Lucky-Goldstar

20 Yoido-dong
Yongdungpo-gu
Seoul 150-010
Republic of Korea
(02)787-1114

Public Company
Incorporated: 1947 as Lucky Chemical Company
Employees: 100,000
Sales: US$20 billion

Although Goldstar is one of the newest names in electronics, Goldstar products have existed for many years. A division of one of Korea’s largest conglomerates, for many years Goldstar manufactured electronic devices and appliances for sale in the United States under retailers’ brand names. Only recently has that conglomerate, Lucky-Goldstar, chosen to meet its Japanese competition head-to-head in several market segments. Goldstar has succeeded in establishing itself in those markets, mainly through competition.

The earliest predecessor of the Lucky Goldstar Group was the Lucky Chemical Company, founded by Koo In-Hwoi in 1947. The company’s first product was a line of cosmetic creams. It then expanded into other petroleum products, including caps for the cream jars and other plastic molds.

The business remained small through its early years; Korea suffered severe economic disruption during World War II, and virtual ruin by its partition and subsequent invasion by Soviet-backed armies from North Korea. The American government, however, had a strong interest in seeing both Japan and Korea transformed into large industrial economies in order to check the advance of communism in the East. With substantial foreign aid, industrial programs were created which helped companies such as Lucky to succeed and grow.

Lucky was regarded as a strategic industrial resource; it was Korea’s only plastics manufacturer, and held great foreign exchange earnings potential. To that end, Lucky created an export agency in 1953. Observing the success of Japanese consumer goods exporters such as Matsushita and Mitsubishi, Koo decided that Lucky was ready for diversification into electronics.

Lucky created an electrical appliance manufacturer in 1958 called Goldstar Company, Ltd., whose first product was a simple electric fan. The following year, with a new factory located at Pusan, Goldstar introduced the country’s first line of domestically-produced radios. These products were unsophisticated and generally unfit for sale abroad. In addition, Goldstar lacked marketing arms in foreign markets. Parallel to Matsushita’s experience, Goldstar’s products would first satisfy domestic demand (and thereby substitute for more expensive imports) until design changes and improvements could be incorporated. Goldstar would then enter the international market with more thoroughly tested, modern, and competitive products.

Protected from foreign competitors by rigid import restrictions, Lucky Chemical and Goldstar continued to prosper during the early 1960s. Much of the companies’ profits were dedicated to the acquisition of new petrochemical technologies and the establishment of a wider market presence. New product development was delayed, hampered by limited engineering resources and expensive patent licensing. Despite these disadvantages, Goldstar managed to successfully market a refrigerator in 1965 and a television a year later. Both were the first domestically manufactured appliances of their kind.

Lucky Chemical established a joint venture with Continental Carbon in August of 1966. The company, called Lucky Continental Carbon, became the largest Korean manufacturer of carbon black, a basic raw material in rubber products. The company entered into a far more significant joint venture the following year when it established the Honam Oil Refinery in conjunction with Caltex Petroleum. Honam was Korea’s first privately owned, as well as its largest, refinery. The complex eliminated Korea’s dependence on more expensive imported oil products and even permitted substantial export earnings.

When Koo In-Hwoi died in 1969, the chairmanship of Lucky and Goldstar went to his eldest son, Koo Cha-Kyung, who remains chairman today. Nepotism, far from being regarded as dishonorable or unfair, was widely practiced in the company, as in many Asian companies. Members of the Koo and Huh families (the Huhs were close friends who were made business partners) have always occupied top management positions within both companies and their subsidiaries, although as the company has grown, professional managers have come to dominate.

New plant space, meanwhile, was established for the 20 subsidiaries created between 1969 and 1979, mostly in extreme southern Korea, where land is flatter and Korea has more deep-water ports.

Korean industrial organization and government policies were often based on the Japanese experience. The rise of Japan’s postwar industry was led primarily by its former zaibatsu conglomerates, with substantial direction and cooperation from the Ministry of International Trade and Industry. Korea, too, had such a ministry, and it consciously sought to create zaibatsu-type companies out of the nation’s leading chaebol, or industrial entrepreneurs. Samsung, Daewoo, Hyundai, and Lucky-Goldstar were developed, according to this plan, into economic cornerstones, each involved in a wide range of basic industries.

Park Chung-Hee, a general who had seized power in South Korea in 1962, approached the chaebol in an effort to improve living standards in Korea. Since many government officials held financial stakes in the conglomerates (a Lucky-Goldstar director even served in Park’s cabinet), the chaebol were often afforded special privileges. Lucky-Goldstar proposed that South Korea’s export earnings could be increased if the chaebol had better engineers. The company asked for, and got, government funds to sponsor students at leading Western universities. It was a heavy investment whose benefits would not be realized for years, but the education scheme was essential to maintaining the company’s position.

The government, again using Japan as an example, decided that Korea was ready to begin manufacturing larger and more sophisticated and profitable products. Most notable was Hyundai, whose capabilities in automobile manufacture were greatly enhanced by the government. Lucky and Goldstar were not encouraged to enter new lines of business, but rather to consolidate their positions in textiles, chemicals, and electronics. Consolidation, however, required the development and application of new, proprietary technologies. It was at this stage that the company’s foreign-trained engineers became indispensable.

Park, who had eventually been elected as a civilian president, was assassinated in 1979. With his death, much of the government’s favoritism was eliminated. All the chaebol, including Lucky-Goldstar, had to become more self-reliant, drawing upon their own resources to guarantee markets, seal deals, and cover risks.

These new conditions precipitated an industrial reorganization. Lucky Chemical and Goldstar Electronics were made subsidiaries of a larger parent company, now officially referred to as Lucky-Goldstar. The company maintained a very positive public image, owing to its gentle character and ability to avoid scandal.

The reorganization led to the creation of several joint ventures, with AT & T, Honeywell, Dow Corning, and Englehard. These ventures were intended to help assimilate advanced technologies which could not be developed indigenously. Profits from textiles, an increasingly uncom-petitive sector, remained strong and were largely reinvested into the more promising chemical and electronics operations.

Under Koo Cha-Kyung, Lucky-Goldstar adopted a slower, more cautious approach. The company is very proud of its democratic decision-making process, which includes regular strategic meetings at all levels. But many blame this slow approach for Goldstar’s sluggish reaction to the market—Goldstar was subsequently overtaken by Samsung. Nonetheless, when both companies entered an unexpectedly soft semiconductor market, Goldstar was able to cut its losses early, while Samsung, which had invested heavily in semiconductors, lost millions of won.

Like its Japanese predecessors, Goldstar established production facilities in its larger markets; it was the first Korean company to do so. The first of these was a television plant at Huntsville, Alabama, opened in 1982.

Lucky-Goldstar had actively pursued technological licensing agreements with leading Western and Japanese companies but had a difficult time coordinating its newly acquired know-how. In 1983 the company began a major research and development effort, aimed specifically at setting the house in order, which included plans to construct a research complex at Anyang, south of Seoul. When Japanese companies later restricted their cooperation with Lucky-Goldstar, fearing that they were only nurturing a fierce competitor, the company responded by placing a higher emphasis on West German and American licensing. But Lucky-Goldstar still relied on Japanese suppliers for between 25% and 40% of its components, which caused problems when these suppliers favored Japanese customers when demand was high.

While the Japanese model of industrial expansion has worked well for South Korea, comparisons between the two economies must be qualified. Perhaps most important, Korea’s chaebol are neither closely associated with a zaibatsu-type industrial “club” nor do they have the benefit of associated banks. In addition to being subject to government regulations, the chaebol are largely reliant on government-run banks for financing. Until they fully mature as the international corporations they are intended to become, companies such as Lucky-Goldstar must be considered privately-capitalized instruments of the state.

Principal Subsidiaries:

Lucky, Ltd.; Honam Oil Refinery Co., Ltd.; Lucky Petrochemical Co., Ltd.; Lucky Advanced Materials, Inc.; Lucky Polychemical Co., Ltd.; Goldstar Co., Ltd.; Goldstar Electron Co.; Goldstar Semiconductor, Ltd.; Goldstar Telecommunication Co., Ltd.; Goldstar Software, Ltd.; Goldstar Electric Co., Ltd.; Goldstar-Alps Electronics Co., Ltd.; Goldstar Precision Co., Ltd.; Goldstar Electronic Devices Co., Ltd.; Goldstar Industrial Systems Co., Ltd.; Goldstar Instrument & Electric Co., Ltd.; Goldstar Electric Machinery Co., Ltd.; Goldstar-Honeywell Co., Ltd.; Goldstar Cable Co., Ltd.; Lucky Metals Corp.; Lucky-Goldstar International Corp.; Lucky Securities Co., Ltd.; Lucky Insurance Co., Ltd.; Goldstar Investment & Finance Corp.; Pusan Investment & Finance Corp.; LG Credit Card Co., Ltd.; Lucky Development Co., Ltd.; Lucky Engineering Co., Ltd.,; Hee Sung Co., Ltd.; LG Ad, Inc.; Systems Thechnology Management Corp.; Lucky-Goldstar Sports, Ltd.; The Yonam Foundation; The Yonam Educational Institute.