Debate over how to curb the size and power of Samsung and other family-run conglomerates has become the key issue in South Korea’s Dec. 19 presidential election, with polls showing that about three in four voters say they feel negatively about the country’s few behemoth businesses. Candidates are sparring over how far to go to constrain them.
Samsung draws the greatest scrutiny because it is by far the largest chaebol — the Korean term for corporate groups that were jump-started with government support — and because it is wildly prosperous as the rest of the economy slows down. The conglomerate contributes roughly a fifth of South Korea’s gross domestic product.
Some Koreans call the country “The Republic of Samsung.”
Famous globally for its electronics, Samsung would be one of the largest conglomerates in almost any country. But within its tiny home country, the size of Virginia, it acts more as a do-everything monolith, building roads and oil rigs, operating hotels and amusement parks, selling insurance, making not only the world’s best-selling smartphone, the Galaxy, but also selling key components to Apple for the iPhone — even as the two battle in a series of lawsuits.
In its domestic market, Samsung is far ahead of Apple. Only one in 10 South Korean smartphone users has an iPhone. (Samsung holds about 33 percent of the global smartphone market, while Apple accounts for about 17 percent. In the United States, Apple controls 34.3 percent of the smartphone market. )
Critics say Samsung elbows into new industries, knocking out smaller businesses, limiting choices for Korean consumers and sometimes colluding with fellow giants to fix prices while bullying those who investigate. They also see in Samsung the picture of closed-door wealth, a family affair in which Chairman Lee Kun-hee is passing power to his son.
“You can even say the Samsung chairman is more powerful than the South Korean president,” said Woo Suk-hoon, host of a popular economics podcast. “Korean people have come to think of Samsung as invincible and above the law.”
A reversal of opinion
That sentiment has intensified in recent years, a period during which Samsung has obstructed price-fixing investigations — drawing only minor fines — and seen its chairman indicted for financial crimes, only to receive a presidential pardon “in the national interest,” as a government spokesman put it.
South Korea ranks poorly among democratized countries in corruption rankings, and the traditionally cozy ties between government and the biggest companies were widely seen as the enabler of the country’s economic rise.
But Lee’s pardon, in late 2009, helped lead to a reversal in thinking. It came at a time when President Lee Myung-bak — a former chaebol man who has kept policies in their favor during his five-year term — was pushing South Korea’s bid for the 2018 Winter Olympics.
The president thought the Samsung chairman, a member of the International Olympic Committee, could help. Once his record was cleared, Lee in 2010 took 11 trips worldwide while working for the bid. The town of Pyeongchang eventually won the rights to host the Games — a $20 billion boon for the economy, according to one research institute’s forecast. Though South Koreans rejoiced over the selection, announced in July 2011, the IOC’s choice did little to soften most citizens’ negative opinion about Lee’s pardoning.
South Korea’s leading presidential candidates say the country has been far too lenient in how it treats its richest men. Chaebol executives who commit crimes should be punished harshly, they all say, with no chance for such redemption.
The leading candidates say South Korea should prevent conglomerates, Samsung included, from weaving their various companies together in what’s known here as “cross-shareholding,” a controversial ownership structure in which a family concentrates its shares in a few core companies, then passes investment to other affiliates within the group. The arrangement allows families to control a broad range of businesses, even those in which they hold few, if any, shares.
Though there is broad agreement about some reforms, the level of concern about chaebol differs across party lines. The position of conservative candidate Park Geun-hye is that the conglomerates are merely unruly — a notable view in itself, given that Park belongs to Lee Myung-bak’s pro-business ruling party, and that her father — dictator Park Chung-hee — built the chaebol system after taking power in a military coup in 1961. Park Geun-hye said recently that chaebols often steal technology from smaller innovators and force unfair pricing on suppliers.
“In the economic area, we have emphasized the concept of efficiency, and in some sense, we haven’t paid enough attention to the concept of fairness,” she said.
But the opinion on the far left is that chaebols, particularly Samsung, hold a dangerous level of influence. That viewpoint caught traction after a former Samsung counsel, in 2007, accused the conglomerate of systematically distributing money from a slush fund to influential figures. In the ensuing probe, a special investigator found no evidence of bribery but did uncover the financial crimes for which Lee, the chairman, was later pardoned.
“Samsung has the government in its hands,” Lee Jung-hee, a liberal presidential candidate with virtually no chance of winning, said in a nationally televised debate Tuesday. “Samsung manages the legal world, the press, the academics and bureaucracy.”
Driven to evolve
Samsung, which began in 1938 by exporting vegetables and dried Korean fish, became a budding power after an alliance was forged between its founder, Lee Byung-chull, and the military dictator, Park, who controlled the country’s banks and determined who got loans.
But the conglomerate thrives now in part because it makes good products — an important point for South Koreans, who are deeply competitive and see in Samsung some of the traits they want for themselves: ambition, speed, and the ability to adapt and stay on top.
A majority of chaebols haven’t survived. Fourteen of South Korea’s 30 largest companies were wiped out during the 1997 Asian financial crisis.
But Samsung has been steadily growing for decades. It operates 79 subsidiaries, more than twice what it did 25 years ago. Its size relative to South Korea’s economy has also grown: The conglomerate accounts for 28 percent of the nation’s exports, twice its share in 1987.
A powerful Samsung is healthy for the country, corporate spokesman Kevin Cho said, because it makes “major contributions to Korea’s exports, tax revenue and employment.” Cho also emphasized that Samsung is a global player, not a just a domestic one. In 2011, 84 percent of its electronics revenue was generated outside Korea.
Samsung has prospered on the strength of its electronics company, which has made a decade-long run of smart bets on tiny batteries, low-cost flat-panel TVs and smartphones. While Japanese companies fixated on ornamental and pricey home electronics, Samsung purchased proven technology and quickly began producing cheaper — and high-quality — versions. In the case of smartphones, such a strategy has led to a global patent war with Apple, Samsung’s top competitor. But it has also turned Samsung, once a non-factor in the mobile phone market, into the world’s leading producer in three years.
The Samsung Group makes a point of never doing any one thing for too long, and Lee Kun-hee says frequently that his employees should feel a sense of permanent crisis. Even in its glossy corporate profile, Samsung sounds alarmist. “The positions we currently hold will be obsolete and untenable 10 years from now,” Samsung says. “Across global business, attachment to laurels is folly.” The group is investing billions in green technology, medical equipment and pharmaceuticals.
Samsung is a “survivor” of competition, said Lee Cheol-haeng, head of the corporate policy team at the Federation of Korean Industries, which lobbies for large-size businesses.
“Many Koreans right now have dual minds about chaebols,” Lee added. “They say, ‘I hate chaebols, but I want my son to work for one.’ ”
Yoonjung Seo contributed to this report.