July 24, 2013

South Korea’s corporate dynasty

Le Monde diplomatique

The remarkable rise of South Korea depends on the power of the chaebol, the family-dominated business conglomerate, and the greatest of these is Samsung, a state in itself

by Martine Bulard

It’s impossible to miss the Samsung Tower, which stands out even in the forest of outlandish glass buildings in Gangnam, one of Seoul’s flashiest districts, with its wide avenues, luxury cars and trendy young people. (The area was made world famous by singer Psy’s Gangnam Style video: see Soft power and big money). Samsung Electronics displays its latest products over three floors of the tower: giant screens that transform you into a golfer or baseball champion; 3D televisions; intelligent fridges with transparent panels that suggest recipes based on the fridge’s contents; mirrors with sensors to measure your heart rate and temperature. And taking pride of place, the Galaxy 4 smartphone, recently released worldwide.

This is the bright, shiny face of Samsung. Dozens of students from nearby Seoul University mill around, meeting friends, going from display to display, marvelling at the technology. All I spoke to assured me that working for Samsung would be their dream. That is something you often hear in Korea. Samsung has overtaken the US colossus Apple and Japan’s Sony in mobile phones, and is “the 21st-century hi-tech giant”, as a young researcher recently hired by the temple of innovation, Samsung Design, put it. Its construction and engineering companies have worked on the world’s tallest building in Dubai and Abu Dhabi’s nuclear power programme.

The group is in everything from shipbuilding to nuclear power, from heavy industry to house-building, theme parks to armaments, electronics to distribution, and even local bakeries, insurance and research institutes. Samsung is what Koreans call a chaebol, an institution with no equivalent elsewhere (1): business conglomerates, from chae, meaning wealth, and bol, meaning family or clan. “In South Korea,” Park Je-song, a researcher at the Korean Labor Institute (KLI), told me: “You are born in a hospital which belongs to a chaebol, you go to a chaebol school, you get a chaebol salary — because most small and medium enterprises depend on them — you live in a chaebol apartment, you have a chaebol credit card and your leisure and shopping activities are provided by the chaebol.” He could also have added that you get elected thanks to a chaebol, since these conglomerates fund parties on both right and left.

South Korea has around 30 chaebols, including Hyundai, LG (Lucky Goldstar) and SK (Sunkyung Group), each in the hands of a family dynasty. Samsung is the most powerful, active in hi-tech and conscious of its image — its 2012 marketing budget was around $12bn (2) — even if its family saga, with spectacular trials, quarrels, corruption and lavish expenditure, make Dallas look tame.

Three stars logo

Samsung’s history reflects that of South Korea, which has gone from developing country in the 1960s, ranked behind the more industrially advanced North Korea, to the world’s 15th largest economy today. Samsung’s founder, Lee Byung-chul (1910-1987), started at the bottom with a small business that took three stars — sam sung in Korean — as its logo. The official tale emphasises the business acumen behind his gamble on high-volume consumer goods (televisions, fridges), and then on electronics, which made his reputation at home and abroad, and his fortune. He passed on that fortune to his children, paying very little tax, and nominated one of his sons, Lee Kun-hee, as his successor.

Lee Kun-hee developed Samsung and it is now the world’s biggest producer of semiconductors (it supplies Apple), smartphones, flat screens, and televisions, and one of the world’s biggest chemical and engineering companies. Samsung is the world’s 20th largest business (3), and accounts for 20% of Korea’s GDP. Lee Kun-hee’s personal fortune is estimated at $13bn, he is Korea’s richest man and 69th richest in the world.

Not in the legend is the fact that Lee Byung-chul started his business in 1938 with the backing of the Japanese occupiers. The company grew with the help of dictator Park Cheung-hee, whose regime gave Samsung land, finance, tax breaks, and protectionist legislation. Samsung’s culture is marked by this period of the dictatorship.

Lee Kun-hee, 71, “wields absolute power over the direction of the group as well as its staff,” Park Je-song told me, “even though he owns only a tiny part of the capital” (less than 3%). In 1993 he told his entire staff: “Change everything, apart from your wives.” Almost overnight, products, working practices and management were revolutionised. The new market responsiveness created Samsung’s success and made him a legend. Two years later, he organised a bonfire of 150,000 defective mobile phones in front of shocked employees, and pictures of this were shown in all Samsung’s factories as a warning. Zero defects became the rule, and workers were to be held responsible.

Lawyer Kim Yong-cheol used to work for Samsung’s General Secretariat, the inner sanctum also known as the Reformation Headquarter Group. He says that during meetings with Lee, which can last over six hours, no employee dares drink water in case they then need to go to the toilet, which Lee has forbidden. No one speaks without his permission. Expressing doubts is unthinkable. “He’s like a dictator: when he gives an order, things happen.”

Feudal ties

For subcontractors submission is obligatory. The French director of a business in the fashionable sector of deluxe urban development, who asked to remain anonymous, told me that “to work in this country, you need someone to vouch for you. Invitations to tender for contracts don’t exist. Everything is based on trust. If it works, you have to be completely devoted to the group, obey to the letter. The advantage is that you are able to innovate, but under its protection.” Working for another chaebol or turning down an order is out of the question: “These are feudal ties.” Less prestigious subcontractors may be struck off the supplier list overnight or have their margins slashed without consultation.

Kim Yong-cheol worked “for seven years and one month” for the big boss and claims to have witnessed double accounting, slush funds for buying journalists and politicians, and secret accounts for personal use, including one for Lee’s wife, who is passionate about contemporary art. He said: “I stayed until I discovered they had opened a bank account in my name credited with tens of millions of won” (4). He quit in 2005. A commission of inquiry was set up in 2007, and Lee Kun-hee got a three-year suspended sentence, for tax fraud and breach of trust, but was pardoned by the then president Lee Myung-bak, former head of a Hyundai subsidiary. The current president Park Geun-hye took Lee Kun-hee along as a guest on her visit to the US in May 2013.

Enough was enough for Kim Yong-cheol. In 2010 he published an attack, his book Think Samsung (5), detailing the family’s excesses and corruption: “I had to provide proof I wasn’t lying.” None of the three main newspapers — Chosun, Joongang and Donga (or Chojoodong as these toothless publications are collectively known) — were willing to accept ads for the book or reviewed it. They are linked with Samsung through ads, personal connections with the family, and possible bribes. Only Hankyoreh broke ranks, and over two years lost Samsung ads as a result. But news of the book spread through social media and it sold 200,000 copies. This was a great success, but the author was still out of a job and had to return home to the city of Gwanju (a Democratic stronghold, though he called himself a Conservative), the only place he could find work. His only regret is that “the public debate never happened. Samsung called my book pure fiction.” And everything continued as before.

‘The left doesn’t dare attack the fortress’

Director Im Sang-soo chose fiction rather than documentary for his 2012 film The Taste of Money (6), dramatising the chaebols’ behaviour: the corruption, arrogance, contempt for staff, family feuds and even murders. “The chaebols enslave people. I had to show their inner workings,” he told me in Le Monde diplomatique’s Korean office. But “it wasn’t a hit at the box office.” The media ignored it and big cinemas (linked to chaebols) refused to show it: “The biggest disappointment was that the film aroused almost no interest on the left because the left doesn’t dare attack the fortress. There are two dynasties on the Korean peninsula: the Kims in the north and the Lees in the south.”

The comparison doesn’t seem far-fetched when you consider the fate of the New Progressive Party deputy Roh Hoe-chan, who lost his seat and was stripped of his privileges last February for publishing a list of people suborned by Samsung. The list had been compiled by the secret services, which, for obscure reasons, had recorded conversations between the heads of Samsung and the newspaper Joongang. The recordings revealed payments said to have been made to the deputy justice minister, a couple of prosecutors, several journalists and some electoral candidates. When word of the list started to leak, Roh asked for a parliamentary commission of inquiry, which quickly buried the scandal. Only the deputy justice minister resigned. Claiming parliamentary immunity, Roh revealed the list at a press conference, and published it on his website. Then the Supreme Court ruled that parliamentary immunity does not extend to the Internet. “It was a farce,” Roh said. “I was condemned, but no prosecutor was charged: the son of the judge in charge of the inquiry is a Samsung employee. The Supreme Court wanted to make an example. I received an amazing number of calls from ‘friends’ trying to dissuade me from continuing my fight.”

Unions not welcome

Samsung spokesman Cho Kevin denies there have been witch hunts for union members, and told me by email (it’s easier to get a meeting with a member of parliament or a minster than a Samsung representative): “There are unions in many parts of the business, and the group respects workers’ rights and upholds ethical standards.” There are house unions, but not the Korean Confederation of Trade Unions (KCTU), the forerunner of which played a decisive role in ending the dictatorship in the 1980s. According to a study by sociologist Cho Don-moon of the Catholic University of Korea (7), management tactics against unions include abduction, dismissal, threats and blackmail. Until 2011 just one union was approved in the company, and it had to be registered with the government authorities. When workers filed an application for registration, a civil servant would notify the Samsung management who might then remove the applicants for several days, enough time for its own union to be set up in the factory. Since January 2011, union pluralism has been recognised, but the KCTU is still seen as the enemy.

To meet six union members, aged between 30 and 50, I travelled to a traditional Korean inn by a lake, concealed by trees and flowers. They all work for Samsung in the Ulsan region, two-and-a-half hours southeast of Seoul by high-speed train, where they make batteries for mobile phones, LCD screens and solar panels. They had to be discreet: “It’s dangerous to meet a journalist, especially a foreigner,” they said. As members of the KCTU, they live in semi-secrecy.

Getting rid of problems

They are all classed as “MJ”, standing for moon-jae, the Roman alphabet transcription of the Korean word for a problem. “In every section,” one said, “there are people responsible for spotting MJs, harassing them, buying them and stopping ‘contamination’.” Another said: “If someone has a drink with an MJ at a party, he (or she) is immediately summoned by the management and asked what he heard and what was said. Even in the canteen it’s not a good idea to sit with an MJ.”

They face sanctions: only one has kept his job on the production line. One has been transferred to a solo office where he looks after the factory’s charity work. Another has been placed in a carefully monitored supply department. When I asked what the fourth man did, everyone round the table laughed: “Nothing. I literally do nothing. I used to be a worker; now I’m alone in an office with nothing to do.” He was laughing, but he’s been seeing a psychiatrist. Management wanted to send one of the others on a “compulsory course” lasting some months in Malaysia, but he refused and is now awaiting sanction. The sixth man was sacked four years ago without the possibility of appeal.

I met other MJs in Suwon, Samsung’s flagship town in a Seoul suburb. Cho Jang-hee, formerly a restaurant manager at the Everland theme park, and two colleagues (a fourth co-founder was absent) set up a union affiliated to the KCTU. All previous attempts to unionise had been thwarted: some potential members were promoted, some received money to pay for their children’s education, and others caved in to pressure. “Suddenly, colleagues no longer dare look at you. They don’t speak to you,” Cho said. “There were even training sessions in which managers explained that we were hooligans endangering the business.” They were followed and filmed. Their telephones were bugged and their families threatened. But they held out.

Their influence is small: the union has only 11 members who are “out” and 68 secret members, out of a workforce of 10,000. There is no chance they will be elected to the partnership councils created by the company to defuse union activity, half of whose members are management and the other half management-approved workers. Even so, for the first time the KCTU has a legal status at Samsung, although that is ignored. Cho paid for his union activities by losing his job. The two co-founders present that day were suspended for three months and transferred to different restaurants to “keep them apart”.

The trade unionists I met acknowledged that for full-time workers salaries are adequate — higher than in other chaebols. However, those on short-term contracts earn 40-60% less, sometimes for identical jobs; they have no protection, no bonuses and can be laid off during slack periods (8). Whether they are employed by Samsung or by subcontractors, they represent according to estimates (there are no official figures) between 40% and 50% of the workforce. Over-50s, including managers, are encouraged to quit because they cost too much. Working conditions are difficult for everyone: the shifts are very long, the pressure intense and accidents frequent. In January 2013 a contract worker died after a hydrofluoric acid leak at a Hwaseong factory near Suwon. From the outside, Suwon gives no hint of danger. Lee Kun-hee built his digital city carefully over three districts, Hwaseong, Giheung and Onyang. The assembly of pure white cubes, elegant glass apartment blocks and well-maintained lawns is like a university campus. At each end there are dormitories: the women’s accommodation blocks are more striking since female workers outnumber men, who look after maintenance and supply. Young people come here from all over Korea to manufacture semiconductors.

Eat, work, sleep Samsung

Every year, Samsung managers seek out new recruits at colleges in the provinces, where teachers preselect candidates for them. Everyone says there are more applicants than jobs. Samsung has a good reputation and salaries are relatively high at around $2,700 a month, a fortune for a first job when the minimum wage is just $800. “Because I work at Samsung,” a woman told me, “I can help my parents and prepare for my marriage.” But dreams often evaporate in the white production rooms, which look like a futuristic high-security environment, but conceal medieval work practices.

Six days a week, they work at least 12 hours, after which they are expected to do charity work to foster solidarity. They may then have to return to work before bedtime. On the seventh day, most workers are too exhausted to go home to their families. “You get up Samsung, eat Samsung, work Samsung, talk Samsung, sleep Samsung,” said one woman who was glad to have got out after saving a small nest egg and finding a less stressful job.

The women are allowed to go out in the evening. “This isn’t China,” a former manager with the company said, although he admitted it was frowned upon. If they return after the midnight curfew, they get a red card, only cancelled after they participate in approved charity activities.

Workers are so tired that breaches of discipline are rare. Female workers look like astronauts in their protective suits, which leave only their eyes visible, but they resist turning into robots. Make-up is forbidden, but they wear false eyelashes. They find ways to wear this headgear elegantly, according to the documentary film director Hong Lee-kyong, who filmed a group of them for three years after they left the factory (9). They were strictly forbidden to talk about it while they were employed.

But false eyelashes are the only concession to fantasy. “We worked in a state of fear,” the woman who left told me. Fear of making a mistake. Fear of not coping. Fear of falling sick. Semiconductor production involves a lot of chemicals, highly dangerous gases and electromagnetic fields. The women have to dip components in a series of tanks in quick succession, checking constantly so as not to make a mistake. There are safety measures — on paper — but there were two hydrofluoric acid leaks between January and May this year at the Hwaseong complex. The ventilation systems don’t always work. And workers themselves sometimes open the safety valves so as to be able to work faster. Though not paid at piece rates, they feel responsible for overall output.

Under such pressure, workers don’t last more than four or five years. They either find another job or return to their parents and get married — only 53.1% of Korean women work (10). Some die. Hwang Yumi, 22, died in 2007 after four years at the Giheung plant. Her father Hwang Sang-gi, a taxi driver in the provincial city of Sokcho, remembers every moment of the cancer that destroyed her over months. He has become the embodiment of protest. Even though, as he says, he “doesn’t talk as well as the Samsung bureaucrats,” and has been threatened and offered money to shut him up, he has never given up. The authorities have acknowledged his daughter’s cancer as work-related but Samsung still denies it. He is protesting for her and all those who are still dying.

Lawyer Lee Jong-ran said many worker illnesses were caused by toxic substances: “The manufacturers say there is nothing to worry about, but none of them want to give an exact list of what products are used, citing commercial sensitivity. And these young people are dying in secret.” With Dr Kong Jeong-ok and the Supporters for the Health and Rights of People in the Semiconductor Industry (Sharps), Lee Jong-ran has traced 181 former Samsung employees suffering from a variety of conditions (leukaemia, breast cancer, multiple sclerosis) since March 2012. For many Samsung specialists, these work-related conditions were an open secret. But toxic gas leaks from Hwaseong, just ten minutes from the luxury apartments of Suwon, meant concerns had to be taken seriously. The Ministry of Employment and Labor carried out a special inspection at the Hwaseong plant and found more than 2,000 violations of the Occupational Safety and Health Law. The management then promised to tackle the situation. When, after many months of proceedings to get a specific case examined, the public compensation agency mandated by the authorities opened, its commission included a Samsung doctor who had the deciding vote (11).

Facts and figures

Turnover: $247.1bn

Net profit: $18.3bn

Number of employees: 369,000 (40,000 in research)

Global share of mobile phone market: 29% (Apple: 22%)

Major subsidiaries: Samsung Electronics (mobile phones, semiconductors, LCD screens, solar panels), Samsung Heavy Industries (shipbuilding, oil rigs), Samsung Techwin (security, armaments), Samsung Life Insurance, Everland (theme parks), The Shilla Hotels and Resorts, Samsung Medical Center, Samsung Economic Research Institute

Main foreign manufacturing locations: China (mobile phone assembly), Malaysia, Vietnam

Sources: Samsung Official Report, Quarterly Worldwide Mobile Tracker, IDC, 2012
Martine Bulard is deputy editor of Le Monde diplomatique
(1) See Laurent Carroué, “Korean workers take on the dragon”, Le Monde diplomatique, English edition, February 1997 and Jacques Decornoy, “Délicate fin de guerre dans la péninsule de Corée” (Tricky armistice on the Korean peninsula), Le Monde diplomatique, November 1994.
(2) Benjamin Ferran, “Samsung a dépensé 9 milliards en marketing” (Samsung spends €9bn on marketing), Le Figaro, Paris, 14 March 2013.
(3) “The Forbes Global 2000”, Forbes, New York, May 2013.
(4) 1,000 wons are worth around $0.88.
(5) Only in Korean.
(6) Available from Wild Side Videos, Paris.
(7) Cho Don-moon, “Samsung’s anti-union strategy: The story of the workers’ struggle to create a union” (in Korean), 2012.
(8) See Jean Marie Pernot, “Des luttes syndicales pour la démocratie” (Union struggles for democracy), Chronique Internationale de L’IRES, no 135, Paris, March 2012.
(9) Hong Lee-kyong, Shameful Empire, Purn Production, Seoul, 2013.
(10) The OECD average is 56.7%.

3 comments:

Anonymous said...

An eye-opener!I learnt so much about South Korea and its society that I otherwise would not have ever known.

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