Samsung

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Samsung Founding Chairman Lee Byung-Chull’s Place in Korean Business Management

CHANG Jin-Ho

Focus

tion and began in earnest a trading business based in Seoul. While it began as just a small trading company, Samsung Corporation grew into one of Korea’s leading trading companies in just one year.

With the establishment of Cheil Jedang (CJ) in August 1953, Lee began a manufacturing busi-ness. In the wake of the cease-fire agreement signed at Panmunjeom at the end of the Korean War, the situation on the Korean Peninsula was

Korea’S eConoMiC DeveLoPMent anD Lee’S BuSineSS exPanSion

The name “Samsung” was used for the first time when Chairman Lee Byung-Chull estab-lished the Samsung Trading Company on March 1, 1938. The name has a two-part mean-ing: “Sam ” in Samsung means big, abundant, and strong, while “sung” means bright, high, and eternally shining light.1 In November 1948, Lee changed the name to Samsung Corpora-

1 Lee Byung-Chull, Hoam Chajon [Autobiography of Ho Am] (Seoul: JoongAng Ilbo, 1986), p. 34.

Front view of Samsung Trading Company building, founded in 1938.

April 2010 | SERI Quarterly | 59

chaotic. In the midst of a massive inf lux of cheap aid goods, there were many that discour-aged Chairman Lee from a huge investment in the manufacturing business that would take years for the investment amount to be returned. However, assured that the nation’s economic development would begin with the manufactur-ing of substitutes for imported goods, Lee de-cided to make a large-scale investment and to build a factory with the money he earned through his trading business established in the ashes of the Korean War.

Chairman Lee’s business expansion provides a roadmap of how the Korean economy and its industrial structure developed over time. Dur-ing the Japanese colonial period from 1910 to 1945, it was difficult for Korean companies to grow under Japan’s monopolization of capital and oppressive corporate environment. And

with the Korean War in 1950, any green shoots of business activities and industrial facilities created after the surrender of Japan in 1945 soon turned into ashes.

The Korean economy remained in poverty un-til the end of the 1950s.2 In 1953, the time Chair-man Lee launched his manufacturing business, Korea’s GNP per capita was a mere US$67, the lowest level in the world (see Table 1). Consider-ing the economic situation in the 1950s, Chair-man Lee specifically chose to start sugar and textile businesses, both of which could substi-tute imports. He said, “The necessities of peo-ple’s lives must be home-produced. This will build domestic industries, provide a stable sup-ply of inexpensive goods, and offer more jobs to people as well as contribute to the nation’s tech-nological development and expansion of indus-trial activities.”

2 In the 1950s, GNP growth was 7.6 percent in 1957 when foreign aid reached its peak and the year had a bumper crop, but GNP growth slowed to 5.5 percent in 1958, 3.8 percent in 1959, and merely 1.1 percent in 1960.

Source: Bank of Korea.

|Table 1 Korea: Major Economic Indicators

Manufacturing (%)

Heavy Industry

Light Industry

Services

Electric / Gas / Water

Manufacturing

MiningShare of GDP by

Industry (%)

1980 1985 1990197519701953 1960 1965

28.7

3.0

31.4

68.6

32.1

4.7

18.0

2.0

175

105

25.0

1.9

23.4

76.6

43.2

4.1

13.8

2.1

33

79

21.5

1.4

67

40

1.1

9.0

2.6

40.0

78.9

21.2 39.2

60.8

42.2

6.6

21.0

1.5

835

253

8.1

32.2

47.9

52.1

41.7

5.9

25.9

1.6

5,081

594

20.9

35.3

65.9

34.1

47.9

13.7

29.2

0.5

65,016

5,883

251.8

43.4

58.5

41.5

46.5

10.6

29.3

1.2

30,283

2,242

91.1

40.838.1

60.6

1,597

17,505

Agriculture /Forestry / Fisheries 38.036.847.3 26.6 24.9 8.712.514.7

1.5

28.2

10.1

45.5

46.4

53.6

Population (millions)

GNP ($ billion)

Exports ($ million)

GNP per Capita ($)



Figure 1 shows Korea’s dependence on imported sugar in the 1950s. In 1953, the nation’s depen-dence on imported sugar stood above 90 percent. However, with CJ kick starting an increase in domestic sugar production, by 1958 100 percent of sugar was provided by domestic companies.3

Table 2 indicates the proportion changes in Samsung Group sales according to industry

over the past 50 years. In the 1970s, Korea achieved annual average GNP growth of 9.5 percent amid turmoil in the global economy brought about by stagflation and oil crises. By 1979, Korea’s GNP per capita rose to $1,662 from $210 in 1969.

Samsung’s export strategy in the 1970s was to ex-pand export volume by switching the focus from

3 With rumors that CJ achieved huge success through sugar manufacturing, a large number of sugar producing businesses opened at the time. The domestic sugar demand was 50,000 tons a year but sugar manufacturing capacity reached 150,000 tons, resulting in price competition and business failures. As a starter in the field, CJ held 70 percent of the domestic market via the pursuit of business rationalization.

|Figure 1 Dependence on Sugar Imports

Source: Samsong 50 nyonsa [50 Years of Samsung History] (Seoul: Samsung, 1988).

1952

120

100

80

60

40

20

01953 1954 1955 1956 1957 1958

(%) Domestic SugarImported Sugar

Source: Samsong 60 nyonsa [60 Years of Samsung History] (Seoul: Samsung, 1988). Korea Fair Trade Commission; KISVALUE.

|Table 2 Samsung Group’s Sales by Industry

Total (￦100 million)

Total

Services and others

Manufacturing (Including CJ)

Finance

1976

16%

3,678

100%

9%

38%

34%

3%

1966

117

100%

6%

50%

10%

33%

1956

100%

100%

6

1986

149,321

100%

3%

7%

1%

32%

4%

20%

34%

1996

740,860

100%

3%

1%

2%

34%

6%

29%

25%

2008

1,890,009

100%

4%

2%

4%

8%

6%

54%

21%

2003

48%

4%

9%

3%

30%

2%

4%

100%

1,182,543

Electronics

Machinery

Chemistry

Trade/Construction


CHANG Jin-Ho

light industry products to electronics and heavy and chemical industrial goods. Establishing Samsung-Sanyo Electric in 1969 and Samsung NEC in 1970, Samsung laid the foundation for Korea’s electronics industry. Lee said at the time, “Electronics is the most suitable industry for the nation’s economic development stage consider-ing all aspects including technology, labor force, added value, domestic demand and export pros-pects.” Samsung produced both black-and-white and color TV sets with its own technology and exported its home appliances through Samsung Corporation. As Table 2 shows, the percentage of electronics in Samsung’s total sales increased to 16 percent in 1976 and Korea’s trade & con-struction sector, driven by Samsung Corpora-tion also took a larger portion.

From 1980 to 1986, Korea achieved rapid eco-nomic growth averaging 7.9 percent a year.4 Ko-rea’s core industries changed from those related to the heavy and chemical industry in the 1970s to technology-intensive cutting-edge industries such as semiconductors, telecommunications, and ultra-precision machinery in the 1980s. During a stay at the Okura Hotel in Tokyo in February 1983, Chairman Lee reassessed his ideas and decided to invest in the semiconduc-tor business, declaring 1983 as the year to start investing in semiconductors. The semiconduc-tor business was a tricky area due to fierce com-

petition with the United States and Japan and the need for massive investments and a work-force proficient in technology. Chairman Lee’s decision on this risky investment was highly in-fluenced by his son, Chairman Lee Kun-Hee (Vice Chairman at that time). Chairman Lee Kun-Hee, who had an avid interest in semicon-ductors, acquired Hankook Semiconductor with his own money. He then urged his father to seriously consider launching into the semicon-ductor business. So, semiconductors became the last business for Chairman Lee Byung-Chull and the first for Chairman Lee Kun-Hee.5 In December 1983, Samsung succeeded in de-veloping the 64 Kb DRAM chip and became the world’s third producer of VLSI chips.

Table 3 compares the timing of development of each type of semiconductor between Samsung Electronics and Japan’s major chipmakers. At the time of development of the 64 Kb DRAM chip, Samsung Electronics was about four years behind Japan’s leading chipmakers. However, relentless pursuit meant that Samsung Elec-tronics overtook the Japanese chipmakers and emerged as the world’s first developer of the 64 Mb DRAM chip. Thereafter, Samsung Elec-tronics has maintained its status as the global leader in developing next-generation DRAM chips, retaining the largest share in the global memory chip market since 1993.

4 Korea’s GNP reached $60.3 billion in 1980, ranking 45th globally, then reached $95.1 billion in 1986, ranking 18th. Korea’s GNP per capita also sharply rose from $1,589 (ranking 53rd) to $2,296 (ranking 34th) for the same period.

5 Samsong 60 nyonsa [60 Years of Samsung History] (Seoul: Samsung, 1998), p.113.

Source: Samsong Chonja 30 nyonsa [30 Years of Samsung Electronics History] (Seoul: Samsung Electronics, 1999).

|Table 3 Developments of Semiconductors: Samsung Electronics vs. Japan’s Major Companies

Development by Samsung Electronics

4 Mb DRAM

May 1988

256 Mb DRAM 1 Gb DRAM

Jan. 1996Aug. 1994

64 Mb DRAM

Aug. 1992

1 Mb DRAM 16 Mb DRAM

Jan. 1989July 1986

256 Kb DRAM64 Kb DRAM

Apr. 1983 July 1985

Development by Japan Overtaken by Samsung

Overtaken by Samsung

Approx. 6 months

earlier

Overtaken by Samsung

In the same year

Approx. 2 years earlier





BuSineSS aChieveMentS oF ChairMan Lee Byung-ChuLL

Chairman Lee strived to fulfill corporate social responsibility based on the corporate mission of “business contribution to the nation’s economic development.” The growth of Samsung Group is rooted in this spirit. Regarding the corporation’s responsibility to the nation’s economy, Lee stat-

ed: “Companies make investments with the most reasonable combination of various production factors. In the process, they pay the price to the provider of material resources so as to sustain production, wages to the provider of labor, inter-est or dividends to the provider of capital, tax to the nation for providing social stability and an investment environment, and use the remaining net profits into expansion of production.”6

|Figure 2 Samsung Group’s Sales-to-GNP Ratio

25.0

20.0

15.0

10.0

5.0

0.0

(%)

’55 ’57 ’59 ’61 ’63 ’65 ’67 ’69 ’71 ’73 ’75 ’77 ’79 ’81 ’83 ’85 ’87 ’89 ’91 ’93 ’95 ’97 ’99 ’01 ’03 ’05

Source: Samsong 60 nyonsa [60 Years of Samsung History] (Seoul: Samsung, 1998); Korea Fair Trade Commission; Financial Supervisory Service electronic disclosure system, <http://dart.fss.or.kr/>.

’53 ’07

6 Ho Am Orok [湖巖語錄]: Kiopun Saramida [Analects of Ho Am: a Company Is Its People] (Seoul: Ho-Am Foundation, 1997), p. 36.

|Figure 3 Samsung Group Employees


1953-

80,000

60,000

40,000

20,000

120,000

100,000

140,000

160,000

1960 1965 1970 1976 1980 1986

267 1,871 4,801 9,080

25,790

75,000

147,154

|Figure 4 Taxes Paid by Samsung Group


1975-

4,000

3,000

2,000

1,000

6,000

5,000

7,000

8,000

1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986

(Unit: ￦100 million)


CHANG Jin-Ho

Figure 2 shows the ratios of Samsung Group sales to the nation’s GNP from 1953 to 2008.7 Sales accumulated by Samsung Group in-creased from ￦113 million in 1953 to ￦206 tril-lion in 2008. Compared to the nation’s GNP, Samsung Group sales accounted for a mere 0.2 percent of GNP in 1953 but continued to in-crease to 15.1 percent by 1987 and 20.1 percent by 2008.8 Over the past 50 years, the Samsung Group sales-to-GNP ratio twice reached above 20 percent: during the currency crisis in 1998 and global financial crisis in 2008. This indi-cates that the Samsung Group made important contributions to the Korean economy during times of economic crises through aggressive ex-port growth. In 2008, the percentage of exports in Samsung Group sales was 78.8 percent, while exports by Korea’s ten major conglomerates ex-cluding Samsung accounted for 43.5 percent in combined sales.

Figure 3 shows the growth in the number of Samsung Group employees. The number of

employees in Samsung Group, which totaled a mere 267 in 1953, soared to 147,154 by 1986. Ac-cording to figure 4, which shows taxes paid by Samsung Group, the amount of tax paid by Samsung Group increased from ￦42.2 billion in 1975 to ￦717.1 billion in 1986. The ratio of taxes paid by Samsung Group to the nation’s total tax revenue neared 5 percent in 1986. Fig-ure 3 and 4 reflect the realization of Chairman Lee’s business philosophy that the most impor-tant corporate social responsibility is the contri-bution to the nation’s economy by sharing the fruits of business operations in the form of tax-es, wages, and dividends.

Figure 5 represents Samsung Group’s profit-ability from 1953 to 2008. The profitability is the ratio of net profit earned by Samsung Group to the Group’s total sales. Chairman Lee always emphasized the distinction between companies and charity organizations. According to a state-ment he once made, companies must make a profit and it is a sin to make losses. He believed

7 Samsung Group’s nominal sales growth, which is on non-inflation adjusted basis, posted an annual average of 31.3 percent from 1953 to 2008. The annual sales growth of Samsung Group was 58.5 percent in the 1950s, 33 percent in the 1960s, 47.2 percent in the 1970s, 31.7 percent in the 1980s, 14 percent in the 1990s, and 10.1 percent in the 2000s.

8 The ratio of Samsung Group sales to the total sales of all other companies subjected to external audit was 11.4 percent in 2008. As for net profits, the ratio was 33.5 percent. As of the end of 2009, the combined market capitalization of all listed companies belonging to Samsung Group accounted for 20.3 percent of total market value of all other listed companies.

|Figure 5 Samsung Group’s Net Profit-to-Sales Ratio

Source: Samsong 60 nyonsa [60 Years of Samsung History] (Seoul: Samsung, 1988). Korea Fair Trade Commission; Financial Supervisory Service electronic disclosure system, <http://dart.fss.or.kr/>.

(%)14.0

10.0

8.0

4.0

6.0

2.0

12.0

-2.0’53 ’55 ’57 ’59 ’61 ’63 ’65 ’67 ’69 ’71 ’73 ’75 ’77 ’79 ’81 ’83 ’85 ’87 ’89 ’91 ’93 ’95 ’97 ’99 ’01 ’03 ’05 ’07

0.0



Chronology of Lee Byung-Chull’s Life and Samsung Group

Highlights of Lee Byung-Chull and Samsung Highlights of Domestic and Foreign Affairs

Feb. 12, 1910

Dec. 1926

1935

Mar. 1936

Sept. 1937

Mar. 1, 1938

June 3, 1941

Nov. 1, 1948

Dec. 15, 1950

Jan. 11, 1951

Aug. 1, 1953

Sept. 15, 1954

1957

1958

Apr. 1930

1926

1910

1935

July 7, 1937

Mar. 3, 1938

Dec. 8, 1941

July 17, 1948

Sept. 15, 1950

Jan. 5, 1951

July 27, 1953

Nov. 29, 1954

Oct. 4, 1957

Jan. 1958

Aug. 9, 1936

1929-1933

Married while in middle school

Born in South Gyeongsang Province

Decided to open a business

Acquired Ankuk Fire & Marine Insurance, Commercial Bank, and Hankook Tire

Established Hyosung Corporation and acquired Hanil Bank and Heungup Bank

Established Cheil Industries

Established CJ

Samsung Corporation established as stock company

General meeting of Samsung Corporation board members in Busan

Renamed Samsung Trading Company to Samsung Corporation

Registered Samsung Trading Company as a corporation

Established Samsung Trading Company in City of Daegu

Liquidated rice mill and automobile businesses

Partnered in a rice mill in Masan

Enrolled at Waseda University in Japan majoring in politics and economics

Massive anti-Japanese demonstrations on June 10

Japanese annexation of Korea

US’ establishment of National Aeronautics and Space Administration (NASA)

Soviet Union’ successful launching of world’s first satellite

Controversy over constitutional amendment by rounding off to nearest whole number

Signing of cease-fire agreement

Chinese attack on Seoul

Incheon landing

Promulgation of Korean constitution

Japanese attack on Pearl Harbor

1939 Sept. 1, 1939Take over of Chosun Breweries in Daegu Beginning of World War II

Teaching Korean in Korean middle schools prohibited by Japanese government

Beginning of Sino—Japanese War

Sohn Kee-Chung wins gold medal in the marathon at Berlin Olympic Games

Adolf Hitler’s declaration of rearmament

Great Depression

1959 Jan. 1, 1959Created secretarial office of Samsung and acquired Chohung Bank Cuban Revolution (inauguration of Fidel Castro)

Aug. 16, 1961 May 16, 1961Appointed as first chairman of Korea Businessmen’s Association (later renamed the Federation of Korean Industries)

Military coup

Oct. 15 Oct. 15Government’s redemption of Hanil Bank, Chohung Bank, and Commercial Bank Reversion of commercial banks to government

Nov. 29, 1962 Mar. 22, 1962Acquired Anbo Fire Insurance (present Samsung Fire & Marine Insurance) Resignation of President Yun Bo-Seon

1963 Nov. 22, 1963Established Tongyang Broadcasting Corporation (TBC) and Radio Seoul; acquired Tongbang Life Insurance; handed over Hyosung Corporation and Hankook Tire

Assassination of US President John F. Kennedy

1964 Oct. 31, 1964Established Korea Fertilizer Company with ￦100 million Korea—Vietnam Agreement on dispatchment of Korean troops to Vietnam

1965 June 22, 1965Established Samsung Foundation of Culture and JoongAng Ilbo and acquired Sungkyunkwan University and Saehan Paper (present-day Hansol Paper)

Signing of Korea—Japan treaty

1966 Aug. 18, 1966Established JoongAng Development and Korea Hospital and announced donation of Korea Fertilizer Company to the nation Beginning of Cultural Revolution in China

1967 June 5, 1967Established Jeonju Paper (present-day Hansol Paper) Beginning of Arab—Israeli War

1969 July 21, 1969Established Samsung Electronics and Samsung—Sanyo Electric Opening of Seoul—Incheon Expressway

1970Established Samsung NEC with Samsung—Sanyo Electric starting pilot TV production and Samsung NEC starting production of cathode ray tubes

July 7, 1970 Opening of Seoul—Busan Expressway

1972 1972Established Cheil Synthetics Beginning of New Community Movement

Dec. 7 Confirmation of general development plan of four main rivers

1973 Aug. 3, 1973Acquired Imperial Guesthouse (present-day Shilla Hotel) and established Samsung Corning and Cheil Communications Kidnapping of presidential candidate Kim Dae-Jung

1974 Established Samsung Petrochemical and Samsung Heavy Industries, and acquired shares in Hankook Semiconductor

Aug. 15, 1974 Death of First Lady Yuk Yong-Su

Nov. 15 First discovery of North Korea’s underground tunnel to South Korea


CHANG Jin-Ho

that without business rationalization, society’s precious resources such as capital and human power are wasted, and corporate failures even-tually place a burden on the public.9

ManageMent StruCture oF SaMSung

The continuous growth of Samsung is based on its management structure, which embodies Chairman Lee’s business philosophy. He always stressed that, “there are principles and philoso-

phy to corporate management, and a manage-ment system based on those principles and phi-losophy.” He devoted his efforts to establishing Samsung’s own management structure, which incorporates his business philosophies of “eco-nomic contribution to the nation,” “priority to human resources,” and “pursuit of rationality” so as to enable the operation of the organization on a massive scale. He deemed that, no matter how superior one’s business philosophy is, those ideas amount to nothing without a manage-ment structure that supports the ideas from a practical aspect.


Highlights of Lee Byung-Chull and Samsung Highlights of Domestic and Foreign Affairs

1975

1976

Mar. 15, 1985

July 1, 1986

1977

Sept. 9, 1976

1975

Mar. 12, 1985

June 29, 1987

Mar. 9, 1977

Opened Yongin Nature Park

Samsung Electronics exports its first TV

Nov. 19, 1987 Death of Lee Byung-Chull

Established Samsung Economic Research Institute

Implementation of business unit system

Established Samsung Shipbuilding (present-day Samsung Heavy Industries in Geoje) and Samsung Precision

Death of Chinese President Mao Zedong

Referendum on Revitalizing Reforms constitution

Special declaration by Korean presidential candidate regarding constitutional amendment

Feb. 25, 1986 Exile of Philippine President Ferdinand Marcos

Inauguration of Mikhail Gorbachev as General Secretary of the Communist Party of the Soviet Union

Dec. 12 Oct. 9Samsung Semiconductor & Telecommunication’s development of 64 KB DRAM

Bombing of Aung San National Cemetary in Burma (present-day Myanmar)

Oct. 15, 1983 June 12, 1983Samsung Electronics develops world’sfirst subminiature VTR (8mm)

Korean Youth Soccer Team’s first entry into the semifinal of the world championships

Apr. 2, 1982 Mar. 27, 1982Lee Byung-Chull receives an honorary doctorate in business management from Boston University Beginning of Korea’s professional baseball league

Feb. 27, 1979 Oct. 26, 1979Lee Kun-Hee’s inauguration as vice chairman of Samsung Group Assassination of President Park Chung-Hee

1978Black-and-white TV sets produced by Samsung Electronics numbered 4 million (world’s top producer), exports hit $100 million mark; Samsung Semiconductor established

July 25, 1978 Birth of world’s first test-tube baby

US President Jimmy Carter’s announcement of withdrawal of US troops in Korea

Aug. 12 Signing of the Japan—China friendship treaty

Oct. 19 Sharpest fall in stock prices in US since Great Depression

9 Samsung Group’s net profit-to-sales ratio from 1987 to 2008 averaged 4.5 percent, more than twice the average of 2.2 pecent for Korea’s ten major conglomerates excluding Samsung. Many companies posted deficits during the currency crisis in 1998, but Samsung Group maintained profits with its net profit-to-sales ratio further increasing in the 2000s.

Lee Byung-Chull delivering a speech at a building dedication

ceremony, 1967

Flower wreaths congratulating the

completion of Korea Fertilizer Ulsan factory, 1967.



Chairman Lee said, “A company is its people.” He clearly pointed out, “A company is run by people. People operate the company. The com-pany succeeds or fails depending on its people. And a company creates those people.”10 Lee considered the management structure of nur-turing outstanding talent as the driving force behind a company’s eternal advancement. He asserted, “a company’s success depends on how much it can secure and nurture competent tal-ent and make effective use of them.” Based on the principle of “priority to human resources,” Samsung’s goal in the management of human resources is to hire talented employees, nurture them with systematic training, and dispatch them to the right positions so that they can maximize their ability.

In 1957, Samsung adopted an open recruitment system for the first time in the country’s history and the system is maintained to this day. The

fundamental rule of the system is to select capa-ble talent without regard to region of origin or academic background. In the recruitment ex-amination, the interview became more impor-tant than the written test. Regardless of his busy schedule, Chairman Lee always participated in the interviews, showing keen interest in secur-ing outstanding individuals.

Samsung’s human resource management does not only recruit talented people, it also incorpo-rates continuous training. “I spent 80 percent of my life searching for talented employees and training them,” Chairman Lee recollected. He created a world class training institute at Yon-gin Nature Park and visited the institute at ev-ery opportunity, believing that even the most outstanding employee cannot serve as a part of an effective work force without the right guid-ance. He considered a company’s neglect to nurture talent as a crime, believing that it was

10 Ho Am Orok [湖巖語錄]: Kiopun Saramida [Analects of Ho Am: a Company Is Its People] (Seoul: Ho-Am Foundation, 1997), p. 74.

From left to right: Kim Chae-Myong (plant manager), Lee Byung-Chull, and Cho Hong-Je (vice president) in front of CJ Busan office, 1953.


CHANG Jin-Ho

an abandonment of social responsibility. He once said, “If a company fails to train its people as a valuable part of human resources who are capable of serving the society and the nation, the company is neglecting its social duty, and this is equivalent to committing a crime equal to corporate insolvency.”11

In May 1959, Samsung Group opened a secre-tarial office with the aim of spreading Chair-man Lee’s business philosophy and improving business coordination and information sharing among its many affiliates. Planning and coor-dination and secretarial offices in the govern-ment and private sectors began to be formed in the early 1960s, but by then those of Samsung’s were at a much more advanced level. Chair-

man Lee classified the operation of Samsung Group based on the following principle. The chairman takes care of the major issues. The secretarial office supports the Group’s subsid-iary companies and, where there are common areas of interest it provides the appropriate guidance and support while also managing them at the same time. Also, the presidents of each subsidiary company should have a strong sense of responsibility that is befitting their in-creased authority and responsibility. Accord-ingly, the secretarial office took the leading role in advancing the Group’s management rights after its establishment.

In September 1975, Samsung Group became the first conglomerate in Korea to introduce a full-scale business unit system. The business unit system, which reflects Chairman Lee’s em-phasis on responsible management, clarifies the responsibility of each member of the company and gives the appropriate authority. In order to implement this system, business units were clas-sified based on product and region. Also, a bud-get accounting system and a profit center evalu-ation system were established. Under the business unit chiefs, each business unit handles overall tasks such as human resources, produc-tion, sales and maintenance to achieve the goals set by the business unit.

When Samsung Group’s business units set a goal, they include specific numbers such as sales, profits, and the number of technical develop-ment cases, as well as the long-term management direction of the company. This is based on Chairman Lee’s belief that “business managers must establish a long-term development goal, clear directions, and specific indicators.” One of the things that he always emphasized was “indi-cators of advanced management.” Each business unit has to clearly understand the technology

11 Ho Amui Kyongyongch’ olhak [Management Philosophy of Ho Am] (Seoul: Samsung Economic Research Institute, 1989), p. 211.

“A company’s success depends on how much it can secure and nurture competent talent and make effective use of them.”



and management performance levels of ad-vanced companies and then set goals and sched-ules on how to narrow the gap. The indicators of leading companies become an important stan-dard for business units in setting their manage-ment goals to enhance the company’s interna-tional competitiveness. Chairman Lee explained, “Whether it be scholars or politicians, everybody strives to be number one. The same goes for en-trepreneurs. They should always pursue the highest position. There is no development if they aim to be the third or fourth. Efforts to become number one advance the company.” Based on this belief, Chairman Lee inspired the pursuit-of-being-number-one spirit into Samsung Group.

Source: Kong Pyong Ho, Han’kukkiop Hungmangsa [Rise and Fall of Korean Companies] (Seoul: Myongjin, 1993); KISVALUE (1995–2008 data).

|Table 4 Ten Major Companies13

199119851980 1995 2000 2008200519751965

1 Dongmyung Wood

Korean AirSamsung

ElectronicsSamsung

ElectronicsHyundai

Corporation Samsung C&T

Corporation

Hyundai Engineering & Construction

Samsung C&T Corporation

Samsung C&T Corporation

2 Geum Sung Textiles

CJ Hyundai Motor SK EnergySamsung C&T Corporation

Hyundai Corporation

Daewoo Corporation

DaewooHyundai

Corporation

3 Panbon TextilesSamsung C&T Corporation

LG Electronics GS CaltexSamsung

ElectronicsSamsung

ElectronicsSamsung C&T Corporation

Hyundai Corporation

Samsung Life Insurance

4 Kyung Sung Textiles

Daewoo Corporation


Hyundai MotorDaewooDaewooSun Kyung Yukong Daewoo

5 Daesung Wood Samyang SK Holdings POSCOSamsung Life

InsuranceLG InternationalKorean Air

Honam Oil Refinery

Hyundai Motor

6 Yang Hee Export Association

Kia GS Caltex LG ElectronicsLG InternationalHyundai MotorHyoseongHyundai

Engineering & Construction

Samsung Electronics

7 Dong Il TextilesGoldstar

ElectronicsKia Motors


Hyundai MotorSamsung Life

InsuranceDaerim

Dong Bang Life Insurance

Daehan Education Insurance

8 Dongship Poly Chemical

Lucky SK Networks S-OILSK HoldingsSK HoldingsDongah

ConstructionSamsung

ElectronicsYukong

9 Daehan Flour Tongyang Nylon S-OIL SK NetworksSK NetworksKia MotorsKukje

CorporationSun Kyung

Korea Life Insurance

10 CJTaehan

Electric WireKyobo Life Insurance

Hyundai Heavy Industries

Kyobo Life Insurance

Kyobo Life Insurance

Hyundai Corporation

Lucky GoldStarGold Star

Electronics

12 Lee Byung-Chull, Hoam Chajon [Autobiography of Ho Am] (Seoul: JoongAng Ilbo, 1986), p. 245. 13 Ten major companies owned by Koreans in 1936: Dong-A Securities (Cho Joon-Ho), Taechang Textiles (Baek Nak-Seung),

Kyeongsung Textiles (Kim Yeon-Soo), Hamheung Taxi (Bang Eui-Seok), Youngbo Unlimited Partnership (Min Kyu-Shik), Taechang Mining (Choi Chang-Hak), Hwa-Shin (Park Heung-Shik), Kyeongsang Joint Bank (Jung Jae-Hak), Honam Bank (Hyun Joon-Ho), and Dong-A Industry (Ha Joon-Seok).

everLaSting CoMPanieS

Due to the constant changes in economic con-ditions, industrial structure, and science and technology, companies that fail to adjust to these changes fall behind and dwindle away. For example, out of Japan’s 100 largest compa-nies, only two (a paper company and a textile company) succeeded in remaining in the group from 1896 to 1982. The average life-span for a company to remain in the top 100 is believed to be just 30 years.12 Another example is the US Dow Jones Industry Average (DJIA), which consists of major companies in the United States. Among those included in the DJIA in


CHANG Jin-Ho

CHANG Jin-Ho is professor of business administration at Yonsei University. His research interests include corporate gov-ernance, Korean conglomerates, M&As, and valuation. He was formerly professor at University of Pennsylvania and senior as-sociate at KPMG. He holds a Doctor of Business Administration from Harvard University. Contact: [email protected].

1896, General Electric is the only survivor. Com-panies that fail to respond to the constant chal-lenges and environment during that specific era are destined to disappear. The same goes for Korean businesses.

Table 4 shows the ranking of Korea’s ten major companies (based on sales) since 1965. None that made the top ten in 1965 were listed in 2008. This is a reflection of the volatility that Korean companies have suffered for the past forty years. Out of Korea’s 100 largest compa-nies in 1965, only six remained in 2008. The re-maining companies either went bankrupt or were forced into M&As with other companies.14 Companies that failed to respond to the chang-ing economic environment and industrial struc-ture went out of existence.

With concerns over the rise and fall of compa-nies depending on the constant changes in eco-nomic conditions and industrial structure, Chairman Lee affirmed, “Entrepreneurs are fated to take the lead in innovation and cre-ation.” He believed that it is an entrepreneurs’ mission to devote themselves to creating an ev-erlasting company that will serve as the founda-tion for the nation’s wealth and power. His spirit of endless study lives on in his son and succes-sor, Chairman Lee Kun-Hee, who continued to develop Samsung into the world-class company that it is today.

Translation: KIM Young-Kyu

“Entrepreneurs should always pursue the highest position. There is no development if they aim to be the third or fourth. Efforts to become number one advance the company.”

14 State-owned companies and banks were excluded from both lists.

Keywords Samsung, Korean business management, manufacturing, GDP by industry, exports, GNP per capita, management structure, chaebol

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