Chaebols' Hierarchy: Samsung's Supremacy in South Korea

Samsung's Supremacy in South Korea

Geographically speaking, South Korea should be poor. Slightly larger than state of Indiana, the country isn’t big and, unlike Indiana, it's not agriculturally productive. The land is rugged and steep, with only 22% of it being arable. This rocky terrain doesn’t make up for its lack of agricultural productivity with significant mineral resources. South Korea has some coal, ranking 49th globally in proven reserves, which is quite modest compared to its neighbor to the north. It also ranks 81st in natural gas reserves and is tied for last in oil reserves, having none at all.

• Domestic Challenges and Regional Pressures

These challenges are compounded by South Korea's historical and regional context. Surrounded by powerful empires and limited in natural resources, South Korea had every reason to be poor. Yet, against all odds, it is incredibly rich. By nominal GDP, South Korea boasts the tenth-largest economy in the world, a feat largely attributable to one company.

• The Rise of Samsung

The roots of South Korea’s economic miracle trace back to 1938, before the Republic of Korea even existed. In the southern city of Daegu, Lee Byung-chul started a small grocery shop named Samsung, dealing in fish and noodles. Little did he know that this small business would become the cornerstone of the most dramatic economic transformation of the 20th century, known as the 'Miracle on the Han River'.

• The Post-War Transformation

The term “miracle” might be misleading. South Korea's economic growth was extraordinary but explainable, driven by long-term planning and savvy opportunism. The country was on the brink of collapse in 1950, with South Korean forces barely holding onto a small corner of the peninsula after the communist north's advance. But the war’s devastation also created opportunities.

In 1953, Lee Byung-chul pivoted. He launched Cheil Jedang, a sugar refinery, and a year later, Cheil Mojik, a wool mill. These ventures were part of the Samsung group. South Korea’s first president, Syngman Rhee, began directing international aid to industrialists to reduce reliance on imports. This support helped Lee’s projects thrive in a war-torn nation. Samsung quickly became a major player, acquiring significant assets and eventually becoming the nation’s fourth-largest borrower.

• Chaebols and Industrial Expansion

In the years following, Samsung acquired several banks and insurance companies, consolidating its power. By the late 1960s, Samsung was the peninsula's most powerful conglomerate, with Lee’s net worth representing 19% of all South Korean wealth.

However, despite the distribution of Western recovery funds and the end of feudal land practices, South Korea remained poor and underdeveloped. The military overthrow of President Rhee’s government in 1961 marked the beginning of a new economic era under Park Chung-hee. Park focused on expanding industrial exports and leveraging South Korea’s human capital, leading to extraordinary GDP per capita growth.

• The Role of Chaebols

The chaebols, including Samsung, LG, Hyundai, and SK Group, played a crucial role in this growth. Instead of dismantling these conglomerates, Park assigned them the task of exporting Korean-made goods globally. The government supported these companies with subsidies, lenient loans, and tax breaks. The chaebols thrived, and South Korea's economy surged as they expanded both vertically and horizontally.

• The Impact on Everyday Life

The success of the chaebols had profound effects on daily life in South Korea. From 1950 to 1990, life expectancy doubled, and infant mortality dropped significantly. Samsung’s global expansion continued under Lee Kun -hee, Lee Byung -chul’s son, even after his father’s death in 1987.

• Spread of Samsung Today

Samsung’s influence is evident in various aspects of South Korean life. From smartphones and life insurance to ferries and theme parks, Samsung’s reach is extensive. This broad involvement has cemented Samsung’s position as a central figure in the country’s economy and daily life.

• The Pursuit of a “Samsung Man”

The impact of Samsung extends into South Korean society. Many view working at Samsung as the pinnacle of success, leading to intense competition for positions. The Samsung Aptitude Test is a significant hurdle for many young South Koreans, with only a few thousand passing out of hundreds of thousands of applicants. The pursuit of a job at Samsung often overshadows other career paths, leading to a highly competitive job market.

• Samsung’s Dominance Today

Today, Samsung’s influence is pervasive. Approximately 20% of South Korea’s GDP comes from Samsung Group's revenue, making it a critical part of the national economy. This level of concentration is unparalleled globally. For comparison, Japan’s largest company, Toyota, accounts for about 5% of GDP, while Walmart in the US represents 2.5%. This dominance means that, at worst, Samsung's hierarchy dictates much of South Korea's landscape—everything operates by Samsung and for Samsung, and even the government often has to comply with the company's interests in any situation that arises.

In short, South Korea’s transformation from a war-torn nation to an economic powerhouse is deeply intertwined with the rise of influential conglomerates like Samsung.  Unlike any other global company, Samsung’s hierarchical influence permeates every aspect of the country, often setting the direction for national policies and even compelling government compliance. This highlights the extraordinary impact of strategic planning, innovation, and the concentration of corporate power in shaping a nation’s economic destiny.