Rise of Korea: Enemy's enemy is an ally

Lee Byung-chul was an individual with natural, innate traits for entrepreneurship. He had a magical aura in dealing with business— he was successful in whatever business he took up. In 1938, when the drums of war were rolling out all around, and Korea was under Japanese rule and at war with China, he started his dream company, Samsung.

The beginning was very simple – exporting dried fish and vegetables to the Japanese soldiers and feudal lords in northern China. Korea at that time was underprivileged with no industry or technology. Yet Lee's dream was sky-high: Samsung would one day be much bigger and stronger and would last for generations.

In 1945, Japan was defeated, and Korea was divided into North and South. The prudent Lee understood the situation and reorganized the table. This time, he left the Japanese and established relations with the American occupiers. When North Korea invaded South Korea in 1950, he managed to keep most of his business intact during the war.

When the military government seized power in 1961, it confiscated Lee's bank accounts. But he did not give up, and he kept his remaining businesses. Lee always said that Samsung meant serving the nation, and that Korea's(South) prosperity depended on making Samsung a world-class company. Their family motto was: "Serving the nation through business." His strategy paid off. From fish and vegetables, the business expanded to sugar, textiles, fertilizer, construction, banking, and insurance. In the 1960s and 1970s, Korea's economy boomed, and Lee would point to it as proof, saying, "Look, I'm leading the country forward." Critics, however, said otherwise—by 1960, he had become the country's richest man, proving that the nation was serving him, not he serving the country.

In the late 1970s, Lee turned his attention to the semiconductor industry. At that time, companies like Toshiba and Fujitsu from Japan were rapidly capturing this market. Korea was still known as a cheap place for chip assembly and packaging for American and Japanese companies. But moving from just assembling chips to making sophisticated chips was not easy. The situation changed in the early 1980s. At that time, Japan and Silicon Valley were engaged in fierce competition for DRAM chips. The Korean government seized this opportunity and declared semiconductors a national priority. A handsome investment of $400 million was promised, and banks were also ready to lend at the behest of the government.

In 1982, Lee went on a trip to California where he visited Hewlett-Packard and was amazed - how a company that started in a garage had become a technology giant, thanks to semiconductors! When he was allowed to take pictures in IBM's factory, he jokingly asked, "Are you showing off such secret things like this?" "You can't copy them just by looking at them," one employee replied. But that was exactly what Lee's plan was - to learn by copying Silicon Valley.

Still, the decision to invest in semiconductors was risky. It would have cost at least $100 million, and if it failed, the entire Samsung would collapse. Lee hesitated for months. Finally, after a sleepless night in February 1983, he announced: "Samsung will make semiconductors."

Samsung's risky bet would not have been successful if it had not had American support. American chip companies were looking for an ally against Japan. Intel's Bob Noyce believed that the Koreans could make chips cheaper than the Japanese. This would prevent Japan from monopolizing the market. His argument was—"The enemy of my enemy is my friend."

In the 1980s, several American companies, including Intel, signed agreements with Samsung. Samsung used to make chips under Intel's brand. Labour costs in Korea were much lower than in Japan at the time, which was a big advantage for Samsung. In addition, in 1986, Japan agreed to stop selling chips cheaply under American pressure. As a result, the Koreans got the opportunity to sell chips at higher prices.

America not only provided the market, but also the technology. At that time, almost all American memory companies were on the verge of bankruptcy. To save themselves, they had no choice but to sell their technology. Samsung bought the design of 64K DRAM from the new company Micron based in Idaho. Ward Parkinson, the founder of Micron, said, "What we used to do, Samsung is doing so." The money provided by Samsung was almost essential for Micron's survival.

Intel's Gordon Moore was concerned that American companies were desperately selling valuable technology. But at that time, many in Silicon Valley believed that DRAM was no longer the technology of the future. So if the Koreans could capture this sector and beat Japan, what would it do to them?

Thus, with government support, American cooperation, and Lee's bold decision, Samsung became a powerhouse in the memory chip world. Korea, which was once poor and technologically backward, has become the world's best semiconductor center. This incident proves that in world business and politics, the enemy of the enemy can often become the greatest friend.

[Adapted and abridged from Chapter 23 (The Rise of Korea) of Chris Miller's acclaimed book 'Chip War']

Author: Mahmud Hossain, a BUET graduate, has over three decades of leadership experience in Bangladesh’s telecom and ICT sectors. He played a key role in introducing mobile technologies in the country. He now serves as a Commissioner at BTRC, following senior leadership roles in several national and multinational industry-leading companies.