THE INDUSTRIALISATION OF SOUTH KOREA Liberalisation and the IMF Crisis 1993 – 1997

Kim Young-sam was inaugurated president in February 1993. He became the first democratically elected civilian president for decades. Although he was elected as the candidate of the DLP, he soon turned on the military including Chun and Roh. He instigated a corruption probe which forced many high-ranking military officers to resign. He also removed from key posts many members of the secret ‘Hanahoe’ (‘Of One Mind’) society which was a circle of brother officers around Chun and Roh. Kim also reformed the ANSP, curbing its domestic surveillance.

To gain public confidence Kim publicly disclosed his financial assets and had the members of his cabinet and high ranking officers reveal theirs. This led to a number of resignations by those who had previously served under Roh, including the head of the national police.

In summer 1993 he passed the “Real Name” reform, which outlawed the opening of financial accounts under false names. This practice had been used for tax evasion, money laundering, and bribery. This measure was politically popular with the public, Kim’s approval rating rose to 90 percent in the first months of his administration.

After the first year the reforms practically stopped however. There was some further partial privatisation of state-owned firms including the national electricity generator KEPCO however.

In 1993 the ROK government announced plans to liberalise the financial sector, by deregulating restrictions on asset and liability management by financial institutions. These policies have been criticised by some analysts for lacking prudential safeguards. Further financial deregulation and capital market opening was then implemented as part of the requirements for joining the OECD in 1996.

Deregulation of the financial sector lead to a rapid increase in the number of financial institutions allowed to engage in foreign currency denominated activities, notably merchant banks. Thus from 1994 to 1996 the number of merchant banks increased from six to thirty.


It is important to note that many of these merchant banks actually belonged to the chaebol, and financed chaebol business investment. These chaebol owned merchant banks were typically borrowing cheap short-term Japanese funds via Hong Kong, and using them to fund long-term business projects. In addition, many of the commercial banks also started to borrow short-term in order to compete with these merchant banks.

A ‘Chaebol Specialisation Reform’, was also planned by the government. According to this the top thirty chaebol were made in January 1994 to list the core businesses which they should focus on. However it was not implemented. In fact the number of chaebol owned affiliates increased by 10 per cent in the years 1993 to 1996. Critics have observed that the coalition of banks, government and chaebol largely continued under Kim Young-sam.

Korea also came under pressure, during the Uruguay Round of GATT (The “General Agreement on Tariffs and Trade”) global trade negotiations, to open its markets. There was strong opposition at home from farmers to the importation of some foreign agricultural products, especially rice.

Labour unrest continued under Kim, with some violent strikes by militant unions. Wages rose faster than productivity threatening the competitiveness of Korean exports. Kim also faced student protests against corruption, or the government’s hostile attitude to North Korea. Kim retained the infamous ‘National Security Law’ which gave broad powers against those accused of anti-state activity, which was only vaguely defined. Kim used the police against both protestors and organised labour. For example, in August 1996 3,500 pro-North Korean student radicals were arrested and 280 of them were charged under the ‘National Security Law’.

His popularity declined as he appeared increasingly conservative. Political infighting in his party did not help his popularity. The economy though continuing to grow, did so slower than previously also damaging his popularity.

In 1994 he passed a ‘Local Autonomy Law’ which made Mayors and provincial administrators electable, and gave local government greater powers to collect revenues independently of the central government. These reforms did not seem to help his popularity as his DLP did poorly in the local government elections of June 1995.

In Summer 1995 Kim brought charges of corruption, insubordination and treason against Chun and Roh. It was revealed that both ex-presidents had stashed away vast sums of money. Chun had secreted US$ 650 million in a so-called governing fund (tongchi chagum). Both were found to have received payments from the chaebol, all nine leading chaebol had contributed funds and some chaebol heads were indicted including Kim Woo-jung of Daewoo, and Lee Kun-hee of Samsung. Chun was sentenced to death and Roh to life imprisonment, but both were later released. These actions boosted the popularity of Kim Young-sam’s administration and his party did well in the April 1996 National Assembly elections.

By the mid-nineteen nineties signs were emerging that there could be trouble ahead for the economy. In 1996 short-term foreign debt in the ROK peaked at US$ 75 billion (15 per cent of GDP), twice the value of foreign exchange reserves. An important reason for borrowing was the country’s growing current account deficit which reached US$ 23 billion, nearly 5 percent of GDP in 1996. This was due to a sudden fall in export demand and prices.

In 1995 exports were growing fast at 30 per cent per year, but in 1996 they actually declined. This was a temporary decline lasting less than one year. The ROK was facing competition for market share, the Chinese Yuan and the Japanese Yen had been devalued. Exports fell over a wide range of goods. Some light manufactures such as apparel were affected, but it was mostly heavy industrial products that were affected; iron, steel, chemicals, and electronic products, especially semi-conductors.

It was not just market share but price falls that were to blame for loss of revenue. The particular composition of ROK exports had suffered substantial price falls, by December 1996 export prices had fallen by 15 per cent as compared with a year earlier. Notable were the types of semi-conductors exported by ROK (e.g. DRAM memory chips), the prices of which fell by 45 per cent at the end of 1996. In 1997 exports by value grew again and the current account was back in balance by November 1997. In 1996 GNP grew 7 per cent, considered good at that time, however there was a debt overhang which persisted.

The development of the social security net was another issue facing Kim. Prior to the nineteen nineties South Korea had only rudimentary social welfare protections, primarily through contributions based social insurance schemes. The “Industrial Accident Compensation Insurance” (IACI) scheme was South Korea’s first social insurance scheme set up in 1964 to provide for medical costs and loss of earnings for injured industrial workers. This scheme included all forms of employees and was not segmented along occupational lines. It was a social insurance scheme relying on earnings related contributions and benefits. It was limited to firms with more than five workers.

In 1977 the “National Health Insurance” (NHI) scheme was introduced to cover all firms employing over 500 workers. It was extended in 1989 to cover the urban self-employed. However the scheme was not integrated, by the time it was unified in 1998 there were 420 different medical insurance societies, segmented according to occupation and geographical region.

In 1988 the “National Pensions Scheme” (NPS) was first set up with the mandatory coverage of all firms employing more than 50 workers. Technically it counted as a social insurance system because entitlement was dependent on contributions. In addition there were four public pension schemes in the ROK for civil servants, military personnel, and private school teachers. These schemes were all earnings-related and contributions based.

In addition to social insurance schemes there was a rudimentary form of social assistance made available through the “Poor Relief” programme from the early nineteen sixties onwards. This provided livelihood protection, medical assistance, and institutional care for those in absolute poverty.

From the mid-nineteen nineties social welfare provision by the state began to expand. Services for the elderly, children, women and the disabled were the least well developed aspect of the South Korean welfare state. Such services were narrowly targeted to those who were exceptionally disadvantaged. Such services were focussed on institutionalised residential care for the poorest elderly citizens, financial support for the disabled, and financial support for children orphaned or abandoned

South Korea was able to get away with weak provision for a long time because firstly the population was relatively young, due to a high birth rate. Also the tradition of ‘family responsibility’ meant that there was relatively little pressure on government to expand social welfare services until the nineteen nineties. For example as late as 2002 only 6.5 percent of the population over 60 years old lived on public pensions, with 40.1 percent depending on income from their families.

However during the 1990s the economy and society were changing, undermining these arrangements. The birth rate fell to be the lowest in the OECD, leading to a growing proportion of elderly people. The extended family support system was weakened by the shrinking average household size and the greater participation of women in the work force.

From the mid-nineties the South Korean polity began to recognise the need to adjust social welfare services to cope with the social changes.

Welfare services were expanded. From 1995 to 2003 the number of child day care centres increased by a third, also public child care services which previously targeted low income families increasingly catered for dual income middle class ones. In 1999 a new free pre-school child care service for five year olds started and expanded to cater for the middle classes.

As a result of such changes the government budget for child care increased nine-fold during the nineteen nineties. From 1990 to 2003 there was an over four-fold increase in the number of community welfare centres for the elderly, the disabled, and for women.

Employment Insurance (EI) started in 1995 to support those who found themselves without a job. A job seeking allowance was paid to beneficiaries. This scheme included all forms of employees and was not segmented along occupational lines. It was a social insurance scheme relying on earnings related contributions and benefits. EI covered firms employing more than 30 workers. Benefits were not paid to part time workers employed less than 30 hours per week, also temporary and daily employees who had been employed less than three months were excluded from EI benefits.

In December 1996 ROK finally joined the OECD (“Organisation of Economic Co-operation and Development”), the club of wealthy industrialised nations. This was a dramatic and exceptional achievement for a country which was struggling with mass poverty in the nineteen fifties. It ostensibly marked a change in the country’s status from a ‘developing’ nation to a ‘developed’ one.

On 26 December 1996 the National Assembly passed new labour laws legalizing lay-offs and maintaining a ban on free union association. This lead from 27 to 31 December 1996 to Nationwide strikes against the new laws. Some have called this a ‘General Strike’. In January 1997 strikes against the new labour laws continued, affecting the auto industry, shipyards and transport workers. Kim Young-sam agreed to further debate about the laws and the strikes ended.

The year 1997 was to bring to a head many problems lurking beneath the surface of South Korean industry and finance as a wave of major chaebol faced collapse. In early 1997 the “Hanbo Scandal” broke. A number of Kim’s associates had taken payments from the ‘Hanbo Iron & Steel Company’, which was heavily indebted and wanted help to stay afloat. Also Kim’s second son was convicted for influence peddling. These revelations damaged the President’s public standing.

On 23 January 1997 Hanbo was declared bankrupt with US$ 6 billion of debt, largely due to problems with its steel affiliate, the second largest in the ROK, which had expanded its capacity too rapidly incurring heavy debt repayments. It was a major chaebol, jeopardising its creditor banks. The ROK government immediately took measures fearing the knock on effects of the Hanbo collapse. They offered credit support to Hanbo’s suppliers to help them through the loss of business. The government also intervened to prop up major construction projects launched by Hanbo which involved numerous other companies. In February the government bought 700 billion Won of corporate securities issued by SMEs to help them weather the storm. The government also set up a 1.4 trillion Won stabilisation fund to forestall further bankruptcies.

In the western business media, stories started to appear warning of the shaky state of the banking and industrial sectors in South Korea. Western credit ratings agencies began downgrading certain ROK banks exposed by the Hanbo crisis. Foreign investors began to get nervous about the future of the ROK. Accounting standards and procedures in ROK at that time were criticised for being below international ‘best practice’, notably the lack of market-value accounting of corporate assets. This lack of transparency of chaebol finances did not help the confidence of foreign investors.

On 19 March 1997 two of ‘Sammi Group’s’ main affiliates, accounting for 80 per cent of sales, ‘Sammi Steel Co’ and ‘Sammi Corp’ ceased trading. Sammi Group applied for the court protection of other affiliates. The company had been experiencing difficulty in selling its steel plates. There had been a plan to sell half of the steel business to POSCO. The shortage of credit following the Hanbo collapse has been cited by some as a factor precipitating the immediate crisis.

Six of ‘Jinro Group’s’ affiliates were also declared bankrupt later in the year, following the failure to make debt repayments. It was the country’s biggest distiller. Commercial bank of Korea launched a rescue plan, widely believed to have been backed by the government aimed as much at supporting subcontractors and suppliers as the distiller itself. Then on 19 May 1997 ‘Bank of Seoul’ put ‘Dae-Nong Group’, in textiles and retail, under the ‘Bankruptcy Prevention Accord’.

On 15 July 1997 Kia asked for emergency loans, applying for the ‘Bankruptcy Prevention Accord’. In the case of Kia the government came under pressure from leading politicians and unions to bailout the company. The proximity of the Presidential elections was a strong political factor. The government hesitated what to do about Kia. This created a climate of uncertainty in the minds of foreign investors as to the strength of the government’s will to save Korean industries.

Despite these worrying signs in individual industries, until the so-called “IMF Crisis” of late 1997-98, the ROK macro-economy seemed to be performing well. Growth was high at 7 to 9 per cent per annum, one of the fastest growing economies in the world at that time, while inflation was modest at 5 per cent per annum in the three years preceding the crisis. Foreign Debt to GDP was under 30 per cent, low for a developing country and even compared with many industrialised countries. The government budget was also balanced. In the summer of 1997 when the currency crises of South East Asia first began to unfold, there was little sign the IMF was worried about ROK vulnerability.

The “IMF Crisis” of South Korea followed in the wake of the great East Asian currency crises of late 1997, which affected many countries in the region, notably starting with Thailand and spreading to Malaysia, Indonesia and to South Korea itself. The currency crisis hit Asia from 2 July 1997 with the devaluation of the Baht in Thailand. All East Asian currencies then came under pressure. Paul Krugman has suggested that the currency crisis that hit Thailand spread to other East Asian economies because not only did foreign investors view all the high performing East Asian economies as part of a single ‘emerging market’ phenomenon, but at a practical level many of the investments were linked by being channelled through ‘emerging market investment funds’. Removal of investment from one country entailed withdrawing from the others bundled together in the funds.

Following the start of the currency runs, the US dollar was getting much more expensive in offshore foreign exchange markets, as shown by the high premium on ‘forward’ currency transactions before August 1997. Based on this evidence some analysts conclude there were already signs that foreign creditors were beginning to pull out of the Korean Won.

The way in which the ROK government liberalised foreign currency transactions has been criticised for making the country vulnerable to outflows of hot money and currency instability, particularly for liberalising short-term capital inflows before liberalising long-term ones. Further it has been asserted by some analysts that the ROK government unintentionally created incentives for business to use short-term loans to finance long-term business investment because rules on long-term borrowing demanded detailed disclosure on the uses of the funds as a precondition for permission. This oversight was partly because, it is said, short-term borrowing was conceived by the state as merely for financing short-term trade needs, thus it required no strict regulation.

The result was that in 1996 short-term debt accounted for 61 per cent of banking sector foreign debt. Mismatches resulted between the timings of repayments and revenue inflows, and between the currencies available and the currencies needed by businesses for their operations. This has been called a ‘double mismatch’.

The use of short-term loans to fund long-term investment is shown by the fact that about 80 per cent of short-term foreign funds were put into some 70 per cent of long-term assets. At the end of 1997 total short-term foreign debts amounted to US$ 63.8 billion, while the usable gross foreign reserves were only US$ 9.1 billion. Thus the ROK was highly vulnerable to a currency or foreign exchange crisis.

The high dependence of the chaebol on bank financing, meant that the risk was concentrated in the banks. Also chaebol finances were highly ‘leveraged’ due to the historical preferential availability of credit during the nineteen seventies and eighties. In other words chaebol still had a preference for borrowing money as opposed to raising share capital. Tax laws also acted as an incentive to load up debt as it was deductible. In 1997 the average debt to equity ratio in the ROK manufacturing sector was nearly 400 per cent, twice the OECD average, with the top thirty chaebol averaging over 500 per cent. Thus Korean industry suffered from ‘capital structure mismatches’.

However even given the country’s structural problems, many commentators believe South Korea could have continued without crisis for some time and that a number of factors precipitated the emergency in late 1997. Firstly the global climate for ROK exports had deteriorated since the mid-nineteen nineties. With the arrival of Robert Rubin as US Treasury Secretary in mid-1995, a ‘Strong Dollar’ policy started. This impacted on the ROK because the Korean Won was strongly pegged to the dollar. This had a number of adverse effects. It made ROK exports less competitive relative to Japanese exports. The two countries largely competed in the same export markets. This led to a growing trade deficit, poor profitability from the investments paid for by short-term loans and thus financial difficulties. This actually caused some firms to increase their borrowing to cope with these difficulties.

A stronger Won versus the Yen made Japanese investment in ROK more expensive, reducing the inflow of new Japanese investment. It also made Japanese banks exposure to credit risk in the ROK increase in value, undermining the banks’ apparent soundness. This induced many Japanese banks to start calling in their loans and refusing to roll-over existing loans.

A second precipitating factor may have been doubts about the ROK government’s commitment to saving ailing Korean firms. There was an issue of ‘Moral Hazard’. Traditionally investors believed the ROK government would intervene to prop up ailing industrial companies, but the hesitation following the spate of industrial failures from early 1997, and questions over the will and the ability of the state to cover such losses may have caused a  loss of confidence of foreign investors in investments in ROK industries.

A third factor was the impact of the currency crisis itself. By October 1997 the East Asian Financial Crisis hit Hong Kong with an abortive speculative attack on the Hong Kong dollar and a fall in the Hangseng Index. At this time investor confidence in East Asia was badly hit and foreign investors, especially US and Japanese banks got cold feet about rolling over loans to Korean banks. The KSE kept plunging in the autumn of 1997. The KOSPI200, Korean Stock Price Futures Index, showed a down turn on 18 October 1997, being worst on the 1 November 1997. Thus investors were pulling out of the ROK.

The ROK government used its limited foreign exchange reserves to help the Korean banks meet their short-term obligations. This reduced the country’s foreign exchange reserves to dangerously low levels. The press reported the intervention of the central bank in foreign exchange markets with US$ 5.1 billion in an attempt to prop up the won on 8 November 1997, but this did not halt the pull out of foreigners. The ROK government was widely believed to be exaggerating its remaining foreign exchange reserves. During mid-November 1997 the ROK foreign exchange market was practically paralysed despite the widening of the daily band by which the Won was allowed to fall.

On 16 November 1997 the ROK government tried to pass a package of financial reform bills through the National Assembly. The aim was to reassure foreign investors. With the presidential elections so close, none of the political parties wanted to be seen as supporting the bills. The withdrawal of foreign funds accelerated and on 21 November 1997 the ROK government formally asked the IMF for assistance.

Some analysts have described this as a liquidity crisis, not a typical balance of payments crisis. According to this view what was needed was a rapid infusion of hard currency reserves.

On 3 December 1997 the IMF and ROK government agreed a package. The IMF and other international financial institutions offered a total of US$ 58.4 billion to bail out the country. Initially US$ 35 billion was allocated, to be followed by the next US$ 23.4 billion, should the first tranche prove inadequate. However the first US$ 35 billion was to be disbursed gradually over two years till the year 2000. Each instalment was conditional upon the ROK making structural reforms, tightening monetary policy and tightening fiscal policy.

Immediately upon the 3 December 1997 agreement, the ROK government was only allowed US$ 5.6billion. On 18 December 1997 the ROK government was allowed another US$ 3.5 billion. Thus during the first 15 days the ROK government, was able to withdraw only US$ 9.1 billion. Foreign banks saw these amounts as inadequate just to meet the short-term obligations alone, and continued to refuse rollovers, the ROK government then rapidly expended its limited foreign exchange reserves.

On 19 December 1997 at the request of the ROK government, the US government persuaded the IMF to renegotiate for greater ‘frontloading’ of the bailout money. The US also used its influence on G7 financial institutions to rollover loans for one month. In return the ROK agreed to restructure the outstanding short-term debt.

On 23 December 1997 credit rating agency Moody’s downgraded the ROK sovereign debt rating to ‘Ba1’ affecting investor confidence. A leaked IMF memo revealed that ROK foreign exchange reserves had fallen to just US$ 6 billion, worth only two weeks of imports, and a fraction of the US$ 20 billion in short-term foreign debt due to be paid at the end of December 1997.

Press reports also revealed that total foreign short-term debt had been understated as only US$ 66 billion, when the true figure was nearer US$ 100 billion. Panic resulted in financial markets with the Won to US dollar exchange rate slumping to 1952.68 Won to the US$ on 23 December 1997.

On 28 January 1998 agreement was reached to restructure nearly 95 per cent of the short-term debt by 18 March 1998. This was done at high interest rates. With the success of this rollover and commitments to implement financial and corporate reforms, foreign investors regained confidence in the ROK. The Won had reached a low point of 1,965 to the US dollar on 24 December 1997, but recovered to 1,600-1,700 to the US dollar in January 1998, stabilising at around 1,200 to the US dollar by the end of 1998.



South Korean Industry in the Early to Mid-1990s




Savvy management and heavy investment in research and development in the late nineteen eighties and early nineties were turning Samsung Electronics into a leading contender in the global electronics industry. In 1992 Samsung built the world’s first 64Mb DRAM and also became the largest producer of memory chips in the world, the second largest chip maker after Intel.

In 1994 Samsung built the world’s first 256 Mb DRAM. Under the leadership of chief executive Kim Kwang-ho, Samsung Electronics took the microchip world by storm when it introduced its 4-megabit DRAM chip in 1994. Sales of that chip helped to push Samsung’s sales from US$10.77 billion in 1993 to US$14.94 billion in 1994. Profits, moreover, spiralled from US$173,000 to nearly US$1.3 billion. Its 4-megabit chip, in fact, had made it the leading global producer of DRAM chips by early 1995.

In addition, Samsung had staged a bold grab for ROK domestic market share. In 1995 the company slashed prices for consumer electronics and home appliances by as much as 16 percent.

In 1995 Lee Kun-hee decided that the company needed to change strategy so many underselling product lines were dropped. He wanted to invest strongly in components and new technology with the aim of supplying other assembly companies. He also wanted to get the company a more upmarket image and challenge Sony for the position of largest consumer electronics manufacturer.

In 1995 Samsung built its first LCD screen, by 2005 it was the world’s biggest manufacturer of LCD panels. Internationally Samsung had wowed industry insiders when it unveiled an advanced thin-film-transistor display screen used for laptop computers at a world trade show at Yokohama in April 1995.

In 1996 Samsung built the world’s first 1 Gb DRAM. Furthermore, Samsung Electronics was increasing its investment in development still further, as evidenced by a $2.5 billion outlay to develop a 64-megabit DRAM chip by 1998. In addition to its DRAM chip pursuits, the company was working to establish a major presence in multimedia products, flat screens, and telecommunications gear.

In 1996 Samsung invested heavily in a facility at Austin, Texas. Samsung has invested over US$ 3 billion in the Austin, Texas facility in the USA. This facility was intended to manufacture chips, including microprocessors. The plant has proved a key investment and was to supply all its output of A5 chips to Apple for iPhone & iPad products.

By the late nineteen eighties Lucky-Goldstar consisted of some 30 different companies operating in an uncoordinated way, R&D was often being duplicated. Management of different companies was out of touch with the ‘bigger picture’ of the company. Falling shares of export and domestic Korean markets caused net profits to slump by half. Targets for US sales had been missed and the objective of getting 40 percent of sales from higher tech products had not been attained, the actual figure was only 12 percent.

Many of Goldstar’s problems were thought to result from its ‘traditional’ chaebol structure. In the late eighties Goldstar was still mostly owned by the original founding Koo family. It was being run by the founder’s eldest son, Koo Cha-kyung, then in his sixties. The allegedly highly centralised and hierarchical decision making system and the consensus based decision making system was apparently too slow for modern rapidly changing markets. Koo recognised these problems.

From 1989 Koo began a reorganisation of the group. He handed control of Goldstar to Lee Hun-jo who had worked for the Lucky-Goldstar group for twenty seven years. In 1991 Koo gave Lee a written guarantee of the autonomy of his decision making in a public ceremony. Lee only had to report to Koo twice a year. Lee quickly reorganised Goldstar into two major groups: Consumer Electronics and PCs/Office Equipment. Product lines not fitting into these two areas were sold off, subcontracted out or absorbed by other Lucky-Goldstar Companies.

During the early nineties Lee succeeded in turning the company around. He spoke both English and Japanese, and fused established western and Japanese management methods well. He jettisoned entire layers of management and forged positive working relationships between senior management and labour. He increased spending on advertising to win back customers and renewed Goldstar’s commitment to penetrating high technology markets.

By 1994 it was clear GS had made a major recovery. From 1990 to 1994 sales increased 50 percent to US$ 6 billion andnet income rose 10-fold to US$ 120 million. By 1994 Goldstar had regained its number one position in the Korean domestic market for colour TVs, refrigerators and washing Machines. It was also actively pursuing a share of the global semiconductors market.

Goldstar was making gains overseas by focussing on emerging markets like Russia and Vietnam. While US sales jumped by 17 percent in 1994 to US$ 1.2 billion through overseas manufacturing and partnerships with US companies.

In 1995 the group re-branded itself as “LG” to favour a more global image. It now translates this by the tag line “Life is Good”.

In 1996 LG explored an abortive joint venture with IBM. While in 1999 LG acquired an American TV manufacturing company called “Zenith”.

As with automotive production Daewoo was to move electronics production overseas, but first Daewoo Electronics revamped its product line. Quality problems had hampered sales of its higher end electronics items, so Daewoo decided to focus on such lower-tech products as televisions, VCRs and microwave ovens. Its aggressive yet systematic approach to overseas expansion then followed.

In 1991 Production of TV sets commenced in Mexico. Domestically, production of refrigerators began at the Kwang-ju, Korea factory in 1993. In 1995 production of refrigerators started in the Vietnam Factory and in 1996 production of refrigerators was added to the Mexico operations. By 1996 Daewoo Electronics had twenty production subsidiaries outside South Korea, with plans for sixteen more. Non-Korean production stood at 19 percent but was slated to be increased to 60 percent by 2000.

Daewoo strategically chose one country within each major target region for most of its production facilities. Southeast Asia production was based in Vietnam (where Daewoo was the single largest foreign investor); in the Americas, Mexico; in Central and Eastern Europe, Poland; and in Western Europe, France.

Daewoo nearly made a huge step forward in late 1996 when a deal was announced whereby Daewoo Electronics would buy “Thomson Multimedia”, based in France. The acquisition would have made Daewoo the world’s leading maker of televisions, but the deal was quickly scuttled after protests by French workers who were angered by the prospect of Thomson Multimedia falling into foreign hands.

The overseas expansion plan continued in 1997 with the production of refrigerators in a Spanish factory, and production of microwave ovens and air-conditioners in the People’s Republic of China. The same year Daewoo was selected as one of “The World’s Most Admired Companies” by Fortune magazine.

Domestically the production of air-conditioners started at the Yongin, Korea, factory in 1998. In 1999 Daewoo Electronics acquired “Pico. SA”, Argentina for the production of refrigerators, Microwave Ovens and televisions.

The expansion plans proved too ambitious and were never completed. When the Daewoo group went bankrupt in 1999 and was broken up, Daewoo Electronics ended up in the hands of some of its creditors.

Though Korea’s semiconductor manufacturing industry was hit especially hard by the global price declines of the early and mid-1990s, the Anam Group’s niche in packaging and testing continued to enjoy profitable growth. As president Hwang In-kil noted in a January 1997 interview with Business Korea, ‘Anam has gained world renown for its technology and quality of products. That’s the secret of our continued high growth.”

The group boosted its capacity with the US$30 million acquisition of Manila-based Advanced Micro Device Inc.‘s Philippine plant in 1990. Subsequent capital investments were expected to increase this subsidiary’s assembly capacity to 220 million chips per month, or an annual export volume of nearly US$2 billion, by the end of 1998.

The group acquired a second Philippine plant, this time from American Microelectronics, Inc., in 1990 as well. They built a third factory there in 1996. Amkor oversaw, and held majority interests in, these operations.

While others entrenched, Anam diversified into a new growth niche mid-decade. In 1996 the group licensed processing technology from Texas Instruments and invested US$1.2 billion in a new industrial park in Kwangju, Korea. The new plant was set up to custom-manufacture (or fabricate, in industry parlance) non-memory or digital signal processor (DSP) chips used in electronic devices like stereos and camcorders.

Anam executives forecast that this segment would enjoy a 30 percent annual growth rate through the turn of the century. It planned to build massive wafer fabrication facilities to accommodate this demand. Its first facility was the size of two football fields. Texas Instruments agreed to purchase 40 percent of the new plant’s total output of 25,000 8-inch DSPs per month. Amkor/Anam forecast that, when complete in 2001, the Kwangju campus would employ 6,000 people and have the capacity to fabricate 120,000 chips or ten million semiconductor packages each month.

Jim Kim told Electronic News that the addition of manufacturing capabilities made Amkor/Anam “One of the first to provide fully integrated manufacturing services under a single umbrella.” In keeping with its time-tested organizational formula, the group set up a separate subsidiary, Amkor Wafer Fabrication Services in Chandler, Arizona, to market its expanded capabilities.

In 1996 the U.S. arm of the Anam Group had revenues of US$1.2 billion and net income of US$31.3 million. Amkor Technologies was reorganized as a holding company in 1997 in anticipation of a 1998 initial public offering.

Anam Electronics, led by Kim Joo-chai (Jay Kim) which had brought big-screen TVs to Korean consumers in the mid-nineteen eighties, had by the mid-nineteen nineties diversified into computers, fax machines and VCRs. By this time, Anam Electronics was generating sales of 264.5 trillion Won.

Electronics Boutique, Inc., the retail chain offshoot of Anam, had grown from 55 stores in 1986 to 400 stores in the United States and Canada and was generating about US$300 million in annual revenues by the mid-nineties.


In the nineteen nineties the motor industry was one of the largest manufacturing sectors in South Korea. The assemblers alone employed more than 100,000 workers. Automobiles were the second most valuable of Korean exports. From 1987 to 1996 total production rose steadily from 800,000 units per year to approximately 2.3 million per year. In 1995 the number of vehicles registered in South Korea exceeded eight million, and the first “Seoul International Motor Show” was held to be restaged every two years since.

It was widely claimed in the West, that the ROK domestic automotive market was protected till late nineteen nineties, including the tight regulation of FDI inflows. From the late nineteen eighties however, it is alleged foreign governments began pressurising South Korea to open its markets. The inequity can be demonstrated statistically. In 1988, for instance, a total of 305 foreign cars were sold in South Korea. During the same year the country exported more than half a million vehicles, most of which were made by Hyundai and Kia. The government lifted some barriers in 1988 and 1989, but imposed less obvious restrictions.

Foreign auto companies had previously largely been excluded from participation either through investment or especially in the case of assemblers, through imports. Despite the reduction in auto tariffs in the nineties, following sustained pressure from Korea’s trading partners, foreign penetration of the domestic car market was minuscule. Only 15,000 cars were imported in 1996, equivalent to 1 percent of the local market. Thus Korean firms dominated the domestic ROK market with little foreign competition till 1999.

In the spring of 1990, total cumulative production of Hyundai automobiles reached the four million mark. While Hyundai’s total cumulative exports to the U.S. had surpassed 1 million in 1990. The same year Hyundai also established the Hyundai Design Center in Fountain Valley, California.

In 1991 the new Hyundai ‘Sonata’ model was launched. While in the field of technology development the company succeeded in developing its first proprietary gasoline engine, the four-cylinder Alpha and its own transmission, thus paving the way for technological independence. HMC also tested their first FFV (Flexible-fueled vehicle), MY S-Coupe, and the first pure electric car developed by Hyundai was the Sonata Electric Vehicle. The car started as a Sonata sedan based model.

In 1992 the new Hyundai ‘S coupe’ model was launched. Also from 1992 to 1993 field trials of several FFVs were conducted at Seoul, Korea, over 30,000 miles. Hyundai planned to have six electric vehicles available for testing by the end of 1992. The company was using batteries from “Ovonic Battery Company Inc.” in Troy, MI. The Excel and the Sonata were the two different models on which the electric vehicles were based.

In the early nineteen nineties the North American market contracted and new markets had to be found. In 1993 the Bromont plant closed after four years of operation, with Hyundai’s sales unable to support the plant. However on the positive side in 1993 the new Hyundai ‘Elantra’ model was launched, and was selected “Best Car of 1993” in Australia.

From 1994 Hyundai began operating an R&D centre in Frankfurt, Germany, that has been responsible for monitoring technology developments in Europe. It has been responsible for designing and engineering new cars for the European market.

In 1995 Hyundai’s ‘Accent’ model earned “Canadian Best Buy Award”, and the ‘Avante’ also won the “Asia-Pacific Rally”. Yet, amidst all the successes, trouble was brewing for Hyundai. The ‘Excel’, although initially well received, gave Hyundai a bad image, as over time its faults became apparent. Also, in efforts to bring the costs down, its quality and reliability suffered. As the poor reputation of Hyundai in the United States spread, sales dropped drastically and car dealerships started abandoning their franchises.

The company however continued with its technology development programmes. In 1995 the new hybrid-electric FGV-1 was unveiled at the first “Seoul Motor Show”. The car featured full-time electric drive technology. The 1995 “Hyundai FGV-1” was the result of Hyundai’s first experiments with hybrid propulsion systems in 1994.

In 1996 formed “Hyundai Motor India Limited” (HMIL), a wholly owned subsidiary of HMC in India, with a production plant in Irungattukottai near Chennai, India. HMIL sells several models in India.

In September 1997 Hyundai opened a manufacturing plant in Turkey, located in İzmit, Kocaeli Province. The facility, named “Hyundai Assan Otomotiv”, was built as a 50-50 percent joint venture between the “Hyundai Motor Company” and “Kibar Holding” of Turkey, the first stage investment raised US$180 million. It was to manufactured a variety of models including the Accent, H-100, Starex and Matrix.

Kia started out as one of Korea’s giant chaebols but was operating as an independent, publicly traded company in the early nineties. Kia suffered during the late nineteen eighties and early nineteen nineties from labour problems. Fed up with low pay and poor working conditions, South Korea’s workers rebelled during the period. Union strikes forced many companies, including Kia, to significantly raise wages.

Since the mid-eighties, in particular, the government had been working to deconcentrate industries. A corollary of that effort was the aim to diminish dominance of the chaebols. Privatization and increased competition ensued. By the early nineteen nineties Kia jettisoned its own chaebol structure and became an independent, publicly traded company, although it continued to benefit from government ties and a protected domestic market. In 1990 “Kia Industry” changed its name to “Kia Motors Co.”.

In the early nineties Kia brought out some new models of vans, the Besta and the Towner. The company also brought out a new luxury sedan the Potentia, and an economy family car the Sephia, available as a sedan or hatchback. The Sephia was to be the first wholly Kia model sold in the USA.

In the nineteen nineties Kia experienced some major breakthroughs. In mid-1991 Kia began exporting cars to Europe, initially selling only the ‘Pride’ hatchback, derived from the Mazda 121 of 1987.One development was its 1992 introduction of the Sephia, a compact four-door sedan, to the domestic Korean market. The car quickly became the best selling automobile in South Korea.

Kia’s US sales had begun from 1987 with the ‘Festiva’ model, produced in conjunction with Ford. Unsatisfied with Ford’s marketing decisions, Kia attempted to establish its own dealer network in the US. This led Ford to end the partnership.

Kia was preparing to enter the U.S. market with its own cars and dealers. Partly in preparation for that project, Kia invested heavily during the early 1990s to vastly expand its production capacity. In 1992, “Kia Motors America” was incorporated in the United States. Heading that division was automotive industry veteran Gregory Warner. Warner planned to bring Kia into the U.S. market slowly, starting with selected dealerships in California and expanding into 11 western states. His initial goal was to sell 30,000 to 50,000 units annually. Thus in 1994 Kia began exporting to the USA independently, the model was the ‘Sephia’.

Kia also aggressively chased the blooming Chinese market. In 1992 Kia opened the “Yanbian Industrial Technology Training Institute” in the People’s Republic of China to train expatriate Koreans in production techniques. Kia planned to eventually build a network along China’s east coast.

Rapid expansion meant taking on more debt. By 1992 its debt load ballooned to more than US $2 billion.

In 1993, Kia was already selling its cars in about 80 foreign countries and building a total of more than 500,000 cars annually. Anticipating unprecedented global growth Kia increased production capacity from 650,000 in 1993 to 930,000 in 1994. Kia planned to boost that figure to 1.5 million by 1997. At Daejeon ’93, a three month international technology exposition held that Summer, Kia was named as the ‘Official Car’.

In February 1994 – the first Kia-branded vehicles in the United States were sold from four dealerships in Portland, Oregon. From this Kia expanded methodically one region at a time, first selling the ‘Sephia’, later the ‘Sportage’. Kia’s introduction of the Sephia and another new model, the Sportage, in international markets was well-timed because car sales in many regions were booming in 1994. The big draw for Kia products was the low price. Kia claimed that products such as the Sephia were of comparable performance and quality to vehicles offered by other manufacturers, and Kia marketed them at a much lower cost. In 1994 Kia followed second behind Hyundai in the US by selling 12,000 units there that year.

In 1994 the European range expanded when Kia began importing the larger Mentor, a range of medium-sized hatchbacks and sedans which were marketed as inexpensive and well-equipped alternatives to the likes of the Ford Escort and the Vauxhall/Opel Astra.

However continued rapid growth had meant a further pile up of debt. By 1994 the company’s debt had surged to US$3.3 billion.

Kia’s revenue rose steadily during the early nineties. In 1994 Kia’s diversified operations generated about US $6.8 billion in revenues. Most of that amount was attributable to shipments of automobiles and related parts, although about 16 percent came from truck sales. The revenue figure marked a significant increase over the US $4.5 billion reported in 1993 and the US $2.5 billion in 1990.

Kia’s profitability, however, was extremely weak. Net income fluctuated around a paltry US $20 million throughout the early nineties before bobbing up to US $27 million in 1994. Kia’s stock plummeted in 1994, and the company defended its stressed balance sheet by emphasizing anticipated profits from its popular new models.

Kia entered the mid-nineties as the 20th largest car maker in the world and the seventh biggest corporation in South Korea. By 1995, there existed over one hundred Kia dealerships in the USA spread over thirty states, selling a record 24,740 automobiles.

However in 1997 as the financial crisis was spreading across Asia, Kia declared bankruptcy. While Kia’s portion of that collapse stemmed in part from the foundering of its steel subsidiary, Kia’s fairly stable automobile business was crippled nonetheless. By July 1997 Kia was US $5.7 billion in debt and had experienced negative net income for three years in a row. Total revenues fell from $8 billion to $4 billion, and Kia was up for sale. However Kia had been the second largest ROK auto producer after Hyundai, till the 1997 Asian Financial crisis. The financial troubles of Kia Motors were to contribute to dragging the South Korean economy into the regional financial crisis.

Daewoo Group’s chief interest in the automotive sector was through the GM Daewoo joint venture. In 1990, they created the Espero, a mid-sized four door sedan designed by Bertone, initiating a tradition at Daewoo Motor of models created by Italian designers.

However the group’s Daewoo Heavy Industries (DHI) affiliate also had activities in the automotive sector. Since 1981 it had sold ‘Damas’ Mini-van & ‘Labo’ mini-pickup, which were based on Suzuki models. When the Royale Series range was discontinued, its models were slightly refreshed and offered from 1991 under the Prince and Super Salon or Brougham model names until respectively 1997 and 1999. In 1991 DHI also introduced the Tico mini car, which was sold at Daewoo Motor’s dealers.

In 1992, the joint-venture with General Motors ended, leaving Daewoo Motor as an independent company. It is alleged that poor relations had developed between GM and the Korean management, who were unhappy at the relatively dated technology that GM had been willing to supply to it, and at its unwillingness to permit Daewoo to expand in foreign markets. It is reported that GM did not allow Daewoo to export abroad with its own brand or develop its own technology to design a new car. Thus in the early nineties the company started to expand heavily throughout the world.

Daewoo began importing cars to Britain. This was aided by a revolutionary sales package where cars were sold directly to customers from the manufacturer rather than through a traditional dealer network.

In August 1992, Daewoo set up UzDaewooAuto, a joint venture in AsakaUzbekistan, leveraging the presence of a large local ethnic Korean minority. The plant has assembled the Matiz and Nexia models for both the local market, and export, as well as the Lacetti hatchback and sedan for the domestic market only.

In 1994, Daewoo started importing the second generation Honda Legend to replace the discontinued flagship ‘Imperial’, under the name of ‘Arcadia’. In 1994, the ‘LeMans’ also got a slight refresh, and all variants (three, four and five-door) were then sold under the Cielo model name.

In 1994, Daewoo acquired the Automobile Craiova company in CraiovaRomania, which was producing a derivate of the Citroën Axel model, the Oltcit Club. The company’s name was changed to “Romanian Daewoo Motor”, abbreviated “Rodae”, and later “Daewoo Automobile Romania”.

The entire production facility was refurbished to mainly produce the Cielo model and later, other models. Until 2008, it was producing the Daewoo Cielo, Matiz and Nubira models for the Romanian market, but also car parts for export, such as engines and gearboxes to GM Daewoo and to other companies.

In early 1995 in Europe, Daewoo Motor started selling the Espero and Cielo (or Nexia). In 1995 Daewoo also invested in Poland’s Fabryka Samochodów Osobowych (FSO), forming a joint venture called “Daewoo- FSO”, for the assembly of the Matiz city car, a successor of the Tico, that was very popular in the Eastern European market.

In 1995 when making a joint venture with the Polish company Fabryka Samochodów Ciężarowych (FSC), Daewoo also created “Daewoo Motor Polska” which produced the Daewoo Lublin van and the Daewoo Honker pick-up truck, (based on the former Tarpan Honker.)

Until 1996 all Daewoo cars were based on GM-designed models, but in late 1996 the first authentic Daewoo Motor product, the Lanos, was introduced. It spawned three variants four-door, three-door, called ‘Romeo’ and five-door, the ‘Juliet’. It was the first model of a whole new family of cars to be created. Styling was by Giorgetto Giugiaro‘s “Italdesign” firm. One of its main features was the new three-parts corporate grill, reminiscent of the Daewoo Motor emblem, which was to be used on many of the following Daewoo cars.

In February 1997, the Nubira was launched, the first Daewoo model to be produced in their then new Kunsan (west coast of ROK) motor plant. It was designed by the Italian-based “I.DE.A Institute”. In March 1997, the mid-sized ‘Leganza’ followed, also designed by Giorgetto Giugiaro, borrowing some styling cues from the existing 1990 Jaguar ‘Kensington’ concept car.

The nineteen nineties were the decade in which Samsung finally made its abortive bid to enter the automotive industry. In the early 1990s Samsung’s Chairman Kun Hee-lee recognised the automobile industry as the culmination of several others. For the Samsung Group this would allow the exploitation of linkages from the entire group including Samsung Electrics and Samsung Electronics. He had initially tried to take control of Kia, but competition from other bidders and legal restrictions made him drop the idea.

The intention was to create a new car maker, “Samsung Motors” (also known as SMI) and a truck manufacturer, “Samsung Commercial Vehicles Co., Ltd.” Thus in 1994 SMI was established, and in 1996 Daegu-based “Samsung Commercial Vehicles” was established, through “Samsung Heavy Industries” with Nissan Diesel‘s support.

In 1995 the Samsung Group built a plant with capacity of 500,000 units per year. Unfortunately for Samsung shortly after SMI started its operations the Asian financial crisis hit which reduced domestic demand for vehicles.

In 1991 Ssangyong started a technology partnership with Daimler-Benz. The deal was for SsangYong to develop an SUV with Mercedes-Benz technology. This was supposedly to allow SsangYong to gain footholds in new markets without having to build their own infrastructure, by utilizing existing Mercedes-Benz networks, while giving Mercedes a competitor in the then-booming SUV market. This resulted in the SsangYong ‘Musso’, which was sold first by Mercedes-Benz and later by SsangYong.

SsangYong further benefited from this alliance, long after Daimler-Benz stopped selling the ‘Musso’, by producing a badge engineered version of the Mercedes-Benz MB100, called the ‘Istana’. Also by using Daimler designs in many other models, including the second generation ‘Korando’ (engine and transmission), the ‘Rexton’ (transmission), the ‘Chairman H’(chassis and transmission) and the ‘Kyron’ (transmission)

In 1997, “Daewoo Motors”, now “Tata Daewoo”, bought a controlling stake from the “Ssangyong Group”.

Before 1998, independent auto parts producers, mainly SMEs suffered in two ways; chaebol assemblers often imported parts to ensure quality standards and chaebol assemblers had a tendency to vertically integrate to develop their own affiliates manufacturing auto parts ‘in-house’. Thus in the early nineteen nineties the share on this ‘in-house’ production of parts in the ROK auto industry was 50 percent, high by international standards. In this way much of the technological learning in auto parts manufacture was ‘captured’ by the chaebol. One report estimated the chaebol share of automobile industry value added rose from 18 percent in 1970 to 60 percent in 1985. For example when the ROK government allowed Samsung to enter auto production in the mid-nineties, it insisted Samsung establish a whole new supply chain of its own.

Despite the vertical integration of parts manufacturing by the chaebol, numerically auto components producers were overwhelmingly SMEs with 10 to 300 employees. It appears though, that government policies to boost SMEs had little benefit, as such enterprises suffered from a lack of financial resources and a lack of access to advanced technology.

The relationship with their chaebol customers often did not help the situation, some attempted to block their suppliers from supplying competitors, causing problems for the SMEs such as prevention of achievement of economies of scale, and a failure to standardise parts over the industry.

In addition, before 1998 FDI in ROK auto parts production was limited. A few ‘First Tier’ suppliers, e.g. Delco Remy (spun off from GM in 1994, to make electrical components such as alternators and motors) had a presence in ROK but were forced by the government to enter into joint ventures.

From 1990 till 1997 ROK car production nearly doubled to just below three million vehicles per year. Approximately half of this output was for export in 1997. Thus exports had increased in importance to Korean assemblers. Furthermore domestic ROK car ownership had increased eight fold in the decade 1985 to1995. By the mid-nineteen nineties the ROK automotive industry had become the fifth largest in the world.

However beneath the surface there were vulnerabilities. Rapid expansion of capacity in the early nineteen nineties had been financed by taking on high levels of debt. In 1996 the average debt-to-equity ratio of ROK auto manufacturers was 530 percent, much higher than the already very high 300 percent average for ROK manufacturing companies of all sectors. The most extreme case was of Ssangyong, the four-wheel drive manufacturer, with debt-to-equity of 10,496 percent.

In addition it was suspected by some analysts that the lack of transparency in accounting practices was hiding low or zero profitability of the auto operations. It is thought conglomerates were able to persist with such apparently unsustainable business activities by rolling over debt and by cross-subsidising auto operations from other more profitable affiliates in other industries.

ROK auto manufacturers had competed on price not quality, sometimes gaining a poor reputation as in the lucrative US market. As demand in the markets of developed countries suffered, ROK assemblers depended increasingly on sales in developing economies. In 1996 sales to Western Europe and the USA represented only 43 percent by value. ROK manufacturers were specialising in the export of small inexpensive cars, often in kit form for local assembly, where profits were tiny or non-existent.

ROK auto assemblers suffered a range of disadvantages compared with US and Japanese firms. Both labour and capital productivity were low by comparison. Korean firms produced too many different products and product designs did not sufficiently consider manufacturing methods. Quality control was a problem with inconsistent quality products.

Weakness in the domestic auto parts industry had a knock on effect on the assemblers. The SME auto parts manufacturers lacked the capital for R&D which could have led to technological improvements. The design process was led by the assemblers, not the parts suppliers, with suppliers often tied to one assembler by contract or affiliation. This meant that there was less standardisation across the industry and so fewer economies of scale in parts production.


Following the difficult decade of the eighties, the nineteen nineties were to be a period of take off for the ROK shipbuilding industry. The global recession in the industry had bottomed out in the late eighties and a period of practically exponential growth in ship construction began which ran well into the first decade of the twenty first century. The growth in the market reflected the recovery of the global economy with rapid economic growth in Asia, and fleets built in the seventies approaching the end of their economic life span, necessitating replacements.

Three important reasons for shipbuilding growth included the toughening of the IMO (“International Maritime Organisation”) marine pollution regulations, demanding firms to switch to double-hulled oil tankers by 2010. The increasing demand for shipbuilding services with the fast growth of the economy of the People’s Republic of China’s and the resulting increasing seaborne trade between Asia and the USA. Also global shipping companies’ demands for large container vessels, stacking up to 10,000 containers increased.

Economic growth in large countries like the People’s Republic of China and India increased the demand for oil and liquefied natural gas (LNG), stimulating offshore oil exploration and production (E&P) operations, with the consequent increased demand for the construction of offshore production facilities.

The Koreans developed methods of construction which kept them competitive, especially with regard to their main competitor Japan. It has been claimed that Japan prohibited the transfer of the most advanced technologies to ROK, and this has been used to explain an increase in R&D spending by Korean shipbuilding and steel industries. Although Japanese firms enjoyed superiority in welding techniques, the Koreans developed techniques for using enlarged metal blocks for welding that use 10 of 2,000 ton blocks, instead of 100 of 200 ton blocks. This shortens production time. Korean firms achieved efficiencies by constructing ships inland, then lifting the constructed ship body on to the sea by Goliath cranes, barges and air pressure driven skids.

As mentioned earlier an intensive personal intervention by Kim had overseen the recovery of Daewoo’s shipbuilding concerns and by the mid-nineties Daewoo was one of the most efficient shipbuilders in the world. It served ten percent of the global market and had become the world’s leading shipbuilder.

Hyundai’s shipbuilding fortunes were improving too. Although in 1990, the HHI Ulsan yard was hit by further strikes, it managed to land a US$ 600 million order for ten combination vessels from a Norwegian shipping group. Exports in the shipbuilding sector were showing a marked improvement.

During the nineties the South Korean share of world gross shipping tonnage built, rose from about twenty percent to about forty percent. By the mid-nineties the ROK had about twenty five percent of the world market for shipbuilding by value, and four out of five of the world’s biggest shipyards. South Korea’s growth as a shipbuilder has been led by exports as, unlike the UK or Japan, the country’s domestic fleet was too small to absorb so much output. The success of Korea’s shipbuilding industry reflected the growing internationalisation of the bulk shipping industry, where the development of international registries and the growing role of multinational corporations in shipping, meant the historical link between ship, owner, and national interest was dissolving.


By 1990 South Korea was the world’s seventh biggest steel producer. During the early to mid-nineties ROK steel production continued to grow steadily at the same rate as in the previous decade and a half, but the rate of growth slowed slightly after the IMF crisis. Over the course of the whole decade it increased from just under 30 million tons per year, to a little over 40 million tons per year.

Because of POSCO’s tremendous increase of output, it grew from supplying twenty percent of domestic steel consumption in the seventies, to supplying ninety percent in 2000. Throughout the nineties the output of steel tracked the output of automobiles, a little more than doubling, over 3.5 million tons of steel were supplied to auto manufacturers by POSCO in 1999.

The manufacture of home appliances also consumed significant amounts of steel. Huge amounts of steel were used by the construction industry for highways, bridges, commercial buildings, and for residential construction. For example in the late nineties POSCO’s supply of steel to the construction industry was over one million tons per year.

Comparing the competitiveness of Korean and Japanese steel producers, “Nippon Steel’s” superior labour and capital productivity rapidly disappeared in the eighties, with POSCO superseding it by 1992. POSCO with the support of the ROK government adopted five key strategies from the seventies to the new century to reduce costs and expand production.

Firstly, as we have seen in POSCO’s development, the importation of new technology from abroad. New technologies and facilities were adopted from other areas of the world including Japan and Europe, for example automation, larger scale blast furnaces, continuous casting equipment, mini-mill technology etc.

There were important reasons why POSCO needed the new technologies, improving the quality of steel required to meet the standards of the global export market; To achieve greater economies of scale by increasing the scale of production; In addition combining technological efficiencies with low wage labour gave a competitive edge

Secondly, high investment in R&D. As described earlier POSCO established two major research organisations in the nineteen eighties, POSTECH and RIST.

Thirdly, was the use of a segmented workforce to reduce 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 both permanent and transitory employees.

POSCO’s regular workers are well paid. POSCO had at one point, 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 are automated and are performed by computerised programmes.

The temporary, sub-contracted ‘blue collar’ employees are given the menial tasks such as relining, cleaning, packing, preparing ingot moulds, scarfing and treating slabs. It is estimated that this policy has a significant impact in reducing labour costs.

POSCO’s labour policies are also notable. The company has a military style ethos which fosters strong motivation. There is an extensive training programme which leads to low rates of turnover and absenteeism. The company labour union is very weak. Large numbers of irregular workers are hired through sub-contracting companies (‘Oejoo Opchae’).

Fourthly, the use of long-term contracts with supplier firms to obtain inputs such as iron ore. POSCO built deepwater ports at Young Il Bay and Gwangyang Bay. 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 / European practice of steel firms relying on FDI. The growth of steel demand required a steady increase in imported raw materials

Fifthly the use of joint venture investments in other countries aimed at securing inputs such as coal or iron ore. For example the investments in Australia and Canada to obtain coal, and investments in Brazil to obtain iron ore.

The early 1990s were a period of further international expansion for POSCO. The Gwangyang facility boosted POSCO’s sales, and the company used the additional revenue to fund its growth in new markets. In 1992 a third-phase mill was completed at Gwangyang. By the time the facility was completed in 1992, POSCO could produce 21 million tons of steel a year. With this additional output, POSCO became the world’s second largest steel maker.

In 1986, POSCO had established a joint venture with the American firm “USX Corp.” to build a steel mill in California. Although the mill soon became profitable, POSCO fell victim to its own success, as the company encountered increasing protectionism from recession-plagued Europe and the United States.

Growing Sales to the People’s Republic of China prompted POSCO to eye new territory, particularly the nascent Chinese market. The Korean steel maker’s expansion in the People’s Republic was breathtaking. In 1991 POSCO had exported only about 200,000 tons of steel to the People’s Republic of China. In 1992 it shipped over 1,000,000 tons to the People’s Republic, the same amount it exported to the United States. In no small part because of this success, POSCO sought to strengthen its position in China. In 1992, announced it would invest $97 million to build a tin plate plant in Shanghai.

In 1992, POSCO expanded its operations in Vietnam, signing an agreement with the state-run “Vietnam Steel Corp.” (“VCS”), to construct a pipe mill, and an electric arc furnace near Hanoi. In addition it was planned to expand capacity at POSCO’s existing joint venture with VCS known as “Posvina Co.”.

This overseas building enabled POSCO, in the midst of a weak global steel market, to boost its net income 27 percent to W 185.1 billion (US$ 234 million) in 1992. About 45 percent of POSCO’s output was exported.

POSCO underwent internal changes, as well. After partially privatizing the company in 1988, the South Korean government began in 1994 to explore the idea of privatizing POSCO completely, possibly even breaking apart the company and selling off its pieces to private investors. POSCO lobbied hard to prevent this outcome, however, and the plan was ultimately scrapped.

POSCO had taken another great leap forward in 1989, when the company opened itself to foreign ownership. In 1989 the company had also begun selling overseas convertible bonds to fund the second phase of construction at the Gwangyang works. In 1994 POSCO went even further and made its first public stock offering, becoming the first South Korean company to be listed on the New York Stock Exchange (NYSE).

This period of growth was accompanied by new challenges for POSCO, though. In 1992, company Chairman Park suddenly resigned. A few months later, the government, under the leadership of the new South Korean President Kim Young-Sam (who had campaigned on an anti-corruption platform) launched a full-scale investigation of POSCO and Park. In 1993, South Korea’s “National Tax Administration” levied a penalty of W 79.3 billion (US$99.4 million) against POSCO and W 6.3 billion against Park personally. Park left South Korea for Japan and abandoned his post of honorary chairman of the company.

In 1993 changes in managerial systems and organizational structure accelerated following Park Tae-Joon’s resignation. These changes were not without controversy however. Park Tae-Joon having been ousted under the Kim Young-sam government, for alleged slush fund building and money laundering, which was later proven to be false. Most of the top management under him at the time were also fired.

After the inauguration of the Kim Dae-Jung government and Park’s rehabilitation and return to power, most of these former managers were returned to their previous posts at the state owned steel maker. Then POSCO Chairman Ryu Sang-bu, President Lee Ku-taek, Development Chairman Park Doo-pyo, and Managing Director Cho Yong-kyong, all received support from Park who later went on to become the Prime Minister of Korea.

In 1993 POSCO set up “POSCAN” in Canada, also known as the “Greenhills Coal Mine Project”. This was to secure coal supplies. In July 1994, POSCO created two subsidiary companies: “POSTEEL”, the domestic sales and service arm of the company, and “POSTRADE” to handle international trading of POSCO products. In September 1994 both subsidiaries commenced full operation, with all international POSCO affiliates transferred to POSTRADE by the end of that year.

POSCO launched dozens of joint ventures across the globe including new plants in:

  • China (1995 and 1996)
  • Indonesia (1995, 1996, and 1997)
  • Vietnam (1996)
  • Myanmar (1996)
  • Venezuela (1997).

In 1996 “KOBRASCO” was set up in Brazil, as a joint venture to produce iron ore pellets. The company continued to perform well in the midst of this rapid growth. POSCO’s profit surged 30 percent in 1994, while its net sales rose 12 percent in 1995.

At the same time, POSCO hoped to free itself from exclusive reliance on the cyclical steel industry. To this end, it branched out into telecommunications, taking a stake in “Atel Inc.”, a telecommunications network provider co-owned by Australia’s “Telestra Holdings Pty. Ltd.” While POSCO cast about for new paths, which also included electric power generation, the distribution of liquefied natural gas, the company also set a goal of boosting its production of value-added, higher-end steel.

Petrochemicals and Chemicals

During the nineteen nineties the development of the petrochemicals industries still took place under the administrative guidance of the government. It was a time however of take-off for the industry as it moved from a relative balance of imports and exports, to being a net exporter. As will be seen below it was a decade where refinery capacity was rapidly expanded and companies sought to diversify, balance and increase the ‘value added’ of their range of refinery products.

The SK Yukong group continued to develop its interests in fossil fuels whilst being diversified into many other business lines, notably telecommunications. It was a pioneer of South Korea’s domestic mobile phone industry. The Ulsan refinery complex was expanded and developed through out the decade. In 1990 a polypropylene plastics plant started up with capacity of 150,000 tons/yr. In 1991 the No. 4 atmospheric distillation unit (daily production reaching 265,000 bpd) was launched, while in 1992 the No. 1 Heavy oil, sulfuric acid eliminator (production 30,000 bpd) and a resolving facility with production of 30,000 bpd were established.

In 1994 commercial crude oil production commenced at North Zaafarana Concession in Gulf of Suez, Egypt. While an R&D centre was established in 1995.

At Ulsan expansion continued with the No.4 middle distillation unit starting up in 1995 (50,000 bpd), together with a lubricating base oil plant (3,500 bpd). In 1996 capacity was further increased, with the No.5 middle distillation unit starting up (60,000 bpd) and launch of the    No. 5 atmospheric distillation unit (200,000 bpd, gross capacity: 810,000 bpd). The same year further crude oil production began in Peru.

Expansion and diversification continued at Ulsan in 1997, with launch of the No. 2 heavy oil desulfurization plant (60,000 bpd) and decomposition plant (50,000 bpd), the No. 2 para-xylene plant (300,000 tons/yr.) and operation of the No.2 Synthetic Resin manufacturing facility (annual production 320,000 tons). In 1997 “SK E&P Co.” (Exploration & Production) was established, headquatered in Houston, USA. The Group now changed its company name into “SK Co., Ltd.” from “SK Yukong”, later to become better known as the “SK Energy Group”.


In 1990 GS Caltex took up equity participation in DOPCO (“Daehan Oil Pipeline Company”), a venture to build pipelines to the north of Seoul. Expansion and diversification continued at the company’s Yeosu complex. That year completing the No. 1 PX (Paraxylene) plant (200,000 MTA) and the No. 1 BTX (Benzene/Toluene/Xylene) plant (500,000 MTA). In 1991 then completing the No. 1 HDS plant (Hydro-desulphurisation) (50,000 BPSD) and expanding the first BTX plant from 500,000 MTA to 600,000 MTA. In 1992 construction of the second crude oil wharf was completed to feed the growing capacity.

In 1994 the first PX plant was expanded from 200,000 MTA to 300,000 MTA. In 1995 the second PX plant at Yeosu was completed, adding 350,000 MTA, (total 650,000 MTA), and the No. 1 HOU (“Heavy Oil Upgrade”) (RFCC, Residue Fluidized Calatylic Cracker, 70,000 BPSD) was also completed. The same year “LG Caltex Singapore” was established.

In 1996 the company was renamed as “LG-Caltex Oil Corporation”, and a sales affiliated was established “LG Oil Products Sales”. At Yeosu, desulfurisation and crude distillation capacities were further expanded with completion of the No. 2 HDS (70,000 BPSD, total 120,000 BPSD), and the No.4 CDU (270,000 BPSD, total 650,000 BPSD).

In 1997 “Kuk Dong City Gas” (Now “Yesco”), was acquired by the group. Output at Yeosu was increased by the expansion of the continuous catalytic reforming unit (30,000 BPSD).

The chemicals branch of the LG group continued to expand and diversify its involvement with polymers and materials, also entering the production of ‘generic’ antibiotics, or ‘Active Therapeutic Ingredients’ (ATI). In 1991 an antibiotics plant was established at Iksan. In 1992 LG completed construction of the Yeosu PA Plant for polyamide synthesis. The following year developing and marketing the industry’s first HCFC (Hydrochlorofluorocarbon) resistant synthetic resin. While in 1994 construction of the “Lucky Research Park” was completed.

In 1995 the chemicals interest was renamed to “LG Chemical Ltd.”, acquiring India’s “Hindustan Polymers Ltd.” in 1996. In 1997 expansion of the Yeosu Acrylate, EDC/VA, and VCM Plants. (Ethylene dichloride / Vinyl Acetate / Vinyl Chloride Monomer) was completed.

Ssangyong continued to develop its fuels and petrochemicals complex at Onsan (Ulsan). In 1991 the company laid the groundwork for its growth into a high-tech oil refinery by obtaining the permissions to expand more facilities than any other refiner, and began operation of the 2nd atmospheric distillation unit (232,000 B/D) raising its production capacity to meet growing gasoline demand.

It also began operation of the BTX manufacturing plant (Benzene/Xylene/Toluene). The Company made a foray into the downstream petrochemical sector by constructing the BTX plant that produces high value-added benzene, toluene and xylene from crude oil. Thus producing aromatic compounds and mixing them with gasoline or selling them to other companies as raw materials for petrochemical products. The Company also diversified its petrochemical business.

The same year the company signed a joint-venture agreement and a crude oil purchase agreement with AOC, “Aramco Overseas Company’s”, equity investment (35% stake, US$400 million), and a guarantee of twenty year crude oil supply enabled the Company to effectively pursue its bunker-C cracking and desulfurizing projects. At the same time the company completed construction of R&D Center located in the Onsan Refinery (Ulsan), has now become the cradle of development of technologies.

In 1995 Ssangyong began operation of the 3rd atmospheric distillation unit (200,000 B/D) to raise the Company’s refining capacity to 580,000 bpd. In 1996 Onsan began operation of the 1st stage Bunker-C Cracking Centre (Hydrocracker, 75,000 B/D) This facility hydrocracks bunker-C and produces mostly diesel and kerosene, which stabilized the supply of diesel and kerosene in winter.

1996 saw the upgrading of refining facilities, the improvement of national competitiveness, and demonstrated the company’s ability to cope with domestic and overseas demands promptly, thereby gaining a foothold as a ‘state-of-the-art’ refinery that would lead the internationalization of the domestic oil industry.

In 1997 operation of the 2nd stage Bunker-C Cracking Centre facilities (RFCC, 65,000 B/D) [Residue Fluid Catalytic cracker] began. It was the largest bunker-C cracking plant in South Korea. It produced mainly gasoline by cracking bunker-C with catalysts. It contributed to improving the balance of international payments of Korea (substituting for imported fuel).

The same year the Xylene Centre with capacity of 650,000 tons/year was completed. The Company began its petrochemical business on a full scale by constructing the Xylene Centre, one of the world’s largest single plants. It produced high-value-added petrochemical products, and contributed significantly to reducing the imbalance between the Company and other refiners in the petrochemical area.

In 1993 the refineries belonging to “Kukdong Oil Refining Co., Ltd.” at Busan and Daesan were acquired by Hyundai, establishing the “Hyundai Oil Refinery Co., Ltd.”. In 1994 the ‘OILBANK’ brand developed and introduced. In 1996 Hyundai completed construction of oil refining facilities with a capacity of 200,000 bpd at the Daesan Refinery. The same year Mong Hyuk-jung was appointed as President of the company, and the company was awarded a ‘Medal Commending Export Achievement’ for exports worth one billion US Dollars.

In the 1990s, the growth of Hanwha (formerly the Korea Explosives Group) kept pace with Korea’s emergence as both a regional and global economic powerhouse. Hanwha itself began to approach the top ranks of the country’s corporations, finally entering the top ten non-government owned companies by the middle of the nineties. The group was highly diversified and during this decade acquired interests in newspapers, discount retail and high technology telecommunications. The group would be dogged by problems though. In 1994 chairman Kim Seung-yeon was convicted of currency smuggling and sentenced to 54 days in jail.

In 1994 Hanwha also acquired the Incheon oil refinery belonging to Kyung-in Energy, where the capacity had already been expanded by the commissioning of a further 150,000 bpd column in 1991. Thus the “Hanwha Energy” affiliate was established.

In 1995 Hanwha entered the pharmaceuticals industry, acquiring “Central Pharmaceutical Company”, which formed the core of its new “H-Pharm” subsidiary. However 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, leaving the group vulnerable.

A barometer of the country’s progress in petrochemicals can be seen by the fact that in 1995 the ROK was the world’s fourth biggest producer of ethylene, used for making polythene plastics and chemicals, with five percent of the world market. Thus ROK not only had capacity, it had competitiveness. However later events would show there was room for further concentration of the industry, with arguably too many companies operating in the same niche.

In the nineties CJ Corp was to continue its foods business, but also to continue into the more high technology, higher value added area of pharmaceutical manufacture. In 1990 CJ built a new pharmaceuticals plant in Daeso. The company then launched production of 7-amino cephalosporanic acid (7-ACA), a key bulk active in antibiotic preparations. The same year a lysine plant was constructed in Indonesia as part of the food additives business. In 1991 CJ set up “Cheil Futures Co.”, the first futures broker in Korea.

In 1993 CJ was finally to break away from the Samsung Group. During the nineteen eighties, Lee Byung-chull had placed elder son Lee Maeng-hee as head of CJ, instead choosing a younger son, Lee Kun Hee, to head the Samsung empire itself. By then, CJ had become a backwater among Samsung’s major technology and industrial holdings. Worse, already Korea’s largest food manufacturing business, CJ’s future growth appeared modest at best.

In 1993, Lee Maeng-hee turned over direction of CJ to his children, Miky Lee and her younger brother Jay Lee. Jay Lee took over the company’s day-to-day operations as CEO, while Miky Lee emerged as the company’s ideas person. The pair quickly moved to liberate CJ from the Samsung empire, severing its ownership ties with the company their grandfather had founded. From 1993 to 1996, CJ unravelled its holdings in Samsung and affiliated companies, and officially launched itself as “Cheil Jedang Group” in 1996.

CJ’s new management recognising the limited growth potential, aimed to transform it into a diversified and dynamic group in its own right. In 1994, the company extended its food operations into a new area, the restaurant sector, launching the “Foodville” restaurant chain. CJ also entered the catering market that year.

In 1995 CJ paid US$ 300 million for an eleven percent stake in “Dreamworks SKG”, becoming one of the early investors in the new film production company. Formed by Hollywood heavyweights Steven Spielberg, Jeffrey Katzenberg, and David Geffen, “Dreamworks” originally had been approached by Samsung, which proposed to put up US $900 million to back the new company. When Samsung decided against the investment, Miky Lee took a chance, and CJ offered US$300 million for the eleven percent stake in “Dreamworks”, as well as a seat on the company’s board of directors.

The “Dreamworks” investment now became the cornerstone for CJ’s entry into the media and entertainment market. In 1996, the company joined the “CJ Golden Village” joint venture, which included Australia’s “Village Roadshow” as a partner, and began plans to roll out a national network of modern multiplex cinemas. In 1997, CJ bought up money-losing “Music Network”, which owned “”, South Korea’s only cable TV music station. The group also acquired “Dreamline”, which had begun building a fibre optic network and providing high-speed Internet access services. The same year the group also established its own film production house, “CJ Entertainment”.

However despite these new directions, the group continued to deepen its involvement in its original field of foods. In the late nineties CJ expanded its food operations internationally, opening production subsidiaries in Indonesia, the Philippines, Myanmar and the People’s Republic of China.

Domestically within South Korea, the group also widened its food interests, in 1996 establishing a sterile rice packing concern, called “Hetbahn”. In 1997 also launching the “Tous Les Jours” bakery and building a frozen bread dough factory.

Liquified Natural Gas (LNG)

The nineteen nineties was a period of major infrastructure development for the importation of LNG. By 2011 South Korea was to become the world’s second largest importer of LNG after Japan. By this time nearly a fifth of the country’s energy needs were supplied by gas, somewhat more than provided by nuclear power. Domestic gas production has been negligible and the country has depended entirely on LNG imports for gas. The importation of LNG has been dominated by the “Korea Gas Corporation” (KOGAS) which has a practical monopoly. Originally a state-owned company, founded by the government in 1983, despite partial privatisations, the government was still the biggest shareholder in 2011. KOGAS is now the world’s biggest LNG importing company.

The strategy of KOGAS to obtain secure and cheap supplies has been to enter into long-term contracts, using purchases on the ‘spot market’ only to cover unexpected fluctuations in demand. Imports are from numerous diverse sources, however the biggest suppliers are Qatar and Indonesia, with significant amounts coming from Oman and Malaysia.

Following the establishment of KOGAS, South Korea’s first LNG regasification plant and importation terminal was constructed at Pyeongtaek on the west coast of Korea, about thirty miles south of Seoul. It commenced operations in 1986. The facility was further expanded in the early twenty first century.

Construction of a second regasification terminal at Inchon was commenced by KOGAS in 1993, beginning operations in 1996. By 1998 an expansion of the facility had already been completed. The terminal received its first shipment of gas from Qatar in 2000. Furthermore in 1999 KOGAS began construction of a third facility at Tongyeong, (formerly Chungmu), on the country’s southern coast.

Nuclear Power

Construction at the nuclear reactor sites continued with five new reactors becoming operational during the decade. At Yeonggwang the Hanbit 3 and Hanbit 4 reactors commenced operations in 1995 and 1996 respectively. Both were one Gigawatt PWR models of the ‘System 80’ design. In 1997 Wolsong 2 reactor began operating, a 700 MW CANDU PHWR like its predecessor.

At Uljin the Hanul 3 and Hanul 4 reactors commenced operation in 1998 and 1999 respectively. Both were one Gigawatt ‘Korean Standard Nuclear Power plant’ (now designated OPR-1000), a South Korean designed Generation II PWR. It was developed by the KHNP (“Korea Hydro and Nuclear Power”) affiliate of KEPCO partly based on technology licensed from the US firm ‘Combustion Engineering’. This marked a stage in the maturation of the country’s own nuclear industry. At the end of the nineties the ROK had fourteen operational nuclear reactors with output over 12,000 MW.


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