Chazen South Korea 2019 – Final Thoughts

As we wrapped up our final dinner before heading back to New York, we reflected on the diverse experiences and learning that we will be taking away from South Korea. 

The Organizing Team with the Chairman of Lotte Corporation

Starting with business lessons – we knew beforehand that chaebols were the main show in town, and this trip further reinforced that idea.  Columbia Business School’s connection with Lotte Corporation is a visceral example of the far reach of chaebols that we could only read about prior to our visit.  During the morning of the company visit I drank a Lotte iced tea from the Lotte Mart and left the Lotte hotel to go to the Lotte Tower, the highest tower in Korea, which sits next to Lotte World, the world’s largest indoor amusement park.  While the impact of each conglomerate can be seen in almost every aspect of life, business and government is beginning to open up to entrepreneurship and social impact businesses, albeit slowly and in their own style.  During our visit to the Lotte Accelerator (note that conglomerates are even involved in startup incubation) we were given presentations from three portfolio companies that have all been marked at multiples of their invested value.  As an interesting aside, all three founders were Samsung alumni.  Regarding Social Enterprise, our visit to the co-working space Heyground gave us a look into the social impact organizations focused on solving specific issues such as child adoption, child care, and others that the current business environment is not addressing.  As the global trend towards using business to solve societal issues continues, I would expect start ups and impact focused companies to continue to proliferate in South Korea.

The Chazen Team Visits Startup My Music Taste

Korean economic success has also led to the exportation of culture in the form of K-Beauty and K-Pop.  While the growth and size of both industries was obvious, we gained a greater appreciation for the global influence of South Korean style and beauty sensibilities and the importance of these industries in burnishing the country’s image abroad, recent scandals aside.  The Korean beauty ideal of skin maintenance and health is a departure from the standard skincare/beauty philosophy and has been embraced in Asia as well as western countries.  K-Pop’s approach to making music borrows from the global entertainment business’ standard practices but the outcome is uniquely Korean and is clearly a hit for certain demographics.

L&P Cosmetic Office Tour

In between company visits we learned about Korea’s dynastic history, its relationships with North Korea and its love for baseball.  While visiting Gyeongbokgung, the largest palace of five palaces in Seoul, we learned about the Joseon period which ruled Korea for over five centuries.  The Korean historical progression prior to 1900 showed remarkable stability, with The Silla dynasty ruling Korea for almost 300 years and the Goryeo dynasty ruling for almost 400 before the Joseon dynasty took power.  During our visit to the Demilitarized Zone, we learned about past efforts at reconciliation between the two Koreas including the Sunshine Policies of the 1990s and the Kaesong Industrial Zone.  We came away with a sense that the South Korean Government and Business community is eager to promote reunification.  Finally, we attended opening day for the Korean Baseball Organization – Korea’s professional baseball league.  The first notable characteristic is the sponsorship of each team by a major company – the game we watched was the Doosan Bears vs. the Hanhwa Eagles.  The second and more enjoyable characteristic is the constant energy and coordinated cheering from fans throughout the game. The experience was more akin to a rock concert than a MLB-style baseball game. 

Gyeongbokgung Palace
Go Bears!

Seoul has been a wonderful place to explore and learn about.  I know I speak on behalf of the group in thanking the organizers for their tireless efforts to create this unique experience.

Vincent Su (CBS ’19) is an MBA Candidate at Columbia Business School

A Look Into the K Pop Phenomenon

South Korea’s most popular cultural export is a genre of pop music known as K Pop.   The industry’s revenues reached $5B in 2017.  The number of fans increased from 30 million in 2013 to 70 million in 2017 with 35 million of those fans coming from outside of South Korea.  The Chazen team got a fascinating insider look at the industry through two company visits this past week.

Rainbowbridge World

The Korean pop music scene was historically operated by two major television studios under tight state control. In the early 90s, experimentation with a combination of American style pop music and traditional South Korean cultural elements led to unexpected popularity.  The industry subsequently shifted to a Hollywood-esque studio system in the mid 90s where today’s three major K Pop players, SM, YG and JYP emerged.  These companies develop and introduce new groups to music fans in Korea and abroad. The packaging of dance moves, high production value, and catchy songs is not new.  What is slightly different from what readers may be familiar with is the complete personal and artistic control studios have over performers, the integration of fans into a community revolving around band members’ lives via content outside of performances such as interviews, reality shows, and social media, and finally the consistent generation of new bands.  In my view, this combination allows the studios to create on-trend boy and girl groups that can appeal to the shifting intra-generational tastes.  K Pop studios have seemed to master this process.  To pop music fans, the K Pop genre is reminiscent of bands in the U.S. such as NSYNC and The Backstreet Boys. 

Jack Shu (CBS ’20) auditioning to be the next K Pop star

On Thursday, we visited two studios – an up and coming label called Rainbowbridge World and the entertainment arm of the established conglomerate CJ (part of Samsung until 1996).  Rainbowbridge World was a fascinating presentation because of the candor from the head of operations.  We learned the audition process is intensely competitive and groups are formed as early as age 15-16.  The bands then practice an average of five years before they are ready for their public “debut”.  We got a chance to ask a RBW group in incubation (their term for artist training) about their experience.  Two things that stood out are the amount of time they spend practicing, and reinforcement of the idea that hit-making requires a healthy dose of luck.  12-hour days seem to be the norm, and the group’s working name is literally 365 Practice.  Second, despite the non-stop preparation, group failure is always a risk. The COO could not hide his disappointment and skipped a slide about a group that failed to become popular.  The term “washed-out” was constantly used by both the artist and the management team in a matter of fact way to describe individuals or groups that do not achieve commercial viability. 

M Countdown at CJ E&M

During the second part of the day, we visited CJ Entertainment and a live taping of M Countdown, a weekly TV show where several K Pop groups perform.  I think for most of us this experience was unique – fans were lined up to get a glimpse of the stars and during the performances the passion and energy (at 5pm in the afternoon) was clearly displayed through incessant screaming.  While my sense was that most of our group did not know what to expect, the formula of high production value, catchy hooks, and great dance moves proved to be thoroughly entertaining.  RBW’s most successful group, Mamamoo won the show, closing the loop on our K Pop day.       

CBS Chazen Korea at CJ Entertainment & Media

K Pop has been unquestionably successful in South Korea and has shown significant crossover appeal in markets including the United States.  Going forward – I wondered if K Pop will have to evolve beyond its tightly controlled approach / product to reach older audiences / generate broader appeal.  I think the narrow scope of music means it does, however the global teen / young adult age range is a large enough market to stay busy in for many years to come.  Finally, as a major scandal involving K Pop stars made headlines just before our meetings took place, a re-evaluation of the education and personal development of young K Pop stars in the hands of studios is warranted.  The singular focus of training programs could create challenges for the young group members when facing choices outside of the recording studio.  It will be interesting to monitor how much power the studios voluntarily or involuntarily cede going forward, especially if global popularity growth reverses trend. 

Vincent Su (CBS ’19) is an MBA Candidate at Columbia Business School

Mamamoo – Rainbowbridge World’s most popular K Pop group

Chaebols & Economic Development

The CBS Chazen Korea ’19 Organizers at Hyundai Steel

Here at the Hyundai Steel plant, the vast majority of the automotive steel produced here goes to into Hyundai and Kia automobiles.  This particular plant in Dangjin also has an electric arc furnace (Hyundai is the 2nd largest EAF steel producer) that turns scrap and iron byproducts into rebar, h-sections and heavy machinery that has applications in Hyundai’s construction and shipbuilding businesses.  The result is a well oiled cog in the vertically integrated Hyundai “machine”. During our tour of the facilities, we saw the end to end “integrated” process that begins with raw material from the port, and transforms iron ore and coal into coke, then molten metal, and finally various finished steel products.  While we were not allowed to take pictures inside the facility, the pure scale and size of the operations was immediately obvious.  The casting and rolling processes alone were housed in facilities that were at least the size of several football fields.

Senior Leadership at the Hyundai Steel Factory present their business

Hyundai is one of the largest conglomerates or “chaebol” in South Korea.  The sales from Hyundai and the other top four chaebols in aggregate is more than 50% of the nation’s GDP.  These economic powerhouses have powered the “Miracle on the Han River” but started in a time when North Korea outpaced South Korea in economic output.  In post World War II South Korea, well before it became Asia’s 4th largest economy and a member of the G20, chaebols began their starring role in economic growth.  During the 1960s, the government began to actively intervene in and work closely with private companies via rolling five year plans, giving birth to the chaebol era. 

The Steps of HQ at the Steel Mill

After decades of rapid export driven growth (exports are ~70% of Korean GDP today), numerous chaebols failed during the Asian Financial Crisis due to unsustainable debt burdens.  In the aftermath, reforms were undertaken and the remaining chaebols quickly recovered, grew significantly larger, and remain intertwined in daily South Korean life.  Looking forward, the South Korean economy will undoubtedly be shaped by these economic institutions.  Historical criticisms of these firms include corruption, political entrenchment, and the potential lack of competition. While rapid progress can be made when power is concentrated in a few hands, scandals and inter-generational hand-offs could be catalysts for re-thinking the current model as the South Korean economy enters its next stage of growth.

Vincent Su (CBS ’19) is an MBA Candidate at Columbia Business School

Chazen South Korea: Pre Trip Thoughts

This past Thursday’s pre-departure meeting was the kickoff to our 2019 Chazen South Korea Study Tour.  Many thanks to the organizers for working tirelessly to create an exciting lineup of company visits that will give us an inside look at the dynamism and cultural reach of the Korean economy through company visits in the K-Beauty, K-Pop, Chaebol and nonprofit sectors.  A quick look at what is in store:

K-Beauty: Amore Pacific / L&P Cosmetics

Amore is a rapidly growing cosmetics company, a leader in the Korean market and the 7th largest cosmetics company in the world. L&P Cosmetics specializes in facial sheet masks – an area where Korea is experiencing 20% annual growth and is leading the globe in product innovation.  Amanda Chen (CBS ’20), Freda Zhuo (CBS ’20), Amy Roe (CBS ’19) and Arantxa Flamarique Arizaga (CBS ’19) will present to management on a U.S. entry strategy during our visit!

K-Pop: CJ Entertainment / Rainbow Bridge

CJ Entertainment is a mass media company with businesses in television production, film production / publishing, and artist management / music production. Rainbow Bridge is a record label that is home to numerous popular K-pop artists.

Rainbow Bridge’s ONEUS

Chaebols: Hyundai / Lotte

Chaebols are large family owned conglomerates that dominate the South Korean economy.  It will be fascinating to hear about the historical development and future growth of these particular business structures. Hyundai Group was founded in 1947 and spawned several large stand-alone companies including Hyundai Motor Group, Hyundai Department Store Group, and Hyundai Heavy Industries. Lotte Corporation is the largest candy manufacturer in South Korea and is engaged in a diverse range of activities in beverages, hotels, fast food, retail, and financial services, among others.

Some of Lotte’s Many Products
Hyundai Steel Factory

Non Profit: Heyground

Heyground is a co-working space for social ventures started by Kyungsun Chung (CBS ’19) which houses approximately 40 nonprofit organizations.

Needless to say we are thrilled to have such a diverse set of organizations on the schedule.  More to come in Seoul!

Vincent Su (CBS ’19) is an MBA Candidate at Columbia Business School