[Market Economy Guide] The Miracle of Samsung Electronics

When Samsung sought to enter the electronics industry, small and medium-sized firms opposed it.

If the government had banned it at the time, Korea would not have become an IT powerhouse.

Which is the No. 1 company representing our country? Almost everyone would surely name Samsung Electronics first. But when the Samsung Group initially tried to establish Samsung Electronics, there were not many people in favor. On the contrary, voices vehemently opposing the Samsung Group’s entry into the electronics industry were loud. Most notably, the Korea Electronics Industry Association even issued a statement in the name of 59 member electronics companies opposing the Samsung Group’s move into the electronics industry.

Opposition from the Korea Electronics Industry Association

The gist of the statement was as follows:

“Since the three conditions Samsung has put forward as prerequisites for entering the electronics industry are already impossible to realize, Samsung’s entry into the electronics industry must not be allowed.”

At the time, the Samsung Group announced that it would jointly produce products such as TV sets, radios, and speakers—items that domestic small and medium-sized firms had failed to localize—with Japan’s Sanyo Electric. It also set the condition that 85% of the output would be exported, with no more than 15% sold domestically. However, the Korea Electronics Industry Association sought to block the Samsung Group’s entry into the electronics industry to the very end by advancing a “three impossibilities” argument.

First, it claimed that TV sets, radios, and speakers, which the Samsung Group cited, were all already being successfully localized by domestic small and medium-sized firms. Second, it argued that Samsung’s promise to export 85% was impossible. Third, it insisted that even the remaining 15% alone would already exceed total domestic output.

“What could Samsung possibly export?”

There were two reasons the Korea Electronics Industry Association opposed the establishment of Samsung Electronics. One was that the electronics industry at the time was centered on small and medium-sized firms operating in poor conditions. Aside from GoldStar, which later grew into today’s LG, the remaining electronics companies were only on the scale of small and medium-sized businesses. If it were today, the electronics industry would likely have been classified as a sector suitable only for small and medium-sized enterprises, making Samsung’s entry impossible. GoldStar, too, would probably have been pressured to give up the business.

The other reason was that the Samsung Group belonged to the so-called successful “chaebol.” Since the Samsung Group, with more than 10 affiliates including Samsung C&T, Cheil Jedang, Cheil Textile Industry, Dongbang Department Store, Dongbang Life, Korea Fertilizer, and JoongAng Ilbo, was entering the electronics industry, it was perhaps only natural from the standpoint of protecting vested interests that companies in the industry became highly tense and issued a statement of opposition.

However, because the government at the time pursued a competitive policy—encouraging firms to compete in the global market and increase exports—rather than a protectionist policy of reserving sectors for small and medium-sized enterprises, the Samsung Group was able to enter the electronics industry without difficulty. And in fact, through its joint venture with Sanyo Electric, it exported more than 80% of its output and contributed to significantly expanding the scale of the electronics industry. What would have happened if the Samsung Group had been blocked from entering the electronics industry by regulations and entry barriers such as protected sectors for small and medium-sized firms? Not only would today’s world-leading Samsung Electronics not exist, but neither would Korea as a high-tech powerhouse.

Agriculture Needs a “Samsung” Too

Large corporations are entities born as a result of greatly increasing productivity and generating profits. The large scale of a major corporation means that it has satisfied that many consumers and secured an advantage in competition. In South Korea today, the main engines of growth are global companies such as Samsung, Hyundai, LG, and SK that compete in the global market. But it has already been a long time since these companies emerged. For the Korean economy to make another leap forward, the current large corporations alone are far from enough. That will only be possible if new large corporations and more global companies emerge.

In particular, we should pay attention to agriculture and services, sectors in our society that still remain underdeveloped and neglected. In manufacturing, there are already many firms with world-class competitiveness, and new companies can be expected to emerge through venture businesses. But agriculture and services have not been sufficiently marketized or corporatized and therefore remain trapped in a high-cost, low-efficiency state. They cannot even think about exports despite receiving tax support.

This proves that agriculture and services are true blue oceans with ample room for development. Precisely because they remain untapped fields, marketization and corporatization can create many new quality jobs and provide young people with new income opportunities. Nestlé, a Swiss company, is a global corporation that, like Samsung Electronics, earns most of its sales overseas. I hope that a large corporation like Nestlé will emerge in the agricultural sector of our economy as well.

● Please remember

At the time, the Samsung Group announced that it would jointly produce products such as TV sets, radios, and speakers—items that domestic small and medium-sized firms had failed to localize—with Japan’s Sanyo Electric. It also set the condition that 85% of the output would be exported, with no more than 15% sold domestically. However, the Korea Electronics Industry Association sought to block the Samsung Group’s entry into the electronics industry to the very end by advancing a “three impossibilities” argument.

Sung-no Choi, President of the Center for Free Enterprise (CFE)

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Original title: [시장경제 길라잡이] 삼성전자라는 기적

Author: Sung-no Choi

Date: 2019-10-14

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=column&pn=12&idx=21956