Sunday, October 16, 2011
KOREA has long been a hotbed of religiosity. Before a certain Kim Il Sung began having other ideas, Pyongyang (now the capital of North Korea) used to be known as “The Jerusalem of the East”. And in today’s Seoul, practitioners of traditional shamanism, Buddhism, Christianity and even cults such as the Unification Church (better known in the West as the Moonies), all have plenty of followers.
Many of them also have lots of money (not least because religious institutions are tax-exempt). The Protestant church, in particular, seems to have produced a tribe of flashy, mansion-dwelling pastors. This is partly a result of the character of Korean Protestantism: a common theme, for instance, at the Yoido Full Gospel Church in Seoul is that a poor Christian is not a good Christian. However, it is also a result of the incentives created by the sheer size of some churches. Yoido itself ranks as the largest Christian congregation in the world, with over 1m members. Another, Somang Church, has hundreds of thousands of faithful, including South Korea’s president, Lee Myung-bak.
With all these people throwing their spare won into the collection plate, mega-churches have become big businesses. Yoido Full Gospel Church’s founder Cho Yong-gi, who has run the congregation since 1958, has family interests ranging from private universities to newspapers. Members of his church were once asked to pray for higher sales for one of his titles.
A pastor at a Seoul-based church of a mere 60,000 members notes that the likes of Yoido have become “so big, and with assets so huge, that human greed comes into play”. And in late September, following complaints by 29 church elders, prosecutors began investigating Mr Cho over the alleged embezzlement of 23 billion won ($20m) from Yoido’s funds. A documentary aired by MBC, a television station, claims that this money was used to buy property in America. The show also charged that Mr Cho’s wife sold a building constructed with collection money for her own gain. Its buyer was Hansei University—an institution where she also happens to be president. Mr and Mrs Cho deny the allegations.
Yoido Church’s founder is rarely out of the news in South Korea. In March he sparked a storm of criticism by claiming the earthquake and tsunami in Japan was “God’s warning” to a country that follows “idol worship, atheism, and materialism”.
He is also too political for some. When President Lee’s government drew up plans to legislate for Islamic sukuk bonds in South Korea, Mr Cho argued that this would aid “terrorists”, and that the president was forgetting the vital role the Protestant lobby had in electing him. Following concerted efforts by Mr Cho and other South Korean church leaders, the government blinked first, and the plan was dropped.
There are plenty of rank-and-file Christians in South Korea who do not indulge in the cathedralism of the mega-pastors. Many of the underground networks helping North Koreans on the run in China are organised by South Korean Christians. Refugees who reach South Korea are often cared for by church groups, and South Korean church aid-agencies are usually among the first to respond to natural disasters around the world, including the Japanese tsunami in March.
But in a country that thrives on group activities and collective bonding, as well as religion, Seoul is a natural home for mega-churches. The likes of Mr Cho, for all their flaws, provide something that millions of Koreans find irresistible. ◦
Monday, October 03, 2011
Samsung’s recent success has been extraordinary. But its strategy will be hard to copy
Oct 1st 2011 from the print edition
THE founders of South Korea’s chaebol (conglomerates) were an ambitious bunch. Look at the names they picked for their enterprises: Daewoo (“Great Universe”), Hyundai (“The Modern Era”) and Samsung (“Three Stars”, implying a business that would be huge and eternal). Samsung began as a small noodle business in 1938. Since then it has swelled into a network of 83 companies that account for a staggering 13% of South Korea’s exports. The hottest chilli in the Samsung kimchi bowl is Samsung Electronics, which started out making clunky transistor radios but is now the world’s biggest technology firm, measured by sales. It makes more televisions than any other company, and may soon displace Nokia as the biggest maker of mobile-telephone handsets.
Small wonder others are keen to know the secret of Samsung’s success. China sends emissaries to study what makes the firm tick in the same way that it sends its bureaucrats to learn efficient government from Singapore. To some, Samsung is the harbinger of a new Asian model of capitalism. It ignores the Western conventional wisdom. It sprawls into dozens of unrelated industries, from microchips to insurance. It is family-controlled and hierarchical, prizes market share over profits and has an opaque and confusing ownership structure. Yet it is still prodigiously creative, at least in terms of making incremental improvements to other people’s ideas: only IBM earns more patents in America. Having outstripped the Japanese firms it once mimicked, such as Sony, it is rapidly becoming emerging Asia’s version of General Electric, the American conglomerate so beloved of management gurus.
There is much to admire about Samsung (see article (http://www.economist.com/node/21530976)). It is patient: its managers care more about long-term growth than short-term profits. It is good at motivating its employees. The group thinks strategically: it spots markets that are about to take off and places huge bets on them.
The bets that Samsung Electronics placed on DRAM chips, liquid-crystal display screens and mobile telephones paid off handsomely. In the next decade the group plans to gamble again, investing a whopping $20 billion in five fields in which it is a relative newcomer: solar panels, energy-saving LED lighting, medical devices, biotech drugs and batteries for electric cars. Although these industries seem quite different from each other, Samsung is betting that they have two crucial things in common. They are about to grow rapidly, thanks to new environmental rules (solar power, LED lights and electric cars) or exploding demand in emerging markets (medical devices and drugs). And they would benefit from a splurge of capital that would allow large-scale manufacturing and thus lower costs. By 2020 the Samsung group boldly predicts that it will have sales of $50 billion in these hot new areas, and that Samsung Electronics will have total global sales of $400 billion.
It is easy to see why China might like the chaebol model. South Korea’s industrial titans first prospered in part thanks to their close ties with an authoritarian government (though Samsung was not loved by all the generals). Banks were pressured to pump cheap credit into the chaebol, which were encouraged to enter dozens of new businesses—typically macho ones such as shipbuilding and heavy industry. Ordinary Koreans were chivvied to save, not consume. South Korea grew into an exporting powerhouse. Does this sound familiar?
In China, too, the state draws up long-term plans, funnels cash to industries it deems strategic and works hand-in-glove with national champions, like Huawei and Haier (see article (http://www.economist.com/node/21530974) ). Some of Beijing’s planners would love to think that state intervention is the route to world-beating innovation. No doubt inadvertently, Samsung feeds this delusion.
Of hindsight and survivor bias
For delusion it is, on three levels. Most broadly, South Korea’s prosperity owes less to dirigisme than China’s dirigistes believe, and nothing to dictatorship—South Korea is now a democracy, and much happier for it. Second, the chaebol system has been less beneficial for South Korea than Samsung’s success might imply. Some of the state-directed cheap credit that powered the chaebol produced superb companies, such as Samsung Electronics and Hyundai Motors. But it yielded some costly failures, too. During the Asian financial crisis of 1997-98, half of the top 30 chaebol went bust because they had expanded recklessly. Daewoo, the Great Universe, is no more.
Defenders of the chaebol say that the crisis spurred reforms, curbing the tendency of the chaebol to overborrow and overexpand. They don’t hog credit as much as before—Samsung Electronics now generates oceans of cash to finance its expansion plans. But in general the giants still crowd out small entrepreneurial firms: a former boss of Samsung Electronics has warned that South Korea has too many eggs in too few baskets. And despite a decade of political reform, the ties between the chaebol and the state are still too cosy. President Lee Myung-bak (the ex-boss of a Hyundai firm) has pardoned dozens of chaebol bosses convicted of corporate crimes.
Find out how much of an Apple iPhone is actually a Samsung with our "teardown" infographic.As for Samsung, it is an admirable company, packed full of individual successes that managers (and not just ones in Asia) should study. But inevitably it has not always got everything right—who now drives a Samsung car? And its overall success is not easily replicable. Samsung is patient and bold because the family of its late founder, Lee Byung-chull, wants it to be. Family control is guaranteed by a complex web of cross-shareholdings. This is fine so long as the boss is as brilliant as the late Lee or his son, Lee Kun-hee, the current chairman. But if the founder’s grandson, who is being groomed for the top job, fails to measure up, he will be harder for the company’s shareholders to oust than his peers at GE, Sony and Nokia.
To that extent, for all its modern technology, Samsung’s story is an old one writ new—the well-run family firm, with a strong culture and a focus on the long term, which has made good use of an indulgent state. Celebrate it on those grounds and Asia’s new model has something going for it. Just don’t expect it to keep going at its current rate for ever. ◦
Posted by ProfAHK at 11:35 AM