“Samsung Rising” goes deep on corruption, chaebols, and corporate chaos | Hacker News Reader

“Samsung Rising” goes deep on corruption, chaebols, and corporate chaos

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164 pointsTomte36 comments

I have a really hard time finding books on Korean companies, methods, or up-to-date planning; particularly on Samsung, Hyundai, LG or new fields like biotech/renewable; and preferably written by Korean journalists or academics. On the other hand there's a lot you can find written about American or Japanese companies like Taiichi Ohno on Toyota, John Bogle on Vanguard, MITI and the Japanese Miracle, etc. I get that this is primarily a matter of 1) impact and 2) population. But Hyundai, LG and Samsung are major international companies now.

The few books on Korean companies I've read, written by Americans, have been terribly pithy and missing a lot of actual history. I will still give Samsung Rising a read though.

But if you have worked with Korean companies before and have any recommendations for good histories of companies or methods, I'd love to get them. Biographies are a little more common and a little less interesting to me. Over biographies I'd prefer up to date recommendations on the Korean economy and planning. Most of the books out there were written in the 90s/00s.

Edit: recommendations don't have to be in English, Korean is fine.

I recently read "Bad Samaritans" by Ha-Joon Chang and a lot of it giving an overview of how the Korean economy developed in the 20th century.

Yeah! He's been on my list for a while. He's a prolific author.

It's really important I think to also understand the genesis of the modern conglomerates in Korea in order to understand their history and arrive at modern day practice.

IIR, "A History of Korea: From Antiquity to the Present" by Michael J. Seth is an excellent book that has some great sections on the topic.

I haven't come across any real "management theory" texts out of Korea, in the same way that Kaizen came out of Japan and was all the rage in the 80s and 90s in U.S. management circles. There's probably a few reasons for it, but I think the most compelling one is that in the things that are no real international competitors in the leading industries of the day to the U.S. (software, internet stuff, etc.), so there's no real driver to look abroad and see what the other guy is doing. In the 80s and 90s, Japanese car companies started taking the stuffing out of the American auto industry, then a dominant market, and it forced people to seek out how this was happening. Today "Agile" is all the rage, and nobody is really doing it better.

However, the reverse is happening, as South Korea continues to transition to more of a service oriented economy, and American-style management practices are slowly being integrated into Korean workplaces. There's a pretty direct line from Drucker bringing Kaizen over to modern Agile practices, and I suspect that we'll see a similar Korean evolution of Agile practices that befit the culture.

I would suggest reading: https://www.researchgate.net/publication/317639433_Formal_an...

as well as this short talk https://youtu.be/OHilmaWZVUw

Someone recommended Ha-Joon Chang books on this thread. They are fantastic. You may also want to check out "Asia's Next Giant: South Korea and Late Industrialization" by Alice H. Amsden

Disclaimer: lived in Korea for 8 years

Okay, as a Korean, I would just like to chime in and say that Samsung is much more than a smartphone/digital gadget company. It’s a very big company.

It not only produces displays and semiconductors, it also makes home appliances, it builds apartments, it runs hotels, it runs hospitals, it issues credit cards and runs insurance, etc... which means that the Galaxy Note 7 crisis is pretty much nothing to that gigantic company.

Also, keep in mind that a lot of Koreans (including myself) doesn’t think Samsung positive — it’s hard to get unbiased opinions about Samsung (whether it’s positive or not). So if you’re reading this, please take it with a grain of salt.

Samsung Electronics is huge on its own (when I worked there, I think it made more money than all the other companies of the group combined). Of course, the Note 7 crisis was fairly small, even within the scale of the mobile division, employees still got their 50% profit sharing bonus that year. But it still tells you a lot about the kind of pressure there is on internal teams and external suppliers.

Well, Samsung Electronics is a fairly big company (60% of total Samsung AFAIR), but itself has 147 departments. If I remember correctly, the digital gadget department isn’t that big - the biggest ones are the semiconductor one and the display one. And still the digital gadget department could handle the Note 7 callback on it’s own, if I recall correctly, so I can’t really call it a ‘crisis’ for Samsung.

Edit: Turns out I wasn't remembering correctly, the digital gadget department is big enough.

Though less profitable, mobile is roughly the same size as device solutions (semiconductors + displays): https://www.sammobile.com/wp-content/uploads/2020/01/samsung...

Samsung Group is not the whole of "Samsung," and the whole Samsung is not the whole of Lee's family holdings.

For example, Dongil is another big industrial, and engineering group coexisting completely in parallel to Samsung, but they been buying and selling businesses from Lee's family as far as record goes.

Other well-known companies run by the Lee family include CJ and Shinsegae.

CJ is the largest producer of sugar and flour in Korea, and they also sell every kind of processed and frozen foods. They also own the largest courier service in Korea, the largest cinema chain and film studio, several restaurant and coffee brands, a chain of cosmetics stores, biomedical services, and a dozen cable channels. They literally supply the whole country with both panem and circenses, and they deliver to your doorstep. It's vertical integration at its finest.

Shinsegae is a retail giant. They own a chain of department stores as well as the e-mart shopping mall. The latter has sprouted its own chain of Costco-like discount stores and convenience stores.

If you ever wondered who owns the "CU" brand of convenience stores that are ubiquitous in Korea, they are in-laws of the founder of Samsung. The same family owns the JoongAng Ilbo newspaper, which together with the JTBC news channel comprise the second largest media conglomerate after CJ. Oh, and they also own the third largest cinema chain in Korea.

The Lee family is also into furniture, paper, you name it. They used to make cars and planes, too.

All these companies aren't always on friendly terms with one another, as some of them have split from Samsung decades ago and compete with one another. But together they control such a huge portion of the country's commerce, news, and entertainment that the phrase "Republic of Samsung" comes up whenever a member of the Lee family is accused of wrongdoing.

A few years ago, annual profit of Samsung Electronics was greater than the combined profit of top 7 or 8 (?) Japanese electronic firms. Including Sony.

Can you go more into why you aren’t positive about Samsung?

Not who you're responding to, but for just one possible reason look at Lee Jae-Yong. He's the head of Samsung and was arrested in 2017 for bribery, embezzlement, etc. Chaebols (name for families that run these mega-companies) are both respected for success and disliked for corruption as I understand it.

While there are these mega-companies in RoK and Japan that have especially "close" relationships with governments, I don't think it's that dissimilar from the revolving door of lobbyists/board members/politicians in the US. Citizens in the US are similarly critical of corruption at this level in pharma, tobacco, military, etc.

At the same time, these companies are all responsible to varying degrees for the success of the economy and first-world lifestyle in the US, Japan, RoK. So you can't just want them not to exist either.

Keiretsu-type groups that do everything in-house can prevent whole business sectors from emerging.

In Japan the relative lack of independent software companies have been attributed to Keiretsu structure. Software development was just in-house activity to serve established product divisions. It was not seen as business to be sold independently. For example, Toyota made whole integrated CAD/CAM/CAE system called 'TOGO' in the late 90s.

As a result Japan has been mostly no-show in software business outside console games. Software they develop is sold inside hardware.

Agreed, historically anyway. Older Koreans (judging by my in-laws) hear "computer science" or "programming" and think of computer repairmen.

Oddly enough, Korea and Japan have even higher percentage of SMBs than in the US (can't remember the link but the OECD published such stats). However historically they served only as subcontractors to the chaebols and keiretsu groups.

I think that's changing in Korea and Japan as of recently. In the last 20 years, there has been a rise in startups serving massive audiences in online gaming, social media, and e-commerce. Think Nexon, Daum, Naver/LINE, Rakuten, SoftBank, etc.

IIRC, one big type of sector that they received flak for when they moved into it was bakeries. Food is one sector in Korea with a lot of SMBs, and at the time it looked like they were trying to steal even more of the economy for themselves.

http://www.koreaherald.com/view.php?ud=20120126001019

Corruption, bribing, tax-evasion, spying, fraud, sabotage

Use of prison labor.

You could probably go cradle to grave experiencing your entire life in nothing but Samsung (or companies related by family) goods.

It's interesting to note that Samsung's yearly revenue is about 10% of the South Korean GDP. I'm not sure I can think of an American example that's even close.

> I’ve met hundreds and hundreds of very talented Samsung executives [...] people who are highly educated, highly competent. They know what they’re doing. They know both, say, the guts of a smartphone in addition to what business decisions need to be made to improve their company. And I’ve always gotten the impression that they can run the show themselves, that there’s really not much of a need this far into their corporate history for a founding family to oversee them.

This brought to mind the devastation of Boeing by MD corporate leadership. And Jack Welch. I suggest the author is undervaluing the avoidance of high-negative variance in top leadership.

The argument for stationary bandit gangs is not that they're wonderful executives, but that they have less toxic incentives than the roving bandit gangs they displace. Asset stripping Samsung, and Korea, is not something Wall Street, and some associated subcultures of corporate leadership, would be unhappy to help with.

Having a family at the top of a corporation does usually lead to the firm operating with long term vision more consistently.

Yes, if a Chaebol style leadership was in Boeing, MD corporate leadership wouldn't have gotten the chance to ruin Boing. We all know that the take over of Boing by MD leadership is why we have 737 Max.

I am sure there are many many hedge funds that would love to asset strip Samsung or any other chaebol of S. Korea.

This “family effect” is probably one reason for the success of German “Mittelstand” export businesses.

> The argument for stationary bandit gangs is not that they're wonderful executives, but that they have less toxic incentives than the roving bandit gangs they displace.

One thing I like to think about is the concept of "home rule". Egypt makes an interesting case study:

By the time we can see the history of Egypt, the ruling class is seen by everyone, including themselves, as natives. (In fact, they are intrusive, but as with the ruling class of India, intrusions get forgotten over time.)

Eventually, a government collapse results in Libyan soldiers taking over the rule of Egypt. This is a disaster for cultural continuity -- this is when most of the pharaohs' tombs get robbed, by the new foreign pharaohs. It also results in formal inscriptions being written in vernacular Egyptian rather than Old Egyptian. After a relatively short run, home rule is reestablished, and formal Old Egyptian returns.[1]

More eventually, Egypt is conquered by Persia. This isn't great; the Persian emperor administers things from far away.

Egypt doesn't manage to throw off the Persians, but Alexander the Great does. Egypt is briefly part of Macedon. But Alexander dies soon afterwards, and his general Ptolemy gets Egypt out of the ensuing civil war.

Egypt is ruled by the Ptolemies for the next few hundred years. They aren't Egyptian and don't see themselves as Egyptian. They don't like the Egyptian masses and the masses don't like them. But! The Ptolemies have no power base outside Egypt. Unlike the Persian emperor, they live there, on location, and a problem for Egypt is directly a problem for them.

Eventually, Egypt is lost to Rome, and it suffers once again under the backwater treatment it got from Persia.

I don't have great information on exactly what the state of affairs was for the common man in these periods. But I strongly suspect that, as your analysis predicts, things were better under the Ptolemies, even though they were self-conceived foreigners who didn't really care for the Egyptians proper, than they were under the Persians and Romans. For Rome, as long as the grain was flowing, malaise and poverty in Egypt could be more of a plus than a minus, keeping Egypt subservient. For the Ptolemies, malaise and poverty meant defeat in war. They were in the process of going native -- Cleopatra was the first Ptolemy to be able to speak Egyptian -- when they lost it all to Rome.

[1] There was, separately, a homegrown Pharaoh who also made inscriptions in vernacular Egyptian as one part of his massive reform efforts. This got rolled back too.

Though the relationships with non-local rule can be complex. I saw a paper/talk about Ottoman Egyptian farmers disciplining local elites with work slowdowns and strikes. The loss would attract an impatient Ottoman official with a "fix this now, or else" attitude. So for instance, if a widespread beef with an elite family wasn't resolved to villagers' satisfaction, they might move out to stay with family in nearby villages, leaving village production to plummet, and the intransigent elite family to face official ire.

It took decades for GE to slowly fall apart after Jack Welch retired. Not saying he lacks responsibility, it’s just hard to tease out how much.

I will never buy a Samsung product again after the bait and switch they pulled on their 4K TVs, advertising that they would be able to be used as smart home hubs, continuously telling people it would be coming, and then quietly cancelling it and making it an add on for the nvidia shield instead, without so much as an apology or a press release.

Today I went to use their official iPhone tv remote app, and it said it’s being discontinued and to use the SmartThings app, something that was broken 2 years ago in a firmware update to my tv, and has never been fixed. This tv isn’t that old — 3 years old and it’s already on its way to slowly being bricked with crappy updates and products being decommissioned.

Not all countries have the concept of a professional management class.

In Asia and India, the family owners/founders typically run the company, so when you talk about corruption or nepotism, well, it's their family company.

You can even see that on a large scale, with Huawei's CFO being the niece of the founder (who is PLA.)

> with Huawei's CFO being the niece of the founder (who is PLA.)

I believe she's not the niece, but the daughter? I only know this because this was big news in Canada.

I had the unfortunate experience of having a run-in with Samsung America over a decade ago. They were a components supplier for a business I founded and ran many years ago. They lobbied us to switch from LG to Samsung. They made promises and helped us select sole-source components with, as they promised, long EOL (end of life) timelines.

We devoted a multidisciplinary ten month engineering effort to design an entire line of products around the components Samsung recommended. I won't even talk about the money we spent. It wasn't trivial, particularly for a small company. The way I can put it is, we bet the farm on Samsung.

I will never forget the day I emailed our distributor to plan orders for production. I got a three sentence reply:

"These parts have been discontinued. There are no planned replacements. You will have to redesign your products."

I have no idea why I didn't end up in the hospital with a massive heart attack. I mean, this was a company-ending email. I must have stared at that text for an hour before someone walked into my office and snapped me out of the mental loop I was in.

What's worse is what they did after I raised hell. They lied and filed a TRO (temporary restraining order) against us to prevent us from attending an industry trade show where they, and, more importantly, their competitors, were exhibiting. The TRO had a radius of a few hundred feet from the Samsung booth at the show. We couldn't even park at the convention center.

Because of the TRO we couldn't go to the convention and talk to alternative sources to try and find a solution. With sole-source components there are no substitutes. Every company makes a unique version and you are absolutely screwed if they EOL the part number you are buying. It's not like buying resistors, where there are million alternatives. This is why a trade show was almost the only way we could deal with this situation. It would take months and much travelling, potentially outside the US, to be able to meet with other manufacturers and evaluate options. The financial damage Samsung created with their surprise EOL (after promising a seven year lifetime of the components they selected for us) was such that we couldn't even buy a cheeseburger without risking going out of business.

After the conference we could not attend I found myself in court in San Jose, CA, for the TRO hearing. I didn't know anything about TRO's until then. If you don't go to the hearing they can turn into a permanent restraining orders and they go on your record. So, you have to take TRO's seriously or suffer additional consequences. Once again, we couldn't hire an attorney due to the financial damage Samsung caused...so I went on my own.

The judge was very surprised by two things. One, that I showed up on my own. The CEO of a company doesn't normally go to court without counsel. Second, he could not believe this TRO was issued. He understood why I was there on my own and advised me to let him run this and say very little unless he asked questions. Samsung's attorney was there with one of their Vice Presidents, the guy who lied in the TRO declaration in order to secure it. The judge proceeded to read these people the riot act. I wish I had it on video. He tore them a new asshole, both of them. He told the attorney that if I had the money to pursue it he could be disbarred but that they had caused so much damage that the best outcome would be to cancel the TRO and advise me to lick my wounds and move on.

He ripped them a new one more time and asked me how we were doing. I told him "not well". He said, "I am sorry this fraudulent TRO was issues in the first place. Clearly this caused much damage. I can't address it at this level. If you recover financially you might consider consulting with an attorney for further action".

That was the end of that story. It was like Samsung detonated a nuclear bomb inside my company. We were in life support after that. We managed to stay alive. We had designed a line of six new products that we could not manufacture. We had no funds or financial path to redo them. Our competitors were taking business away from us every day. Our entire product line evaporated overnight.

We managed to redesign one of the products but it wasn't ideal or very competitive. And then the 2008 economic downturn hit us. We somehow survived until 2010, when I finally shut down the business. I ended-up in the hospital twice in two years due to the inordinate amount of stress this caused.

I wrote a very dark email to one of my friends at the end of 2009. I told him I now understood, in no uncertain terms, why people took their own lives during financial catastrophes. He was at my office in the blink of an eye concerned about what I might do. I realized reading it later that the email sounded terrible. What I meant to say was that the pain and suffering all of the above caused me led me to understand how someone --not me-- could make that choice and see it as perfectly logical or necessary. That wasn't my case at all. Well, I'll say that it was my kids and family who kept me together, without them I could absolutely see someone with the right (or, more appropriately, wrong) brain chemistry having a tragic ending under such circumstances.

Entrepreneurship is hard, even without some of the tragic shit that can happen for no reason at all. This is partly why I sometimes react very harshly to people who, without any real experience building a non-trivial business, use words like "greed" and beyond. Hence my favorite quote by Mark Twain: "A man holding a cat by the tail learns something he can learn in no other way".

I am not going to extend my experience to the entire Samsung organization, yet I am sure my words, over a decade after the incident, still communicate the tension I feel every time I think about what they did to us, the jobs they cost, the future they destroyed and the life-ending stress they were responsible for. A shameful example of how financial asymmetry can stomp the little guy. This also made me view the concept of Asian honor as a complete fable. Maybe I was naive in believing such horseshit in the first place.

Thanks for writing this.

Do you think they gave you the false EOL information knowingly, by mistake, or was it a coincidence that all the parts got binned prematurely?

No, I think the original EOL specification was truthful. What likely happened is that a major customer canceled an order that was the basis for extrapolating such a product lifetime. Unlike other companies, organizations like Samsung and LG live for large contracts in order to be able to justify spinning up assembly lines and build inventory. In other words, there are organizations that exist to supply the industrial markets who will commit to having a stable supply for years because that's the nature of the markets they serve.

Once the key customer cancelled the order they had no way to manufacture these products for the many small companies who were feeding off the edges. During that time I met the CEO of another company who had a multi-million-dollar government contract that was impacted by the same parts we were promised. He was about to be sued by the US government for violating his contract due to Samsung's premature EOL. It is likely that Samsung destroyed dozens of companies when this happened.

BTW, I was dealing the Samsung America's Vice President at the time. In other words, the top guy in the US. The promise came from him and various division top management people. So, yea, it was one of those "you can take it to the bank" promises.

In many ways this was a case of ethics and honor. Having made promises to multiple small to medium companies they should have delivered product at a loss and provided a reasonable runway for everyone to migrate designs. Hardware isn't like software, you can't turn on a dime, even if you want to. Realistically speaking, you need a two year run before new designs. Among other things, your customers don't like it very much if they buy an expensive product and you obsolete it six months later. And then there's the case of having to provide a reasonable EOL for your own products as well as parts, service and support. It can get complicated and messy very quickly.

1. Lobbying

Bribery (Korea) | Lobbyist (US)

S. Korea has no concept called lobbyist. Definitely no official lobbying firms exist. So when a company or trade association wants something, it inevitably turns into something like bribery.

2. Dollar and oil

Won (Korea) | Dollar (US)

To be able to exist as a self determining nation in modern world, you need oil. And you need a lot of oil if you want an industry and provide a decent living standard. And oil is usually sold when buyer pays with with US Dollar. US can just run printing presses harder if more $ is needed. And still keep buying oil with no issue. S. Korea doesn't have such a luxury. And S. Korea has to keep earning $ in order to be able to defend their nation (both physically and to keep out undue influence) from Russia/China/Japan/NorthKorea. And this is why those firms who can bring in more dollars are valued in S. Korea. It's a matter of national survival.

The last time Korea wasn't able to defend itself, the royal family that had been ruling the kingdom for 500+ years were literally tossed out to the street. Empress Myeongseong was killed in court by Japanese backed thugs, and her body was burned and buried unceremoniously.

And the Japanese occupation led to the nation being split in two. A kingdom nation that had existed with same boundary for 500+ years. Much longer than Germany.

And this led to the Korean war, war that brought a civil war to Korea that is probably more devastating comparatively than the Civil War of US.

All because the nation couldn't pay for the things (people, material, technology) needed to defend itself in 1910.

Even the much praised great preparedness against covid-19 in S. Korea was possible because firms brought in $ which meant more tax revenue for the S. Korean govt to use to pay for everything that is needed.

This happens everywhere, the tech is in the mafia, the mafia is in the tech.

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