Some of Korea’s global conglomerates are in trouble. It is feared that this trouble will not only cut into their earnings and brand image, but also the reputation of Korea Inc. that they helped to build.
The problem is that the biggest ones -- Samsung Electronics and Hyundai Motor -- are facing difficulties similar to those that battered Japan’s automaker Toyota in 2009/2010 and Germany’s Volkswagen.
The two foreign cases reminded everyone in the market that any big firm can lose what took decades to achieve in a matter of weeks.
Still, like the stellar reputation that Toyota and Volkswagen achieved in their own countries, Samsung and Hyundai have become the pride of Korea Inc., with some products under their brands occupying the top-end sectors of the global market on the strength of its high quality.
Indeed, firms like Samsung have grown to develop and produce sophisticated technology in semiconductors, electronic devices and home appliances. In Korea, and in many parts of the world, whatever business Samsung engages in -- even running a general hospital -- is identified as top quality.
So the debacle surrounding its Galaxy Note 7 smartphone comes as a shock to many who believed in the company’s commitment to product quality. One of the most painful elements of the crisis is that Samsung’s engineers have yet to find what caused its batteries to overheat and catch fire.
This is a shame for a company which boasted up-to-date technologies and stringent quality control. Many still remember that under Chairman Lee Kun-hee, Samsung crushed and burned 150,000 Anycall cellular phones for minor defects in 1995.
The loss to be incurred by Samsung’s decision to cease production of the Galaxy Note 7 -- which follows a massive recall and replacement of its original models -- would be much larger than the destruction of the Anycall phones in 1995.
Hyundai Motor, the nation’s No. 2 conglomerate, is in a similar situation -- although it is far less serious than that of Samsung -- with some of its products exposing safety problems.
The automaker faces an investigation by prosecutors over allegations that it concealed defects with airbags in some Santa Fe sports utility vehicles. It faces a more serious problem in the US, as it has to compensate about 880,000 buyers of Sonata sedans because of defects found in its engines.
These cases -- like the Galaxy Note 7 crisis at Samsung -- will certainly cut into the earnings of the automaker, which is already suffering from intermittent labor strikes since July.
Their impact on the two firms’ balance sheets and earning reports should not be taken lightly, all the more because of the fact that Samsung and Hyundai are the two major pillars of Korea’s export-driven economy: Mobile devices and cars account for about 30 percent of the gross domestic product; Samsung and Hyundai products account for about 15 percent of exports.
But what matters more than the short-term impact is the damage to the brand image of Samsung and Hyundai, and more broadly Korea Inc. as a whole. It is obvious that the Galaxy Note 7 fiasco will dent consumer confidence in Samsung’s main smartphone lineup Galaxy S and other electronic devices and home appliances.
Samsung needs to rekindle the spirit of 1995 and take steps to restore consumer confidence in the safety and quality of its products. Likewise, Hyundai needs to focus on technological innovation to ensure the safety of its products.
Both companies have overcome numerous odds and transformed themselves from suppliers of cheap products to manufacturers of world-class electronic devices and cars.
Now they are at a crossroads, and whatever actions they take will have a huge bearing on the future of themselves and Korea Inc.
