Chaebols: a Pillar of South Korea’s Economic Miracle
Economic development in East and Southeast Asia during the 20th century was indeed remarkable. During the 1960s, gross domestic product (GDP) per capita grew at an unprecedented rate of nearly 7% in South Korea, Taiwan, Hong Kong, and Singapore. These economies currently rank in the top 40 in terms of GDP per capita. Of the ‘Four Asian Tigers’ that achieved such noteworthy growth, South Korea’s development model represents a unique case.
One of the biggest factors that drove South Korea’s economic transformation was cooperation among the chaebols and the government. Chaebols, which are families that run big conglomerates, exchanged business information among themselves and with the government. Under government guidance and information-sharing, foundations for South Korean economic development were laid.
At a time of rapid growth, this reduced information costs, whose benefits were immense. Such cooperation implied greater unity and coordination within the economy. For instance, if one conglomerate focused on the construction industry, another focused on steelmaking and heavy industries so that synergy could be achieved.
After leading the South Korean economy for more than half a century, these chaebols became highly embedded into South Korea’s economy, society, and politics. In many of South Korea’s key industries, such as semiconductors, electronics, heavy industry, retail, or automobile, the chaebols established their dominance, influencing South Korean consumers and the economy from all aspects. Nonetheless, they were also accused of being sources of corruption due to their tight-knit relationships with the government and sheer economic strength.
Currently, there are five key chaebols in South Korea, which are Samsung, Hyundai, LG, SK, and Lotte. This article provides an overview of each of the chaebols and issues surrounding them to provide an overview of South Korea’s economic landscape.
Led by the Lee family, Samsung started off as a noodle manufacturing and food retailing company. Currently, it is South Korea’s biggest chaebol. While the company has a presence in a number of different industries, such as heavy industries or insurance, it is best known for its electronics, being arguably one of the most leading technology firms globally. Beginning from semiconductors, Samsung continuously widened its range of operations to home electronics and smartphones – best known for the Galaxy series.
Due to its sheer significance and size, Samsung was involved in numerous political controversies. Throughout South Korean history, Samsung was heavily invested in the country’s political affairs. Recently, it has been revealed that the firm was involved in union sabotages and was suspected to have controlled the South Korean media. While close-knit relations between the South Korean government and chaebols were helpful during times of growth, it also laid a fertile ground for corruption. In the process of addressing such corruption, Samsung emerged as a key stakeholder.
Chung Joo-Young, the founder of Hyundai
Alongside Samsung, Hyundai is considered the most important firm in South Korea’s economy. In contrast to Samsung, whose strengths lie in small-size manufacturing, Hyundai is known for its manufacturing of big-size products, such as ships or automobiles. Hyundai Heavy Industries, one of Hyundai Group’s key subsidiaries, rose as the world’s top shipbuilders. Yet the Group’s most important constituent remains Hyundai Motors, its car manufacturer, which is the world’s third-largest carmaker.
Until the 20th century, Hyundai was considered South Korea’s biggest chaebol. It was led by the Chung family, who were originally farmers and began their business in the construction industry. However, in the 1990s, various political controversies, the IMF crisis and conflict within the Chung family fragmented the group into its numerous subsidiaries. After the 21st century and the rise of Samsung, Hyundai’s prestige faded.
Whereas it is currently most known for its telecommunications and oil business, SK’s foundations lied in fabric manufacturing. The Chey family realized the importance of oil in manufacturing. To invigorate their business, the SK group strived to gain access to oil, eventually acquiring various oil companies. They were combined to create the group’s key subsidiaries, SK Energy and SK Innovation.
What further boosted the group’s strength was telecommunications. It was SK’s telecommunications business and close relationship to politicians that enabled the group to increase its leverage. When chairman Chey Tae-won married Roh Soh Yeong, daughter of former South Korean president Roh Tae-woo, the government granted SK a great deal of support, helping the group gain access to its telecommunications infrastructure. Despite close relationships with the then-president being conducive to the growth of the business itself, such actions were highly criticized for being corrupt.
Ranking 4th among the chaebols, LG began its business in the chemical industry. Under the name ‘Lucky Geumsung,’ LG began manufacturing and selling cosmetics and plastics. It was South Korea’s first company to produce plastic. It then expanded into the electronics industry, which it is currently most known for internationally. The group was jointly led by the Koo family and the Heo family. Although the Heos later branched off to establish GS, the cooperation still remains valid.
Unlike other groups, LG has a reputation for being more compliant towards law and less scandalous. It was least involved in political controversies, and intra-group disputes regarding ownership of the firm never happened since its establishment despite being run by two different families.
Shin Gyuk-Ho, founder of Lotte
Quite differently from other groups, Lotte started off as a retailer, and it started off outside of South Korea – in Japan. Its beginning is in the sale of gum, branded as ‘Lotte Gum’, in Japan. The group then continuously expanded into managing supermarkets, department stores, duty frees, and hotels, invigorating South Korea’s retail and tourism industries.
However, its validity as a ‘South Korea’ chaebol is often questioned. Not only has it started off from outside of the country, but the public often questions the identity of the Shins, the owner of Lotte Group. While being a South Korean chaebol, the Shin family spoke in Japanese among themselves. This produced rumors and controversies over whether Lotte is Japanese or South Korea.