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Samsung Founding Chairman Lee Byung-Chulls Place in Korean Business ManagementCHANG Jin-Ho

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

KoreaS eConoMiC DeveLoPMent anD LeeS BuSineSS exPanSionThe name Samsung was used for the first time when Chairman Lee Byung-Chull established the Samsung Trading Company on March 1, 1938. The name has a two-part meaning: 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-

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 Koreas leading trading companies in just one year. With the establishment of Cheil Jedang (CJ) in August 1953, Lee began a manufacturing business. 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

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

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|Table 1

Korea: Major Economic Indicators1953 1960 25.0 1.9 79 33 36.8 2.1 13.8 4.1 43.2 76.6 23.4 1965 28.7 3.0 105 175 38.0 2.0 18.0 4.7 32.1 68.6 31.4 1970 32.2 8.1 253 835 26.6 1.5 21.0 6.6 42.2 60.8 39.2 1975 35.3 20.9 594 5,081 24.9 1.6 25.9 5.9 41.7 52.1 47.9 1980 38.1 60.6 1,597 17,505 14.7 1.5 28.2 10.1 45.5 46.4 53.6 1985 40.8 91.1 2,242 30,283 12.5 1.2 29.3 10.6 46.5 41.5 58.5 1990 43.4 251.8 5,883 65,016 8.7 0.5 29.2 13.7 47.9 34.1 65.9

Population (millions) GNP ($ billion) GNP per Capita ($) Exports ($ million) Agriculture / Forestry / Fisheries Mining Share of GDP by Industry (%) Manufacturing Electric / Gas / Water Services Manufacturing (%) Light Industry Heavy Industry

21.5 1.4 67 40 47.3 1.1 9.0 2.6 40.0 78.9 21.2

Source: Bank of Korea.

chaotic. In the midst of a massive inf lux of cheap aid goods, there were many that discouraged 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 nations economic development would begin with the manufacturing of substitutes for imported goods, Lee decided 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 Lees business expansion provides a roadmap of how the Korean economy and its industrial structure developed over time. During the Japanese colonial period from 1910 to 1945, it was difficult for Korean companies to grow under Japans 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 until the end of the 1950s.2 In 1953, the time Chairman Lee launched his manufacturing business, Koreas GNP per capita was a mere US$67, the lowest level in the world (see Table 1). Considering the economic situation in the 1950s, Chairman Lee specifically chose to start sugar and textile businesses, both of which could substitute imports. He said, The necessities of peoples lives must be home-produced. This will build domestic industries, provide a stable supply of inexpensive goods, and offer more jobs to people as well as contribute to the nations technological development and expansion of industrial 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.

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Samsung Founding Chairman Lee Byung-Chulls Place in Korean Business Management

|Figure 1

Dependence on Sugar Imports

120 100 80 60 40 20 0

(%)

Imported Sugar Domestic Sugar

1952

1953

1954

1955

1956

1957

1958

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

|Table 2

Samsung Groups Sales by Industry1956 Electronics Machinery 1966 1976 16% 1986 20% 4% 10% 34% 32% 1% 33% 100% 50% 6% 100% 6 100% 117 3% 38% 9% 100% 3,678 34% 7% 3% 100% 149,321 1996 29% 6% 34% 2% 25% 1% 3% 100% 740,860 2003 48% 4% 9% 3% 30% 2% 4% 100% 1,182,543 2008 54% 6% 8% 4% 21% 2% 4% 100% 1,890,009

Trade/Construction Chemistry Finance Manufacturing (Including CJ) Services and others Total Total (100 million)

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

Figure 1 shows Koreas dependence on imported sugar in the 1950s. In 1953, the nations dependence 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, Koreas GNP per capita rose to $1,662 from $210 in 1969. Samsungs export strategy in the 1970s was to expand 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.

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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 Koreas electronics industry. Lee said at the time, Electronics is the most suitable industry for the nations economic development stage considering all aspects including technology, labor force, added value, domestic demand and export prospects. 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 Samsungs total sales increased to 16 percent in 1976 and Koreas trade & construction sector, driven by Samsung Corporation also took a larger portion. From 1980 to 1986, Korea achieved rapid economic growth averaging 7.9 percent a year.4 Koreas 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 semiconductor business, declaring 1983 as the year to start investing in semiconductors. The semiconductor business was a tricky area due to fierce com|Table 3

petition with the United States and Japan and the need for massive investments and a workforce proficient in technology. Chairman Lees decision on this risky investment was highly influenced by his son, Chairman Lee Kun-Hee (Vice Chairman at that time). Chairman Lee Kun-Hee, who had an avid interest in semiconductors, acquired Hankook Semiconductor with his own money. He then urged his father to seriously consider launching into the semiconductor business. So, semiconductors became the last business for Chairman Lee ByungChull and the first for Chairman Lee Kun-Hee.5 In December 1983, Samsung succeeded in developing the 64 Kb DRAM chip and became the worlds third producer of VLSI chips. Table 3 compares the timing of development of each type of semiconductor between Samsung Electronics and Japans major chipmakers. At the time of development of the 64 Kb DRAM chip, Samsung Electronics was about four years behind Japans leading chipmakers. However, relentless pursuit meant that Samsung Electronics overtook the Japanese chipmakers and emerged as the worlds first developer of the 64 Mb DRAM chip. Thereafter, Samsung Electronics 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.

Developments of Semiconductors: Samsung Electronics vs. Japans Major Companies64 Kb DRAM 256 Kb DRAM July 1985 1 Mb DRAM 4 Mb DRAM July 1986 May 1988 Approx. 6 months earlier 16 Mb DRAM Jan. 1989 In the same year 64 Mb DRAM Aug. 1992 256 Mb DRAM Aug. 1994 1 Gb DRAM Jan. 1996

Development by Samsung Electronics Development by Japan

Apr. 1983

Approx. 4 Approx. 3 Approx. 2 years earlier years earlier years earlier

Overtaken Overtaken Overtaken by Samsung by Samsung by Samsung

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

4 Koreas GNP reached $60.3 billion in 1980, ranking 45th globally, then reached $95.1 billion in 1986, ranking 18th. Koreas GNP per

capita also sharply rose from $1,589 (ranking 53rd) to $2,296 (ranking 34th) for the same period.5 Samso 60 nyo ng nsa [60 Years of Samsung History] (Seoul: Samsung, 1998), p.113.

April 2010 | SERI Quarterly | 61

Samsung Founding Chairman Lee Byung-Chulls Place in Korean Business Management

|Figure 2

Samsung Groups Sales-to-GNP Ratio

25.0 20.0 15.0 10.0 5.0 0.0

(%)

53 55 57 59