Where the death of its patriarch leaves South Korea’s biggest firm

李家出路 The Lee way-书迷号 shumihao.com

IN THE SPRING of 1995 word got to Lee Kun-hee that a batch of Samsung’s brand-new mobile phones, which it had doled out as new-year gifts, did not work. Incensed, the group’s chairman ordered employees at the factory that had made the offending devices to pile up tens of thousands of them in a courtyard. A cool $45m-worth of equipment then went up in flames.

The episode is emblematic of the way Mr Lee (pictured), who died on October 25th aged 78, turned a South Korean maker of knock-off electronics into a technology powerhouse. He was obsessed with quality and demanded total devotion from executives. Every decade or so he made bold bets. His last one, on smartphones and semiconductors, paid off handsomely. Samsung Electronics, the group’s crown jewel, has a market value of $311bn, more than JPMorgan Chase, America’s biggest bank.

The patriarch’s death was not unexpected—he had been incapacitated since a heart attack in 2014. It will not prompt leadership changes. But it highlights two challenges facing South Korea’s biggest chaebol (conglomerate). The group must find growth beyond maturing smartphone markets. And it has to grapple with Mr Lee’s other legacy: an over-cosy relationship with politics that has embroiled his company, as well as his son and successor, Lee Jae-yong, in corruption cases.

The rise of Samsung mirrors that of South Korea. When Lee père took over from his father in 1987, the country was an emerging economy that had yet to make the transition to democracy. When he fell ill in 2014 it was rich, thriving and democratic. On his watch Samsung abandoned the “fast follow” strategy adopted by South Korean firms since the 1970s and allowed himself “to imagine that his company could be number one in its own right”, says Park Ju-gun of CEO Score, a corporate watchdog. This entailed some mistakes, such as an expensive foray into carmaking. But it mostly brought success.
三星的崛起是韩国腾飞的写照。1987年李健熙从父亲手中接管三星时,韩国是一个尚未过渡为民主政体的新兴经济体,到2014年他病倒时,韩国已经成了富裕繁荣的民主国家。企业经营评估机构CEO Score的朴洙根说,在李健熙的治理下,三星放弃了韩国企业自上世纪70年代以来普遍采用的“快速跟随”战略,让他“可以想象自己的公司能凭借自身成为第一”。这个过程中三星走了一些弯路,例如涉足汽车制造就损失惨重。但大多数情况下是成功的。

Although the group maintains businesses from shipbuilding and life insurance to amusement parks, the younger Mr Lee, de facto boss since 2014, has kept a focus on electronics. Today Samsung is the world’s biggest maker of smartphones and its second-biggest of memory chips. It has defended its position in mobile devices against competition from China. Lee fils has forged global partnerships, including with competitors such as Apple, which Samsung Display, a subsidiary, supplies with screens for iPhones. He has also begun to move the company away from producing solid but unsexy hardware towards an emphasis on design and software, which accounts for American big tech firms’ trillion-dollar valuations.
尽管集团的业务范围仍涵盖从造船、人寿保险到游乐场的众多行业,但李在镕这位2014年以来三星的实际掌舵人还是一直专注在电子产品业务上。如今三星已是全球最大的智能手机制造商和第二大存储芯片制造商。面对来自中国的竞争,三星保住了自己在移动设备领域的地位。李在镕在全球建立起合作关系,包括与苹果公司等竞争对手合作——集团子公司三星显示(Samsung Display)为iPhone供应屏幕。他还着手把公司业务重点从生产实实在在但欠缺魅力的硬件转向设计和软件——美国大型科技公司万亿美元的市值都是基于后一块。

It has not all gone the Lees’ way. Wielding economic influence to preserve a corporate structure that benefits the founding family has landed them in trouble. Lee père was twice convicted for corruption, including bribing the president—and twice pardoned when politicians deemed his continued involvement in Samsung to be in the national interest. His son has already spent time in prison, for bribing a confidante of Park Geun-hye, a former president, to gain approval for a merger, which prosecutors allege helped him consolidate control over the Samsung empire. Ms Park was removed from office and Mr Lee is facing retrial on those charges, plus a fresh one on related accusations of manipulating stock prices to facilitate the merger. Mr Lee and Samsung deny wrongdoing.

If either case lands Mr Lee in prison, his leadership may be in jeopardy. That need not spell doom—the day-to-day running of the company is in the hands of professional managers. But it may make it harder to perform the late patriarch’s occasional, sweeping changes of direction.

Some of his son’s bets seem to be working. Samsung Biologics, the listed biotech subsidiary, is building a new $1.5bn factory. Its share price is up by 50% this year. That of Samsung SDI, a battery affiliate, has nearly doubled (see chart); it has invested $2.1bn since January and is eyeing the electric-car market. It is planning to expand a factory in China and build a new one in Hungary. But at a combined value of $63bn they look small next to Samsung Electronics. And competition in both areas is hot.
李在镕押注的一些领域似乎已见成效。三星集团的上市生物技术子公司三星生物制剂(Samsung Biologics)正斥资15亿美元建设一座新工厂。它的股价今年上涨了50%。生产电池的子公司三星SDI的股价也几乎翻倍(见图表),自今年1月以来该子公司已投资21亿美元,且正瞄准电动汽车市场。它正计划扩建在中国的工厂并在匈牙利建设新厂。但相比三星电子,这两家市值共计630亿美元的公司仍显弱小。而且这两个领域的竞争都非常激烈。

Samsung Electronics’ third-quarter results on October 29th beat forecasts. It plans to spend around $10bn on its contract-manufacturing chip business over the next ten years. American sanctions against Chinese technology firms, which have already hurt its smartphone rivals such as Huawei, may help with that—and with its flagging foray into 5G telecoms. But the firm warned of lower chip demand in the short term. And the market share of its chip “foundries” lags behind Taiwan Semiconductor Manufacturing Company, the industry leader. No new mega-bet in the style of Lee père is on the horizon.

Lee fils has apologised for his group’s run-ins with the law and vowed to break with tradition and not pass control to his own progeny. The Lee family says it plans to pay the full inheritance tax on the patriarch’s $16bn shareholdings. Honouring his positive legacy may prove harder. ■