Navigating a Post-Samsung Era; What would happen to South Korea’s economy if its largest conglomerate were to fail?

Navigating a Post-Samsung Era

JUNE 2, 2014

Young-Ha Kim

SEOUL, South Korea — On May 10, the chairman of the Samsung Group, Lee Kun-hee, had a heart attack and stopped breathing. He was resuscitated at the hospital but remained in a coma for more than two weeks. As the country waited for information about his condition, rumors ran rampant. One of the most widely circulated was that Mr. Lee, 72, had already died and Samsung was covering it up.

Samsung announced last week that Mr. Lee had stirred. One story goes that the chairman opened his eyes for a moment just when Lee Seung-Yeop, a Samsung Lions’ slugger, hit a home run.

The obsession with Mr. Lee’s condition speaks to Samsung’s outsized importance to the South Korean economy. Samsung is the prime example of a chaebol, one of the massive family-run conglomerates that are credited with leading the country through its postwar surge from an impoverished country to an economic powerhouse. Chaebols flourished with the support of successive authoritarian regimes, which lavished them with tax breaks and protection from foreign competition.

But many South Koreans feel that chaebols have become too powerful. Several high-profile corruption scandals in recent years involving chaebol executives, and the light treatment they received from the courts, have only deepened the sense that the corporate behemoths have become too dominant. But is South Korea ready for weakened chaebols? What would happen if a company like Samsung were to fail? That’s the question that naturally arose when Lee Kun-hee slipped into a coma.

In 2013, Samsung accounted for about 20 percent of South Korea’s total business profits. Samsung Electronics, just one of scores of subsidiaries, accounts for close to 15 percent of the total shares in the South Korean stock market. But you don’t need to know these figures to get a feel for Samsung’s hold on the country.

A person could live here using only Samsung products. You could wake up in your Samsung C&T-built apartment, turn on your Samsung TV, and check the weather on a channel run by Lee Kun-hee’s brother-in-law. On the subway, you could watch how the Samsung Lions lost their baseball game the night before on your Samsung Galaxy smartphone. On the weekend, you could spend time with your family at Samsung’s Everland amusement park just outside of Seoul. And you could pay for everything using your Samsung credit card.

Very few people predicted that Mr. Lee, the introverted, taciturn third son of Samsung’s founder, Lee Byung-chull, would blossom after succeeding his father after his death in 1987 and turn the company into the economic giant it is today. But under Mr. Lee, Samsung thrived and became a top player in the smartphone and television markets. The share price has skyrocketed during his tenure.

Samsung Electronics is now the No.1 pick among college students for where they want to work, a significant change from 20 years ago, when university campuses were largely critical of the conglomerates, which were suppressing the labor movement. About 200,000 university graduates, almost a third of the country’s annual graduating class, sit for Samsung’s employee aptitude test.

In general, South Koreans’ opinions of the conglomerate are mixed. There is an unmistakable pride that we feel over its success, which is tied to our country’s rise over the last decades. But we are also very wary of Samsung’s deep reach into society.

In recent years Samsung has taken heat for health problems among former plant workers. But the most angry criticism of Samsung — and other chaebols — has come when they’ve tried to compete with small-scale and independent businesses. In early 2012, Lee Kun-hee’s daughter and the head of the Shilla hotel, Lee Boo-jin, pulled out of a high-end bakery and café company amid criticism that the chaebols were devouring independent neighborhood bakeries. Chaebols that invested in car-repair shops or convenience stores also gave in to deteriorating public opinion and either folded or delayed their plans.

Back in the mid-1990s, Samsung rolled out an ad campaign with the slogan, “No one remembers who came in second place.” In 2013, some 90 percent of the profits from Samsung’s subsidiaries came from Samsung Electronics, most of that from the smartphone division. If there were a slump in the smartphone market, Samsung Electronics would have huge difficulties, which would affect the entire conglomerate. The chances are quite high that this, in turn, would create a domino effect that would be a blow to the national economy.

As Samsung prepares for its post-Lee Kun-hee future, South Korea needs to prepare for a post-Samsung future. Just like any other company, Samsung can fail, and if that happens, how will the South Korean economy overcome the shock? If we don’t decrease our over-reliance on the chaebols and prepare to let smaller, dynamic start-ups fill the gaps in their place, it won’t.

Young-ha Kim is a novelist and short-story writer. This article was translated by Jenny Wang Medina from the Korean.