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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

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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: schang@kongju.ac.kr

The International Journal of Human Resource Management,

2011, 126, iFirst

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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

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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), 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

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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 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

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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 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).

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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

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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

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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 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

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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.

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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 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

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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.

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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-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

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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).

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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 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

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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.

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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.

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.

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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

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.

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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.

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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.

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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, 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

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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-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

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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 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.

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