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Korean Chaebol : Global or Globalized

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1 Korean Chaebol : Global or Globalized
Korean Chaebol : Global or Globalized? By Jasper Kim, JD Associate Professor and Department Chair, Ewha GSIS

2 Which One Is More Global?
Company A 85% of revenues outside home country Subsidiary offices in countries 80,000 + employees, most outside home country 95%+ management are expats Company B 70-75% revenues outside HQ country (30 NA, 40 EU, 20 Asia, 10 ROW) Offices in 85+ cities, in 50+ countries ~10,000 employees worldwide 20-30% expats or

3 What Makes a Company Global?
Decision distributed to those who are in best position to make them Standard process/ System to facilitate decision making Seamless exchange of information Common Language, Culture One global talent pool

4 Let’s Look at Company A&B Again
Most major decision made at HQ and then “ orders sent” to subsidies One system and policies (e.g., HR) for home country ; rest of the world done as needed “One way” narrow-casting from HQ individuals to their fellow countrymen Trying to grow “local” talent but management pool is all in home country No common language; English used when needed Company B HQ provides direction and guidelines; individual locations make pertinent decisions Common systems (HR, Finance, IT) Networked info flow; key data, information available to all Global talent review English as common language Decision Making System/ Processes Information Flow Talent Pool Common Language

5 Korean Companies Should Care
Commoditization of manufactured products (e.g., electronics) Web 2.0 creating informed consumers, as well as potential detractors and evangelists; local consumer insights critical War for talent never ended, and more complicated than before, e.g., Global mobility Changing value systems and needs Local supply/demand imbalances Risk of being “squeezed in the middle” Paradigm that brought rapid growth through ’90’s no longer valid Fast follower Mfg led Value-oriented proposition Export sales orientation Lack of trust with “outsiders”

6 What Can You Do to Prepare and Do Your Part?
Cultural “Chameleon” Team leader Initiative taker- “make mistakes and ask for forgiveness” Use logic and commons sense Obligation to dissent Cultural preservationist Team member Good soldier Blind appeal to emotion Avoid confrontation NOT

7 Largest Companies in the World (Annual Revenue, 2008)
Gross national income (GNI) in US$ Atlas method: GNI is the sum of value added by all resident producers plus any product taxes (less subsidies) not included in the valuation of output plus net receipts of primary income (compensation of employees and property income) from abroad. Data are in current U.S. dollars, converted from countries’ respective national currencies using the Atlas method, which uses a three-year average of exchange rates to smooth effects of transitory exchange rate fluctuations. (GDP & GDP per capita growth rates, however, are calculated from data in constant prices and national currency units, not from the Atlas method estimates). The World Bank favors the Atlas method for comparing the relative size of economies and uses it to classify countries in low, middle and high-income categories and to set lending eligibilities in order to reduce short-term fluctuations in country classification. Purchasing power parity gross national income (PPP GNI): This measure is GNI converted to international dollars using purchasing power parity. An international dollar has the same purchasing power over GNI as a U.S. dollar has in the United States. The World Bank favors this measure for accurate measurement of poverty and well-being; in effect, it substitutes global prices for local measured prices, thereby more accurately reflecting the real value of the good or service in question. This is especially true of non-tradable services (haircuts are the example) which are assumed to produce the same level of welfare from one country to another, but which vary widely in their measured local price. Gross domestic product (GDP) in current prices: GDP is sum of gross value added, at purchaser prices converted at market exchange rates to current U.S. dollars, by all resident producers in the economy plus any product taxes (less subsidies) not included in the valuation of output. It is calculated without deducting for depreciation of fabricated capital assets or for depletion and degradation of natural resources. GDP is equal to GNI less net receipts of primary income. Value added is the net output of an industry after adding up all outputs and subtracting intermediate inputs. The World Bank does not use this measure for classification of countries into income groups or poverty levels, as it is subject to distortions caused by short-term exchange rate fluctuations, policies and interventions. However, GDP measured in constant, local currency units provides the basis for estimates of overall economic growth.

8 Largest Companies in the World (Market Value, 2009)
Gross national income (GNI) in US$ Atlas method: GNI is the sum of value added by all resident producers plus any product taxes (less subsidies) not included in the valuation of output plus net receipts of primary income (compensation of employees and property income) from abroad. Data are in current U.S. dollars, converted from countries’ respective national currencies using the Atlas method, which uses a three-year average of exchange rates to smooth effects of transitory exchange rate fluctuations. (GDP & GDP per capita growth rates, however, are calculated from data in constant prices and national currency units, not from the Atlas method estimates). The World Bank favors the Atlas method for comparing the relative size of economies and uses it to classify countries in low, middle and high-income categories and to set lending eligibilities in order to reduce short-term fluctuations in country classification. Purchasing power parity gross national income (PPP GNI): This measure is GNI converted to international dollars using purchasing power parity. An international dollar has the same purchasing power over GNI as a U.S. dollar has in the United States. The World Bank favors this measure for accurate measurement of poverty and well-being; in effect, it substitutes global prices for local measured prices, thereby more accurately reflecting the real value of the good or service in question. This is especially true of non-tradable services (haircuts are the example) which are assumed to produce the same level of welfare from one country to another, but which vary widely in their measured local price. Gross domestic product (GDP) in current prices: GDP is sum of gross value added, at purchaser prices converted at market exchange rates to current U.S. dollars, by all resident producers in the economy plus any product taxes (less subsidies) not included in the valuation of output. It is calculated without deducting for depreciation of fabricated capital assets or for depletion and degradation of natural resources. GDP is equal to GNI less net receipts of primary income. Value added is the net output of an industry after adding up all outputs and subtracting intermediate inputs. The World Bank does not use this measure for classification of countries into income groups or poverty levels, as it is subject to distortions caused by short-term exchange rate fluctuations, policies and interventions. However, GDP measured in constant, local currency units provides the basis for estimates of overall economic growth.

9 Largest Companies in the World (Profit, 2008)
Gross national income (GNI) in US$ Atlas method: GNI is the sum of value added by all resident producers plus any product taxes (less subsidies) not included in the valuation of output plus net receipts of primary income (compensation of employees and property income) from abroad. Data are in current U.S. dollars, converted from countries’ respective national currencies using the Atlas method, which uses a three-year average of exchange rates to smooth effects of transitory exchange rate fluctuations. (GDP & GDP per capita growth rates, however, are calculated from data in constant prices and national currency units, not from the Atlas method estimates). The World Bank favors the Atlas method for comparing the relative size of economies and uses it to classify countries in low, middle and high-income categories and to set lending eligibilities in order to reduce short-term fluctuations in country classification. Purchasing power parity gross national income (PPP GNI): This measure is GNI converted to international dollars using purchasing power parity. An international dollar has the same purchasing power over GNI as a U.S. dollar has in the United States. The World Bank favors this measure for accurate measurement of poverty and well-being; in effect, it substitutes global prices for local measured prices, thereby more accurately reflecting the real value of the good or service in question. This is especially true of non-tradable services (haircuts are the example) which are assumed to produce the same level of welfare from one country to another, but which vary widely in their measured local price. Gross domestic product (GDP) in current prices: GDP is sum of gross value added, at purchaser prices converted at market exchange rates to current U.S. dollars, by all resident producers in the economy plus any product taxes (less subsidies) not included in the valuation of output. It is calculated without deducting for depreciation of fabricated capital assets or for depletion and degradation of natural resources. GDP is equal to GNI less net receipts of primary income. Value added is the net output of an industry after adding up all outputs and subtracting intermediate inputs. The World Bank does not use this measure for classification of countries into income groups or poverty levels, as it is subject to distortions caused by short-term exchange rate fluctuations, policies and interventions. However, GDP measured in constant, local currency units provides the basis for estimates of overall economic growth.

10 South Korea: Overview Official Name The Republic of Korea (ROK)
Population (CIA, 2009) 48.5 million #25 Area (CIA, 2009) 99,313 sq km #108 Monetary Unit (July 19, 2010) Won 1,214.5 KRW/USD GDP (IMF) $929.1 billion USD (2008, nominal, 15th) $1,342.3 billion USD (2008, PPP, 13th) GDP Growth Rate (IMF) 2008: 2.2% 2009: -1.0% GDP per capita (IMF) $19,136 (2008, nominal, 42th) $27,692 (2008, PPP, 33th) GDP by sector (2007) agriculture (3.0%), industry (39.5%) services (57.6%) Inflation (%, 2008) 4.7 U. Rate (%, 2008) 3.2 Source: BBC, CIA, World Bank, CBC, BOK

11 Korea’s Major Trade Partners (2006)
(US$ mil.) Rank Country Exports Imports Total Trade 1 China 81,985 (1) 63,028 (1) 145,013 2 United States 45,766 (2) 37,219 (3) 82,985 3 Japan 26,370 (3) 56,250 (2) 82,620 4 Saudi Arabia 4,026 21,164 (4) 25,190 5 Germany 11,543 13,534 (5) 25,077 6 Taiwan 13,027 (5) 9,967 (8) 22,994 7 Hong Kong 18,654 (4) 2,142 20,796 8 Singapore 11,949 6,860 18,809 9 Australia 4,691 13,232 17,923 10 UAE 3,705 12,656 16,361 So, when we add the absolute value of export and import, We can know the total trade volume with other countries and This table comes up with 10 largest trading partners in terms of trade volume. You can see that China, US, Japan are the most important partners of Korea, (Source: MOFAT (2008), Major Economy Trade Statistics, Feb. p.10, original source from KOTIS as of Feb. 28, 2008)

12 Korea’s Major Import & Export Items
Export Items (Outflow) 1. Automobiles 2. Semiconductors 3. Shipbuilding 4. Computer & Computer Related Items Import Items (inflow) 1. Fuel 2. Timber 3. Steel 4. Semiconductor components 5. Computer components 6. Petrochemicals 7. Liquefied Natural Gas 8 . Coal

13 Korea’s Automobile Companies
Hyundai Motors World’s fifth largest automaker in terms of units sold per year. In 1998, after a shake-up in the Korean auto industry caused by overambitious expansion and the Asian financial crisis, Hyundai acquired rival Kia Motors. Kia Motors Korea’s oldest and 2nd largest auto manufacturer Kia's bankruptcy in 1997 resulted in the company being acquired in 1998 by South Korean rival Hyundai Motor Company

14 Korea’s Semiconductor Companies
Samsung Electronics focuses on 4 areas: Digital Media, Semiconductors, Telecommunication Networks, and LCD Digital Appliances. World's largest memory chip and second largest semiconductor manufacturer Hynix (formerly Hyundai Electronics) The world's sixth largest semiconductor company The world's second-largest maker of memory chips Holds the largest share in the Chinese market 인텔, 삼성전자, TI, 도시바, TSMC, ST, Qualcomm, Renesas, Sony, Hynix 삼성전자, 하이닉스, 엘피다(일본), 마이크론, 키몬다(독일, 파산), 난야 테크놀로지, 프로모스, 파워칩

15 Korea’s Shipbuilding Companies
Daewoo Shipbuilding & Marine Engineering One of the largest shipbuilders in the world and one of the "Big Three" of Korea Hyundai Heavy Industries World's largest shipbuilder, producing 10% of the world's ships 현대중공업, 대우조선해양, 삼성, STX, 현대 미포조선, 성동(10위)

16 Korea’s Electronics Company
Samsung Electronics World's largest electronics company, largest Korean company & the flagship subsidiary of the Samsung Group Global market leader in more than 60 products, including Semiconductors In 2005, Samsung surpassed Japanese rival Sony for the first time to be rated as the new leading and most popular consumer electronics brand. At the end of 2007, Samsung Electronics exceeded the $100 billion mark in annual sales for the first time in its history. 2009, 매출 136조, 영업이익 11조

17 Chaebol in Korea Definition List of Chaebols Characteristics
Pros & Cons Conclusion

18 = + Etymology wealthy clan Chaebol (* Zaibatsu) chae(財, wealth)
bol(閥, clique)

19 Definition Chaebol: a business group consisting of companies
in many diversified (often unrelated) business areas which are owned and managed by family members or relatives

20 List of Chaebols (KFTC, 2010)
(Korea Fair Trade Commission, ) Rank Chaebol Owner No. of Subsidiaries Combined Assets (Tril. Won) 1 Samsung Lee, Kun-Hee 67 192.9 4 Hyundai Automotive Chung, Mong-Goo 42 100.8 5 SK Choi, Tae-Won 75 87.5 6 LG Koo, Bon-Moo 53 78.9 7 Lotte Shin, Gyeok-Ho 60 67.3 8 POSCO POSCO Inc. 48 52.9 10 GS Huh, Chang-Soo 69 43.1 11 Hyundai Heavy Industries Chung, Mong-Joon 16 40.2 12 Kumho Asiana Park, Sam-Goo 45 34.9 13 Hanjin Cho, Yang-Ho 37 30.4 14 KT KT Inc. 30 27.1 15 Doosan Park, Yong-Gon 29 26.8

21 List of Chaebols (KFTC, 2010)
(Korea Fair Trade Commission, ) Rank Chaebol Owner No. of Subsidiaries Combined Assets (Tril. Won) 16 Hanhwa Kim, Seung-Yun 48 26.4 19 STX Kang, Duk-Soo 20.9 20 LS Koo, Tae-Hyae 31 16.2 21 Daewoo Shipbuilding & Marine Engineering Daewoo S & M Eng. Inc. 13 16.0 22 Hynix Hynix Semiconductor Inc. 9 13.6 23 CJ Lee, Jae-Hyun 54 13.0 24 Daelim Lee, Jun-Yong 25 Dongbu Kim, Jun-Ki 12.5 26 Hyundai Hyun, Jeoung-Eun 12  53 Korea Investment Finance Kim, Nam-Goo 2(2) 5.2 (5.1) Total 1,264 1,472

22 LEE Kun-Hee and His Family
Ex. Samsung Group LEE Kun-Hee and His Family Electronics SAMSUNG Electronics SAMSUNG Electro-Mechanics SAMSUNG SDI SAMSUNG Corning Precision Glass SAMSUNG SDS SAMSUNG Networks SAMSUNG Techwin SAMSUNG Mobile Display SAMSUNG Digital Imaging Machinary & Heavy Industry SAMSUNG Heavy Industries Chemical SAMSUNG Total Petrochemicals SAMSUNG Petrochemicals SAMSUNG Fine Chemicals SAMSUNG BP Chemicals Financial SAMSUNG Life Insurance SAMSUNG Fire & Marine Insurance SAMSUNG Card SAMSUNG Securities SAMSUNG Investment Trust Management SAMSUNG Venture Investment Others SAMSUNG C&T Corporation SAMSUNG Engineering Cheil Industries SAMSUNG Everland The Shilla Hotels & Resorts Cheil Worldwide Others (cont.) S1 Corporation SAMSUNG Medical Center SAMSUNG Human Resources Development Center SAMSUNG Economics Research Institute SAMSUNG Lions The Ho-Am Foundation SAMSUNG Foundation of Culture SAMSUNG Welfare Foundation SAMSUNG Life Public Welfare Foundation

23 List of Chaebols (2009) (Korea Fair Trade Commission, 2009.4.1) Rank
Business Group Korean Name Specially Related Person Number of Affiliates Total Asset (KRW Trillion) 1(1) Samsung 삼성 이건희(LEE) 63(59) 174.9(144.4) 2(2) KEPCO (Korea Electric Co.) 한국전력공사 KEPCO 12(12) 117.2(112.6) 3(3) Hyundai Automotive 현대자동차 정몽구(CHUNG) 41(36) 87.0(74.0) 4(4) SK 에스케이 최태원(CHOI) 77(64) 85.9(72.0) 5(5) LG 엘지 구본무(KOO) 52(36) 68.3(57.1) 6(6) Korea National Housing Corp. 대한주택공사 KNHC 64.3(51.1) 7(9) POSCO 포스코 36(31) 49.1(38.5) 8(7) Lotte 롯데 신격호(SHIN) 54(46) 48.9(43.7) 9(8) Korea Highway Corp. 한국도로공사 KHC 42.3(38.8) 10(10) Korea Land Corp. 한국토지공사 KLC 41.4(33.6)

24 List of Chaebols (2009) Rank Business Group Specially Related Person
Number of Affiliates Total Asset 11(12) Hyundai Heavy Industry 현대중공업 정몽준(CHUNG) 15(9) 40.9(30.1) 12(11) GS 지에스 허창수(HUH) 64(57) 39.0(31.1) 13(14) Kumho-Asiana 금호아시아나 박삼구(PARK) 48(52) 37.6(26.7) 14(15) Hanjin 한진 조양호(CHO) 33(27) 29.1(26.3) 15(13) KT 케이티 KT Corp. 30(29) 28.5(27.1) 16(17) Doosan 두산 박용곤(PARK) 26(21) 27.3(17.0) 17(16) Hanhwa 한화 김승연(KIM) 44(40) 24.5(20.6) 18(20) Korea Gas Corp. 한국가스공사 KGC 3(3) 22.1(12.7) 19(21) STX 에스티엑스 강덕수(KANG) 17(15) 20.7(10.9) 20(28) Daewoo Shipbuilding and Construction 대우조선해양 DS&C 10(8) 16.7 (8.7)

25 Differences Between Korean Chaebol and Japanese Zaibatsu/Keiretsu
Ownership and management are not separated; majority of top managers are family members Zaibatsu/Keiretsu: Include major commercial banks

26 Characteristics of Chaebols

27 Characteristics of Chaebol
Ownership Structure / Governance Structure Abnormal ownership structure: Founder families as the largest shareholders Cross-shareholding/Circular equity investments Control and management by founder families: No separation of ownership and management Dual role as controlling shareholder and manager Inheritance of management

28 Ownership Structure * Direct Ownership * Holding Company
* Mutual Ownership Owner family Owner family Holding Company Subsidiaries or Affiliated Companies Subsidiaries or Affiliated Companies Holding Company Intermediary Institution Subsidiaries or Affiliated Companies

29 Ownership Structure (ex. Samsung: 2009)
(Source: Economist, 2009)

30 Ownership Structure (ex. Samsung: June 2005) (as of June 2005)

31 Pyramidal Equity Ownership: Samsung Group (2003)
Electronics Samsung Corp Samsung Life Ins Cheil Comm. Samsung Mech. Elec Samsung SDI Samsung Foundations S-one Samsung Card Samsung Heavy Ind. Samsung Security Samsung Everland Hotel Shilla Samsung Prec.Chem Samsung F&M Ins Samsung Techwin Cheil Textile Samsung Engineering Samsung Capital

32 Lee Family’s Shareholding
(Unit : Billion KRW) Capital Ratio(%) Concentration ratio(%) (A) C/A B/C Lee Family Top 3 (B) Total (C) 38,326 3.68 88.25 1,244 1,410 47,115 3.87 91.20 1,664 1,824 54,922 3.98 90.61 1,980 2,185 2000 2001 2002 How can they control this big conglomerate Surely they do not own the whole business Look at the table Total issued shares paid in capital Intra group share holding Intro group cross share holding * Top 3 Affiliates: Samsung Elec., Samsung Life Insurance, Samsung Everland

33 Circular Equity Ownership: Hyundai Group (2001)
Kia Motors H Securities H. Precision Hyundai Co. H Elevator H. Motors H. Heavy Ind H Shipping Mipo Shipyard H Financing Ulsan Merchant Bank H Construction H. Steel Pipe Inchon Steel H Electronics

34 Characteristics of Korean Chaebol
2. Management Style: Paternalistic leadership Autocratic/dictatorial management 3. Business Practice Diversification Resource-sharing among the affiliates (internal labor & capital market)/intra-group trading Symbiotic relationship with gov’t/politicians 4. Size Dominant in the national economy Monopolistic or oligopolistic in individual markets

35 Pros & Cons Pros Cons 1. Family control and management
Rapid consensus/execution Decision-making on long-term basis and consistent management Pros Cons Serious Principal-Agent problem Rights and benefits of minority shareholders ignored

36 Pros & Cons Pros Cons 2. Paternalistic leadership,
Autocratic/dictatorial management Quick decision-making and implementation  Maximized outcome in case of right decisions Pros Hampers innovations, creativity, etc. Heightened risk of bad judgments: Negative effects on the whole business group and on the Korean economy in case of wrong decisions (eg. Samsung Motors case) Cons

37 Pros & Cons Pros Cons 3. Diversification
Reduces risks through diverse industrial portfolio Provides an opportunity for employees to transfer to other affiliates Pros Lack of core competence/Inefficiency due to the dispersion of resources Discourages small-medium enterprises Cons

38 Pros & Cons Pros Cons 4. Resource-Sharing/Intra-Group Trading
Efficiency/Reducing production costs Indirect benefits from advertising/brand recognition Pros Illicit subsidization among the affiliates (capital transfer, inter-affiliate transactions) Involuntary transfer of employees Hampers economy-wide efficiency Possible chain-bankruptcies Obstructs fair competition Cons

39 Pros & Cons Pros Cons 5. Nexus with Government
Close coordination possible in carrying out strategic policies Pros Cons ♦ Corruption, Social injustice ♦ Moral hazard of Chaebols

40 Pros & Cons Pros Cons 6. Size ♦ Economies of scale, economies of scope
♦ Massive investment possible Market monopoly: Monopoly in an individual market General monopoly: Monopoly in the whole Korean economy Can influence economic and political issues or policies Cons

41 Chaebol Reform (The 5+3 Principle: Under President DJ Kim)
The 5 Principles (Feb. 1998) Improvement of business transparency Reduction of debt-to-equity ratios Eradication of cross debt payment guarantees Focus on core competencies Heightening the accountability and responsibility of major shareholders and management The 3 Supplementary Principles (Aug. 1999) Improvement of the governance structure of the (non-banking) financial subsidiaries Restraint from circular equity investments and undue intra-group transactions Restraint from anomalous inheritance and gifts

42 Chaebol Reform (The 5+3 Principle: Under President DJ Kim)
The 5 Principles (Feb. 1998) Improvement of business transparency (경영투명성 제고) Reducing debt-to-equity ratios (재무구조의 획기적 개선) Eradication of cross debt payment guarantees (상호지급보증 해소) Focusing on core competencies (핵심역량 집중) Heightening the accountability of major shareholders and management(지배주주와 경영진의 책임성 강화) The 3 Supplementary Principles (Aug. 1999) Improving the governance structure of the non-banking financial sector (제2금융권 경영지배구조 개선) Restraining circular equity investments and undue intra-group transactions (순환출자와 부당 내부거래 차단) Preventing anomalous inheritance and gifts (부의 변칙 상속, 증여 금지)

43 Case Study: Samsung

44 Samsung’s Beginning Founding chairman Byung-Chull Lee started a business in Daegu, Korea in 1938. Business primarily in trade, selling dried Korean fish, vegetables, and fruit to Manchuria and Beijing. Through the 1970s, Samsung started heavy, chemical and petrochemical industries. Now, Samsung is the biggest chaebol in Korea. When he started business, he was 29 years old. With 30,000 won his own money and 200,000 won bank loan.

45 Samsung Family First Second Generation Third Generation
Byung-Chull Lee Meang-Hee (Former Jaeli Fertilizer Chr.) Wife, Bok Nam Son Wife’s brother, Kyung Sik Son - CJ Joint Chairman Meekyung (CJ Ent. Vice Chairman) Jaehyun (CJ Group Chairman) JaeHuan (CJ General Manager) Chang-Hee (Former Seahan Media Chair.) Young Ja Lee, Wife (Former Saehan Group Chairman) Jaeguan (Former Saehan media Vice Chairman) Jaechan (Former Saehan media President) Jaewon (Former Saehan Inf. Executive director) Heajin – Life Group In-Hee (Hansol Group Advisor) Husband Cho Eun-Hea (Korea Hospital) Donghyuk (Hansol Group Honorary Pre.) Dongman (Hansol Group Vice President) Donggil (Hansol Group Chairman) Suk-Hee, Koo Cha Hak, Husband (LG) Myungjin, Cho Junghoo (Meritz Security) Soon-Hee married to a professor Myung-Hee (Shinsegae Group Chairman) Youngjin (Shinsegae Vice President) Yoogyung (Chosun Hotel executive director) At first son 맹희 was going to the next chairman but his business ability was not enough so that 이건희 became

46 Gun-Hee Lee Family 이재용,삼성 상무 홍라희 이부진 상무, 호텔신라
이서현 파슨 스쿨 졸업 제일모직(industry) 상무보 이윤형 not married, 이화여대 불문화. 임세령 대상그룹 , 임우재, 김재열 임우재, studied MBA at MIT in the US NOW, 삼성 Elector mechanics assistant executive director 김재열 제일모직 상무 They are all prepare to be a manager for the next generation.

47 Case Study: LG, GS, LS

48 Chairmen of LG,LS,GS LG LS GS
A partnership of half-a-century between the Koo and Hur families, two founding families of the nation’s second-largest family-owned conglomerate LG Group, has finally came to an end. The partnership of the two families dates back to 1947, when Koo In-hwoi and his business partner Hur Joon-koo founded Lucky Chemical, the former entity of LG Chem and mother firm of the current LG Group. When 구인회 started the business 허만정, 허준구’s father, supported 구인회 financially and asked him to teach his son to be a good business man. So they started the partnership. However, they always kept in mind one day they would spilt the business so that they maintained the ratio of asset share 65 to 35. The ratio was the standard in separating business process too. The conglomerate lasted for 57 years under the LG brand until July last year, when LG Group announced a reorganization of the business group into two separate holding companies, a move intended to improve efficiency and transparency by separating unrelated parts of the business. Now, LG split into LG and LS, Koo family’s business and GS Hur’s business. Here let’s see two families tree LG LS GS

49 Family Tree of Koo: LG Group
Koo In-Hoi Ja-Kyung Honorary Chairman of LG Group Bon-Mu Chairman of LG group Bon-Neung Chairman of Heesung Group LG Group Bon-Joon Vice Chairman of LG Philips LCD Koo Chul-Hoi Bon-Sik Vice President of Heesung Precision Ja-Won Honorary Chairman of LG Insurance LIG Group Ja-Hoon Chairman of LG Insurance Koo Jung-Hoi Ja-Joon President of LG Insurance This is a family tree of Koo. 구인회, the founding chairman, has five brothers, 구철희, 구정희, 구태희, 구평회, 구두회 and they also participated into the LG business. As you can see here, generally there are three groups of LG, LG group, LG Insurance, LS cable which were separated already. 구인회’s first son, 구자경 is now LG honorary chairman, and his first son 구본무 is the current LG chairman. As I told you, 이병철’s second daughter, 이숙희 married to 구본무’ s younger borther, 구자학, the current chairman of Ourhome company he also worked for Samsung once.(아들들 차례로 소개),. Because 구본무 does not have a son, it is expected maybe 구본준’s son will the next generation chairman of LG. 구철회’s sons manage LG insurance 구태희, 구평희, 구두희 families manage LS cable. In fact, LS cable has been developed by 허준구 almost, so LS cable was a sensitive issue when LG and GS split the business. 허 family considered LS cable as their share naturally and 허준구’s son, 허창수 also had a great attachment to the LG cable (now LS cable) because it was his father’s achievement. However, Koo family could not gave LS cable to 허 family because of their internal separation problem. They needed LS cable to transfer a part of business to Three younger brothers of 구인회. So 허준구, gave up LG cable and the decision was quite shocking news. Ja-Sub President of LG MMA Koo Tae-Hoi Ja-Hong Chairman of LG Cable/ Industrial Systems Ja-Myung Vice Chairman of Kukdong City Gas Koo Pyung-Hoi Ja-Yul Vice Chairman of LG Cable LS Group Ja-Yong Vice President of E1 Koo Doo-Hoi Ja-Eun Director of LG Cable

50 Subsidiaries of LG Group
LG Corporation Chemicals Electronics Telecommunications & Services LG Chem DACOM LG Electronics LG Philips LCD LG Micron etc. LG TeleCom LG Household & Health Care LG CNS LG Slitron LG N-Sys LG Life Sciences These are subsidiaries of LG corporation after split. Mainly, chemicals, electronics and telecommunications are transferred to 구 family. These business is export oriented business so little tricky to manage. When 허만정 was alive, he said ”구 family leads the business, all we, 허 family has to do is helping them. So the overall business have been managed by 구 family and when they separated the business 구 family have export oriented because to deal with those business, international dimension should be carefully considered so that it is quite difficult to manage. 허 family has industries of domestic demand. Lusem LG MRO LG MMA Konjiam Leisure LG Sports LG Management Development Institute

51 Family Tree of Huh: GS Group
Huh Man-Jung Huh Jung-Koo Dong-Soo Chairman of GS Caltex Huh Jun-Koo Chang-Soo Chairman of GS Group/GS E&C Jung-Soo President of GS Neotek Jin-Soo President of GS Energy Now, let’s see 허만정 family. 허만정 is the man who asked his son, 허준구 to 구인회. 허준구 died in 2002. now, 허창수 is a representative of 허 family and GS chairman. When they had to give up LG cable, it is known that 허창수 was discouraged so much, however, 허준구 did not wanted to destroy their 57 year partnership so that he decided to give up. You may already feel curiosity whether LG families have any daughters because you cannot see any women’s name in the family tree. While samsung women played active roles in business. That is because LG families manage its business based on Confucianism and basically prohibit women from involving business. LG Main motto is even harmony which is also from Confucianism. Myung-Soo Vice President of GS E&C Huh Shin-Koo Tae-Soo Vice President of GS Home shopping Huh Seung-Jo

52 Subsidiaries of GS Group
GS Holdings Corporation GS Caltex Oil GS Mart GS Power Seorabul City Gas Haeyang City Gas etc. GS Homeshopping These are the GS holdings Corporations

53 THANK YOU 감사합니다!!


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