Chief of the multinational group Samsung (KRX: 005930), Jay Y. Lee, is facing jail time for alleged bribery and embezzlement. The sudden arrest of the billionaire magnate on Friday, February 17th now leaves the South Korea-based conglomerate without a leader.
Samsung, at 79-years old, has taken the electronic world by storm through its production of devices ranging from from televisions, air-conditioners, to cellular devices. While it debuted as a meek exporter of dried fish and flour to China, and later a textile and life insurance company, Samsung found its true calling in the electronics industry in 1969. The ever-growing business gained momentum in the financial world through the production of black-and-white televisions. Their success in the television market became the basis for their promotion of other electronics, which in turn led to an increased involvement in the North American market through exports. Samsung now carries a market value of $216 billion. Still based in the bustling metropolis of Seoul, the company maintains both a strong physical and financial presence in South Korea. In fact, Samsung's multinational success in electronics has enormously benefited the national revenue of the export-dependent South Korea: Samsung-related companies export about 20% of South Korea's overall exports.
The entire economy of South Korea is primarily based on "chaebol", or family-owned companies, such as Samsung. The concept of the chaebol was created after the Korean War as a buffer against large debts to the United Nations. The Korean government financed specific companies in hopes of revitalizing the nation's dying economy. Over time, the chaebol hold on South Korea grew, pushing out foreign companies and further strengthening the national economy. Chaebol revenue today makes up more than 80% of South Korea's GDP. With this significant impact on South Korea's economy, the potential breakdown of Samsung can have a greater impact on both the national and global economy. However, the chaebol has an influence on South Korea's political sphere as well. In fact, accusations of bribery and corruption on members of the chaebol and the government are nothing new.
Jay Y. Lee's father and chairman of Samsung, Lee-Kun Hee, was convicted of bribery twice. Mr. Lee now faces accusations based on his relationship with the President of South Korea, Park Geun-hye. He is accused of, "paying bribes totaling 43 billion won to organizations...to secure government backing for the controversial 2015 merger of two Samsung units."
Mr. Lee's arrest has even larger consequences due to the company's discontinuation of the Galaxy Note 7 smartphone. Last year, reports of exploding Galaxy Note 7 smartphones began appearing globally, embroiling Samsung in a lengthy scandal and causing international embarrassment for South Korea. The debacle led to decreased Samsung stock prices and revenue. The sudden blow to sales was more humiliating, given the subsequent release of the iPhone 7 by Samsung's bitter competitor, Apple
Left without a leader, it is questionable how Samsung will make critical decisions for the future. Worse, if Samsung leader Jay Y. Lee is convicted, it will send a stern message to the chaebol on the dangers of mixing government with business.
- https://www.nytimes.com/2017/02/17/business/samsung-heir-arrested-south-korea.html
- http://www.reuters.com/article/us-southkorea-politics-samsung-group-idUSKBN15V2RD
- https://www.forbes.com/sites/samanthasharf/2016/05/26/the-worlds-largest-tech-companies-2016-apple-bests-samsung-microsoft-and-alphabet/#3b3aa933b661
