- A study of Korean jaebeol business conglomerates
By Vice President Park Byung-wook with Reporter Sua Kim
|President Moon Jae-in poses with Vice Chairman Lee Jae-yong of Samsung Group|
This is the third installment in a series articles on leading business conglomerates in Korea and around the world covered by the writer, a specialist in the business world in Korea and outside the world. Park was formerly the director of the Business Bureau of The Korea Times, a leading independent English daily in Korea. Park joined The Korea Post media in 2003, which now own and operate 3 English and 2 Korean-language media outlets since 1985. Vice President Park is assisted by Reporter Ms. Sua Kim.—Ed.
Vice Chairman Lee Jae-yong (better known as Jay Y. Lee in the West) accompanied President Moon Jae-in during Moon’s visit to Pyongyang on the occasion of the 3rd Inter-Korean Summit Meeting in Pyongyang on July 18-20, 2018.
Author Park Byung-uk is former Business Director at The Korea Times. After retirement from the English daily, Park joined The Korea Post media.
Moon was accompanied also by the leaders of three other jaebeol business groups, e.g., Hyundai, SK, LG, and the heads of four major business-related associations. This is considered a very welcome development in the government-business relations in Korea following the birth of the Moon government on May 11, 2017. This is because it is 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.
|Deputy Prime Minister Ri Ryong Nam of North Korea (right) receives Korean busienss leaders visiting Pyongyang accompanying President Moon Jae-in on Sept. 18-20, 2018. On the right, foreground, is Vice Chairman Lee Jae-yong of Samsung Electronics shaking shakes hands with Ri followed by other Korean jaebeol busienss leaders.|
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 Mobi of India. At a meeting with President Moon, Prime Minister Mobi 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 Mobi 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.
|‘Samsung Store Co., Ltd.’ (name of sign) was the name of the original company of today’s Samsung Business Group established during the Japanese Occupation Era of the Korean peninsula in 1938.|
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:
|Founding Chairman Lee Byung-chul of the Samsung Business Group.|
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.
|President Moon Jae-in and Prime Minister Narendra Mobi of India (fourth and fifth from left, respectively) cut tapes to open the Samsung electronic plant in India. At fr left is Vice Chairman Lee Jae-yong of Samsung Group ant on his right is Minister of Foreign Affairs Kang Kyung-wha.|
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.
Notable Samsung industrial 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).
|Chairman Lee Kun-hee the Samsung Group and his spouse Madam Hong Ra-hee are with other member s of the Lee Family of Samsung. At far right is Vice Chairman Lee Jae-yong of the Samsung Group and at far left is Chairwoman Lee Boo-jin of Hotel Shilla.|
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.
|President Moon Jae-in and Prime Minister Narendra Mobi of India pose for the camera with the leading members of their government in Noida, India on July 9, 2018 at the dedication ceremony of the ‘World’s Larget Mobile Factory in India’ built by Samsung. Vice Chairman Lee Jae-yong of Samsung is seen third from left, with Foreign Minister Madam Kang Kyung-wha (seventh from left) with the other leading figures from Korea and India.|
In 1947, Cho Hong-jai, the Hyosung group's founder, jointly invested in a new company called Samsung Mulsan Gongsa, or the Samsung Trading Corporation, with the Samsung's founder Lee Byung-chull. The trading firm grew to become the present-day Samsung C&T Corporation. After a few years, Cho and Lee separated due to differences in management style.
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.
Shinseki (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 has 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 serving as vice president of Strategic Planning and then as "Chief Customer Officer," a management position created exclusively for Lee.
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.
Throughout the history of Korean big business, the jaebeol group leaders suffer following the change of government, and Samsung is no exception.
The arrest of Chairman Lee was largely prompted by the investigation of the case now largely discredited Madam Choi Soon-sil
The case could be traced back to the shift of the father-to-son ownership of Samsung in 2014.
His suspected involvement in bribery with the then President Park Geun-hye, which was first brought to the table by an arrest warrant issued by the Prosecutor's Office in January, which led to his arrest in mid-February.
On Jan. 12, 2017, the Special Prosecutor's Office stated that it would decide "soon" whether to seek an arrest warrant for Lee. He was questioned for more than 22 hours for suspicion of illegal activities including bribery in a scandal that consumed President Park Geun-hye.
On Jan. 16, 2017, when the Prosecutor's Office finally decided to seek an arrest warrant for Lee, the warrant was denied based on a court ruling from January 19, with the Central District Court Justice Cho Eui-yeon stating that it was "difficult to recognize the need" for his incarceration. On Feb. 17, 2017, Lee was "formally arrested after the Seoul central district court issued a warrant on the night" of Feb. 19 for "handing bribes worth almost £30m to then President Park Geun-hye and her close friend, now-discredited Madam Choi Soon-sil to win government favors for a smooth leadership transition."
Subsequent to his arrest, Samsung admitted to making contributions to two non-profit foundations allegedly controlled by Madam Choi and her Germany-based firm, but denied such contributions were related to the 2015 merger.
A spokesman for Samsung said: “We will do our best to ensure that the truth is revealed in future court proceedings.” On Feb. 28, 2017, The Wall Street Journal of the United States reported that "South Korean prosecutors said they would indict the Samsung conglomerate’s de facto leader Lee Jae-yong on charges of bribery and four other offenses." It was reported on Aug. 7, 2017, that prosecutors demanded a 12-year sentence for Lee. On Aug. 25, Lee Jae-yong was sentenced to five years in jail.In February 2018, Vice Chairman Lee was freed from jail after a South Korean court suspended his five-year jail term for bribing former President Park Geun-hye.
According to an article in Reuters, Vice Chairman Lee is known for his "cold" determination and polite, quiet demeanor. Lee is known to take time to reply personally to e-mails, and assumes a light-hearted attitude with reporters.
Vice Chairman Lee, reportedly, is rarely seen in public and avoids publicity. He has two younger sisters, Lee Boo-jin, Lee Seo-hyun, and was the older brother of the late Lee Yoon-hyung.
He has one son and one daughter with his ex-wife, Lim Se-ryung (daughter of the chairman of the Daesang Business Group), whom he divorced in 2009. Lee enjoys golf and horseback riding.
Kim Sua firstname.lastname@example.org