Big business is back with new conquests

Ten years ago, Korea’s conglomerates were being blamed for the country’s financial crisis because of their excessive debt levels and production expansion.

Entrepreneurial businesses were the future, the mantra went at the time, because they were seen as agile and innovative. Conglomerates, on the other hand, were dismissed as bureaucratic and stodgy - managed by out-of-touch family owners unable to keep pace with rapid technology change.

Fast forward to the present and the picture is rather different. Conglomerates have emerged at the cutting edge of many global industries they dominate, from mobile phones and liquid crystal displays to automobiles and rechargeable electric car batteries.

After near-death experiences at the start of the last decade, many conglomerates reformed and restructured themselves, cutting debt levels and increasing spending on research and development. The sudden transformation of conglomerates can be seen, for example, in the rapid development of the country’s mobile-phone industry. A decade ago, the mobile phone sector was relatively new for Korea. The global industry leader was Motorola. But Samsung, LG, SK and Pantech saw a chance to grab market share. The companies were innovative, introducing the bar, flip, folder and slide-type mobile phones.

Samsung also saw the importance of global branding and realized that design was a key element. Its clamshell phones, for example, were a hit and left competitors like Nokia struggling to catch up. By the mid-1990s, Korea’s mobile phone makers had gained a sizeable chunk of the market in North America and Europe. Analysts say the growth of the mobile sector shows the advantages of being a conglomerate.

“Information technology industries need large investments, and the conglomerates controlled by founding families are able to make quick business decisions on huge capital investments and take risks,” said Joo Dae-young, a researcher at the Korea Institute for Industrial Economics and Trade. “Although they are often criticized, the family-owned conglomerates have a lot of strengths,” Joo said. “Professional managers can’t make quick investment decisions. This is why Japanese companies are more advanced in technologies than Korea, but lag behind when it comes to expanding production capacity.”

The mobile-phone sector followed Korea’s earlier patterns of industrial development: initially sheltering domestic companies from foreign competition at home. Korea delayed the introduction of the Apple iPhone for two years, citing differences in technical standards, giving Samsung and LG time to develop competing models.

Samsung and LG are now playing catch-up to smartphone leader Apple, with Samsung, in particular, appearing to make inroads into the global market with its Galaxy S. But Korea appears determined to gain an early lead when it comes to electric vehicles and their batteries. Hyundai Motor and GM Daewoo have recently unveiled electric cars.

And seeing electric-car production as a potential economic engine, the government has pushed its development as part of its “green” industries push. The Ministry of Knowledge Economy recently accelerated plans to mass produce electric vehicles by 2014 instead of the previous target of 2017.

The government hopes that electric vehicles will make up 10 percent of the domestic car market by 2015 and 20 percent by 2020. To reach the goal, the government will offer financial incentives to buyers. Mass producing electric cars is also likely to reduce unit prices - Hyundai’s BlueOn currently retails for 55 million won ($48,700).

Some hurdles remain, however. Government officials acknowledge the need to improve the batteries used to power electric vehicles.

“The batteries needed in electric cars are the hot issue in the industry, and no battery form is considered the standard,” said a Knowledge Economy Ministry official. “Should Korea develop practical batteries for the vehicles, the country will be able to become a leader in the market.”

Korea is already emerging as a leader in rechargeable electric batteries. LG Chem has signed deals to provide batteries to major global automakers, including GM, Ford and Renault, and hopes to sign 10 supply contracts by the end of the year.

By Lee Eun-joo, Jung Seung-hyun [angie@joongang.co.kr]

Hyundai Motor’s BlueOn is the first commercial electric vehicle developed by a Korean manufacturer. Provided by the company