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The International Journal of Human


Resource Management
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Study on human resource management


in Korea's chaebol enterprise: a case
study of Samsung Electronics
Sug-In Chang

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, 126, iFirst

Study on human resource management in Koreas 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, Koreas 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: schang@kongju.ac.kr
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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S.-I. Chang

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 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 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 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 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), 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 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 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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S.-I. Chang

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 firms with 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. 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 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
Korea was at one time a colony of Japan. During the uncertainty surrounding Koreas 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


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 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 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 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 high school, 2 college or
university 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 middle
management, 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, 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

The International Journal of Human Resource Management

2001
2003
2005(1st Q)
2010(1st Q)
0

Domestic
Foreign

20

40

60

80

100

120

2010(1st Q)

2005(1st Q)

2003

2001

66
51

50
67

33
55

20
47

140

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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?pcdEA01&paper20100202110034292.

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,
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. 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.

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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. 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, SECs 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 managers 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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S.-I. Chang

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. 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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13

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 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.

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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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15

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: SECs 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 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 KunHee 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

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S.-I. Chang

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

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 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 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 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 ownermanager 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 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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17

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


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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S.-I. Chang

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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


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 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 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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19

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 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 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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20

S.-I. Chang

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
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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The International Journal of Human Resource Management

21

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 (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 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 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
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

22

S.-I. Chang

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?


mode view&idx 3826&board news&key_str &page 54.

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Appendix

Figure A1. Ownership structure around Samsung Electronics.


Source: Chang (2008, p. 155).

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