THE INDUSTRIALISATION OF SOUTH KOREA 1998 – 2008 Shock and Restructuring

Kim Dae-Jung was elected president on 18 December 1998 in the midst of the economic crisis, narrowly defeating the conservative candidate Lee Hoi-chang. It was notable that a politician regarded as a subversive by the military could be peacefully elected. Kim was in his seventies, it was the fourth time he had stood for the presidency. His regional support from Cholla was important in getting him elected.

Kim facing the crisis began negotiating with international financial officials before his inauguration. Kim’s job was made easier because the severity of the crisis created a national consensus for reform.

Kim’s stated aim was to break the traditional coalition between the chaebol and the government. Both Korean and foreign experts advised breaking up the chaebol to become focussed on ‘core’ businesses with less diversification. They also advised the need for increased banking transparency, and the need for greater ‘labour market’ flexibility.

The belief was that chaebol duplicated investment in the same industries creating national overcapacity. In the past reform of the chaebol had met resistance from politicians concerned about the jobs and investments of their constituents. The banks felt they could not afford to let the chaebol fail or they would be dragged down with them, so they had continued to extend credit. As chaebol financial accounting was opaque it was difficult for outsiders to see which activities were genuinely profitable.

In the early stages Kim’s administration made real progress in the reforms. Some banking consolidation took place, and some chaebol restructuring took place. The ROK government and liberal economists viewed the internal transfers of money and resources within the chaebol as a source of inefficiency and potentially a mechanism by which failure in one business unit could be transmitted to otherwise healthy businesses. Thus both the ROK government and the IMF favoured the weakening of these internal transactions with the chaebol. Such internal transactions took two main forms:

  • Internal Financial Transactions
  • Non-Financial Transcactions (affiliates using each other’s facilities, staff, supplying each other with raw materials, components or other intermediates.)

Key to internal financial transcations were ‘Affiliate Payment Guarantees’ (APGs). These were when a large affiliate of a group (Churyok Kiop), with ready access to bank credit guaranteed loans made by banks to smaller affiliates (Chahoesa). The larger affiliate was then held liable by the bank for any loses. The practice had been blamed for enabling groups to amass very high debt to equity levels. Some of the industrial groups which went bankrupt in the run up to the IMF crisis such as Hanbo, Sammi, Jinro and Kia, had higher levels of APG liability than others in the top thirty chaebol. This form of financial linkage can mean that collapse of an underperforming affiliate can drag down the genuinely profitable affiliates.

Reducing APGs was not just a government policy, but was a criterion set by the IMF for lending. The ROK government prohibited these for new loans from April 1998. The intention was also to reduce existing APG liabilities, aiming to eliminate them entirely by the new century. Financial penalties were to be imposed for APG liabilities in excess of 100 percent of equity.

Internal Share & Commercial Paper Trades, the result is cross-subsidisation, e.g. affiliates with financial difficulties have been able to sell equity or other commercial paper to the more profitable affiliates. These activities are monitored and punished by the Fair Trade Commission. Since the IMF Crisis the FTC has levied fines on chaebol carrying out this practice. The ROK government also started to demand consolidated financial reports from the chaebol to show the overall group debts.

The new Kim Dae-jung government had aims to restructure the chaebol to prevent excessive horizontal diversification, by making each group focus on ‘core businesses’. The idea may have been that overcapacity resulted from too many chaebol entering the same fields, e.g. steel production, electronics, a ‘me too effect’. Another idea might have been that cross-subsidisation of businesses lead to inefficiencies and the kind of ‘asset growth’ focussed capitalism, not properly focussed on profitability, ‘profit maximising’ capitalism.

It was a policy of ‘consolidation’. Groups would divest themselves of non-core affiliates which could be merged with those of chaebol with the same core interests, thus consolidating the industry. There was also the intention of replacing the traditional family management approach, with modern professionalised managers. This policy became known as the ‘Big Deal’.

In one set of plans from October 1998, described by an FKI publication Hyundai Electronics Industries should merge with LG Semiconductor Co. to form Hyundai Electronics. In power generation equipment, Samsung Heavy Industries Co. should be absorbed by Korea Heavy Industries & Construction Co. In chemicals Hyundai and Samsung’s interests were to be merged into a new company outside traditional chaebol family control, and under some professional management, and in oil refining Hyundai would absorb Hanwha’s interests. In aircraft manufacturing the interests of Samsung, Daewoo and Hyundai should be merged and removed from chaebol control with new professional management. In the manufacture of railway locomotives the interests of Daewoo and Hanjin were to be merged into a new independent company. While in the case of ship engine production Samsung’s interests should be absorbed into Korea Heavy Industries & Construction Co.

One of the first of the deals to have gone through, the biggest, was the sale of LG Semiconductor to Hyundai Electronics in May 1999, which was renamed ‘Hynix Semiconductor’ in March 2001. It was spun off from the Hyundai group in August 2001. The new company soon faced problems with falling demand for their semiconductor products, and had to sharpen its focus to a narrower range of higher value added semiconductor products. The company also tried to improve profitability by divesting itself of a basketball team and a water treatment concern.

Many liberal economists lauded the intentions of the ‘Big Deal’, though many observers expressed doubts about the ability of the Kim administration to deliver. Some analysts were doubtful of the benefits, fearing reduced competition and increased vulnerability of Korean industry to export market conditions. Some such analysts suggested that vertical disintegration would be more beneficial for the Korean economy than horizontal disintegration.

The ten biggest chaebol in 1997 were in order of decreasing sales; Hyundai, Samsung, LG, Daewoo, SK, Ssangyong, Kia, Hanwha, Hanjin and Lotte. Of these, four went bankrupt during the crisis: Daewoo, Kia, Ssangyong, & Hanwha. The second tier chaebol were more severely affected by financial problems than the top ten, with nine of the groups between tenth and thirtieth position going bankrupt.

At its peak just before the Asian Financial Crisis of 1998, Daewoo was South Korea’s second largest chaebol, with principal operations in:

  • Trading
  • motor vehicles
  • shipbuilding
  • heavy industry
  • aerospace
  • consumer electronics
  • telecommunications
  • financial services.

The company was comprised of 25 subsidiaries, linked together in a complicated system of cross holdings. The major company in the group was “Daewoo Corporation”, which was licensed as a general trading company (GTC) by the Korean government in 1975. Daewoo had a network of over 100 branches worldwide, with some 3,500 different products traded in over 130 countries.

There were about 20 divisions within the “Daewoo Group”, including: vehicle manufacture, firearems and autoparts, electronics, textiles, heavy machinery, DSME, financial securities, telecoms, trading and Hotels. In addition the group had an integrated R&D centre.

The late nineties and early twenty first century were a critical period for Daewoo, with Kim’s bribery conviction and possible jail sentence. Also Daewoo and the other chaebol faced the possibility that the Korean government would intervene to reduce their power, which was beginning to be seen as impediments to the country’s economic progress.

Also Korean reunification, which was sure to profoundly affect the entire nation’s future, seemed ever more likely and Daewoo had in 1995 become the first South Korean company allowed to enter into joint ventures in the north. These prospects, combined with the company’s massive commitment to overseas expansion and a continuing heavy debt load, added up to a very uncertain future for the Daewoo Group.

Following the 1998 Asian Financial Crisis, “Daewoo Group” was dismantled by the Korean Government in 1999. Some of the above affiliates still survive today as independent companies. By the mid-1990s Daewoo was firmly entrenched in what Kim Woo-choong dubbed the “Vision 2000” plan, his ambitious program intended to position the company to become one of the top ten car manufacturers in the world.

The company’s expansion into Eastern Europe seemed savvy as the region’s emerging democracies could provide the car manufacturer with cheap labour, and as the market for affordable, utilitarian automobiles in the former Soviet Bloc was experiencing precipitous growth. Indeed, in Poland alone, sales of cars and commercial vehicles were projected to reach 534,000 in 1997, up from 426,000 in 1996 and 296,000 in 1995. As late as March 1999, Daewoo was poised to overtake Fiat as the leading car manufacturer in the Polish market.

By the end of the decade, however, it was becoming apparent that Mr. Kim had bitten off far more than his company could chew, as his plan to grab up market share at a loss and recuperate the investment later was not panning out. While the company was poised to meet its goal of manufacturing two million cars by 2000, the financial crisis of 1997-98 in developing countries had caused car sales to fall well short of projections, and none of Daewoo’s foreign operations were actually making a profit.

Furthermore, Daewoo had accumulated colossal debt over the course of its overseas automotive expansion, which compromised the stability of its other operations, including shipbuilding. By July 1999, the company owed its creditors more than US$50 billion. The company’s perilous financial situation was further exacerbated by the recession that hit South Korea in 1998, the country’s worst economic slump in nearly half a century.

In spite of these warning signs, Mr. Kim did not desist from his aggressive acquisition strategy. While other chaebol had begun implementing measures to slow growth in the midst of the country’s fiscal crisis, Kim Woo-choong persevered with his ill-advised program, acquiring 14 new companies and increasing the company’s debt by 40 percent in 1998.

In April 1998, recently elected South Korean President Kim Dae-jung had pledged to be the first South Korean president to implement significant reform of the chaebol system. As the country’s most financially unstable chaebol, the Daewoo Group soon became a prime target for these reforms. On August 16, 1999, Daewoo’s creditors announced a government-mandated plan to break up the company. Faced with bankruptcy, Kim Woo-choong agreed to step down as head of the Daewoo Group in November 1999, and the South Korean banks took control of the bulk of the chaebol‘s assets with plans to sell them off as quickly as possible.

In the aftermath of the company’s collapse, charges of wide-ranging accounting fraud and embezzlement began to emerge, and Kim Woo-choong became a fugitive from justice, going into hiding in numerous countries, including Morocco, France, and the Sudan. In the early years of the twenty first century, however, the South Korean government remained reluctant to pursue Mr. Kim, amid insinuations that it had been complicit in the reckless expansion policies through which Kim Woo-choong overextended the Daewoo Group so flagrantly. In a 2003 interview with Fortune magazine, Mr. Kim lamented his unrealistic ambitions to grow the Daewoo Group so quickly, but denied all charges of corruption in his business practices.

The group was reorganised into three smaller ones:

  • “Daewoo Corporation” (electronics only, changed to “Daewoo Electronics”)
  • “Daewoo Engineering & Construction”
  • “Daewoo International Corporation”

These three are active in many markets, e.g. steel Processing, shipbuilding and financial services. Many former Daewoo subsidiaries and divisions have become independent companies, some were put out of business by President Kim Dae Jung’s reorganisation of chaebol.

In the early twenty first century only six companies remain with the Daewoo brand name:

  • “Daewoo Electronics”
  • “Daewoo Engineering & Construction” (construction company)
  • “Daewoo International Corporation” (trading & investment)
  • “DSME” (Formerly “Daewoo Shipbuilding & Marine Engineering”)
  • “S&T Daewoo” (small arms manufacture)
  • “Tata Daewoo Commercial Vehicle” (commercial vehicle maker, now 100 percent owned by Indian industrial group, Tata)
  • Busan based “Daewoo Bus Corp.”, now owned by Young-An Hat Co. in alliance with GM Korea.

By the time Kim Dae-jung was president, the Hyundai Group was responsible for approximately twenty percent of Korea’s GDP. As such, its financial health was directly related to South Korea’s overall economic condition. As a result of government pressures, Hyundai and other South Korean chaebols, including the Daewoo Group, set plans in motion to sell off many of their businesses in order to pay down debt and shore up profits. Hyundai’s concentration remained on autos, electronics, heavy industry, construction and finance. Even as the group struggled under its debt load, it strengthened its holdings with the purchase of “Kia Motors Co. Ltd.” And “LG Semiconductor”.

Despite the government’s involvement, Hyundai was slow to comply with restructuring demands. Its questionable accounting practices often made it the target of negative publicity. Rivalries between members of the founder’s family also led to bad press, leaving many investors anxious about the future of the group and its member companies.

Indeed, many Hyundai affiliates, including “Hyundai Engineering & Construction” and “Hyundai Electronics” were nearing bankruptcy as debt continued to spiral out of control. By 2001, total group debt reached W35.87 trillion (US$ 25.59 billion).

“Hyundai Motor Co.”, on the other hand, was prospering as Korea’s largest car maker. The auto concern officially separated from the “Hyundai Group” in September 2000, signalling the start of sweeping changes that led to the eventual dismantling of what was once South Korea’s largest conglomerate.

In August 2001, nine core Hyundai companies, including “Hyundai Engineering & Construction” and “Hynix Semiconductor Inc.” (formerly known as Hyundai Electronics Industries),  left the chaebol. The separation cut Hyundai Group’s assets to just US $20.8 billion and left it in control of eighteen member companies. By 2001, much of the Hyundai Group had been dismantled.

Hyundai continued to be pared down in 2002. While this marked an end to the Hyundai Group’s history, it pointed to a fresh start for many companies bearing the Hyundai name. As of February 2007, these are the affiliated companies of the Hyundai Group

  • Hyundai Construction Equipment India Pvt. Ltd.
  • Hyundai Asan
  • Hyundai Elevator
  • Hyundai Logistics
  • Hyundai Merchant Marine
  • Hyundai Securities
  • Hyundai Research Institute
  • Hyundai U&I
  • Hyundai Welding
  • Hyundai Power Equipment (UK)

In the mid-nineteen nineties “Ssangyong Cement” faced a stagnant South Korean economy and slow growth. Though Singapore had been a key growth market for Ssangyong, it, too, was experiencing a slowdown in the construction market. In 1995 Ssangyong Cement constructed a plant to manufacture fine ceramics. In South Korea, the domestic market was expected to expand only 5 percent between 1996 and 2000.

In response, “Ssangyong Cement” aimed to expand in various regions of China, particularly Shanghai, which was undergoing modernization. The company also planned to build a cement plant in Vietnam, where demand for its products was anticipated to grow.

Being involved in so many industries and businesses inefficiency grew. Coupled with the sagging South Korean economy, Ssangyong’s debts rose, and by 1997 Ssangyong was in serious financial trouble. The group’s debts were estimated to total about W 12 trillion (US$7.5 billion), with “Ssangyong Motor” accounting for some W 3.4 trillion.

In 1997 the company underwent major restructuring. It planned to focus on cement and oil refining as its two main areas of operation and to shed unprofitable businesses. Company President Kim Duck-hwan is quoted as saying “We have to focus on profit, not face.”

“Ssangyong Cement” became the “Ssangyong Group’s” anchor unit, while in October 1997 as part of the restructuring effort, Ssangyong sold its profitable Ssangyong Paper to Proctor & Gamble for US$ 47 million (80 bn W). It sold a loss making Ssangyong Motor Co. to Daewoo which assumed the debts (505 bn W loses & 3.4 trillion W in debt). Further it divested from Ssangyong Heavy Industries, Ssangyong Precision Industry Co., Ssangyong Engineering Co., and some other interests in the insurance, securities, and oil refinery units.

In May 1998 it was announced that shares in Ssangyong’s cement plants were for sale. Ssangyong Group hoped to raise US$1 billion through foreign investments by the end of 1998. In 1998 “Riverside Cement” was sold to “Texas Industries, Inc.” for 56 bn W. In 1999 “Ssangyong Oil Refining Co.” was sold to “Aramco”.

While Ssangyong worked to right itself financially, cement production continued to grow. In 1999 “Ssangyong Cement” announced that its cement exports would rise 300 percent compared to 1998 to reach a total of 3.5 million tons. In 2000 “Ssangyong Cement” spun off its resort development unit into a separate entity, “Yongpyong Resort Co.”, then sold half of it to “Pan Pacific Resort Investment II” for W 100 billion (US$88.4 million).

In 2000 Japan’s “Taiheiyo Cement Corp.” acquired a 29 percent stake in “Ssangyong Cement” to become the largest shareholder. An agreement to combine forces in cement production and distribution and to share managerial powers was also made. The combined production capacity of the two companies totalled 55 million tons per year, making it the fifth largest cement manufacturer in the world.

In October 2001 the restructuring of Ssangyong Cement’s debts was finalised. The company’s creditors, which included “Chohung Bank” and “Korea Development Bank”, agreed to W 200 billion (US$152.9 million) in new loans and a debt to equity conversion of W 1.7 trillion.

In 2002 the company was able to make a profit. For the fiscal year ended December 2002 Ssangyong Cement reported a net profit of W 65.2 million, a significant improvement over the net losses of W 985.8 billion in 2000 and W 462.5 billion in 2001

In 2002 Ssangyong Cement exited Singapore by selling its stake in Ssangyong Cement (Singapore) Ltd. to “Afro-Asia”, a shipping company. As Ssangyong Cement had anticipated, the cement market in Singapore had declined. Increasing competition also cut into the Singapore unit’s profits.

In 2003 the company was still the largest producer of cement in South Korea. It manufactured a quarter of the cement produced in ROK. Its cement exports accounted for about half of South Korea’s cement exports. In addition to focusing on its core materials of ready-mixed concrete, ferrite magnet and ceramics, Ssangyong Cement also planned to expand into the environmental industry with the development of wastewater disposal systems and recycling options.

The collapse of Korea’s economy, and the implosion of its banking industry, also brought the Hanwha Group up short. Hanwha’s policy of financing its unbridled expansion through debt had seen the company build up a debt-to-equity ratio of a whopping 1,200 percent. Both the “Hanwha Merchant Bank” and the “Chungkong Bank” folded, forcing a Korean government bailout. Hanwha itself now faced a government-imposed break-up.

In 1997 Hanwha thus began a companywide restructuring. Kim rushed to restructure the company, selling off more than a dozen of its most profitable businesses, including its flagship “Hanwha Energy”, manufacturing group “Hanwha Bearing”, and manufacturing group “Hanwha Precision”

The company began consolidating some other holdings and shutting down others. In 1998 it shut down its newspaper operation, which had lost more than US$350 million since becoming part of the group. Perhaps most painful for the “Hanwha Group” was the sale of its control of “Hanwha Energy” to “Hyundai” in 1999, which deprived the group of what it had come to consider as its core business. However, as Kim told the “Korea Herald”: “I was actually bitter about selling flagship companies, but I just emptied my mind of any desire for managerial rights, while turning a blind eye to all dignities as a tycoon.

By the end of the decade, Hanwha had completed its restructuring and now set out to identify its growth objectives for the new century, targeting a return to the financial market and a new role in the high-technology sector. In 2001, the company, in partnership with the city of Daejon and the “Korea Development Bank”, launched construction of Daedeok Techno Valley. An entire city devoted to developing businesses in the high-technology sector. It was hoped that Daedeok would grow to rival California’s Silicon Valley as a force in the world technology market. Construction was scheduled to proceed in five phases, with the final phase to be completed in 2007.

In September 2002, the ROK government agreed to sell a 51 percent stake of the state owned “Korea Life insurance” business to “Hanwha” for more than KW 1 trillion (US $770 million), which beat out a rival bid from US based “MetLife”. Their first bid had been unsuccessful, but then “Hanwha” raised its offer and agreed to a three-year moratorium on arranging any part of “Hanwha’s” financing through “Korea Life”. Thus the group restructured itself as a financial and high technology group. By the end of 2003 the addition of “Korea Life” raised the group’s ranking among Korea’s top companies, giving it the eighth position.

In 2003, the Korean government launched a crackdown on corruption, Hanwha found itself accused of misrepresenting its profits by as much as US$800 million in order to secure its “Korea Life” bid. This was followed by an accusation that “Korea Life” had agreed to rollover a pre-existing loan to Hanwha into preferential interest rates, violating terms of the acquisition agreement.

In 2003 Hanwha faced three separate charges as part of the government crackdown on corporate corruption. Corruption probes had by then resulted in the arrest of a number of top Korean business leaders, and the government’s focus was said to be targeting “Hanwha” in late 2003, in September, accusing “Hanwha” of being part of a slush-fund scandal between “Daewoo Construction” and “Kangwon Casino”.

In 2004 “Hanwha Group” was still one of South Korea’s top ten chaebols, led by chairman Kim Seung-yeon, son of the company’s founder. It had diversified holdings stretching from explosives to retail to financial services and beyond. The group was operating through a complex network of subsidiaries, many of which are publicly listed entities, including flagship company “Hanwha Energy Corporation”.

Hanwha’s operations were grouped under five major divisions:

  • Manufacture/Construction (explosives, polymers and materials, health & beauty products)
  • Distribution/Leisure (Galleria Department Stores, holiday resorts)
  • Finance/Trade (insurance and other financial services)
  • SI/Communication (advertising and e-commerce)
  • Sports (“Hanwha Eagles” baseball team)

The Korean government supported the business groups during the sixties and seventies through low interest rate loans, provided by the Korean Development Bank and the commercial banks. Because of the below market rates, the banks were forced into the position of rationing loans, as demand from the chaebol exceeded supply at these interest rates. This policy was implemented by having each of the top 50 chaebol assigned to specific commercial bank called the “principal transactions bank,” which monitored the loans received by the group. The top 30 chaebol each had an upper limit on loans.

These regulations were loosened in 1991, so that up to three major corporations within the top 30 chaebol were no longer subject to credit controls. Loans extended by overseas branches of Korean banks were also exempted from controls. In addition, the non – bank financial institutions (especially the merchant banks) were entirely outside this system of regulation, so their loans to the chaebol were not monitored.

As part of liberalization measures, banks were allowed to open and expand operations of overseas branches, and the foreign currency liabilities of domestic and foreign branches both roughly doubled from 1994 to 1996. The increase in external debt of the financial sector over this period exceeded that of the corporate sector.

In between the chaebol and the commercial banks were the merchant banks, which acted as financial intermediaries and a source of funds for the chaebol. In contrast to Japan, where many of the keiretsu have a bank at the centre of the group, commercial banks in Korea are legally prohibited from being a part of the chaebol. The merchant banks played this role instead, and in fact, all but three of the top thirty chaebol owned one or more such non – bank financial institutions in 1996.

The merchant banks were not as tightly regulated as the commercial banks and engaged in a couple of risky activities. Firstly, although both commercial and merchant banks borrowed foreign currency on a large scale, and failed to hedge for devaluation risk, the Won being considered safe, proportionately the exposure of the merchant banks to devaluation risk was much higher compared to their size.

Secondly, the merchant banks issued commercial paper on behalf of the chaebol, that is short-term, ninety day, promissory notes. These are inherently risky for both purchaser and seller. The purchaser faces a default risk, while the seller has no option of rolling repayments over. In many developed countries such commercial paper is normally only acceptable from the very most credit-worthy firms.

This financial arrangement amplified the risks if the chaebol got into difficulties. This was particularly true for the ‘second tier’ chaebol, excluding the biggest five. These five had been able to secure loans abroad. The next twenty five in size remained dependent on the domestic merchant banks to raise finance. The merchant banks had long repayment times on the loans they made to the chaebol, but short repayment times on the promissory notes they sold and on their short-term foreign borrowing. When the Commercial banks heard rumours of the lack of financial health of a chaebol they no longer wanted to buy the commercial paper. This immediately impacted on the merchant back, and dried up the source of funding for the chaebol. Many of the groups that went bankrupt during the run up to the crisis were in this category.

In 1998 immediately after the crisis many Merchant banks were closed down. Their relationships with the chaebol, often acting as agents of the chaebol, was seen as a problem. Despite the closures chaebol equity ownership of NBFIs actually increased following the crisis.

Analysts have attempted to explain why the commercial banks were not concerned about the risks of this type of transaction with the merchant banks. Some have suggested a long-term culture had developed in which financial institutions subordinated their own commercial considerations in favour of government policy, and maybe even had not developed the expertise to assess such risks on a strictly commercial basis.

Thus following the crisis attempts were made to bring the operations of commercial banks up to international standards. Some analysts have suggested that political influences of the government, whether formal or informal, were in fact what needed to be curtailed if these banks were to operate on a genuinely commercial basis.

In response to foreign pressure the stock market and real estate markets were opened more to foreign investors. Foreign companies were allowed to take over Korean ones, including through hostile takeovers. This was a radical break with the past. By 2003, foreign investors owned over a third of the shares of companies listed on Seoul’s stock exchange.

There were negative consequences unemployment rose from 2 percent to 8 percent in a country with little social security net. Most households had only one breadwinner. Kim made an agreement with the unions to accept layoffs and pay cuts. However as early as late 1998 labour unions already began resisting further layoffs. A ‘Tripartite Presidential Panel’ of labour, capital and government agreed on reductions in weekly working hours from 44 to 40 hours to start in 2001.

In Korean society the shame of being unemployed was an important issue. The suicide rate increased by 50 percent. The ‘nosukja’ appeared as a social phenomenon, unemployed men who slept rough, for example in subway stations rather than go home jobless. The number of women turning to prostitution increased to one million. Some layoffs were accompanied by industrial violence.

The massive economic shock of the IMF crisis was to act as a catalyst to the sudden expansion of the welfare state in South Korea. The outcome was that the ROK was from then on left with the framework of a modern western style welfare state, albeit one which lagged behind the others somewhat. Along with liberalisation and greater openness to foreign capital, a swelling welfare system was a sign of the structural transformations the country underwent following the crisis. This development reflected changes in society which had been accumulating in the preceding decades and the need to adjust to these.

One of the most important changes to the welfare system was the addition of a major national social assistance programme. Due to the high unemployment levels in the wake of the IMF crisis the whole system of ‘poor relief’ was transformed completely into a modern public assistance system called the National Basic Livelihood Security System (NBLSS). The NBLSS provides the poor with benefits for, medical care, education, housing, and living allowances

In 1999 unemployment rose to the unprecedented level of 8.4 percent. This created a political climate in which civic groups and labour unions could campaign successfully for an NBLSS in spite of strong opposition from conservative elements, even inside the ‘Ministry of Health Welfare’. The support of President Kim Dae-jung also meant the time was ripe. The new system came into effect in 2001, and led to a rapid expansion in the number of welfare beneficiaries, and a concomitant increase in government welfare expenditure.

The so-called ‘demographic criteria’ which previously regarded all people of working age, namely 18 to 60, as able to work and thus disqualified from benefits was dropped. A new innovation was that the NBLSS could provide retraining opportunities, and even small loans to help people establish their own businesses. In addition a government committee was set up to determine an ‘official’ Minimum Living Cost, against which benefits could be targeted.

In 2001 the NBLSS came into effect, but the number of beneficiaries remained static at 1.4 million, that is 3 percent of the population. Even so it led to a rapid rise in social assistance spending due to the large increase in the number of beneficiaries receiving living allowances, housing benefits and medical assistance. Although ‘senior citizen allowances’ still only targeted the poorest, and the benefit levels provided were only ‘modest’, the number of people covered more than doubled from 252,000 in 1997 to 594,000 in 2002 as a result of introducing the system.

In 1998 there were amendments to the Employment Insurance law. From 1998 to 2000 coverage was extended to all workplaces employing one or more workers. The number insured rose from 4.3 million in 1996 to 7.2 million in 2003. The weekly hours minimum for part time workers was reduced to 18 hours, and temporary and daily employees only had to have been employed for one month to be eligible.

The EI scheme became more generous as the minimum contribution period was reduced from 12 to 6 months. The job seeking allowance was raised from 50 percent of the minimum wage to 90 percent. In addition the duration of benefits was extended from 30 to 210 days to 90 to 240 days.

In 2001 the number of maternity leave days was raised from 60 to 90. Financed by the employer, it was decided the extra 30 days should be covered by EI. There were plans for the government to start fully financing maternity leave from 2006.

From 1998 to 2000 coverage of the Industrial Accident Compensation Insurance (IACI) was extended to all workplaces employing one or more workers. The number insured rose from 8.1 million in 1996 to 10.5 million in 2003. A number of changes were brought in with the minimum level of compensation for suspended employment being increased. Nursing allowances following medical treatment were also introduced for those needing such assistance.

In 1998 the National Health Insurance (NHI) system was unified under President Kim Dae-jung’s health care reform. The numerous different medical insurance societies were incorporated into a national single payer system with one fund managed by a public agency. The introduction of a single rate contribution system made contribution rates more equal for rich and poor.

During the IMF crisis in 1997to 98, in response to shortages of government funds, the benefit level of the National Pension Scheme (NPS) was reduced from 70 percent to 60 percent of final earnings. However in 1999 in response to the repercussions of the IMF crisis coverage was greatly extended to include the urban self-employed, employees of SMEs, and so-called ‘non-standard’ workers, meaning temporary employees. The system thus became nominally ‘universal’.

The NPS provides both a basic flat rate component for all those covered, plus an earnings related component to the benefit paid. Technically it counts as a social insurance system though, because entitlement is dependent on contributions. The minimum contribution period for the NPS was reduced from 20 to only 10 years following the crisis.

In 2001 a change was made to help many workers in SMEs, and ‘non-standard’ workers to get help with contributions to the NPS and NHI. Many such people were classed as ‘individually insured persons’ and had to pay the full contribution from their own income. As they were generally on low incomes such people were often inadequately covered, and often failed to make contributions. This was unlike permanent employees who were classed as ‘workplace based insured persons’ and only paid half the contributions, the employer paying the other half. In 2001 the government began a project to convert eligible ‘individually insured persons’ to ‘workplace based insured persons’. The number insured rose from 7.8 million in 1996 to 17.2 million in 2003.

From 1997 to 2002 the number of people employed in social services and public assistance approximately doubled. For example from 1990 to 2004 the government budget for services for the elderly increased over ten-fold. The number of medical care facilities for the elderly tripled from 1997 to 2002. The social changes were expected to create increasing demand for public social services.

The expansion of state welfare programmes from the mid-nineteen nineties to 2001 led to a substantial increase in government social expenditure. From 1996 to 2001 expenditures in all the major programmes more than doubled. During the same period social assistance spending tripled. The share of total welfare spending in GDP rose from 5.29 percent in 1996 to 8.7 percent in 2001.

This sudden great expansion in welfare expenditure reflected three trends in the system, the extension of coverage, the addition of a substantial social assistance programme to the social insurance programmes, and a broadening of eligibility criteria. It would seem that following the IMF crisis South Korea has moved to a more extensive ‘welfare state’ approaching those of the west and Japan than existed before.

Following the crisis the Won settled at a rate to the US dollar half what it had been before. Imported foreign goods and foreign travel declined. However a rise in exports due to the weaker Won meant ROK was able to pay off its emergency loans faster than expected by creditors. GDP growth was 10 percent in 1999, and 9 percent in 2000. In August 2000 the IMF declared that the ROK had graduated from the emergency loans programme.

Another plank of Kim’s reforms, the privatisation of POSCO was completed and the privatisation of KEPCO begun. However after the initial reforms there were few more industrial and banking reforms. Many observers believe the programme of reforms ended prematurely. A second round of financial restructuring in early 2000 remained incomplete.

A number of factors had a negative effect on the economy, the protracted sale of Daewoo motors, eventually sold to GM, falling semi-conductor prices, and oil price rises. Politicians began to oppose measures intended to restrain corporate indebtedness, such as ceilings on investments and debt to equity ratios.

Kim had been seen by some as a radical, but proved more moderate and compromising when in office. He gained respect at home and abroad for his achievements in reform at the start of his administration but did not try any radical changes.

Kim disappointed some of his supporters by demanding sacrifices from labour in accepting layoffs and restraint of strike action. He also retained the ‘National Security Law’ which had been used in the past to jail political dissidents.

Kim’s party, the ‘Millennium Democratic Party’ (MDP), had formed a coalition with the ‘United Liberal Democratic Party’ (ULDP) of his opponent Kim Jong-pil, who had been involved in the Park dictatorship. This indicated the compromising and non-radical nature of his government.

In April 2000 National Assembly elections, the parties combined failed to secure control of the National Assembly. There had been relatively low voter turnout (57 percent) indicating complacency, apathy and possibly cynicism about the ability of politicians to address the nation’s problems.

The government was forced to negotiate with the main opposition party, the ‘Grand National Party’ (GNP), but despite this there were conflicts between the parties in the National Assembly which weakened Kim’s ability to govern. Again a strongly regional pattern of voting appeared, suggesting that regionalism in politics was a stronger feature than ideology.

One sign of democratisation was the involvement of ‘civic groups’ such as the ‘Civic Alliance’, in the election process. They played roles in monitoring elections, rewriting election regulations, and exposing the misdeeds of candidates thought unfit to hold office

In autumn 2000 Kim won a Nobel Peace Prize for his ‘Sunshine Policy’ on North Korea which temporarily boosted his popularity. Despite a summit with the north the policy failed to produce much improvement in relations with the north in the end.

Kim’s support declined as scandals hit his administration. Associates of Kim were found to be involved in insider trading, embezzlement, and stock manipulation. All three of Kim’s sons were involved in financial irregularities, with one being sentenced to four years in jail.

In 2001 Kim announced a tax evasion investigation into twenty three newspapers, but this was seen as an attempt to muzzle a critical press. A new medical prescriptions programme passed to assist the inadequate social security net ran into problems due to underfunding. Labour unrest also grew.

Roh Moo-hyun was elected president in December 2002. He was a surprise outsider to become the candidate for the ruling party and narrowly beat the conservative Lee Hoi-chang of the GNP (Grand National Party) to the presidency. Roh was a 56 year old human rights lawyer. He filled his administration with opposition activists, outsiders to the South Korean establishment of the military and big business.

Many posts such as the Minister of Justice and National Security Agency director were drawn from the ‘Minbyon’, the “Lawyers for a Democratic Society” an organisation of young progressive lawyers. He also filled cabinet posts with academics from provincial universities and members of political activist groups.

During 2002, Roh Moo-hyun had been elected president of South Korea. Feeling the pressure from foreign investors, he maintained that harsh reform would continue within South Korea’s chaebols. A May 2003 Business Week article supported the efforts of the new president, who stated that “Slowly and steadily, good governance has been asserting itself in Korea.”

As other presidents had done, he set up his own political party, “Uri” (“Our Open Party”), mainly from MDP members and members of some other parties. His cabinet was often accused of inexperience, of making tactless remarks and political blunders. There were scandals, with members of his government being accused of taking illegal political contributions from LG and Hyundai.

Labour unrest increased under his administration. Farmers protested against free trade agreements with Chile and the USA. Korean farmers tended to be small farmers who depended on state price supports for their crops. They feared cheap imports would threaten their livelihoods. Their political influence was out of proportion to their size, representing only ten percent of the population of the modern, urbanised South Korea.

Roh’s government represented a younger generation who wished for more constructive engagement with the North, unlike many in the older generation, who felt highly suspicious of the Northern regime. Roh continued the ‘Sunshine Policy’ towards North Korea, but damage was caused by revelations Kim Dae-jung had Hyundai offer North Korea US$ 500 million in development projects to induce Kim Jong-il to attend a 2000 summit.

Despite the rejection of an offer by Roh to hold a referendum on his leadership in December 2003, the GNP did try to impeach him, and Roh had to step down pending impeachment proceedings, but the public did not support the action. Thus in April 2004 Roh’s Uri Party, in alliance with others, won control of the National Assembly during the scheduled elections. Following this the constitutional court reinstated Roh.

Roh’s popularity fell during 2005 and 2006, with the opposition doing well in the 2005 by-elections. He was accused by some of being ineffectual. Roh in the end did not radically change the ROK’s domestic or foreign policy. Despite his history of anti-American rhetoric, Roh sent troops to Iraq. Roh left the notorious “National Security Law” essentially unchanged.

He threatened the right-wing press with new laws to limit their market share and make it easier for the government to sue them, it was seen by many as an attempt to intimidate his critics.

The government established a “Truth and Reconciliation Committee” to investigate war crimes during the Korean War. There was an investigation into the 1973 abduction of Kim Dae-jung which revealed President Park Chung-hee approved it.

There was an examination of Korean collaborators during the Japanese colonial era. Some saw this as an attempt to embarrass Park Geun-hye, the daughter of President Park, now the new opposition leader. Her father had served in the Japanese military during the Pacific War.

An important achievement for Roh was successfully establishing the most comprehensive trade agreement with the USA till that time. From the year 2000 till the year 2006 trade between the US and South Korea had grown steadily, but not as fast as some had hoped. The ROK maintained a trade surplus during this period of around US$ 14 billion. In 2003 the USA exported US$ 22.5 billion in goods and services to the ROK, while exports in the other direction were valued at US$ 36.9 billion.

Despite both countries being members of the World Trade Organisation (WTO), there were still a number of specific issues between the countries causing trade friction, and there were hopes the volume of trade between the countries had potential to be expanded further. Thus after long negotiations, which provoked strong reactions domestically from manufacturing firms, farmers and labour unions on both sides of the Pacific, in June 2007 the Korea-US Free Trade Agreement (KORUS FTA) was established and went into effect.

Most tariffs on bilateral trade were scheduled to be removed within three years, which was a significant achievement even though average tariffs were relatively low, because the volume of bilateral trade was so large. Even in agriculture, where Korean trade barri­ers were much higher, many tariffs were to be phased out over time, and many quotas to be expanded. Only rice was exempted from some degree of liberalization, because of its sensitivity with South Korea.

One of the highest priorities for both parties was automotive exports. It was an important component of the US trade deficit with the ROK. US manufacturers had long accused the ROK of overly protecting its domestic auto market. The agreement removed tariffs on vehicle imports. The high eight percent tariff on importing cars into the ROK was removed, as was the much lower 2.5 percent tariff on Korean imports into the USA. The KORUS FTA also did away with the exceptionally high US ‘Light Truck Tariff’ of 25 percent. This was a historical legacy from a long forgotten, nineteen sixties trade dispute with Europe.

These tariff removals were expected to benefit both parties. Even though the US tariffs were so low they were welcomed by Korean auto exporters because their main competition was coming from Japanese exporters into the USA. Following the IMF crisis and the fall in the Won, the Yen-dollar and Won-dollar exchange rates shadowed each other closely, aiding Korean exports to the USA. However from the end of 2001 the rates began to diverge, with a weakening of the Yen stimulating Japanese imports into the USA at the expense of Korean exporters. Even the small 2.5 percent tariff reduction would help close the competitiveness gap between Japanese and Korean auto exports.

Many US auto manufacturers and unions were unimpressed by the KORUS FTA. They expected the ROK to resort to non-tariff discrimination to impede US exports. The KORUS FTA did contain some provisions to deal with these issues. Tax and regulatory burdens on importers were reduced and a system giving exporters an overview of the importer’s regulatory systems to ensure greater transparency was included, with the incorporation of a dispute resolution procedure. The US reserved the right to ‘snapback’ to the 2.5 percent tariff should dispute resolution fail. An ‘Autos Working Group’ was set up to monitor and provide comments on new draft regulations in Korea. However companies including Ford and Chrysler expressed doubt about the system’s benefits in practice.

The KORUS FTA also bans requirements on investors to make technology transfers. This goes beyond the investment measures of the WTO.

The KORUS FTA also addressed some sensitive issues on agriculture. Even though agricultural produce made up only three percent of the value of bilateral trade, it had significant domestic political sensitivity on both sides of the Pacific. The KORUS FTA covered almost all agricultural trade between the two countries, even if the liberalization schedule was protracted and in some cases incomplete for some sensitive products.

In the agricultural negotiations, the most important issue for South Korea was rice and the most important issue for the United States was beef. The United States agreed to exempt rice from South Korea’s commitments. The exemption of rice was an important political gesture but did not change the economics of the FTA very much. Thus, the political benefit of excluding rice far outweighed the trade effect.

On beef, the KORUS FTA phased out Korean tariffs over 15 years. However, the agreement did not cover the main barrier to the South Kore­an market, which was the ban on US imports imposed for health reasons since December 2003 in response to the discovery of bovine spongiform encephalopathy (BSE) in US herds. However in May 2007 the World Organization for Animal Health (OIE) determined that the United States was a “controlled risk” country, removing the justification for the import ban. Thus ROK regulators were expected to recertify US beef for importation.

The KORUS FTA was expected to spur significant growth in US agricultural exports to Korea. The largest gain was expected to accrue from regulatory actions on beef not directly covered by the pact’s obligations. Overall the KORUS FTA liberalization of farm trade predominantly benefited US agricultural exporters. South Korean officials acknowl­edged that the pact would adversely affect some segments of its agrarian economy, particularly beef, pork, mandarin oranges, and beans. The ROK government thus proffered new adjustment assistance and compensation programs to mitigate the adjustment burdens for those South Korean farmers.

Services were also covered in the agreement, including trade and investment in financial services, express delivery services and professional services such as legal and accounting services. Insur­ance companies, in particular, were expected to benefit from broad ranging rights of establishment as well as increased cross-border trade in a wide range of insurance products. Customs duties on electronic commerce were banned, and restriction on investment in telecommunications companies lifted.

Some analysts expected the services provisions of the KORUS FTA to be the most important aspect of the deal for South Korea. By committing to greater transparency of administrative and regulatory proce­dures and by removing obstacles to investment and the provi­sion of services, where such restrictions often raise production and distribution costs for producers of goods and services alike, the South Korean government will help promote a more conducive environment for investment from both domestic and foreign sources. The enthusiasts predicted improved efficiency and productivity in services. The provisions were expected to create many new business opportunities for American firms.

Another area which was considered for inclusion in the KORUS FTA was the issue of tariffs on goods produced in the ‘Kaesong Industrial Complex’ (KIC). This is an ‘Outward Processing Zone’ (OPZ), part of an economic experiment by North Korea. From 2004 onwards South Korean companies manufactured a range of goods within this designated zone inside North Korea, but close to the border with South Korea. These goods were all shipped back to the ROK either to be sold domestically or to be processed by customs and exported.

By 2013 some 123 small and medium sized South Korean companies were employing some 53,000 North Korean staff and 800 South Koreans within the KIC. Data from 2010 show the total value of output from the KIC to have been US$ 323 million. The main products produced were, in order of declining value: Textiles and clothing, electrical and electronic products, metals and machinery, chemical products, and others. Those products exported mainly went to Australia, the EU, Russia and the People’s Republic of China.

South Korean manufacturers have been accused of chasing extremely cheap labour, but it is not always clear how profitable these operation are. It has also been suggested that firms are seeking political advantages by supporting the venture. The North Korean government is generally viewed as using the zone as a source of hard currency, for although the terms of the agreement under which the zone operates stipulate all wages be paid directly to the North Korean work force, laws in that country require the workers to hand over their wages to the state for redistribution.

The ROK and US governments started the negotiations in positions diametri­cally opposed to each other. The ROK wanted goods produced in the KIC to be fully eligible for FTA preferences, while the United States wanted no benefits from the FTA to accrue to the regime of Kim Jong-Il. Production activities in the zone are already subject to US sanctions limiting the types of technology which may be imported into the KIC. In the end it was decided to exclude consideration of the KIC from the KORUS FTA, however the door was left open to future consideration should the situation change.

The success of the KORUS FTA could not sufficiently improve his popularity at home. The Roh government was damaged when in 2007 a major political scandal broke. It was revealed that Samsung, the largest chaebol by this time, had been bribing government officials for favours on a large scale. In the December 2007 election Roh was easily defeated by the GNP candidate Lee Myung-bak.

By the end of the first decade of the twenty first century, South Korea was a country which had gone through significant social changes, these had accumulated gradually over the preceding decades. Average family size was declining rapidly at the turn of the twenty first century. There was a rise in the divorce rate. By the start of the nineties divorce was being seen as less shameful than in the past. The divorce rate tripled in the ten years 1995 to 2005. By 2006 the divorce rate was 2.6 per thousand people, higher than the EU average of 1.8 per thousand, slightly higher than Japan, but still lower than the US figure of 4.0 per thousand. In 2007 a quarter of households were headed by women.

Many women were opting out of, or putting off, marriage. One survey of female college students showed a third had no plans to marry in the foreseeable future. A new phenomenon was the single, never wed mother, called “Miss Mom”. They were uncommon, but increasing in numbers. One 2007 poll showed a sixth of single women saying they would be happy to have a child without having a husband. In spite of this South Korea was still a very conservative nation, international surveys showed that South Koreans were less likely to approve of cohabitation with marriage than people in the west, Japan or Taiwan.

The numbers of adoptions were increasing. Traditionally Koreans preferred biological offspring and there was a large flux of adoptions of Korean children by foreigners, mainly from the USA and Europe. Many agencies existed to serve this need. This had been a source of national embarrassment.

A significant break with ancient tradition was the ending of the prohibition in the Civil Code against people who share the same surname and ancestral home from marrying. In Korea people have a small number of family names such as Kim, Lee or Park. Each is subdivided into clans based on the reputed ancestral descent from a particular ancestral home region, such as Gimhae Kim, Miryang Park and Chonju Lee.

Each of these had hundreds of thousands of members, for example some one and a half million people belonged to the Gimhae Kim. This created problems with people from the same name and clan fell in love. Their marriages were legally unrecognised. In 1997 a court had ruled the law unconstitutional and in 2002 the National Assembly repealed it following a campaign by reformers.

Korea has traditionally been a highly male dominated society. In 2007 one report found that only 34 out of 131 countries studied had a wider pay gap than South Korea. The gender gap in wages was not only greater than in all western countries, but higher than in most Asian countries as well.

In 2006 women earned 50 percent less than man, the gap actually widened from 2000 to 2005. In 2006 women only represented 3 percent of executives in large companies, e.g. Samsung had only 12 women out of 1,300 officers and managers. Hyundai and POSCO had no women in top positions.

Women have made significant advances in politics. In 1992 only 1 percent of legislators were women, by 2006 this rose to 13 percent. Han Myun-suk became the first female PM in 2006, while Park Geun-hye, President Park’s daughter became leader of the conservative GNP.

Laws have been changed, in the early nineties gender discrimination was made illegal. Laws have been changed to allow women to head households, inherit property, and initiate divorce.

Female participation in further and higher education increased, with the enrolment of women in colleges and universities exceeding that of men in the first decade of the twenty first century. The gender bias in subjects was breaking down, with women no longer confined to supposedly ‘feminine’ subjects such as home economics, English and art.

Women became more vocal and more visible politically in raising issues such as gender inequality, femal exploitation and prostitution. In 2001 Kim Dae-jung created a “Ministry of Gender Equality”, renamed the “Ministry of Gender Equality and Family” in 2005.

In the eighties and nineties the use of ultrasound scans led to increased abortions of females. The sex imbalance increased reaching a peak in the mid-nineties with 115 boys per hundred girls. This was to cause social problems in the early twenty first century.

The public became more aware of the problem and by 2002 the trend was reversing, By 2007 the ratio had reduced to 105 boys per 100 girls. Similar problems occurred in a number of Asian countries and South Korea was the first to reverse the trend. Since then surveys have suggested that the traditional preference for boys no longer predominated in South Korean society.

In the countryside there was a shortage of women to marry, partly because of the bias against having male children (see below), partly because young women were leaving the country. As a consequence by 2006 a third of male farmers married foreign women, mostly from China and Vietnam, but many also from the Philippines and Uzbekistan particularly.

In 2005 13 percent of all marriages were to foreigners, of which 70 percent were between Korean men and other Asian women. One projection estimates that by 2020 a third of all children born in the ROK will be ‘Kosians’, bi-ethnic children.

Since the nineteen nineties there has also been an influx of migrant workers from poorer Asian nations notably Bangladesh, China, Nepal, the Philippines and Mongolia. They were often treated harshly doing “3D” jobs, dirty, difficult & dangerous. Since the turn of the twenty first century the flow has increased. In 2007 there were estimated to be about 400,000 such migrant workers, half undocumented.

Finding immigration procedures cumbersome employers hired immigrants on tourist visas which were overstayed. The employees thus became illegal and vulnerable to exploitation. In 2004 the government, trying to make procedures easier introduced the “Employment Permit System”.

The high birth rate fell sharply during the 1960s with a government sponsored birth control programme. By 1983 it was only slightly above replacement level with women having 2.1 children each on average.

Urbanisation meant living accommodation was cramped, women were better educated, and the costs of educating children were high. All these factors contributed to the cultural shift towards smaller families. However in the late 90s birth rate was still falling. There was a sharp drop in period 1997 to 2002, initially blamed on the economic crisis but the rate did not recover along with the economy.

In 2004 the rate was 1.08 children born per woman on average, even lower than Japan’s 1.3 which had become an issue in that country. There was a slight rise and by 2008 it stood at 1.26 children born per woman on average, still way below replacement level. It was projected that the ROK population would actually fall from 48 million in 2008 to only 42 million in 2028.

The high cost of educating children was a factor in lowering the birth rate. Koreans had a strong cultural belief in the value of education, so called “Education Fever”. The percentages of students completing secondary education and entering tertiary education were among the highest in the world.

The quality of education in the ROK was improving too. In the second ‘Program for International Student Assessment’ of the OECD involving 41 countries, given in 2003, South Koreans ranked first in problem solving, second in reading, third in maths and fourth in science. However there were problems, education was strongest at the lower levels, academic research standards and facilities lagged behind the world’s best universities.

The costs of education in the ROK were high though, due to private tutoring and after school cram schools. Also the trend of sending students abroad to study, often living with relatives abroad, made a significant dent in the country’s foreign exchange reserves. This was especially for sending students to English speaking countries to learn the English language.

One 2003 survey found that South Korean families spent a higher proportion of their income on schooling than any other people in the world, two to three times as much as in the US or Japan, the next highest spenders. Worse still, education expenses were going up faster than any other household expenditure. From 2000 to 2005 alone they doubled. This extra cost of education was believed to be having a bad effect on social mobility.

As well as putting people off having larger families, it also caused people to wait longer before getting married. Young people were put under great stress and had little free time due to studying from early to late on a daily basis. Women found that supervising their children’s education took up much of their time, which made it difficult to enter the job market.

A major aim of all this studying was the importance of obtaining a prestigious degree. The importance in society and the job market of holding such educational qualifications is seen to an extreme degree in South Korea. It has tempted some to cheat, as in the “Shin-gate Affair”. This was the case of a well-known art professor who lied about having a degree from Yale. This then led to revelations that a number of prominent people had falsified their degrees. Ironically they mostly had good qualifications, but wanted to falsely claim graduation from a more prestigious institution.

Another trend was the proportion of elderly people was increasing in the population. Two key factors were causing the proportion of older people in the population to increase, one was the slowing birth rate described above. The other was the steady increase in life expectancy. In 2008 this had reached 75 for men and 82 for women, and was still rising. There were concerns that eventually there would not be enough people of working age to support the non-work age population. One estimate expected a quarter of the population to be over 65 by the 2020s.

Central government began to make plans for adjusting retirement ages etc. There were also attempts to deter abortions by threatening to revoke the licenses of doctors performing them. Some local governments tried to create incentives for people to have more children, for example by offering free babysitting services.

In the decades before the IMF crisis the South Korean middle class had been experiencing healthy growth. The IMF crisis reversed this. The crisis had an immediate short term effect with the number of people living below the official poverty line doubled during the crisis from 8 percent in 1997 to 16 percent in 1998. However the general trend towards rising inequality continued in the years after.

A number of factors contributed to growing inequality following 1997, increased numbers of redundancies, the increasing use of temporary workers on poor terms and conditions of employment, and the emergence of the knowledge based industries with openings for fewer white collar workers with specialist skills and knowledge which commanded a premium. The results were a shrinking middle class, a growing number of low paid and poor, and increases in income for the upper strata of the middle classes.

In 1995 the poorest 10 percent earned 41 percent of national income, by 2003 this had declined to 34 percent. In 1995 the highest earning 10 percent earned 199 percent of the national average income, on average, this rose by 2003 to 225 percent. In 1997 the Gini coefficient was 0.283, low by international standards, by the year 2000 it had risen to 0.358, third highest in the OECD after Mexico (0.368) and the USA (0.494). According to one survey the middle class shrank by 5 percent from 1997 to 2004.

By the early nineteen eighties most people already saw themselves as middle class and the idea emerged that South Korea would become a ‘classless’ or ‘middle class’ society. However surveys show that the number of people who see themselves as middleclass declined from 70.7 percent in 1994 to only 56 percent in 2005. The idea of the ‘classless’ society was now receding out of sight.

At the top end of the spectrum wealth married wealth, creating what some Korean observers feared would be a modern ‘Yangban’ or aristocracy based on industrial, commercial and financial wealth, mirroring the traditional ‘Yangban’ whose wealth was based on land ownership. At the centre of this were of course the chaebol families.

The upper levels of the middle classes moved up and away from the rest as the knowledge based economy increased the incomes of the higher skilled workers. They enjoyed a lifestyle of foreign travel, imported luxury goods, health clubs and sending their children abroad to be educated.

Industry was increasingly moving offshore to low cost countries like the People’s Republic of China, Vietnam and others, meaning fewer jobs at home for the lower skilled, while pay and employment conditions at home were deteriorating to maintain competitiveness.

Social mobility was impeded by the high costs of education, where parents spent large amounts of money on private tuition, and where gaining a degree from a prestigious institution carried a premium in the job market and socially.

Growing inequality increased the need for a social security net provided by the state. In 2006 the official unemployment rate was only 4 percent, but there were suspicions that this disguised much underemployment and job insecurity.

For older senior employees the problem was one of being priced out of a job. The culture was to promote according to seniority meaning that older employees were often very expensive to keep on. This tended to result in forced early retirements or a switch to part time working for those unable to live on their life savings.

For younger people there was a problem of job insecurity. Many were recruited as temporary employees on poor pay and conditions. As the law stipulated that temporary employees automatically become permanent ones, with many benefits and protections, there was a tendency of employers to dismiss the temporary workers before reaching the two year threshold.

A 2014 OECD report surveyed the impact of the welfare state in South Korea. It concluded that despite all the measures to expand the welfare state, the redistributive impact of South Korea’s tax and transfer system was among the weakest in the OECD, reflecting low social spending at 9.3 percent of GDP in 2012. Public social spending as a share of GDP was less than half the OECD average, and is believed to have a relatively small impact on income inequality and relative poverty, especially among the elderly.

The BLSS (Basic Livelihood Security System) provides cash benefits and in kind support for example health care, education etc., to eligible persons in ‘absolute poverty’ by the official definition. However BLSS support is limited by strict eligibility criteria based on asset ownership and the ‘family support obligation rule’. As a result the benefits were supplied to just 3 percent of the population, less than half of the 7 to 8 percent that were living in ‘absolute poverty’ in 2013. The ‘Family Support Obligation Rule’ excludes those who have the possibility of being supported by their family from benefits. It is a major reason for the lack of receipt of benefits by many.

In 2011 49 percent of the population over 65 lived in relative poverty, nearly four times the OECD average. This rate was three times higher than for those in the general population. Estimates of those of 65 in ‘absolute poverty’ by the official definition, gave a figure of about 26 percent.

Koreans tended to assume as per traditional culture the old would be supported by their children, and saving for old age was not seen as a priority. However society has changed with the number of elderly living alone increasing 2.5 fold from 2000 to 2014. One quarter of elderly people lived alone in 2014. The poverty of the elderly is likely to get worse because falls in the birth rate and increases in life expectancy mean the proportion of elderly people in the population is increasing.

In 2012 only 43 percent of the working age population paid pension contributions, well below the 80 to 100 percent rate in other advanced countries. This reflected poor compliance by the self-employed, non-regular workers, meaning temporary staff, and employees of SMEs. Note that these groups share either unstable, or low incomes, deterring them from making much contribution.

The suicide rate of those over 65, which was already high, approximately doubled from 34 persons in 2000, to 72 persons in 2010 per thousand. Note that the OECD average was only 22 per thousand. Government surveys found financial difficulties to be the major cause.

The rate of poverty among the old reflects the decline in family support, and the weakness of both private and public sources of old age income support. Although 70 percent of the elderly received the “Basic Old-Age Pension” (BOAP), it was only equivalent to 3 percent of the average wage. The NPS provided only 28 percent of the elderly with benefits, paid at only 10 percent of the average wage, while the company pension scheme is still at an early stage. This system was only introduced in 2005, in 2012 it covered just 12 percent of the working population representing 46 percent of employees who had been with a company for at least one year. Only 3 percent of those enrolled were receiving pension benefits from the scheme at that time, due to the newness of the system. Only 6.3 percent of the elderly were receiving benefits from the “Basic Livelihood Security Programme”, the ‘Family Support Obligation Rule’ excluded many. However social changes mean the elderly can no longer expect as much support from their children as in the past.

South Korean Industry at the Turn of the Twenty First Century



Samsung went from strength to strength following the IMF crisis. In 2004 it built the world’s first 8Gb NAND memory chip and struck a deal with Apple the following year. While in 2004/2005 Samsung overtook Sony as one of the world’s most popular consumer electronics brands.

However the company also found itself in trouble. In 2005 Samsung agreed to plead guilty and pay a US$ 300 million fine, the second largest anti-trust fine in US history, over accusations that it conspired with “Hynix Semiconductor”, “Infineon Technologies”, “Elpida Memory” (Hitachi – NEC), and “Micron Technologies” to fix the prices of DRAM chips sold to US computer makers.

In 2006 Sony, having not invested in large-size TFT-LCDs, established a joint venture with Samsung, “S-LCD”, approximately equally owned by Samsung and Sony, but with Samsung holding the controlling interest. It provides LCD panels for both manufacturers. Its facilities are based at Tangjung, ROK.

By the late 2000s the vertical integration strategy of manufacturing components was paying off well. Samsung’s top six corporate clients in 2010 were:

Rank Company Products Percentage of Total Sales
1 Sony DRAM, NAND Flash, LCD Panels, etc. 3.7
2 Apple Inc. A7 (Microprocessor for mobile phones), DRAM, NAND Flash, etc. 2.6
3 Dell DRAM, Flat Panels, Lithium ion Batteries, etc. 2.5
4 HP DRAM, Flat Panels, Lithium ion Batteries, etc. 2.2
5 Verizon


Handsets, etc. 1.3
6 AT&T Handsets, etc. 1.3
  TOTAL 13.6%

In 2008 The Times, London estimated Samsung Group to account for about one fifth of the ROK’s total exports. The group as a whole has major interests in:

  • Electronics Industries
  • Financial Services
  • Chemical Industries
  • Machinery & Heavy Industries
  • Engineering & Construction
  • Retail & Entertainment
  • Apparel & Advertisement
  • Education & Medical Services
  • Trading & Resource development
  • Food supplier & security service

In 2010 claimed “Samsung Electronics” to be the largest technology company in the world by sales. In 2009 “Samsung Heavy Industries” was considered to be the world’s second largest Shipbuilding / Marine construction company according to Bloomberg.

LG has also thrived as a major global electronics brand since the turn of the twenty first century. In 1999 LG acquired an American TV manufacturing company called “Zenith”. In 2000 LG formed a joint venture with “Hitachi”, called “Hitachi-LG Data Storage”, which makes optical data storage devices such as DVD-ROM Drives and CD Writers. In 2001 LG started two joint ventures with “Royal Philips Electronics”, “LG Philips Display” and “LG Philips LCD”. Philips sold out in 2008.

The LG Corporation as whole is one of the very largest chaebol. The LG group was active in over 80 countries at the start of the century. Its main areas of business activity included as well as electronics, chemicals: it has nearly a dozen chemicals affiliates.

It has further developed interests in Telecommunications & Services: it has over 20 affiliates in telecoms and a variety of different services: “LG Telecom”, “LG Dacom”, “LG Powercom” and “LG Solar Energy”. In 2005 LG formed a joint venture with “Nortel Networks”, “LG-Nortel Co. Ltd.” (since 2010 “Ericsson-LG”). A design company specialising in IP phones, Ethernet equipment etc. It seems hardware is generally manufactured by subcontractors, but marketed by LG. Ericsson was bought out Nortel in 2010.

In 2004 “GS Holdings Corp.” was spun off from LG Corporation. The company holds international interests in:

  • Energy (e.g. “GS Caltex”, Korea’s second largest oil refiner)
  • Retail (former LG convenience stores & other retail businesses were rebranded as ‘GS’)
  • Construction
  • Sports

The GS group was set up by the Heo family, while the rump of LG remained under the control of the Koo family.

Early in the twenty first century Daewoo Electronics was the third largest electronics company from South Korea after Samsung and LG. The company manufactured a range of high value electronics and home appliances. Beside its business of manufacturing consumer goods, it has been contracted by different parties to set up local manufacturing units producing air-conditioners, refrigerators and washing machines. When Daewoo Group went through a bankruptcy in 1999 after the Asian financial crisis the company was completely taken over by a group of creditors.

In 2002 the electronics affiliate was reborn as a new company changing the name to “Daewoo Electronics Corp.” In 2003 it launched the “Nano Silver” technology applied Refrigerator. In 2006 production of refrigerators began in Tianjin, China. In 2008 the company surpassed the one million milestone in Side-by-Side Refrigerator production. In 2009 it surpassed the one million milestone in Drum Washing Machine production

In 2009 Daewoo Electronics was restructured to focus on the ‘white goods’ business. Following abortive attempts by Iranian electronics company, Entekhab, and Swedish Electrolux, to buy the group, it was eventually sold in 2013 to South Korean business group Dongbu. It was purchased for US$ 270 million. The group believed it fitted in well with its other interests in electronics and steel. The company has since carried the name “Dongbu Daewoo Electronics”.


The South Korean automotive industry grew strongly for many years both domestically and in overseas markets until it experienced an unprecedented downturn following the IMF crisis. Following this crisis practically all Korean auto makers except Hyundai faced a serious financial crisis. This has been attributed to over-rapid expansion financed by taking on excessive levels of debt. Fierce competition in the domestic ROK market has also been cited as a reason for their problems.

In the face of these problems the South Korean auto industry experienced a wholesale process of restructuring. Most auto makers laid off significant numbers of workers as a result. The process led to intense confrontations between labour, management and the government.

As well as mergers and take overs between Korean firms, it is notable that the penetration of foreign investment into the South Korean auto assembly and auto parts industries got a large boost from the restructuring process. Samsung Motor Industries was acquired by French auto maker Renault, and Daewoo Motors was acquired by US giant GM, which had a historical connection with the firm. Meanwhile Hyundai formed a strategic alliance and consortia with Daimler-Chrysler.

Notably a number of Korean auto parts manufacturers were also taken over by foreign multi-nationals. The result has been a more liberalised and open South Korean auto industry, more thoroughly integrated into the global motor industry than before the crisis.

The dominant Korean car builder early in the twenty first century was “Hyundai-Kia”. In 2006 the group built 2.7 million vehicles, out of a total for the Korean car building industry of 3.8 million units. That is 71 percent of the total. Though Kia and Hyundai were originally separate companies, Hyundai acquired Kia following its bankruptcy in 1997.

Despite being ahead of many Korean corporations in having a professional management system that a non-owner president had taken charge of from 1981, Kia was the first of the major automotive firms to face a crisis, going bankrupt in the summer of 1997. Other major firms in the sector such as Samsung, Ssangyong and Daewoo held on till after the IMF crisis, facing insolvency in 1999. At the time of its bankruptcy Kia was the second largest automotive manufacturer in South Korea. The only major auto maker to escape a financial failure was Hyundai, the number one firm in the industry.

A number of factors contributed to Kia’s bankruptcy. One was the massive debts incurred through excessively rapid expansion. During the nineties Kia opened a new passenger car plant at Hwasung, and invested heavily in overseas production capacity with a passenger car plant in Indonesia and a commercial vehicle plant in Brazil. By the mid-nineties the top management were declaring their intention to make Kia the tenth biggest auto manufacturing company in the world by the year 2000, a programme dubbed the ‘Global Top-Ten Plan’.

The new production capacity did not immediately bring more profits. Throughout the early to mid-nineties the Kia Motor Group consistently made a loss. One reason was intensified competition in the domestic ROK market, notably from Daewoo, with an interest free sales campaign which cut into Kia’s market share. In addition despite a massive and expensive investment in the development of new models such as the ‘Sephia’, ‘Credos’ and ‘Avella’, these products did not sell well.

The Kia group had also diversified radically like a traditional chaebol, and many of these widespread interests were unprofitable. These acquisitions included ‘Kia Special Steel’, ‘Kisan’ a construction company, and a trading company called ‘Kia Inter-trade’. The great losses from these affiliates had a major impact on the group’s finances.

Union troubles also contributed. From 1993 a more militant activist group started pressing the management for better pay and conditions. This resulted in a nearly 10 percent wage increase from 1994 to 1996, and a greater role for the union in decisions affecting discipline, staffing and manufacturing operations.

Another factor which undermined Kia was a continued attempt by Samsung to launch a hostile takeover. Between 1996 and 1997 Samsung affiliates began buying up Kia shares. This drew unwelcome scrutiny of the group’s finances by markets and investors. The result was a sharp drop in the share price of about 5 percent from 1996 to 1997.

Thus in mid-1997 Kia was declared insolvent and the ROK government, together with Kia’s creditor banks took special measures. They favoured the idea of selling Kia to other automakers. This was resisted by the Kia management and unions. The unions rallied to the support of Kia management accepting a wage freeze, and even donating 100 billion KRW to aid company finances.

However despite these moves the government placed Kia group into court receivership in October 1997 and replaced the company’s top management. The decision was finalised to sell off Kia to a third party. The unions reacted angrily to this programme launching strikes from April to June 1998, but ultimately were unable to prevent the sale.

In July 1998 the ROK government with the creditor banks requested public bids for the purchase of Kia group. Bids were offered by Hyundai, Samsung, Daewoo, and Ford. The first two rounds of bidding failed to meet the expectations of the vendors, and it was only during a third round of bidding in November 1998, that it was decided Hyundai should acquire the group, having offered the most favourable terms.

Hyundai signed an agreement with the KDB (Korea Development Bank), the major creditor settling the terms of the acquisition in December 1998. Hyundai paid 1.18 trillion KRW for 51 percent of the shares in both Kia and the Asia Motors affiliate, and got a write off of 7.47 trillion KRW of company debt. Thus in March 1999 Hyundai became the owner. This made Hyundai-Kia the dominant Korean auto company with over two thirds of the domestic market and production capacity of nearly three million vehicles per year. It made the group the world’s seventh or eighth largest auto manufacturer at the time.

At the start of 1999 the top management of the Hyundai chaebol had been reshuffled, when the owner’s eldest son Chung Mong-gu, became chairman of the conglomerate according to an agreed plan of family succession. He replaced many of the executives of Hyundai and Kia Motors with his own men. A restructuring plan was then implemented to gain ‘synergies’ from the acquisition. In March 1999 Hyundai Motor absorbed many production and service functions previously delivered by separate Hyundai affiliates. While in June 1999 four Kia affiliates, including those of Asia Motors merged into Kia Motor.

The top levels of management of Hyundai-Kia were reorganised under some four presidents and some 23 vice-presidents, each leading an operational unit, thirteen vice-presidents for Hyundai and ten for Kia. Commercial vehicles and R&D were consolidated under a single leadership. The group set up the ‘Hyundai-Kia Joint Planning Division’ to oversee the integration. A variety of other joint division offices were also set up including ‘Material Handling’, ‘Production Technology’ and ‘After Service & Parts’.

An important exception to the co-ordination of functions was the retention of separate marketing and sales activities. The group had a strategic model of maintaining commercial competition between Hyundai and Kia.

In 2000 restructuring of the “Hyundai Group” led to the separation of the “Hyundai Motor Co.”. As an independent company in the early twenty first century HMC continued global expansion, establishing assembly plants in Turkey, the People’s Republic of China, India and the USA (Alabama) by 2005.

By the end of 2000 Hyundai and Kia senior management, which had till then operated from separate HQs, came together at a single HQ in Seoul. From this time movement of management personnel between Kia and Hyundai began to happen.

Thus from 1999 to 2000 there was an extensive restructuring of the group to integrate Kia. The group estimated this yielded cost savings of nearly 2.5 trillion Won. The biggest savings were in auto parts purchasing, at 1.4 trillion Won saved.

The group sought to considerably reduce the number of companies it purchased parts from and Hyundai and Kia’s parts purchasing supplier data base and procedures were integrated through the Joint Material Handling Division. The number of ‘First Tier’ suppliers, providing completed systems for final assembly was reduced, with those suppliers missing out being directed to supply components further upstream. Such suppliers were encouraged to merge into larger companies which would have more to invest in R&D for upgrading parts technology.

With the two biggest Korean parts purchasers merged, the group used its greater monopsony power to push down the prices of components in the external market. The group has also sought to increase the shared use of common parts in Hyundai and Kia assemblies. In addition the group set up an integrated logistics affiliate, ‘Korea LogiTech’, part of the role of which is to distribute parts purchased externally to assembly plants, a service previously provided by the vendors.

The production strategy of assembling vehicles from fewer complete component modules reduced the costs of assembly and the number and cost of parts. Hyundai by this time classified all auto parts into just 13 modules. The passenger car model current at the time had 30 percent of its components as part of a module, an increase from only 10 percent in earlier models. Kia was following this lead.

All the group’s own auto parts production and sales were consolidated into one firm, ‘Hyundai MOBIS’, derived from the ‘Hyundai Precision’ affiliate. This incorporated all after-service and spares sales for Hyundai and Kia. Hyundai MOBIS was being developed as a producer and supplier of specialised core modular parts such as chassis, body frames and dash boards. This was part of a plan to reach a target for modularisation of its own assemblies of near 40 percent. Furthermore, there was interest in developing Hyundai MOBIS as a supplier to outside firms. The aim was to expand the company to become one of the world’s ten largest auto parts suppliers.

The next biggest savings were in vehicle development and design, yielding reductions of just over 500 billion Won. Central to this was the move towards ‘platform integration’. The platform of a vehicle means the underlying plan and construction of the frame, its dimensions, axles, suspension and steering type, including the type of engine and transmission it can accommodate. At the time of the merger Hyundai and Kia had 12 platforms each from which they produced some 41 models. The ultimate aim was to radically reduce the number of platforms from 24 to just seven. From these a range of Hyundai and Kia models with different body styling and interior options could be produced. Such a move should reduce both the design and production costs. In the meantime the companies began to share platforms, for example the Kia ‘Optima’ , a mid-sized four door saloon, was based on the Hyundai ‘Sonata EF’, while the Kia ‘Pamax’ a light truck, used the same platform as the Hyundai ‘Mighty’.

Over 250 billion Won was saved in the development and manufacturing of power trains, that is the engine and transmission.

Hyundai began to supply Kia with some larger engines and power trains previously imported by the company. A new plant was set up by affiliate ‘Hyundai Power Tech’ with the intension it should specialise in the production and supply of power trains for the group’s assembly plants. There were plans to significantly reduce the number of different engine models, mainly by phasing out many of Kia’s old engines and replacing them with Hyundai engines having better environmental specifications. In addition there were plans to develop a new diesel engine for Sports Utility Vehicles.

Nearly 200 billion Won were saved by consolidating and merging the group’s R&D activities. At the time of the merger both companies had four different R&D sites specialising in different aspects of design and technology. One of the first moves following the merger was to bring all Hyundai and Kia R&D activities under the unified leadership of the CTO (Chief Technology Officer), one of the group’s four presidents, through the ‘Joint R&D Division’. R&D activities were being consolidated into two main sites Namyang focussed on passenger cars and auto parts, and Junju, focussed on commercial vehicles.

Costs were generally reduced by the sharing of facilities between Hyundai and Kia. Production facilities were shared between Hyundai and Kia both within Korea and abroad. For example at Kia’s Yumsung plant in China, and Hyundai’s Pakistan plant.

Assembly operations were reallocated so that certain plants could specialise in the production of certain types of vehicles. For example Kia’s Kwangju plant was to specialise in small commercial vehicles, while larger ones would be produced at Jungju.

Foreign technology and capital were brought into the group by the formation of a strategic alliance with Daimler-Chrysler which purchased 10.45 percent of the shares in Hyundai. The aim was to jointly develop new passenger car models, to establish a joint venture to manufacture commercial vehicles, and to benefit from technical exchanges.

Immediately following the takeover Hyundai and Kia continued their marketing and sales activities separately, often competing in the same segments of the market. From 2001 the production of the Hyundai ‘Accent’, ‘Sonata’, ‘Elantra’, and ‘Santa Fe’ models took place at the “TagAZ plant” located in in Taganrog, in Russia, in the form of complete knock-down kits assembly. In April 2002 Hyundai incorporated a new manufacturing facility, “Hyundai Motor Manufacturing Alabama”.

The same year it also founded a 50:50 joint venture with private company the “Beijing Automotive Group”, called “Beijing Hyundai Motor”. The venture was originally based on upgrading a pre-existing Beijing factory, imported parts from Korea were used from a Korean owned integrated auto parts supply network inside the People’s Republic of China. BAG manufactures many Hyundai vehicles as well as a few models which are exclusive to the Chinese market. The aim was to supply the domestic PRC market.

Also in the PRC, between 2002 and 2010 ‘Hawtai Motor’, a People’s Republic of China based joint venture between a private Chinese automotive firm and Hyundai, making and selling cars in the mainland China market, made Chinese-market versions of the Hyundai ‘Matrix’, Santa Fe’, and ‘Terracan’. The ‘Santa Fe’ was the fifth most-purchased SUV in China in 2010 and some of Hawtai’s versions may greatly differ from those sold in other markets.

In September 2003, the company opened its new European headquarters in Rüsselsheim, Germany, after an investment worth 50 million euro. The site became the new location for the R&D centre and for the world rally team of the company.

In 2003, consumer reports, based on complaints about 2002 model new cars that in general are less than one year in usage, ranked Hyundai’s reliability as tied with Honda‘s. However, J.D. Power and Associates put Hyundai’s 2002 vehicles below the industry average according to its annual Initial Quality Survey, which looks at problems in the first ninety days of ownership.

In 2004, “Hyundai Motor Company” had US$57.2 billion in sales in South Korea making it the country’s second largest corporation. However, Daimler-Chrysler divested its interest in the “Daimler-Hyundai Truck Corporation“, by selling its 10.5 percent stake for US$900 million.

By 2004, sales had dramatically increased, and the reputation of Hyundai cars had improved. Also the new plant in Montgomery, Alabama was completed, at a cost of US$1.7 billion. The same year, Hyundai tied with Honda for initial brand quality in a study from J.D. Power and Associates, for having 102 problems per 1000 vehicles. This made Hyundai second in the industry, only behind Toyota, for initial vehicle quality. Hyundai was also ranked second in “initial quality” in a study by J.D. Power and Associates.

In 2004 “Hyundai America Technical Center” completed construction of its “Hyundai/Kia proving ground” in California City, California . The 4,300 acre (17 km2) facility is located in the Mojave Desert and features:

  • a 6.4-mile (10.3 km) oval track
  • a Vehicle Dynamics Area
  • a vehicle-handling course inside the oval track
  • a paved hill road, and several special surface roads.
  • A 30,000-square-foot (2,800 m2) complex featuring offices and indoor testing areas is located on the premises as well.

The facility was built at a cost of US$50 million.

In 2005 worldwide sales reached 2,533,695 units, an 11 percent increase over 2004. In May that year production started at Alabama, employing more than 3000 workers by 2012. The plant assembled the Hyundai ‘Elantra’, ‘Sonata’ and the ‘Theta’ engine. This was Hyundai’s second attempt at producing cars in North America since the first, “Hyundai Auto Canada Inc.’s” plant in Quebec closed in 1993.

In 2005 “Hyundai America Technical Center” (HATCI) moved to its new 200,000 square-foot (19,000 m2), US$117 million headquarters in Superior Township, Michigan near Ann Arbor. Later that year, HATCI announced that it would be expanding its technical operations in Michigan and hiring 600 additional engineers and other technical employees over a period of five years. The center also has employees in California and Alabama.

In 2006, the South Korean government initiated an investigation of Chung Mong-gu’s practices as head of Hyundai, suspecting him of corruption. On 28 April 2006, Chung was arrested, and charged for embezzlement of 100 billion South Korean Won (US$ 106 million).   As a result, Hyundai Vice Chairman and CEO, Kim Dong-jin, replaced him as head of the company.

Since 2006 the ‘TagAz’ plant located in Taganrog, in Russia has also been assembling the Hyundai ‘Porter’, ‘County’, ‘Aero Town’ and ‘HD 500’ commercial vehicles.

In the year 2007, Hyundai opened its R&D facility in Hyderabad, India, employing now nearly 450 engineers from different parts of the country. “Hyundai Motor India Engineering” (HMIE) gives technical & engineering support in vehicle development and CAD and CAE support to Hyundai’s main R&D centre in Namyang, Korea.

Also in 2007 at the “New York International Auto Show”, Hyundai unveiled its V8 rear-drive luxury sedan called the “Concept Genesis” to be slotted above the ‘Azera’ in the Hyundai line-up. This concept made its American debut in mid-2008. The ‘Genesis’ reintroduced rear-wheel drive to the Hyundai range following a long period of only producing front-wheel drive cars. At the 2007 “Los Angeles International Auto Show”, Hyundai unveiled its second rear-drive concept car, the Concept ‘Genesis Coupe’, which will be Hyundai’s first sports car, due to make its debut in early 2009.

The Hyundai ‘Elantra’ was Consumer Reports’ top-ranked 2008 vehicle among nineteen other compacts and small family cars, beating the Honda ‘Civic’, Toyota ‘Corolla’ and Toyota ‘Prius’. In November 2008 the new hybrid electric Sonata made its debut at the Los Angeles International Auto Show. The car featured lithium polymer battery technology. Sales in the U.S. began in 2011.

On 6 January 2009, Hyundai reported sales of December 2008 fell to 24,037, from 46,487 in the previous year and sales for the year dropped 14 percent. This was one day after the company launched ‘Hyundai Assurance’ in order to spark sales amid tough economic conditions, due to the impact of the 2008 financial crisis.

As of 2012, “Hyundai Motor Co.” sold over 4.4 million vehicles worldwide in that year, and together with Kia total sales were 7.12 million. Hyundai operates the world’s largest integrated automobile manufacturing facility in UlsanSouth Korea, which has an annual production capacity of 1.6 million units. The company employs about 75,000 people worldwide.

Hyundai vehicles are sold in 193 countries through some 6000 dealerships and showrooms. Despite having growing sales worldwide, Hyundai struggled in Japan, having sold only 15,000 passenger cars from 2001 to 2009. This has been blamed on a weak domestic market in Japan.

Hyundai has invested in manufacturing plants in North America, India, the Czech Republic, Pakistan, China and Turkey. Hyundai has six R&D centres worldwide, located in Korea (three offices), Germany, Japan and India. Additionally, there is an American design centre in California that develops designs for US markets.

Looking at the fortunes of Kia, since 2002, Kia has gained more sales in the European market thanks to the launch of the larger Sorento SUV. In 2004, the newer Cerato was launched and gave Kia one of its first serious competitors against mainstream brands. Since 2005, Kia has focused on the European market and has identified design as its “core future growth engine”.

In 2006 Kia hired Peter Schreyer as Chief Design Officer. He subsequently created a new corporate grille known as the ‘Tiger Nose’. He previously worked at Audi and Volkswagen and had won the Design Award of the Federal Republic of Germany. Schreyer has since been central to a complete restyling of Kia’s lineup, overseeing design activities at Kia’s design centers in Frankfurt, Los Angeles, Tokyo, and the Namyang Design Center in Korea.

In October 2006, “Kia Motors America” began a project to develop “Kia Motors Manufacturing Georgia” at West Point, Georgia. In 2007 Kia had begun work on an assembly plant in the US in Georgia. It opened in February 2010. The company had been continuously increasing its US market share for over ten years.

By 2009, Kia was firmly established as a popular brand in Britain, when sales broke the 50,000 barrier for the first time and the brand now had a share of more than 2% in the UK new car market.

Kia Motors has also specialized in the production of military vehicles with variants and other transportation equipment. Supplying them as a sole maker of military vehicles designated by the South Korean Government since 1976.

Kia at the end of the first decade of the twenty first century had over 42,000 employees worldwide and annual revenues of over US$14.6 billion. Most of Kia’s main plant locations were in South Korea, Hwasung, Sohari Plant in Gwangyeong, Kwangju, and Seosan. Kia also had manufacturing facilities around the world, Zilina Plant Slovakia, Yancheng Plant Jiangsu China, Chu Lai Plant Quang Nam Vietnam and West Point Georgia USA.

Note that Hyundai has steadily divested itself of Kia, and by 2012 owned only 34 percent of Kia. “Kia Motors America” (KMA) is the American sales, marketing and distribution arm of “Kia Motors Corporation” based in Seoul, South Korea. KMA offers a complete line of vehicles through more than 755 dealers throughout the United States. “Kia Motors Europe” (KME) is the European sales and marketing division of “Kia Motors Corporation” (KMC), based in Frankfurt, Germany.

From 1998 Samsung Motor Industries (SMI) began producing the SM5 (mid-size four-door car also later marketed as the Renault Latitude and Renault Safrane, based on the Renault Laguna III. The SM5 , the first car manufactured at Busan, was a success, being purchased for taxi fleets. This led to increased confidence for the model within the rest of the customers

Since 1998 Samsung Motors has been selling cars in Chile when the company introduced the SQ5 (a version of the SM5). Chile is the only country that RSM was to sell some of its cars under the ‘Renault Samsung Motors’ marque and not as rebadged Renaults.

Following the IMF crisis “Samsung Group” divested itself of SMI as well as other non-core subsidiaries. SMI was put up for sale, Daewoo’s interest came to nothing as it became a victim of the financial crisis, while tense corporate relations with Hyundai prevented it’s involvement.

In December 1998 negotiations with Renault started. Renault was the natural partner for SMI as it had previously acquired 36.8 percent of Nissan in March 1999, from where the technology for the Busan plant originated. SMI as a global force started out with technical assistance from Nissan a company which at the time of SMI’s early stages was in dire financial straits. Its financial situation had forced Nissan to disclose its technology and engineering expertise to SMI. Also, Nissan has supplied SMI with its engines.

The sale of Samsung Motors to Renault was the first major foreign entry into South Korea’s auto assembly industry following the IMF crisis. The purchase was not seen as controversial in South Korea even though Renault paid a low price for Samsung’s brand new Busan plant. Given that many had expected SMI to fold entirely, the non-unionised workforce supported the deal.

In September 2000 the French automaker bought a 70% stake in SMI. One feature of the foreign sales of auto businesses that soon became clear was that they would not bring a significant capital injection to the chaebol. Renault acquired 70 percent of Samsung Motors for a cash payment of only US$ 100 million, and for taking on US$ 250 million in debts. In addition Renault agreed to pay a further US$ 270 million in future profits from the venture. Samsung had spent over US$ 5 billion on the plant, R&D facilities, and dealerships.

One genuine benefit of the foreign entry into South Korea’s auto assembly industry was the transfer of technology from the global network of affiliates belonging to the multinational auto firms. Renault for instance would make available its latest platforms, power trains and engines to the Renault Samsung partnership.

At the end of 2000 “Samsung Commercial Vehicles”, which had been kept by Samsung, filed for bankruptcy. After the 2000 acquisition, Renault renamed Samsung Motors as “Renault Samsung Motors” (RSM). Since then, the company’s results began to improve.

From 2002 RSM began producing the SM3, a compact four-door car based on the Renault ‘Fluence’. From 2004 they began producing the SM7, a large four-door car sold as Renault Talisman in China. Then in 2005, Renault increased its stake by acquiring an additional 10 percent share from the company’s creditors. From 2007 RSM started to produce the QM5, the first crossover from Renault Samsung based on the Nissan ‘X-Trail’, also marketed as the Renault ‘Koleos’.

By the end of the first decade of the twenty first century, Renault Samsung Motors (RSM) was majority owned by Renault with an 80.1 percent share, the rest being retained by Samsung via the Samsung Card affiliate, which has a 19.9 percent share of the company. Since the take over, RSM has gradually changed its products from a Nissan based architecture to a Renault based one. As part of the Renault group, Renault Samsung became basically an export-oriented manufacturer.

RSM’s head offices were located at Gasan-dong, Seoul, with other administrative offices in Busan. The car manufacturing plant is located at Busan in the Sinho Regional Industrial Site and begun production in 1998. It covered 1,650,000 m2 at that time and had capacity to manufacture 300,000 cars per year. It can produce various models simultaneously in a single production line. The plant is divided into seven production shops: Stamping, Body, Painting, Bumper, Assembly, aluminium casting, and engine.

The Renault Samsung Technical Centre is located at Giheung near Seoul, and is one of the largest R&D facilities of Renault after Guyancourt’s Technocentre. It was established in 1997 as the Samsung Motors Technical Centre, being expanded in 2000 and adopting its current name.

At first it was only involved with car engineering, but at the end of 2002 was created the RSM Design Centre within the facility to design locally the cars manufactured by the company. In early 2013 the design branch was renamed Renault Design Asia and it was put in charge of supervising the Renault’s Asian design operations.

In 1998, after the Asian financial crisis, Daewoo Motor took over the troubled four-wheel-drive specialist SsangYong Motor. Its models were sold under the Daewoo-SsangYong badge in South Korea, contrary to other areas where they were sold under the Daewoo brand name. SsangYong’s flagship limousine, the ‘Chairman’, was integrated into the Daewoo range, becoming the Daewoo ‘Chairman’, with a new three-parts Daewoo corporate grill. Daewoo cars were available in the United States and Canada between 1997 and 2002, Australia and many other countries, until Daewoo’s bankruptcy.

The turn of the twenty first century was a time of active acquisition of overseas manufacturing capacity in emerging markets. From 1998 to 2003 Daewoo owned a share of AvtoZAZ, an automobile manufacturer based in Ukraine, establishing the AvtoZAZ-Daewoo joint venture. In 1998, Daewoo Motor bought 50.2 percent of Avia, a Czech automotive company.

Also in 1998, the low-volume assembly under license of the ‘Lanos’, ‘Nubira’ and ‘Leganza’ models started in TaganrogRussia, at the “TagAZ-Doninvest” factory. The cars were sold on the local market under the “Doninvest” brand, as the ‘Assol’, ‘Orion’ and ‘Kondor’ respectively. The project did not have much success, so TagAZ turned to Citroën and Hyundai.

In 1999, Daewoo presented the ‘Magnus, which was a development of the existing ‘Leganza’. It was sold in Korea, alongside the ‘Leganza’, until the end of the latter’s production in 2002, it existed in two variants Classic and the sportier Eagle. The same year the trade name of ‘Avia’ was changed to “Daewoo-Avia”. In the same year, the company became the exclusive importer and distributor of Daewoo vehicles for the Czech Republic, and started manufacturing the Polish Lublin van and the new Avia D60/90 series truck range.

By 1999, the whole “Daewoo Group” had ran into financial trouble, and was forced to sell its automotive division. Candidates to buy out the operation included Hyundai associated with DaimlerChrysler, the Ford Motor Company and the GMFiat alliance. In early 2000 the Rezzo minivan was also introduced. Daewoo also sold off SsangYong Motor because of the deep financial troubles of the group.

In October 2000 GM bid to buy DMC. In 2001 the ‘Matiz’, ‘Lanos’ and ‘Nubira’ models got mid-life facelifts. The same year General Motors bought most of Daewoo Motor’s assets to form “GM Daewoo”, but the buyout plan did not include Daewoo-Avia (Czech Republic).

In 2002 the ‘Magnus L6’ was introduced, equipped with Daewoo’s first straight-six engine, with a new front grill and lamps. Daewoo also presented the Kalos subcompact, designed to replace the ‘Lanos’.

In 2002 General Motors finally completed the acquisition of Daewoo Motor’s assets. The new company “GM Daewoo” started operations on October 17, 2002, with GM and its partners Suzuki and SAIC (Originally “Shanghai Automotive Industry Corporation”, a state-owned enterprise), who held a stake of 66.7 percent with investments of US $400 million. It was later revealed by the ROK government that GM had also been promised a tax holiday to cover the first seven years following a return to profitability, and a reduced, fifty percent rate of taxation for the succeeding three years.

The GM holding was formally purchased by “GM Holden Ltd which held a seat on the board and was legally responsible for “GM Daewoo”. The remaining equity stake of 33.3 percent was held by the Korea Development Bank and several other Korean creditors with investments of US$197 million. The deal did not include 15 plants, including Daewoo’s oldest plant in Bupyeong-gu which was thence operated under the name “Incheon Motor Company as a supplier to GM Daewoo.

The deal was expected to open the door to significant technology transfer possibilities, such as the importation of the latest large engine technologies from Holden in Australia, and small diesel engine technology from Europe. Easy access to GM’s latest technology would be one way to enhance export performance.

Following the General Motors buyout in 2002, Daewoo lost interest in its overseas assets. In 2002, Daewoo Commercial Vehicle Company was spun off from parent “Daewoo Motor Co. Ltd.” Being later acquired by “Tata Motors” in 2004, India’s largest passenger automobile and commercial vehicle manufacturing company.

In 2002 the first car was produced under the GM Daewoo nameplate, the Daewoo ‘Lacetti, replacing the Nubira. This car was developed in South Korea under the Daewoo Motor era, but it gradually became a GM world car, sold under many different marques all around the globe.

In 2002 the ‘Completely Knocked Down’ assembly of the Daewoo ‘Lanos’ started in Ukraine. This was built from a complete kit for the assembly of the product, like a flat pack for furniture. This strategy is often adopted because it reduces shipping costs, may reduce taxes, it enables participation in joint ventures, and may circumvent protectionist barriers. Later the model was adopted for full-scale production as the ‘ZAZ Lanos’. A version of the Daewoo-developed Chevrolet ‘Aveo’ has also been assembled for local market at the Illichivsk subsidiary, Ukraine.

In 2002 following the bankruptcy of Daewoo Motor, UkrAVTO Corporation bought out the AvtoZAZ holding. All of the AvtoZAZ manufacturing facilities, most notably MeMZ and the Illichivsk assembling plant, were reincorporated into ZAZ. The company even adopted a new logo.

At the Frankfurt Motor Show held in September 2003, GM Daewoo’s CEO unveiled a US$ 1 billion investment plan for the following three years to design new vehicles, upgrade plants, create a new design centre and improve dealer networks. This included a US$ 200 million plan to build a new plant for assembling diesel engines. On November 25, 2003, the design center was relocated to the new two-story building at the Bupyeong-gu headquarters.

There were a number of disinvestments, in 2003 the Daewoo part in the AvtoZAZ (Ukraine) joint venture was bought out by the Swiss venture “Hirsch & CIE”. FSC (Poland) was then sold by General Motors to the British investment group Intrall. In 2004, Tata Motors purchased Daewoo Truck from GM.

In January 2005, the Chevrolet brand was introduced in Europe, the whole Daewoo range being simply re-badged as Chevrolet. General Motors’ official tagline was that: “Daewoo has grown up enough to become Chevrolet”

After collapse of the group and Chairman Kim’s escapades including the bankruptcy and fire at the Daewoo-Orion Microwave Oven factory in France, the Daewoo brand name had a very bad image. GM simply decided to extend the Chevrolet strategy that was already used in most other markets, Canada, India, Israel and Russia since 2003 to create a real global brand, replacing the Daewoo “dual kidney” with the Chevrolet “bowtie”.At first rebranding was made piecemeal in different markets. Later, the tendency went towards a uniformisation in the Chevrolet Europe range, for example the Spark and the Cruze bear the same model names throughout all European markets.

Apart from in South Korea, the Daewoo brand continued to exist in some overseas markets several years after its replacement with Chevrolet, particularly in those countries where Daewoo Motors’ former facilities were not part of the General Motors take over plan.

Examples of markets where it continued to be used for former Daewoo models are –

In February 2005, GM invested US$49 million in GM Daewoo to raise its share in the company to 48.2 percent. During 2005, GM Daewoo introduced the Holden-based ‘Statesman luxury car, after a few years without any new cars to present, replacing the discontinued Daewoo ‘Chairman. The third generation of the Matiz was introduced, refreshed by the GM Daewoo design team, and an evolution of the four-door ‘Kalos’ appeared, the ‘Gentra’.

There were developments in the company’s East European ventures. In 2005, “Daewoo-Avia” (Czech Republic) was taken over by the investment group “Odien Capital Partners”. Since January 2005, FSO (Poland) began to produce the ‘Matiz’ and the ‘Lanos’ under their own trademark.

In 2005 production of the ‘Maxus’ van was started by LDV at their plant in Birmingham, UK. “Daewoo Motor Polska” (formerly FSC) and the British van manufacturer LDV developed the ‘Maxus’ van together during the late nineties.  After Daewoo Group’s bankruptcy, LDV secured the exclusive rights to the vehicle, purchased the tooling and moved its production.

In early 2006, GM Daewoo presented the Tosca, the replacement of the ‘Magnus. At the end of 2006, GM Daewoo introduced the Winstorm’, its first proper sport utility vehicle (SUV), which was sold worldwide under different marques and names including OpelChevroletGMC and Holden, (and previously Saturn before the demise of that brand in 2010). It featured a common rail diesel engine for the first time in a Daewoo vehicle. In October 2006, the division of light trucks (formerly “Daewoo-Avia”) moved under the concern of Ashok Leyland of India, becoming Avia Ashok Leyland Motors Company (AALM).

The year 2007 saw the introduction of the ‘Lacetti’ and ‘Kalos’ hatchback facelift’s wagon version, becoming the ‘Gentra X’. The Craiova factory was acquired by the Romanian government and sold to Ford in 2007. The official agreement was signed on 21 March 2008.

For 2008 GM Daewoo introduced the first Korean-branded roadster, the ‘G2X sports car, (a badge-engineered Pontiac ‘Solstice/’Saturn Sky which was based on the GM Kappa platform), and also started to sell the Opel ‘Antara under the name of Winstorm MaXX’. The same year the ‘Statesman’ flagship was also replaced by the new ‘Veritas which was now based on the Holden ‘Caprice V. In May 2008 in Romania the production of Daewoo models was stopped, and Daewoo Automobile Romania became “Ford Romania”.

Late 2008 and early 2009 were a major period for GM Daewoo with the introduction of the all-new Lacetti Premiere, which was based on the Chevrolet Cruze, a very important compact car for GM divisions worldwide.  In 2009 the newly rechristened third generation of the ‘Matiz’ was added to the range as the Chevrolet Spark’. In October 2009 increased its holdings in the company to 70.1 percent, with the Korean Development Bank holding 17 percent, Suzuki 6.8 percent and SAIC 6 percent.

In 2010, GM Daewoo’s shares were split General Motors owned 82.9 percent, SAIC 9.9 percent and the Daewoo Motor Creditors Committee the remaining 7.2 percent. In the company was 2011 renamed “GM Korea”.

At the end of the first decade of the twenty first century the “GM Korea Company” was South Korea‘s second largest automobile manufacturer, after Hyundai/Kia, and was an affiliate of the General Motors Company. On January 20, 2011, General Motors announced that GM Daewoo would be renamed GM Korea “to reflect the Korean affiliate’s heightened status in the global operations of GM effectively from March 2011. Most of the former Daewoo products were rechristened as Chevrolets.

GM´s luxury division Cadillac is also available in South Korea. In addition, GM Korea provided region and brand-specific vehicle assembly kits for assembly by GM affiliates in:

In 2008, GM Korea built more than 1.9 million vehicles, including “Completely Knock Down” products from kits. It now produced vehicles and kits for Chevrolet, Holden, Opel/Vauxhall, and Buick models that are offered in more than 150 markets on practically all continents.

GM Korea had design, engineering, and R&D facilities that are involved in development for various GM products, above all small-size cars. In 2014 GM Korea boasted the following manufacturing facilities in the ROK:

  • Bupyeong-gu: vehicle assembly and gasoline/LPG engine manufacturing (production capacity 440,000 units/year)
  • Gunsan: vehicle assembly and diesel engine manufacturing (production capacity 260,000 units/year) Tata Daewoo Plant
  • Changwon: vehicle assembly and gasoline/LPG engine manufacturing (production capacity 210,000 units/year)
  • Boryeong: transmission and engine components manufacturing

In addition there was a small plant in Vietnam, Hanoi, “GM Vietnam” vehicle assembly (production capacity 11,000 units/year).

In 1997, the branch of “Daewoo Motors”, which later became “Tata Daewoo”, bought a controlling stake from the “Ssangyong Group”, only to sell it off again in 2000, because the conglomerate ran into deep financial troubles. In late 2004, the Chinese automobile manufacturer SAIC took a 51percent stake of “SsangYong Motor Company”.

The deal soon became controversial when the Chinese owners were accused by employees of stealing Korean proprietary technology in violation of South Korean regulations, and of under investment in Korean operations. By 2009 the company had made loses of over US$ 75 million and went into receivership. Following several bids the company was acquired by Indian firm “Indian Mahindra & Mahindra Ltd.”, with the blessing of the ROK government.

At the end of the first decade of the twenty first century, SsangYong Motors was the fourth biggest South Korean manufacturer of passenger cars and commercial vehicles. The company’s main factory was at Pyeongtaek, which produced the complete range of models. In addition there was a plant at Vladivostok in Russia, run by the Russian company “Sollers JSC”. This manufactured the SsangYong ‘Korando’ as well as the new ‘Actyon’, ‘Kyron’, ‘Rexton II’, ‘Actyon Sports’ and its upgraded version the ‘SUT1’. At Kremenchuk in the Ukraine, the “Kremenchuk Сar Assembly Plant” (KrASZ) manufactured ‘Korando’, ‘Kyron’, and ‘Rexton II’ models.

In 2004 the value of the ROK auto parts market was estimated to be US$ 19 billion, just under 2 percent of the global market. This was smaller than:

  • USA (US$ 456 billion)
  • Japan (US$ 171 billion)
  • Germany (US$ 56 billion)
  • France (US$ 45 billion)
  • Italy (US$ 27 billion)
  • UK (US$ 25 billion)

This made the ROK the world’s seventh biggest manufacturer of auto parts.

In the years 2001 to 2002 exports of auto parts grew 22 percent, reaching US$ 2.7 billion. From 1997 to 2003 the auto parts industry continually showed a trade surplus. Note that domestic car demand was weak during this time so imports of auto parts were weak, also the fall in value of the Won favoured exports over imports. However by 2004 both imports and exports of auto parts were increasing.

Increases in imports of parts could be explained by the increasing scale of production, the increasingly global sourcing policy of assemblers, especially following take overs by foreign multinationals. In addition Korean assemblers increasingly sourced parts from foreign companies to ensure competitiveness.

Industry experts viewed Korean auto parts makers as having strengths in production and processing technologies. However they were relatively weak in the introduction of new technologies, the introduction of new products, and in design technologies. In these respects they have largely been led by the demands of the chaebol assemblers.

In 2004 the average turnover of Korean ‘Tier One’ suppliers was only about 20 million Won. About 94 percent of auto parts suppliers were SMEs with from 10 to 250 employees. Auto Part affiliates of chaebol supply at least half of their output to their parent company. Outside trade is relatively weak.

The value of exported of parts as compared to completed vehicles, as a percentage, is weak by the standards of automotive industries in other major industrial nations: USA 205 percent, Japan 48 percent, and ROK only 18 percent. The parts supply chain is highly domestically oriented, this reflects the lack of Korean firms adopting a global supply network.

In the past the relationship between automobile assemblers and parts suppliers was long vertical, closed within a conglomerate or contractually, and non-competitive. Procurement was based on personal contacts or established usage. However once Korea’s auto industry reached a competitive global level it was faced with the need to modify its methods of parts procurement. Korean firms have increasingly adopted a more open and competitive procurement method in order to obtain quality parts at competitive prices.

The new demands on the parts industry are to meet environmental standards, safety standards and to provide modular designs. These new demands mean that parts manufacturers have had to take on a greater role in innovation and technology development. Assemblers increasingly seek collaboration with parts suppliers which have the capacity for technological development. The next logical step is for Korean assemblers to source parts globally and to increase business dealings with the most technologically advanced firms.

The purchases of parts by the four top South Korean assemblers, Hyundai, Kia, Daewoo and Ssangyong, expanded from 2000 to 2002. This was partly due to the increase in number of units produced but was also due to the shift in demand away from smaller vehicles to larger vehicles. From 1998 to 2002 the number of auto parts manufacturers in South Korea varied erratically starting with 928 and ending with 848. This suggests that consolidation was underway in the industry.

With regard to the ROK auto parts industry, there is evidence of the major assemblers beginning to source parts globally. For example Hyundai, since 1999, has begun sourcing some components globally. The ‘Equus’ contained 140 parts procured from overseas, mostly from Japan (100 parts), then Europe, then N. America. Hyundai and Kia imported 35 percent by value of their parts from foreign firms.

ROK assemblers have been buying increasing amounts of parts from the foreign invested parts suppliers inside Korea. For example in 2001 Hyundai and Kia purchased 35 percent of parts from these foreign invested companies. The current growth in inward FDI in the ROK auto parts industry is expected to be followed by an increase in their share of trade with assemblers.

The ROK automotive industry lags behind other leading auto manufacturing countries in the employment of ‘modular components’. In 2004 the modularity of Hyundai and Kia models was limited to 10 to 25percent. The two companies have set a target of 40 percent modularisation by 2006. Such policies will favour those suppliers able to supply modules, this will create growing opportunities for foreign suppliers.

A major feature of the ROK auto parts industry since the IMF crisis has been the much greater foreign penetration of the domestic market, either through joint ventures, or through wholly foreign owned enterprises. The fall of the won enabled foreign companies to purchase ROK assets at ‘fire sale’ prices. Around one hundred foreign companies either entered the ROK auto components industry, or increased their presence in it. Over 60 foreign companies established wholly owned or majority owned ventures in the ROK auto parts industry.

For one example, when the “Halla Group” chaebol went bankrupt it’s ‘Mando’ auto parts subsidiary, one of the largest in ROK, and a major exporter, was broken into pieces and sold off:

  • The electrical parts plant was sold to France based ‘Valeo’ in 1999, which already had joint ventures in ROK (“Pyeong Hwa Valeo Corp.”, making manual power train systems).
  • Five other plants were sold to investment banks Chase Asia Equity & UBS Capital to be resold to related companies.

Other examples included:

  • “Hanwha Machinery Corp.” sold its rolling bearings operation to Germany based “FAG” in 1998, Germany’s leading bearings manufacturer.
  • Ford spin off “Visteon” purchased its licensee “Halla Climate Control”, & “Duck Yang Ltd.” (ROK’s biggest manufacturer of instrument panels), in 1999.
  • In 1999 UK firm “Britax” purchased “Poong Jeong Corp.”, ROK’s dominant rear vision systems manufacturer.
  • GM spin off “Delphi” bought a share in “Sungwoo Corp.” which supplies airbags & seat belts to Hyundai (no date given).
  • In 1999 “Bridgestone” (Japanese Tyre maker) bought “Kumho Industrial’s”, (ROK’s largest tyre manufacturer), People’s Republic of China plant.

Note that by the early twenty first century, all global ‘Tier One’ suppliers in the auto industry had established a presence in the ROK. They were attracted by size of the domestic Korean car market, and by the possibility of exports into East Asia. The increased presence of global leaders in auto parts inside ROK benefits the chaebol assemblers who can get the latest technology and improved quality of components.

The current industry trend is for suppliers, especially ‘Tier One Suppliers’, (providing completed modules), to take greater responsibility for the quality of the final product. The latest ROK built models incorporate newly-designed modules from ‘Tier One’ suppliers, like the Daewoo ‘Lacetti’ which incorporated:

  • ABS from “Bosch”
  • Air bags from “Siemens Automotive”
  • Emission Control Systems from “Siemens Automotive”
  • Automatic Transmission from “ZF” & “Aisin Warner”

Such modules are manufactured within the ROK thus provide jobs in the ROK, and help the country’s balance of Trade.

It is important to note that the foreign invested production of the ROK auto parts industry was still marginal in 2000, representing about 13 percent of total output, and about 12 percent of employment in the transport equipment sector. There is still likely to be some future ‘consolidation’ of the ROK auto parts industry, such as mergers, closures etc. Some foreign owned companies operating in ROK also allege they have experienced resistance from suppliers dependent on Hyundai-Kia to deal with them.

Surveys and interviews have been carried out to investigate the impact of foreign ownership on ROK auto parts enterprises. There were a number of reports of productivity increases since becoming subsidiaries of foreign companies, apparently due to a narrowing of focus onto core activities.

There were also reports that a change in status from being minority owned by a foreign company to being majority, or wholly owned had increased access to the most commercially sensitive technologies. It would also be expected that foreign owned Tier One suppliers new to the ROK would find it in their commercial interest to supply their most advanced technology to their new customers.

The impact on R&D within the ROK seems mixed according to this evidence. There was little evidence that foreign companies were interested in expanding the R&D activities of their Korean acquisitions. Such activities seemed to remain concentrated elsewhere. Some evidence was found of research activities initiated to adapt products to the needs of the ROK market. In some cases pre-existing Korean R&D centres were being integrated into a corporation’s global R&D network. In other cases R&D was shut down at Korean affiliates.

A number of problems mitigated against the export of auto parts from the foreign owned enterprises within the ROK. The existence of both formal and informal trade barriers to imports in the East Asia region were alleged. The relatively high cost of Korean labour was cited as affecting competitiveness, while the high weight/value ratio of many auto parts make shipping disproportionately expensive. Thus there was the natural tendency to supply parts locally to assembly plants.

There were some examples of firms which did export significantly, one supplier of raw materials for auto parts manufacture used its Korean affiliate as an export base to Japan. Another, a global ‘First Tier’ supplier which had pulled out of a joint venture in ROK during the Asian Financial Crisis, now used its ROK offices to source components in ROK, then export them for assembly in overseas plants. Another major ‘First Tier’ supplier was happy with its joint ventures with ROK companies, and exported substantial amounts of its products. Overall foreign invested auto parts manufacturers based in ROK generated a healthy trade surplus in 2000.


From 1998 to 2005 in the post-Asian Financial Crisis Years, the ROK annual output of vehicles increased 59 percent and reached 3.8 million by 2006. Exports, notably to the US, helped to stimulate this growth. During the period 1998 to 2005 US sales of ROK built vehicles increased 316 percent. However domestic sales of home produced vehicles which were severely hit by the IMF crisis, remained stagnant at around one million vehicles per year.


In the first decade of the twenty first century, Japanese shipbuilders began to lose their market dominance for a number of reasons: the difficulty in recruiting new young engineers, and a lack of flexibility to adapt to changes in the world market, demanding bigger and bigger ships, and forcing Japanese to build preformatted vessels. By contrast in 2005 Korean builders secured 71 percent of new orders for LNG tankers, 64 percent of new orders for mega container ships and 42 percent of new orders for Very Large Tankers

Over 60 percent of Japanese ship production was for the domestic market, whereas it was much less for Korean built ships which were mainly for export, therefore there was more competitive pressure on Korean shipbuilders fighting for market share in the world market. The result was an incentive to innovate in technology and organisation. The number of personnel in R&D in the Korean shipbuilding industry nearly doubled from 1996 to 2004, including substantial numbers of post-doctoral researchers.

The success of the industry is demonstrated by the increase in numbers of people employed in shipbuilding. It increased by over a quarter from 1996 to 2004. However most of the increase was in hadogeup (low waged workers in Oejoo Opchae, subcontracted companies). There was also a significant decrease in the number of technological jobs, and a large fall in the number of skilled jobs in the industry.

The trend was to reduce labour costs by enlarging the dependence on low skilled workers belonging to subcontracted companies. In 2006 it was estimated that irregular and hadogeup labour represented over 50 percent of the shipbuilding workforce. This seems to show a trend towards rising inequality in Korean industry.

Some research on international comparisons of productivity in the shipbuilding industry suggest that the productivity of Korean labour is low in terms of tonnage built per man hour worked, and that the determinants of Korean competitiveness are low wages and a weak Won. Shipbuilding firms were becoming concerned though, about future recruitment because of shortage of young technicians, an aging labour force and the tendency of young people to seek work away from home rather than with local employers, like dockyards.

In 1999 the shipbuilding affiliate of Daewoo began a ‘work-out’ programme as part of the “Daewoo Group” restructuring effort, in 2000 shipbuilding being spun off from “Daewoo Group” as “DSME” (“Daewoo Shipbuilding and Marine Engineering”), and moving to new company premises.

In 2001 DSME won the most LNG carrier orders in the world. In 2003 being named the ‘Best Shipbuilder in the World’ by “Maritime Asia Lloyds” list. In 2005 DSME constructed and delivered the world’s first LNG-RV (Liquefied Natural Gas Regasification Vessel).

In 2005 DSME set up “DSSC” (“DSME Shandong”), China operation, wholly owned by DSME, which began full operation in 2006, and was awarded orders worth over US$ 10 billion. In 2008 DSME established “Seyoung Educational Foundation” (‘Geoje College’).

At the end of the first decade of the twenty first century DSME was the second largest shipbuilding company in the world, and retained its place among the ‘Big Three’ shipbuilders of the ROK, Hyundai, Daewoo, and Samsung. In 2008 posted a revenue of US$ 10 billion.

At the start of the twenty first century “Hyundai Heavy Industries Co., Ltd.” (HHI) was the world’s largest shipbuilding company, headquartered in Ulsan, South Korea. It had seven business divisions:

  • Shipbuilding – Containership, Drillship, LNG Carrier, Naval ship
  • Offshore & Engineering – FPSO (‘Floating Production, Storage & Offloading’), Semi-submersibles
  • Industrial Plant & Engineering – Power plant, Oil & Gas production facility, Desalination plant
  • Engine & Machinery – Marine engine, Steam turbine, Industrial robot
  • Electro & Electric Systems – Transformer, Gas Insulated Switchgear, Substation
  • Construction Equipment – Excavator, Wheel Loader, Backhoe Loader, Road Roller, Forklift
  • Green Energy – Wind turbine, Solar module

“Samsung Heavy Industries” (SHI) was the third of South Korea’s ‘big three’ shipbuilders. SHI’s main activities included:

  • Constructing ships
  • Constructing offshore floaters
  • Constructing gantry cranes
  • Manufacturing digital devices for ships
  • Other construction & engineering

SHI’s largest shipyard at Geoje has the highest dock turnover rate in the world. Dock No. 3 can be used for constructing ultra-large vessels. It has the highest production efficiency in the world with a turnover rate of 10, and the launch of 30 ships per year. SHI also has ship block fabrication factories in the People’s Republic of China at Ningbo and Rongcheng.

SHI specialises in producing high-value added and special purpose vessels, including:

  • LNG Carriers (currently a major line)
  • Offshore operations vessels
  • Oil drilling ships (currently a major line)
  • FPSO (floating production, storage & offloading)/FSO (Floating storage & offloading) used by oil & gas industry in support of offshore operations
  • Ultra-large container ships
  • Arctic shuttle tankers

Since the start of the twenty first century SHI has begun to –

  • Build LNG carrier ships
  • Build large Passenger ships (In 2009 being contracted to build the cruise ship “Utopia”, the largest passenger ship ever assembled in Asia)
  • Export shipbuilding technologies to the USA

In the first decade of the twenty first century, the three East Asian nations, Japan, ROK and the People’s Republic of China, dominated world shipbuilding with 79 percent of orders in 2005. The figures were:

  • ROK orders for 22,000,000 GT (37%)
  • Japan orders for 14,000,000 GT (24%)
  • PRC orders for 10,000,000 GT (17%)

Firms from these countries do compete, but also cooperate through joint ventures, technology consortia, and specialisation into complementary niches, a division of labour resulting in substantial intraregional trade. It is found that Japanese, Korean and Chinese firms engage in both cooperative and competitive relationships.

For example Japanese firms and the Japanese state provide capital for, sell technology to, sell products to and form joint ventures with ROK and PRC firms, whilst competing globally with these very same firms. Analysts recognise that tensions do exist within this complex relationship of interdependence, but collectively they are restructuring the world economy in a way which places East Asia at the centre of manufacturing production.


Following the IMF crisis South Korean steel output continued to grow but at a slower rate than before. By 2006 Korea was the world’s fifth biggest steel producer (after China / Japan / USA / Russia, in that order). The projections early in the twenty first century were for growing demand. Railway building projects such as the Seoul – Busan High Speed Railroad project and the Transcontinental projects linking Korea and China, to link with the Trans-Siberian Railway to Europe were expected to generate a huge demand for steel, both for rails and associated construction projects. In 2009 POSCO was also forecasting a large growth in demand for ship building steel, for building ships, offshore platforms and plant.

Like other Korean businesses POSCO suffered during the country’s massive currency devaluation of 1997 and the aftershocks that plagued the entire region. This Asian economic crisis hammered industries in Korea, Japan, Thailand and the People’s Republic of China, which were the major markets for POSCO’s, and its competitors’, steel. Indeed, as described above, Korean steel companies “Sammi Steel Co.” and “Hanbo” went bankrupt. As a result of regional financial crisis steel prices plummeted worldwide. As steel manufacturers struggled to make up the price difference in volume, they glutted the market, driving down prices even further.

In 1997, Seoul announced that it was going to transform POSCO into a private company in line with the government’s new policy of privatizing government-owned corporations. The government planned to retain a majority share of the stock.

In 1998, POSCO announced it was cutting steel production for the first time in its history, as export prices and domestic demand continued to drop. The crisis also buffeted the South Korean government, which ratcheted up its schedule to privatize POSCO. In order to raise foreign currency and help satisfy “International Monetary Fund” imposed criteria for the release of US$57 billion in much needed stabilization loans. The government sold off an additional 3.14 percent stake in POSCO in 1998. The shares were repackaged as American depository receipts and offered on the “New York Stock Exchange”. In 1999, the government sold an additional 13 percent stake.

Initial reports in the South Korean press in 1998 indicated that the sale of public shares was going slower than anticipated. However, the administration led by Kim Young-sam changed the initial policy direction of privatization of POSCO and decided not to sell government-owned stock to keep it as a government investment enterprise.

Despite the difficulties it encountered in its markets at home and abroad, POSCO continued to perform well in the late 1990s. In 1998, the company’s net profit rose 54 percent and its sales grew 15 percent, even though demand for steel dropped 35 percent in Korea during the year.

The Kim Dae-jung administration which followed, listed privatization of public enterprises as a high priority policy on the economic agenda to implement mainly because of the outbreak of the economic crisis. The new administration decided to privatize POSCO and by 1998, the South Korean government had reduced its ownership of shares in POSCO to less than 20percent, and more than 50 percent of the shares in POSCO were in the hands of foreign investors. In 2000 full privatization of POSCO was completed.

As the millennium closed, though, POSCO stumbled. In 1999 the company publicly admitted to the Asian Wall Street Journal that it had spent US$3.83 billion on bad investments, which it defined as non-core businesses and redundant facilities during the period 1994 – 1997.

One problem was the company’s failed mobile phone venture. In 1994, POSCO had been selected to play the leading role in the South Korean government’s consortium to build and develop the nation’s second mobile phone network. POSCO had been jockeying for this position in what the Asian Wall Street Journal called “the world’s most lucrative telecommunications project” for four years.

POSCO recruited “Air Touch”, which had recently spun off from the American company, “Pacific Telesis Group”, as its technology partner in the project. POSCO’s competitors, including several American telecommunications firms, cried foul, though, and claimed the steel giant had corrupted the selection process. The allegations only added fuel to the movement to fully privatize POSCO, which its detractors claimed was too enmeshed in nearly every sector of South Korea’s business.

Moreover, although POSCO refused publicly to classify it as such, it was clear to outsiders that its stake in “Shinsegi Telecom”, as the government cell phone consortium had been named, was a failure. Late in 1999, POSCO announced it would sell its entire stake in “Shinsegi”, thereby cutting itself loose from the new sector it had so eagerly sought to enter a few years earlier.

POSCO also continued to be plagued by corruption charges. In 1998, a South Korean government watchdog group accused POSCO executives, particularly former Chairman Kim Mah-je, of embezzling more than W 7 billion (US$5.8 million) in company funds for personal use. In 2003 POSCO Chairman Yoo Sang-boo also resigned, after he was indicted on embezzlement charges in 2002.

To readjust its corporate strategy POSCO slowed the pace of its expansion, committed to investing only in projects that were in line with its core operations, cancelled some joint ventures and suspended others.

POSCO also attempted to cut its expenses by merging subsidiaries. In 1999, for example, it united “Pohang Steel Industries” and “Pohang Coated Steel” to create “Pohang Steel Co.” It also merged three machinery units into one entity, “POSCO Machinery Company”.

Worldwide, though, steel prices remained low in the new century. According to the Asian Wall Street Journal, “steel companies could not price their products any lower without going bankrupt.” Industry analysts predicted that a wave of consolidation would sweep the industry. POSCO sought to stave this off by forming strategic partnerships with former rivals to secure lower prices for raw materials and share the costs of research and joint procurement. In 2001 POSCO joined with Japan’s “Nippon Steel” and China’s “Baoshan Iron & Steel Works” to fulfill this goal.

Other changes accompanied the privatization process. For example a new Chairman Lee Ku-taek began efforts to introduce a professional management and governance system of global standards for POSCO. With the change in leadership, from Park Tae-joon to Ryu-Sang-bu, POSCO increased its decentralization and diversification. POSCO’s new management emphasized greater flexibility, autonomy and a consensual decision-making process. The chairman also moved to devolve more autonomy to the profit centres, changing from a strictly hierarchical organizational structure to one based on teams.

Under the new governance system, management made accountability to shareholders a priority. POSCO also introduced a new performance-based evaluation and compensation system. Throughout most of its privatization drive, POSCO increased its revenue and business profit. In 2002 the company officially changed its name to POSCO. The landmark “Posteel Tower” on Tehran Street, in Seoul’s Gangnam district (not to be confused with the “POSCO Center”, also on Tehran Street) was completed in 2003. In 2003 POSCO also set a mid-term goal to attain W 36 trillion (US$29.8 billion) in corporate value by 2007.

With increasing global competition, POSCO looked to China and India for new opportunities. South Korean wages were too high to support a whole range of activities and POSCO looked elsewhere for new projects while keeping the areas where they have a comparative advantage in South Korea.

POSCO planned to redouble its export efforts in China. In 2004 thanks to robust demand at home and in China, POSCO recorded the largest profits in the global steel industry. Net earnings from POSCO’s array of steel products, used in everything from screws to skyscrapers, shot up 80 percent to US$1.66 billion in 2004 from 2003.

On July 4 2005, POSCO became the first private company in Korea to complete an LNG (Liquid Natural Gas) Regasification Terminal, thus facilitating the introduction of LNG in its productions. POSCO established a long-term agreement with Tangguh Consortium of Indonesia for the direct import of LNG in July 2004. POSCO will directly import 1.15 million tons of LNG through Gwangyang LNG terminal, supplying:

  • 300,000 tons to Pohang Works
  • 250,000 tons to Gwangyang Works
  • 600,000 tons to “SK Group’s” K-Power Generation Plant.

With the completion of the Gwangyang LNG Terminal, POSCO expects to greatly enhance its cost-efficiency by stably supplying low-cost LNG to Pohang and Gwangyang Works.

By 2006, POSCO had 26 subsidiaries and invested over US$2.4 billion in fresh investment on mainland China, especially in galvanized and stainless steel to supply global auto and appliance makers that have opened plants there. In 2006, POSCO started operating the “Zhangjiagang Pohang Stainless Steel” (ZPSS) steel mill capable of producing 600,000 tons of stainless steel and hot-rolled products annually in China’s Jiangsu Province. As a result, POSCO became the first foreign firm operating an integrated stainless steel mill in China, handling the entire production process from smelting iron ore to finished products, including the cold rolled stainless plant it already operates.

In June 2005, POSCO signed a memorandum of understanding with the State of Orissa in India. Under the agreement, POSCO plans to invest US$12 billion to construct a plant with four blast furnaces, an electricity plant, housing and an annual production capacity of 12 million tons of steel. The project was planned to start production in 2010. If the project had gone ahead, it would have been the single largest foreign direct investment in India as well as being the world’s biggest green field steel plant ever. As of  2010, the India project has not been able to proceed due to strong opposition from the local residents in the area proposed, as there have been allegations that the Federal and State governments have been illegally trying to take lands and forests for the project, in violation of the “Forest Rights Act”.

POSCO have pursued investment opportunities in other developing countries such as Vietnam and Mexico. It was announced in August 2006 that POSCO would build a large-scale steel mill in southern Vietnam. POSCO planned to build the US$1 billion plant in two phases for hot-rolled and cold-rolled products. By 2012 when it was projected to be completed, the mill was expected to produce 3 million tons of steel products annually.

POSCO also planned to build a US$250 million plant in the city of Altamira, Mexico, to produce 400,000 tons of galvanized steel sheet a year for automakers . The venture was to be POSCO’s first wholly owned steel-plate plant in North America. POSCO planned to begin construction in early 2008, and start operations in 2009, producing galvanized and galvannealed steel.

On June 30, 2006, POSCO completed the construction of its sixth continuous galvanizing line (CGL) at its Gwangyang mill in the South Jeolla Province. With this new addition, POSCO becomes the world’s biggest producer of sheet steel just behind “ArcelorMittal”.

In 2005 ROK steel production totalled 48 million tons, 4.7 percent of world steel production, ranking it the fifth biggest producer behind the Peoples’ Republic of China, Japan, USA and Russia. Comparing the competitiveness of Korean and Japanese steel producers, “Nippon Steel’s” superior labour and capital productivity rapidly disappeared in the nineteen eighties, with POSCO superseding it by 1992.

Combined steel production by Japan, ROK and the People’s Republic of China grew from 23 percent of world output in 1985 to 51 percent in 2005. This was mainly due to rapid growth of ROK and Chinese output.

The relationships between these three major steel producing nations are complex and continually changing, with certain specialised steel trade items passing between them. Steel trade between these three countries increased by 50 percent in the five years from 1997 to 2002, reaching 21 million tons.

Japan maintained its superiority in high technology steel production, the ROK maintained its competitive edge in manufacturing processes, while China is catching up fast, with technological innovations and investment in new infrastructure. For example over 70 percent of Japan’s exports to China are high value added products such as cold rolled sheet, stainless steel and plating steel. Chinese exports to Japan are mainly hot coil sheet. Japanese exports to the ROK have become specialised including crude steel products and a small number of specialised steels. Since 2001 the exports of ROK to China show a specialisation in cold rolled sheets and plating steel.

To summarise, the three nations of Japan, the ROK and the People’s Republic of China have formed a specialised and interdependent division of labour in the steel industry, reflecting differences in technology, skilled labour, and the production of high value added products.


Petrochemicals and Chemicals

By the turn of the twenty first century South Korea’s chemicals and petrochemicals industry had grown from a ‘secondary import substitution industry’, intended to reduce the country’s dependence on imported chemicals, into a major export industry. In 2009 ROK chemical exports were valued at US$ 88 billion, (or 8.9 percent of manufactured exports), and petrochemicals exports at US$ 56 billion, (some 5.7 percent of manufactured exports). There was a slight trade surplus in chemical exports, but a large, three fold surplus of petrochemical exports over imports. Important export products included basic petrochemicals and organic chemicals, synthetic rubbers and plastics. In 2010 petrochemicals alone earned a trade surplus of US$ 22.4 billion.

Between the nineteen sixties and the nineteen nineties, the ROK chemicals industry grew at a rate of 7-8 percent per annum. From 2000 to 2010 this growth rate accelerated to 12.5 percent per annum. This was mainly due to increased production of higher value added products. In particular output increased of dyes, paints, pigments and surfactants, with these products now being competitive in the world market. Much of this growth was also due rising prices caused by high oil prices. Advances in the South Korean production of biopharmaceuticals, cosmetics and surfactants were poised to boost the value of growth further.

Using ethylene production data alone as a benchmark, (for polythene plastics production and to make a variety of organic chemicals), the ROK petrochemicals industry was the fifth largest in the world in 2010, after USA, the People’s Republic of China, Saudi Arabia and Japan. South Korean chemical exports suffered competition from large scale, low cost Chinese production, and production from the Gulf States such as Saudi Arabia and the UAE. The Gulf States not only produce bulk petrochemicals, but high value added fine chemicals as well.

Today, South Korea’s chemicals industry is in the process of transforming from a large scale commodity industry to one that produces innovative high value added products. One 2010 report by the “Korea Institute for Industrial Economics & Trade” identifies a lack of diversification in high value added, fine chemicals and the technologies supporting their production as a weakness of the ROK chemicals industry if the country is to remain sufficiently adaptable to future changes in the world market, including keeping up with environmental technologies. It has been suggested that South Korea continue to seek foreign partners in joint ventures, consortia etc., in order to obtain the necessary technologies. A complete overhaul of the chemicals value chain has been recommended.

The ROK government draughted plans to increase R&D investment from about 3 percent of GDP in 2006, to about 5 percent by 2012 to support the development of key technologies.

The list of these technologies included catalysts, chemical process technologies, advanced composite materials and new organic materials such as plastic optical fibres, fluorine resins and silicone resins.

In spite of this criticism, many South Korean firms have been successful in developing high value added processes technologies. Some of these have been licenced for use in foreign countries such as People’s Republic of China and the Republic of China (Taiwan).

At the start of the twenty first century, the largest fuels and petrochemicals concern in South Korea was the SK Group, in 1998 the management having re-branded “Sunkyong” to “SK”. The company continued to have interests in fuels and materials, and was increasingly involved in pharmaceutical and environmental protection products. In 1999, “SK Chemicals” developed third-generation platinum-complex anti-cancer agent. The same year a strategic alliance was made with U.S. “Johnson & Johnson” for development of the anti-epileptic (YKP509)

In 2001 the company began to supply ZIC XQ, a one hundred percent synthetic high-end engine oil. SK Energy was named first for customer satisfaction and brand power in surveys by major consumer reports. The same year the company developed the first Korean made DeNox-SCR catalyst for catalytic converters, to remove nitrogen oxides from exhaust fumes. Supplies of such catalysts previously depended entirely on imports. Other environmental technologies established that year included: a polluted soil purification technology allied with ‘Tefra Tech’ of the United States, a diesel exhaust filtering technology licensed in Japan, and development of Korea’s first microorganism-activated VOC (Volatile Organic Compound) bio-filter

In the field of energy and fuels the company had a major oil discovery in Block 15-1 Vietnam. Plant operation technology was licensed in Taiwan, Ghana and Kuwait. Also the World’s first commercialization of coke-reducing technology by on-line coating was launched.

In 2002 SK Corp. catalyst manufacturing technology was sold to the world-renowned catalyst provider, “Zeolyst International”. The company also disinvested from “SK Telecom” with overseas issuance of SK Telecom’s stocks amounting to KRW1.7 trillion.

“International Trading (Shanghai) Co., Ltd.” was established as a branch of SK in China to launch the sale of the company’s polymer products. The 40th foundation anniversary celebration was held, the company’s Ulsan refinery, originally belonging to the “Korea Oil Corporation” had been the first to begin oil refining in South Korea in the early nineteen sixties.

The establishment of “SK Bio-Pharmaceutical Tech. (Shanghai) Co., Ltd.”, broadened the SK Korea-U.S.-China pharmaceutical R&D network. An SK energy branch was also established in Zhaoging City, Guangdong Province, China, for the production and sale of its specialty polymer products (Zhaoging A. P. Compounding Facility). In pharmaceuticals, “Johnson & Johnson” selected SK energy antidepressant YKP581 as a clinical candidate.

In 2003 there were developments in the materials businesses. SK advanced into the packing material market in China through establishment of a joint venture with “Zhejiang Shenxin Packaging Co., Ltd.” for production of agricultural chemicals using self-developed barrier resins in Hangzhou, Zhejiang Province. The company also became the second company in the world following Dow Chemical of the U.S. to develop RT, a next-generation material for hot water/heating pipes. The local energy in the U.S. had it certified as a new material.

In the field of energy SK Corp. commenced production of crude oil from Su Tu Den Oilfield in Vietnam. The company, along with the “Korea National Oil Energy”, had an equity stake in the oilfield. SK also officially signed a Petroleum Sharing Contract of North East Madura I Block, Indonesia, with the Indonesian government. Furthermore the company participated in the POSCO Gwangyang LNG Thermal Power Plant construction project with BP, mentioned above.

In pharmaceuticals as a result of focusing its research and development efforts on life sciences, SK developed YKP1358, a new drug candidate for treating schizophrenia and obtained U.S. FDA IND (investigational new drug) approval, following YKP 10A for treating depression and YKP 509 for treating epilepsy.

In 2004 at the Ulsan refinery complex a second Lubricant Base Oil Plant was completed and an environmentally friendly Ultra-Low Sulfur diesel facility was opened. In 2005 there were further developments in the fuels businesses. SK Energy finalized an agreement to acquire the Inchon Oil Refinery which once belonged to Hanwha Energy. Also after exploring Brazilian mining area BM-C-8, SK Corporation developed an oil field where it confirmed the existence of more than 50 million barrels of oil deposits. In retailing fuels, SK Networks opened the People’s Republic of China’s first two wholly foreign-owned, gas stations in Shenyang.

In materials, at the end of 2005, SK Corp. developed a lithium ion battery separator (LiBS) for the first time in Korea. While in pharmaceuticals, anti-anxiety drug candidate YKP3089 was approved for human trials.

During 2006 petrochemical facilities were expanded at Ulsan. The company was Korea’s largest refiner with a refining capacity of 1.15 million barrels per day. In 2006 there was a management buyout by SK, and the Incheon operations were renamed to “SK Incheon Oil Refining”.

The same year a Peru LNG Project was launched, an environment-friendly washing solvent was developed and the credit rating of SK was raised to “BBB-“. SK Gas also began developing resources overseas when it participated in two mining areas to the west of Russia’s Kamchatka peninsula. There were a number of new overseas Exploration Projects as well.

In polymers, SK Networks also developed ‘Ecol-Green’, a biodegradable plastic material, and started selling the lithium ion battery separator (LiBS) (a polymer barrier inside the battery). SK Corp imported propylene oxide (PO, a chemical used in manufacturing polyurethane) production technology from Germany . It is scheduled to produce 100,000 tons of PO from 2008. The company also set up a new Hybrid Vehicle Battery Business.

In July 2007, SK Group adopted a holding company structure. Under the re-organization, SK’s main entity, SK Corporation, was split into an investment company, now “SK Holdings”, and an operating company, which was to become “SK Energy”. The subsidiary companies that operated under the central SK Holdings umbrella included:

  • SK Energy (Energy & Petrochemicals)
  • SK Telecom (mobile phone services, wired and wireless combined services)
  • SK Networks
  • SKC (chemicals, polymer films)
  • SK E&S
  • SK Shipping
  • K Power

In 2008 there were further developments at Ulsan, including launch of 1,4 butandiol plant (capacity 40,000 tons/yr) and launch of the No. 2 RFCC (Residue Fluidised Catalytic Cracking) plant (capacity 60,000 bpd). The same year the Incheon operations were renamed to “SK Energy Incheon Complex”. Abroad there was the launch of the No.3 base oil production plant in Indonesia (capacity 7,650 bpd).

On April 7, 2008, SK Group launched a marketing and management company named “SK Marketing & Company” (“SK M&C”) to pursue Chairman Chey’s vision. SK’s subsidiary companies all operated under the SK Management System (SKMS) which was developed, articulated and enhanced by SK’s Chairman, Chey Tae-won.

In 2011, the petroleum business was spun off to become “SK Energy”, while the chemical business was spun off to become “SK Innovation”. SK Energy was an energy and petrochemical company with 5,000 employees, KRW 23.65 trillion in sales and 26 offices spanning the globe. The company was Korea’s largest, and Asia’s fourth largest, oil refiner. SK Energy was engaged in exploration and development activities in 26 oil and gas blocks in fourteen nations worldwide at that time.

In 1999 the Ssangyong oil refining business centred on the Onsan refinery adopted a stand-alone management system after being separated from Ssangyong Group, as “Ssangyong Cement Industrial”, the second-largest shareholder in the Company, had sold its stake as part of Ssangyong Group’s restructuring efforts. Thus in 2000 the Company changed its name to “S-OIL Corporation”, a more internationalized name, as it made a fresh start on its own, seeking a complete change of image through aggressive marketing campaigns.

In 2000 S-Oil completed the Sinwon Oil Storage Terminal (with a capacity of 9 million barrels). This was so the Company would not suffer from a chronic shortage of storage facilities any more. This would enable it to operate its refinery stably, controlling inventories flexibly.

In 2001 S-Oil convened a rally to establish a new, cooperative labour-management culture, and established with labour about a “no dispute” agreement. Management and labour agreed to avoid wasteful disputes, to increase productivity, and to promote the welfare of employees. The aim was to establish a new labour-management culture based on mutual trust and cooperation.

The same year S-Oil signed a rice purchase agreement to help farmers in Onsan-eup, Ulju-gun, Ulsan The Company provided support for farmers in the Onsan area who had difficulty in selling rice due to falling rice prices and to the government’s limited rice purchase. The Company purchased rice from the local farmers (excluding the volume purchased by the government) at a price higher than the market price.

In 2002 the new “Hyvahl Complex” was completed, a high-viscosity bunker-C cracking and desulfurizing facility. The Company reduced foreign currency expenditures and made all products light and of low-sulfur content. The “Hyvahl Complex” converts 57,000 bpd of high-sulfur bunker-C into ultra-low-sulfur bunker-C, and has provided the opportunity to increase export profitability. That year S-Oil also established a system for mass-producing premium lube base oil. The Company doubled its capacity to produce this. The Company improved profitability remarkably by adopting hydrocracking technology and mass-producing ultra-high-quality lube base oil with very high viscosity index (VHVI).

In 2005 the company appointed Dr. Samir A. Tubayyeb as representative director & CEO, who had had 25 years of experience with “Saudi Aramco”. While in 2006 S-Oil unveiled high-octane gasoline “S Gasoline Premium”. The Company unveiled the premium gasoline brand with an octane number of over 100, the highest level among domestic gasoline products, to meet diverse consumer needs amid increasing numbers of imported cars. The year 2006 marked the 30th anniversary of S-OIL. The management declared the “5S-SPIRIT” (Superiority, Sincerity, Satisfaction, Sharing, and Smart People),” a set of values intended to be shared among all its officers and employees.

2007 as part of its public relations effort, the “S-OIL Public Service Corps” was launched. The same year management resolved to sell a strategic stake (28.4% of total common shares) to “Hanjin Energy”. By forming a partnership with “Hanjin Group”, a world-renowned transportation and logistics conglomerate.

Also in 2007 a major Onsan refinery expansion plan was announced, to invest 1.4 trillion won to build the No.2 Aromatic Complex (with an annual production capacity of 900,000 tons of para-xylene and 280,000 tons of benzene) and to increase its refining capacity from 580,000 bpd to 630,000 bpd.

In 2008 Mr. Ahmed A. Subaey was elected as representative director and CEO and Mr. Cho Yang-ho as chairman of the board of directors. CEO Subaey had 27 years of experience with Saudi Aramco, Mr. Cho Yang-ho was chairman of Hanjin Group. This year was launched a lubricants joint venture with TOTAL to establish “S-OIL TOTAL Lubricants Co., Ltd. ” (STLC), which produces top-quality lubricants in the domestic Korean market.

Early in the twenty first century S-Oil specialised in producing petroleum, petrochemical, and lubricant products, as well as polysilicon products through its investment in “Hankook Silicon”. These products included:

  • S-Gasoline,
  • S-Diesel
  • SSU Lubricant
  • S-Oil Bonus Card
  • Ultra-S (Group III Lube Base oil)
  • Paraxylene
  • Propylene

The company is one of the most profitable energy companies in Korea. S-Oil’s Onsan Refinery in Ulsan boasted a capacity of 669,000 barrels per day (BPD), along with a world-class Bunker-C Cracking Centre (BCC), a Xylene Centre, and a Para-xylene plant with the world’s highest production capacity for a single facility. As of October 2008 Aramco Overseas Company (AOC), an affiliate of Saudi Aramco, held 34.1 percent of shares in S-Oil and Hanjin Energy 27.4 percent.

At the start of the twenty first century GS Caltex, at that time known as “LG-Caltex Oil Corporation”, continued to expand its petrochemicals capacity while increasing its interests in energy utility companies, notably gas distribution.

In 2000 the company completed the No.2 Benzene Toluene Xylene aromatics plant greatly increasing its output. In the field of gas, the same year it established “LG Power” (Now “GS Power”), established “Seorabeol City Gas” and acquired shares in “Kyungnam Energy”. The company also invested in fuel cell technology, establishing “Ceti” (Now “GS FuelCell”). The following year 2001, the involvement in gas utilities continued to expand by acquiring “Haeyang City Gas”, and shares in “Kangnam City Gas”.

In 2003 petrochemicals capacity further increased with completion of the No.3 Paraxylene plant. The company also landed the order for commissioned operation of the Sohar Refinery in Oman. There was some refiguring of the company’s gas interests as it sold its shares in “LG-Caltex Gas” (Now “E1”) and “Kuk Dong City Gas” (Now “Yesco”).

In 2004 the group established “GS Holdings” and became a subsidiary of “GS Holdings”. The same year shares in “Nuricell” (Now “GS Nanotech”) were acquired. Expansions in petrochemical production continue apace in 2005 an alkylation plant with capacity 10,000 Barrels Per Stream Day (BPSD) was completed, and the Heavy Oil Uprgrade (HOU) production capacity by Residue Fluidized Catalytic Cracking (RFCC), was increased from 70,000 BPSD to 90,000 BPSD. The company launched a new gasoline brand “Kixx”, and incorporated “GS Nextation” as a subsidiary.

In January 27, 2006 the company changed its name from “LG-Caltex Oil Corporation” to “GS Caltex Corporation”. This was a year which saw much investment in the People’s Republic of China. “GS Caltex (Qingdao) Petroleum Co., Ltd.” was established as was “GS Caltex (Langfang) Plastic China Co., Ltd.”. The same year the premium gasoline brand of “Kixx PRIME” was launched. The company started a parking lot management venture, “GS Park24”, launched the “GS Caltex Foundation” and opened a new Energy Research Centre.

In 2007 there were significant developments in the expansion of petrochemical, fuels and lubricants production. The company completed a US$1.5 billion project to build the world’s largest vacuum distillation unit (VDU) in Yeosu, a hydrocracker and a base oil plant. This project greatly increased “GS Caltex’s” heavy-oil cracking ability. “Chevron Lummus Global” provided the integrated hydroprocessing unit.

Also completed was the No. 2 Heavy Oil Upgrade (HOU) Vacuum Distllation Unit (VDU) with capacity 150,000 BPSD and Hydrocracker (HCR) capacity 55,000 BPSD. A Base Oil Plant with capacity 16,000 BPSD was also completed for lubricants production. At the same time there was expansion of the No.1 BTX aromatics plant from 600,000 MTA to 1.2 million MTA. This gave the Yeosu complex a total BTX production capacity of 1.6 million MTA, and 1.2 million MTA of Paraxylene. The No. 4 crude distillation unit (CDU) was expanded from 270,000 BPSD to 300,000 BPSD, giving Yeosu a total crude fractionating capacity of 680,000 BPSD.

In 2007 the investments in China also continued with the establishment of “GS Caltex (Qingdao) Energy Co., Ltd.”, and the first and second service stations in Qingdao, China. The company also opened a hydrogen fuelling station at Yonsei University in Seoul, only the second in South Korea. It was part of a research and development effort in co-operation with public bodies into hydrogen fuel cell powered vehicles.

In 2008 there was further expansion of the Heavy Oil Upgrade production capacity to a total of 153,000 BPSD. The Residue Fluidized Catalytic Cracking being increased from 90,000 BPSD to 93,000 BPSD and the Hydrocraker (HCR) increased from 55,000 BPSD to 60,000 BPSD. Distillation and desulfurisation capacities were also increased, by expanding the No. 2 CDU from 130,000 BPSD to 150,000 BPSD, making a total of 700,000 BPSD, and completion of the No. 4 HDS. This increased the desulfurisation capacity at Yeosu by 70,000 BPSD, to a total of 260,000 BPSD.

In 2008 the company also established the affiliate “Power Carbon Technology Co. Ltd.”, a company producing carbon based components for electrical equipment such as Lithium-ion Batteries, capacitors etc., for sale in the domestic Korean market. There was a further investment in China with establishment of “GS Caltex (Yantai) Energy Co., Ltd.”. The same year GS Caltex received the US$ 15 billion Export Tower Award from the government.

Early in the twenty first century, GS Caltex Corporation was providing more than one third of South Korea’s oil needs and exported over 50 percent of its products. It was jointly owned by Chevron and GS Group (a spin off from “LG Group”). It had crude oil refining facilities with a capacity of 775,000 bpd and desulfurized 272,000 bpd of kerosene and diesel. Its refining and petrochemical activities were centred on its Yeosu complex.

In 1998 the chemicals affiliate of the LG group, LG Chemical, completed construction of an ABS (Acrylonitrile butadiene styrene) plastics plant at Ningbo, in the People’s Republic of China. In 1999 LG Chem completed construction of an IT & Electronic Materials Plant (lithium-ion batteries, optical materials), also commercialising colour filter photoresist materials for LCD panels. The same year the company completed construction of Cheongju plant for rechargeable batteries, phosphors & CCL. (Copper Clad Laminates for making PCBs).

In 2000 LG Chem acquired “Hyundai Chemicals” PVC business, completed expansion of Ningbo ABS Plant, China (90,000 MTa), and developed a phosphor for PDP (Plasma Display Panels). In 2001 expansion of Tianjin PVC Plant, China (90,000 MTa) was completed. That year the company Split into LGCI, LG Chem, and LG Household & Healthcare. The company also established a Battery R&D Centre in USA.

In 2002 the company completed expansion of the Ningbo ABS Plant in China (150,000 MTa), also completing construction of an Ethylene Propylene synthetic rubber (EP) plant in Guangzhou. Expansion of Cheongju was completed, doubling the output of rechargeable batteries, while expansion of a polarizer plant, also at Cheongju was completed.

In 2003 investment in China was further increased, with the establishment of an IT & E (Information Technology & Electronic) Materials subsidiary at Nanjing, PR China. In addition expansion of the Tianjin PVC Plant, China (100,000 MTa), was completed. The same year LG Chem acquired “Hyundai Petrochemicals” through consortium with “Honam Petrochemicals”.

In 2004 the company established an SBL (Sodium Behenoyl Lactylate, a food additive used in baked products) Manufacturing subsidiary at Ningbo, PR China. It established a marketing subsidiary in Taiwan and completed construction of ABS plastics plant in Guangzhou, PR China. A holding company for the Chinese investments was also established that year, “LG Chem (China) Investment Co. Ltd.”

In 2005 LG established “LG Daesan Petrochemicals Co. Ltd.” at the Daesan refinery complex. The same year the company also established and completed expansion of a Polarizer Plant of 26 million m2, at Ochang in Chungcheongbuk-do, in South Korea, and a polarizer back-end facility was also established in Poland. An expansion of the Yeosu acrylate facilities, of capacity 95,000 MTa was also completed. In 2006 LG chem merged with “LG Daesan Petrochemicals Co. Ltd.”. Also a further expansion of the Ochang Polarizer Plant was completed, nearly doubling its size to 49 million m2.

In 2007 LG Chem completed expansion of the Daesan NCC (Naphtha Cracking Complex) (260,000 MTa ethylene / 130,000 MTa propylene). The company further merged with “LG Petrochemicals Co. Ltd.”.

In 2008 LG signed an agreement on the development of high-efficiency OLEDs (Organic Light Emitting Diode) with the UDC (consumer electronics firm) affiliate in the US. It concluded a memorandum of understanding concerning electric car batteries with “Ministry of Knowledge & Economy” and “Hyundai Motor Company”. The company also acquired “Kolon’s” (Gwacheon, Korea) SAP business (Super Absorbent Polymer).This same year LG developed and produced a new elastomer, a high value added resin.

Early in the twenty first century “LG Chem Ltd.” was one of the largest chemical companies in South Korea. According to an ICIS (Independent Chemical Information Service) report, it was the fifteenth biggest chemical company in the world in 2011. The Company operated three main divisions at that time: Petrochemical (from basic distillates to specialty polymers), ‘Energy Solutions’ (batteries and fuel cells), and Information Technology and Electronic Materials (optical films, printed circuit materials, toner and LCD polarizers).

It was operating largely as a B2B (Business to Business) company, providing chemicals and materials wholesale to other companies. It had at this time eight domestic Korean factories and a network of 29 business locations in 15 countries. This network included a holding company in China, 14 overseas manufacturing subsidiaries, five marketing subsidiaries, seven representative offices and two R&D centers.

In 1999 Hyundai acquired “Hanwha Energy” as part of the chaebol restructuring efforts. The same year the company attracted KRW 510 million in investment from IPIC (“International Petroleum Investment Co.”), a state owned enterprise from Abu Dhabi. A BTX aromatics plant with 400,000 tons per year capacity was also completed at Daesan.

In 2004 Foster Wheeler Secured Project Management Consultancy Contract for Clean Fuels Upgrade Project. The Clean Fuel Project for higher quality products was completed the same year and a diesel desulfurisation complex was commissioned.

In 2006 a ‘Memorandum of Understanding’ (MOU) was agreed with Spanish company CEPSA for the construction of a plant to produce 600,000 tons of paraxylene, and 300,000 tons of benzene per year. This same year Hyundai Oil Bank was rated as the best provider of gas station services in a customer satisfaction survey conducted by the ‘Korea Productivity Centre’.

In 2007 operation of an oil reservoir with 52,000 barrels capacity commenced at Jeju Island, Korea. Execution of the MOU with CEPSA for construction of the aromatics plant began. The company also completed construction of 104 homes for company employees at the headquarters in Daesan. In 2007 Hyndai Oilbank also topped the Korea Service Quality Index (KS-SQI) in the gas station sector.

At the start of the twenty first century, “Hyundai Oilbank” was primarily a petroleum and refinery company with its headquarters in Seosan, South Korea. It was still a part of the “Hyundai Heavy Industries” Group. With its primary business is petroleum products: Oilbank Gasoline, Oilbank Diesel, and the Oilbank Bonus Card, finance arm.

In 1998, CJ began developing a fourth branch of the group, logistics and online sales, setting up its own logistics group, “CJ GLS”. In 1999, the company formed a food supply business as well, “CJ Food Systems”. In the late 1990s CJ also expanded its food operations internationally, opening production subsidiaries in Indonesia, the Philippines, Myanmar and China. By the beginning of the twenty first century CJ had become one of the world’s largest suppliers of antibiotic ingredient 7-ACA, controlling more than 20 percent of the world supply.

In the year 2000 the company acquired a home shopping channel, and the “Food Channel” cable channel was launched. CJ also entered the home shopping business with the acquisition of “39 Shopping”, subsequently renamed as “CJ 39 Shopping”.

In 2001 CJ began restructuring to focus on its core foods, pharmaceuticals, entertainment and logistics businesses. As part of the restructuring process, which lasted more than three years, the company shut down or sold a number of its businesses, renaming some, such as the “Music Network”, which was renamed “CJ Media” in 2002. Spinning off some others, such as “CJ Food System” and “CJ Entertainment”, both of which went public with listings on the KOSDAQ board of the Korea Stock Exchange. In 2001 construction of the “CJ Vina Agri”, animal feed plant was also completed in Vietnam.

In 2003, the company opened a new feed mill in Chengdu, in the People’s Republic of China. CJ also launched a new delivery service, bridging its foods and logistics businesses,. Dubbed “Hetbahn”, the new service brought in partner “DHL” to promise delivery of Korean foods to the Korean expatriate community worldwide.

In January 2004 CJ agreed to buy majority control of struggling rival “Shindongbang”, a South Korean manufacturer of starch & sugar products, such as corn starch, corn syrup etc ., now mainly known for Soy bean products. During the period 2004 to 2005 CJ expanded a variety of business interests in the People’s Republic of China.

At the start of the twenty first century “CJ Corporation” was South Korea’s largest food manufacturer and one of the world’s leading producers of such food additives as MSG, vitamins, amino acids, colourings, flavourings and traditional Korean seasonings such as Dashida and Mipoong. The company’s food production operations embraced the full spectrum of foods, including sugar, cooking oil, seasonings, ready meals, instant noodles, fish products, confectionary and beverages.

Furthermore “CJ Corporation”, (formerly the “Cheil Jedang” division of the “Samsung” conglomerate), had developed into one of South Korea’s top pharmaceutical groups, focusing on bulk active agents for antibiotics. The company controlled some 20 percent of the world’s supply of 7-amino cephalosporanic acid, or 7-ACA, as well as the antibiotics themselves.

“CJ Corporation” had diversified by this time, with a particular interest in the media and communications markets. The company:

  • held an 11 percent stake in the Steven Spielberg production vehicle “Dreamworks SKG”
  • operated its own film production company
  • a record company
  • its own cable-based home shopping channel
  • “m-net”, Korea’s only cable music channel
  • a national multiplex cinema chain

The company was also present in the high-speed Internet market through its “Dreamline” and “Dream Soft” subsidiaries, and operated online shopping and logistics subsidiaries as well.

The company was listed on the Korea Stock Exchange and in 2002 “CJ Corporation” posted sales of KRW 2.27 trillion (US$1.9 billion). “CJ Corp.” divisions included Foods, Pharmaceuticals, Animal feeds and Entertainment. The company operated over two dozen affiliates, mainly based in the ROK, but also based in the USA, People’s Republic of China, Indonesia, the Philippines, Australia, Cambodia and Vietnam.

Liquefied Natural Gas (LNG)

As mentioned above POSCO became the first private company in South Korea to build and operate its own LNG regasification terminal at its Gwangyang plant. In 2010 KOGAS began construction of a fourth LNG regasification terminal at Samcheok.

A consortium of GS Energy, SK and E&S had plans to begin construction of another privately owned LNG terminal at Boryeong from 2013 to fuel electricity generating stations. However it was reported that concerns about delays in the government liberalisation of LNG prices had led to the project being put on hold.

Nuclear Power

In 2002, two more reactors, this time of the KSNP design, were completed at Yeonggwang, the Hanbit 5 and Hanbit 6 reactors, both of one Gigawatt capacity. At Uljin two further KSNP reactors with one Gigawatt capacity were completed, Hanul 5 and Hanul 6. Thus by 2008 the ROK had some eighteen nuclear reactors generating up to 16,000 MW.


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