Asia’s Powerful Conglomerates
Which conglomerates run Asian economies?
Did you know, the world’s oldest company was Japan’s 1,339 year-old temple building Kongo Gumi? For a long time, Asia has been the fountain of youth for companies.
That’s because Asia’s family-controlled companies are as old and powerful as Italian mafia families.
They run the Asian business scene, controlling a wide range of sectors.
They’ve also got their governments in their pockets, with subsidies, tax breaks, and other favorable legislation handed out left and right.
Some even have their own criminal records, from war-convicts to modern day corruption scandals.
Expanding Asia’s traditional family business: the birth of conglomerates
Many of these powerful family-controlled corporations are conglomerates. Meaning they’re large, diverse corporations that own companies in unrelated businesses.
Westerns tend to think of conglomerates as dinosaurs – old and unadaptable. Yet in Asia, they dominate the region’s markets – as you can see below.
Asian conglomerates are not dinosaurs, but rather dragons. They’re ancient, incredibly strong, innovative beasts, sitting on growing piles of gold.
In fact, conglomerates are defining Asia’s competitive landscape. Many are in the global top 100 largest corporations.
Based on revenue, Korean conglomerates currently make up 80 percent of the nation’s biggest companies.
As of 2010, China’s conglomerates accounted for 40 percent of the country’s 50 largest companies, excluding SOEs.
This last decade, China’s and Korea’s conglomerates generated average annual growth rates of 23 and 11 percent, respectively.
This kind of growth is fantastic, if not spectacular, for companies this large and diverse.
Asian governments will break the piggy bank for conglomerates
In the last century, Asian governments have used private family-owned companies to build strategic sectors and grow the economy.
Governments sheltered domestic firms from foreign competition like over-protective parents and gave them special financial privileges.
They receive large support in the form of “window guidance”. They’re funneled capital, research support and subsidies, and are protected by legislation.
The outcome? Domestic firms grow quicker and become artificially more competitive.
As you can see below, conglomerates in Asia get a bump from government support. They outperform their rivals in Europe by double and the U.S. by triple.
Longevity, business growth, expansion and overpriced stocks now define Asian conglomerates.
But where did they come from?
How China crafted a steel giant and tamed the world economy
Baosteel is a perfect example of an Asian conglomerate reaping the rewards of “window guidance” to rise to the top.
In the early 2000s, the Chinese government had a special spot for steel manufacturing. They made Baoshan, nicknamed “Baosteel” (600019:CH), their treasured firm.
The government’s undying support both financially and legislatively helped Baoshan dethrone its competitors.
Baosteel is now China's biggest steel producer and number two globally.
As you can see below, terrific revenue, resulting from state-favoritism, has lifted Baoshan’s stock price into the sky.
Then China’s government forged savage tech companies
China’s restrictions on foreign tech companies, like Google and Facebook, made China the garden of Eden for domestic internet companies.
Alongside heavy-handed investment, Chinese tech and internet conglomerates are increasingly the most valuable and innovative companies in the world.
Tencent, “China’s Facebook”, recently eclipsed Facebook’s market capitalization, jumping over the US$500 billion mark.
Just look below at Chinese tech conglomerates' ridiculous revenue growth.
The champion Chaebols of South Korea
Meanwhile, “Chaebols” are Korea’s traditionally family-owned conglomerates.
“Chaebols” like Samsung, Hyundai, Lotte and LG served as the backbone of the export-oriented economy, launching its growth.
Now Korea’s economy is the 11th largest in the world. And the revenues of Korea’s five biggest chaebols make up 60 percent of its GDP.
They also dominate Korea’s stock market, as you can see below.
“Chaebols'” incredible success was achieved by the government’s unwavering commitment to maturing the nation’s manufacturing prowess.
You see, Korea’s tight-knit relationship between the state bureaucracy and private business effectively morphed the economy from agriculture-based to a manufacturing hub.
The evolution of Samsung alongside Korean policy paints a clear picture. As you can see below, Samsung followed the development trend set up by Korea’s government.
But what motivated Samsung to follow the government’s footsteps? Well, a lot of money.
Samsung has received over US$109 million in state research and development funding.
Samsung obtained over US$155.3 million in subsidies in 2012 alone.
This makes it the most government subsidized company in the country.
At every step of development, the Korean state was there to lend a helping hand or dime to its “chaebol” champions.
Governments throughout Asia essentially hand-crafted tiger companies in a wide range of industries. They now prowl the global market, fierce and ready to fight off rivals.
That’s how Asian export-conglomerates became manufacturing mammoths and international, cutting-edge companies.
For that reason, many Asian conglomerates are deemed “too big to fail”. Asian governments won’t let these companies slip. They’re always there to catch their fall.