Thoughts on Korean Business by Don Southerton

"World Press Can't Get Enough of Hyundai" Article from Chosun Ilbo 5-29=2005 There appears to be no end to Hyundai Motor’s string of rave reviews in the overseas press. This month alone, the Financial Times, Forbes, Time and the Wall Street Journal have praised the company to the skies, focusing on how it made the great leap to becoming a global carmaker. The Wall Street Journal wrote Friday that Hyundai was aggressively expanding its position in the North American market, the world's biggest, and threatening U.S. carmakers like GM, mired in a management crisis, and Ford. It said its rise was even threatening Toyota, which is renowned for its quality control management. It said the success was all the more striking since U.S. consumers were avoiding Hyundai cars due to their poor quality only a few years ago. Hyundai's first quarter net profits rose by 14 percent, mainly on overseas sales. Quality management measures such as a 100,000 mile warranty helped Hyundai...

The May 2005 edition of Monthly Chosun pressed Samsung Group chairman Lee Kun-hee’s on his strategy for fostering talented people. Lee Kun-hee once told Samsung executives that the 21st century would be an age of intelligent creativity and competition to secure competent workers. The Samsung chairman noted that "One genius will feed 100,000-200,000 ordinary people." He also told Samsung management that whether Samsung became a global leading company depended above all on whether it can get workers with core competencies. “In order to become a super global leading company, all Samsung workers must be future-oriented, broad-minded, and equipped with humanity, morality, traditional Korean courtesy and global etiquette,” Lee stressed. Interestingly, Monthly Chosun reported that Lee’s new strategies toward staff were going to soften. “In the movie, Ben-Hur won the chariot race without whipping his horses. Samsung will reward workers who perform well. But at the same time, the...

Kim Woo-choong, the founder of the now bankrupt and splintered Daewoo Group, has been placed on Interpol's Internet Wanted List. Interpol stated that an arrest warrant has been issued for the 68-year-old man on charges of fraud leveled against the tycoon in 1999. Kim Woo-choong fled Korea after the conglomerate collapsed in late 1990s under debts amounting to $80 billion. South Korea’s National Police Agency requested Interpol to make public Kim's arrest warrant. Prompting the request were recent sightings of Kim in various locations, including Germany, the United States, Vietnam, and Sudan. In fact, some have even reported that Kim has on occasion slipped back into South Korea. Kim, who established the Daewoo empire benefited from two decades of government-supported industrial and manufacturing drive in the 60s and 70s. Kim and Daewoo’s entrepreneurial achievements collapsed in the wake of the 1997 financial crisis. Some Korean speculate that the once popular tycoon may be pl...

Starbucks four story Korea flagship coffee shop will be relocating due to an excessive rent increase. Most Koreans know the Myongdong location of Starbucks. In fact, it is known not only for its coffee drinks by is used many upwardly mobile young urban adults as a place to meet on dates. The Korean affiliate of the Seattle-based coffee chain announced that the company has decided to relocate the shop due to an unacceptable’ rent hike. Essentially, the landlord doubled the monthly rent. This had driven Starbucks to close the flagship shop and relocate it to an adjacent area. Industry sources in Korea estimate the new rent was to be $100,000 with an additional $300,000 down payment. Why? The Myongdong area of Seoul is one of Korea’s most expansive areas for retails and office rent. In a rent survey of 229 shopping districts among 45 countries, Cushman & Wakefield Healey & Baker found that Myongdong is ranked 10th in the world and 4th in Asia. Moreover, the area near the Starbuc...

Hynix Semiconductor Inc. has agreed to pay a $185 million fine to settle a far-reaching dynamic random access memory chip price-fixing scandal in the United States. This is the third-largest criminal antitrust fine in U.S. history. On a positive note, Hynix creditors approved a $1.5 billion debt-refinancing plan that will allow management to regain control of the company 20 months ahead of schedule. Hynix was rescued in December 2002 by a multi-billion dollar bailout. It has made an impressive turnaround, going from roughly a $1.7 billion loss in 2003 to a $1.7 net profit last year. The Korea Herald notes that the fine was less than the chipmaker was prepared to pay. It had set aside $342 million to cover the investigation brought on by the U.S. Department of Justice. The $185 million fine may be paid in installments over the next five years without interest. In addition to Hynix, the investigation involved other chipmakers, including Infineon Technologies AG, Micron Technology Inc. ...

One of the characteristics of Korean conglomerates is their tradition of family run management with the offspring of key executives assuming top positions and eventual control over the business group. Samsung Group chairman Lee Kun-hee’s recent resignation as standing director of Samsung Everland has fueled speculation that the move is aimed at transferring power to his only son Lee Jae-yong. As with other Korean conglomerates, one firm usually serves as the defacto holding company of the group--with Samsung, the amusement park Everland functions as the defacto business entity. Currently, Lee Kun-hee is registered as a director in a total of six listed Samsung group affiliates: Samsung SDI, Samsung Corp., Cheil Industries, Samsung Electronics, Samsung Electro-Mechanics and the Shilla Hotel. The move to give control of Everland to Lee Jae-yong is thought to groom the son for eventually overseeing the Samsung group. Despite the move with Everland, Lee Kun-hee is still expected to maintai...

A Korean Central Employment Information Office (CEIO) study has shown that single women in Korea earn more than married women. In fact, the study suggests that women with good jobs are reluctant to get married. The survey shows unmarried women earned an average $1,530 per month. Married women average roughly $1,200 per month. In contrast, single men earned $1700 per month, while married men earn $2220 on average. According to an article in Chosun Ilbo, the higher a woman's education level the more likely she is to be unmarried. In the CEIO study of single women: 3.6 percent were high school graduates, 9.8 percent were college graduates, 15.4 had a master degree and 32.1 percent had a doctorate. Perhaps, impacting the relationship of education and martial status is that many of those with higher degrees often have studied in the United States. I see this exposure to American culture and values as having a powerful influence on the desire to marry or work. By employment type, 53.5 pe...

Hyundai , originally uploaded by dsoutherton . Hyundai Motor is credited with a quantum leap in growth in the cover story of the U.S. news magazine Time’s “Global Business” section in its Asia edition, to be published on April 25. The U.S. current affairs magazine Time in its latest issue lavishes praise on Hyundai Motor chairman Chung Mong-koo, who it says turned the automaker into a global success story by effecting one of the most surprising turnarounds in automotive history. Time picked the company's rapid growth as the cover story of the "Global Business" section of its April 25 Asian edition, Hyundai said Tuesday. In a four-page special feature, Time says Chung turned Hyundai Motor into a global carmaker through stringent quality control. The magazine recounts how the company suffered from serious quality control problems when it first entered the U.S. market with the Excel at a price tag of US$4,955, but the quality of its vehicles rapidly improved,...

LG Electronics’ net profit dipped form a year ago. This is mainly due to the stronger Korean won against the U.S. dollar. A second aspect of the loss at LGE stems from its investment in flat panel display maker LG Philips LCD. For example, Korea's largest home appliance maker, LG's net profit for the first three months of the year stood at 83.2 billion won, a sharp drop from 584.7 billion won a year earlier. Why? The Korean Won gained 14.5 percent against the dollar in the first quarter compared to a year ago. This makes LG Electronics’ products more expensive abroad. In fact, LG derives almost 80 percent of its sales from exports. Also, LG Electronics is suffering from a global glut of flat screens. Weak consumer demand for the expensive televisions is cited. Finally, LG Electronics globally sold 11.1 million mobile phones in the first quarter, down from 13.9 million in the fourth quarter. It is thought that LG suffered in the first quarter as mobile providers cut sales to cl...

South Korean president Roh Moo-hyun visited Hyundai Motor Co.'s Turkish plant as part of , the last stop a nine-day tour of Germany and Turkey. Hyundai Motor Chairman Chung Mong-koo, accompanied the Korean president on the tour of the plant. The factory, with an annual production capacity of 60,000 units, has manufactured the Verna compact, Starex and Grace vans since 1997. Chairman Chung noted that his firm plans to double the production capacity of its Turkish facilities. The Turkish production arm of Hyundai Motor expects to rank third in the country by reaching sales of 92,000 units this year - 68,000 in Turkey and 24,000 in exports. Prior to the plant visit, Roh flew to Istanbul from the capital Ankara on Saturday and met with Turkish and Korean business people to express his confidence in Korea's recent economic growth. While at the plant, President Roh took a ride in a Starex vehicle--a car jointly produced by the two countries. Chung welcomed Roh by saying that his co...

Korea’s leading home appliance maker, LG Electronics, has set a 2007 goal to become a global leader in the appliance sector. The Korea-based company plans to nudge past top competitors (Whirlpool and Electrolux) by 2007. LG division president Lee Young-ha notes, “We will shift our strategy from trying to boost production volume to expanding our foothold in the high end of the market with premier items.” LG is now the world’s third-largest household appliance producer by annual turnover, trailing market leader U.S.-based Whirlpool and Sweden-based Electrolux. In 2004, Whirlpool recorded $13.2 billion in sales in digital appliances last year, followed by Electrolux with $11.9 billion and LG Electronics with $8.5 billion. To gain the number one spot, LG sees innovation as crucial. In fact, innovation has led to a turnaround and sales--the company attributing innovations to its double-digit pace over the past few years from $5.6 billion in 2002 to $6.9 billion in 2003 and $8.5 billion las...

Samsung Electronics Korea posted less than half the net profits of last year’s first quarter. Samsung blamed a strong won and plummeting prices. Samsung said it earned $13.8 billion in sales. Samsung Electronics executive director Joo Woo-sik said the company performed respectably despite unfavorable business conditions like soaring raw material prices and falling foreign exchange rates. Most analysts attribute the tumble in profits in the first three months to a strong won.

LG Electronics Inc. Korea released a new mobile phone that supports wireless banking transactions. LG Electronics has sold about 20 phones with mobile banking capabilities since 2003. This new model however integrates with a fingerprint identification scanner to enhance security. The company hopes to capitalize on the growing interest in mobile banking. The LG-LP3550 is also integrated with a 2.2-inch liquid-crystal display, 3-megapixel digital camera and a built-in stereo. The phone will be offered to customers of LG Telecom Ltd., Korea's smallest mobile carrier with a price tag between $650-700. Joh Seong-ha, vice president of LG Electronics' mobile communications division notes "With more people using mobile phones for financial transactions and other enhanced services, the worries over the protection of personal information is increasing. We expect to continue to deliver phones with enhanced security features, which is now an important point in competition," and...

Korean firms, SK Telecom and KTF are working on providing commercially viable video call services based on third-generation (3G) technology W-CDMA as soon as possible. SK Telecom, the nation's foremost wireless carrier, reduced rates for W-CDMA video calls from $.40 per 10 seconds to $.12 in April after getting government approval last month. KTF, the runner-up operator and the other W-CDMA licensee here, offers video calls at an even lower rate of $.10 per 10 seconds Combined with the legalized handset subsidy for W-CDMA phones, the discount is expected to attract customers to the next-generation service. W-CDMA promises a string of two-way applications, such as video calls, videoconferencing and real-time online games, thanks to a data transmission speed of 1-2 megabits per second, which is similar to that of fixed-line broadband, for both uplink and downlink. The 3G service made its commercial debut in Korea in late 2003 with much fanfare but it has not been successful as f...

According to Chosun Ilbo, South Korean carmaker Hyundai Motor posted bigger operating profit per unit than GM, Ford and Chrysler in 2004. Hyundai Motor sold 1.67 million cars and earned $1.98 billion in operating profit last year, which earned a per-unit operating profit higher than the U.S. carmakers. U.S. automakers' lower profits are due to fierce price wars in the American market (with lots of rebates!). Operating profit is a company's earning power from ongoing operations, excluding profits from selling property and interest. For carmakers, operating profit per unit is a measure of profitability. Essentially, in 2004, Hyundai raised its per-unit operating profit due to higher car prices. This is, in turn, was the result of better quality cars. Nevertheless, Hyundai’s operating profit per unit is still lower than high-end carmakers like BMW, Mercedes Benz, and Audi, which produce high added value models. Korea's other carmakers Kia and Ssangyong recorded a lower per-uni...

One of the country's leading retailers, Shinsegae Co. recently announced its operating profit for the first three months of 2005 rose 23.4 percent year-on-year due to improved consumer spending. Shinsegae's management noted that the retailer had sales of roughly $1.7 billion in the first quarter. That is up 10.2 percent year-on-year. Operating profit was nearly $145 million. Shinsegae officials attributed the double-digit increase in both sales and operating profit to the good business performance of its newly opened discounter in southern Seoul, Shinsegae is the operator of E-Mart, the country's top hypermarket chain, and Shinsegae department stores throughout the country. "Brisk sales of high-margin products ahead of wedding season, such as clothes, electronics and furniture, also helped," an official said. "We predict the resuming of the use of BC cards at E-Mart outlets from the beginning of this month to become another source of sales increase in the f...

Kim Woo-choong, the fugitive/ founder of the Daewoo Group, was recently spotted in Vietnam. According to an article in the Korea Times, Koreans in Vietnam have reported that they have seen Kim. A Korean who recognized Kim noted ``I went near him because he looked like chairman Kim and I am sure that it was him,'' ``As soon as I approached him, he left in a taxi along with three people who looked Korean and Vietnamese.'' Interestingly, Korean newspapers have pointed out that a Vietnamese hotel official, when questioned, stated that the former Daewoo chief booked a hotel room under his real name. The founder of Daewoo, at one time South Korea's second largest business group, has been hiding abroad since the group's collapse in late 1999. When Daewoo collapsed, the conglomerate was estimated to be $80 billion in debt. Over the past few years, Kim has since been in Germany, the United States, Vietnam, Sudan and even Korea.

Korea's Fair Trade Commission announced that the Hyundai Motor Group became Korea's second-largest private conglomerate in terms of assets. Samsung ranks number one. Hyundai Motor Group’s $55 billion in assets exceeds the LG Group, which split up recently.. The Hyundai Motor Group also ranked second in sales among the Korean conglomerates. The motor group sold nearly 3.4 million cars in 2004, making them the world's sixth-largest carmaker. The combined exports of Hyundai and Kia last year reached 2 million units and covered 193 countries and 155 countries, respectively.

The Korean fiscal crisis of 1997 led to a massive restructuring of Korean big business. For example, Korea’s Fair Trade Commission limits conglomerate expansion into areas that can weaken core businesses and create unfair competition in the market. In fact, regulations by the Fair Trade Commission ban 11 out of the 22 business groups with assets exceeding $6 billion from investing more than 25 percent of their net assets in other companies. This restriction also includes each group’s affiliates. According to the Korea Times, Korea’s 11 business groups affected by the restriction are Hyundai Motor, LG, SK, KT, GS, Hanhwa, Kumho Asiana, Doosan, Korea Railroad, Dongbu and Hyundai. In addition, GS, a 2004 spin-off of the LG Group, and the privatized Korea Railroad are listed. Interestingly despite the FTC ban, the need to encourage economic growth means many of the groups are granted exemptions. For example, nine conglomerates, including Samsung, were removed from the list for 2005. Samsun...

The Samsung Economic Research Institute (SEI) notes that the growing presence of foreign capital in Korea's banking sector and stock market might have a negative impact on the Korean economy. The institute warned that the government needs a more selective in attracting foreign direct investment and must strengthen safeguards to protect the economy. In a report, "Truth and Falsehood About Opening to Foreign Capital," the SEI said that one-tenth of Korean listed companies face a threat to management since foreigners are the majority shareholders. The report said that Korean capital has been suffering from reverse discrimination since the Asian financial crisis. Following ths crisis, South Korea lifted barriers to foreign capital and offered incentives in return for investment. According to the Korea Hreald, foreign direct investment in Korea rose in the first quarter at the slowest pace since the fourth quarter of 2003 after the government reduced tax breaks for overseas ...

Cutting edge wireless services are springing up in South Korea and part of everyday life on the East Asian peninsula. Three forces are driving this: the nation’s advanced networks, world-class cell phone makers (Samsung and LG), and Net-savvy people. In fact, Korea boasts of the world’s highest per-capita broadband Internet use with 12 million of its total 15 million households hooked up to the always-on Internet and more than 36 million of its 48 million population carry at least one handset. Key factors… 1. Korea has already embarked on the wideband-code division multiple access (W-CDMA), known as a genuine third-generation (3G) mobile application. 2. Watching TV programs on the move is also possible thanks to the satellite digital multimedia broadcasting (DMB), a mobility-specific broadcasting initiated in January for a test run. 3. In 2006, more new wireless technologies are expected to come to town like WiBro, the homegrown portable Internet, terrestrial location-based service (...

In Korea, Hyundai Motor Company has launched domestic sales of its new 2005 Sonata midsize car. The car comes in five versions priced between $16,000 and $25, 000. One of the new models is the 2.4 liter 'Elegance Special." Hyundai has targeted women customers with a sleeker car design and more convenience features such as an electronic air-purifier. Korean domestic carmakers are also strengthening their larger car lineups to stimulate stagnant domestic sales. This month, Hyundai is slated to unveil its TG luxury sedan to replace the current XG while GM Daewoo Auto & Technology Co. plans to introduce GM Holden's Statesman. In the U.S. the Hyundai TG will be renemed as the Azera. The domestic sales of local automakers dropped 5.8 percent to 235,000 units in the three months to March while combined exports increased 35 percent to 980,000 units. Hyundai announced "The 2005 Sonata has better competence in terms of reflecting customers' needs. For example, we have...

Renault Samsung, the smallest of South Korea’s five car manufacturers, has topped GM Daewoo Auto and Technology and Ssangyong Motor in quarterly sales in the domestic market. Renault Samsung was the only Korean carmaker that saw home sales grow during the January-March period compared to last year. According to Korea Times, Renault Samsung plans to expand its market share in South Korea to 23.4 percent and increase sales by 23.3 percent to 105,000 cars this year. Last year, it sold 85,098 cars, accounting for 9.3 percent of the Korean market. In Korea, opinions are divided on whether Renault Samsung will be able to keep its newfound form. Auto experts agree that its strong alliance with Japan’s Nissan helped the carmaker get to where it is today, but the inability to produce a model of its own is its Achilles’ heel. Despite some skepticism, Renault Samsung is positive about its past and is preparing to challenge Hyundai Motor and Kia Motors, who control a combined 70 percent of market.

Korea Times The number of South Korean mobile subscribers crossed the 37-million threshold in March. This means about 77 percent of the country’s population of 48 million carries at least one mobile handset. This comes as no surprise, since phones serve as links to the nation's state of the art data and communications network. The customer bases of SK Telecom and KTF exceeded 19 million and 12 million for the first time by gaining 72,360 and 92,485, respectively. Accordingly, SK Telecom carved out 51.2 percent of the market while KTF’s share stood at 32.5 percent.

A consortium led by Hite Brewery was selected Friday as the preferred bidder for bankrupt Jinro, the largest producer of the country's best-selling distilled liquor, ``soju.'' Hite, which accounts for about 60 percent of the local beer market, was ahead of another nine bidders. Hite submitted the highest bid of about $3 billion. The proposed price is the closest to the figure estimated by Goldman Sachs, a creditor of Jinro, before the deadline for the bid submission on March 30. Hite joined the bid process with a consortium composed of the Korean Teachers Credit Union, Korea Development Bank and a private equity fund. The Korea Times noted that Hite's chairman Park Moon-deuk and his allies hold the largest Hite stake (45%), while Carlsberg of Denmark holds 13% ownership. Jinro has been under court receivership since May 2003. Nevertheless, the business performance has recently been strong,