Focus

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

CHANG Jin-Ho

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

KoreaS eConoMiC DeveLoPMent anD LeeS BuSineSS exPanSion

The 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 Indicators

1953 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 Industry

1956 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 Companies

64 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.

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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

61 63 65 67 69

71 73 75 77 79

81 83 85 87 89

91 93 95 97 99

01 03 05 07

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/>.

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 nations economic development. The growth of Samsung Group is rooted in this spirit. Regarding the corporations responsibility to the nations 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, interest 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 3

Samsung Group Employees

147,154

|Figure 4

Taxes Paid by Samsung Group

160,000 140,000 120,000 100,000 80,000 60,000 40,000 20,000 267 1953 9,080 1,871 4,801 1960 1965 1970 1976 1980 25,790 75,000

8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 -

(Unit: 100 million)

1986

1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986

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

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

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

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CHANG Jin-Ho

Figure 2 shows the ratios of Samsung Group sales to the nations GNP from 1953 to 2008.7 Sales accumulated by Samsung Group increased from 113 million in 1953 to 206 trillion in 2008. Compared to the nations GNP, Samsung Group sales accounted for a mere 0.2 percent of GNP in 1953 but continued to increase 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 indicates that the Samsung Group made important contributions to the Korean economy during times of economic crises through aggressive export growth. In 2008, the percentage of exports in Samsung Group sales was 78.8 percent, while exports by Koreas ten major conglomerates excluding 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. According 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 nations total tax revenue neared 5 percent in 1986. Figure 3 and 4 reflect the realization of Chairman Lees business philosophy that the most important corporate social responsibility is the contribution to the nations economy by sharing the fruits of business operations in the form of taxes, wages, and dividends. Figure 5 represents Samsung Groups profitability from 1953 to 2008. The profitability is the ratio of net profit earned by Samsung Group to the Groups total sales. Chairman Lee always emphasized the distinction between companies and charity organizations. According to a statement he once made, companies must make a profit and it is a sin to make losses. He believed

|Figure 5

Samsung Groups Net Profit-to-Sales Ratio

14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 -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

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/>.

7 Samsung Groups 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.

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

Chronology of Lee Byung-Chulls Life and Samsung Group

Highlights of Lee Byung-Chull and Samsung
Feb. 12, 1910 Dec. 1926 Apr. 1930 1935 Mar. 1936 Sept. 1937 Mar. 1, 1938 1939 June 3, 1941 Nov. 1, 1948 Dec. 15, 1950 Jan. 11, 1951 Aug. 1, 1953 Sept. 15, 1954 1957 1958 1959 Aug. 16, 1961 Oct. 15 Nov. 29, 1962 Born in South Gyeongsang Province Married while in middle school Enrolled at Waseda University in Japan majoring in politics and economics Decided to open a business Partnered in a rice mill in Masan Liquidated rice mill and automobile businesses Established Samsung Trading Company in City of Daegu Take over of Chosun Breweries in Daegu Registered Samsung Trading Company as a corporation Renamed Samsung Trading Company to Samsung Corporation General meeting of Samsung Corporation board members in Busan Samsung Corporation established as stock company Established CJ Established Cheil Industries Established Hyosung Corporation and acquired Hanil Bank and Heungup Bank Acquired Ankuk Fire & Marine Insurance, Commercial Bank, and Hankook Tire Created secretarial office of Samsung and acquired Chohung Bank Appointed as first chairman of Korea Businessmens Association (later renamed the Federation of Korean Industries) Governments redemption of Hanil Bank, Chohung Bank, and Commercial Bank Acquired Anbo Fire Insurance (present Samsung Fire & Marine Insurance) Established Tongyang Broadcasting Corporation (TBC) and Radio Seoul; acquired Tongbang Life Insurance; handed over Hyosung Corporation and Hankook Tire Established Korea Fertilizer Company with 100 million Established Samsung Foundation of Culture and JoongAng Ilbo and acquired Sungkyunkwan University and Saehan Paper (present-day Hansol Paper) Established JoongAng Development and Korea Hospital and announced donation of Korea Fertilizer Company to the nation Established Jeonju Paper (present-day Hansol Paper) Established Samsung Electronics and SamsungSanyo Electric Established Samsung NEC with SamsungSanyo Electric starting pilot TV production and Samsung NEC starting production of cathode ray tubes Established Cheil Synthetics Acquired Imperial Guesthouse (present-day Shilla Hotel) and established Samsung Corning and Cheil Communications Established Samsung Petrochemical and Samsung Heavy Industries, and acquired shares in Hankook Semiconductor 1910 1926 1929-1933 1935 Aug. 9, 1936 July 7, 1937 Mar. 3, 1938 Sept. 1, 1939 Dec. 8, 1941 July 17, 1948 Sept. 15, 1950 Jan. 5, 1951 July 27, 1953 Nov. 29, 1954 Oct. 4, 1957 Jan. 1958 Jan. 1, 1959 May 16, 1961 Oct. 15

Highlights of Domestic and Foreign Affairs

Japanese annexation of Korea Massive anti-Japanese demonstrations on June 10 Great Depression Adolf Hitlers declaration of rearmament Sohn Kee-Chung wins gold medal in the marathon at Berlin Olympic Games Beginning of SinoJapanese War Teaching Korean in Korean middle schools prohibited by Japanese government Beginning of World War II Japanese attack on Pearl Harbor Promulgation of Korean constitution Incheon landing Chinese attack on Seoul Signing of cease-fire agreement Controversy over constitutional amendment by rounding off to nearest whole number Soviet Union successful launching of worlds first satellite US establishment of National Aeronautics and Space Administration (NASA) Cuban Revolution (inauguration of Fidel Castro) Military coup Reversion of commercial banks to government

Mar. 22, 1962 Resignation of President Yun Bo-Seon

1963

Nov. 22, 1963

Assassination of US President John F. Kennedy KoreaVietnam Agreement on dispatchment of Korean troops to Vietnam Signing of KoreaJapan treaty Beginning of Cultural Revolution in China Beginning of ArabIsraeli War Opening of SeoulIncheon Expressway Opening of SeoulBusan Expressway Confirmation of general development plan of four main rivers Beginning of New Community Movement Kidnapping of presidential candidate Kim Dae-Jung Death of First Lady Yuk Yo ng-Su First discovery of North Koreas underground tunnel to South Korea

1964 1965 1966 1967 1969 1970 1972 1973

Oct. 31, 1964 June 22, 1965 Aug. 18, 1966 June 5, 1967 July 21, 1969 July 7, 1970 Dec. 7 1972 Aug. 3, 1973 Aug. 15, 1974 Nov. 15

1974

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CHANG Jin-Ho

Highlights of Lee Byung-Chull and Samsung

1975 1976 1977 1978 Samsung Electronics exports its first TV Opened Yongin Nature Park Established Samsung Shipbuilding (present-day Samsung Heavy Industries in Geoje) and Samsung Precision Black-and-white TV sets produced by Samsung Electronics numbered 4 million (worlds top producer), exports hit $100 million mark; Samsung Semiconductor established 1975 Sept. 9, 1976 Mar. 9, 1977 July 25, 1978 Aug. 12 Oct. 26, 1979 Mar. 27, 1982 June 12, 1983 Oct. 9 Mar. 12, 1985 Feb. 25, 1986 June 29, 1987 Oct. 19

Highlights of Domestic and Foreign Affairs

Referendum on Revitalizing Reforms constitution Death of Chinese President Mao Zedong US President Jimmy Carters announcement of withdrawal of US troops in Korea Birth of worlds first test-tube baby Signing of the JapanChina friendship treaty Assassination of President Park Chung-Hee Beginning of Koreas professional baseball league Korean Youth Soccer Teams first entry into the semifinal of the world championships Bombing of Aung San National Cemetary in Burma (present-day Myanmar) Inauguration of Mikhail Gorbachev as General Secretary of the Communist Party of the Soviet Union Exile of Philippine President Ferdinand Marcos Special declaration by Korean presidential candidate regarding constitutional amendment Sharpest fall in stock prices in US since Great Depression

Lee Kun-Hees inauguration as vice Feb. 27, 1979 chairman of Samsung Group Apr. 2, 1982 Oct. 15, 1983 Dec. 12 Mar. 15, 1985 July 1, 1986 Lee Byung-Chull receives an honorary doctorate in business management from Boston University Samsung Electronics develops worlds first subminiature VTR (8mm) Samsung Semiconductor & Telecommunications development of 64 KB DRAM Implementation of business unit system Established Samsung Economic Research Institute

Nov. 19, 1987 Death of Lee Byung-Chull

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

that without business rationalization, societys precious resources such as capital and human power are wasted, and corporate failures eventually 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 Lees business philosophy. He always stressed that, there are principles and philoso-

phy to corporate management, and a management system based on those principles and philosophy. He devoted his efforts to establishing Samsungs own management structure, which incorporates his business philosophies of economic 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 ones business philosophy is, those ideas amount to nothing without a management structure that supports the ideas from a practical aspect.
Flower wreaths congratulating the completion of Korea Fertilizer Ulsan factory, 1967.

Lee Byung-Chull delivering a speech at a building dedication ceremony, 1967

9 Samsung Groups net profit-to-sales ratio from 1987 to 2008 averaged 4.5 percent, more than twice the average of 2.2 pecent for

Koreas 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.

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

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.

Chairman Lee said, A company is its people. He clearly pointed out, A company is run by people. People operate the company. The company succeeds or fails depending on its people. And a company creates those people.10 Lee considered the management structure of nurturing outstanding talent as the driving force behind a companys eternal advancement. He asserted, a companys success depends on how much it can secure and nurture competent talent and make effective use of them. Based on the principle of priority to human resources, Samsungs 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 countrys history and the system is maintained to this day. The

fundamental rule of the system is to select capable talent without regard to region of origin or academic background. In the recruitment examination, the interview became more important than the written test. Regardless of his busy schedule, Chairman Lee always participated in the interviews, showing keen interest in securing outstanding individuals. Samsungs human resource management does not only recruit talented people, it also incorporates 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 Yongin Nature Park and visited the institute at every opportunity, believing that even the most outstanding employee cannot serve as a part of an effective work force without the right guidance. He considered a companys neglect to nurture talent as a crime, believing that it was

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

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CHANG Jin-Ho

A companys success depends on how much it can secure and nurture competent talent and make effective use of them.

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 Groups subsidiary 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 increased authority and responsibility. Accordingly, the secretarial office took the leading role in advancing the Groups 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 Lees emphasis 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 classified based on product and region. Also, a budget accounting system and a profit center evaluation system were established. Under the business unit chiefs, each business unit handles overall tasks such as human resources, production, sales and maintenance to achieve the goals set by the business unit. When Samsung Groups business units set a goal, they include specific numbers such as sales, profits, and the number of technical development cases, as well as the long-term management direction of the company. This is based on Chairman Lees 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 indicators of advanced management. Each business unit has to clearly understand the technology

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 secretarial office with the aim of spreading Chairman Lees business philosophy and improving business coordination and information sharing among its many affiliates. Planning and coordination and secretarial offices in the government and private sectors began to be formed in the early 1960s, but by then those of Samsungs were at a much more advanced level. Chair-

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

April 2010 | SERI Quarterly | 67

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

and management performance levels of advanced companies and then set goals and schedules on how to narrow the gap. The indicators of leading companies become an important standard for business units in setting their management goals to enhance the companys international competitiveness. Chairman Lee explained, Whether it be scholars or politicians, everybody strives to be number one. The same goes for entrepreneurs. 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-ofbeing-number-one spirit into Samsung Group.
|Table 4

everLaSting CoMPanieS
Due to the constant changes in economic conditions, industrial structure, and science and technology, companies that fail to adjust to these changes fall behind and dwindle away. For example, out of Japans 100 largest companies, 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

Ten Major Companies

1975
Korean Air

13

1965 1 2 3 4 5 6
Dongmyung Wood Geum Sung Textiles Panbon Textiles Kyung Sung Textiles Daesung Wood Yang Hee Export Association

1980
Hyundai Engineering & Construction Daewoo Corporation Samsung C&T Corporation Sun Kyung Korean Air

1985
Samsung C&T Corporation Daewoo Hyundai Corporation Yukong Honam Oil Refinery Hyundai Engineering & Construction Dong Bang Life Insurance Samsung Electronics Sun Kyung Lucky GoldStar

1991
Samsung C&T Corporation Hyundai Corporation Samsung Life Insurance Daewoo Hyundai Motor Samsung Electronics Daehan Education Insurance Yukong Korea Life Insurance Gold Star Electronics

1995
Samsung C&T Corporation Hyundai Corporation Samsung Electronics Daewoo LG International

2000
Hyundai Corporation Samsung C&T Corporation Samsung Electronics Daewoo Samsung Life Insurance LG International

2005
Samsung Electronics Hyundai Motor LG Electronics Samsung Life Insurance SK Holdings

2008
Samsung Electronics SK Energy GS Caltex Hyundai Motor POSCO

CJ Samsung C&T Corporation Daewoo Corporation Samyang

Kia

Hyoseong

Hyundai Motor

GS Caltex

LG Electronics

7 8 9 10

Dong Il Textiles Dongship Poly Chemical Daehan Flour CJ

Goldstar Electronics Lucky Tongyang Nylon Taehan Electric Wire

Daerim Dongah Construction Kukje Corporation Hyundai Corporation

Samsung Life Insurance SK Holdings Kia Motors Kyobo Life Insurance

Hyundai Motor

Kia Motors

Samsung Life Insurance S-OIL SK Networks Hyundai Heavy Industries

SK Holdings SK Networks Kyobo Life Insurance

SK Networks S-OIL Kyobo Life Insurance

Source: Kong Pyong Ho, Hankukkiop Hungmangsa [Rise and Fall of Korean Companies] (Seoul: Myongjin, 1993); KISVALUE (19952008 data).

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).

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CHANG Jin-Ho

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.

With concerns over the rise and fall of companies depending on the constant changes in economic conditions and industrial structure, Chairman Lee affirmed, Entrepreneurs are fated to take the lead in innovation and creation. He believed that it is an entrepreneurs mission to devote themselves to creating an everlasting company that will serve as the foundation for the nations wealth and power. His spirit of endless study lives on in his son and successor, Chairman Lee Kun-Hee, who continued to develop Samsung into the world-class company that it is today.
Translation: KIM Young-Kyu

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

1896, General Electric is the only survivor. Companies that fail to respond to the constant challenges and environment during that specific era are destined to disappear. The same goes for Korean businesses. Table 4 shows the ranking of Koreas 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 Koreas 100 largest companies in 1965, only six remained in 2008. The remaining companies either went bankrupt or were forced into M&As with other companies.14 Companies that failed to respond to the changing economic environment and industrial structure went out of existence.

14 State-owned companies and banks were excluded from

both lists.

CHANG Jin-Ho is professor of business administration at Yonsei University. His research interests include corporate governance, Korean conglomerates, M&As, and valuation. He was formerly professor at University of Pennsylvania and senior associate at KPMG. He holds a Doctor of Business Administration from Harvard University. Contact: chang@yonsei.ac.kr.

April 2010 | SERI Quarterly | 69

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