Goldstar Co., Ltd. Business Information, Profile, and History

History of Goldstar Co., Ltd.

Goldstar Co., Ltd. is the largest manufacturer of electrical appliances and consumer electronics in South Korea (Republic of Korea). It led domestic production of major appliances like televisions, refrigerators, and washing machines, and was also a major global supplier of semiconductors and liquid-crystal displays in the mid-1990s. With approximately $6 billion in 1994 sales, Goldstar formed the primary division of the giant Lucky-Goldstar chaebol, or business group.

Goldstar Co. was created in 1959 as part of the Lucky-Goldstar chaebol. Chaebols are massive groups of interrelated companies that dominate South Korean industry. Rising to prominence after the Korean War, South Korean chaebols were founded and operated by prominent, or "royal," families. Different chaebols generally concentrated on separate markets, such as those for chemicals or automobiles. Throughout the middle 1900s, chaebols were characterized by hierarchical, centralized control, which was usually exerted by members of the founding family. Chaebols traditionally had a central planning division, or secretary's office, which was directly subordinate to the chaebol chairman. The office would oversee all of the group's activities and was responsible for strategic management. In the early 1990s, the four largest chaebols--Samsung, Hyundai, Lucky-Goldstar, and Daewoo&mdashcounted for nearly half of Korea's total gross national product and about 40 percent of the country's total exports.

Formed in 1947, Lucky-Goldstar was the third-largest chaebol going into the 1990s. Formed by the Koo and Huh families, the chaebol started out selling face creams and quickly grew to become dominant in the national chemical manufacturing business. Like other chaebols, Lucky-Goldstar achieved strong growth during the 1940s and 1950s through extremely hard work. The chairmen and founders of the chaebols, in fact, were known for working relentlessly--even putting in 16-hour days for years on end without a vacation&mdashø make their business groups leaders in their respective industries. As Korea's economy surged during the 1960s and 1970s, Lucky-Goldstar and other chaebols branched out into new industries, reflecting a national economic strategy of boosting exports and focusing on heavy industry. In 1958, Lucky-Goldstar became active in the electronics industry with the formation of Goldstar Co.

Goldstar Co. represented Korea's first foray into the electronics industry. The company started out assembling vacuum-tube radios locally, many of which were exported. In 1959, in fact, Goldstar became the first Korean company to build a radio. It rapidly expanded during the 1960s, branching out into the manufacture of appliances. It built the first Korean refrigerator in 1965, for instance, and the first Korean television in 1966. It subsequently began the manufacture of elevators and escalators, air conditioners, electric typewriters, and other electronic goods. Steady gains during the 1960s and 1970s were the result of low-cost operations matched with manufacturing and product innovations. Goldstar was the first Korean manufacturer to establish a solid toehold in electronics export markets, for example, supplying televisions to various U.S. companies, such as Sears and J.C. Penney. Those buyers sold the units under their own brand names. Goldstar gradually earned a reputation as a supplier of low-cost, high-quality electronic components and appliances.

Goldstar's revenues continued to swell during the 1970s as it extended its reach into new industries and marketing channels. For example, it introduced its first product bearing the Goldstar name brand in the United States in 1977. The success of that 19-inch black-and-white television prompted it to export several lines of low-cost electronics during the late 1970s and 1980s that were sold under the Goldstar label. Importantly, Goldstar also began to advance into high-tech industry segments during the 1970s. For instance, it invested massive amounts of capital to establish its own semiconductor manufacturing division. Its initial goal was to produce microchips for use in its own electronic components. But Goldstar's long-term strategy was to use the semiconductor division to position the company to compete in the much more advanced electronics and telecommunications industries that were emerging.

By 1980, the Lucky-Goldstar group was boasting sales of more than $4 billion annually. Various chemical-related businesses still accounted for the majority of that revenue. Encouraged by the success of its electronics and appliance businesses, though, the chaebol decided to shift its focus away from chemicals. To that end, Lucky-Goldstar invested heavily in Goldstar Co. during the early and mid-1980s, boosting production capacity with both domestic and foreign production facilities. Goldstar even became the first Korean manufacturer to set up a manufacturing plant in the United States. Built in 1983, its Huntsville, Alabama, television plant was churning out more than one million color televisions and microwave ovens annually by the late 1980s. Goldstar augmented production efforts with a boost in advertising expenditures from $2 million in 1983 to $12 million in 1984.

In addition to overseas efforts, Goldstar launched an aggressive growth program at home. It expanded production capacity for virtually every one of its major products during the early and mid-1980s and broadened its product lines to include a number of high-tech goods. Most notable was Goldstar's construction of a new factory south of Seoul, in Pyongtaek. The plant, which opened in 1984, represented Goldstar's intent to become a leading global supplier of VCRs, personal computers, facsimile machines, and other relatively high-tech consumer and business devices. In fact, the company publicly announced a goal of deriving a full 40 percent of its sales by the mid-1980s from high-margin, advanced technology products, rather than from its traditional core of relatively low-tech, low-priced commodity goods.

Summing up Goldstar's basic tactic during the 1980s was one of its advertising slogans: "Expensive electronics without the expense." The strategy seemed to benefit the chaebol during the decade. Goldstar established a solid presence in domestic and international markets for microwave ovens and televisions, as well as for refrigerators, washing machines, and other major appliances. As a result, Lucky-Goldstar's revenues rocketed more than five-fold to $22 billion between 1980 and 1989. Much of that gain was attributable to electronics, which was supplying more than 30 percent of Lucky-Goldstar's revenue by the end of the decade, while 25 percent came from chemicals and 33 percent from various trade and financial services companies.

Although Goldstar's sales gains during the 1980s may have seemed impressive to the casual observer, its financial performance began to wane in the mid-1980s and the company experienced a series of setbacks. Goldstar's woes were the result of a variety of factors, including shifting global economies, labor strife, and greater domestic competition. For example, Goldstar's dominance of Korea's domestic electronics industry, which it had enjoyed since the 1960s, was challenged by the Samsung chaebol, particularly beginning in the early 1980s. Samsung's electronics division surpassed Goldstar in both sales and profits by 1984 and continued to widen its lead throughout the decade. By the late 1980s, Goldstar's domestic market share had fallen from 45 percent early in the decade to just 36 percent.

Illustrative of Goldstar's difficulties during the 1980s was its reversals in the semiconductor business. In an effort to compete with rival Samsung, Goldstar had invested heavily to develop more sophisticated chip technology. Unfortunately, the semiconductors it developed had limited market applications and Goldstar had trouble mastering the production technology. The end result was that Goldstar was unable to achieve savings by producing its chips in-house, and it also failed to establish itself as a significant global chip manufacturer. Meanwhile, Samsung successfully transitioned into new semiconductor technology and eroded Goldstar's market share.

Adding to Goldstar's technology and competition woes in the 1980s were labor and economic setbacks. Because the Korean government restricted access to overseas financing sources, Goldstar was forced to fund much of its growth during the early and mid-1980s with loans from short-term domestic financiers. The unfortunate result by the late 1980s was that Goldstar was paying out more than 85 percent of its operating income to cover interest on its massive debt load. At the same time, Goldstar's primary export market, the United States, was maturing. Ongoing competition from Japanese producers exacerbated the export dilemma. To make matters worse, Goldstar lost much of its important low-cost labor advantage in the late 1980s when its workers rebelled. Frustrated union members went on strike, which ultimately cost the company $600 million between 1988 and 1990. They forced Goldstar to greatly boost wages, and as a result the company had to raise prices an average of eight percent.

But Goldstar's greatest problem by the end of the 1980s was that it was losing its reputation for quality. In 1990, for example, Consumer Reports ranked Goldstar's VCRs last in a comparison with 18 other brands. Part of Goldstar's quality problems stemmed from its reliance on outside suppliers--a faulty chip imported from Japan in 1987, for instance, nearly terminated Goldstar's American VCR operations. But it was also the result of Lucky-Goldstar's unwieldy organizational structure. By the late 1980s the chaebol was comprised of more than 30 different companies operating without cooperation. Research and development efforts were being duplicated in different divisions, and managers had lost touch with overall organizational objectives.

Quality and management problems, combined with a stronger won (the Korean currency unit), caused Goldstar's exports to the United States to crumble from $834 million in 1988 to just $535 million in 1990. That decline, along with plummeting domestic market share, caused Goldstar's net profit margins to drop by more than 100 percent during the period. The company was befuddled and had lost its focus. In 1984, for instance, management predicted that U.S. sales would top $1 billion by 1986. By 1990 that goal seemed like a foggy dream. Furthermore, Goldstar had fallen well short of its objective of generating 40 percent of its revenues from high-tech products--by 1990 only 12 percent of sales came from such goods.

The origin of many of Goldstar's problems in the late 1980s was the chaebol structure. Early in Lucky-Goldstar's history, the centralized, hierarchical structure of the chaebol had been an asset. The Koo family had made virtually all major decisions, and directives were regularly dispatched to executives from breakfast meetings over which the family presided. As the chaebol mushroomed in size, however, the authoritative nature of the organization became a liability. Importantly, the slow hierarchical decision-making process had become obsolete in the fast-moving global economy of the 1980s. Goldstar was still mostly family owned by the late 1980s and was run by the original founder's eldest son, Koo Cha-Kyung. "It would take days to make the most simple management decision because it [management] had to have the chops of everyone from the responsible manager right up to even the president at times," noted an industry analyst in the April 1991 Business Korea.

Recognizing the urgency of the situation, the 62-year-old Koo took drastic measures beginning in 1989 to turn the ailing Lucky-Goldstar around. Most importantly, he handed control of Goldstar to Lee Hun-Jo, a 27-year Lucky-Goldstar veteran. Koo cemented Lee's independence when, in 1991, he gave a written guarantee of autonomy to Lee in a public ceremony. In a remarkable departure from chaebol tradition, Lee was allowed to run the company as he liked and was only required to report to Koo twice each year. Lee quickly reorganized Goldstar into two major groups: consumer electronics; and personal computers and office equipment. Products that did not fit into those divisions were spun off, distributed to contractors, or absorbed by other Lucky-Goldstar electronics companies.

During the early 1990s Lee virtually transformed Goldstar from a lagging electronics producer to a leading, global high-tech contender. Lee, who spoke both English and Japanese fluently, integrated proven Western and Japanese management techniques. His efforts permeated Goldstar's management and work force. "You have to transform human beings," Lee explained in Business Week in 1994. "If you can't change your people, you can't change your organization. If you can't do that, you can't reach your goal." Lee jettisoned entire layers of management and successfully forged an amiable working relationship between top management and labor. He also upped promotional spending in an effort to woo former customers, and reasserted Goldstar's plan to assume a lead role in high-technology markets.

Largely as a result of Lee's efforts, Goldstar staged a major comeback during the early 1990s. Sales vaulted from $4 billion in 1990 to more than $6 billion in 1994, and net income rose to a record $120 million after slumping to around $12 million. More importantly, by 1994 Goldstar had regained its number one position in the South Korean market for color televisions, refrigerators, and washing machines, and it had suddenly resumed its contention for global semiconductor market share. Among the company's pivotal breakthroughs was a unique new refrigerator, introduced in the early 1990s, which was designed to keep Korea's national dish, Kimchi, fresh and odorless for a long time. Likewise, Goldstar was achieving marked gains overseas by focusing on emerging markets like Russia and Vietnam while at the same time increasing North American sales through overseas manufacturing and partnerships with U.S. companies. In fact, Goldstar's U.S. sales jumped 17 percent in 1994 to around $1.2 billion.

Going into the mid-1990s Goldstar continued to streamline its operations and push into new geographic and product markets. For example, it was investing heavily to develop technology related to advanced liquid-crystal displays, which were used in notebook computers, among other applications. To that end, Goldstar was building a $620-million factory in 1995 that would be capable of shipping one million of those units by 1997. Goldstar was also striving to establish a presence in the software industry, particularly in the gaming and interactive video segments. In 1994, Goldstar captured about 35 percent of its sales from home appliances, 25 percent from televisions, 13 percent from computer and office equipment, and the remainder from miscellaneous audio and video gear.

Principal Subsidiaries: Goldstar Electron Co. Ltd.; Goldstar Europe; Goldstar U.S. Inc.