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Study on human resource management in Korea's chaebol enterprise: a case study of Samsung Electronics Sug-In Chang

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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 chaebol enterprise: a case study of Samsung Electronics, The International Journal of Human Resource Management, DOI:10.1080/09585192.2011.579922 To link to this article: http://dx.doi.org/10.1080/09585192.2011.579922

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The International Journal of Human Resource Management, 2011, 1–26, iFirst

Study on human resource management in Korea’s chaebol enterprise: a case study of Samsung Electronics Sug-In Chang*

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Business Administration, Kongju National University, Kongju, Republic of Korea Korean chaebol firms have taken advantage of the owner – management system and to date are still enjoying its strength. I discuss the characteristics of human resources management (HRM) systems in the context of Samsung Electronics, Korea’s largest chaebol following the Asian crisis of 1997, 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 study of SEC HRM practices can provide real value to Western companies because it incorporates firm-specific advantages such as network strength, emperor-like power over group-wide management, and an agile decision-making process. Keywords: chaebol; human resource management; Korean conglomerate; Korean family 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 their Western 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 characterizing Korean management 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.

*Email: [email protected] ISSN 0958-5192 print/ISSN 1466-4399 online q 2011 Taylor & Francis DOI: 10.1080/09585192.2011.579922 http://www.informaworld.com

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The unification of ownership and patrimonial control has enabled Korean chaebol firms to contribute to the country’s 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 chaebol HRM 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 midsized 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 SEC’s 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 and change of chaebol firms Baumol (1959) argued that large firms furnished with 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 Korea’s 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

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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), and Ahn and Hong (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 group’s 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 chaebol firms was initiated and steered by the Korean 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

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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 organization’s growth-oriented strategy calls for a change in organizational structure and formulating the strategy on the basis of the organization’s 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. Chandler’s logic is predicated on changing market forces. Applying Chandler’s 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 Korea’s 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, Williamson’s 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 Williamson’s 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 firms with a strategic choice between maintaining the status quo and reforming the system (Rowley and Bae 2004). Chandler’s logic (1962) suggested that the fit between structure and strategy positively affects a firm’s 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. No matter how

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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 Powell’s (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 Powell’s (1983) argument seems to be useful. First, their assertion can be applied to the claim that chaebol is a copy of Japan’s family-dominated zaibatsu. This view, shared by Cumings (1984), seems legitimate, as Korea was at one time a colony of Japan. During the uncertainty surrounding Korea’s 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 firms were influenced by Korean 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).

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2.2 Characteristics of chaebol management Korea’s chaebol firms are often compared with Japan’s 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 Korea’s 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

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seniority-based HRM practices (Kim and Yu 2000), which can be summarized as family-oriented paternalistic leadership (Kim and Kim 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 competitiveness (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

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in-depth interviews designed to build trust and collaboration between the interviewer and participant, in the hopes of encouraging honesty and forthright discussion. Three semistructured interviews were conducted: two with HR managers and one with senior managers involved in chaebol and SEC’s 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 SEC’s 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 45 –90 min 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 ¼ high school, 2 ¼ college or university plus). A percentage of 86.7 had a bachelor’s degree or higher. Position was measured by four categories (i.e. 1 ¼ general staff, 2 ¼ supervisor, 3 ¼ middle management, and 4 ¼ 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 Korea’s 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 SEC’s 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, Samsung Group 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

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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?pcd¼EA01&paper¼20100202110034292.

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. SEC’s chairman Kun-Hee Lee and his family are in possession of less than 4% of all Samsung Group’s 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 Lee’s 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 SEC’s human resource cycle SEC has the ambitious goal of becoming one of the world’s top 10 electronics companies in the twenty-first century (Samsung Electronics 1997, Annual Report 1996). To achieve this, SEC must 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 Management 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 highemployee 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. SEC’s 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.

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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 SEC’s HR cycle are seen through the acceptance of a more diverse applicant pool, implementation of international internship programs, and greater overseas recruiting efforts. Given SEC’s 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 master’s 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. Gongchae 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 (assistant manager), 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 as managers (see Samsung Electronics 2006, SEC’s Annual Report 2005). In a bid to amend

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Table 1. Job grading and job family at Samsung Electronics. General job family

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Job grade

Sub-grade

Status ranks

G7

II Grade I Grade

GM (Boo-jang)

G6

II Grade I Grade

DGM (Cha-jang)

G5

II Grade I Grade

Manager (Kua-jang)

G4

II Grade I Grade

G3

II Grade I Grade

Assistant manager (Dae-lee) Staff (Sa-won)

G2 G1

– –

Job family for R&D and design Job grade

Sub-grade

Status ranks

E5/C5

III Grade II Grade I Grade

The head (Soo-seog)

E5/C5

III Grade II Grade I Grade

Seniority (Chaek-im)

E3/C3

IV Grade III Grade

Assistant manager (Seon-im) Predecessor in office

II Grade I Grade E2/C2 C1/C1

– –

Scholarly attainment

Master/doctor Bachelor College High school

Notes: GM, General Manager; DGM, Deputy General Manager. Source: Samsung Electronics (2006), Annual Report 2005.

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 has moved more toward the ability-oriented system. Here, there are no examinations required but evaluations are dependent on a manager’s 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, used mainly for promotional or/and compensation purposes, is conducted at different times throughout the year and uses different 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.

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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-level managers 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: employeeoriented 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. SEC’s fixed annual salary computation is as follows: Fix annual salary ¼ ½ðbasic salary þ performance pay þ additional performance payÞ £ 12
þ bonus: Figure 2 below shows SEC’s 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

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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).

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 individual’s 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.

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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 company’s 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 employee’s 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 SEC’s employees have received training in SEC’s 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

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Table 2. Education system for each grade at SEC. Course

Job grade

Term

Note

Overseas regional specialist course

– Assistant manager – Manager – Manager – General manager

1 year overseas

– Building international workforce – Shaping personal ties and bonds

2 years

General manager

6 months

Executive

6 months

Fostering employees’ insight into the current complex business environment Fostering the leadership and international thinking faculty Awareness of the changing business environment

MBA course Twenty-first century CEO course

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Source: SEC’s internal data.

employee insight into the current complex business and technological environment, along with things such as business skills, computer know-how, and business strategies. Twentyfirst 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 Samsung’s performance first hand (Lee 2006). Currently, the essential direction of SEC’s 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 Group’s corporate culture and management techniques. A unique aspect of SEC’s 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 KunHee Lee’s 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 Samsung’s 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

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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.

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4.8

SEC’s 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 performancebased 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 SEC’s manager, based at the Giheung complex, found that the five most important core factors that influence SEC’s HRM system’s strong corporate performance are more flexibility and team-orientation thus faster and more fluid HRM practices, the training of the workforce, strong owner – manager 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 competitiveness of the company. The third core factor that allows the HRM system to produce strong corporate performance is the owner–manager leadership style at SEC. In the case of SEC, corporate performance has been strongly influenced by top managerial leadership style, especially by the owner – manager. Therefore, the owner – manager leadership style of SEC CEO Lee has had a strong effect on the management of the company, entrepreneurship, and the management’s 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 SEC’s 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 SEC’s environmental adaptability.

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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 organization’s performance. From HRM strategies’ perspective, one junior manager in SEC’s 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 SEC’s 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 SEC’s 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 Diminishing dominance in Korean business More transparent operation Higher corporate ethics Highly sincere company and supervisors Highly engaged collaboration with team spirit

2.252(0.982) 2.124(1.104) 3.134(1.127) 2.471(0.982) 2.622(1.062) 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 their degree of agreement with the question, where scale one (1) indicates least agreeable and scale five (5) shows most agreeable. As the midpoint (3) means neutral, an average score equal to or greater than 3 is regarded as agreeable. Figures in ( ) indicate standard deviation.

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Table 4. Respondents’ views of changes in SEC’s HRM practices. Types of changes of HRM practices

Average rating

Declining authoritarian decision-making and top-down system Merit-based compensation and promotion Increasing lay-off of workers Recruitment based on performance-related criteria – rather than by personal connection Declining seniority system Reinforcing training program of company norms such as loyalty and team spirit Declining lifetime employment practices Reduction of layers in the hierarchical organizational structure Increasing profit-oriented management Disappearing paternalistic leadership

2.137(1.021) 3.432(1.003) 3.032(1.057) 3.329(1.080) 2.342(1.103) 3.309(0.982) 3.156(0.998) 2.351(1.042) 3.631(0.892) 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 their degree of agreement with the question, where scale one (1) indicates least agreeable and scale five (5) shows most agreeable. As the midpoint (3) means neutral, an average score equal to or greater than 3 is regarded as agreeable. Figures in ( ) indicate standard deviation.

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 Kwon’s (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, SEC’s 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 SEC management 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

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norms (Sohn 2002). The characteristics of HRM systems in the context of Korea’s 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 firm’s strategy and business traits for a technology-led company like SEC, in which each individual’s 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 owner – management system and to this date are still enjoying its strength. In particular, the haejang (the head of the chaebol owner– family) 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 SEC’s 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 SEC’s 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 SEC’s 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.

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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, SEC’s 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 organization’s 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 framework methodology 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,

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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-chaebol management, 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 familycontrolled conglomerates in many countries (Korea’s chaebol, Japan’s keiretsu business groupings, Mexico’s vitro, and Turkey’s 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 SEC HRM practices provides real value to Western 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 new HRM 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 SEC’s 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 firm’s 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 chaebol HRM 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

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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 and suggestions. The author is grateful to Robert Lewis Peters and John Buckley for excellent English proofreading. This article has been supported by a research grant of Kongju National University in Korea.

Note 1.

The head of Korea (30 December 2010): http://www.koreahead.com/board/board.php? mode¼ view&idx ¼ 3826&board ¼ news&key_str ¼ &page ¼ 54.

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Appendix

Figure A1. Ownership structure around Samsung Electronics. Source: Chang (2008, p. 155).