Ssangyong Building 24-1, Jeo-dong 2-ka
Ssangyong Cement Industrial Co., Ltd. (SCIC) is the parent company of one of South Korea's largest chaebol, or family-owned conglomerates. Although the group's activities extend into financial services and cars, non-consumer-oriented industries such as cement, oil, and heavy machinery remain its core businesses. SCIC is the third-largest cement company in the world, yet accounts for less than 20% of the Ssangyong group's total turnover. It retains a controlling share in most of its subsidiaries and the founding family itself has retained a 30% stake in SCIC. Apart from cement, Ssangyong shares most of its industries with the other large chaebols, hand-picked after the 1960s by the South Korean government to engineer its economic and national reconstruction policies, financed by preferential loan agreements, and long protected against foreign competition. Unlike most chaebols, however, it has come a long way in severing political connections and reducing crippling debt ratios.
In 1989, on the 50th anniversary of its founding, the Ssangyong group adapted its corporate logo to symbolize the twin strengths of reliability and innovation--Ssangyong means "twin dragons." The group's greatest strengths lie in knowing when to take second place--stressing after-sales service before advertising--in order to establish itself on a sound commercial basis, and in unstinting research-and-development investment to enhance quality and innovation.
The story of Ssangyong dates back to 1939, when the group's founder Kim Sung Kon, along with a few friends, established Samkong Fat Limited, a soap-manufacturing company. In the years of great scarcity following the liberation of Korea from 35 years of Japanese administration, this soap became the leading brand. A political idealist, Kim Sung Kon joined Yo Woon-Hyong's National Reconstruction party as top financial officer, at 33, thus embarking on one of the most remarkable careers in the modern history of a country known for its uniquely successful mix of government initiative and socially motivated private enterprise.
In 1947 Kim Sung Kon helped found the Koryo Fire and Marine Insurance Co., which he himself would take over in 1959 and which has since developed into a respected subsidiary with assets of US$180.3 million. It has close ties with such well-known insurance brokers and reinsurance companies as Munich Re in Germany and Willis Faber in the United Kingdom, and 150 domestic branches. In 1948 Kim set up the Kumsung Textile Co. with the aim of providing Korea's poverty-ridden people with cotton clothing. The company was successful, despite the scarcity of raw materials and treasury-induced inflation, and Kim rebuilt the factory in 1954, after it had been burnt down in the Korean War, with the help of the UN Korean Reconstruction Agency and turned it--with 30,000 looms and 250 weaving machines--into the largest textile firm in the country.
Kim's political career, always secondary to his business interests, took off with the military revolution of May 16, 1961, which led to his becoming chairman of the Financial Committee in the assembly under the Democratic Republican Party. His relationship with the military junta under president Park Chung Hee was not servile, since he opposed the latter's scheme to restrict the freedom of the press, in which he had interests, and was later fired for his part in the October 2 Revolt in which members of the cabinet sided with the opposition in order to oust the Home Affairs minister. However, he was ideally placed to implement certain aspects of President Park's first five-year plan to establish the national economy on a sounder basis and increase growth from 1.9% in 1953 and 1960 to 7.1%.
In 1962 Kim sold Kumsung Textiles in order to finance a venture into cement, starting with the construction of the world's largest single-unit cement plant at Donghae. Kim did this with the knowledge that two priorities of the five-year plan were production of oil, steel, and cement, in order to build up Korea's independence in strategic industries, and to launch the export drive which has characterized the Korean economy and which was directed actively by successive governments until the 1980s. During the 1980s the trade deficit was turned around, trade barriers and protectionism were dismantled slowly at the insistence of the United States, and new democratic structures were experimented with successfully in government.
Although the plant at Yongwol was dedicated in 1964, it is Donghae, first dedicated in 1968 with 1.7 million tons of production capacity and expanded from 1974 with another 5.6 million tons, which has become the mainstay and pride of SCIC, and of Ssangyong as a whole. Situated on limestone reserves calculated to last 200 years and serviced by the port of Pukyong nine miles away, Donghae has contributed significantly to the total profits of the group. Donghae's after-tax profits in 1988 of US $54.5 million placed it seventh among Korea's leading companies.
Bolstered by Korea's growing infrastructure and its part in the first and second five-year plans representing a strategic industry, the company grew fast enough for Kim Sung Kon to expand into areas congenial to SCIC. In 1967 he took over the Samwha Paper Co.--renamed Ssangyong Paper Co. in 1975--to produce the paper needed to pack cement. He also established the Kumsung Shipping Co.--renamed Ssangyong Shipping Co. Ltd. in 1972--to transport his cement along the Korean coast. Kim's Kumsung Industry Co. Ltd., which he had founded in 1954 after the Korean War to export his cottons, did not fare so well in the 1960s. Renamed Ssangyong Trading Co. Ltd. in 1967 and a forerunner of the present Ssangyong Corporation, licensed as a general trading company in 1975, it only started trading in earnest in goods unrelated to cement in the 1970s, during the "Miracle of the Han River," as Korea's period of rapid growth was termed.
Following the oil crisis of 1973, Kim established a joint venture with the shah of Iran to set up an oil refinery which would help in fueling Kim's cement plants. He planned a major increase in production capacity for Donghae, took over Taehan Cement in 1975, and made moves to enter heavy industry by constructing diesel engines for vessels, generators, and rolling stock. In founding Ssangyong Cement (Singapore) in Singapore in 1973 as a joint venture with a local company, he anticipated later Korean government policy requiring chaebols to be more competitive abroad: it was not only the first overseas capital investment by a private Korean firm at a time when foreign exchange was scarce, but it helped to reduce somewhat the reliance on domestic demand and shipments to the Middle East, both of which hit a low from 1980 to 1982. SCIC has since captured a part of the competitive and cartelized Japanese market as its leading foreign supplier as well as expanding its distribution network there.
Having spent a year with his daughter in the United States after the collapse of his political career, Kim returned to Korea following President Park's "October revitalisation reform" in 1973, a kind of amnesty, taking back the chair of SCIC and assuming the presidency of the Korea Chamber of Commerce and Industry. He died of a stroke in 1975, at age 62.
The resulting confusion caused widespread concern, not least to President Park Chung Hee, who declared that the business ought "to be kept well maintained." Shin Hyon Hwack, then president of SCIC, held a meeting with presidents of the group's other concerns and followed the wishes of Kim's wife when they appointed her eldest son, at that time not yet 30, as chairman.
The two men were entirely opposed in management style, yet Kim Suk Won has proved the equal--if not the better--of his father in expanding the group's fortunes. Total turnover increased 26 times between 1975 and 1987, from US$164 million to US$4.2 billion.
Educated at Brandeis University, Kim Suk Won first became auditor for SCIC and managing director at Ssangyong Shipping, but after a year of routine desk work, which he disliked, he told his father: "Please let me do anything I like; I want to learn by myself how the world goes. I assure you that I will return home when I reach 35."
He traveled throughout Korea, observing his countrymen's attempts to break away from poverty and low-tech industries. He then built the country's first ski slope at Yongpyeong, convinced that one day the middle classes would want to use it. They did, and still do.
Kim Suk Won's first major task on assuming the chairmanship was to complete the two projects his father had left unfinished: oil and cement expansion. The former was an up-hill battle. During the 1970s, construction of the refinery proceeded at Onsan, although the National Iranian Oil Co. withdrew from the partnership in 1976, leaving a serious shortage of funds. Then, during the second oil crisis in the early 1980s when cement was also piling up in the depots, Kim's patience was rewarded when the Iranians supplied his crude at almost $3 per barrel below the OPEC price. Then equipped with the nation's largest crude-unloading facilities at Onsan, Ssangyong Oil Refining Co. Ltd. had become a major money-earner for the group, with a US$824 million turnover in 1986. It is one of the country's largest oil refiners and is expanding further into petrochemicals, despite increasingly heavy competition and the problem of oversupply which faces all the chaebols as they ignore government warnings to specialize rather than diversify further.
During the 1970s Kim's own strategy was to lead the group away from cement, though never ceasing investment in cement. He has expanded the cement business considerably since taking over. Aware of the value of research and technology he opened the Ssangyong Research Center in Taedok Science Town in 1975, initially to develop new types of cement and cement-related products, but also branching into ferrite magnet equipment. Most promising has been its research into ceramics used in high-precision instruments and engines. It is illustrative of the way in which SCIC stands apart from many other Korean companies, which often are plagued with the problem of production and sales outstripping technology and quality. Though production costs for ceramics are high while demand is low, Kim's refusal to hurry beyond capacity coupled with innovative research into new materials means that with ceramics SCIC is well prepared before the new market has even taken off.
Another example of Kim's ability to buck the trend is his long-standing independence of political connections, though with increasing deregulation and domestic unpopularity the loosening of political connections has become inevitable for most chaebols. Despite great pressure and the offer of heavy state subsidies, Kim refused to join the lucrative munitions industry in 1976 and 1977. Even when, as a chaebol, Ssangyong was pushed into concentrating on heavy industry in the same year, when Ssangyong Heavy Industries Co. (SHIC) was established after the takeover of a bankrupt firm to manufacture diesel engines and other machinery, Kim managed--after 11 years of loss-making--to promote this branch as the center of the machine industry, providing some of the expertise needed in the construction of internal combustion engines. The latter was central to his dream of entering the car industry.
SHIC set up Ssangyong Engine Research Institute in May 1989 to develop a new model engine. Its engines have been approved by the Classification Society and it is poised to take on the international competition. Other car parts and heavy-duty presses are manufactured by Ssangyong Precision Industry Co., which is equipped with the most advanced technology in Korea. Kim also took over Sunglee Machinery Works Ltd. in 1977 to support further his automobile plans, making it manufacture wheel discs over and above its speciality, weaving machines. He established Sunglee Electronics Co. Ltd. in the same year to produce radio and audio equipment. Kim never attached as much importance to the audio and radio industry as did other chaebols.
In 1980 Kim completed his father's projects and it marked the end of his own five-year plan: 5.6 million tons of capacity were added to the plant at Donghae and the oil refinery started operating. He went on to expand the paper industry, producing tissue and sanitary paper in conjunction with Scott Paper Co. of the United States in 1979 and sanitary napkins in an agreement with Uni-Charm of Japan, so that today Ssangyong Paper is the best-known paper company in Korea. He also incorporated Ssangyong Construction Co. Ltd. separately in 1977, rather than firing many trained employees who had worked as an inhouse construction team--at Donghae and Onsan, for instance--as well as in constructing postwar rehabilitation projects. From there, the company went on to win contracts in Southeast Asia and the Middle East, including work on a record-breaking project in 1986: the tallest hotel in Singapore, a contract it would not have obtained without SCIC Singapore's reputation for reliability. Working closely with Ssangyong Engineering Co. Ltd.--established in 1978--and with the expertise of Namkwang Engineering & Construction Co. Ltd.--established in 1947 and taken over in 1986--Ssangyong Construction Co. continued to expand its interests overseas, notably in a joint venture with the Ralph M. Parsons Group of the United States in 1987 into high-tech construction fields, including nuclear waste plants.
Following his streamlining of SCIC operations by emphasising planning and the use of computers, Kim established in 1981--against the advice of his colleagues--the Ssangyong Software & Data Co., renamed Ssangyong Computer Systems Corporation in 1988, which proved its mettle in designing the management system for the Korea Olympics of 1988. Kim said he did not want to be left behind in this field.
His most obvious and profitable success story was agreeing in 1983 to buy the ailing securities firm of the Hyosung Group at a time when Korean financial services were relatively undeveloped and the Korean stockmarket rather thin. When the economy boomed in 1986 and the stockmarket was actively promoted by the economic technocrats in government, Ssangyong Investment & Securities Co. was in the right position to reap the reward: a net profit of US$6.9 million in 1986. Since then, under Koh Byung Woo, a former assistant minister of finance, it has become a co-manager of the Asian Development Equity Fund and an underwriter of Thai and Brazilian funds, establishing offices in New York, London, and Zürich. With the lifting of restrictions on direct foreign investment in 1992, the company, as one of the big five in Korea, foresaw little difficulty in consolidating its position further. It already operates a highly esteemed investment-research institute.
The 1980s were a golden age for the Korean economy, bringing three blessings: cheap dollars, cheap oil, and cheap loans. There were three successive years of 12% economic growth, starting in 1986 when wages were still low, the exchange rate was favorable, and demand was strong. Once the trade deficit had been turned to surplus, overseas investment became imperative, not least because of rising Korean labor costs and the need to get closer to overseas markets. However, between 1987 and 1990 this trend reversed: Korean exports fell because of high domestic costs and the 25% appreciation of the Korean won relative to the Japanese yen. Although the chaebols were once more in favor with the government as a means of boosting the slowing economy, credit controls having been eased, the gap between price and quality of products remained a problem.
Kim was aware that the only solution lay in improved efficiency, in which his record was good--per capita sales among employees rose eight times from 1975 to 1986--in better technology, a longstanding aim of his, and in more capital intensive production, something which comes naturally in his line of business. Unlike Samsung or Daewoo, in the labor-intensive electronics and textiles businesses, respectively, Ssangyong has no great need to find a cheaper source of labor in Thailand or China. At the same time, the overseas networks for most subsidiaries are already well established.
Kim's pursuit of "harmony" between "reliability" and "innovation" is perhaps the key reason for the group's steady growth. Not only does he embody a successful move towards second-generation control away from the authoritarian grip of his father, something with which other chaebols still have to struggle, but the group has an outstanding record in the labor disputes which have riven Korean society most damagingly since 1987. Taking his cue from his stay in the United States, he delegates authority to company presidents, does not rely on elites and encourages participation of all employees while respecting the authority of juniors, recruits employees from all regions, emphasises the public and social duties of the company, and does not favor nepotism. Only Lee Sung Won, a brother-in-law, and Kim Suk Joon, his youngest brother, are employed by the company, the former as president of Ssangyong Oil Refining Co., Ltd. and the latter of Ssangyong Construction. Kim has made it clear that he will hand over the reins to whoever is most competent.
Kim also likes to work to five-year plans, believing that without long-term planning one can only go downhill, a view borne out by recent analyses of chaebols less inclined to take the long-term view. In 1976 the group was the first in Korea to introduce a management information system, which resulted immediately in the stabilization of the quality of its cement. This was followed by the Corporate-Identity Program in 1978 and the Corporate-Culture System in 1988 following two years' research by the planning and development office. These were designed to turn Kim's systematic approach and liberal management into part of a corporate culture unique to Ssangyong. The shift in focus towards heavy machinery and high-tech industries was not made without a carefully directed change in the corporate climate to back it.
While Ssangyong continues to produce cement and oil, Kim has invested massively in car production since 1986 and intends to promote it as the key business of the 1990s in line with government plans to turn Korea into a net car exporter. He took over Dong-A Motor in 1986, an ailing car manufacturing firm with a deficit of US$5.5 million. In order to produce his X-car, a four-wheel-drive wagon-style jeep, he had to start from scratch, knowing the company would be in the red for at least three years. When the initial X-car prototype was completed, Kim rejected it because its balance was faulty. The purchase of 80% equity in the U.K. company Panther has provided the necessary technical expertise to perfect the model, and also provides an opening into Europe, the intended market for the model. Through Panther, a successful high-class sports car, the Solo II, has been built and marketed selectively in various countries. Furthermore, with help from Mercedes Benz and Nissan and its own diesel technology, Ssangyong Motor Company was doing well with special-purpose vehicles like dump trucks. It had no plans to enter the extremely competitive passenger-car market as Korea's fourth car producer until 1991, when the step-by-step approach will have produced the necessary consolidation of expertise, for Kim is well aware that one wrong move can spell trouble for the entire concern. Kim does not believe in grafting foreign technology nor in selling below cost to boost production and sales--illustrated by the fact that although the Ssangyong group ranks sixth in sales it is in fourth place in terms of profits. Is Kim being too optimistic in predicting an increase in domestic car registration to ten million in the near future? Though his more experienced competitors were recently saved by a surge of domestic demand, the problem of oversupply remains acute. On the other hand, reliability and innovation, backed by the might of SCIC, may yet save the day.
Principal Subsidiaries: Ssangyong Corporation; Ssangyong Oil Refining Co. Ltd; Ssangyong Construction Co. Ltd; Ssangyong Investment & Securities Co. Ltd.; Ssangyong Motor Company.
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