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Business

South Korea's mighty 'chaebol' still make the economy tick

SEOUL The majority of South Korea's leading companies belong to conglomerates known as chaebol. The founding families of these groups wield practically limitless power in terms of ownership and management, and their corporate empires are sprawling and diverse.

     For decades, successive South Korean governments served as active partners in helping these titans to grow quickly. And for good reason: The core companies of many chaebol are export-oriented manufacturers that underpinned the nation's "economic miracle," which took off in the 1970s. Of the 42 Asian300 companies in South Korea, which account for nearly 80% of the country's total market capitalization, some 70% belong to these powerful groups.

BORN TO LEAD In late October, the Samsung group said it was withdrawing from the chemicals business by selling Samsung Fine Chemicals to the Lotte group. According to a scource, "The deal was struck during a meeting between Samsung Electronics Vice Chairman Lee Jae-yong and South Korea's Lotte group Chairman Shin Dong-bin." Both men own and run corporate empires.

     But Lee is not a director or a shareholder of Samsung Fine Chemicals. Nor is he a director at Samsung Electronics. As a member of a chaebol founding family, he wields a brand of power that goes beyond that accorded by titles. And it is this kind of power that helped expedite decision-making on massive investments and drive the growth of these industrial giants.

     There are drawbacks to this "all in the family" arrangement, not the least of which is the potential for abuse of power. Evidence of this was seen late last year, when a passenger aboard a plane operated by Korean Air Lines, angered by the way a flight attendant served her nuts, ordered the pilot to taxi the aircraft back to the boarding gate. The "nut rage" incident made headlines around the world, as the passenger happened to be the vice president of the airline and the daughter of the chairman of the Hanjin group, the carrier's holding company. She was forced to step down from her post amid a public outcry over her arrogance.

     "Running [chaebol] like a small or midsize family business even when they become massive in scale has always had its problems," said Isao Yanagimachi, a professor at Japan's Keio University and an expert on South Korean conglomerates.

     Samsung Electronics -- which has the largest market capitalization among South Korean companies, at some $200 billion as of the end of October -- is the central member of the most powerful chaebol, Samsung group. But sagging sales of smartphones, its flagship product, have the group scrambling to find new ways to reignite its momentum. Other core names in the group include trading and construction company Samsung C&T and Samsung Life Insurance.

"JAPANESE CAR KILLER" The Hyundai Motor group, another chaebol, broke away from what used to be the Hyundai group. Its ability to strike a good balance between quality and price has played a big role in its growth. The group ranks fifth in global car sales after the Renault-Nissan alliance. It has been dubbed a "Japanese car killer" due to its penchant for gobbling up the market share of Japanese rivals. But Hyundai Motor has some catching up to do in developing technology for both eco-friendly and self-driving cars.

     The group controls Kia Motors, parts maker Hyundai Mobis and logistics company Hyundai Glovis.

     SK group, another multinational conglomerate, used to count petroleum refining as its main business, but its core earner now is dynamic random access memories. In 2012, it bought SK Hynix, which controls the second-largest share of the global DRAM market after Samsung Electronics.

     In the LG group, the high-profile LG Electronics has seen its earnings pummeled by anemic sales of TVs and smartphones. LG Chem has been tapped to pick up the slack, with the group receiving an increasing number of orders for electric vehicle batteries. However, it is not yet known when the business will start adding significantly to the group's earnings.

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