A study of Korean jaebeol business conglomerates
By Reporters Kim Jung-mi with Sua Kim, Son Da-som
This is the third installment in a series articles on the leading business conglomerates in Korea and around the world published in the interest of building a bridge between the business leaders of Korea and various countries around the world.—Ed.
Vice Chairman Lee Jae-yong (better known as Jay Y. Lee in the English-speaking world) accompanied President Moon Jae-in with a number of other top business tycoons of Korea during Moon’s visit to Pyongyang on the occasion of the 3rd Inter-Korean Summit Meeting in Pyongyang on July 18-20 last year. Moon, specifically, was also accompanied by the leaders of three other jaebeol business groups, e.g., Hyundai, SK, LG, and the heads of four major business-related organizations.
This was considered a very welcome development in the government-business relations in Korea following the birth of the Moon government on May 11, 2017. This was because it was construed in the Korean society, notably in the business world, as a sign of an end to the period of Jaebeol-taming which all but invariably followed the change of government in Korea—from Park Geun-hye to Moon, Lee Myung-bak to Park, Roh Moo-hyun to Lee MB, and almost all their predecessors.
On this situation, the majority of the Korean people, especially those who want continued economic development and growth of Korea, take sides with the businesses because they view them as the main source of economic development and growth of the country.
Korean businesses, especially Samsung, perform the role of a dependable locomotive in helping the government leaders explore and develop diplomatic relations economic cooperation with other countries.
On July 9, 2018, Vice Chairman Lee Jae-yong played a pivotal role in the promotion of understanding and friendship between President Moon Jae-in and Prime Minister Narendra Modi of India. At a meeting with President Moon, Prime Minister Modi had very high remarks for Samsung. He said: “South Korean tech giant Samsung's largest global mobile factory in Noida will not only generate more jobs but also make India a global export hub.”
Premier Modi stated: “ India-South Korea relations grow stronger thanks to Samsung's biggest global R&D in India. Almost every middle-class Indian family is using at least one Korean product. Samsung has a distinct space in India.”
As seen the case of India, Samsung, and many other big businesses in Korea, for that matter, are greatly contributing to the enhancement of the image of Korea to the outside world as well as actual economic and various other benefits deriving from their business activities and operations in all parts of the world.
Back in the early 1960s, shortly following the birth of the so-called ‘military government’ born as a result of coup d’etat carried out by the late former Major General Park Chung-hee (later repeatedly elected as Korean President), the per-capita GNI of the Republic of Korea (south) was somewhere around US$80 (repeat US$80) while that of North Korea was US$170, more than double that of the South.
The ratio soon reversed as a result of economic development-first policy carried out by President Park. The so-called Jaebeol business conglomerates, particularly Samsung, played a prominent role in reversing the ROK-NK economic order in favor of the South under the business-first policies carried out by Park.
At this juncture, it might not be amiss to try to learn the Korean jaebeol business groups, from their beginning. This installment concerns the Samsung Business Group, rated to be the first among all Korean business conglomerates.
Lee Byung-chul starts Samsung as a small store in Seoul in 1938
The Samsung Business Group was first founded by the late Found-Chairman Lee Byung-chul in Daegu, Gyeongsangsangbuk-do, on March 1, 1938, which coincides with the Samil Independence Day of Korea deriving from the Independence Uprising by Koreans in resistance against the Japanese gendarmerie rule in 1919.
Samsung is a multinational conglomerate presently headquartered in the Samsung Town south of the Han River in Seoul, the capital of Korea. Samsung Group comprises numerous affiliated businesses, most of them united under the Samsung brand.
Over the next three decades following its foundation in 1938, the group diversified into a wide range of different areas including food processing, textiles, insurance, securities and retail.
Samsung entered the electronics industry in the late 1960s and the construction and shipbuilding industries in the mid-1970s; these areas would drive its subsequent growth. Following the passage of Chairman Lee Byung-chul in 1987, Samsung was separated into four business groups, namely Samsung Group, Shinsegae Group, CJ Group and Hansol Group.
Since 1990, Samsung has increasingly globalized its activities and electronics; in particular, its mobile phones and semiconductors have become its most important source of income. As of 2017, Samsung is rated to have the 6th highest global brand value.
Who stand out from among the 63 affiliated companies of Samsung?
The Samsung Business Group, according to a 2018 report of the Republic of Korea Fair Trade Commission, consists of a total of 63 major affiliated companies, 46 in the regular business activities and 17 financial institutions.
The notable affiliates include Samsung Electronics (the world's largest information technology company, consumer electronics maker and chipmaker measured by 2017 revenues, Samsung Heavy Industries (the world's 2nd largest shipbuilder measured by 2010 revenues), and Samsung Engineering and Samsung C&T (respectively the world's 13th and 36th largest construction companies).
Other notable subsidiaries include Samsung Life Insurance (the world's 14th largest life insurance company), Samsung Everland (operator of Everland Resort, the oldest theme park in South Korea) and Cheil Worldwide (the world's 15th largest advertising agency measured by 2012 revenues).
Samsung has a powerful influence on South Korea's economic development, politics, media and culture and has been a major driving force behind the "Miracles on the Han River" during the earlier period the rule of the late former President Park Chung-Hee. Its affiliate companies produce around a fifth of South Korea's total exports. Samsung's revenue was equal to 17% of South Korea's $1,082 billion GDP.
Founding Chairman Lee Byung-chul started his business as a small trading company with only 40 employees and dealt mainly in Geoneomul (dried-fish), locally-grown groceries and noodles. The company prospered and Lee moved its head office to Seoul in 1947. When the Korean War broke out, he was forced to leave Seoul. He started a sugar refinery in Busan named Cheil Jedang. In 1954, Lee founded Cheil Mojik and built the plant in Daegu.
Samsung diversified into many different areas. Lee sought to establish Samsung as leader in a wide range of industries. Samsung moved into lines of business such as insurance, securities and retail.
Samsung Group grows by leaps and bounds
In the late 1960s, Samsung Group entered the electronics industry. It formed several electronics-related divisions, such as Samsung Electronics Devices, Samsung Electro-Mechanics, Samsung Corning and Samsung Semiconductor & Telecommunications, and made the facility in Suwon. Its first product was a black-and-white television set.
1970 to 1990 period:
The SPC-1000, introduced in 1982, was Samsung's first personal computer (Korean market only) and used an audio cassette tape to load and save data – the floppy drive was optional.
In 1980, Samsung acquired the Gumi-based Hanguk Jeonja Tongsin and entered telecommunications hardware. Its early products were switchboards. The facility was developed into the telephone and fax manufacturing systems and became the center of Samsung's mobile phone manufacturing. They have produced over 800 million mobile phones to date. The company grouped them together under Samsung Electronics in the 1980s.
After the passage of former Chairman Lee Byung-chul in 1987, Samsung Group was separated into four business groups--Samsung Group, Shinsegae Group, CJ Group and the Hansol Group.
Shinsegae (discount store, department store) was originally part of Samsung Group, separated in the 1990s from the Samsung Group along with CJ Group (Food/Chemicals/Entertainment/logistics), and the Hansol Group (Paper/Telecom).
Today these separated groups are independent and they are not part of or connected to the Samsung Group.
In 1980s, Samsung Electronics began to invest heavily in research and development, investments that were pivotal in pushing the company to the forefront of the global electronics industry. In 1982, it built a television assembly plant in Portugal; in 1984, a plant in New York; in 1985, a plant in Tokyo; in 1987, a facility in England; and another facility in Austin, Texas, in 1996.
As of 2012, Samsung invested more than US$13,000,000,000 in the Austin facility, which operates under the name Samsung Austin Semiconductor. This makes the Austin location the largest foreign investment in Texas and one of the largest single foreign investments in the United States.
On Aug. 2, 2016, Samsung unveiled Galaxy Note7 smartphone, went on sale on Aug. 19, 2016. However, in early September 2016, Samsung suspended sales of the phone and announced an informal recall. This occurred after some units of the phones had batteries with a defect that caused them to produce excessive heat, leading to fires and explosions. Samsung replaced the recalled units of the phones with a new version; however, it was later discovered that the new version of the Galaxy Note7 also had the battery defect. Samsung recalled all Galaxy Note7 smartphones worldwide on 10 October 2016, and permanently ended production of the phone the following day.
On Aug. 31, 2016, Samsung announced the Gear S3 smartwatch, which was released on Nov. 18, 2016.
On March 29, 2017, Samsung unveiled its new Samsung Galaxy S8 and S8+ flagship smartphones. On Aug. 29, 2017, Samsung announced its Samsung Galaxy Note8 flagship smartphone. These phones were also complemented by a number of low-end and mid-range phones, as well as the Samsung Galaxy S8 Active smartphone, in 2017.
Lee Jae-yong, born on June 23, 1968 is the eldest child and only son of Chairman Lee Kun-hee of the Samsung Group and Mrs. Lee (nee Hong Ra-hee), and is widely considered to be his father's successor Chairman Lee being in bed for the past four years and 5 months (since May 10, 2014). Vice Chairman Lee is referred to as the "Crown Prince of Samsung" by the South Korean media, and speaks Korean, English and Japanese. Lee is known to possess wealth worth US$7.9 billion, the third wealthiest person in South Korea.
In 2014, Vice Chairman Lee was named the world's 35th most powerful person and the most powerful Korean by Forbes magazine's List of The World's Most Powerful People along with his father.
In January 2017, Vice Chairman Lee was accused of involvement in cases of “receipt of bribery, embezzlement and perjury" by the South Korean prosecutor's office, and after an investigation, he was arrested on Feb. 16, 2017. On Aug. 25, 2017 Lee was sentenced to 5 years in prison after being found guilty of corruption. The appeals court suspended his sentence on Feb. 5, 2018, and reduced it to 2.5 years, releasing him.
Lee started working for Samsung in 1991. He began working as a plain employee, was promoted to the position of a vice president of Strategic Planning, and then as "Chief Customer Officer," a management position.
However, his prospects for future company leadership dimmed when his father Kun-hee stepped down as chairman due to tax evasion. In December 2009, however, his succession prospects revived when Lee became the Chief Operating Officer of Samsung Electronics.
Since December 2012, he has been vice chairman of Samsung. He is one of the main shareholders of Samsung's financial services subsidiary, owning 11 percent of Samsung SDS.
About Founder Lee Byung-chul of the Samsung Business Group
Lee as born on Feb. 12, 1910 in the Euiryeong County of the Gyeongsangnam-do Province, South Korea.
He founded the Samsung Group and proved himself as one of South Korea's most successful businessmen. With the breakup of the Hyundai Jaebol, Samsung is now South Korea's largest business group.
Lee was the son of a wealthy landowning family (a branch of the Gyeongju Lee clan). According to Wikipedia, he attended college at Waseda University in Tokyo but did not complete his degree.
Lee established a trucking business in Daegu on Mar. 1, 1938, which he named Samsung Trading Co, the forerunner to Samsung. Samsung means "Three Stars" which explains the initial corporate logos.
By 1945 Samsung was transporting goods throughout Korea and to other countries. The company was based in Seoul by 1947. It was one of the ten largest "trading companies" when the Korean War started in 1950.
With the conquest of Seoul by the North Korean army, Lee was forced to relocate his business to Busan, the largest port city of Korea on the southeastern tip of the Korean peninsula.
The massive influx of the United States Forces and their equipment into Busan over the next year and a half of the war proved to be highly beneficial to Lee's trucking company.