathered at SEC were from
The International Journal of Human Resource Management 7
Dow
nloa
ded
by [L
SE L
ibrary
] at 1
4:35 2
9 Jan
uary
2012
-
in-depth interviews designed to build trust and collaboration
between the interviewer and
participant, in the hopes of encouraging honesty and forthright
discussion. Three semi-
structured interviews were conducted: two with HR managers and
one with senior
managers involved in chaebol and SECs HRM practices. In the
former interview, the
focus was on recruitment, appraisal, compensation, training
systems, and other HR-related
issues. In the latter interview, the same issues were raised and
managers were questioned
about SECs corporate governance and culture. The interviews were
conducted either
face-to-face or by telephone in July 2009. Also consulted were
biographies of chaebol
owners, which provided important insights into family company
evolution. In-depth
interviews lasted 4590min depending on the topic of the
research. Additionally, annual
reports, websites, business literature, company materials and
magazines, and published
articles by the managers of the HRM department were content
analyzed. At the same time,
general quantitative analysis such as reliability analysis,
factor analysis, and regression
coefficient analysis was not carried out. Simple questionnaire
survey data were used to
show how SEC employees in the Giheung complex perceived chaebols
and their HRM
systems. The questionnaires, in both Korean and English, were
randomly distributed to
supervisors and employees to obtain a general overview of HRM
practices in SEC. Of the
250 questionnaires distributed, 165 were returned, with five of
these being determined
insufficient for use. The participants range in age from 22 to
51, with a mean age of 34.85.
Gender was coded with 1 designating men and 0 designating women.
Female percentage
was 68.3. Education was measured by two categories (i.e. 1 high
school, 2 college oruniversity plus). A percentage of 86.7 had a
bachelors degree or higher. Position was
measured by four categories (i.e. 1 general staff, 2 supervisor,
3 middlemanagement, and 4 upper management). A total of 53.7% were
general staff, 28.6%supervisors, 16.5% middle management, and 1.1%
upper management. Tenure was
measured in years. Participants had a mean of 5.1 years of work
experiences and had
worked in their positions for 2.55 years.
3.2 Background of Samsung Electronics
Samsung Group was founded by Byung-Chull Lee in the 1930s as a
fruit and sundry-goods
export company. Samsung Electronics Co. Ltd. is a chief
affiliate of South Koreas giant
Samsung Group, the largest chaebol in South Korea and one of the
largest manufacturers of
consumer electronic devices in the world. Before the 1997 Asian
financial crisis, the
characteristics of SECs organizational structure were controlled
by Headquarters
Executive Staff. Its name as of 2007 is Group Strategic Planning
Office (GSPO), although
many still call it by its original name. Its core functions
include finance/accounting,
auditing, planning, public relations, and the hiring/firing of
all executives within Samsung
Group. It is inferred that a centralized GSPO decision-making
style regarding affiliates and
subsidiaries formed a situation in which HRM strategies were
implemented without
consideration of company characteristics. Subsequent to the
crisis, SamsungGroup dropped
20 of its 65 subsidiaries. It also liquidated 236 businesses and
dismissed approximately
50,000 employees. To reform executive and employee obsession
with quantitative growth
and encourage creativity, Samsung implemented the 7.4 system.
The idea was to have
employees come to work at 7:00 in the morning and leave at 4:00
in the afternoon instead of
working from 8:30 am to 6 pm, giving them free time to devote to
personal development.
SEC employed approximately 117,000 people at home and abroad in
2010.1 Roughly
66,000 employees work in Korea. Among these employees, 27,000
are working in the R&D
field, which accounts for 41% of domestic employees. The total
number of local employees
S.-I. Chang8
Dow
nloa
ded
by [L
SE L
ibrary
] at 1
4:35 2
9 Jan
uary
2012
-
overseas is roughly 51,000. They work not only in sales and
production but also in small
branches or R&D offices. As shown in Figure 1, the total
number of SEC employees in 2010
sharply increased in comparison with the number of employees in
2001. However, the ratio
of domestic employees to those abroad remains more or less the
same.
SECs chairman Kun-Hee Lee and his family are in possession of
less than 4% of all
Samsung Groups shares, yet rule over 60 subsidiaries, as if they
owned 100%. In reality, it
is argued that they possess through the cross-shareholding among
Samsung affiliates,
which merely amounts to 22% (Chang 2008). Figure 1 of the
Appendix illustrates the
ownership type of the Samsung Group, focusing on SEC; Chairman
Lees family is a
major shareholder of Samsung Everland, a privately owned firm;
Samsung Everland has
possession of Samsung Life, which is also an unlisted firm, and
Samsung Life owns a large
share of SEC (Chang 2008).
4. SEC HRM practices
4.1 Alignment of SECs human resource cycle
SEC has the ambitious goal of becoming one of the worlds top 10
electronics companies in
the twenty-first century (Samsung Electronics 1997, Annual
Report 1996). To achieve this,
SECmust not only adapt to survive fierce open competition but
also build the capabilities to
self-develop advanced products in the global economic
environment. The New Manage-
ment Movement of SEC Chairman Kun-Hee Lee, initiated in the
Frankfurt Conference on
June 1993, addresses these concerns. New Management Movement is
the ever-present
philosophy of whichever Samsung affiliated company one
enters.
SEC headquarters requires not only a more globally open
recruiting effort but also a
more balanced HR cycle. Stroh and Caligiuri (1998) support the
hypothesis that global
business strategies must be congruent with all states in global
HR practices (recruitment,
selection, and socialization). An imbalance in the HR cycle has
proved to result in high-
employee turnover and a huge cost. Thus from the supporting
research, an argument can be
made that enterprises like SEC, which emphasize technological
innovation, should adopt
aggressive approaches to recruitment and adopt appraisal,
promotion, and compensation
strategies that are congruent with employee expectations and
company goals. SECs
recruiting strategies are trying to be globally embracing
through various internships and a
recruiting direction toward those with no Korean background.
There are equal in-step
changes within the appraisal, compensation, promotion, and
development of the HR cycle.
0 20 40 60 80 100 120 1402010(1st Q)2005(1st Q)
2003
2001
2010(1st Q) 2005(1st Q) 2003 2001Domestic 66 50 33 20Foreign 51
67 55 47
Figure 1. The number of employees in SEC (in thousands).Data
Source: Segae-Ilbo (January 20, 2005) for 2001, 2003, 2005;
Saesayon.org (February 2, 2010)for 2010:
http://saesayon.org/sight/sightview.do?pcdEA01&paper20100202110034292.
The International Journal of Human Resource Management 9
Dow
nloa
ded
by [L
SE L
ibrary
] at 1
4:35 2
9 Jan
uary
2012
-
4.2 Buy strategy and recruiting
The buy strategy seeks to acquire core competencies through the
external labor market
(Bae, Chen and Lawler 1998). From the perspective of buy
strategy, the term
globalization denotes overcoming the shortcomings of a small
home-base talent pool
through extensive recruiting of foreign born/educated talent.
Efforts to globalize the
selection process of the SECs HR cycle are seen through the
acceptance of a more diverse
applicant pool, implementation of international internship
programs, and greater overseas
recruiting efforts. Given SECs position, one of its top
priorities is to invest more in
attracting and retaining a highly talented workforce from abroad
to fill its core business
needs, focusing especially on qualified scientists and
engineers. In particular, it would
seem that the so-called war for talent (that is, an attraction
strategy to recruit top talent) is
the most prominent issue of late at SEC (Bae and Rowley 2003).
According to the book
Samsung Rising by Lee, Gang, Lee and Cho (2002), SEC hires
super-competent people,
and its ability to assign employees to divisions most suitable
to their strengths is relatively
supreme compared with other Korean companies. A total of 25% of
clerical workers at
SEC hold either a masters or a doctoral degree (Lee et al.
2002).
In 1957, Samsung started gong-chae, an open employment system
that makes
employment opportunities public through advertisements on
television, in newspapers,
and on the SEC homepage (Lee 1997). This system is not very
different from the hiring
system of Westerners, but makes a substantial impact on the
traditional system. Gong-
chae usually starts with written examinations of English
proficiency, a general knowledge
test, and an essay test on specific topics (Lee 1997). In a bid
to evaluate candidates,
Samsung developed the Samsung Aptitude Test (SSAT) with the aim
of selecting those
most apt for working in Samsung. SSAT consists of an SAT segment
and a personality
segment. The SAT section tests the students on Korean,
mathematics, statistics, reasoning,
mental faculties, and current event knowledge. To evaluate
innate personality
characteristics of candidates, SEC employs particularly
structured interview questions
and observations to evaluate factors such as personal
background, past behavior, and
perception of future situations. Evaluation tools consist of
problem-solving assignments,
case analysis, and group-based discussion.
In addition to traditional recruiting tools, SEC recruits
college students and graduates
through scholarships and internship programs. For instance, SEC
has initiated scholarship
programs for students from countries within Europe, Asia, and
South America to attend
graduate programs at a Korean university. To entice star players
to work at SEC,
high-level and sometimes even executive-level positions are
offered to draw them away
from US companies.
4.3 Grading system and promotion ladder
As shown in Table 1, the job grading system of SEC is divided
into two: general manpower
and R&D and design. The former has a hierarchical structure
with five status ranks: the
highest level is boo-jang (general manager) and is followed by
cha-jang (deputy general
manager), kua-jang (manager), dae-lee (assistantmanager), sa-won
(staff), which is divided
into three by education level. R&D and design has a
hierarchical structure with four status
ranks: sa-won (staff), seon-im (assistant manager), chaek-im
(seniority), and soo-seog
(head) (Lim 1999). On average, it takes about eight years to
reach the status rank of kua-jang
and explains why Korean companies are on the verge of
experiencing a disproportionate
ratio of management to staff. The job grading system of SEC is
heavily tilted toward tenure
asmanagers (see SamsungElectronics 2006, SECsAnnual Report
2005). In a bid to amend
S.-I. Chang10
Dow
nloa
ded
by [L
SE L
ibrary
] at 1
4:35 2
9 Jan
uary
2012
-
the traditional chaebol management style in a way that the
seniority system strongly
influences decision making for promotion, SEC introduced a
merit-oriented personnel
system. To refocus the job grading system as a career
development mechanism, the existing
minimum number of employment years required for each grade was
replaced with an
average number of employment years to drastically enlarge the
opportunities for selective
promotion for prominent workers. At SEC, two separate systems
are used for the promotion
of managers and staff. Promotion for staff is determined mainly
by the results of
examinations, length of service, job performance evaluations,
and awards received,
whereas promotion for managers hasmovedmore toward the
ability-oriented system. Here,
there are no examinations required but evaluations are dependent
on amanagers ability and
performance appraisal, length of service, foreign language
ability, training career,
interview, past duties and experiences, and additional
recommendations and awards
received (Pucik and Lim 2001). The new grading function in the
SEC personnel
management system is anticipated to reshape the meaning of
promotion into a kind of
motivation for improving the ability of employees while creating
a stable sense of job
security for higher employee efficiency.
4.4 Appraisal system
Individual chaebol performance appraisal, usedmainly for
promotional or/and compensation
purposes, is conducted at different times throughout the year
andusesdifferent criteria.Within
the appraisal section of the SEC HR cycle, there are 180 or 360
performance reviews, as the
system is heavily influenced by a merit pay system (yun-bong-je)
and an incentive system.
Table 1. Job grading and job family at Samsung Electronics.
General job family Job family for R&D and design
Jobgrade Sub-grade Status ranks
Jobgrade Sub-grade Status ranks
Scholarlyattainment
G7 II GradeI Grade
GM(Boo-jang)
E5/C5 III GradeII GradeI Grade
The head(Soo-seog)
G6 II GradeI Grade
DGM(Cha-jang)
E5/C5 III GradeII GradeI Grade
Seniority(Chaek-im)
G5 II GradeI Grade
Manager(Kua-jang)
G4 II GradeI Grade
Assistantmanager(Dae-lee)
E3/C3 IV GradeIII Grade
Assistantmanager(Seon-im)
Master/doctor
G3 II GradeI Grade
Staff (Sa-won) II GradeI Grade
Predecessorin office
Bachelor
G2 E2/C2 CollegeG1 C1/C1 High school
Notes: GM, General Manager; DGM, Deputy General Manager.Source:
Samsung Electronics (2006), Annual Report 2005.
The International Journal of Human Resource Management 11
Dow
nloa
ded
by [L
SE L
ibrary
] at 1
4:35 2
9 Jan
uary
2012
-
Employee performance appraisal at SEC is divided into
performance appraisal
and competency appraisal. The performance evaluations are
conducted twice a year for
promotions and bonuses in June and November. Competency
evaluation is done yearly in
September. The consequences of performance and competence
evaluations exert a profound
impact on career success (Pucik and Lim 2001). The performance
appraisal is first evaluated
by the direct supervisor and then by the higher-levelmanagers or
executives. In contrast to the
performance appraisal, the first evaluators of the competency
appraisal are higher-level
managers or executives and the second evaluator is the direct
supervisor. The first evaluator in
both appraisals determines the final grade. Performance
appraisal is mainly founded on the
improvement of quality on behalf of the achievement of
quantitative objectives, while
competency appraisal is founded on developing the personnel
ability required to take the
company well into the twenty-first century. In the performance
appraisal, however, there are
other things to note. For new employees, the first two years of
employment involve an
employee training and development period during which there is
no performance evaluation.
Instead, there is a concentration on the development of
morality, character, aptitude,
and ability.
Manager evaluation in the competency appraisal focuses on three
factors: employee-
oriented characteristics, problem-solving competence, and
leadership skills. Factors of
employee-oriented characteristics include personality, good
human nature and morality,
the ability to meet challenges, concentration, progressiveness,
effort for self-improvement,
and a willingness to share knowledge and experience with others.
Problem-solving
competence is made up of plan-making ability, decision-making
ability, and the ability to
manage organizations and motivate affiliates. To increase
credibility and fairness, SEC
introduced a 360-degree evaluation method. The opinions of
employee peers including
both colleagues and subordinates are now deliberated along with
the supervisor opinions
in determining the final appraisal grade. The manager attempts
to encourage subordinates
and, in association with them, finds ways to improve upon their
weaknesses. SEC
introduced self-assessment appraisal in this newly developing
appraisal system in a bid to
increase employee motivation, appraisal fairness, and career
development.
4.5 Compensation structure
In the former compensation system at SEC, there were substantial
pay differences between
college and high school graduates, and between males and
females. Recently, because of
the competition increase and globalization of the company, such
a traditional
compensation system that resulted in automatic increases in pay
grades founded upon
seniority (ho-bong-je) has become a burden. Therefore, in place
of the seniority-based pay
system, many Korean firms are attempting to reward competence
and performance
(Pucik and Lim 2001; Choi 2004). As the main causes for this,
Pucik and Lim (2001)
pointed to the government pay control of blue-collar workers as
a measure of preserving
low production costs, and a Confucian culture that puts a
premium on education. SECs
fixed annual salary computation is as follows:
Fix annual salary basic salary performance pay additional
performance pay 12 bonus:
Figure 2 below shows SECs merit pay system (yun-bong-je) and
incentive system.
The basic salary was established to guarantee basic living
expenses and integrates the
basic pay and allowance of past. A total of 60% of basic salary
is fixed, while performance
S.-I. Chang12
Dow
nloa
ded
by [L
SE L
ibrary
] at 1
4:35 2
9 Jan
uary
2012
-
bonuses make up the remaining 40%. This is a preset progression
founded on seniority, in
which all workers automatically progress each year. An increase
in basic salary is
provided twice a year in March and September. A bonus is paid at
Korean national
holidays and is set at 200% of basic salary. The yun-bong-je at
SEC is divided into two
types. One is a traditional 10-step ho-bong for general job
family that grants an equal
increase twice a year to all employees within the ho-bong-je and
is executed regardless of
employee performance. The other yun-bong-je is representative of
an individuals
compensation determined by individual performance and work
results. The best
employees receiving an average grade of either A or B in three
appraisals (one competence
appraisal and two performance appraisals) receive an extra fixed
merit pay increase in
addition to their base pay, while poorer-scoring employees must
wait a minimum of
12 months for performance-based and competence-based pay
increases. The rate of the
yun-bong-je in the base pay is 70% for general managers and
deputy general managers,
60% for managers, and 40% for staff and assistant managers.
The core manpower incentive was introduced with the primary
purpose of maintaining
research and development manpower (TDI: target development
incentive). However, the
core manpower incentive is executed not only in research and
development but also
expanded into marketing (MDI: market development incentive) and
other areas such as
planning, personnel, financial administration, and so forth
(SDI: strategy development
incentive). This incentive is paid not only to core employees
who maintain high evaluation
grades for sustained periods of time but also for one staff who
makes a considerable
contribution to company development. This incentive regulation
system that is paid
according to individual ability is designated from $50,000 to
$1,500,000, but generally the
incentive of possibility is provided between $10,000 and
$100,000. SEC encourages
internal competition through collective incentives such as
productivity incentive (PI) and
profit sharing (PS). PI means that the incentive varied by the
division/individual is based
on the evaluation of management performance. PI also refers to a
collective incentive
provided semi-annually according to the accomplishment of
management objectives.
The company provides some surplus value produced by highly
efficient management.
Figure 2. Composition system of Samsung Electronics.Notes: PI,
productivity incentive; PS, profit sharing; TDI, target development
incentive; MDI,market development incentive; SDI, strategy
development incentive.Source: Lee and Park (2008, p. 62).
The International Journal of Human Resource Management 13
Dow
nloa
ded
by [L
SE L
ibrary
] at 1
4:35 2
9 Jan
uary
2012
-
In addition, SEC pays a PI, which factors in a combination of
evaluations for the
department, its business, and the company as a whole. These
bonuses can be up to 300% of
an employees annual base payment. Again, there exists a wide
variance of PIs across
business divisions (Chang 2008). Additionally, SEC consists of
Global Business Managers
(GBM) who organize the firm along major product divisions. Under
the GBM structure,
SEC has offered very generous remuneration to its employees. For
example, SEC has
based employee bonuses on the financial performance of their
divisions. Employees have
received cash bonuses as part of a PS scheme, which distributes
profits of up to 50% of
their annual salary that exceed a target level among all
employees according to the
performance of their divisions. In 2006, the average bonus was
about 11% of annual salary
(Joong Ang Daily News, 11 July 2006, p. E3).
4.6 HR development and training system
SEC believes that employee education is the core of the companys
success. SEC CEO Lee
attempts to develop elites based on two principles: the right
people for the right position
and incentive compensation. His managerial philosophy is, Be the
member one
(Yoo and Lee 1987). According to this philosophy, SEC provides
training to people to
become leaders who will act as agents of change. SEC reformed
its traditional HRM policy
in 1995 from seniority-based promotion to performance and
creativity-based promotion to
stimulate productivity and creativity while lowering labor costs
for the organization. SEC
is considered to be most progressive in its HRM policy among
Korean chaebol, as it has the
highest occurrence of non-family member executives in its top
management (Kim 2007).
This remarkable achievement is a result of the commitment of
13,000 researchers, backed
by an R&D investment of $ 1.7 billion (Subedi 2005). SEC is
well known for its effective
training program, in which new employees go through four weeks
in-house training at its
training center to transform a college graduate into a
Samsung-man, loyal to the
organization (Kim 2007). The training resembles a military
training culture and provides
employees with information on the history, organization, and
vision of SEC as well as
technical aspects and general SEC HR policy and is considered to
be progressive and
effective (Kim 2007). College graduate recruits in specialized
fields participate in a
one-year training course covering a variety of business fields,
including on-site work.
The training and development of SEC employees progress in such a
way that it raises the
employees ability to perform to job specification level. SEC has
taken training and
certification of its quality professionals to exceptional
levels. The following are,
in accordance with Quality Progress, June 2002 (certain numbers
as April 2002; Lee 2006):
. six Sigma Master Black Belt (MBB); 22 certified, 50
trained
. six Sigma Black Belt (BB); 400 certified, 1200 trained
. six Sigma Green Belt (GB); 2420 certified, 9000 trained.
Most of the quality and reliability professionals among SECs
employees have received
training in SECs in-house education and certification programs.
Trainees are divided into
different groups according to rank and operate to develop into
twenty-first century group
leaders. Even for managers, much of the training emphasizes
loyalty and a can-do spirit
(Chang 2008). As shown in Table 2, the main target of overseas
regional specialist courses
is to develop an international workforce, shaping personal ties
and bonds while learning
about the local business environment, and learning the
specialized knowledge of different
regions and cultures. Each year about 400 employees are sent
abroad to become regional
experts. The main purpose of employee participation in an MBA
course is to foster
S.-I. Chang14
Dow
nloa
ded
by [L
SE L
ibrary
] at 1
4:35 2
9 Jan
uary
2012
-
employee insight into the current complex business and
technological environment, along
with things such as business skills, computer know-how, and
business strategies. Twenty-
first century leadership courses for general managers foster
leadership, a capacity to think
internationally, and the skills and abilities for solving
business problems. The main target
of twenty-first century CEO courses is to foster business
management technology to
cultivate twenty-first century group leaders. This includes
obtaining the knowledge to be
aware of the changing business environments. This course
encourages top executives to
initiate changes and organizational reforms. After initial
training, participants travel
overseas to observe Samsungs performance first hand (Lee 2006).
Currently, the essential
direction of SECs training system is based on educating and
training excellent business
leaders for the future, cross-training, and creating and
advancing a new corporate culture.
4.7 SEC organizational culture
When he founded Samsung Group, Byung-chull Lee laid out the
mission to value human
resources. As an affiliate of the Samsung Group, SEC has shared
Samsung Groups
corporate culture and management techniques. A unique aspect of
SECs corporate
culture, beyond what it shares with Samsung Group, has been its
execution-oriented
culture (Jeon and Han 1994). Although the organization culture
of Samsung as a group of
more than 30 affiliated companies defies description with a
simple term, Chairman Kun-
Hee Lees reform has doubtlessly established the foundation not
only for SEC culture but
also that of other affiliated companies in Samsung Group. Hence,
the organization culture
of SEC should not be incongruent with that of other affiliated
companies (Handbook
Economic News 2002, p. 38). In their loyalty to the company, SEC
employees are like
bees, often sacrificing themselves for their kingdom (Chang
2008).
SEC corporation philosophy is based on a new injaesang (ideal
image of HR)
including core competencies such as professionalism, creativity,
leadership, and humanity
(Bae and Rowley 2003). Based on this injaesang, a new job
interview process was
developed, which evaluates applicants on their innate
personality and ability. In contrast to
other chaebol firms that generally have a militant labor union,
SEC does not have a labor
union like Samsungs other manufacturing affiliated companies.
The book Samsung
Management 100 Questions & 100 Answers suggests that the
reason it does not have a
labor union is because laborers do not feel that they need one
(Lee 2005). SEC pays well
(compensation is at least 10% greater than that of other
companies), and various welfare
Table 2. Education system for each grade at SEC.
Course Job grade Term Note
Overseas regionalspecialist course
Assistantmanager
1 yearoverseas
Building international workforceShaping personal ties and
bonds
ManagerMBA course Manager
General manager2 years Fostering employees insight into
the current complex businessenvironment
Twenty-first centuryCEO course
General manager 6 months Fostering the leadership
andinternational thinking faculty
Executive 6 months Awareness of the changingbusiness
environment
Source: SECs internal data.
The International Journal of Human Resource Management 15
Dow
nloa
ded
by [L
SE L
ibrary
] at 1
4:35 2
9 Jan
uary
2012
-
programs have been treating them well (Lee 2006). Another
important element of SEC
corporate culture is loyalty, with an emphasis on integrity and
a can-do spirit. SEC has
emphasized integrity and corporate ethics, prohibiting bribe
taking or personal
profiteering, and has implemented ways to educate both new
recruits and incumbent
workers. One major challenge that SEC will face in the future
will be maintaining its
employees strong sense of loyalty and organizational discipline,
which have been crucial
to its remarkable growth.
4.8 SECs HRM practices and its performance
Most researchers agree on the positive link between HRM systems
and their performance
(Kim and Ju 2001; Bae and Sa 2003; Cho 2005; Kim, D.B. 2006;
Kim, E. 2006). As in the
cases of the Kanban system of Toyota Automobile Corporation, the
Work-Out program
of GE, and the Human Resource Development System of IBM, these
firms have created
HRM systems and practices adaptable to a worldwide market on the
basis of their own
unique organizational culture. Furthermore, they are constantly
seeking changes and
innovations to adapt to the changing management environment.
Indeed, 69% of
respondents in the survey of Samsung Economic Research Institute
said performance-
based HRM systems in the Korean corporate environment helped
improve their firms
financial performance and productivity (Kho 2008). Results of a
series of in-depth
interviews with SECs manager, based at the Giheung complex,
found that the five most
important core factors that influence SECs HRM systems strong
corporate performance
are more flexibility and team-orientation thus faster and more
fluid HRM practices, the
training of the workforce, strong ownermanager leadership style,
an excellent
compensation system, and cooperative and participative
management. With regard to the
first core factor, the greater flexibility, and
team-orientation, the faster and more fluid the
HRM practices are, the more likely it is that the changes in the
right direction will occur.
The flexibility of HRM practices such as team-based job designs,
a flexible workforce,
quality improvement practices, and employee empowerment has led
to better corporate
performance. Specifically, fast decisions according to
environment changes have often
kept the limited resources from flowing into the areas that did
not desperately need them.
The second HRM core factor for corporate performance is strong
employee training.
According to the interviewees, training of the workforce is the
best way of investing
within SEC. SEC was able to recruit highly qualified personnel
from a large pool of
people who preferred international business. Through Employee
Educational Support
Systems and the International Management Research Institute,
which SEC has supported
from their inception, SEC was able to train talented employees
into competent
international businessmen who, in turn, have strengthened the
international competitive-
ness of the company. The third core factor that allows the HRM
system to produce strong
corporate performance is the ownermanager leadership style at
SEC. In the case of
SEC, corporate performance has been strongly influenced by top
managerial leadership
style, especially by the ownermanager. Therefore, the
ownermanager leadership style
of SEC CEO Lee has had a strong effect on the management of the
company,
entrepreneurship, and the managements overall ideology that has
greatly contributed to
corporate performance. For example, this leadership style tends
to exert full discretion in
strategic decisions and their values are reflected on strategic
decision making. On the
other hand, the powerful leadership of SECs president with the
support of the CEO, with
the aid of elaborate analysis and forecasting by his staff, has
made it possible to
implement the radical restructuring that reinforced SECs
environmental adaptability.
S.-I. Chang16
Dow
nloa
ded
by [L
SE L
ibrary
] at 1
4:35 2
9 Jan
uary
2012
-
The fourth core factor is an excellent compensation system. For
regular employees and
assistants, SEC adopts an efficient salary system. Their salary
and welfare is far above the
market average, which reinforces these experienced mechanics
loyalty to the company
and, in turn, enhances performance. The fifth core factor is the
reinforcement of
cooperative and participative management in the fiercely
competitive environment within
SEC. Through cooperative management, not only the top management
but also the
workers have been able to agree on common goals and assume
responsibility for
achieving these goals. In the process, they have been able to
rectify various problems in
the workplace, enhance workers commitment and morals, and
eventually improve the
organizations performance. From HRM strategies perspective, one
junior manager in
SECs HRM department argued that corporate performance is
noteworthy as it is the
result of a very carefully crafted strategy following an
evolutionary learning process from
simple to more complex technologies, prevailing employees
appraisal systems, with
strong emphasis on individual as well as teamwork, and utilizing
synergy effects by
synchronizing the variable strategies of different dimensions,
all supported by SECs
highly disciplined corporate culture.
4.9 Respondents views of chaebol firms
The questionnaire asked six questions to identify how SEC
employees have perceived
recent changes in chaebol firms. As shown in Table 3, SEC
respondents did not consider
that being a highly sincere company and having a collaboration
to team spirit have
improved, as indicated by the mean score of 2.662 and 2.703,
respectively. The result of
this study was not consistent with previous findings (e.g. Kwon
2006). They did not
consider that corporate governance has improved, as indicated by
the mean score of 2.252.
Chaebol dominance in Korean business has not declined, with a
mean score of 2.124.
SEC employees did view chaebol operational transparency in
Korean business as
changing, with a mean score of 3.134. It appears that
respondents hold negative views on
the improvement of chaebol firms as indicated by an overall
average score of 2.484.
However, contrary to expectations, this result was not
associated with previous findings
(e.g. Kwon 2006).
4.10 Respondents views of SECs HRM practices
It has been demonstrated that SEC HRM practices have moved
significantly toward the
Western system since the 1997 Asian financial crisis. To
evaluate respondents
Table 3. Respondents views of recent changes in chaebol
firms.
Changes in chaebol firms Average rating
Superior corporate governance 2.252(0.982)Diminishing dominance
in Korean business 2.124(1.104)More transparent operation
3.134(1.127)Higher corporate ethics 2.471(0.982)Highly sincere
company and supervisors 2.622(1.062)Highly engaged collaboration
with team spirit 2.703(1.142)
Notes: Respondents were asked to rate the importance of all
items on a Likert scale from 1 to 5. They showed theirdegree of
agreement with the question, where scale one (1) indicates least
agreeable and scale five (5) shows mostagreeable. As the midpoint
(3) means neutral, an average score equal to or greater than 3 is
regarded as agreeable.Figures in ( ) indicate standard
deviation.
The International Journal of Human Resource Management 17
Dow
nloa
ded
by [L
SE L
ibrary
] at 1
4:35 2
9 Jan
uary
2012
-
perceptions of changes in SEC HRM practices, the questionnaire
included 10 questions
that asked for their views on changes in various aspects of the
HRM practices. As shown in
Table 4, of these 10 possible changes, having an increasing
profit-oriented management
was rated highest, as indicated by the mean score of 3.631. It
appears that SEC is moving
from its traditional business objectives of maximum growth or
maximum market share
toward profit-oriented strategies. The result of this study was
consistent with Kwons
(2006) study regarding foreign business workers in Korea. SEC
employees showed to
disagree that movement has been made toward a declining
seniority system, with a mean
score of 2.342. However, they had a positive view about change
regarding merit-based
promotion and compensation and recruitment based on
performance-related criteria
rather than personal connections with a score of 3.432 and
3.329, and marginally agreed
with the view on the increasing lay-off of workers with an
average rating of 3.032.
On the other hand, SECs respondents generally looked favorably
on the declining
lifetime employment practices and the reinforcing training
program of company norms
such as loyalty and team spirit, with a score of 3.156 and
3.309, respectively. An average
rating of 2.307 for disappearing paternalistic leadership points
that the paternalistic style
is not in reality not decreasing in the SECmanagement system.
These results also point out
that the authoritarian decision-making and top-down system is
not moving to any
substantial extent, with the low mean score of 2.137.
Consistently, the hierarchical layers
in SEC structure are not decreasing significantly, as indicated
by the mean score of 2.351.
This result was consistent with the study of Kwon (2006).
Finally, the survey findings
suggest that from the perspective of SEC employees, SEC HRM
practices remain more or
less unchanged, except for the declining seniority system,
disappearing paternalistic
leadership, fading layers in the hierarchical organizational
structure, and authoritarian
decision-making system.
5. Discussion
The activities of Korean chaebol firms in various industries
have influenced the choices of
other firms. Korean small- and medium-sized enterprises tend to
imitate strategic
innovations of chaebol firms, and thus the bandwagon effect
arises to shape industrial
Table 4. Respondents views of changes in SECs HRM practices.
Types of changes of HRM practices Average rating
Declining authoritarian decision-making and top-down system
2.137(1.021)Merit-based compensation and promotion
3.432(1.003)Increasing lay-off of workers 3.032(1.057)Recruitment
based on performance-related criteria rather than by
personalconnection
3.329(1.080)
Declining seniority system 2.342(1.103)Reinforcing training
program of company norms such as loyalty and team spirit
3.309(0.982)Declining lifetime employment practices
3.156(0.998)Reduction of layers in the hierarchical organizational
structure 2.351(1.042)Increasing profit-oriented management
3.631(0.892)Disappearing paternalistic leadership 2.307(1.015)
Notes: Respondents were asked to rate the importance of all
items on a Likert scale from 1 to 5. They showed theirdegree of
agreement with the question, where scale one (1) indicates least
agreeable and scale five (5) shows mostagreeable. As the midpoint
(3) means neutral, an average score equal to or greater than 3 is
regarded as agreeable.Figures in ( ) indicate standard
deviation.
S.-I. Chang18
Dow
nloa
ded
by [L
SE L
ibrary
] at 1
4:35 2
9 Jan
uary
2012
-
norms (Sohn 2002). The characteristics of HRM systems in the
context of Koreas largest
chaebol Samsung Electronics after the 1997 financial crisis have
been discussed with
particular attention paid to explaining why the SEC HRM system
should be changed and
what recent changes have been made, as perceived by both
respondents and HR manager
interviewees. The profound influence of Confucianism on the
values, attitudes, and
behavioral norms of Koreans has spilled over into the
fundamental underpinnings of the
Korean management system and human relationships within Korean
companies
(Song 1997; Solomon et al. 2002). Korean chaebol have been
shifting from the
seniority-based HRM structure to performance ability-based HRM
system and finally to a
new HRM system in which both role and importance of positions
are reflected in wage,
and even reflect individuals competency. Such a system should
consider the firms
strategy and business traits for a technology-led company like
SEC, in which each
individuals creativity is a source of performance stimulation.
These changes have been
influencing the HRM strategy and practices within SEC (Yu 2003).
SEC especially has
directed their attention to the transformation of the
seniority-based HRM system toward
the human capital-enhancing and merit-oriented HRM system in
pursuit of a lean and
flexible organization. Chaebol firms have taken advantage of the
ownermanagement
system and to this date are still enjoying its strength. In
particular, the haejang (the head of
the chaebol ownerfamily) has had a strong influence on the
management of the company,
entrepreneurship, and the management ideology that greatly
contributed to the growth of
business (Solomon et al. 2002). He tends to exert full
discretion in strategic decisions and
his values are reflected in strategic decision-making (Shin
1996).
Several features of SECs HRM practices can be delineated. First,
how chaebol firms
have been attempting to improve their traditional
seniority-based HRM practices has been
discussed. To become a more flexible organization, SEC has
turned their attention to
enhancing human resources and to developing performance-based
HRM practices
(Pucik and Lim 2001). In particular, the current compensation
system at SEC was
designed to increase both individual and group performance
following the financial crisis
of 1997. Under the current system, high performers can receive
more than double the
bonuses of low performers. This strong difference in pay level
according to performance
results is reported to strengthen the performance culture (Park
and Lee 2008). However, it
has been identified that SECs compensation policy, founded on an
individual
performance system, is a mixed system in which individual
seniority or company
performance remains as another determinant of compensation level
(Park and Yu 2002).
Second, SEC respondents do not perceive that, although SEC
strived for the improvement
of its HRM system after 1997, the major spheres of SECs HRM
practices including
recruitment, evaluation, compensation, and corporate governance
have improved
significantly. The reason it seems is that they still regard the
chaebol system as an
adversarial competitor with various types of unfair advantages.
Except for limited aspects
of management such as more profit-oriented management,
disappearing lifetime
employment, and increasing lay-offs of workers, respondents
consider that the chaebol
management system remains largely unchanged (Kwon 2006). Third,
the survey findings
confirm the reputable characteristics of SEC workers. This
indicates a perception that,
although lifetime employment practices are disappearing, worker
loyalty within SEC,
collaborative team spirit, and more transparent operation are
all highly regarded, while
other conventional HRM practices are changing little. Fourth,
this study provides
empirical evidence that, in spite of the efforts by the Korean
government and society to
improve chaebol business environment in the wake of the 1997
Asian financial crisis,
respondents hold in general a negative view toward progress in
its improvement.
The International Journal of Human Resource Management 19
Dow
nloa
ded
by [L
SE L
ibrary
] at 1
4:35 2
9 Jan
uary
2012
-
To suggest that the HRM system of Korean chaebol firms is a
replica of the Japanese
system is not completely inappropriate, because Korea itself had
so little time to develop
its own management style that it borrowed from the West and
Japan. As Choi (2004)
highlighted, Korean HRM has an advantageous mixture of
traditional Confucian familism
HRM and performance-based HRM practices. To ensure the success
of this newly
developing HRM system in the future, however, chaebol firms have
to be engaged in
activities such as the creation of new corporate values and
environments in its rational
personnel management, ensuring compensation based on fairness
and performance
appraisals, providing rapid response to employee feedback,
making continuous efforts to
provide fair HRM practices without discrimination against
females or blue-collar
employees, improving the welfare facilities to convince
employees of a quality company
life, and improving workplace environment. Unless chaebol are
reformed from within,
non-transparent business activities and conventional HRM
practices are likely to continue
(Solomon et al. 2002).
Increased competition in global markets has forced SEC to review
its management
paradigm and the new HRM system in which it is expected to
practice global integration of
HRM, changes in core values, and transitions toward management
for creation. As the
findings in the interview suggest, SEC appears to have strongly
introduced new trends of
specialist HRM perspectives or competence-based HRM, through
their main strategy
of hiring higher quality employees, and encouraging creativity
and facing challenges. The
new direction of HRM practices and perspectives within SEC is
one that gives firms more
flexibility in the workplace and one that emphasizes better
performance of employees.
Indeed, to shed conventional HRM practices, SEC has tried to
introduce innovative HRM
policies. For example, SECs emphasis on specialist HRM rather
than general HRM is
deeply related to the change in staffing practices. As seen in
functional HRM changes, the
specialist HRM perspective is closely related to both the
externalization of staffing
practices and the provision of career ladders and incentive
schemes for specialists such as
R&D engineers and marketing personnel. To complete the
ongoing transformation of
HRM systems, SEC has committed to creating new corporate values
and a new
organizational culture. Among the measures being taken are
bottom-up evaluation
systems, separate operation of ranks and positions, promotion by
selection, unified pay
steps and job ability and performance wages, an unbiased HRM
system against females or
blue-collar workers, management by objectives, 360 feedback
evaluations, prompt
responses to employee feedback, continuous professional
development, diverse channels
for open communication, and an environment that assures its
employees of a quality
working life. Recently, SEC began to stress that individual
performance should be linked
more closely to the organizations performance. To this end, SEC
began to implement
profit-sharing programs to tie employee performance with
organizational performance.
The next HRM challenges facing SEC, which desires world class
business, are how to
globalize its HRM systems, finding better systematic approaches
to managing expatriates,
and even more fundamentally as the war for talent is becoming
increasingly global,
adjusting its HRM practices to create more opportunities for
local employees.
The study on the SEC HRM system contributes to Korean chaebol
firms and Western
enterprises sound lessons and inspiration. First, this study
provides three theoretical
approaches to explain the rise of Korean chaebol: the state
initiated approach, the
adaptation approach, and the institutional approach. This paper
applied the theoretical
frameworkmethodology to provide a basis for the analysis and
discussion of the emergence
of a chaebol system in Korea and to provide a basis for the
development of policy
recommendations concerning future practice. Second, studies on
chaebol management,
S.-I. Chang20
Dow
nloa
ded
by [L
SE L
ibrary
] at 1
4:35 2
9 Jan
uary
2012
-
which have been very profitable in recent years, do provide a
clear answer. Many
researchers (e.g. Cho 1990; Hong 1992) have found that the
possible efficiency of chaebol
management is lower than that of non-chaebolmanagement, and its
inefficiency should be
investigated for systematic errors arising from specific
characteristics of ownership and
management, while Kim (1992) provided opposite empirical
results. At this point in time,
the study on SEC management practices can provide an opportunity
for real debate among
researchers regarding the relative efficiency in comparison with
non-chaebol firms or in
companies with firms in other countries. Third, given the
economic dominance of family-
controlled conglomerates in many countries (Koreas chaebol,
Japans keiretsu business
groupings,Mexicos vitro, and Turkeys koc), this study attempts
to partially fill this gap by
providing a survey of their evaluation and significance and
gives Western companies
entering an emerging market an extensive investigative account
to assess the capabilities of
local family conglomerates, as well as the national cultural and
economic environment.
Fourth, the study on SECHRMpractices provides real value
toWestern companies because
they incorporate firm-specific advantages such as market
knowledge, government
relations, emperor-like power over group-wide management,
network strength, and agile
decision-making processes. Fifth, it is inferred that SEC, which
has been very profitable in
recent years, has to a certain extent the ability to mobilize HR
capital to develop and expand
employee training and education programs suitable to HRM
policies. The results regarding
the study of SEC HRM practices provide their companies an
opportunity to benchmark
against the USA and other advanced economies the newHRM skills
and techniques of SEC
to help them remain competitive and to reach a high level of
development. Sixth, the
implication of this study for developing countries is clear. In
the case of countries with labor
market rigidities and underdeveloped corporate governance, the
study on Korean chaebol
and SECs HRM practices may well provide the appropriate starting
point for devising
policies aimed at building performance-oriented HRM practices
and efficient management
systems. Seventh, this study discussed the functions and changes
of chaebol HRM in
Korea. In spite of universal pressures such as technology
development and globalization,
we still find certain peculiarities in Korean HRM practices,
such as promotion standards
and selection criteria in which seniority and membership are
still important. The case study
regarding Korean chaebol firms and their HRM practices will add
to our understanding of
the nature of Korean chaebol and the transformation of its HRM
practices in our fiercely
competitive global environment. Eighth, on the assumption of the
business success of SEC
in personnel management, including its employee training system,
this study pinpoints the
possibility that an HRM system like that at SEC can contribute
to improving a firms
financial performance via effective and flexible HRM practices.
This finding implies that if
the HRM department pursues the effectiveness of HRM functions
from a strategic
standpoint, the contribution of HRM practices can be extended
even to financial
performance, which usually has been thought to be virtually
outside the ambit of HRM
practices (Dyer and Reeves 1995; Rogers and Wright 1998). Ninth,
with regard to Korean
HRM practices, the findings presented in this paper provide
important warning signals for
multinational firms that are doing business in Korea, or are
planning to do so, and identify a
number of specific areas to which they should pay attention and
prepare themselves.
Finally, this study enhances our understanding of the
perceptions and effects of changes in
chaebolHRM systems and practices.While the study highlights
contextual factors inherent
in Korean chaebol and its HRM practices, it might be possible to
apply some of its findings
in a more general way. For example, it could be assumed that
gradual and stronger changes
towards more flexible and performance-oriented HRM practices in
chaebol firms may also
be well received in China (Lau, Tse and Zhou 2002), Eastern
Europe (Danis and Parkhe
The International Journal of Human Resource Management 21
Dow
nloa
ded
by [L
SE L
ibrary
] at 1
4:35 2
9 Jan
uary
2012
-
2002; Piske 2002), and other transformational countries where
significant structural
changes are taking place.
Acknowledgments
The author thanks the editor and the three anonymous reviewers
for their valuable comments andsuggestions. The author is grateful
to Robert Lewis Peters and John Buckley for excellent
Englishproofreading. This article has been supported by a research
grant of Kongju National University inKorea.
Note
1. The head of Korea (30 December 2010):
http://www.koreahead.com/board/board.php?modeview&idx3826&boardnews&key_str&page54.
References
Aberbach, J.D. (1994), The Role of the State in Taiwans
Development, New York: M.E. Sharpe.Ahn, H.H., and Hong, J.P.
(2003), Agency Problems and Overinvestment in the Korean
Chaebol
Firms, Seoul Journal of Economics, 13, 2, 185210.Amsden, A.H.
(1989), Asias Nest Giant: South Korea and Late Industrialization,
Oxford: Oxford
University Press.Bae, J., Chen, S., and Lawler, J. (1998),
Variations in Human Resource Management in Asian
Countries: MNC Home-Country and Host-Country Effects,
International Journal of HumanResource Management, 9, 4, August,
653670.
Bae, J.S., and Rowley, C. (2003), Changes and Continuities in
South Korean HRM, Asia PacificBusiness Review, 9, 4, 76105.
Bae, J., and Sa, J. (2003), The Effects of Human Resource
Management Systems on OrganizationalPerformance, Korean Journal of
Management, 11, 2, 133169.
Baumol, W.J. (1959), Business Behavior, Value, and Growth, New
York: Macmillan.Biggart, N.W. (1990), Institutionaliz