Story of POSCO Holdings
View(s):In 2024, POSCO reported annual revenue of US$53 billion—more than half of Sri Lanka’s GDP. With a workforce of approximately 45,000 employees operating across more than 50 countries, POSCO maintains major facilities in South Korea, Indonesia, India, China, and the United States. Its revenue per employee, estimated at around $1.2 million, reflects exceptional productivity and operational
efficiency across its diversified business segments.
A Sinopec fuel station. Sri Lanka has privatised fuel distribution with the CPC competing with the private sector.
State-Owned Enterprises
A few days ago, I came across the story of POSCO and its impressive business performance, which compelled me to reflect on it in this column. POSCO’s journey offers valuable lessons and prompts us to ask difficult questions—such as, “Why has Sri Lanka failed to produce success stories of this scale?” Sadly, Sri Lanka has not done so in the past, and prospects for achieving such outcomes in the near future remain dim.
POSCO is a state-owned enterprise (SOE) founded in 1968 by the South Korean government. The name stands for Pohang Steel Company, originally established in the coastal city of Pohang. Though it began as a modest domestic steel manufacturer, POSCO played a pivotal role in South Korea’s post-war industrialisation.
POSCO, along with other notable examples like Hyundai Motor Company and KEPCO (Korea Electric Power Corporation), has been widely cited in economic literature on East Asia’s development experience. I had the opportunity to study some of these cases during my postgraduate studies in the 1990s.
Today, POSCO Holdings Inc. has transformed from a small steel producer with just 39 employees at the beginning into a global industrial powerhouse. What was the secret behind this remarkable business model?
Strategic decisions
There were three outstanding and interrelated decisions taken by the South Korean government enabling the company’s progress towards a global business giant:
1. Reduction in government ownership of POSCO through privatisation.
2. Transfer of a portion of company shares to its employees.
3. Listing of POSCO on the stock exchange as a public limited company.
After the 1997 East Asian Financial Crisis, South Korea too underwent sweeping economic reforms, these reforms were also guided by the IMF and other international financial institutions. POSCO, once a SOE, was seen as a candidate for privatisation to reduce government control over the economy and encourage market-driven management.
As part of the privatisation process, shares were also allocated to POSCO employees. It was believed that this action would foster a sense of ownership and loyalty among workers. Company shares allocated to the employees were also seen as aligning incentives with company performance, encouraging productivity and innovation.
In addition, the government believed that employee ownership of POSCO would stabilise its shareholder base by reducing the risk of hostile takeovers during the transition. The government gradually sold its stake in POSCO, completing full privatisation by 2000, making it one of the first major Korean conglomerates to do so.
Competition from big players
The gradual reduction of government ownership in POSCO marked a pivotal shift, granting the company greater managerial autonomy and enabling it to operate more freely within a competitive market environment. This transition also facilitated the attraction of foreign investment and significantly improved corporate transparency—two critical factors that empowered POSCO to align with international standards of governance and operational efficiency.
At the time, POSCO faced formidable competition from well-established steel giants from Japan, Germany, the United Kingdom, and the United States. South Korea, still classified as a developing economy, was entering a global arena dominated by industrial powerhouses. Yet, through strategic reforms that enhanced its independence and sharpened its competitive edge, POSCO managed to rise among the ranks of global steel leaders.
To meet international benchmarks, POSCO adopted globally recognised accounting and governance standards. It also made substantial investments in research and development, as well as automation technologies, in a deliberate effort to match the efficiency levels of its Japanese counterparts.
The evolving ownership structure gave POSCO the internal flexibility and institutional strength to scale its operations, innovate, and compete head-to-head with firms from the world’s most advanced economies.
Dual listing strategy
One of the most remarkable steps taken by the South Korean government in its industrial policy was the public listing of POSCO on both domestic and international stock exchanges—an unprecedented move that signalled the company’s transition from a state-owned enterprise to a globally competitive corporation.
POSCO was first listed on the Korea Exchange (KRX) in 1988, granting it access to domestic capital markets and marking a significant milestone in its privatisation journey. In 1994, it took a bold leap by listing on the New York Stock Exchange (NYSE), becoming one of the first Korean companies to do so. This strategic dual listing opened the doors to the US capital market and significantly expanded POSCO’s global investor base.
The dual listing not only enhanced POSCO’s international visibility but also elevated its corporate governance standards and transparency, aligning the company with global best practices. It fostered greater investor confidence, improved access to foreign capital, and contributed to a higher market valuation.
POSCO’s evolution—from a fully state-owned enterprise to a publicly traded global corporation—is frequently cited as a model of successful privatisation and industrial policy. Today, approximately
88 per cent of POSCO Holdings Inc.’s shares are freely floating, with major institutional investors each holding around 1 per cent of the total shares.
In terms of market performance, POSCO’s share price was below $20 in the year 2000. It experienced a dramatic bull run, peaking at around $180 in 2007. Currently, POSCO shares trade at approximately $80, reflecting its enduring relevance and resilience in the global steel industry.
Selective intervention
POSCO is frequently cited in economic literature as a hallmark example of South Korea’s industrialisation strategy, often referred to as “selective intervention” strategy. This approach involved the government playing an active role in the early stages—establishing and supporting key industries—and gradually withdrawing to allow private enterprises to take the reins and compete globally.
While POSCO’s trajectory is undeniably a success story, focusing solely on selective intervention risks overlooking the broader picture: the comprehensive policy reform process that laid the foundation for a thriving business ecosystem. South Korea didn’t just pick winners—it built an environment where winners could emerge.
To truly understand the country’s early economic development, we must recognise the dual-track strategy it employed. On one hand, sweeping policy reforms were implemented to foster a business-friendly climate, encouraging both domestic entrepreneurship and foreign investment. On the other hand, the government strategically identified high-potential sectors—like steel—and provided targeted support to help them scale and compete internationally.
POSCO exemplifies this second dimension. Its success was not merely the result of government backing, but of thriving within a broader framework of economic liberalisation, institutional reform, and market openness. Selective intervention worked because it was nested within an enabling environment—one that promoted innovation, competition, and private sector growth.
“Standing in the way”
The question I found myself asking at the end of the story was this: How can we realistically expect transformative outcomes in an economy that lacks both an enabling business environment and strategic, selective intervention?
The current business climate is in dire need of comprehensive reform—an overhaul that goes beyond surface-level fixes. We must repair and revitalise the foundational structures that support enterprise, innovation, and investment. Without a conducive atmosphere, even the most promising ventures will falter before they begin.
If we admire successful models like POSCO, then we must do more than applaud them—we must emulate their principles. That means charting a forward-looking path for our own state-owned enterprises, empowering them to evolve, compete, and thrive. Progress cannot be achieved by obstructing their potential; it must be nurtured through policy, vision, and bold action.
(The writer is Emeritus Professor at the University of Colombo and Executive Director of the Centre for Poverty Analysis (CEPA) and can be reached at sirimal@econ.cmb.ac.lk and follow on Twitter @SirimalAshoka).
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