- Chong-Hee Kim, Founder of Hanwha Group
This is the second part of a translated version of the original article titled "Pioneers of Creative Enterprise - Chong-Hee Kim, Founder of Hanwha Group” published by Chosun Weekly, a news magazine of Korea.
Please click here to read the first part of the story.
Chong-Hee Kim wanted to help the Koike family return home to Japan as soon as possible. Koike and his wife were worried about their children, who had returned the previous year by themselves, and were eager to leave. Kim asked the manager of the company's Busan office to secure their passage on a smuggling ship. The night the Koikes were to leave on an overnight train, Kim arrived first at Seoul Station and waited for his friend. Yeong Man Min, who was going to accompany the Koikes to Busan, was to bring the couple to the station in time for the train. Koike and his wife, along with Min, arrived
at the station just as passengers began boarding. Kim handed an envelope to Koike.
Loyalty to an Old Friend
"What's this?" Koike was taken aback when he opened the envelope. It was filled with a thick stack of ten-dollar bills. Kim could not bear to send the Koikes back empty-handed. He knew they would need money once they arrived in Japan. He had sold some of the rice he had been receiving from his family home in Cheonan and saved money to put together 10,000 won, which he had asked Captain Smith to change into U.S. dollars. The official exchange rate posted by the military government as of October 1 was
50 won per dollar. Black market rates, however, had already increased by then to 80 won per dollar.
"How much money is in here, Kim?"
"Only 625 dollars." It was a very large sum of money.
"It is nothing compared to the kindness you have shown to me over the years, so please take it as a small token of my gratitude."
"No, I don’t deserve to accept this money from you. I was interested in your welfare because I wanted you to be a loyal subject of the Japanese Empire."
"My strong dedication to my homeland was in fact a reaction against the loyalty you espoused."
"It would seem, then, that you have overcome my influence and I have lost."
"Perhaps we could call it a draw," Kim said, laughing.
"No, I am clearly the loser!"
"Our contest has only just begun, Superintendent. I wish you the best of luck. Unless human history suddenly comes to a halt, the link between the two of us will not end here."
"Thank you, Kim. I will always remember that there is a young man as passionate and spirited as you in Korea!" By then, most of the passengers had already boarded the train. As the Koikes walked past the gate, Mrs. Koike kept turning around to bow to Kim. Watching them disappear onto the train, Kim wished for their safe return home.
On April 23, 1946, Military Government Ordinance 73 was announced. The law laid out specific measures for managing property seized from the Japanese following the promulgation of Ordinance 33 the previous December 6, making all industrial facilities that had until then been managed pro forma by the Department of Industry be placed under the control of Korean managers appointed by the department and working under the supervision of an American advisor dispatched by the military government.
This position of manager for Joseon Gunpowder would affect the entire future of the country's explosives industry.
Kim felt that he had to block at all costs the appointment of Seon Ho Kang, the former administrative manager of the company who had been fired for committing fraud right after Korea’s liberation.
Kim quickly visited the American military headquarters and sat down with Captain Smith. Kim spoke his mind directly to his counterpart. Having by now had much experience dealing with Americans, he knew that honesty and sincerity was always the best policy with them.
"I must be appointed as the manager of Joseon Gunpowder."
"It is obvious that you will be appointed."
"It is possible that someone else may be appointed over me."
"Do you have a rival?"
"I cannot say that I do not. If someone who does not know explosives is appointed as manager, or a former worker who had been removed dishonorably takes the position, it would be a misfortune for the entire industry."
"I have friends among the officers in the Department of Industry. As the supervising officer of Joseon Gunpowder, I will talk to them and make sure that such a misfortune does not occur."
The next day was Kim's wedding day. He had a truck waiting for him in front of the company's office.
He had to return to his family home in the countryside that day, even if it was in the middle of the night.
He was planning to return the previous morning, but Ordinance 73 had foiled his plans. Kim waited anxiously for Smith. The American officer had promised to visit the Department of Industry that day.
The clock in the Chief Manager's office pointed at five. At six, Smith still not had arrived.
"Your family must be waiting back home. It's time to leave, sir!"
Yeong Man Min, the company’s administrative manager, hurried Kim on.
"All right. Call me at home immediately if anything happens while I am away."
"I'm sure nothing will happen. Don't worry."
Kim had a habit of being preoccupied with something until it could be brought to a conclusion. Heading home in the truck, his mind was filled not with the face of his soon-to-be bride but thoughts about preserving Joseon Gunpowder, the core of the country's entire explosives industry. The wedding day was Monday the 30th. Guests began streaming in from the early morning hours and the house bustled like a market. Kim emerged from the family room after pyebaek, the ceremony for paying respect to the new parents-in-law.
"Chief Manager Kim!"
Min appeared, threading his way through the throng of wedding guests.
Kim's heart sank when he saw him.
"Congratulations, sir! Captain Smith and Corporal Yamada are here, too."
"Smith and Yamada?" Kim ran outside the gate, still dressed in his traditional wedding garments.
Smith and Yamada were just getting out of their jeep, smiling.
"Congratulations on your wedding!"
"Thank you, thank you!" Smith had come personally to congratulate Kim on his marriage and to inform him that he had indeed been appointed as the manager of Joseon Gunpowder, with Smith continuing to work with him in his advisory capacity.
Kim clutched Smith's hands in delight. The arrival of important American guests made the wedding even more festive. Kim exchanged wedding vows with Tae Yeong Kang (姜泰泳), the daughter of an ordinary family. Although times were difficult for everyone in Korea, Kang devoted herself to the education of her children and her role as a homemaker.
"What would a powder-monger know about sugar?"
Once the newly-liberated nation began to take hold, Kim continued to ignite the progression of his career as an entrepreneur through his core products. He could have expanded his company by dealing in consumer goods during the Korean War, but he never entertained the thought.
Kim was convinced that the nation's key industries had to receive priority in order to achieve the modernization of his homeland. He was steadfast in his resolve to contribute to the nation and society through business. As domestic production of explosives was still several years away, Kim believed that importing and supplying the proper amount of gunpowder and explosives was the ideal strategy.
When Kim drew up plans to import 500 tons of explosive materials, the largest shipment ever into Korea, Head of Sales Sam Ryeol Yu suggested that the company import sugar and other consumer items instead of explosives. Korea's entire industrial infrastructure by then had been destroyed by the war, and selling imported commodities was the quickest path to riches. Importing explosives, on the other hand, was a complex process with several cargo restrictions. Even after the products were brought in with difficulty, gunpowder and explosives had to be declared to the police and could not be sold at will. Kim, however, was firm in his answer.
"If I had the dollars to spare, I would rather bring in an extra ounce of gunpowder than import sugar or paint, even if I can sell them for ten times as much. This is my place. What would a powder-monger know about sugar? That is not for me."
Another anecdote reveals Kim's passion for his trade. Having built depots across the country to store sufficient explosives to meet demand, Kim decided to remain in Seoul after the Korean War broke out instead of fleeing to the south in order to protect the 3,000 boxes of dynamite stored in the company's warehouse in Hongje-dong. After burning the documents he had exchanged with the police authorities, Kim reported the stock to the People's Committee (Inmin Wiwǒnhoe) that had taken over the city's administration and calmly explained his thoughts.
"Explosives are both dangerous and important, and only qualified technicians should look after them."
Kim quietly kept the explosives under guard until the capital city was liberated again, and once the United Nations forces entered Seoul, he was able to find the American commander and entrust the inventory to the occupying forces for safety. However, when the communist forces reentered the city and the U.N. forces were forced to withdraw again, Kim borrowed five trucks from the Procurement Office,
the government body in charge of managing explosives, and moved the company's stock to its storage facility in Yeongdeung-po.
President Syngman Rhee calls for Korean explosives
After securing the warehouse, Kim escaped to Busan and opened an office in Daechang-dong, making it the new center of the company's sales efforts. Once armistice talks were underway in 1952, an excellent opportunity presented itself to Kim, who had been concentrating on acquiring sufficient supplies.
The Joseon Gunpowder Joint Market Inc., which had become devolved government property, was put up for sale to the private sector. This followed the decision to resume the sale of devolved property that had been suspended due to the war.
At last, Kim won the bidding for Joseon Gunpowder in June, 1952, for the price of 2.346 billion won and acquired the management rights of the company. After signing the acquisition contract, Kim established a new company to acquire Joseon Gunpowder on October 9 and named it Korea Explosives (Hangook Whayak). This was a historic moment in the history of the Korean explosives industry, marking the complete transfer of explosives production and sales to the private sector.
With its headquarters in Daechang-dong 1-ga in Busan, Korea Explosives began with capital of 500 million won and 10,000 issued shares (face value of 50,000 won), with the founders including
Chong-Hee Kim as Chief Executive Officer, Jong Cheol Kim, Sam Ryeol Yu, Deok Seong Kim,
Yeong Man Min, Yong Gi Hong and Hyeok Jung Kwon. Following the acquisition of Joseon Gunpowder
in 1952, Kim moved his company to new offices in Hoehyeon-dong in Seoul in August.
However, the company still lacked the technology to manufacture explosives in Korea. The Incheon gunpowder plant, the sole remaining facility left in Korea, had been reduced to rubble during the war.
Resolving to begin domestic production of explosives, Kim acquired the remains of the Incheon plant
in October, 1955, restoring and repairing the facility. Intense research and experimentation followed,
and at last in April, 1956, the company succeeded in manufacturing ammonium nitrate explosives.
Then, one day in 1955, Kim met with Minister of Commerce and Industry Seong Tae Kang.
Minister Kang relayed an order he had received from President Syngman Rhee a few days earlier.
"I have heard that there are gunpowder plants in Korea, yet why can we not manufacture our own?
Is it not shameful that we are still using explosives made by the Japanese?"
President Rhee had ordered that a solution for starting the domestic production of explosives be found and implemented. Armed with the resolve to contribute to the development of his country and people, Kim devoted the entirety of his company's resources and workforce to the manufacturing of dynamite.
In October, 1957, a red triangular flag that had fluttered atop the high embankment surrounding
the nitroglycerin synthesis vault was finally lowered, signaling the first successful pilot production of dynamite in Korea. The red flag was an indicator that work was being carried out in the synthesis room. Approximately 50 minutes were required to synthesize 350 grams of glycerin. To prepare for this, three technicians had practiced dozens of times using water to ensure that it would proceed without a hitch.
Work began at eleven in the morning as silence descended over the Incheon plant. A minute passed, then two, then three. After fifty minutes had passed, a manufacturing division employee with orders to check the flag from Director Hyeon Gi Shin, who was in charge of production, reported that it was still up. The gathered employees began to grow anxious with worry that the synthesis process was not going according to plan.
The clock struck one thirty in the afternoon, and Shin could not wait any longer and dashed out of his office towards the synthesis room. Suddenly, a shout rang out, "We did it!" and the flag disappeared behind the embankment protecting the building. It was a historical moment that opened a new chapter in the history of the Korean explosives industry. Everyone shed tears of joy. In June of 1958, Korea Explosives began the full-scale production of dynamite, making Korea the second country in Asia after Japan to succeed in domestic dynamite production. The achievement earned Kim numerous accolades, including the titles "Korea's Alfred Nobel" and "Dynamite Kim."
The 1960s saw the introduction of Korea's five-year national economic development plans, and Kim diligently worked to develop the nation's key industries to keep in step with the changing times and adhere to his unshakable dedication to "Saeopboguk", or "contributing to the nation and society through business." Kim was a man of resolve who would not back down, even when facing absolute authority.
On May 16, 1961, a military coup placed Park Chung-hee in power. In November 1961, Park, then Chairman of the Supreme Council for National Reconstruction, had just returned from a visit to
the United States at the invitation of President John F. Kennedy. That same day, Kim received an unexpected summons to the council office for the following morning. At that time, large companies were obligated to take on economic development projects led by the government without question.
The government recommended that Kim build a rice-straw pulp factory, a venture with a nebulous future at best.
No matter how strong Chairman Park's military government felt about economic development,
Kim could not in good conscious carry out a project that was destined for failure.
A few days later, Kim met again with Chairman Park. Prime Minister Yo Chang Song was also in attendance. Kim began to explain carefully the lack of business prospects for a rice-straw pulp factory.
As soon as Kim finished talking, Song loudly proclaimed, "This is a project of special interest to the Chairman; it is your duty to build the factory and start the business." However, Kim refused to back down, explaining undeterred the lack of any benefits both for the company and the country for launching such a business.
Song shouted, "Do you no longer need our support for your business? Do not expect to do any more business with the government!" However, Park, who had been listening calmly to Kim, held out a hand to stop Song. Park appeared to agree with Kim, and seemed impressed by him.
The next day, the Office of the Auditor issued a request for the cost accounting sheet for explosives. Seizing on the fact that Korea Explosives had a monopoly on the product, the government was launching a retaliatory investigation under the suspicion that Korea Explosives had been overcharging. However, Kim had always adhered strictly to his three tenets of business – proper prices, unlimited supply and the highest level of service – and the audit was concluded without finding any non-conformities. Kim continued to pioneer new industries; at a time when even the term “petrochemicals” was unfamiliar in Korea, Kim had already built a PVC plant in 1962 and carried out studies for expanding the company's business into petrochemicals.
The business planning department of Korea Explosives soon received orders from Kim to prepare plans for launching a petrochemical business, and by November of 1964, the company had established a roadmap that included the building of naphtha cracking facilities and other petrochemical plants. The Korean government was lukewarm about the idea of Korea Explosives entering the chemical business, but the company pressed on with plans to build factories and establish a new business entity. On August 25, 1965, Kim convened a general meeting to mark the launch of Korea Hwasung Industrial Co., Ltd.,
the first company founded through investment from Korea Explosives. Soon afterwards, Kim went to Japan to further shape his wide-ranging plans for a petrochemical arm of the company, searching for a partner to build a PVC plant and Korea's second refinery and explore options for acquiring technology and capital.
As a result, Kim was able to sign a preliminary contract for a loan of $8 million from Mitsubishi in September of 1965 for the construction of a new plant. Returning home, Kim filed an application for the approval of the loan with the government. There were many obstacles to overcome. The instruments of ratification of the Korea-Japan Treaty on Basic Relations had not yet been exchanged at the time, and the approval kept being postponed. Three years passed after the founding of the company with production unable to begin due to conflicts with existing companies, the government's foot-dragging and other issues. To add insult to injury, fierce competition, skyrocketing raw material prices and an economic recession led to inventory backlogs and poor capital turnover. The company even failed to meet payment deadlines. This crisis lasted for five years, from 1967 to 1972.
However, Kim persevered through his willpower and dedication to the petrochemical business.
The founding of Korea Hwasung Industrial Co., Ltd. to establish a foothold in the petrochemical industry was followed by the creation of Taepyeong Trading and Kyungin Energy.
With its emphasis on the heavy chemical industry, the Chung-hee Park administration decided to expand the Ulsan Refinery, Korea's first refinery facility, in April of 1966, followed by the construction of a second refinery in Yeosu, Jeollanam-do. The government initiated a call for the new plant's end user. Korea's business community competed fiercely for the right to run the new plant. Kim contacted leading American oil companies with bases in Japan and applied for the new plant. However, the winner was Honam Oil, which had partnered with Caltex.
Undeterred, Kim made a bid for the country's third refinery. Successfully forming a joint investment deal with Union Oil, Kim founded a new firm in January of 1968 with the proposed name of Kyungin Power Development Company to receive a license for operating an electrical power business. Finally, Kim founded Kyungin Energy Development Company in November 1969 to take command of the company's energy-related business, rebranded as Kyungin Energy the following year on March 17, which marked the beginning of private enterprise in the nation's oil refining industry. The new company allowed Korea to secure a stable energy supply, a key component in the country's economic development plan, and prepare the foundations of the heavy chemical industry's growth.
In the 1970s, Korea Explosives began domestic production of precision explosives and slurry explosives to cement the company's status as a leader in Korea's defense industry. These achievements allowed Korea Explosives to expand into fine chemicals, followed by the founding of Koryo System Industries Co. as the company ventured into the electronics industry. The Group continued to take shape with the acquisition of Sungdo Securities, the operation of the Plaza Hotel Seoul and the foundation of Taepyeongyang Construction.
As the 1970s progressed, Korea Explosives continued to expand to become today's multinational chemical industry conglomerate by establishing Daeil Dairy, Taepyeongyang Construction, Taepyeong Development and Jeil Securities. The Daeil Dairy Company was acquired in February of 1973 as part of the company's expansion into the food industry. The takeover was a unique event. Daeil Dairy was an ailing company that had suffered from mismanagement, and the government was urging Korea Explosives to acquire the company. For Kim, however, who was committed to rebuilding the nation's key industries to contribute to the nation and its people, the food and beverage industry did not appear attractive. Minister of Agriculture Bo Hyeon Kim sat down with him to explain the plight of Korea's farmers.
"A dairy cow is a major asset for a farming family. They take on loans to buy a cow to try to send their children to school, but milk prices have plummeted and so have cattle prices. The completion of Daeil's factory in Donong-ri alone will be able to process the milk produced by 4,000 cows."
Kim, who had been stubborn about his commitment to key industries, relented when he realized the need to help farmers and recalled countries with leading dairy industries such as Denmark. He acquired Daeil Dairy and eventually began producing Korea's first ice cream. This company would later become today's Binggrae. The company's famous slogan, "The Heart to Eat, the Heart to Share" became popular around this time. With the company growing rapidly, Kim established Baek-Am Culture Foundation and, in 1975, established Cheonan Bugil School Foundation as part of the company's efforts to return profits back to the community. The following year, Cheonan Bugil High School opened its doors.
"Dynamite Kim stands shoulder to shoulder with the titans of American industry who built the country's economy in the 19th century, such as Carnegie, Rockefeller and J.P. Morgan. Kim was always full of energy and had poise and scintillating insight," said Richard L. Walker, former American ambassador to Korea, describing his impression of Chong-Hee Kim. Walker, who was the longest-serving ambassador to Korea (1971-1986), came to Korea in the early 1970s when Korea's modernization was just beginning and built lasting friendships with the leaders of Korean industry. Having witnessed first-hand Korea's remarkable growth, he was considered to be an expert on the Korean economy. Born in the same year as Kim in 1922, the two were close friends; Walker paid tribute to the memory of Kim at the first memorial service. He often called his friend "Dynamite Kim." It was a nickname that referred to Kim's dedication to his work and his fiery passion. Walker stated in his memoirs that whenever he discussed the miracle of Korea's modernization, he would always recall Kim.
"I think there's an electric current running through your veins. Even when we are sitting with our backs to the door, when you come into the room we can almost feel by instinct that it is you."
Iri Station Explosion Creates a Crisis
Despite his joking tone, Walker's comment about Kim offers insight into the charisma of "Dynamite Kim." Walker also stated that Kim had a deep understanding of corporate social responsibility. He said he saw a true leader of enterprise when he witnessed Kim using his own funds to help the victims of the 1977 Iri Train Station disaster. Walker also said that Kim was a warm-hearted person who valued friendships.
"He would always lend a sympathetic ear to anyone he met, even if for business, and tried to help whenever he could," said Walker.
In 1977, the explosion that tore through Iri Train Station threatened to cut short the meteoric rise of Kim and his company. Twenty-five years of effort was about to crumble in an instant. Kim called an emergency session of the executive board on the day of the accident. Surprisingly, Kim offered words of encouragement to his employees, saying that "one comes into this world with empty hands, and leaves with empty hands; I am prepared to return the company back to our society."
The company dispatched all employees with prior military service still attached to Korea's army reserves to the scene of the accident to assist with the recovery efforts. All Group employees donated blood, and the company immediately announced a response plan that included provisions to set aside 2% of all November salaries to form a fund to aid the victims of the accident. On the sixth day after the accident, the company pledged a further nine billion won for the recovery, equivalent to about 500 billion won today. Subsequent government investigations revealed serious negligence by the National Railways Administration in handling explosive materials passing through the station, but Kim did not dwell on the finding, merely repeating his orders to "focus all efforts on helping and compensating the victims."
The story of Kim selling his own stocks to pay dividends to small shareholders during the difficult times following the crisis is well known. The government set the recovery cost at five billion won, but Kim made his entire personal wealth of nine billion won available for the compensation and recovery costs and worked hard to mend all damages. Kim's commitment to taking responsibility for the accident further enhanced the image of Kim as an entrepreneur and that of Korea Explosives Group in the hearts and minds of the people and the business community.
Vowing to start again from scratch, Kim eventually overcame the effects of the Iri Station Explosion and by 1970 had restored the company to its leadership position after a period of even faster growth. In 1979, Korea Explosives Group was selected as one of Korea's top ten companies. In 1980, the company was ranked 393rd on the list of Fortune 500 companies. Kim's health, however, began to decline rapidly. Having dedicated his entire self to his work without regard for his own well-being, Kim passed away on July 23, 1981, at the age of 59.
Chong-Hee Kim's life was totally committed to "service to the country and the community." He believed that "while scholarly knowledge and technical expertise are important, a business leader has to be armed with sensibility and empathy; brains are important, but the heart is what determines the success of a business enterprise."
In the Footsteps of His Father
Chong-Hee Kim's eldest son, Seung Youn Kim, had returned to Korea after his studies in the United States in 1977 to assist his father following the Iri Station accident, and was receiving management training. After his father passed away, Seung Youn Kim became Chairman of Korea Explosives Group at the young age of twenty-nine and began to continue his father's legacy at the helm of the company he had created.
In 1992, the company changed its name to Hanwha Group to better suit the changing times. In every office was hung the company's motto of "Those who wish to live shall perish, and those who brave death shall live." Perhaps too dramatic compared to the typical corporate motto, however, Hanwha employees understand the truth behind this adage better than anyone. At the height of the Asian Financial Crisis in late 1997, Hanwha Group's debt was twelve times the company's capital. Every subsidiary in the Group was experiencing serious financial pressure that made survival unclear. Vicious and painful restructuring, layoffs, separations, sales, mergers and overseas expansion to regions such as the Middle East followed. Today, Hanwha Group is considered to be the model of corporate restructuring. These herculean efforts made Hanwha the company it is today. Behind the company's success lay the "Hanwha Management of Loyalty," to which both Chairman Chong-Hee Kim and Chairman Seung Youn Kim had been fully committed.
Former Chairman of the Korean Parliament Society Gyeong Sun Jang, a close friend of the Kim family, spoke of what he knew about the company's new leader.
"Seung Youn Kim has a powerful drive much like his father, and I have no doubt that through more patience and generosity, he will be remembered as an entrepreneur who led Hanwha Group during a period of great prosperity."