[Maintaining a competitive edge through collectivization – self transformation and evolution at the same time] The corporations of three East Asian countries, which are under a spotlight for their fast growth, have chosen a growth path and an innovation method different from most western corporations. What do the East Asian corporations have in common? How will their unique characteristics evolve in the future? 　 At the upcoming ‘Asia Future Forum 2010: Evolution of East Asian Enterprise’, key corporation representatives will speak about how the Asian socio-cultural context have influenced their innovation and competitive process. One of the sessions will be chaired by a distinguished economist and Stanford University professor, AOKI Masahiko. The other section will be chaired by Professor LEE Keun, Professor of Economics at Seoul National University and who is a top expert on the innovation of East Asian enterprises. Different ownership structures, similar behaviors Since the 2008 financial crisis began, economic leadership has been shifting to Asia, and East Asia stands as the core of that leadership with Korea, China and Japan at the very center. The three countries have similarities, however, they have mixed feeling about each other due to a painful shared history. Their languages are all rooted in Chinese characters, yet they speak English when they meet. It is actually wrong to group the corporations of the three countries together because they are quite different from one another. For instance, Japanese corporate founding families were pressed to let go of management authority despite their ownership after World War II. By contrast, Korean corporations are often operated by the founding family. Many Chinese firms are owned by the government which is rooted in socialist political system. However, they have one very distinguishing characteristic in common in which they all have a business group-based corporate structure. The business group-based corporations have different names in each country. It is called Chaebol in Korea, Keirestu (系列) in Japan, and Chiye Jituan in China. They all play the pillar role in the countries they belong to despite different ownership structures - family ownership, distributed ownership andstate ownership. The corporations of three countries also tend to have similar behavior patterns and achievements, whichallows them to be grouped together for analysis. Market economy maturity leads to the demise of business groups? Not True. In mainstream economics, especially according to the Nobel prize winning economist Oliver Williamson’s theory on transaction costs, business groups are formed in less advanced countries because transaction costs are larger and the cost of a failed transaction is much larger compared to advanced nations. In other words, Williamson claims that business groups are found in less advanced economies in order to reduce transaction costs by internalizing those costs within the business group. For instance, it is likely to be much more difficult to secure funding for a project with great viability if the market does not have a robust financial industry. In such cases, business groups can secure necessary capital from internal sources to launch the project. This explains why business groups such as Japanese Keirestu with its origin of Zaibatsu, existed until the end of World War II or Taiwanese family-type business groups were formed. The same explanation holds for business groups in India and South America. Globally speaking, US- or UK-style shareholder-ownership based corporations are minorities in numbers when compared to business groups-based corporations that are commonly found in developing nations. Although business groups are most commonly found throughout the world, mainstream economists viewed business groups as a primitive form of corporation compared to the western style corporations, which are currently regarded as the global standard. The western-style corporate ownership was most strongly regarded as ‘ideal’ during the Asian economic crisis in the late 1990’s during which many Korean Chaebols went bankrupt. However, many Korean business groups survived the crisis and are thriving today with great business performance. In addition, more than half of all Chinese corporations have chosen to form business groups, transcending the traditional belief that business groups are integrated into market economies as they mature. Similarly, many are beginning to believe that the western economists’ assessment of business groups as a primitive form of corporation are both biased and far from the truth. Transaction cost economics is useful in explaining the origins of business groups. However, it fails to recognize that corporations are organic entities that are rooted in the region and continue to evolve. It also fails to explain how the business groups improve their business performance while maintaining their form. It should be noted that this economic phenomenon could be explained as a result of a relationship network rather than a transaction network, viewed from a cultural-economics perspective. A Business Group’s Strength in Brand management and R&D What would be a suitable way to explain the high performance of business groups? According to my recent research, resources and capacity-sharing were identified as important sources of competitive edge. Brand management and R&D capacity are two prime examples of shared resources and capacity respectively. Both brand management and R&D capacity are costly to build for an independent company. However, business groups can afford to do both by having individual companies within the group make collective contributions. A collective contribution structure can provide a competitive edge to business groups regardless of the market economy maturity level, especially considering that brand management and R&D capacity are difficult to outsource. Also, it should be noted that many product markets have monopolistic structures which provide a competitive edge to business groups. Business groups are also more resilient in dealing with greater economic uncertainties. 　 However, business groups do not last forever. In Japan, individual companies of business groups are becoming quite independent and Korean Chaebol companies are becoming more independent as well. The state-owned Chinese business groups are also becoming increasing independent from government control. It will be interesting to see how the business groups in East Asia evolve while expansion of East Asia continues to provide favorable conditions for the corporations. LEE, Keun Professor of Economics, Seoul National University