south korean sme’s entrepreneurship in the globalizing ... korean sme’s entrepreneurship in the...

Asia-Pacific Journal of EU Studies Vol. 10 No. 1

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South Korean SME’s Entrepreneurship in the Globalizing Economic System and Market

Entering Strategies in the EU1

SANG-CHUL PARK* AND SANG OK KIM** Korea Polytechnic University, Korea and Gothenburg University, Sweden

and Yuyang DNU, Korea

It may be safe to say that few SMEs could benefit on global markets under the rapid chang-ing business environment owing to their scarcity of market information, financial resource and technological capability etc. However, some SMEs could succeed in breaking through their business activities on domestic and global markets by using their unique strengths such as development of components for TNCs and exercising vigorous entrepreneurship in the globalizing economic system. Due to the intensive competitions between SMEs, they need to develop either the only one or the best product for markets that may be one of the most impor-tant survival factors. Yuyang DNU represents one of these cases which indicate how a SME made a break through to access to Samsung Electronics and LG Electronics for delivering its high-tech components instead of simple parts. This strategy enables the company to overcome all hurdles to enter the EU market along with South Korean conglomerates. This paper focuses on strategies and entrepreneurships of Yuyang DNU how it made a quantum jump from a small business to a medium sized company in order to generate a shared growth with TNCs continuously. It also argues which role of entrepreneurship has played in taking high risks to be chosen as a trustful partner for Samsung Electronics and LG Electronics.

Keywords: Globalization, Strategy, Entrepreneurship, SMEs, TNCs, Shared Growth, Globalizing Economic System

I. INTRODUCTION

The globalization processes have intensified competitions not only be-

* Professor at Graduate School of Knowledge Based Technology and Energy, Korea Poly-

technic University, Korea and Visiting Professor at Graduate School of Business, Econom-ics, and Law, Gothenburg University, Sweden; E-mail: [email protected]/Sang-Chul.Park @handels.gu.se

** Chief Executive Officer (CEO) in Yuyang DNU Company; E-mail: [email protected]

South Korean SME’s Entrepreneurship in the Globalizing Economic System and Market Entering Strategies in the EU

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tween nations but also between companies around the world. With a glo-balizing economic system, the most of large sized transnational companies (TNCs) could expand their market shares and develop their technological capabilities further. Strength of TNCs is mainly based on its comparative competitiveness in terms of finance, organization and high technology compared to SMEs. In fact, it may be safe to say that few SMEs could benefit on global markets under the rapid changing business environment owing to their scarcity of market information, financial resource and tech-nological capability etc.1 However, some SMEs could succeed in breaking through their business activities on domestic and global markets by using their unique strengths such as development of components for TNCs and exercising vigorous entrepreneurship in the globalizing economic system. Due to the intensive competitions between SMEs, they need to develop either the only one or the best product for markets that may be one of the most important survival factors.

Moreover, some high-tech SMEs have followed the globalization strate-gies of conglomerates such as Samsung, LG and Hyundai. Many SMEs became subcontracting companies for the conglomerates, and some of them are located in the areas nearby where the conglomerates are operat-ing abroad. The relationship between the conglomerates and SMEs can be characterized as vertical rather than as horizontal in the Korean context. Such a strong network based relationship between the conglomerates and SMEs can reduce the first stage of investment risks of SMEs to be located abroad and begin global business activities. At the same time, however, this pattern of global business may cause a high dependency of SMEs on the conglomerates.

In fact, the conglomerates use to demand a contract based unilateral re-lationship toward SMEs in order to minimize supplying costs and stabilize supply chains. By doing that, SMEs are limited to extend their business activities to other global competitors of South Korean conglomerates. This is a sort of dilemma for many of South Korean SMEs whether they have to continue the hierarchical relationship with the conglomerates that guaran-tee at least minimum profit or to overcome this kind of hurdle for creating their own markets at a global scale. Certainly, there is another solution. SMEs have to develop high-tech components with quality and price com-petitiveness that the conglomerates absolutely need. This third method can create an equal partnership between the two actors, which is regarded as a rare case in the South Korean context. In order to realize this solution, SMEs need to develop extraordinary and unique entrepreneurship that is shared by all employees. Additionally, it is equally important that owners

1 Dicken (2007); Park (2010).

SANG-CHUL PARK AND SANG OK KIM

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support non family member CEOs. Yuyang DNU represents one of these cases which indicate how a SME

made a break through to access to South Korean TNCs such as Samsung and LG for delivering its high-tech components instead of simple parts. This paper focuses on strategies and entrepreneurships of a South Korean SME (Yuyang DNU) how it made a quantum leap from a small business to a medium sized company by challenging to develop a key component for Samsung and LG in order to generate a shared growth with TNCs continuously in the globalizing economic system. It also argues which role of entrepreneurship has played in taking high risks to be chosen as a trust-ful partner for Samsung and LG.

II. THEORETICAL DEBATES

Succession in the family owned business and non family owned business is the most important issue because it is central to the companies’ exis-tence. Particularly SMEs based on the family business can be described that family firms are in terms of the potential for succession. Regarding scholars, succession can be identified as process, role of founder, perspec-tive of next generation, multiple levels of analysis, and characterization of effective successions although these are seen as complementary of one an-other, and sometimes very overlapping.2

In spite of various identification of succession, there is still limited lit-erature dealing with the relationship between succession and performance. Regarding the investigation for examining the effect of performance in the nomination of family and nonfamily members to CEOs, there has been studied rarely. In this regard, Smith and Amoaku-Adu found that stronger firm performance would not necessarily lead to the appointment of a fam-ily member, while poor performance would not necessarily lead to the ap-pointment of an outsider. Additionally, the authors urged that transfer-ence of leadership and control to the next generation is more likely where more family members are senior executives of the firm, and the firm is controlled by a single family.3 However, there are other arguments as well that non family successors would perform superior to family succes-sors although non family successors may have negative stock performance owing to high level of turnover of senior management that these firms use to experience after succession. This is an indication that the relationship between family firms and non family successors is a source of problems for the companies. 2 Le Breton-Miller et al. (2004); Wang and Poutziouris (2003); Wang et al. (2004). 3 Smith and Amoaku-Adu (1999).


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From the perspective of family owned business, the agency theory (AT) can support the belief that family presence in ownership and management is regarded as an efficient form of minimizing agency problems. Further-more, the resource base view (RBV) explains that family interactions can create a firm’s unique set of resources that are complex, intangible, and dynamic. The former is the dominant theoretical framework for explaining and understanding the relationship between owners and managers. It is based on the idea that non family managers will not concentrate on the business as much as owners do. Therefore, the separation of ownership and control may cause conflicts between owners and managers that refer to as principal’s and agent’s problem.4

However, within the agency theory there are various views. Fama and Jensen argued the family ownership as the most efficient method to mini-mize agency problems, while La Porta, Lopez-de-Silanes and Schleifer ex-plained that the family ownership are uniquely predisposed to internal dysfunction due to the autonomy of controlling shareholders in the deci-sion making process.5 Even further, Morch and Yeung urged that it may be easy for the next generation successors to use their wealth and influence to possess competitive advantages through political rent seeking instead of developing innovation and entrepreneurship because entrepreneurial spirit and talent are not inherited by the next generations of family owners.6

The latter has explained long-run differences in firm performance that are attributed to industry or economic conditions It urges that various resources lie at the heart of a firm’s competitive advantages. From the per-spective of RBV, firms are not seen through their activities in product markets, but as a unique set of resources that are complex, intangible and dynamic. Due to the fact that family firms use to obtain this kind of uni-que set of resources, family businesses present some strategic resources and capabilities that create competitive advantages. These are valuable and imperfect imitable assets of family businesses. Based on the set of reso-urces such as commitment, shared values, culture, trust, reputation, visi-ble and invisible credits etc. family businesses maximize strategic resources and capabilities that result in their long term success.7

In addition, the business network theory (BNT) is very useful to explain the relationship between multinational companies and their subsidiaries. BNT regards the multinational corporation as an important institution of the modern society, one that has control over its resources all over the world and conduct different business activities in most of the countries and between almost all countries. Its efficiency and ability to generate

4 Berle and Means(1932); Van den Berghe and Carchon (2003); Bocatto et al. (2010). 5 Fama and Jensen (1983); La Porta et al. (1999). 6 Morch (2004); Yeung (2003). 7 Cabrera-Suarez et al. (1996); Habbershon and Williams (1999); Bocatto et al. (2010).


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large profits is often related to its corporate management that formulates strategies, allocate resources or controls the different stages of the corpo-rate development.8

Internationalization may be regarded as a process in which multina-tional companies expands their organizational network into another coun-try. Accordingly, foreign market entry is an initial step of expanding busi-ness networks. During the initial process firms use to act within their ex-isting business network that affects the new entries to the foreign market. In this phase, learning and commitment of firms play core roles in interac-tion between new entrants and the local business actors. Furthermore, it produces different networking patterns layering on the existing business network. By implementing internationalization processes, industry charac-teristics, company strategy, turbulence in the market environment, and technological advancement are also significant factors for multinational companies to make decision on their internationalization.9

This paper is based on an eclectic theory adopting the resource based view for succession and entrepreneurship in the globalizing economic sys-tem as well as the business network theory for market entering strategies.

III. METHODOLOGY

The methodology of the research is based on the approach of SME pol-icy in the South Korean government and a cross analysis on various factors such as company strategy, ownership, entrepreneurship, sustainable growth rates etc. In the SME policy approach the authors carefully look at a com-prehensive situation of South Korean SMEs from 2000 to 2010.For it, a SWAT model is used in order to analyze what are their strength, weak-ness, opportunity and threaten in the last decade.

In the second phase of the research, we select a model SME that is Yuy-ang DNU, which is a medium sized company with about 200million US dollar revenue in 2010. The company has been registered in Korea Com-posite Stock Price Index (KOSPI) since 1996. The reason for choosing the sample is simple. The company was a small business until 1992. After establishing a local subsidiary in China in 1992, it started to grow rapidly. It was a high risk for the company to establish a local subsidiary in China at that time that was based on strong entrepreneurship of the owner.

As a result, the company could enjoy the first runner’s privilege in the Chinese market later on. This sort of reformation continues in the firm

8 Forsgren et al. (2006). 9 Hadjikhani et al. (2008); Makhija (1993).


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that is rather a rare case in the South Korean context. Therefore, two au-thors found out that it may be valuable to research on the model case, which can illustrate a South Korean successful SME growing together with conglomerates such as Samsung and LG and entering the EU market. Moreover, Yuyang DNU’s case can also provide a role model creating shared growth between SMEs and conglomerates as well as trustful part-nership based on strong technological capability and entrepreneurship.

After choosing the sample, the authors examine other SMEs registered in KOSPI and compare with others in the field of growth rate, revenue etc in order to analyze their competitiveness for growth potential.

IV. SMEs POLICY, ROLES AND TRENDS

1. Backgrounds

With the development of high technology such as information technol-ogy (IT), energy and environment technology (ET) and bio technology (BT) industrial structures are going to be more knowledge intensive than traditional production factors such as labor, capital and land. Moreover, consumers’ demands are diversified so that final products become varie-gated in small quantities. In line with globalized economic scheme SMEs along with MNCs play significant roles in strengthening national eco-nomic growth.

Particularly, SMEs create a high number of new employments com-pared to conglomerates although their output is slightly lower than that of the conglomerates in South Korea. In the globalized economic system, MNCs have intensified their automation processes in order to minimize the total number of employment. As a result, the total number of em-ployment in MNCs has decreased drastically, while the total number of employment in SMEs has increased rapidly in the last ten years. Accord-ingly, SMEs play in stabilizing labor market as well as creating secure platform for the national economy.10

In the 21st century, SMEs have been also changing rapidly by using in-formation and communication technology (ICT) as well as transportation technology that are one of major forces of globalization processes. They could create market accesses by participating in global outsourcing pro-grams started by global conglomerates since the 2000s. Owing to the globalization processes, SMEs can challenge new market opportunities on the one hand and are exposed global competition directly on the other.

10 Small and Medium Business Administration (2010).


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Therefore, SMEs need to develop their technological capabilities as well as new company strategies for their further survival.

2. SMEs Policy

SMEs policy focuses on restructuring manufacture industry and acceler-ating knowledge intensive industry. Additionally, it pursues indirect assis-tance measures toward self reliant management dealing with not only with local markets, but also with global markets that substitute old fash-ioned direct assistance measures supported by the government.

The main goal of SMEs policy lies on restructuring SMEs and enhanc-ing global competitiveness of SMEs. For it, the South Korean government supports that SMEs develop their own capabilities to win comparative competitiveness and deregulating restrictions on enterprise management and market mechanism. In order to materialize the goals, SMEs restruc-turing is targeted by automation and computerization generating produc-tive and economical in their management. The government has imple-mented continuous monitoring activities and administrative deregulation to create more favorable environment for SMEs. In terms of financial sup-port, it has offered loans based on credit. As a result, credit guarantee pro-grams have been expanded to achieve more effective lending services. Fur-thermore, in line with the programs more incentives have been offered for high quality workers in SMEs. In the financial market, KOSDAQ has played a core role in direct financing function that provides SMEs needed capital for their operation since 199611 (Small and Medium Business Ad-ministration 2002, 2010).

In order to strengthen global competitiveness of SMEs, the government has launched training programs for employment, particularly for skilled workers that can increase productivities of human resources in SMEs. For maintaining a knowledge economic system, cyber training programs have been intensified that strengthens a knowledge based information society. Additionally increased procurement of SMEs’ products by public organiza-tions, the development of joint brands of by a number of producers and the attainment of quality marks such as GQ, KT and NT have been en-couraged to increase the credibility of their products. This approach will eventually contribute to expanding their market shares.

During the last ten years, the government has focused on its SMEs pol-icy directions in eight areas. These are strengthening SMEs’ potential for technological innovation, promoting digitalization, re-launching high-tech venture businesses, assisting self reliant management, supporting market

11 Small and Medium Business Administration (2002 and 2010).


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activities, strengthening assistance for women entrepreneurship, promot-ing international cooperation, and enhancing efficiency SMEs-related poli-cies. Among these, the areas of technological innovation, self reliant man-agement, market activities and international cooperation have been im-plemented positively.

3. SMEs Roles and Trends

SMEs play a pivotal role in the national economy. In particular, SMEs are a major force in the total numbers of company and employment. There are approximately 3.04 million SMEs and 11.46 million employees work in SMEs in 2010. These numbers account for 99.9% of the total numbers of company and 87.7% of employment in Korea. Furthermore, SMEs generate a core part in production and value added that contributes to the economic growth. The total amount of production and value added in SMEs accounted for 542 trillion won (c.a. 500 billion US dollars) and 189 trillion won (c.a. 170 billion US dollars) respectively. These accounted for 46.4% and 49.2% in the national total output.

The importance of SMEs has been highlighted during the last ten years from 1998 to 2008 because SMEs have created 3.79 million new em-ployments while the total employment in large sized companies have de-creased 610,000 jobs. Accordingly, SMEs have become the major source for new employment in the new era for the economic growth period with-out creating new employment. In addition, SMEs have played a vigorous role to contribute to a rapid economic recovery by creating new businesses during the global financial crisis that is based on strong entrepreneurship. In 2008, the total number of new start-up businesses accounted for 50,855 that increased up to 56,830 in 200912 (See Figure 1 and Figure 2).

SMEs contribute to developing the national economic growth and sta-bilizing employment in the local economies. In fact, SMEs are one of the major forces to export that accounts for 32.3% of the total export. If parts and components supplying for exports of large sized companies are added, SMEs’ contribution ratio for export increases up to 71.5%. Additionally, small businesses with less than 10 employees account for 87.7% of the total businesses that plays a key role in stabilizing local economy. Fur-thermore, the number of innovative SMEs had been increased continu-ously since 2006 that could contribute to upgrading the industrial struc-ture from a production factor based to an innovation oriented economic system. As a result, the number of high-tech venture businesses with the revenue of 100 billion won had grown up from 78 in 2005 to 242 in 2009.

12 Small and Medium Business Administration (2010).


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This implies successful models of high-tech venture businesses and con-tributes to upgrading industrial structure at a national level13 (See Figure 3 and Figure 4).

FIGURE 1. EMPLOYMENT TREND BETWEEN SMES AND CONGLOMERATES

(AS OF 1998-2008, 10,000 PERSONS)

Source: Small and Medium Business Administration, SMEs Supporting Policy, 2010.

FIGURE 2. ANNUAL NEW START-UP BUSINESSES (AS OF 2006-2010)

Source: Small and Medium Business Administration, SMEs Supporting Policy, 2010. Note: The statistics in 2010 is based on the total number of start-up until the end of June.

FIGURE 3. GROWING TREND OF THE NUMBER OF INNOVATIVE SMES

(AS OF 2006-2010)


13 Small and Medium Business Administration, 2010.


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FIGURE 4. THE NUMBER OF HIGH-TECH VENTURE BUSINESSES WITH THE

REVENUE OF 100 BILLION WON (AS OF 2005-2009)


V. YUYANG DNU AS A GROWING SME

1. Background

Yuyang DNU was established in 1976 with the company name of Yuyang Chemicals Co. Ltd. It was a typical small business founded by Mr. Cho during the high economic growth period in South Korea. The owner shifted the company business strategic area from the chemicals to elec-tronics by adopting the central government policy direction and the con-glomerates business targets such as semiconductors and white goods. In line with such a new trend, Yuyang DNU built its 1st electronics factory in Dec. 1985 in order to supply parts for electronics industry.

The strong entrepreneurship of the company has been highlighted again by the investment in the Mainland China in 1992 just after opening the official diplomatic relationship between the Republic of Korea and the Peoples’ Republic of China. Yuyang DNU established Harbin Yuyang Electronics Co. Ltd in Harbin. At that time, it was a very high risk for a SME to invest in an unknown market. Despite such a high risk, the in-vestment in China played a role in a turning point for the company grow-ing rapidly since then. It was a sort of front runner effect in the market. The company was a pioneer as a SME to invest in China that resulted in maximizing its price competitiveness by utilizing low labor costs in China.

Furthermore, Yuyang DNU has intensified its R&D capability that is the core factor for the company to grow continuously. In the Korean con-text, the R&D activity among SMEs has been one of the weakest points because the most of SMEs have difficulties to recruit R&D personal and weak financial capability. From the perspective of the company strategy, Yuyang DNU has succeeded in targeting high growth business areas, op-timal investment strategy, and intensified R&D activities.


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2. Development Paths

In 1976, Yuyang DNU’s output was very small as like any other then South Korean SMEs. However, its revenue increased up to 198 billion won (c.a. 1.8 billion US dollars) in 2010. Its development momentum began with focusing on electronics industry in the mid 1980s. In this pe-riod, the South Korean government carried out a new industrial policy that is called as choosing champion in specific industrial sectors. The elec-tronics industry was regarded as a rapid growing industrial sector along with automobile industry in the 1980s.14

It is not clear yet whether the founder of the company had noticed the policy shift of the government or not. However, he reacted his company direction rapidly in order to respond the market demand based on produc-ing parts in electronics industry. For it, Yuyang DNU completed its 1st factory to produce electronics parts. Additionally, the company continued to upgrade its technological capability, which has been a common weak-ness of SMEs. In order to improve it, the company signed on technological alliance with National Semiconductor Co., Ltd in 1991. It aimed to de-velop slim technology for parts that contributed to producing electronics products smaller. At that time, the approach of technological alliance be-tween SMEs was not common in South Korea. Such a proper timing for adopting the government policy and a unique approach resulted in a sta-ble company growth that is regarded as the first development phase.

The second phase of development started with the high-risk based in-vestment in Mainland China in 1992. Yuyang DNU was one of the first Korean SMEs having invested in China at that time. There was little in-formation about the Chinese market for South Korean SMEs so that the risk for the investment was rather very high. Due to its limitation of in-vestment, the company chose its location in Harbin, China which is rather remote area from the major cities such as Beijing and Shanghai. Its sub-sidiary was named as Harbin Yuyang Electronics Co., Ltd. By exploring low labor costs in the subsidiary, the company could achieve its record high export volume in 1993 that accounted for 10 million US dollars.

In addition, Yuyang DNU continued to develop its technological capa-bility in order to be qualified as a proper and constructive partner to con-glomerates because its business strategy focused on producing parts and components not only to become the partner of conglomerates, but also to enter the global market such as the EU market. Finally, the company won the gold award of the best cooperation company of the quality from Sam-sung Electronics in 1995. After establishing a stable business relationship with Samsung Electronics, the company initiated an Initial Public Offer-

14 Alvstam and Park (2000).


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ing (IPO) in 1996 that provided its business partners credibility and en-abled to mobilize needed capital in the financial market.

In 1996, Yuyang DNU achieved a great momentum. The company developed CT-2 PLUS, which was the first in the world and gained a world patent. As a result, the company enabled to supply its products to several other companies such as Shinsegi Telecom Co., Ltd in South Korea and Qualcomm Inc. in the USA in the end of the 1990s. Additionally, the company diversified its supply products such as cable model, PDP Power, CDMA Rack System for Samsung Electronics in the beginning of the 2000s.15

Similar to the second phase, the third phase of development began with the expansion of new investment in China as well as technological upgrade. In 2003, the Chinese subsidiary moved to the East coast area, Quingdao in order to transport its export products faster and easier than before. The products portfolio was expanded continuously. As a result, Yuyang DNU was able to supply PSU for LCD TV and Monitor as well as built in in-verter PSU to LG Electronics Co., Ltd in the same year. It means that the company had a stable business relationship with the two major global cor-porations such as Samsung Electronics and LG Electronics that contrib-uted for Yuyang DNU to grow rapidly. In respond to the company’s en-deavor, Samsung Electronics and LG Electronics certified Eco-Partner and LGE Green Program in May and October 2005 respectively.

On the basis of the stable market access to the conglomerates, the company has always developed new products such as LED solution that plays a core role in a rapid expansion of business. The LED solution tech-nology was adapted by Shanghai EXPO Committee in 2007. The com-pany exported 100 million US dollars in 2008 and grew ten times since it achieved its export of 10 million US dollars in 1993. Yuyang DNU fo-cuses on its growth capability continuously by diversifying its business areas such as energy and environment related products (See table 1).

TABLE 1. DEVELOPMENT PATH OF YUYANG DNU

Path Development Momentum Period Characteristics

First Policy direction and technology upgrade 1976-1991 Weak growth

Second FDI and technology innovation 1992-2002 Strong entrepreneurship, high risk, stable growth

Third FDI and Products portfolio 2003-present Module-oriented, business diver-sity, global market, rapid growth

Source: Authors’ own adaptation.

15 Yuyang DNU (2011).


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3. Business Strategy and Corporate Governance

Yuyang DNU’s business strategy was not unique in the first phase of development path as like any other South Korean SMEs. It produced sim-ple parts for electronics products and supplied its products to other com-panies until the mid 1980s. This period can be regarded as a harsh capital accumulation process in order to expand further. As a result, the company completed its first electronics factory in 1985. In fact, the 1970s and 1980s were a high economic growth period in South Korea. Therefore, any manufacturing sectors could grow easily if owners of SMEs and con-glomerates do not make any serious mistakes.16

Despite such a positive external business environment, Yuyang DNU wanted to grow faster and longer than other competitors. Additionally, the company realized that SME as a supplier for large sized companies in South Korea is very vulnerable unless it possess technological competi-tiveness of products. The reason for it is that there are many SMEs pro-ducing same or similar products supplied to few large sized companies. As a result, the pattern of business in SMEs can be regarded as a high compe-tition with a little profit because the most of SMEs do not have strong bargaining power when they deal with the large sized companies in South Korea.17

After trying to develop its own technology many years, Yuyang DNU focused on an approach to technology alliance for developing SLIM tech-nology with National Semiconductor Co. Ltd in 1991. This approach was rather a rare case between SMEs in the Korean context because the most SMEs regarded themselves as competitors instead of partners. Such a trend still exists very strongly in South Korean business environment. Af-ter the successful technology alliance, the company became competent in terms of technological capability that resulted in producing parts and components based on module. The parts and components in the module process could increase the company’s bargaining power and maximize its value added.

The module process system could create a close and trustful partnership with conglomerates. Therefore, it can be regarded as one of the most im-portant factors for the company that enabled the company entering to the EU market by supplying slim sized key components for LCD and LED TV sets in Samsung Electronics and LG Electronics in the mid 2000s. By adapting this strategy, South Korean conglomerates could increase their market shares in the EU. Moreover, Samsung Electronics became the larg-est luxury TV set producer in the EU market since 2005. Behind the suc- 16 Park (1999) and Park (2001). 17 Daily Economics (2011).


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cessful marketing strategies of Samsung Electronics and LG Electronics, Yuyang DNU’s technological capability to produce the slimmest LCD panel (6mm) in the world contributed to the realization of conglomerates success in the EU market. As a result, the market entering strategy of the company in the EU is characterized as becoming a technological partner for conglomerates instead of being a verticalized subsidiary in the ad-vanced market.

Furthermore, Yuyang DNU diversified its business areas not only in electronics sectors but also in energy and environment related sectors. The company has produced LED lamps as environment friendly products as well as small and medium sized wind power since 2010. These products are focused mainly in the EU market because the EU is the most advanced region concerning about environment protection and energy efficiency. In the new business areas, the company is keen to export its products with its own brand by using references of Samsung and LG as a technological partner instead of selling its products as an OEM producer.18

On the basis of the technology competitiveness, the company exercised a strong entrepreneurship taking a high risk to invest in the Mainland China in 1992. The owner of the company saw a huge business opportuni-ties in the unknown market and tried to maximize a front runner effect. The company strategy was right and could gain various benefits from the high risk taking. First of all, the company could produce its products in volume and quality with much lower costs than any other competitors. As a result, the company could be nominated as the best cooperation com-pany of the quality from Samsung Electronics.

In addition, Yuyang DNU carried out localization processes in China. The Chinese subsidiary, Quingdao Yuyang Telecom and Electronics Co. Ltd, has hired about 1,000 employees until 2010. Among these number, only eight Korean employees as high ranking managers work there. The rest of them are mainly local Chinese and middle ranking managers are ethnic Korean Chinese. Owing to the local embedded approach, the pro-ductivity has been as high as in that of headquarter in South Korea.

The last but not least, the ownership structure of Yuyang DNU is also an important part of the business strategy. Compared to other SMEs, Yuyang DNU carried out its IPO relatively early in 1996 in order to pull the needed capital in the financial market. For it, the company must in-crease transparency that the market trusts. In order to maximize transpar-ency and sustainable competitiveness, the founder of the company handed over his position as a CEO to a professional manager in 2003 although he kept his position as a chairman and can control the management with his

18 Yuyang DNU (2012).


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overwhelmed stock share. In the Korean context, the most of founders and owners in SMEs use to hand over their positions to family members (See Figure 5).

FIGURE 5. BUSINESS STRATEGY OF YUYANG DNU

Technology Alliance: Module

Strong Entrepreneurship

Management Transparency

Localization Processes

Growth

Source: Authors’ own adaptation.

The corporate governance of Yuyang DNU has been developed by evo-

lutional processes. During the first phase of development, the company realized the importance of technological capability, which eventually con-tributed to developing R&D activities. A strong R&D team has generated one international patent and eight domestic patents. These patents en-abled to expand a new market access and to produce a couple of key com-ponents in module.

Additionally, Yuyang DNU has a very strong planning division at-tached to the CEO directly. In the most of South Korean companies, the roles of planning division use to be very critical. In the company structure, Yuyang DNU operates an inquiry panel with the same level of the plan-ning division. This structure aims to target new growing technology areas and to prepare all possible resources in advance. Furthermore, the market-ing and R&D divisions are combined in order to focus on R&D activities that is closely related to the market needs and creating future markets. In South Korea, the number of Yuyang DNU’s employees accounted for 219 in 2010. Among these, the number of researchers in R&D division was 50 in the same year, which accounted for 23% of the total number of em-ployees in South Korea. This ratio is extremely high compared with other SMEs. The total investment in R&D has increased continuously. However,


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the amount of the investment was still marginal19 (See Figure 6, Table 2 and Table 3).

FIGURE 6. THE ORGANIZATIONAL STRUCTURE OF YUYANG DNU

Source: www.yuyang.co.kr 2011-04-30.

TABLE 2. R&D INVESTMENT AND ITS RATIO

(UNIT: 100 MILLION WON)

Sector/Year 2008 2009 2010

Revenue (A) 1,064 1,068 1,980

Investment in R&D (B) 8 21 21

Ratio of R&D Investment 0.79 1.32 1.08

Source: Yuyang DNU’s intern information, 2011.

TABLE 3. R&D MANPOWER (AS OF 2007-2010)

Sector/Year 2007 2008 2009 2010

Number of Employment (A) 187 194 195 219

Number of Researcher (B) 30 35 40 50

Ratio of Researcher (B/A) 16 18 20 23

Source: Yuyang DNU’s intern information, 2011.

19 Yuyang DNU, 2011.


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The ownership of the company has been rather very stable and trans-parent. The founder and his son held 23.44% and 3.47% of shares in 2010 respectively. Two family owners and four professional managers con-trol 28.38% of the total share in 2011. The share of owners decreased from 32.44% in 1996 to 26.91% in 2010 while the share of treasury stock has increased up to 3.78% in 2011. This means that the company is ready to open its ownership toward employees participating in the company’s management actively and sharing responsibilities with employer and em-ployees.20

4. Positioning in KOSPI and Future Perspectives

As Korea Composite Stock Price Index (KOSPI) was open in 1964, less than 100 companies were registered. The number of companies in KOSPI has increased up to 970 in April 2011. The total value of companies ac-counted for over 1,000 trillion won (c.a. 1 trillion US dollar) in April 2011. The total market value of Yuyang DNU reached up to 36.6 billion won (c.a. 33 million US dollars), which ranked as 659th company among 970 registered companies in KOSPI.21

As seen, Yuyang DNU is regarded as a stable SME in the major South Korean stock market. As the company was registered in KOSPI, its out-put was about 53 billion won in 1996. It increased up to about 200 billion won in 2010. Since the registration in KOSPI, the company revenue grew around four times. Although the company faced several crises such as Asian financial crisis in 1997, IT bubble crisis in 2001 and global financial crisis in 2008, it overcame wisely through technology innovation, strong entrepreneurship, broad product portfolio based on modules, scouting internal professional manager etc. The company has had its strength to grow rapidly after managing crisis periods. In particular, the revenue growth last five years shows incredibly high (See Figure 7).

Yuyang DNU’s future perspective seems to be positive. However, global business environment uses to be unpredictable due to various ex-ternal factors. Therefore, it may be wise to examine its future perspective based on SWOT analysis. As illustrated in the table, perspectives from strength and opportunity are broader than perspectives from weakness and threaten. In order to overcome its negative perspectives, the company needs to challenge again in line with its strong entrepreneurship as well as new market entering strategies (See Table 4).

20 Internal Information (2011); www.krx.co.kr. 21 www.krx.co.kr.


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FIGURE 7. REVENUE GROWTH PATTERN OF YUYANG DNU (100 MILLION WON)

Source: Yuyang DNU’s Intern Information, 2011.

TABLE 4. SWOT ANALYSIS OF FUTURE PERSPECTIVE IN YUYANG DNU

Strength Weakness

• Key component modules • Corporate transparency • Separate ownership and management • Strong entrepreneurship • Front runner effects in China • Optimal partnership with global conglom-

erates

• Relatively low investment in R&D • Overwhelmed export-oriented (c.a. 80%) • Difficult to recruit R&D researcher

Opportunity Threaten

• Access to new business areas such as 3D TV, LED, renewable energy and environment technology • Increasing Intellectual Property Right (IPR):

1 international and 8 domestic patents • Ahead to government policy and conglom-

erates in specific areas (Smart system, OLED etc.)

• Strong competition from other high-tech SMEs

• Rapid increasing labor costs in China • Instable natural resource prices • Currency policy • Increasing productivity constantly

Source: Authors’ own adaptation based on interviews and field work.

VI. CONCLUSIONS

Yuyang DNU has 35 years long business history. Given the statistics, only 3% of companies registered in KOSPI could survive last four decades. As imagined, the business world is rough to survive continuously. In order to survive, companies need to create their own business strategies and proper corporate governance systems. Yuyang DNU may be one of these


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companies survived in the rough environment and expanded continuously by overcoming several crises.

As explained, Yuyang DNU has responded to all hurdles and difficul-ties with its own strategies in each development paths. By doing that, the company realized the importance of the government policy directions, technology innovation, strong entrepreneurship, and transparency. These strategic factors led the company to become a credible partner for the global conglomerates not only for domestic such as Samsung Electronics, LG Electronics, but also for foreign such as Qualcomm.

Understanding the government policies provided the company a new opportunity to grow in the first phase that could generate a capital accu-mulation to build its own factory. Building technology alliances were also a smart approach for overcoming capital shortage as well as for producing parts and components based on modules. By doing that, the company was able to increase its bargaining power to deal with large sized companies instead of becoming a unilateral supplier. Based on such a strategy, the company succeeded in diversifying its business areas further as like energy and environment related business areas for the advanced markets in gen-eral and for the EU market in particular.

Strong entrepreneurship may have played a pivotal role in establishing the company as a stable SME registered in KOSPI in 1996 after managing a successful investment in China. Furthermore, the company intensified its R&D activities instead of enjoying lower production costs in China. The first international patent of CT-2 PLUS proved it and strengthened its technological capability that contributed to maximizing its bargaining power with the conglomerates such as Samsung Electronics and LG Elec-tronics.

It is also valuable to discuss about a good corporate governance and transparency of Yuyang DNU. As Mr. Cho, the founder of company re-signed as CEO, he did not hand over his position to his son in 2003. He scouted an internal professional CEO because he was convinced that the intern CEO can understand all issues and agenda about the company bet-ter than any other owing to its medium size. It was rather a very rare case in the South Korean business environment. The new CEO is inherited by the founder’s strong entrepreneurship as a company tradition.

Overall, it may be wise to express that Yuyang DNU has been one of the pioneers among South Korean SMEs. The company has implemented the upper most modern strategies such as technology alliance, R&D ac-tivities, transparent corporate governance, entrepreneurship etc. whenever it needed to overcome difficulties and crisis. As a result, the company proves that SMEs can develop continuously by generating various prod-ucts portfolio and a shared growth with conglomerates on global markets.


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