Hyundai: Giant Plans More Expansion
South Korea’s second-largest conglomerate made a name for itself in shipbuilding and construction. Its auto exports have attracted much attention and are expected to continue to grow. Now its electronics subsidiary plans a big splash in semiconductors.
Chung Se Yung, the new chairman of South Korea’s second-largest business conglomerate, the Hyundai Group, sometimes has difficulty remembering how many companies he controls.
In the course of an interview, Chung paused to ask an aide, who told him the number was 28. Actually, it is 32, a company spokesman said later, and that includes only the big ones.
Still, Chung is certain that Hyundai will expand all of its activities, which last year reported net sales of $16 billion.
Even the group’s shipbuilding and construction firms are making money, Chung said, and these are industries that are in recession in South Korea. Many construction companies, suffering from an inability to collect money due them for work performed in the Middle East, “are going bankrupt,” Chung said. (The total owed them is $3.8 billion, according to a U.S. Embassy report.)
“But we are in a different class,” Chung went on, even though Hyundai too “has a lot of money to collect.”
The Hyundai Group made a name for itself by building South Korea’s first major shipyard--and producing the first ship even before the yard was completed--and leading the way into the Middle East for South Korean construction companies with remarkably low bids.
Now its auto exports to Canada and the United States have attracted attention. It exported 200,000 autos to the American market last year and hopes to ship 330,000 this year.
Also, it is moving into high-tech products and plans to make a big splash this year with semiconductors from Hyundai Electronics. It has invested $300 million and three years in the preparatory work.
‘Spreading All Over’
Chung said he expects to break even in the first year, with sales of $500 million, mostly in exports. He refused to go into detail, but newspapers have reported that most of Hyundai’s sales will involve the 256-kilobyte dynamic random access memory semiconductor.
Chung fondly recalled a Hyundai construction contract, signed for $1 billion in 1974, to build the Jubail Industrial Harbor in Riyadh, Saudi Arabia. It was completed in 1980.
“The second-lowest bid was between $1.2 billion and $1.3 billion,” he said. “Everybody said the gap was too big and that Hyundai would be in trouble. But we did very well on that contract.”
Now, construction orders from the Middle East have fallen off sharply, but Hyundai, Chung said, is still getting contracts there, as well as in Asia and Canada. “We are spreading all over the world,” he said.
He did not mention it, but Hyundai and four other South Korean construction firms won contracts totaling more than $100 million in the United States last year.
For years, Hyundai ranked as Korea’s largest chaebol , or business conglomerate, but Samsung surpassed it last year by about $100 million in sales. And for years it has been cited by Koreans as the prime example of a family-owned big business, an image, Chung said, that makes him “very displeased.”
Chung, 58, was named chairman of the group on Feb. 9 by his elder brother, Chung Ju Yung, 71, who founded the group and now has assumed the post of honorary chairman.
Seven other Chungs--another brother and six of the eight sons of the founder--hold executive positions in Hyundai companies. Yet another son, who is studying in the United States, is in the wings. Chung Ju Yung’s eldest son also served in Hyundai companies until he was killed in an auto accident in 1982.
Still, the eight Chungs account for only a small number of Hyundai’s top-level executives, the chairman insisted. And he said that all the other chaebols are run either by the founder or a son of the founder.
The magazine Business Korea reported in its January issue that no one knows the net worth of the Hyundai Group because “most companies are in a private domain made up mostly of Chung (Ju Yung) and his family members.”
“Even those companies which are listed on the Seoul Stock Exchange are majority-owned by Chung (Ju Yung) or his family,” the magazine said.
Already Changing
Despite its slow pace in conforming to government pressure to list Hyundai stock publicly, Chung Se Yung says the massive group is already changing. “The best man,” he said, “will become president and the best man will become chairman” of any company in the Hyundai Group, regardless of family affiliation.
He bristles in the face of charges that Hyundai is a go-it-alone, “pure Korean” conglomerate.
“That’s all nonsense!” he said. “We are very much willing to go with other international corporations, if we have mutual benefits.”
He said that in 1969 Hyundai asked Ford Motor to set up a joint venture on a 50-50 basis. After two years of negotiations, Ford, which got Hyundai started in the passenger car business by licensing assembly of its European models, rejected the offer, said Chung, who continues as chairman of Hyundai Motor, which he has run since its beginning in 1967.
“They thought the Korean market was too small,” he said. “Ford discarded us. We had to survive, so we started hunting around to obtain technology from all companies in the world but couldn’t get everything we needed. Emissions standards (in foreign countries) became tougher and tougher, and we had to ask for more and more technology. Mitsubishi gave us the technology. Then they asked us for a small (15%) equity participation.”
Only last year did Ford gain an equity foothold in South Korea, by buying 10% of the shares in Kia, South Korea’s smallest and newest passenger car producer. Hyundai is South Korea’s biggest auto firm.
Several Joint Ventures
Hyundai, which up to now has concentrated on shipbuilding and construction, is the only conglomerate with joint ventures in both those industries, Chung said. He also cited a recent joint venture with Westinghouse, which manufactures transformers and generators.
Chung dismissed as a fabrication by the news media a charge that the chaebols control the South Korean economy. Business Korea had reported that Hyundai and eight other chaebols control nearly 45% of all South Korea’s exports.
“All the time, newspapers are kicking the big companies,” he said. “That is just a kind of politics.”
He said that his elder brother “is a very popular man in Korea” and added: “Everybody knows him. He has a very good image among the public.”
Indeed, the elder Chung is to be featured in a television drama-documentary scheduled to be shown in March. An actor will play Chung in his younger years, but the industrialist himself will appear in scenes dealing with Hyundai’s recent history.
Among South Korean college graduates, the Hyundai Group is so popular as an employer that it faces an avalanche of applicants every spring, when it recruits white-collar workers. This year, Chung Se Yung said, more than 10,000 candidates applied, about 7 1/2 times the number of jobs available.
Chung, who was educated here and at Miami University in Oxford, Ohio, said: “We suffer an oversupply of college graduates. . . . They all come to the top companies to apply first, and then go down and down until they finally find a job.”
Actually, many college graduates are not finding jobs. According to a U.S. Embassy report, 62.5% of the 1986 graduating class still had not been employed by last November.
The chaebols’ dominant role in the South Korean economy has induced the government of President Chun Doo Hwan to restrict the fields in which they can do business and the amount of money they can borrow from banks.
The government of the late President Park Chung Hee, who ruled from 1961 until he was assassinated in 1979, “thought that helping big companies would bring a better result quicker in promoting the national economy,” Chung said. “(Under Chun) the government thinks it can leave the big companies alone and (concentrate on) fostering small business.”
Chung said he had no objection to such a policy, adding that “we need a good balance with small business.”
Restrictions on bank loans to the chaebols have not affected Hyundai, he said, because “there are other ways to raise money.”
Hyundai, although a latecomer to high-tech enterprises, has already made a heavy commitment to semiconductors and computers, and has other fields in mind as well, Chung said. He declined to specify.
In electronics, Hyundai hopes to achieve independence from Japan in three to five years. Japan currently supplies Hyundai and other Korean firms with the key parts for the electronics products that they assemble.
Still Struggling Nation
Despite Hyundai’s mammoth size and growth record, Chung shares the view of many other businessmen here that South Korea is still a poor, struggling country that looks up to the United States as “big brother.”
“Until last year we had never had even a penny of surplus (in global trade) in our history,” he said. “For years we received food aid, military aid--everything from the United States. Now we have started to operate on our own. The United States, which has been helping us so much, ought to be happy to see Korea prosper.”
Moreover, he said, with foreign debts of $45 billion, South Korea will need trade surpluses to repay foreign lenders. In 1986, for example, South Korea repaid about $3 billion to American banks, he said.
Chung ruled out the possibility of serious trade friction between the United States and South Korea. The worst thing that could happen, he said, is something similar to “when the master of the house goes out and gets drunk in the evening and has trouble with his wife.”
South Korea is trying to transform itself into a democracy and is preparing to choose a new leader in 1988, and Chung was asked whether he thinks democracy would make it harder or easier for big business to operate.
“We would like to have a real democracy, like the United States,” he replied. “Everybody hopes so. But whether democracy is achieved or not, Korean business operates separately from politics.. . . Korean students demonstrate all the time, raising fears that business will be hurt. But we have had demonstrations for years and continue to grow.”
Whether the government is authoritarian or democratic, he said, “our business will continue to prosper.”
