lunes, mayo 23, 2005
miércoles, mayo 04, 2005
When a chilly wind turns up my collar,
To search for a fire to warm me,
I fumble in deep places of my heart.
When a lovely lady leaves behind her fragrance,
To reach for a memory to warn me,
I fumble in dim traces of my hurt.
Oh, however, I always
Like descending stories.
Someone holds her in his bosom,
Soaring up to the dark sky,
Sowing her in the dark sky,
Like ascending stars.
If I could meet the President
This essay gives me a fresh opportunity to look into my country and to view the future of it. Now I realize that one of the reasons which leads me apply for an MBA program stems from some social problems which are threatening the economy of my country. I hope to share this with the president of my country and to find solutions together.
My country, the Republic of Korea, limited by its political and geographical situation, is now facing some difficulties in developing its economy. Despites its small territory and unstable national security, Korea has developed its economy remarkably quickly. However, its economic growth ratio has been lowered recently and its per-capita GDP index shows that it is still located in the lower level among the OECD members. I think that the slowdown in its economy is caused by inappropriate policies. Hopefully, I want to share my ideas and experiences with the president about biased economy policies and their results.
Through my experience, I found that business in Korea has been biased toward some countries such as the United States, China, and Japan. Approximately sixty percent of Korea’s trading is concentrated on those three countries. This high dependency on three countries has threatened and limited the Korea economy. Moreover, this phenomenon has made it more difficult to do business with other countries. To do business with some countries, knowing their culture of business and society is important and learning their languages is the first step to know their cultures. However, this phenomenon has distorted the foreign language education system in Korea.
For instance, in Korea, there are only a couple of language programs for Spanish, French and German while there are thousands of language programs for English, Chinese and Japanese. Thus, Korea has begun to lose its chance to increase trading with countries in Europe, South America, and Africa, although Korea needs to reduce its trading dependency and to vary its international markets for the stability and growth of its economy. I am afraid that Korea will remain as a small economy sector of the United States, Japan or China.
In order to show the importance of independence, I hope to tell the president what I experienced. When I was a lieutenant in the Korean Air Force, my government decided to import F-15 fighters from the United States even though Euro Fighter, Sukhoi or Rafale were acknowledged as better fighters. The high dependency of Korea Air Force operation system, caused by importing fighters only from the United States for a long time, deprived my government of other choices.
If the opportunity to meet the president were given, I would tell the president that Korea is in need of diversifying its partners with various countries to overcome limits and difficulties as it has done. Therefore, through the MBA from your Business School, I’d like to find better solutions for the Korean economy which I could suggest to the president of my country.
I want to make a marriage covenant with the person I love most. Therefore, I would like to pray for my parents before their death, and to bless my children at their weddings. Finally, I hope to spend my last days amongst my loved ones.
In the world, companies exist with their own lives and characters as men do. As a president and a founder of my future company, I hope that my future company will be a world leading company with a long life and a good character as I hope my son to have in the future.
As everybody knows, I know that making more money can provide me with more opportunities to make my life happier. At the same time, however, I believe that it enlarges my debt to society. Thus, I’d like to earn as much money as I can so that I can give back to society during my life.
Why apply to Oxford MFE
For additional information, I would like to share one of my reasons for applying for an MFE program. It stems from the state of the corporate sector of my country, the Republic of Korea. The financial crisis of my country in 1997 revealed problems of finance management in the corporate sector, and faulty corporate governance in Korea. With lessons learned form this crisis, most companies have reformed their financial systems successfully. However, some small companies in Korea are still in need of financial experts in corporate management. To help them as a consultant of corporate finance, I am applying for an MFE program at Oxford University.
With the success of economic progress initiated by the government, the Korean economy has achieved an unprecedented growth since the early 1960s. However, Korea’s international competitiveness began to deteriorate in the early 1990s due to a complicated and often opaque combination of economic distortions and financial fragility. In November 1997, less than a year after its accession to the OECD, Korea experienced a severe financial crisis. The deficiency of the corporate sector was cited as the main cause of the financial crisis and it led to massive bankruptcy of a large number of corporations. Korea's corporate crisis had its deep root in the fragile capital structure, inefficient investments, and poor financial performance of corporate resources.
Right after the outbreak of the financial crisis, the Korean government enforced corporate reforms in order to cope with the crisis. The government set the policies for the corporate reforms; new rules were introduced to enhance the transparency of corporate management, and various measures were taken in an effort to reduce excessive financial leverage in the corporate sector. The reform policies were aimed at establishing an economic environment compatible with market principles, and enhancing the standards of business practices in financing, investment and corporate governance to attain global standards.
Now, most big corporations in Korea have transformed their financial systems into what are truly compatible with international standards. With the corporate transparency and sound capital structure, they enhanced financial performance based on market principles. They also showed dramatic changes in the corporate governance system. However, despite the progress in the corporate reforms made in the corporate sector, many small and medium companies are still facing inherent problems with corporate finance and governance as experienced before the crisis. Thus, by gaining an MFE from Oxford University, I’d like to be a corporate finance expert. With lessons learned from my previous failure in finance management as a former CEO of small venture company, I hope to provide other CEOs of small and medium companies with better solutions to address their fundamental weaknesses.
Initiate a club
At your school, I would like to set up a Business Planning Club. This club will provide students with an opportunity to design business models for their future business. The club's activities will further encourage any student who has fresh ideas in pursuing his own future business. I think that clubs in your Business School probably fall into four categories; local country related clubs, industry related clubs, business field related clubs, and sports related clubs. My club might seem to be similar to an Entrepreneurs Club or a Consulting Club. However, the aim of my club is to further students' skills in business by analyzing and planning and to facilitate students or sponsor corporations to start new businesses. Furthermore, it will help with searching for the required technology and venture capital for realizing business plans.
First of all, to initiate this club, I will find students who have interest in business planning, who have fresh ideas for future business, and who have a goal to run their own businesses. Therefore, I will try to contact other clubs which are related to specified industries, business fields, and countries. I will build strong inter-relationships with other specialized clubs in your Business School because creating successful business models requires deep knowledge and broad experiences about different environments of each industry and all business fields such as marketing, corporate finance, and operational strategies, and is specific to each country. For each project, I will organize a project team by combining experts from other clubs. Moreover, to further its activities and to communicate with the wider school community, members will look for new ideas from other students through business idea contests or from corporations by sponsorship agreements as well as sharing member’s own ideas.
Surely, the Business Planning Club will be the most valuable club in your Business School. I believe my club activities will clarify members’ future goals in detail as well as establish solid human networks of future business leaders. Some of our business plans will be realized as the foundation of future big corporations. Most importantly, however, members will learn how to work with diverse people from different industries and business fields, and how to understand their unique interests and cultures. I would like to have a chance to start up my club with future classmates and to design my future business at your Business School.
Leading team working
When I took the admission tests for being a Korean Air Force Cadet in 1994, I learned the nature of teamwork, “Never leave our members behind,” and “Achieve our goals together.” Almost 700 candidates gathered in the Jin-Ju Air Force Academy, and stayed for a week to take admission tests. As one of our tests, we had to complete our running test of 1500 meters in 6 minutes. Candidates were divided into several teams of about 50 members and each team started the test in turns. Fifty members started at once. Some of them passed but others did not so the candidates who failed to complete their test in 6 minutes could not become cadets. Now, it was my team’s turn. My team members had agreed to run together in rank before the test. During our test, some members shouted numbers to keep us all in time, and sometimes we sang songs together. All of my team enjoyed our test and passed within the limited time. When we finished our test, every candidate and even the supervisors applauded our teamwork. After that, all remaining teams finished this test by doing what my team did, and nobody failed. This experience has been a fundamental in developing my strong leadership qualities during my ten year career.
Additionally, from my business experience, I learned how much the leader’s visionary foresight is significant for team’s successes. As a CEO of a small venture company, I had no choice but to close up my company and it has remained as the most painful failure I experienced. Due to the company’s advanced technical capabilities and potential clients, I was more than sure that my company had an edge on its competitors. However, the unexpected collapse of the Korean textile industry led to the company’s gradual demise in the business world. To cope with the difficulties, I tried to modify the products for other industries, but the business logic was too different and the conversion required extremely high costs and long time. Nothing I could do, but to switch my company to a project consulting company and to lay off some employees. Unfortunately, I soon discovered, switching my company is one thing, but leading my company and employees amidst financial and industrial difficulties was something else entirely.
To be sure, there are many lessons that I have learned from my ten year career, but perhaps none more important than the nature of teamwork and leadership. Now, I know what my role is in future study groups, how to support my future members, and what contribution I have to make for good teamwork. First, I will try to read potential conflicts among study group members and to assess difficulties in future projects of my study group. Then, with my strong leadership ability, I will make every effort to solve conflicts and to help members adhere closely to our goals. Furthermore, I will cope with the difficulties with accurate analysis and timely decisions.
martes, mayo 03, 2005
Entirely new life
As a nature lover, I would want to return to nature. At Poon Hill near the Annapurna Mountains, I will build my small hut, a lodge for trekkers from all around the world, where I will spend my whole life reading books and listening to music. Sometimes I will serve some hot coffee or warm meals to trekkers who visit my hut to watch the sunrise over the Himalayas. Also I will create a warm atmosphere by decorating the walls with pictures of visitors I’ve met and with stories about their lives that I’ve heard.
Some people, having the same idea that the nature is not what they have to conquer but what they have to return to, will visit my hut at Poon Hill to become a part of nature even if just for a few days while many people try to climb Mt. Everest. During the couple of days in my hut, trekkers will experience and feel another kind of peace and happiness. Furthermore they will learn to love the monotonous daily life filled more with trivial affairs than with amazing ones, and find the meaning of life because life, which is sometimes regarded as nature itself, consists of a series of small events. The quiet and peaceful time in my hut will create a mood to enable them to recall their past and to remind them of their families which they left. On the last day, with memories of the beautiful sunrise and the peace of Poon Hill, they can go back to their beloved ones.
Being a leader
Being a leader always requires two essential traits. One is an attitude of realizing the significance of our decisions and of accepting their results with the responsibilities that they entail. The other one is a continuous challenge to improve our leadership ability to inspire and lead people. I have continually asked myself these two questions. These are “Have I made the right decisions at every moment?” and “With what leadership abilities can I inspire my followers?”
“Have I made the right decisions at every moment?” Decision making is the most difficult task for a leader. When considering that my decision could influence someone’s life, it adds more weight and meaning. One day in 1995, some newcomers arrived in my office. I interviewed them and made the first assignment to each division. Since one of my responsibilities was personnel administration of all divisions, I usually interviewed every newcomer to assign them by their skills and aptitudes. Two years later, one of them questioned me that his first assignment was wrong because though he was evaluated for a different division after his interview I finally assigned him to his current division. Undoubtedly, it was my mistake. At that time, I recognized that my decision changed his two years and it would continue to change his future. Although the result of my mistake was significant to him, I couldn’t do anything but to hope that he would be satisfied with his life in the present and in the future.
“With what leadership abilities can I inspire my followers?” Team members inspired and motivated by their leader can make better teamwork and efficiency to achieve the team’s goals successfully. Thus, an inspirational leader is highly appraised and required by organizations. When one master sergeant made the teamwork worse, I decided to avoid the problem by removing the cause because I used to avoid the problem rather than to solve it. I suggested to my boss to reassign him to another division. After hearing my suggestion and the reason for it, my boss stared at me for a while and permitted my suggestion with one piece of advice, “Only an outstanding leader can achieve goals with bad staff.” Although I came out of his office with his permission, I could not reassign him because I didn’t want to limit myself to being one of the ordinary managers showing weak leadership abilities. After that, like my boss became an inspirational leader to me, I made every effort to motivate him and to achieve goals with him.
Now, I realize that I have tried to answer the two questions above, and that I decided to apply for your prestigious MBA program to find better answers. Therefore, I believe that the discrepancy in scores is trifling and my capabilities are enough to complete your program. Although my admission might take away a chance of admission from other excellent students, my admission will be a more valuable chance for your school to make another excellent student.
Feel passionate about
Usually traveling and reading books helps people experience diverse cultures, lives and places. Since I have tried to broaden my mind, I have been passionate about traveling and reading.
Traveling gives me an opportunity to talk to strangers, taste unfamiliar foods, view unique scenery, and learn different customs. Still I can recall vivid memories about my experiences. I can remember a sweet voice of a Parisienne. Chinese cuisines attracted me with their delicate flavors. On my way to Las Vegas, I experienced an incredible sunset. I could not explain why an Arabian family went on a picnic to the desert. During my travels, I can gain feelings and impressions one by one at every moment.
On the other hand, reading books presents me with another chance to experience new worlds. I can meet authors or characters and listen to their ideas and philosophies. Sometimes books take me where I cannot travel. Virginia Woolf shared her idea about life with me through her book, The Years. Andre Gide introduced Alisa and told me of an innocent girl’s sad love story. Therefore, I have been to Macondo with Gabriel Marquez. Whenever I read books, I can experience another life with new people in new places.
To someone saying, “Life is like a box of chocolate you never know what you are going to get inside,” I’d like to say that experiencing unknown worlds and people brings dozens of additional boxes of chocolate to life.
About the Chaebol in Korea
Seven years have passed from the painful moment of my country. However, this vivid memory is still alive in my heart and has become a motive of my further study. When I read your publications to get some information for my interview, I gained some idea from them and decide to write this paper to show myself more. From this paper, I hope you understand my motive and idea.
When I read about the aggregate statistics based on net flows and the filtering technique, I realize these could be applied to analyze the financial systems of large conglomerate business groups, called as the Chaebol in Korea. The aggregate statistics and filtering technique could eliminate cross-transactions, identify the clear capital structure, and provide accurate financial conditions of a Chaebol and its affiliate companies. Moreover, I think this approach would be helpful for valuing small venture companies and their projects when making financial decisions.
Economic Crisis of Korea
In November 1997, less than a year after its accession to the OECD, Korea experienced a severe financial crisis. An inefficient and distorted financial sector and a corporate sector burdened with high levels of short-term debt were at the core of the economic crisis in Korea.
A major shock to the Korean economy occurred with the bankruptcy of five large conglomerate business groups, the Chaebols. The failure of these Chaebols revealed problems with low profitability and excessive leverage ratios in the corporate sector and faulty corporate governance in Korea. During the economic crisis, the Korean currency depreciated sharply, the Korean Stock Price Index plunged, and market interest rates surged.
Since December 1997, the Korean government has embarked on a comprehensive program for economic reform and recovery, and taken significant steps to accelerate the liberalization of capital market and foreign exchange transactions.
Problems in the Chaebol
First, the high growth, excessive debt, and high financial risk were the basement of the Chaebol. Since 1960s, the Korean economy had shown rapid growth with the investments backed through heavy external debt financing. By continuous input strategy of Korea on financial resources, the Chaebols could have achieved a remarkable advancement in the major industrial sectors competing in the world markets. However, the excessive financial leverage of the Chaebols led to the massive bankruptcy of Chaebols and their affiliate companies, including many other independent companies.
Secondly, most of the Chaebols earn rates of return that are less than their cost of capital. This poor performance and low efficiency of corporate assets reflects not only inefficient use of corporate resources, it also shows the transfer of corporate assets to affiliate companies by the controlling owners. This indicates the wide spread practice of transfer corporate assets in the past from one company to another within a conglomerate business group, the Chaebol.
Finally, by the mutual loan guarantee practices, the Chaebols were able to successfully obtain massive loans from the banks, and consequently they had excessively high leverage. Since the loan guarantee is a contingent liability, it incurs an implicit cost to the guarantors without any guarantee fees or compensation. Therefore, a loan guarantee was a useful indirect way of transferring corporate wealth of the guarantor company to the guarantee recipient. The prevailing practice of mutual loan guarantees in the past was a useful way for Chaebols to mobilize bank loans and transfer corporate wealth from one company to another.
Various challenges have been taken in an effort to reduce excessive financial leverage of the Chaebols, to enhance the global standards of business practices in financial systems of the Chaebols, and to prevent the opportunistic behavior by controlling Chaebol owners. Since the economic crisis in 1997, the top 30 largest Chaebols were subjected to produce combined financial statements for their conglomerate group, the affiliate companies of these Chaebols were required to reduce their debt to equity ratios to 200%, and loan guarantees among affiliate companies within a Chaebol were prohibited.
However, the transfer of corporate assets and the mutual events between affiliate companies of a Chaebol still have made it difficult to look into accurate financial conditions of a Chaebol and its affiliate companies. I believe that the aggregate level of financing and event studies based on net flows would be an effective approach in analyzing the capital structure and forecasting future financial conditions of them. The reason that the aggregate level of studies based on net flows is comprehensive in providing complete coverage of the Chaebol and its affiliate companies is that it will remove mutual events among them and show transparent flows between the Chaebol and external financial institutions.
With the idea I gained from your publications, I am considering these procedures to analyze accurate financial conditions and capital structure of the Chaebol and its affiliate companies. (See Figure 1)
1. By some filtering techniques, I will identify and extract all unusual events from a Chaebol and its affiliate companies over certain period. Between affiliate companies of a Chaebol, this will find mutual events such as loans, transactions or investments.
2. I will find the aggregate financing patterns of a Chaebol including its affiliate companies by the filtered financing flows. This aggregate statistical figure will show the capital structure of a Chaebol.
3. I will combine extracted events with the aggregate level of financial flows of a Chaebol. I will value each event and examine its effects, and then I will forecast the future financial condition of a Chaebol.
4. Moreover, to analyze each financial condition of affiliate companies, I will separate the aggregate level of data and allocate to each affiliate company. This approach will bring clear overviews on its financial condition and steady businesses without any unusual events including mutual relationships with other affiliate companies.
5. To the financial condition of an affiliate company, I will apply extracted events of it. Then, on the basis of its capital structure and financial flows, I will measure risks of each event, and forecast future financial condition and future value of an affiliate company of after events.
With my current abilities and knowledge in finance, I am not sure how much my idea is acceptable and my procedures are reasonable. After receiving the interview arrangement email from Saïd Business School, I just started reading your publications. However, your publications were very interested and I would like to have more opportunity to study and to hear from you about them. Whatever the quality of this paper is, I have done my best and I take pride in my idea which I gained from your publications. It was really my pleasure to have a chance to read your publications. I am sure you publications will be helpful for my future study on the corporate finance and the international finance.
Additionally, I would like to share my experience with you. Your publication, “A New Test of Capital Structure,” presented me with good understanding of the pecking order theory and trade-off theories. However, I believe small venture companies have additional reasons in seeking new equity finance before their debt capacity is exhausted.
From “A New Test of Capital Structure,”
New equity issuance is concentrated on small loss making firms that have high levels of leverage. New equity issues are associated with companies that would have difficulty raising debt finance while debt finance is raised by large profitable companies, which do not need to issue equity.
Small venture companies are usually in the state of new investment and loss-making. Although products are developed and initial marketing takes place, companies would remain unprofitable for a while. During this period, companies should use external finance, and they have to choose either debt or new equity. In this sense, most Korean small venture companies prefer financing from the new equity market though debt is the dominant source of external finance for a small venture company.
The use of debt finance requires the guarantee and collateral. Generally in Korea, creditors or financial institutions require the loan guarantee from CEO and other directors of companies while their lending is backed by collateral on average 150%. Although considering the high concentration of ownership in small venture companies, the required risk and collateral is too big to accept for CEOs. Thus, I believe, CEOs or CFOs of small venture companies try to seek first new equity finance rather than debt finance even though they are not listed in the stock market.
J. Corbett, J. Edwards, T. Jenkinson, C. Mayer, and O. Sussman, “A Response to Hackethal and Schmidt (2003), Financing Patterns: Measurement Concepts and Empirical Results”, 2004.
Mayer, C. and O. Sussman, “A New Test of Capital Structure”, Oxford Financial Research Center Working Paper, 2003.
Mayer, C., "Financing the New Economy: Financial Institutions and Corporate Governance", Information Economics and Policy, Vol.14, 2002.