As the US works to limit China's access to advanced technologies like semiconductors, it cannot ignore its own dependence on small Asian economies like South Korea and Taiwan for many of those same technologies. The question the US and its allies must ask, then, is how reliable these economies are as producers.
Examining South Korea's industrial successes can go a long way toward providing an answer. It is by now old news that the Korean giant Samsung Electronics has surpassed Japan's Toshiba and America's Intel to become the world's top chip producer (by revenue). But South Korean industry's prowess extends well beyond semiconductors.
South Korea's arms industry also is growing fast. Taking advantage of the opportunity created by the Ukraine war, firms have increased arms exports to the West -- for example, selling K9 self-propelled howitzers and infantry fighting vehicles to Poland.
South Korean firms are even making headway in biotechnology. The barriers to entry for such long-cycle sectors are high, and some South Korean firms tried and failed in the 1990s to break in. But the Covid-19 pandemic created a window of opportunity, and South Korean firms did not miss it. Since 2020, three biotech companies – Samsung Biologics, Celltrion, and LG Chemical -- have been among the top ten companies trading on Seoul's stock market.
It is worth noting that this list also includes NAVER, a South Korean counterpart to Google, and Kakao, Korea's Facebook. This makes South Korea one of just a few countries -- such as China -- where homegrown digital platforms outperform those of America's tech giants.
South Korean firms have thrived by seizing external opportunities as they have arisen. Their agility -- and their success more broadly -- is rooted partly in their structure: the economy is dominated by diversified family-owned conglomerates known as chaebols.
The chaebols' track record is hardly spotless. They were widely criticised for helping to fuel the Asian Financial Crisis of the 1990s by investing excessively with borrowed money. But while roughly one-third of the top 30 chaebols went bankrupt during the crisis, the rest were reborn as profitable global players.
LG's rise as a leading electric-battery producer would never have happened were it not for the vision of its founder's grandson and chairman, Koo Bon-moo. Even as losses piled up, Koo remained committed to developing world-leading battery technology over the course of nearly 20 years. Thanks to his tenacity, LG Energy Solution is now the top battery maker in the global market, excluding China.
To be sure, family ownership is also prone to opaque corporate governance and entrenched management. But increased public scrutiny in recent years has led to important progress on these fronts. Many chaebols now employ a two-pronged leadership structure, with the family owners leading alongside hired professional CEOs.
This has proved to be a winning combination. It was Samsung founder Lee Byung-chul who decided that the company would begin producing semiconductors. And it was two CEOs, Yun Jong-yong and Kwon Oh-hyun, who, after seven years of losses, made the chip business profitable.
Chaebols have often succeeded by leapfrogging over incumbents. As the digital revolution took hold, for example, South Korean firms were able to pioneer cutting-edge products, while the Japanese incumbents were weighed down by analogue technologies. When Samsung and LG launched the world's first digital television in the American and European markets in the 2000s -- the result of a decade-long joint public-private research-and-development effort -- Japanese firms were still attempting to market high-definition analogue TVs. Sony had long been the leading TV maker, but it could not compete in global markets that had already turned to digital.
In a sense, Hyundai, under the leadership of its founding family's third generation, has replicated this dynamic in its EV business. Toyota was a first mover in the hybrid-vehicle market. Rather than playing catch-up, Hyundai focused on developing purely electric passenger vehicles, as well as hydrogen-powered trucks and buses.
A corporate structure that plays to the strengths of both family ownership and professional management, together with the vision to seize opportunities as they arise, has enabled firms from a small East Asian country to become major global players. Their agility and capacity for innovation, together with their reliability, is good news for the West. ©2023 Project syndicate
Keun Lee, a former vice chair of the National Economic Advisory Council for the President of South Korea, is Distinguished Professor of Economics at Seoul National University and the author of China's Technological Leapfrogging and Economic Catch-up: A Schumpeterian Perspective (Oxford University Press, 2022).
