Though Roh was to respect the democratic process and accepted the decision of the voters at the future presidential elections, the Roh regime still had a strongly authoritarian character. Liberalisation under Roh was piecemeal. Under President Roh a large, strong and invasive security apparatus continued to be maintained. This was perhaps inevitable given the tense relationship with North Korea and the perpetual fear of a war breaking out. Less easy to justify was that under Roh independent labour activism, though growing, was still subject to harassment by the state. Importantly though, under Roh power would become less centralised with parliament and the judiciary steadily loosening the control of the executive.
Repressive state structures were left in tact under Roh, for example the ANSP, (Agency for National Security Planning), previously known as the KCIA. The security apparatus continued to be invasive. In 1990 it was revealed that the Army Counter Intelligence Corps had been engaged in the illegal surveillance of civilians.
In the April 1988 legislative elections, opposition parties gained control of the National Assembly, with Roh’s DJP polling only 25 percent. Thus the National Assembly began to assert its role of oversight and investigation, compromising the power of the executive.
The political situation became tense when the National Assembly began to investigate corruption during the Chun era. A number of indictments against Chun’s relatives and associates resulted. Chun publicly apologised and made public atonement by retreating to a Buddhist monastery, however he escaped prosecution at this stage. Bruce Cumings accuses Roh of making a scapegoat of Chun, and notes that no military personnel were actually convicted at this point for their wrong doings during the Fifth Republic.
The judiciary also began to assert its role, in June 1988 300 judges demanded that the judicial independence lost under Park be restored. A new Chief Justice was appointed who had no affiliations to Roh or his clique.
In 1988 the ROK successfully hosted the Summer Olympic Games. At the macroeconomic level the impact of the Seoul Olympics on the South Korean economy was at best marginal. One often quoted study by Pyun Do-young estimated that during the period from 1982 till 1988 the preparations for the Olympics only accounted for a little over 0.4 percent of GDP, and about 0.3 percent of employment.
In practice these preparations did mean the investment of some 1.8 trillion Won and the creation of 336,000 jobs. As well as the obvious sports stadiums and athletics facilities that were built, expressways and subway lines were constructed. Housing was also built for the participants. Korean software firms gained contracts to supply the IT needed for the sophisticated timing of events. The environment of the city was also redeveloped, with the Han River being cleaned up and having parks built along its banks.
The Seoul Olympics left a social, cultural and political legacy too. After the Olympics the government further lifted travel restrictions, and Koreans began to travel abroad more. Government relations with many foreign countries were developed starting from the games.
From 1989, however the domestic political climate deteriorated, there began an upsurge in radical student activity. In one demonstration at Dongeui University in Pusan there were several deaths. This unrest brought on a government crackdown which threatened the liberalisation of politics.
Adding to this tension, the labour genie had previously been let out of the bottle in 1987 and high levels of industrial action and labour unrest continued through 1988 and 1989. During this period there was explosive growth of membership of independent unions. The result was rising wage levels, which rose overall fifteen percent per year from the late eighties into the early nineties. This led to fears by business leaders and government that it would make South Korean exports less competitive. Companies granting wage increases were threatened with punishment by the government by the withholding of policy loans.
Under Roh force continued to be used to put down strikes on occasion. The Roh administration continued to make use of the ‘National Security Law’ to clamp down on leftist activists. Roh continued to use the existing legal framework to impede the activities of the growing numbers of independent trades unions. There was no meaningful reform of labour relations laws. Each year during the Roh presidency hundreds of independent trade union activists were arrested. The number peaked in 1989 at nearly a thousand, but the numbers remained high into the nineties.
In addition, during the late eighties labour unrest many companies which found the government was no longer actively intervening to support them, set up their own company strike breaking organisations known as ‘Kusadae’. Such activities by employers were largely allowed to continue by the government.
At the same time the late eighties export boom caused the economy to ‘overheat’ with an unsustainable rise in property, land and share prices prompting fears of a bubble that might burst. By 1990 one estimate gave the total value of land in the ROK as worth over two thirds the value of all the land in the USA, a country ninety times larger in area. Increased wealth led to ‘conspicuous consumption’ and a boom in imports which threatened the nation’s balance of trade. Growing protectionism in the west at the same time added to these worries.
In 1989 growth slowed to 6.7 percent (from around 12 percent the year before). Wages had doubled since 1987 due to the labour movement, and the appreciation of the Won caused some to blame the slow down on such factors. Some analysts however, have argued that recessions in the USA and Japan were the main reason for the economic slow down of South Korea’s exports at the end of the eighties as opposed to rising wage costs and less competitive exports.
The Korean elites reacted to this slow down with near-panic, Korean economists identified it as a recession or stagflation, Roh called it a ‘total crisis’, and reshuffled the cabinet. In March 1990 his new team sought to boost exports and restrict domestic consumption. The team contained many who had been active in Park’s government. They over-stimulated the economy and tried to restrict consumer imports while trying to boost exports.
There was a political austerity campaign against ostentatious displays of wealth. The threat of tax investigations was used to intimidate companies thought to be importing too many foreign goods. It was believed this method, unlike tariffs etc., would be less visible to foreign exporters who might object. It seemed to work as importing companies reduced the levels of imports.
For example importation of foreign cars was only made legal in 1987. Various import duties and other taxes kept these to a trickle. In spite of this the imported Ford ‘Mercury Sable’ proved to be the best selling foreign car in the ROK. The numbers imported were low, only a few hundred per month, but the government was alarmed by the trend. The importer Kia was asked by MTI to cut its sales of the cars. The company reduced its sales to one third, despite its heavy investment in advertising and sales networks.
Customers who purchased luxury goods such as imported cars were often subjected to tax investigations. Similarly, shops specialising in imported luxury goods also attracted the attentions of the authorities.
As far as Roh’s economic record went, critics accuse Roh of posturing over economic liberalisation while ‘back-peddling’ or avoiding reforms. For example even into the late eighties support to farmers, especially rice farmers, continued despite the fact that there was no longer a rice shortage and public tastes in food consumption were changing with affluence so per capita rice consumption was falling. The military still considered food production to be a strategic security issue however.
Rice prices in the late eighties were increased faster than inflation. The government effectively subsidised rice farmers by purchasing rice at a higher price than it was resold to the public. In addition the government ‘bailed out’ farmers with generous loans.
Critics pointed out that because of their expectation of government support, South Korean farmers developed less in the way of earning ‘off-farm’ income as compared with their Japanese or Taiwanese counterparts.
Economic liberals in the state managed to persuade Roh to set up a ‘Presidential Commission on Economic Restructuring’. The idea was to decide on the future economic path South Korea should take. The commission recommended liberalisation, internationalisation and economic reform, however under Roh little was actually done to implement these recommendations. For example the privatisation programme Roh promised was executed in a half-hearted way. State owned steel maker POSCO and state electricity generating monopoly KEPCO were made to sell minority shares to the public. It was not enough to change the management or operations of these concerns.
The deregulation of interest rates was another example where rhetoric outstripped action. The ROK government claimed internationally to have decontrolled the setting of bank interest rates, but western financial journalists accused MoF of having used a cartel of banks to continue setting interest rates.
MoF is also accused of disliking the competition which was developing between the major banks they influenced and private ‘short-term finance’ companies. These had been taking business away from the banks so in June 1990 MoF ordered them to cut their interest rates. MoF is further accused of trying to eliminate these firms by encouraging them to become either banks or securities companies.
Under Roh ‘policy loans’ were directed to a different range of recipients than previously; agriculture, SMEs and housing. Some experts became concerned that under tight monetary policy manufacturing industry might suffer. Despite the economic worries and labour unrest though, the South Korean economy continued to thrive. In 1990 growth recovered to 9 percent and in 1991 was maintained at 8.4 percent. This was a strong rate of growth by comparison with other Asian countries at the time.
In January 1990 Kim Young-sam worked out a deal to merge his party with Roh’s DJP and the party of Kim Jong-pil. The resulting “Democratic Liberal Party” (DLP) held a firm majority in the National Assembly. The arrangement worked to Kim Young-sam’s advantage as divisions within the DLP prevented Roh from using it as his own vehicle. The outcome was that Kim was to be the party’s next presidential candidate. Bruce Cumings alleges that part of the party deal with Kim Young-sam was that the military would be free to arrest dissidents under the National Security Law, and to suppress strikes in the interest of protecting the country’s export competitiveness.
In 1990 the ROK current account balance began to deteriorate because of rising inflation, appreciation of the Won and the global recession. From 1990 to1991 the current account deficit quadrupled to US$ 8.7 billion. The ROK government thus encouraged capital inflows to help finance this deficit. In 1991 the “Foreign Exchange Management Act” was amended to liberalise partly to achieve this goal, the result was a substantial influx of foreign capital.
In the December 1992 presidential elections three candidates stood, Kim Young-sam, Kim Dae-jung and seventy six year old Hyundai founder, Chung Ju-yong. It was notable that the military fielded no candidate and were now prepared to take a back seat in electoral politics, a fact generally interpreted as sign of the maturing of democracy in the ROK.
Kim Young-sam won with 42 percent of the vote, followed by Kim Dae-jung with 37 percent, and Chung trailed with only 16 percent. Voter turnout was down on the previous presidential election. In 1987 it had been 87 percent, but in 1992 it was 77 percent, still high though, indicating public interest in exercising their choice. Again the voting displayed the same strongly regional character as in 1987.
South Korean Industry in the 1980s
During the seventies the Korean electronics industry had been dominated by foreign owned firms, however Korean firms were catching up quickly and produced nearly half of all electronics output in 1980. There was a particularly great increase in the contribution of wholly Korean owned firms. By 1990 about three quarters of all electronics output and exports were produced by wholly Korean owned firms.
For example from 1974 to 1989 the number of wholly or partly foreign owned firms in the Masan Free Export Zone fell from 112 to 64, mainly due to the withdrawal of Japanese investors. During the eighties Matsushita pulled out of its joint venture with Anam, Sanyo withdrew from its venture with Samsung, and NEC exited from its enterprise with Goldstar Electric. Japanese investment was being pulled out of ventures producing less sophisticated products and redirected into more high technology ventures such as the production of electronic materials and semi-conductor manufacturing equipment.
FDI continued to flow into the Korean electronics industry during the eighties actually peaking in the period 1985-88. It had been encouraged by liberalisation of the foreign investment regulations in 1980 and 1984, however after 1988 it steadily declined. A number of factors have been cited to explain falling FDI such as rising labour costs in the ROK; an appreciating Won, making exports less competitive; and new lower cost production opportunities in South East Asia and Mexico.
As the emphasis of the government’s industrial policy shifted on to high technology this opened a struggle from 1980 within the state between different elements of the bureaucracy seeking to influence the direction of this policy. On one side were those institutions which wanted to target micro-electronics for development. These included the President, MCI (Ministry of Commerce & Industry), MoC (Ministry of Communication) and MoST (Ministry of Science & Technology). On the other were institutions seeking liberalisation and an end to targeted promotion of specific companies or industries, including the EPB (Economic Planning Board) and the MoF (Ministry of Finance)
Although President Chun did not support those seeking to target high technology microelectronics as strongly as Park had promoted heavy and chemical industries, he was biased in their favour. Chun almost certainly recognised the immense military-strategic importance of microelectronics at this time, for guided weapons, telecommunications et cetera.
Until mid-1985 the EPB and MoF continued to press their liberalisation view on the regime, in line with external pressures for liberalisation, allegedly from the Reagan administration in the USA. At the same time, MoST which at first had been only a minor player, became more influential. In 1985 it gained the KIET (“Korea Institute for Economics & Technology”) from MCI absorbing it into its protégé the ‘ETRI’ described below.
In 1986 the “Electronic Industry Promotion Law” was abrogated and replaced by a new “Industry Development Law”. This ostensibly removed the element of industry specific targeting, however some analysts have stated they view the role of the state as becoming more heavily interventionist as the technology being sought became more advanced.
The role of the state ‘broadened’ out, for example the state committed to increase its investment in R&D for high technology industries from 20 percent in the nineteen eighties to 30 percent of total in Korea by 1994. This was justified by the MCI by pointing out the high public sector R&D in western countries such as West Germany and France. The view of MCI was that state involvement in the development of high technology industries was normal in developed nations.
Notably, collaborative R&D between firms & government research institutes began to increase, for example the ‘16M DRAM project’. In 1985 a number of government research institutes had merged to create ETRI (“Electronics & Telecommunications Research Institute”). ETRI was to become a key instrument in state-private sector research co-operation. For example ETRI developed the TDX-10 high capacity digital switching system in collaboration with a consortium of private companies including Samsung Semiconductor & Telecommunications, Goldstar Semiconductor, Daewoo Telecom and Oriental Telecommunications.
Protectionism continued in the sector. During the eighties when the government enacted its semiconductor promotion policy there were protectionist measures taken on behalf of the emerging high technology sector. For example in 1983 when Samsung entered the international DRAM market, substantial protection was granted against imports of DRAMs and against foreign firms manufacturing DRAMs in Korea. Also when large Korean firms entered the PC market the government restricted FDI in PCs, and imposed quotas on PC imports.
However in the mid-eighties the Korean electronics parts and components industry remained weak. Contemporary industry data show a high dependency on imports, mostly from Japan. From 1986 the government enacted a plan to promote the domestic production of electronic parts and components. It set targets for 1991 for the proportion of finished electronic equipment to be domestically manufactured, to reach an average of 90 percent, and the rate of self-sufficiency in parts to reach 69 percent. In 1987 the localisation plan for machinery, parts and materials was set up, and from 1985 to 1991 the number of Korean electronics parts firms nearly doubled from 550 to 911. Political and business changes in the nineteen eighties led to changes in the state’s industrial policy to promote the previously neglected SMEs, however the state’s relationship with the chaebol remained strong, though more ambiguous, in spite of the new industrial policy.
In the democratising Korea, the chaebol could openly criticise the government, and had real power to undermine government policies. The development of high technology industries required the participation of the chaebol with their experience and resources. The chaebol were also able to influence government policy through EIAK (Electronic Industries Association of Korea). For example the ‘Basic Plan for the Promotion of the Electronics Industry’ presented by the MCI in 1981, was framed on proposals by EIAK, based on reports they requested in 1979 from the KDI (Korea Development Institute) and the Nomura Research Centre in Japan. Also President Chun’s support for targeting microelectronics development in setting up a public-private research project on 1M/4M DRAMs through ETRI, was in response to a suggestion by Kang Jin-ku, head of EIAK (later Chairman of Samsung Electronics &Telecommunications), in 1986.
In effect the chaebol continued to get many privileges in spite of the new industrial policy of the nineteen eighties. They continued to receive the bulk of export quotas (imposed as a result of ‘Voluntary Export Restraints’) during the eighties as they did in the seventies. For example in 1988 Samsung Electronics, Goldstar and Daewoo Electronics received 80 percent of that year’s quotas for CTV exports to Europe. In addition vertical integration through joint ventures with foreign firms to produce parts and components continued to expand despite the government’s policy to promote domestic SMEs.
The development of the Korean domestic electronics firms had two pillars, firstly the expansion in the production of less sophisticated finished goods, to replace departed foreign ventures, including the development of new Korean models of such products. Secondly was obtaining new technology by both licensed production and joint ventures.
As domestic firms advanced, they invested more in parts, materials and designs, to replace their dependency on foreign technology. Thus there was seen an expansion of technology licensing agreements and joint ventures in electronic parts and components from the late eighties. It is clear though, that at the end of the eighties Korean domestic firms were still weak in the production of electronic parts and components.
Using the new technologies, domestic firms took up new product lines including TV monitors, camcorders, cameras, PCs, computer peripherals and semiconductors. Between 1977 and 1987 Samsung Group’s annual revenues surged from US$1.3 billion to US$24 billion, becoming about twenty percent of South Korea’s entire gross domestic product. Much of that growth was attributable to Samsung Electronics. Rapid growth in the industry, combined with capable management, allowed the combined Samsung Electronics Co., Ltd. to become Samsung Group’s chief subsidiary by the end of the eighties.
In 1980 the company had acquired Hanguk Jeonja Tongsin in Gumi, and started to build telecommunications equipment. It started with switchboards, then moved on to telephone sets and fax machines. This enterprise was to develop into Samsung’s mobile phone business, which has now produced over 800 million mobile phones. The South Korean government effectively required foreign telecommunications equipment manufacturers to hand over advanced semiconductor technology in return for access to the Korean market. This proved crucial for Samsung, which obtained proprietary technology from Micron of the United States and Sharp of Japan in 1983.
In the “Tokyo Declaration” of February 1983, Lee Byung-chull declared that Samsung intended to become a DRAM vendor. In 1984 utilizing its newly acquired knowledge, Samsung became the first Korean manufacturer of low cost, relatively low technology, 64 kilobit dynamic random access memory (DRAM) chips. Shortly after introducing its 64K chip, Samsung teamed up with some Korean competitors in a research project that was coordinated by the government Electronics and Telecommunications Research Institute (ETRI). The result was a one megabit DRAM (and later a 4-megabit DRAM) chip.
During the late nineteen eighties, Samsung parlayed knowledge from the venture to become a significant supplier of low cost, ‘commodity’ DRAM chips to computer and electronics manufacturers throughout the world. Substantial protection was granted against imports of DRAMs and against foreign firms manufacturing DRAMs in Korea
Meanwhile, its other electronics operations continued to grow, both domestically and abroad. Samsung opened a television assembly plant in Portugal in 1982 to supply the European market with 300,000 units annually. In 1984 it built a US$25 million plant in New York that could manufacture one million televisions and 400,000 microwave ovens per year. In 1985 Samsung also built a plant in Tokyo.
Samsung founder Lee died in 1987 and was succeeded by his son, Lee Kun-hee. Lee Kun-hee recognized the importance of the electronics division and moved quickly to make it the centrepiece of the Samsung Group. Lee Kun-hee was credited with stepping up Samsung Electronics’s partnering efforts with foreign companies as part of his goal to put Samsung at the forefront of semiconductor technology.
In 1987, it opened another US$25 million facility in England with annual capacity for 400,000 colour televisions, 300,000 VCRs, and 300,000 microwave ovens. Besides partnering with U.S. and Japanese electronics companies, Samsung Electronics acquired firms that possessed important technology, including Harris Microwave Semiconductors and Integrated Telecom Technologies.
In 1988 came a historic moment when Samsung launched its first mobile phone in the Korean market. Sales were poor only capturing ten percent of the market by the early nineties, as compared with Motorola holding sixty percent. The company struggled with poor quality, inferior products till the mid-nineties.
During the seventies and eighties Samsung Group had created a number of electronics-related divisions, several of these were grouped together during 1988 into a single entity known as Samsung Electronics Co. Ltd. A new electronics facility was set up at Suwon. Able management and heavy investment in research and development in the late nineteen eighties and early nineteen nineties turned the company into a leading contender in the global electronics industry.
By 1980 Lucky-Goldstar group as a whole, had sales of over US$ 4 billion. Most of the revenue still came from chemicals, but the growth potential of electronics and appliances caused the group to shift its emphasis away from chemicals. During the early to mid-eighties Lucky-Goldstar invested heavily in Goldstar Co. This boosted both domestic and overseas production capacity. In 1983 GS became the first Korean company to set up a manufacturing plant in the USA. The plant at Huntsville, Alabama produced over a million units per year of colour TVs and microwave ovens during the eighties. In 1983-84 GS made a massive six-fold increase in its advertising budget to promote its increased production.
Meanwhile back in Korea in the early to mid-eighties, GS aggressively expanded its production of most of its major product lines for the domestic market, also introducing new, higher technology products. In 1984 GS opened a new factory at Pyongtaek (south of Seoul), aimed at making the company a leading global supplier of VCRs, PCs, fax machines and other higher technology consumer and office equipment items.
The company publicly declared its intention to derive forty percent of its sales from new, higher margin, higher technology products by the mid-nineteen eighties. During the decade the company’s strategy could be represented by one of its slogans “Expensive electronics without the expense”. During the eighties GS established a solid presence in domestic and international markets for microwave ovens, TVs, and also for refrigerators, washing machines and other household appliances.
During the 1980s Lucky-Goldstar’s revenues rocketed five-fold, reaching US$ 22 billion in 1989. Much of this was due to the success of electronics, which provided over 30 percent of the group’s revenues. Some 25 percent still came from chemicals while 33 percent came from trade and financial services.
From the mid-nineteen eighties however, GS began to have serious problems, its financial performance was deteriorating. The company faced a number of problems; changes in the global economy, labour unrest and greater competition in the domestic Korean market.
Competition from Samsung intensified during the early eighties. By 1984 Samsung’s electronics division surpassed GS in both sales and profits. Samsung’s lead continued to widen during the decade. By the end of the eighties Goldstar’s domestic market share had fallen from 45 percent, at the start of the decade, to 36 percent.
Goldstar’s semiconductors business ran into trouble as its attempts to rival Samsung in semiconductor production were unsuccessful. The chips produced had too limited a market, GS had problems mastering the production technology and in-house chip production did not provide the cost savings expected. As a result GS failed to establish itself as a significant global chip manufacturer. Meanwhile Samsung was successful in mastering semiconductor technology, further eroding the market share of GS.
GS had developed financial problems. Because the Korean state controlled companies’ access to overseas financing, GS had borrowed heavily during the early eighties from short term, high interest rate domestic financiers. By the late eighties over 85 percent of operating income was used up in debt servicing.
GS also faced problems in its export markets. The US export market was ‘maturing’, in other words reaching ‘saturation’ with the types of products GS had to sell. Competition in the US market from Japanese firms was also increasing. The appreciating Won compounded these problems by making Korean exports less competitive. The value of exports to the US thus fell from US$ 834 million in 1988 to US$ 535 million in 1990.
Labour unrest added to the company’s woes. In the late nineteen eighties the work force rebelled. The unions went on strike costing the company US$ 600 million from 1988 to 1990. The result was a boost in wages which led the company to increase its prices by an average of eight percent, thus losing much of its low cost advantage.
In addition a major problem for the company by the end of the eighties was that it lost its reputation for quality. Some of its problems were caused by outside suppliers of components. For example in 1987 Goldstar’s US VCR operations almost came to an end due to faulty chips imported from Japan.
In the nineteen eighties, Daewoo Electronics revamped its product lines. Quality problems had hampered sales of its higher-end electronics items, so Daewoo decided to focus on such lower technology products as televisions, VCRs and microwave ovens. Thus in 1983 Daewoo Electronics became a ‘fully fledged’ consumer electronics company by acquiring Taihan Electronics Wire Co., Ltd. to make refrigerators, washing machines and colour televisions in Korea.
In 1986 Daewoo acquired a controlling interest in the U.S. ZyMOS Corporation as a means of gaining the technical knowledge necessary to expand its interests in semiconductor manufacturing and design. In 1987 production of Vacuum Cleaners started in Korea.
Daewoo also adopted a strategy of setting up subsidiaries that actually produced goods abroad, rather than acting solely as sales agents. In 1988 overseas affiliates were established for the production of VCRs in Northern Ireland, U.K. and the production of microwave ovens in France. The same year production of washing machines started in Korea.
The Daewoo Group’s foray into personal computing was actually launched by its telecoms affiliate. From 1985 Daewoo Telecom Ltd. exported IBM PC ‘clones’ through the Massachusetts based electronics wholesaler, Leading Edge. The computers sold on their low price and were a success with 13,000 units per month being exported in 1987.Eventually the Daewoo PC established a reputation for quality at a bargain price. In 1989 Daewoo actually bought Leading Edge.
Meanwhile Anam’s semiconductor testing and packing service business thrived. Clients sent integrated circuit components to Anam, where they were tested for quality control, packaged into protective housings, retested and sent back to the manufacturer for installation. The company charged by the second for its services: the average test took four to five seconds and cost twenty cents.
Demand for such services was on the rise, for as integrated circuitry became increasingly complex, the expensive equipment required to test semiconductors faced briefer periods of usefulness before obsolescence. By serving multiple manufacturers Anam was able to attain economies of scale that OEMs could not achieve in-house. Anam embraced automation, established high quality control standards, and developed leading-edge technology.
Anam earned the top spot in the packaging and testing industry through two key strategies, firstly it kept pace with its customers’ technological developments. Secondly it created a marketing operation through Amkor that promoted its services to the leaders of the integrated circuit industry. An early affiliation with US company VLSI Technology won Anam the contract to test that company’s application-specific integrated circuits (ASICs) when they came out in the early 1980s.
The group’s consumer electronics affiliate Anam National Electric co. Ltd., took over Songha Electric in 1980 and went public four years later as Anam Electronics. Led by Jim Kim’s sibling, Kim Joo-chai (also known as ‘Jay Kim’), this business brought big screen TVs to Korean consumers in the mid-eighties
Amkor’s retail affiliate, Electronics Boutique, Inc., had evolved from a sideline launched by Jim Kim’s wife, Agnes, in 1977. That year, she set up a cart in a Pennsylvania mall to sell digital watches manufactured by Anam. When the digital watch fad faded, the U.S. Kims rented mall stores and began selling high-end computer software, PCs and video games. In 1986 the chain had 55 stores in the USA and Canada.
During the eighties the volume of SME subcontracting by chaebol electronics affiliates increased. In the electronics industry it rose from 30 percent of SME sales in the seventies to over 50 percent in the eighties.
During the seventies chaebol subcontracting to SMEs had declined as they focused on vertical integration by in-house production of parts and takeovers of SMEs. However from 1980 the chaebol were directed to increase subcontracting from SMEs. The government’s SME policies established in 1978 were intended to stabilise and protect the subcontracting relationship between chaebol assemblers and SME parts suppliers, for example by guaranteeing minimum three year contracts.
In addition the Subcontracting Cooperative Association (SCA) was organised to institutionalise chaebol – SME relationships. Chaebol assemblers gave technical and financial support to parts suppliers which were SCA members.
The chaebol increased their dependence on domestic SMEs for three other reasons. From 1987 the increase in labour unrest and strikes meant the chaebol sought to push the problem of labour costs onto the independent SMEs, controlling cost by sourcing a competitive domestic parts market. Also many SME part suppliers had succeeded in upgrading their technology and their output became more advanced and sophisticated, so demand for their products grew. The response of the chaebol to the government’s ‘localisation plan’ for electronics parts also led to reduced import dependence.
However, during the eighties chaebol assemblers continued with vertical integration, via in-house production and acquisitions. In fact the subcontracting and in-house production of parts both expanded at the expense of imported parts.
Subcontracting between different SMEs also increased during the eighties, it had declined during the seventies. There seems to have developed a ‘supply chain’ or ‘pyramid-type’ multi-layering of SMEs producing parts for each other, then for the assemblers. The rate of re-subcontracting, the renewal of contracts, also increased during the decade.
The character of the Korean electronics industry in the eighties can be seen from the way it grew. This was by focusing on two things, low to mid-technology finished goods, especially consumer durables (e.g. CTVs, VCRs) and mass production of standard components, such as semi-conductors where economies of scale could be exploited.
This strategy was made possible in the early stages by the availability of a high quality, low wage work force. It has led to a high dependence on export markets and a high dependence on imported parts and components. This was a natural response to the government’s export promotion policies, such as the exemption of parts and components from import duties, which was a disincentive to invest in the domestic intermediates industry and to focus on assembly.
The niches occupied by Korean firms faced challenges. Price wars were frequent in both consumer electronics and semiconductors and the emergence of new, lower cost competitors in South East Asia threatened Korea’s markets.
Data from the EIAK show the composition of Korean electronic production from 1975 to 1993. They show consumer electronics held roughly the same fraction of total electronics output, fluctuating between 30 and 40 percent. Industrial Electronics doubled from 11percent to 22 percent, though still remained relatively weak at the end of the period. While electronic components declined quantitatively from 57 percent to 47 percent.
These figures seem show structural weaknesses of the ROK electronics industry at the start of the nineteen nineties, with over-reliance on production of assembled finished consumer electronic goods. The relative under-development of industrial electronics, which were narrowly focused on computers and communications equipment, and over-dependence on imported electronic parts and components.
Though strides had been made in domestic semi-conductor production, these products were of the high volume, standardised ‘commodity’ variety, with an over-concentration on memory chips. In 1993 non-memory chips (e.g. micro-processors, custom made chips etc.) represented 70 percent of the US$ 75 billion global semiconductor market, but South Korea was barely represented in this dominant, high value segment of the market. Korean assemblers of PCs etc., imported over 90 percent of non-memory chips. In addition both the raw materials & the capital goods for chip manufacture were imported into Korea, largely from Japan.
There were other weakness too, not just technological ones. Korean electronics firms had concentrated a lot on production, but had neglected marketing and design, leading to structural weaknesses in marketing and design of finished goods.
This was a logical outcome of reliance on OEM agreements. To gain export markets Korean assemblers originally relied to a large extent on OEM agreements with foreign firms, this gave them access to overseas markets and technology. Even at the start of the nineties the proportion of consumer electronics exports through OEM agreements remained high, about 50 percent of all Korean exports of CTVs and VCRs.
There were disadvantages to OEM arrangements however. OEM sales gave high volume, but a low profit rate as much of the profits were raked off further down the supply chain. Firms in such contracts might fail to develop their own brand image or marketing networks. Thus large Korean assembler firms lacked product design experience and skills, product development skills and strategic marketing experience. These Korean exporters were also vulnerable to problems with OEM contract partners and variations in global demand.
The nineteen eighties was a decade of rapid expansion for the automotive industry during which exports of vehicles began to really take off. During the seventies a focus of government policy had been on increasing the use of domestically produced parts in vehicle manufacture. This policy had been largely successful by the start of the nineteen eighties, though the SME parts producers had not benefited from it as much as intended.
In the nineteen eighties a major focus was to be the expansion of exports and the achievement of the economies of scale in automotive manufacture needed for global competitiveness. This policy was to prove successful in time, but the decade did not begin well for the automotive industry.
The world economy and the domestic ROK economy were in recession following the second oil shock. In the early eighties the Chun regime implemented a rationalisation policy for the automotive industry. The intention was to reduce competition between Korean firms by segmenting the market. In addition any idea of opening the domestic market to vehicle imports was put off.
In the case of the Hyundai Motor Company (HMC), the rationalisation plan restricted it to passenger car and large commercial vehicle production. In 1984, Hyundai exported the Pony to Canada, but not to the United States, because the Pony didn’t pass emissions standards there. Canadian sales greatly exceeded expectations, and by the middle of the 1980s, Hyundai had taken Canada by storm. Its Pony subcompact vehicle became Canada’s top-selling car less than two years after entering the market. Hyundai’s sales in Canada, where it was also selling its Stellar model, shot from none in December of 1983 to 57,500 units in the first nine months of 1985, topping those of Honda and Nissan combined.
In 1985 HMC built its ‘millionth’ car, and annual production had reached 450,000 units. The same year, the company announced plans to build a car assembly plant at Bromont, near Montreal, and at the same time decided to enter the U.S. market.
On 20 February 1986, Hyundai Motor America began selling cars in the USA, with a single model, the Hyundai Excel. The Excel was offered in a variety of trims and body styles. That year, Hyundai set a record of selling the most automobiles in its first year of business in the United States compared to any other car brand; total sales in 1986 were 168,882. The same year the Hyundai America Technical Center, Inc. (HATCI), was set up to be responsible for all engineering activities in the U.S. for Hyundai.
The entry into the U.S. market proved an immediate success. Its low-priced Excel model was well received, and of the 302,000 cars exported in that year, 168,000 were sold in the United States, where sales were to increase to 263,000 in 1987.
Though initially well received, the Excel was nominated as “Best Product No.10” by Fortune magazine, largely because of its affordability, the Excel’s faults soon became apparent. Cost-cutting measures caused reliability to suffer. With an increasingly poor reputation for quality, Hyundai sales plummeted, and many dealerships either earned their profits on repairs or abandoned the product. At one point, Hyundai became the butt of many jokes in the US media.
Hyundai’s initial success in the United States thus faded before the end of the eighties when sales began to flag. Problems in the company’s key overseas market were attributed to the lack of new models, increasing competition, the weakened U.S. car market and severe strikes that hit the company in the late eighties and in 1990.
Meanwhile in South Korea, the industry rationalisation regulations were revised in 1986 following the recovery of the market. Thence Hyundai was able to resume manufacture of light commercial vehicles.
Hyundai decided to move up market with the introduction of the Sonata, a mid-sized four-door sedan produced with the company’s own technology, in late 1988. Initial sales, though, proved disappointing.
In the same year, Hyundai signed a deal with Chrysler Corp. to build 30,000 midsize, four-door cars for the U.S. company, starting in 1991. Chrysler was allied to Mitsubishi Corporation, which in turn was affiliated with Hyundai, in which it held a 15 percent stake. Hyundai planned to increase production at the Canadian plant to 100,000 by the time the Chrysler deal came into effect. Export sales, which were also hit by the appreciation of the Won and the depreciation of the Yen remained sluggish.
As part of its quest for new technology, in 1988 HMC began developing FFVs (Flexible-fuel vehicles, with engines that can burn a mixture of fuels, e.g. petrol and ethanol).
Increased wage costs were affecting the group but had the advantage of boosting domestic Korean sales that, for the industry as a whole, increased 50 percent to 356,000 units in 1989. In 1989, “Hyundai Auto Canada Inc.” opened their stamping and assembly plant in Bromont, Quebec, employing eight hundred personnel. The plant cost US$387.7 million, with Quebec and Canadian federal government subsidies of US$131 million. The plant was designed to manufacture approximately 2000 Hyundai Sonatas per week.
In 1990, Hyundai established the Hyundai Design Center in Fountain Valley, California. In the spring of 1990, cumulative total production of Hyundai automobiles reached the four million mark.
At the start of the eighties Kia was the number two vehicle manufacturer in the ROK. As part of the Chun regime’s plan for the industry Kia had to give up passenger car manufacture and focus on light trucks, in which it had a domestic monopoly. Thus in 1981 production of the Brisa stopped. Production now centred on a series of vans such as derivatives of the Bongo. In the early eighties Kia mostly sold to its protected domestic market.
While Kia enjoyed a lack of competition in its core domestic market, it also launched an aggressive and successful export campaign from the mid-eighties that ultimately penetrated Japan, Europe and other regions. In 1987 a major breakthrough for Kia occurred, however, when it started shipping automobiles to the largest single international car market, the United States.
In 1986 the changes in government policy meant Kia could re-enter passenger car manufacture. An agreement was reached with Ford to manufacture its Festiva model, a subcompact passenger car aimed at the low-end buyer. Kia planned to ship about 70,000 units annually for Ford and a like number of the cars to other countries. Kia’s sales topped US $2.4 billion in 1987 as its work force swelled to about 23,500.
Kia’s arrangement with Ford reflected its strategy, first evident in the mid-eighties, to gradually assume Japan’s role as the leading supplier of low-end economy cars. By the mid-eighties, it was clear that Japan was reducing its emphasis on low-priced cars and focusing on higher-priced, high-profit vehicles. Kia planned to use its low-cost production advantages to fill the void. Rival Hyundai had also observed this trend, as was evidenced by its 1986 jump into the North American car market.
Kia’s greatest edge in comparison to U.S., European, and Japanese automakers was low labour costs, until the late 1980s Kia paid its workers a fraction of what their foreign counterparts earned. The savings were mirrored in cars like the Festiva, which enjoyed steady demand as a result of their extremely low prices. Over a period of about five years, Kia shipped 350,000 Festivas to Ford.
Kia also produced several Mazda-derived vehicles for both domestic sales in South Korea and for export into other countries. These models included the Kia Pride, based on the Mazda 121 and the Avella, which were sold in North America and Australasia as the Ford Festiva and Ford Aspire. This arrangement arose from Mazda’s alliance with Ford which ran from 1979 to 2010. Ford owned from 7 percent to 33 percent of the shares of Mazda before divesting itself in stages from 2008 to 2010.
By the early eighties Daewoo Group was to get drawn into the car manufacturing business. In 1976 Saehan Motors the GM joint venture, had been in financial difficulties, apparently struggling to compete with HMC and Kia. The company’s main creditor was the Korea Development Bank (KDB).
It is reported that US diplomat John Bennett, mediating on behalf of GM, mentioned to the president of the KDB that the Korean manager of the venture, the owner of Shinjin, was ruining the enterprise. Promptly the KDB took over the company in a debt for equity swap, and appointed a Korean general to run it.
Apparently GM executives were unhappy with this arrangement and asked the ROK government to find a suitable industrial partner. The Park government had been impressed by Kim Woo-choong, the Daewoo founder, when he personally turned around the fortunes of Hankuk Machinery Company. He had apparently since cultivated the personal image of a ‘trouble-shooter’. There are also claims that Park had personally known Kim’s father. Daewoo was thus selected by the ROK government as GM’s new partner.
Apparently there was significant unhappiness with the choice among the GM executives. However it is reported that Kim visited GM’s Detroit headquarters and was able to earn their trust. In 1982 with Daewoo gaining control of the company it was renamed Daewoo Motor Company. Former Saehan models were now sold under the Daewoo name.
In 1986 the Japanese yen appreciated strongly against the dollar as a result of Plaza Accord exchange rate deal brokered in late 1985. This created an opportunity for Korean auto exporters as it made Japanese car exports less competitive in the US market.
Thus in 1986 the Daewoo -General Motors enterprise embarked on a venture to manufacture an internationally competitive small car using components for a number of GM’s existing vehicles. Daewoo was not deterred by the difficulties inherent in setting up the required high-technology production lines and relied on the experience gained in other parts of the group to construct sophisticated computer systems in a relatively short period of time. The joint venture with GM was initially one of Daewoo’s most profitable links with a foreign company.
The result was the Daewoo LeMans, based on the Opel Kadett E. It was available in a range of versions: the Racer, Its three-door versions; the Penta-5, the five-door version; but it was sold almost worldwide, as the Pontiac LeMans; Asüna GT/SE and the Passport Optima.
In 1987 some 247,000 Pontiac LeManses were built, and the car was well received in the U.S. market. This car was produced until February 1997, being one of Daewoo Motor’s greatest successes. In the late eighties Daewoo Motors also offered a number of ‘vanettes’ and luxury cars.
Demand for the LeMans and the slightly larger Oldsmobile Royale soon faltered, however, and there were rumours of friction between the management of the two companies. The venture was not as successful as Hyundai’s foray into the international car market, and it appeared that Daewoo underestimated the sophistication and technical standards required by the U.S. car buyer.
A series of events would lead to Kim Suk-won, son of the Ssangyong Cement Industrial Group’s founder, achieving his goal of entering the auto industry. In 1976 he had established Ssangyong Heavy Industries Co. (SHIC, later STX HI) after the takeover of a bankrupt firm to manufacture diesel engines and other machinery. This was the first step towards his dream of entering the car industry.
In 1986 he took over Dong-A Motor, an ailing car manufacturing firm with a deficit of US$5.5 million. Previously, in 1984, Dong-A had acquired Shinjin’s jeep manufacturing subsidiary. From 1985 the ‘Dong-A’ name plate was applied to all ROK made jeeps. The concern became the Ssangyong Motor Company. All jeeps produced by this business were then rebranded as Ssangyong.
In order to produce his idea of the “X-car”, a four-wheel-drive wagon-style jeep, he had to start from scratch, knowing the company would be in the red for at least three years. When the initial X-car prototype was completed, Kim rejected it because its balance was faulty. The purchase of 80 percent equity in the U.K. company, Panther, in 1987, provided the necessary technical expertise to perfect the model and also provided an opening into Europe, the intended market for the model.
In 1987 after eleven years of losses Kim was able to promote Ssangyong Heavy Industries Co. as a centre of machinery production, providing some of the expertise needed in the construction of internal combustion engines. Other car parts and heavy-duty presses were manufactured by Ssangyong Precision Industry Co., which was equipped with the most advanced technology in Korea.
Through Panther, a successful high-class sports car, the Solo II, was built and marketed selectively in various countries. Furthermore, with help from Mercedes Benz and Nissan and its own diesel technology, Ssangyong Motor Company was doing well with special-purpose vehicles, including dump trucks.
Ssangyong Motor Company had no plans to enter the extremely competitive passenger car market as Korea’s fourth car producer until 1991, when they would have consolidated the necessary expertise, despite a surge of domestic demand, the problem of oversupply remained acute.
The nineteen eighties was a period of rapid expansion for the Korean auto industry. In 1985 the number of vehicles registered in the ROK passed the one million barrier. Then in 1988 annual vehicle production in the ROK exceeded one million units. At the end of the decade it was producing about 1.5 million vehicles per year, over a quarter of which were exported. Thus exports had become established as an important source of revenue for Korean auto makers.
The nineteen eighties brought problems for South Korea’s shipbuilding industry. Following the oil price shocks, the shipbuilding market entered a trough by 1981 which did not even bottom out until 1988. In 1985 ROK shipbuilders saw new export orders slump to only US$ 522 million from US$ 2.3 billion in 1984.
Hyundai would weather the storm, but there were to be job cuts and Hyundai’s shipyard would be hit by strikes. Hyundai Heavy Industries Company (HHI) instituted major productivity improvements at the beginning of the decade and stepped up its diversification with the creation of the “Offshore and Steel Structure Division” in 1980. Through this division it launched a major drive into the offshore oil equipment market, into which it had broken in the late 1970s with orders for the Jubail project in Saudi Arabia.
The shipbuilding division initially operated one yard, but, as demand increased, a second was added in 1983. In 1982, HHI took over three dry docks from “Hyundai Mipo Dockyard Company”, which brought the total it operated to seven. “Hyundai Mipo”, which looked after the company’s ship repair and conversion business, was reorganized and moved to a new repair yard two kilometres away from HHI. In 1983 HHI undertook further reorganization by turning its maritime-engineering division into the special and naval shipbuilding division, which now concentrates on building naval craft such as destroyers, frigates, and patrol boats.
An increased emphasis on new technology and innovation was reflected in the setting up of the “Hyundai Welding Research Institute” in 1983, whose work has since been extended to take in factory automation. In 1984 Hyundai created an R&D centre, the “Hyundai Maritime Research Institute”.
Work continued on developing products such as the new generation of very large crude carriers (VLCC), the world’s first semi-submersible drilling rig, delivered in 1987 and a mixed container-passenger vessel for a Norwegian operator in 1988. The company also broke into the gas-carrier market in 1986.
The late 1980s was clouded by strikes that were to tarnish the Korean shipbuilding industry’s image. In addition, the company had to contend with higher wage costs that blunted the competitive edge it had over its Japanese rivals.
HHI also became embroiled in a legal wrangle with Sir Yue-Kong Pao’s ‘World-Wide Shipping Group’ in 1988. The dispute was over an order for very large crude carriers, which it had agreed to build in 1986 when the market was in a trough.
The strikes, that affected the Ulsan yard in the late 1980s hit production and sales. In 1988 HHI was to record its first-ever loss, that of W29 billion on sales that declined slightly to W945 billion; this came after breaking even in 1987.
Daewoo Shipbuilding and Heavy Machinery (DSHM) was also to face a crisis. In 1981 the Okpo shipyard was completed, expanding with the construction of Dock II, completed in 1982. In 1984 the “Ship & Marine Technology Research Institute” was established. In 1985 DSHM completed construction of a double hull 300,000 ton VLCC (Very Large Crude Carrier).
In 1987 the “Daewoo Shipbuilding Labour Union” was established and had its first labour dispute. In 1988 DSHM began a self-recovery programme as part of rationalisation of the shipbuilding industry.
In 1989 heavy losses suffered by DSHM made servicing the company’s loans increasingly difficult. Workers also began an increasingly violent protest against years of long hours and low pay. The only solution available to Daewoo’s management was to placate the workers with pay rises of more than twenty percent. The rapidly appreciating South Korean Won made exports even less competitive.
Demand for Daewoo’s ships remained constant but the company was forced to sell ships at a loss as a way of guaranteeing a steady supply of orders. The situation had been exacerbated by the bankruptcy of their customer US Lines in 1986.
A bad debt of US$ 570 million marked the start of the crisis at the Okpo shipyard. The MCI, however, was no longer willing to bail out one of the most reliable chaebols, even though it was suffering as a direct result of the shipyard acquisition forced on Daewoo Group by the government.
Instead, the government promised a seven-year moratorium on Daewoo’s debt repayments to the Korean Development Bank and offered to provide a further W 150 billion in exchange for a number of contributions from the company. Daewoo would have to refinance the shipyards by selling off four subsidiaries: including the profitable Korea Steel Company and Daewoo Investment and Finance, as well as selling the DSHM headquarters in Seoul.
Subsidiaries were forced to raise W 85 billion on the Korean stock exchange. Kim was ordered by the government to sell his W 150 billion investment in Daewoo Securities, the country’s largest stockbroker. The government also ordered workers to curb their demands for wage increases and asked to see proof of improved management before the deal to help Daewoo was agreed to.
Kim’s response was typical of his personal style. He had already moved his office to the shipyard so that he could keep direct control of the worsening situation, and had begun to take tours around the premises by bicycle to ensure that he could implement changes and cut costs where necessary.
By 1990 improvements at the shipyard were already visible, and by the mid-nineteen nineties Daewoo was one of the most efficient shipbuilders in the world and, with 10 percent of the global market, was also the world’s leading shipbuilder.
At the start of the decade the fourth and final stage of the POSCO integrated steelworks at Pohang was completed. Initiated in 1979, it required twenty four months to complete. The second blast furnace was brought to capacity production in eighty days, the third and fourth in seventy and twenty nine days, respectively. The steel converters followed a similar pattern in beating expected deadlines, resulting in major cost savings.
By the time the fourth stage was financed, Japanese capital was absent. U.S. and Japanese steel producers were no longer willing to assist a competitor who was eroding their markets considerably. Thus Korean finance had become more important.
In the fourth stage Koreans had supplanted foreign engineers from the task of general engineering planning. The shift to domestic technological skills was also evident in the declining levels of royalties paid to outside experts. By the fourth stage no such royalties were paid.
By the time the last stage of construction had been completed, in 1981, POSCO’s crude steel production capacity was 8.5 million tons. Pohang, previously a fishing port whose major industry was processing fish and marine products, became a major industrial centre with almost 520,000 people. In addition to the huge integrated steel mill, Pohang became an industrial complex, housing companies that manufacture finished steel products etc.
POSCO benefited from investing heavily in R&D. It established two major research organisations: in 1986 the Pohang University of Science & Technology, (POSTECH), conducting basic scientific research, and in 1987 the Research Institute of Industrial Science & Technology (RIST), pursuing development of applied technologies via pilot plants, which were then often adopted for production by POSCO.
Technology developed by POSCO has been transferred to other Korean industries and exported. In 1978 for example, Taiwan was constructing an integrated iron and steel plant for the Chinese Steel Corporation (CSC). It paid POSCO US$ 300,000 to train forty two Taiwanese engineers in plant operation and maintenance and to assist in initial production. Later, six POSCO engineers designed Indonesia’s Krakatoa integrated steel works, providing technology and training.
In order to avoid some of the problems of erratic quality experienced by the existing small-scale Korean producers, POSCO’s emphasis initially was on the production of plain high-carbon steels of even quality that were used for general structural purposes, rather than on the development of a wider range of specialised products.
As the company expanded, and engineering skills increased, it was possible to diversify production. In 1975 the development of high tensile strength steel production laid the foundation for the first major expansion of overall production, but domestic demand for special steels remained too low to justify attempts to develop them at that time. Only as domestic demand increased, or was expected to increase, notably as defence industries developed, were facilities to broaden production created, based once again on imported technology.
Through the period of construction and operation, machinery came primarily from Japan and Austria. As time went on, however, a larger proportion of needed equipment was produced by Korea’s own heavy industry.
Korean engineering skills, too, constituted a major part of the reason for POSCO’s ability to produce high-quality steel at low prices. In the spheres of equipment design and operating procedures Korean field engineers and technicians brought about major improvements in efficiency, quality, and reductions in waste and costs.
Suggestions from people involved in the day-to-day operation of the plant were incorporated into the plant and process and generated massive savings. In 1980, when all of Korean industry was hit by recession, the number of proposals registered and carried out increased dramatically, and continued to do so in the following four years. Thus POSCO continued to be profitable even in times of economic downturn.
The use of a segmented workforce reduced labour costs. POSCO utilised a hierarchical, multi-tier wage structure of managers, regular workers and sub-contracted Workers. This mimicked the Japanese practice of having permanent and transitory employees. POSCO’s managers and regular workers were well paid, costs were saved on the transitory labour.
At one point POSCO had 425 job categories of which the majority of employees worked in data collection, with only a small number of master steel makers (‘Saint Technicians’). Most tasks in the steel works are in fact automated and are performed by computerised programmes. During construction of the plant POSCO’s demand for computer technology made South Korea IBM’s biggest market in Asia after Japan.
The temporary, sub-contracted ‘blue collar’ employees were given only low-skilled, menial tasks. In the nineteen eighties it is estimated these sub-contracted workers made up about a quarter of POSCO’s workforce, cutting labour costs by an estimated 15%.
POSCO’s labour policies at the time could be characterised as having a military ethos which fostered strong motivation; An extensive training programme, leading to low rates of turnover and absenteeism; A very weak, ‘workplace’ labour union and large numbers of irregular workers hired through sub-contracting companies (known as ‘Oejoo Opchae’)
In 1980 POSCO produced 6.2 million tons of raw steel, recording a 13 percent increase over 1979, and was one of the few exceptions when almost all areas of the Korean economy were in economic depression. Domestic industries such as automobile makers and home appliance manufacturers absorbed POSCO’s major products, consuming hot rolled products. Construction and engineering companies, consumed medium plates. Electric motor and transformer manufacturers consumed electrical sheets.
Some over-produced products were exported to foreign countries but the significant import of sections for construction left Korea as a net importer. Globally, POSCO was already the World’s most efficient steel producer in certain products.
As POSCO developed its capacity in Korea, the company began to look outward for both raw materials and for new markets. POSCO needed iron ore and coal to produce steel, so the company sought foreign suppliers for raw materials, sometimes securing the material by direct purchase, or by establishing joint ventures and partnerships abroad. To this end POSCO built deepwater ports at Young Il Bay and Kwangyang Bay. In 1981 POSCO set up the Miller Pohang Company in Australia with the Mount Thorley Coal Mine Project to secure coal supplies for the plant.
POSCO also became a significant force in the world’s iron ore trade, largely copying the Japanese strategy of using large ocean-going bulk carriers, and using international investment and bargaining to secure long-term contracts for access to iron ore, as opposed to the US and European practice of steel firms relying on FDI.
While POSCO secured the materials it needed from abroad to keep its furnaces running, the company also continued to ramp up steel manufacturing capacity in Korea. As part of a strategy aimed at regional dominance in the industry, POSCO began construction of a second integrated steel plant in Gwangyang, in South Korea’s rural Chollanamdo province. The Gwangyang plant was constructed in four phases between September 1982 and October 1992 on land on Korea’s southern coast, Korea’s second integrated steelworks is still among the World’s most advanced. In August 1988 POSCO completed the second-phase of its mill at Gwangyang.
By the late nineteen eighties POSCO’s growth had been immense. It was the fifth biggest steel company in the World, with an annual production approaching twelve million tons. POSCO continued to increase productivity and expand size at a time when the steel industries of the United States and Japan were declining.
Petrochemicals and Chemicals
During the nineteen eighties the South Korean oil refining and petrochemicals industry went through rapid growth. By the end of the decade the sector’s imports and exports were in balance.
Many developments took place at the Ulsan refinery complex. In 1980 the Lubricating oil mixing facility was expanded to a capacity of 4,500 bpd. Gulf’s fifty percent share in the refinery was bought out by Sunkyung Co., Ltd. a Korean textile company with an interest in synthetic fibres such as polyester. During the seventies Sunkyung had declared the aim of vertically integrating from ‘petroleum to fibres’. Sunkyung also acquired the management rights for the Ulsan refinery. In 1982 the company name was changed to Yukong Co., Ltd. and it was listed on the KSE in 1984.
By 1985 expansion of the existing atmospheric distillation units raised capacity to 345,000 bpd. A new aromatics complex was also commissioned with a capacity of 400,000 tons per year. An R&D institute was completed at Ulsan in the same year. In 1987 Sunkyung established a new synthetic rubber business, the Yukong Elastomer Co., Ltd. and in 1988 the Ulsan refinery began to import oil from the Marib oilfield in Yemen. In 1989 a second ethylene production plant for plastics manufacture was started with 400,000 tons per year capacity, while the capacity to extract butadiene from cracking products was expanded for the manufacture of synthetic rubber.
Meanwhile, also at Ulsan, the Ssangyong Oil Refining Co., Ltd. commenced operation of its first atmospheric distillation unit with an initial capacity of 93,000 bpd. The project to build the new refinery had started in 1976 as a joint venture between Ssangyong Cement Industrial and the National Iranian Oil Company (NIOC). The Iranians withdrew from the project as the country descended into political instability with the revolution and overthrow of the Pahlavi regime.
In 1981 Ssangyong commenced operation of a high-class lubricants plant using the state-of-the-art Gulf Hydrotreating Process. This would enable Korean made lubricants to compete with high quality imported lubricants. By 1989 Ssangyong entered the domestic lubricants market with its Dragon brand engine oil. Previously the company had only exported lubricants.
In 1985 commercial operation of a petrol manufacturing plant began with the company aiming to expand its sales networks, develop export markets and enter the petrochemicals industry. The processes were designed for the production of unleaded petrol in line with the ROK government’s ‘unleaded gasoline supply plan’. In 1987 Ssangyong Oil Refining Co., Ltd. became the second South Korean oil refiner to go public, issuing its shares on the KSE. Then in 1989 the company launched its ‘Clean High Octane Gasoline’, which contained a detergent to keep engines clean.
The Yeosu refinery of GS Caltex steadily expanded during the decade, also adding petrochemicals capacity. In 1981 a wharf for crude oil deliveries was finished while a third crude distillation unit was completed bringing the total capacity of Yeosu to 380,000 bpd. In 1986 a technology research centre was opened on site. The same year the joint venture agreement with Caltex was revised to give the Korean management independence.
In 1988 a share was bought in a petrochemicals firm, Samnam Petrochemical. The same year a polypropylene plastics plant began operations at Yeosu with initial capacity of 120,000 metric tons per year. The next year it was expanded to 180,000 metric tons per year.
Lucky Corporation itself further invested in petrochemicals and organic materials. In 1980 it opened a complex at Cheongju to make ‘polarizers’ for LCD screens. At Yeosu it expanded its PVC paste resin plant in 1982 and in 1985 added a polystyrene production plant.
In 1984 Lucky bought a plant at Naju from Korea General Chemicals. By 1987 the plant was producing acrylate for polymer manufacture.
The Inchon refinery belonging to Kyung-in, an interest of the Korea Explosives Group, also expanded with the addition of a second atmospheric distillation unit. An aromatics, ‘BTX’, plant was also added for petrol and petrochemicals manufacture.
The Korea Explosives Group was going through changes with the death of its founder Kim Jong-hee in 1981. He was replaced by his son Kim Seung-yeon who sought to diversify into retail services, property and finance. With the growing liberalisation of the financial system the company even launched its own merchant bank. However the group continued to develop its interests in chemicals. In 1982 it acquired a holding in Dow Chemical Korea and in 1988 established a polymers joint venture, Hangyang BASF Urethane Corp.
Kukdong Oil Co., Ltd. expanded its capacity at the Pusan refinery. It renamed itself Kukdong Oil Refining Co., Ltd. in 1988. In the late nineteen eighties it began construction of a larger refinery at Daesan on the west coast of Korea, south of Inchon. Construction was completed in 1989 being awarded the ‘President’s Commendation’.
Meanwhile the CJ branch of Samsung, still heavily involved in foods, sought to enter higher technology areas of pharmaceuticals and biologicals. As far as its foods interests went the company ventured into meat processing in 1980 and flour based products in 1985. The same year the company began producing aspartame and phenylalanine for the artificial sweetener NutraSweet.
However work by the new R&D centre was leading the company into pharmaceuticals. In 1984 R&D was expanded, moving to bigger premises and permission was granted by the government for the company to enter the pharma industry. The company developed expertise in antibiotics and vaccines. In 1986 the company began production of its own Hepatitis B vaccine, ‘Hepaccine-B’. It also began developing its own alpha-interferon production.
Nuclear energy generation capacity was greatly expanded during the eighties, a time when OECD countries were no longer ordering new nuclear reactors. In addition to the Kori complex near Pusan, construction took place on three more nuclear power complexes.
In 1983 a second 600 MW Westinghouse PWR began operation at Kori, while a 600 MW CANDU Pressurised Heavy Water Reactor, capable of being fuelled with natural uranium, began operation at the ‘Wolsong’ site at Geongju, some miles further up the coast from Kori.
In 1985 and 1986, the Kori 3 and Kori 4 reactors started operation. Both were 1000 MW PWR reactors built by Westinghouse. In 1986 the first reactor at the ‘Hanbit’ complex,at Yeonggwang, on the west coast, started operations. It was of similar design to the Kori reactors. Hanbit 2 began operation the next year.
In 1988 the first reactor of the ‘Hanul’ complex began operations, at Uljin much further up the east coast in Gyeongbuk Province, with Hanul 2 starting operations the next year. These were both 1000 MW PWRs of French design. By the end of the eighties South Korea had nine nuclear reactors in operation with a combined net generating capacity of nearly 8000 MW.