Samsung, one of the leading tech companies in the world.
Unlike some of its American competitors like Apple or Dell—Samsung wasn’t formed in
someone’s garage or a college dorm room.
No, Samsung emerged in the wake of the most destructive war in Korean history and in this
video we’ll see how all of that carnage paved the way for Samsung’s global domination.
This video is brought to you by Skillshare, where you can watch my two classes on how
the stock market works.
The first half of the twentieth century was not very kind to Korea, to say it mildly.
After a hundred years of political interference, the Japanese Empire had reduced Korea to merely
a puppet state, formally annexing it in 1910.
As you can imagine, the Japanese occupation was brutal, with many Korean farmers and businessmen
being driven off of their lands and out of their factories.
As an ambitious colonial power, Japan was eager to settle Korea with its own people,
which is why Japanese ownership of Korean land, for example, skyrocketed from 8% in
1910 to over 50% just twenty years later.
For a time, it seemed as if the Korean nation was destined for oblivion, for the Japanese
not only forced the Koreans to change their names, they also prohibited schools from even
teaching the language.
It took the crushing Japanese defeat during the Second World War for Korea to become independent
once again and in 1945, despite the chaos of American and Soviet military administration,
the people of Korea were cautiously optimistic.
One such optimist was Lee Byung-Chul, who was one of the few Koreans lucky enough to
have started their own business during the Japanese occupation.
He had created a small transportation company in 1938 called Samsung, which specialized
in exporting groceries.
From the very start, Samsung had a very big competitive advantage: it was located in Masan,
a city on the southeastern coast that the Japanese were using as their biggest exit
port from which they transported all the exploited Korean resources.
Now, Lee wasn’t a true collaborationist, but his usefulness to the regime granted him
many favors that weren’t available to most Koreans, like getting loans from Japanese
banks.
While Samsung’s Japanese period was decent for its time, the newly-independent South
Korea presented immense opportunities for Lee.
The years immediately after the liberation were very profitable for pretty much every
Korean businessman for a simple reason: while the Japanese administrators were gone, their
assets remained and the Korean government was handing them out left and right for cents
on the dollar in an effort to rebuild the country.
Everything looked great for Samsung, but then the Korean War broke out.
North Korea’s invasion quickly turned into a proxy war between the Soviet Bloc and the
Capitalist West, with modern weapons devastating major cities and industrial centers in South
Korea.
Most of Korea’s factories were damaged during the three long years of war; for example,
over 60% of textile and chemical facilities were outright destroyed, as was half of the
country’s rail.
At the end of the war— Korea’s infrastructure was in desperate need of repair, and its companies
were too young to sustain its economy, which was honestly on its last legs.
Prices rose dramatically, as the South Korean government was forced to print more money
to finance the country’s vast military expenditures.
Hyperinflation was so extreme that in July 1953, Korea’s money in circulation was 24
times greater than just three years earlier.
The future of South Korea and Samsung by extension was looking increasingly uncertain, but luckily
for them, Uncle Sam had their back.
After the war, the US created essentially the Korean version of the Marshall Plan, with
the United Nations following suit soon after.
Throughout the 1950s, three billion dollars were sent to the Korean government, which
then chose medium and large companies worthy of the investment.
Samsung was among the companies to benefit from this relief aid, no doubt thanks to Lee’s
close friendship with the first South Korean President.
In fact, the extent of state help that Samsung received during his tenure was mind-boggling.
While usually imposing very strict limits on exports, the government essentially gave
Samsung a free pass, allowing it to become the biggest exporter of scrap iron, for example,
after the war.
Funneling American relief money into Samsung allowed it to expand beyond simple transport
and into actual manufacturing: in 1953 they started making sugar and flour, and then textiles
a year later.
Buying ruined factories with American money and then rebuilding them was such a lucrative
business that Samsung grew at an average of 93% annually during the 1950s.
However, relief aid was only part of the picture: the Korean government was also extending generous
credit to Samsung at very competitive rates.
Lee was one of the biggest beneficiaries of government lending through government associated
banks, and what’s really hilarious is that once he got the money, he turned around and
started buying those very same banks.
By the end of the decade, Samsung had taken over three of the banks associated with his
friend’s regime and was also branching out into insurance and chemicals.
Samsung had grown so large that not even a revolution could bring it down; thus, when
the military overthrew his friend’s regime in 1961, Lee was probably not too worried.
Under the new administration, the Korean economy opened up and focused on massive export growth,
for which Samsung was perfectly positioned after a decade of state-funded preparation.
Thus, despite a second regime change in the span of 15 years, Lee was once again in the
good graces of the Korean government.
The most popular Samsung division we know today was, of course, also created with government
aid: in 1969 the government passed legislation reducing taxes by 50% on companies operating
in the electronics business, which at the time was pretty much only Samsung Electronics,
which was created the very same year.
During the 70s Samsung became a symbol of Korean modernization as it helped bring televisions
and washing machines to the home of every family, and from then on the jump into semiconductors
and more recently smartphones seems only natural.
Of course, none of this would’ve been possible without Lee’s brilliant positioning close
to whichever political power held sway during his time and even today Samsung and the government
go hand in hand.
Luckily for you, Samsung is a public company, or at least its biggest division is, so you
can readily profit off of the close relationship Lee forged many decades ago.
If you’d like to learn how to capitalize on this on the stock market, you’ll probably
enjoy the two investment courses I have on Skillshare.
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We’re gonna hear each again in two weeks, and until then: stay smart.