Many people see Samsung as the titanic and confusing business conglomerate in South Korea
- known to be so dominant that some call the country the Republic of Samsung. But for many
years the country’s economic development was not led by Samsung but instead its competitor
Hyundai.
You might have heard of the Hyundai Motor Group, a massive company making about $96
billion in 2020, and you might even have one of their cars in your parking lot. It is the
main cash cow of the Hyundai family of businesses, but there are others as well.
Hyundai Heavy Industries is the largest ship-building company in the world, just ahead of rival
Mitsubishi Heavy Industries. Its shipyard in Ulsan is one of the biggest in the world.
Hyundai Engineering & Construction is one of the oldest businesses in the family having
pulled off a wide range of ambitious construction projects across its history. It is currently
owned by the Automotive Group.
Other large but unrelated businesses include a Marine and Fire Insurance company, an Elevator
company, and a Department Stores company. All in all there are over 50 individual Hyundai
businesses. It’s all quite confusing and I hope you guys can keep up.
The interesting thing about these businesses is that most of them are not legally connected
to each other in a “group” structure the same way it is with Samsung. The Hyundai Group
broke up in 2000, but most of the remnants are still run by relatives of the original
founder - Chung Ju Yung. Let’s talk about him.
Founder Chung Ju-yung started Hyundai in 1946 with a single little business - Hyundai Motors.
They did not make any cars but instead did repair and maintenance for US soldiers stationed
in South Korea at the time.
The next year, he founded Hyundai Engineering and Construction and magically received government
contracts to build port facilities, roads, and military camps across Korea. They learned
quickly while on the job - within a decade building ambitious construction projects like
the Han River footbridge construction project in 1957, the Gyeongbu Express highway - one
of Korea’s most important - in 1968, and the Seoul Subway in 1974.
By 1965 Hyundai determined that they had enough experience to go abroad. They gained a reputation
for taking on ambitious projects with risks few other businesses would take. This included
the Pattani Narathiwat highway in Thailand in 1966, the Arab Shipbuilding Yard in Bahrain
in 1975, and the immense Jubail Industrial Port in Saudi Arabia in 1976 - at the time
the biggest port construction project in the 20th century.
Other businesses were founded to serve the needs of the core construction business - including
Hyundai Elevator and Shipbuilding. Chung figured that if they were building ports and facilities
for the Middle Easterners then they might as well also build the ships that served them.
From there, the Hyundai family grew to dozens of companies.
Hyundai Automotive made great strides - starting with putting together car kits from Ford but
eventually learning enough to create the first independently designed and built Korean car
- the Pony in 1976. They entered the US market in 1986 with the Excel. To build these cars,
Hyundai worked with Mitsubishi and other companies across the world, first licensing their technologies
before replacing them with their own designs. By 1991 the company’s cars were made with
100% domestic technologies.
Chung Ju Yung won contracts by setting ambitious goals that seemed almost impossible at first
glance. Artificial crisis to him was a motivational tactic that forced the company to adopt novel
technologies/techniques, to learn while doing, and to work like dogs. For example the government
budget for the aforementioned Gyeongbu Express highway was $68 million. But Hyundai declared
that they could do it for $38. The project was delivered $5 million under budget.
But when things fell short of expectations, Chung Ju Yung serviced his customers well
by keeping to his word. They lost money on the Thailand project - being over $100K over
budget - but the company ate the costs themselves and in return received more projects over
time.
But there are plenty of companies who learned quickly and made big promises. The foundation
to Hyundai’s success was allying closely with the Park Chung Hee administration as
the government embarked on its Heavy and Chemical Industrialization drive in the 1970s. Together
with Samsung and LG, Hyundai consulted closely with the government and received financial
subsidies and loan guarantees for growth. As the Industrialization Drive shifted from
Shipbuilding to Electronics to other industries, Hyundai or the other big chaebol were there
to take advantage. They rode this wave to become one of the biggest companies in the
world.
The breakup of the Hyundai Group during the Asian Financial Crisis in 1997 is a classic
tale of overreach. Simply put, the company overleveraged itself and was forced by investors
and creditors to break up.
The trouble started when the founder Chung Ju Yung ran for the presidency in 1992. Hyundai
backed it with everything they got, with much of the membership in Chung’s party coming
from the company. He lost and when you come at the King you best not miss. World’s biggest
surprise that Hyundai’s contracts and subsidies mysteriously vanished during the next administration.
No new projects, no raising funds via government guaranteed bonds, and no starting new companies.
This let Samsung catch up and they did.
This should have been an opportunity for Hyundai to prune and get profitable but instead they
chose to wait it out. They developed a super close relationship with the next Kim Dae Jung
administration and its “Sunshine” policy, with Hyundai starting economic partnerships
with North Korea. In return, Hyundai borrowed and spent wildly to catch up to Samsung.
They grew immensely - even coming out ahead of Samsung revenue-wise - but profit-wise
lost trillions of won. The North Korea businesses lost immense amounts of money too. The conglomerate
craved outside capital to keep going, and when the markets cut them off in 2000, the
company was forced by its creditors to break apart.
Beyond all of this debt was the succession crisis. The founder Chung Ju Yung had 5 brothers
and 11 children, including 8 sons. As the debt crisis mounted they fought amongst each
other for the most profitable businesses.
By mid-2000, Hyundai had shrunken from 89 businesses down to 53. The creditor banks
forced the family to give up controlling rights to a number of businesses including Hyundai
Construction.
Did the Hyundai Group really break up? As I mentioned earlier, much of the individual
companies are still being run by the relatives of the founder. And with Hyundai Motors being
the second biggest single company in South Korea after Samsung Electronics, Hyundai Heavy
Industries company being the biggest shipbuilder in the whole world - you can probably argue
that the Group is still alive and well today.
But one thing that is for sure true is that Hyundai’s major stumbles in 2000 ended the
rivalry between it and Samsung. Samsung retrenched through the crisis and came out stronger than
ever while Hyundai lost the lead and fell behind. Hyundai Electronics could not compete
and Samsung Electronics went on to dominate
the world.