The following is the seventh (Chapter 6 summary) in a series of articles on the book, entitled “Corporate Korea’.—Ed.
By Kim Kwang-sooh
The currency crisis in 1997 drastically transformed the industry ecosystem in Korea. Those large enterprises that survived the currency crisis had enhanced global competitiveness as they harshly restructured businesses and implemented innovation in management. Consequently, a part of large enterprises, including Samsung Electronics, LG Electronics, Hyundai Motor and POSCO, grew into world-class enterprises during past several decades. Meanwhile, dozens of other large enterprise groups bankrupted or liquidated in the aftermath of the currency crisis.
Until 1977, Samsung Electronics, a company of Samsung Group, focused on manufacturing and exporting products to the world market and began to globalize business in 1978 by establishing its first overseas subsidiary in the United States, Samsung Electronics America. For manufacturing products overseas, the company built the first color TV production facility in Portugal in 1982.
This was followed by a color TV plant built in the United States in 1983, a microwave oven and VCR plant in the United Kingdom in 1987, a refrigerator plant in Indonesia in 1989, and a color TV plant in Hungary in 1990. The company opened its first overseas headquarters in Japan in 1994, and established regional headquarters in the Americas, Europe, China and Southeast Asia in 1995. Since then, the company continued geographical diversification of global business, establishing a total of 151 overseas footholds by 2006.
In 2006, Samsung Electronics achieved a total of $83.94 billion in revenue, and overseas revenue reached $72.86 billion, representing 86.8% of the total. Major world leading products included semiconductors, mobile phones, LCDs, and digital TVs among others. For global business organizational structure, the company adopted the region-centric management strategy to control five regional headquarters in 1994, but it turned to the home country-oriented strategy after the IMF bailout crisis in 1998.
Since it produced a radio, the first of its kind in Korea, in 1959, LG Electronics (formerly Gold Star) began production of black/white TVs in 1966, and then other consumer electronics and digital products, including refrigerators, washing machines, air conditioners, cassette players and mobile phones. Its annual revenue increased to $42.7 billion in 2007 and gained $18.3 billion in export in the same year.
The company built its first overseas manufacturing facility in Alabama, the United States in 1982 to produce color TVs. In 1986, the LG Group including LG Electronics launched the ‘IDEAL 21st Century Campaign’ to globalize and transform to a multinational enterprise. As part of the initiative, it began to establish manufacturing facilities in Poland, Egypt and Mexico in late 1990. In recognition of their excellence in quality, its electronic and digital appliances earned fame in overseas markets.
As overseas manufacturing facilities and sales subsidiaries increased to 29 and 48 respectively as of 2008, complexity in supply chains and supply chain management (SCM) grew. Realizing the importance of SCM, LG Electronics introduced the global SCM system in 2000. To enhance efficiency in marketing, manufacturing and purchasing, the company deployed the Internet-enabled global supply chain planning (GSCP) system, and launched the global SCM team in 2006. Having implemented the GSCP system for years, the company successfully achieved goals of significantly reducing inventory and improving delivery compliance rate globally.
After it first exported cars to Ecuador in 1976, Hyundai Motor established its first overseas complete knock down (CKD) assembly plant in Bromont, Canada in 1989 and a manufacturing subsidiary, Hyundai Assan Otomotive Sanayi, in Turkey in 1997. Since then, the company built its subsidiaries and production facilities in other countries, including India, China, the United States, Germany, Belgium and Poland, between 1998 and 2005, building a global export and manufacturing network. It also established an engineering center in Germany.
Building on these overseas capabilities, Hyundai Motor implemented five major strategies to accelerate globalization. First, the company strived to enhance competitive edge of products. It localized products by tailoring designs and features of vehicles to local consumers’ needs and preferences. The company also established sustainable management system. Then it pursued innovation in global management structure. In addition, the company helped parts supply and sales partners expand into overseas markets and globalize their production and supply operations simultaneously.
Established in 1968, POSCO launched operation of the first blast furnace in Pohang in 1973 with annual production capacity of 1.03 million tons of steel, and continued notable annual growth of over 10% through 2006. With increased R&D investment since 1992, POSCO successfully developed proprietary processing technology of ‘Finex’ in 2003 that can reduce facility investment and production cost by up to 85% compared to traditional blast furnaces.
It also can lower emission of sulfur oxides (SOx) and nitrogen oxide (NOx) to 40% and 15% of emission levels of conventional furnaces, respectively. As of October 2007, the leading iron and steel manufacturing company operates 24 offices and 51 plants in 20 countries. The company began to concentrate direct investments in Asian countries including China, Japan, Southeast and Southwest Asia, and it increased investments in North America and East Europe.
For sourcing of raw materials, it heavily relied on Australia and Canada and increased import of materials from Brazil. Since mid-1990s, the company built plants and processing centers in China, Vietnam, Myanmar, Brazil and Venezuela, but a part of these investments was suspended in late 1990s affected by the currency crisis. After 2002, it resumed investments in Australia, China and India. To increase export and maximize synergy effects between global production bases and markets, POSCO deployed global networks of processing centers under so-called the ‘SCM4444’ strategy.
The history of SK Hynix, a SK Group company, is quite complicated. The initial predecessor of SK Hynix is Gukdo Construction Company, which was established in 1949 as a privately-owned firm. Since then, the company changed its name several times as it was acquired by other larger companies. In early 1983, it was acquired by Hyundai Electronics, and began fabricating semiconductors. Then it merged LG Semiconductor in 1999 and changed its name to Hyundai Semiconductor.
In 2000, it changed name to Hynix Semiconductor, and then acquired by SK Telecom in 2012, changing its name to SK Hynix. As of the first quarter of 2017, SK Hynix grew into the third largest semiconductor manufacturer in the world in revenue. Major products of the company include D RAMs, NAND flash memories, multi-chip packages, CMOS image sensors that are used for mobile devices and a variety of information technology (IT) applications. The company runs manufacturing facilities in Korea and China, sales operations in the United States, United Kingdom, Germany, China, Singapore, Hong Kong, India, Japan, and Taiwan, and research and development facilities in the United States, Italy, Taiwan and Belarus.
in 1984 as a subsidiary of Korea Telecom, Korea Mobile Communication Service changed its name to Korea Mobile Telecom in 1988 and launched analogue mobile phone service. Acquired by SK Group in 1994, the company commercialized the world’s first code division multiple access (CDMA) technology, and changed its name to SK Telecom in 1997. In 2003, SK Telecom ushered in the third generation (3G) mobile phone service era with wideband code division multiple access (WCDMA) technology, and then commercialized long term evolution(LTE) technology and the long term evolution-advanced (LTE-A) technology for the first time in the world.
It grew as a leading telecom carrier with an annual revenue of approximately $15.1 billion as of December 2018. SK Telecom’s major businesses include wireless communication services such as mobile phone, wireless data and data communication, and wired communication services such as broadband Internet, data and communication network lease service, as well as marketplace service, online-to-offline service, location-based service (LBS), display advertisement, search advertisement and content providing service. With saturated market in Korea, SK Telecom turned eyes to overseas markets, such as China, the United States and Vietnam. SK Telecom launched mobile phone service in Vietnam in July 2003 through SLD Telecom, a joint venture with LG Electronics and Dong-Ah Elecomm established in 2000 in Singapore.
In China, the company launched in 2004 a joint venture with China Unicom, UNISK, to provide wireless Internet and content services. In May 2006, SK Telecom set up a joint venture with the U.S.-based EarthLink, called Helio, to provide its unique services. In 2007, Helio became a wholly-owned subsidiary of SK Telecom.
Spun off from Hyundai Construction, Hyundai Shipbuilding and Heavy Industry was established in December 1973 as a shipbuilding company. In February 1978, the company changed its name to Hyundai Heavy Industries, and it grew into the world’s top company in shipbuilding and vessel engine. In 2017, the company achieved approximately $32.6 billion in revenue, when it was separated into 4 major independent entities, Hyundai Heavy Industries Holding Company, Hyundai Heavy Industries, Hyundai Electric, and Hyundai Construction Equipment, to improve its governance structure.
Since its inception, Hyundai Heavy Industries built over 9,000 mid-sized ships and repaired or remodeled over 8,500 ships. It also produces engines for middle and large-sized ships as well as generators, accounting for 36% and 28% of the world engines for large and mid-sized ships, respectively. Hyundai Electric provides various electric/electronic devices and energy solutions needed for power generation, transmission, distribution and consumption. Hyundai Construction Equipment manufactures and sells construction equipment, including excavators and wheel loaders, and construction vehicles, such as fork lifts, tow trucks and lorries. Hyundai Heavy Industries group companies actively expanded businesses to global market.
As part of such strategies, Hyundai Heavy Industries Holding Company built strategic collaboration relations with Kuka Group in Germany to jointly develop industrial robots and diversify product lineups. Hyundai Electric established manufacturing operations in India and Brazil to produce over 50,000 construction machines and industrial vehicles annually.