The Emergence of Business Organizations: A Comparison of Israel and South Korea

   How could it be possible that, in very diverse institutional contexts, similar and comparable economic groups have emerged in Israel and South Korea. Unlike certain political, cultural, social and market points-of-view, one must note that one aspect alone cannot explain the emergence in both countries of similar business groups.

Business organizations came into being in Israel and South Korea in the 60s and 70s, which is attributable to three main factors:

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(1)  the state and its component intersocial relationships;

(2)  the beliefs and roles played by the elites; and

(3)  the conditioned absence of multinational industries in each countries’ economy.

The chaebol, which is a South Korean conglomerate – usually owned by a single family – is characterized by an authoritarian management and centralized authority. The chaebol is more or less a result of the intentional creation of the South Korean state. On the other hand, Israeli business organizations are the result of state policies in the field of economy.

In both Israel and South Korea, the state’s elite maintained a developmental ideology, was not dependent on market influences for economic furtherance, and aimed for economic and military self-reliance. In addition to this, South Korea and Israel are recipients of considerable loans and grants from other nations. Thus, the emerging business groups were protected from intensive competition of multinational companies.

Incidentally, business organizations, a central factor of capitalism in developing and developed countries, play major roles in the political and economic sectors of widely diverse societies.

The Role of Business Organizations in Capitalist Economics

South Korea and Israel seem to be very different countries with regards to history, culture and politics. However, both countries became independent from colonial regimes after WWII. Nevertheless, while Israel may be considered a new society comprised by an ancient people, Korea is best known for its longevity and stable civilization.6 With regards to political regimes, during the period of the ‘60s and ‘70s, while Israel was – and still is – a democratic country, South Korea has always been an authoritarian state. In Israel, its labor union (Histadrut) was one of the major characters in politics and economics.7 In South Korea, on the other hand, labor was extremely repressed. 8 Another major difference between the two countries is that Israel belongs to Western civilization, while South Korea belongs to a Confucian culture. Nevertheless, there are important similarities:

(a)  despite both countries’ late start an scarce natural resources, Israel and South Korea have had extended periods of outstanding economic performance;

(b)  each countries’ state had a critical role in their economic development;

(c)  both countries have been involved in constant military and political conflict, making security matters a major concern in both; and

(d)  minimal or no interaction with multinational companies.

As a result, local entrepreneurs began to play important roles in economic development, gaining dominance and the opportunity to build their own conglomerates without having to compete with multinational companies.

Business organizations are typified as a federation of legally independent firms, consolidate by both informal and formal mechanisms.

South Korea and Israel “borrowed” their business groups’ concepts from other countries. South Korea from the Japanese Zaibatsu, and Israel, from the German Konzerne.

A starting point for Israel’s economic growth performance is 1952, to be exact. 11 The year marked Israel’s coming of age, and was highlighted by the War of Independence, the re-drawing of borders, the establishment of institutions and the heavy ingress of immigrants.

Differences in South Korean and Israeli Business Groups:

there are more business organizations in South Korea than Israel;
South Korea’s economy is larger than Israel’s;
Each countries’ business organizations differ with regard to the number of it affiliated firms; and
The chaebol are owned by families while the Israeli groups are not.

Similarities include:

both countries’ business groups are diversified;
similarity in the structure of vertical authority (hierarchical); and
retired civil servants are recruited to fill senior posts.
Because of the differences in their ownership structure, there were accompanying differences in the statuses of their professional managers. Most Israeli business organizations are run by professional managers, South Korean top management belongs to family. In cases when the Korean recruit from outside the family, the new employees usually came from the same region.14

To sum up, the Israeli and South Korean business organizations have both similar structural characteristics, as well as differences.

Bibliography

1. Maman, Daniel. (September to October 2002). The emergence of business groups: Israel and South Korea compared. Retrieved on May 30, 2008 from <http://findarticles.com/p/articles/mi_m4339/is_5_23/ai_97822730/pg_11
2. Razin, Assaf and Efraim Sadka, “From Rapid Growth to Standstill, Accelerating Inflation, and Debt Crisis” in the Economy of Modern Israel. Ch.1
3. Popper, Steven. (April 25, 2008). Science and Technology Policy in Korea and Israel. Rand Infrastructure, Safety and Environment.

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