재벌

Chaebol

Korea inc. is pretty impressive. I’ve never been in a country with more of a capitalist mindset. Brand recognition is extremely strong – simply having a different type of North Face jacket in high school determines your status. Status symbols are very important – when iPhones were finally released here in 2010, parents scrambled to buy the phone for their kids so they could flash them off in school.

Every government policy is honed towards the accumulation of wealth, the raising of GNP, improving Korean companies’ standing overseas. Right from the way the education system is structured to prepare students for entry tests to the big companies to the way the leaders of these big companies are afforded ways by the government to expand and maximize their business interests.

These ‘big companies’ are the 재벌 (chaebol: conglomerates), the multi-billion dollar corporations who effectively run this country. We’re talking the Samsung, Hyundai, LG, Lotte type of corporation: with subsidiaries that deal in everything from electronics to entertainment industries, insurance to cars. The top 5 chaebol in the country account for 66% of Korea’s GDP, Samsung alone counts for 20%. Suwon, Samsung’s ‘home town’ grew from a village to a city of 1 million in under 10 years. Lee Myung bak, current president and favorite to win this years elections, is a former CEO of a subsidiary of Hyundai. Under his leadership, chaebol have been granted powers to create their own financial firms and the CEOs of Samsung and Hyundai – having being convicted of tax evasion and embezzlement respectively – both avoided prison sentences because of their ‘importance to the South Korean economy’.

Lee Kun Hee

Samsung CEO Lee Kunhee: “Tax evasion? What tax evasion?”

As an outsider and an Irish person I admire how a small country like Korea has developed its native industries to become world leaders. Our economy has always depended on direct foreign investment and – alcohol aside – there aren’t many internationally recognized ‘brands’ (Kerrygold, maybe?). But Korea has managed to drag itself from the abject poverty of the 50s to being the 12th largest economy in the world, largely thanks to the chaebol. Their status around the world, also, is growing and growing. Apple’s iPhones’ memory system is made by Samsung. Sony’s TV screens are made by Samsung. 1 in 5 of the world’s cellphones are made by Samsung. But their domineering power in Korea has negative effects as well. Entrepreneurship here is smothered by the big chaebol. Start up companies are bought up or have their staff poached before they can contribute any real innovation to their field. Chaebol subsidiaries out compete independent businesses in every field thanks to their endless funds.

A random example of this negative effect is to be found in the massive growth in coffee shops and bakeries that has swept the nation. In 2003, there were 18,000 independently-owned bakeries in Korea. By late last year, this number had plummeted to 4,000, while the number of bakeries has almost tripled. All over the country franchises – 4 of which are owned by the daughters of the CEOs of Samsung, Hyundai, Lotte and Shinsaegae – sweep aside and out-compete locally owned bakeries on a daily basis. Paris Baguette – the biggest franchise – opened a massive 300 stores last year. It all seems very incestuous. A lot of these franchises are funded from the top by the chaebol, whose infinite monetary resources ensure that the daughters of the big men can keep expanding their “hobby businesses”, as they are called by the president Lee Myung Bak: “Second-generation or third-generation chaebol may be doing it as a hobby, but it is a matter of survival for ordinary people running bakeries,” he said in a surprising rebuke of chaebol power.

LG Advertising

Korean pop group Kara advertise the new LG Optimus

The chaebol dominate business here in a way much more encompassing than in the West. For example, LG –  known in the West only for electronics – has a large market share in entertainment (it manages many of the country’s top pop stars), owns the country’s leading coffee shop franchise, owns the LG Twins (one of the country’s top baseball teams) and has a large cosmetics range. Having ‘a finger in every pie’ greatly benefits LG’s blanket advertising, where a pop singer can be used to advertise a cellphone, aftershave product, baseball team and coffee shop all in one sweep.

With China developing its manufacturing industry with a more specialist and high-end focus, Korea needs to innovate and develop new products with more cutting edge appeal to global consumers. If they want to keep their hold on electronics and automobiles markets they need to stay one step ahead of other Asian competitors, particularly China. But what I see is the opposite – the chaebol sticking to what’s served them so well over the past decades – affordable replicas of American designs. The reason most Western consumers choose Korean products over Japanese – for example – is because they are cheaper. A couple of years down the line, it’s likely this comparison will be able to be made between China (the cheaper model) and Korea (the older brand that is becoming out of touch and expensive).

As labour costs here go up and competition from ‘cheaper’ economies grows fiercer, from South Korea’s point of view, the chaebol seem to be a narrow base on which to build the country’s economic future.

Samsung galaxy launch

Samsung launched the Galaxy Tab last year. Looks much like the iPad to you?

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