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Korea will suffer setback if Samsung and Hyundai falter

Posted March. 12, 2014 05:51,   


Two years before the 1997 currency crisis struck many Asian countries, Korea was enjoying stunning growth of its semiconductor industry. The biggest beneficiary was Samsung Electronics that became the world`s largest producer of DRAM chips in 1993. With money poured into the company, Samsung increased salary and welfare benefits for employees while pumping money into its affiliates with poor capital structure.

Unfortunately, the boom ended in April 1996. Excess global chip supply led to the plunge of chip export prices and the recession of the world semiconductor market. Worsening profitability in the chip industry meshed with the currency shock coming from sharply weakening Japanese yen, which created spillover effects. The current account deficit in 1996 surged from 8.6 billion U.S. dollars to 23.1 billion dollars year-on-year. In times of economic and political uncertainties, the semiconductor shock was just a prelude to the currency crisis.

Samsung and Hyundai Motor, Korea`s two biggest conglomerates, have been the country`s engine of economic growth over the past 10 years. Samsung Group employs about 250,000 people and Hyundai Motor Group more than 140,000. Both are a dream company for job seekers and parents. In 2012, Samsung`s sales from production reached 302 trillion won (284 billion dollars) and Hyundai Motor 164 trillion won (154 billion dollars). Due to high dependence on the two companies, many small and mid-sized companies share the same fate as Samsung and Hyundai Motor. At least 1 million people could catch pneumonia if both companies get cold.

Three Korean companies are on brand consultancy Interbrand`s Best Global Brands 2013, and they are Samsung Electronics, Hyundai Motor and Kia Motors. After its entering top 20 list in 2009, Samsung Electronics ranked eighth last year. Hyundai Motor jumped 10 notches to 43rd and Kia Motors four notches to 83rd.

Notwithstanding their global reputation, business mood of the groups is not so bright. Samsung Electronics` operating profit dropped by 6 percent in the fourth quarter of last year from the previous quarter. Early this year, the company held a resolution meeting for the first time in five years and pledged to "break through the current limits," but sense of crisis lingers.

The situation is even more serious at Hyundai. Last year, operating profit fell by 1.5 percent at Hyundai Motor and 9.8 percent at Kia Motors year-on-year, respectively. According to recent auto brand perception rankings of U.S. based Consumer Report, Kia Motors and Hyundai Motor each dropped by four and two notches. Both companies failed to enter the top 10 list, sending warning signs to their quality management. Moreover, militant labor unions continue to yield vested rights that show no signs of abating.

Samsung Electronics Chairman Lee Kun-hee and Hyundai Motor Chairman Chung Mong-koo succeeded the late fathers and founders Lee Byung-chull and Chung Ju-yung, respectively. The incumbent leaders once suffered crisis due to secret fund scandals, but still got outstanding scores in both management and leadership. Samsung Electronics Vice Chairman Lee Jae-yong and Hyundai Motor Vice Chairman Chung Eui-sun, the next-generation leaders, are thriving but have yet to prove their competency. The future of both companies depend on whether these third-generation leaders. Born with a silver spoon in their mouth and grown up without difficulties, the young leaders can follow the footsteps of the first and second generation leaders who made a great leap after establishing their business.

The decline of Nokia adversely affected not only its employees but also the country`s overall economy. Should Samsung and Hyundai Motor wobble, the impact to the Korean economy will be no less than the Nokia shock. Employees should make their utmost efforts, but the society should also play its role to maintain a sense of balance so that Korea`s two flagship companies keep up their enthusiasm.

Wrongdoings by companies and entrepreneurs deserve criticism. Nevertheless, blind antagonism toward large companies, taking of sides on speculative foreign funds and over-reaction to small errors should be refrained from. Excess lambasting of Samsung and Hyundai can aggravate the current situation, which will throw a boomerang to the Korean people, not American, Chinese or Japanese.