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4 - Steel in the Republic of Korea
POSCO

By Park, Joon-Shik¹

Part a

Introduction
From mass production towards diversification and restructuring
Employment and working conditions
Labour relations and collective bargaining

Changes in industrial relations since 1987

Labour relations in POSCO

Managerial ideology and the early institutional setup of the POSCO style
The union stage
Institutionalization of the union free stage
Politics of the internal labour market
Development of the internal labour market system in POSCO: A historical reflection

Human resources development

Off-the-job training
On-the-job training

Conclusions
References

Introduction

This paper is divided into five sections. The first section examines the steel industry, its management style, and the changing competitive environment. The second section deals with the employment and labour market features of the steel industry in Korea. The third addresses labour relations and collective bargaining systems at the level of the firm. The remaining two sections discuss the internal labour market and work organization practices in the steel industry.

POSCO dominates steelmaking in Korea, accounting for well over three-quarters of national steel production. POSCO is the only fully integrated steel producer in Korea; the other ten steelmaking and rolling companies use EAFs fed with POSCO's by products.

From mass production towards diversification and restructuring

This strategy enabled the industry rapidly to catch up with advanced producers and, through economies of scale, become low-cost competitors. Figure 1 shows competition, production, and management systems of Korean steel firms during the early period of rapid industrialization.

What distinguishes POSCO from other Korean firms is that it has built up its own organizational institutions and a strong corporate culture combined with its company welfare system. The POSCO style can be classified as "patriarchal company welfarism". While the original model of company welfarism was developed in Japan, POSCO's senior managers added their own managerial style and strategy building up and maintaining the company's employment system until 1987. Other steel producers, however, were managed in the traditional Korean manner.

Since 1988, however, Korean firms have been trying to move towards a new management system -- a move initiated by POSCO. Change has been approached from two sides. Firstly through its production and competition strategy, and secondly through its leadership style and organizational structure.

POSCO's production system is quickly changing from the mass production of low-cost, high-volume commodities to a combination of mass production and flexible production of diversified goods. Moreover, while trying to improve its competitive edge in its main business area, steel, POSCO, is also rapidly diversifying into other strategic areas such as telecommunications, engineering, construction and research and development (POSCO, 1995b). But diversification does not mean a neglect of steel. POSCO is still concentrating on the rationalization of its production facilities, the development of advanced technology such as mini-mills, expansion towards higher value and more diversified product areas, mergers and the acquisition of other firms, and the relocation of its downstream production to developing countries such as Vietnam and China. To sustain its self sufficiency in technology and innovation the company has invested heavily in research and development, including its own research institutes and a university. POSCO has moved from quantitative growth to qualitative deepening (POSCO, 1995c).

Changes in managerial systems and organizational structure accelerated in 1993 when POSCO's president, Park, Tae-Joon, who had wielded absolute managerial authority for more than 25 years, resigned. Since then POSCO has been trying to achieve significant changes in management style -- from an authoritarian and patriarchal organization to one where authority is decentralized. Symptoms of such changes were evident in 1988 when a labour union was first formed in POSCO (POSCO, 1993b). With the change in leadership -- from Park to Kim, Man-Jae, the present CEO of POSCO -- POSCO is trying increase decentralization and diversification (POSCO, 1995a; 1995b). Nowadays POSCO's management emphasize greater flexibility, autonomy, and consensual decision-making processes. The present CEO is trying to devolve more autonomy to the profit centres. The company is also trying to change from a strictly hierarchical organizational structure to one based on teams. It has already introduced team organization in the management of white collar employees. A combination of competition strategy and the changes in top management seem to be pushing the company towards another experiment and its impact has begun to be identified in the employment system too (POSCO, 1995a; 1995b).

While POSCO is trying to change its organizational paradigm, other steel producers appear to be facing difficulties due to the wide fluctuation of the business cycle. These firms produce steel in EAFs or focus on special steel products. All but two of them (Kangwon Sanup and Dongguk Jaegang) have changed ownership; the most recent being Sammi Special Steel Corporation and Hanbo Corporation. Both of these companies invested heavily in the new technology, but their financial problems led to them being taken over by POSCO. Thus, apart from POSCO, other steel producers are facing hard times in adapting their products to changing markets. Over-dependence on generalized technology and uncertainty in the business environment are forcing them to be more flexible. Whether they could be restructured with a more flexible organization, diversified products, and higher-value end products remains to be seen.

The fact that the Korean steel producers are facing major reengineering and commercial difficulties means that the Korean steel industry is now facing some kind of "paradigm shift" in its business organization. The changing competitive environment, such as the opening of global competition and the shifts in technological and organizational paradigms mean that the companies must change too.

Table 1. Shifts in technological and organizational paradigms in the Korean steel industryCompetition strategy

Korean steel producers are typical examples of how efficiently an organization can work when disciplined and loyal labour and aggressive management are combined into concerted action for rapid growth leading to a much reduced "catch-up time". This strategy worked well for a while but at the end of the 1980s relying solely on cost advantages was no longer possible.

Changes in organizational and technological paradigms have begun to have a profound impact on employment relations in the steel industry. The rising importance of human resources and new forms of management practices became evident in the late 1980s (Heckscher, 1988; Kochan, 1986; Appelbaum, 1994). Such trends raise important questions. What impact do changes in the organizational paradigm have on employment relations in the industry? How have Korean firms developed their own employment systems in response to external changes?

Employment and working conditions

Table 2. Major labour-related data for the Korean steel industry, 1988-95

Working and employment conditions cannot be understood without considering the status of POSCO in determining the pattern for employment relations in the steel industry. Since 1994 POSCO has been the second biggest steel producer in the world. It has a unique status in the Korean steel industry as a "pattern maker" for employment systems in the industry. Since 1987, the turning point in the employment system in Korea, POSCO has led wage and working conditions negotiations in the Korean steel industry. Once its wages have been determined, the smaller companies and POSCO's related subsidiaries follow suite. Usually they settle at just below POSCO's wage standard. In this way the initiation and pattern-setting role has been implicitly practised as an informal wage setting mechanism in the Korean steel industry.

Table 3. Major labour-related data for POSCO, 1981-95

Table 3 shows that POSCO is still expanding its production capacity. In 1992, however, significant changes in employment began to emerge. The total number of employees and the number of production workers started to decline as a result of the end of the period of major expansion and growth, with the company trying to rationalize and downsize its organization. Signs such as recent efforts to downsize its workforce, expand the proportion of high-value products and diversification into other industries bear this out. Traditionally, average working hours and turnover of the workers in Korean companies have been very high, except at POSCO. From the early part of the 1980s working hours and turnover have been reduced significantly. The rapid increase of direct wages was also trimmed from 1991. However, POSCO's total labour costs are still increasing quickly because of the heavy cost of the company welfare system and increasing investment in training. As table 3 shows almost 90% of eligible workers were organized in 1989-90, followed by an almost total eclipse to a current membership of less than 20. The union has been replaced by the newly organized workplace consultation association of employees.

¹ Hallym University, Chuncheon, Kangwon-do.

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