eBusiness Weekly
Alfred M. Mthimkhulu
“What is urgently required of us now is not to be envious of America’s prosperity, or fearful of Japan’s expansion, but rather to emulate the mental attitude and drive that made such things possible.” That was Lee Byung-chul in 1965, founder of Samsung, known more as Chairman Lee ?
He passed away in 1987.
In March 2020, Geoffrey Cain published a book titled “Samsung rising: Inside the secretive company conquering Tech”.
Its back-cover reports that Samsung accounts for at least 20 percent of South Korea’s exports and beats Microsoft revenues.
How did a business that started in 1938 trading vegetables and dried fish become a global industrial giant? How did Chairman Lee transform his start-up and his country so much?
Economic prosperity in countries like South Korea and indeed limited prosperity in some must not always be seen as singular outcomes of own domestic policies. Superpowers’ influence in domestic affairs of others during the Cold War were significant.
For simplicity sake, I will mute such influences and focus on South Korea’s industrial transformation from 1961 when General Park Chun-hee took charge after a coup.
In his book, Cain introduces President Park as the “dictator of South Korea (who) laid the economic and political foundation for the Korean economic miracle, bolstering companies such as Samsung and Hyundai”.
How did President Park lay the foundation for the industrialisation of South Korea?
Chairman Lee was in Japan during the coup. Two South Korean government agents visited him in the hotel. The new boss wanted to have a word as soon as possible, “or else”. Home he went.
“You can say anything, so talk without reservation”, the boss said. Chairman Lee was pleading. Why?
The new government regarded him as a white-collar criminal syphoning national wealth. There was a prison cell waiting for him but government would be happy to hear how he could be of better national service than languish in a cell. What did he have in mind? He would pay his overdue taxes. Significant stakes in his three banks would be transferred to government and the same was done for banks owned by other conglomerates.
Since the end of the Second World War, Korean entrepreneurs had emulated Japanese industrial holding structures centred on own banks. The structure facilitated control and effective capital allocation.
The now state-owned banks powered industry. Government set tough export targets for funded businesses.
“If one fell behind, its state loans would be cut, and the (conglomerate) would collapse”, Cain writes.
“Pressure on executives was immense. It is said that Hyundai founder at times slapped executives for failing to meet targets. In 1964, Samsung was tasked to build a fertiliser factory and 18-months later it delivered the largest fertiliser factory in the world”.
When corruption surfaced in the factory managed by Chairman Lee’s son, the son was jailed and Chairman Lee forced to step down surrendering 51 percent of his factory to the state to reduce son’s sentence.
He was back as Chairman of Samsung in 1968 after realising that his youngest son, not his older sons, had the capacity to take the business forward. One son was cut-off from the family and exiled to poverty and mental breakdown in rural areas where villagers called him Chairman. Such was the ruthlessness in pursuit of growth, integrity and service to country.
Meanwhile, President Park “fired-up the South Koreans with the belief that they derived strength from a pure and unadulterated bloodline” such that everyone was on the edge. It was no place for idlers. It was no place for rent seekers.
It was a nation in motion. By the time the world hit a recession after OPEC cut oil production, South Korea was deep into transforming itself from a hand-to-mouth economy to an industrial and export-focused one.
In the 1970s, more US firms ventured into value-added industries especially semiconductors. Thanks to South Korea’s highly skilled workforce, Samsung struck a partnership with a US-headquartered firm marking the beginning of the journey to dominate the smart phones market in years to come.
Chairman Lee was not the only visionary. There were many, for instance Hyundai founder Chung Ju-yung. The two were competitive. After the 1979 coup in which President Parker was killed, Chung Ju-yung quickly won favour with the new regime. He received an honorary doctorate George Washington University.
Chairman Lee felt the pressure. He sorted his relationship with government and also received an honorary doctorate from Boston University in 1982 wherein he toured and was inspired by the US semiconductor industry.
In February 1983 while in Japan, Chairman Lee issued “the Tokyo Declaration” which acknowledged that his country was small and without natural resources. “Thankfully” he wrote, “we have high levels of education and a rich supply of diligent and hard-working (people), which enabled us to see rapid economic growth through mass-exporting cheap goods. But with countries around the world experiencing recession, and with the rise of trade protectionism, the export-based method of building national strength has reached its limits.”
What was his plan to overcome domestic constraints and shrinking global demand?
Samsung became more aggressive in semiconductors. He would secretly fly-in engineers from Tokyo on Saturdays to train his team then fly them out Sunday.
Interestingly nine months after Tokyo Declaration, 28-year Steve Jobs was in South Korea looking for partners to build a tablet computer.
Unfortunately, Jobs was kicked out of Apple and that initiative stalled. Samsung kept going.
There is a lot to reflect on in South Korea’s industrialisation path: centralisation of power within the firm and the state; conglomerates as organisational structures to achieve economies of scale and scope; export targets with clear consequences for failure; zero tolerance of corruption.
In 2016, Cain travelled to Daegu to see Samsung’s very first premises. He did not have the exact address hoping people would direct him.
People didn’t seem to know of the premises. Eventually, he met a professor. She exclaimed: “Ah, Lee Byung-chul, the founder of Samsung!”
When he was surprised that the premises where neglected and no one seemed to know or care she explained: “You must understand that when we think of Samsung in Korea we think of the future. We don’t think about history. The past is shameful. This is why you will find history buried here in Daegu.”
The NDS1 preface talks of “bold and transformative measure” and acknowledges that “slow and incremental change will not deliver the transformation that the people of Zimbabwe deserve”. The Zimbabwe National Industrial Development policy proclaims that it “is aligned to the vision and path to transform Zimbabwe” and that it “will respond to regional, continental and global developments with regards to the thrust on industrial development.”
The industrial policy is thus subservient to status quo locally and elsewhere than transformative. In it, every sector seems a priority.
But then, what can Government proclaim in its industrial policy other than outline in broad terms what the private actors must detail by actions? Or, should Government be as hands-on as we saw in
South Korea? Can a government wielding such power be acceptable in our times? We must challenge our well-schooled mindsets in our quests for better futures.
Email: [email protected]/Twitter: @mthimz
