Industrialist mirrored Korean economy's rise, demise

South Koreans marked the passing of an era with the death on Wednesday of Chung Ju Yung, founder of Hyundai, the country's biggest conglomerate.

Chung's life epitomized the rise and fall of the chaebol, the closely held business groups that drove the nation's post-war industrialization and later began to collapse during the economic crisis of 1997.

Hyundai, which means "Modern," and its green triangle emblem are stamped everywhere in South Korea. A visitor to the capital can drive by rows of Hyundai apartments and through a sea of Hyundai cars to a store that sells Hyundai appliances and computers. Hyundai office towers are marked by a distinctive series of arches on the top floor.

The peasant farmer's son "built some world-class industries from scratch," says Richard Samuelson, head of research at Warburg Dillon Read Securities in Seoul. "Very few industrialists have achieved that in a lifetime."

Now, with Chung's passing and the chairman of the country's bankrupt No. 2 conglomerate, Daewoo, living in Europe, all of the leaders of the top five chaebol have left the scene.

Chung was instrumental in transforming South Korea from an impoverished, war-torn backwater into one of the world's economic powerhouses. In 1933, when the poor farmer's son stole a cow and ran away from his village to the big city, this was all a far-off dream. After a few years delivering rice by bicycle and working at the docks, Chung opened an auto repair shop. When American forces replaced the Japanese Army in Korea at the end of World War II, Chung's brother, who was translating for a ranking officer, got Chung construction contracts to build temporary housing. In the 1960s, Chung's company began winning contracts to build infrastructure projects in Southeast Asia and the Middle East. Then in the early 1970s, South Korean dictator Park Chung Hee picked Chung and other business leaders to launch various heavy industries.

With no experience, technology, or even a dry dock, Chung decided to try shipbuilding. He went abroad in search of financing. Banks rejected him one after another. Undeterred, at a meeting with Barclays Bank in London, Chung whipped out a 500-won bill, which features a picture of the ironclad "turtle ships" that Koreans built in the 16th century. That's a full 300 years before the British built metal ships, Chung told the bankers, noting that the cloistered Chosun Dynasty prevented Koreans from reaching their full potential earlier. He got a $50 million loan from Barclays and an order for two 260,000-ton oil tankers from a Greek shipping magnate. Today Hyundai is the world's biggest shipbuilder.

Hyundai Electronics is the world's second-largest producer of computer memory chips, and Hyundai Motor is another global player. Just before the Asian economic crisis in 1997, Hyundai Group's annual sales topped $90 billion, while Chung, with an estimated worth of $6 billion, was Korea's richest man.

Chung's bold style was accompanied by typically Confucian order in managing his enterprises. The entire family had breakfast together at 6 a.m., and each son has successively taken charge of a major Hyundai company. But like many chaebol, there was little managerial independence. "This is a society with a lot of deference to famous and accomplished progenitors like Chung Ju Yung. It's not surprising people listen to him," says Mr. Samuelson.

Economists say the Korean economic crisis stemmed from arbitrary management decisions and risktaking by chaebol managers who were unaccountable to anyone. During the Asian crisis, Hyundai chose to buy several heavily indebted companies. Chung also spearheaded investment into North Korea, his former home, creating the tourist cruises to the Keumgang Mountains. He sent a gift of 1,001 cows to the North in 1998, in return for the one he stole as a teenager.

But recent Hyundai investments have led to a liquidity crisis at major Hyundai companies involved in construction, electronics, and finance.

"Management is not very modern and is very heavily family oriented and influenced. The various sons ... don't seem to be enormously talented," says Hank Morris, managing director at Industrial Research & Consulting in Seoul. "Their companies wouldn't be teetering on the edge of bankruptcy if they were."

Chung's passing may accelerate the break-up of Hyundai into five smaller sets of companies, say analysts. It could also reignite a fight between the sons over who will control what. A year ago, the dispute boiled over into the public sphere, ruining investor confidence in what local news media called the "war of the princes."

The South Korean government's current economic reforms are designed to make business a more open and democratic process.

(c) Copyright 2001. The Christian Science Monitor