Business rearrangement and development of digital technology
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Business rearrangement and development of digital technology
  • Kevin Lee 기자
  • 승인 2022.01.23 07:00
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Corporate Korea (6)

The following is the sixth (Chapter 5 summary) in a series of articles on the book, entitled “Corporate Korea’.—Ed.

By Kim Kwang-sooh

During the period of 30 years of carrying out six 5-year economic development plans starting in 1962, the Korean government played a pivotal role in achieving economic growth by aggressively implementing policies of promoting heavy and chemical industries while supporting export of products.

As external environments, such as democratization, market opening, vitalization of stock market, permission of foreigners’ investment and increase in foreign currency loans, were changed and Korean companies increasingly expanded to overseas markets, Korean enterprises found necessity of strengthening competitive edge in global market.

A car ‘Pony’ developed by Hyundai Motor in 1974
A car ‘Pony’ developed by Hyundai Motor in 1974

Until the currency crisis came in 1997, large business groups, or conglomerates, in Korea had diversified businesses. The number of affiliates of 30 top business groups increased from 484 in 1987 to 819 in 1997. But the currency crisis served as a milestone of reorganizing businesses at these business groups in the way of concentrating resources on core competences by spinning off excessively or redundantly invested and less critical divisions.

with separation of Cheil Synthetic Textile (now Saehan Group) and Hansol in 1993, Samsung Group separated Cheil Jedang (now CJ) in 1997, and Joong-ang Ilbo (daily newspaper) and Bokwang in 1999. LG Group separated LG Fire Insurance and LG Cable & System Group (now LS Cable & System) in 1999 and 2003, respectively. In 2004, it severed LG Card (now Shinhan Card), and it separated its distribution, energy and construction affiliates to GS Group in 2005.

Samsung Electronics successfully developed 64Mb DRAM in 1992, the then first of its kind in the industry.
Samsung Electronics successfully developed 64Mb DRAM in 1992, the then first of its kind in the industry.

 

Following separation of Hyundai Development Company (HDC) and Hyundai Department Store in 1999, Hyundai Group spun off Hyundai Electronics, Hyundai Engineering & Construction, and Hyundai Heavy Industries in 2001 and 2002, respectively. As mentioned in the previous chapter, about a dozen business groups were bankrupted during 1997 and 1998.

In contrast, Hanhwa Group, a traditional gunpowder manufacturer, transformed into a financial group by acquiring Daehan Life Insurance in 2002, and Doosan Group, a traditional food and beverage manufacturer, turned into a heavy industry and construction-centered business group by acquiring Hankook Heavy Industries, Koryeo Industrial Development, and Daewoo Heavy Industries & Machinery consecutively since 2001.

While restructuring businesses, Korean large enterprises apparently made efforts to improve financial robustness and profitability. Average debt-to-equity ratio at manufacturers was reduced from 396% in 1997 to around 100% in 2005. After the currency crisis, large business groups pursued internal stability and profitability rather than expansion.

A view of the semiconductor plant of Samsung Electronics in Giheung, Korea
A view of the semiconductor plant of Samsung Electronics in Giheung, Korea

With conservative posture, they also paid keen attention to risk management. Until middle of the 1980s, Korean enterprises expanded into overseas markets through export, and they began in late 1980s to globalize business through core business activities in other countries, such as research and development (R&D), production and marketing, based on direct investment, in line with trends of market-opening, emergence of new markets and globalization.

In early stage of globalization, global management activities of most companies heavily relied on home country-oriented management framework as they had insufficient experience in overseas operation. Having undergone restructuring after the currency crisis, leading electronics and automotive companies, including Samsung Electronics, LG Electronics and Hyundai Motor, began to create global brands based on competitive quality of products and expanded markets to East Europe, Southwest Asia and Latin America, accumulating global management knowhow.

As part of their globalization strategies, leading enterprises began to acquire foreign companies in the 1990s. LG Electronics, Samsung Electronics and Hyundai Electronics acquired Zenith, AST and Maxtor, respectively. Direct overseas investments by Korean large enterprises sharply increased. The amount of their direct investment reached $10.7 billion in 2006, an increase of 63.7% over the previous year.

Regions of their investment also expanded from China and the United States to emerging markets, such as the Eastern Europe, Middle East, Africa and Latin America. Then they upgraded global business activities by localizing operation and implementing globally integrated strategies. In the 2000s, they concentrated efforts on sharpening competitive edge in soft values, such as brand and design.

With introduction of information technology (IT) and digital technology, leading companies accelerated development and deployment of these technologies. After first developing 64K DRAM in 1983, Samsung Electronics succeeded in developing 16M DRAM in 1990, leading the world industry. Leveraging digital technology, Samsung Electronics began in 2000 to ambitiously commercialize world-level high value-added digital products, including semiconductor memories, thin film transistor-liquid crystal displays (TFT-LCDs), digital TVs and digital components.

Having begun to produce mobile phones in 2000, LG Electronics increased production of displays. Both Samsung Electronics and LG Philips LCD (now LG Display) developed industry-first flexible displays, while Samsung developed 14.3-inch black/white e-paper in 2006. Hyundai Motor built company-wide climate of placing top priority on product quality competitiveness, resulting in an increase of 360% in export of vehicles to the United States in 2005 over 1999.

One of important factors in competitive edge is the design. Government surveys found that competitiveness in product design of Korean companies reached 70~80% of those in industrially advanced countries. In the late 1990s, leading companies, such as Samsung Electronics, LG Electronics, Hyundai Motor and Kia Motors, began to invest heavily in design. Consequently, these companies outpaced competitors in industrially advanced countries in digital technologies, such as semiconductor, display and automobile. They were transformed from ‘technology followers’ to ‘technology leaders’.

 


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