ⓒ YONHAP News

Samsung Electronics Vice Chairman Lee Jae-yong was released from prison on parole last Friday on the occasion of August 15 Liberation Day. The release came 207 days after he was sentenced to two-and-a-half years in prison in a retrial in January for a bribery case involving former president Park Geun-hye. Justice Minister Park Beom-kye explained that the decision was made in consideration of Korea’s economic situation and the condition of the global economy amid the prolonged COVID-19 pandemic. 

Here is economic commentator Chung Chul-jin to examine the background of Lee’s parole and its potential influence on the future of Samsung Electronics and the Korean economy. 

While Korea is already a memory chip powerhouse, it has a mid- and long-term plan to nurture both memory semiconductors and non-memory chips or system semiconductors. At large companies in Korea, massive investment plans and long-term strategies are decided mostly by the heads of the companies. 

As Lee has been serving time behind bars, Samsung Electronics has not been able to draw up major business plans, although the global semiconductor market has changed rapidly. Taking this critical situation into consideration, the Justice Ministry decided to free Lee on parole. 

During Lee’s absence, the global economic environment changed rapidly. The global semiconductor competition has heated up, while governments and companies have scrambled to rebuild supply chains. The change in the global semiconductor landscape is threatening Samsung Electronics’ “super-gap” technology. 

The company is faced with a crisis in the smartphone market as well. It has already fallen behind Apple in terms of profitability and is showing signs of giving way to the Chinese brand of Xiaomi in terms of quantity. Samsung defended its position as the world’s No.1 smartphone seller in the second quarter of the year, but Xiaomi grabbed the top position in the month of June. It seems the decision on Lee’s parole was made against this backdrop. However, it will be difficult for Lee to return to work right away. 

It is a parole, not a pardon, and Lee’s official release is July next year. As a parolee, Lee is subject to employment restrictions. If he travels abroad, he is required to report the plan to the Justice Ministry in advance. The restrictions will therefore make it difficult for him to engage in business activities quickly and freely.  

Also, Lee is standing two other criminal trials. One is related to the controversial merger of two Samsung affiliates as a step to strengthen his control over Samsung Group. In a separate trial, he faces charges for the illegal use of propofol. For this reason, the media use the phrase, “legal risks,” when reporting on stories about Lee. 

Lee’s parole has drawn mixed responses. While the business community welcomes it, labor and civic groups criticize the decision, which they say undermined the principle of equality before the law. The opponents point out that the Moon Jae-in government was created as a result of the Candlelight Revolution that judged former president Park Geun-hye’s mismanagement of state affairs. They criticize the Moon government for giving special favor to a major participant in Park’s mishandling of state affairs, calling it an act of self-denial. It seems Lee is not free from controversy over preferential treatment, considering his other ongoing trials and the jail term he has served. 

A parole could be granted to prisoners who are undergoing additional criminal trials, but that’s very rare. The Justice Ministry lowered its regulation for parole eligibility from 80 percent of jail term served to 60 percent. Many point out that the revision had the purpose of extending special favor to Lee. 

Lee has been set free now, but he is still under employment restrictions and faces negative public opinion. In this situation, attention turns to how Lee’s return will affect the business activities of Samsung Electronics. It is widely believed that Samsung will speed up large-scale investments and merger & acquisition plans that the company has delayed so far. Analysts predict that Samsung could make bold and prompt decisions to secure future growth engines, as its investment has been rather slow, compared to its global competitors. 

I imagine that Samsung can’t wait to make investments. It is uncertain how Lee will get back to work and what methods he will employ. But massive investments are anticipated, as the fourth industrial revolution is proceeding fast. It is said that Samsung will join a central bank digital currency or CBDC simulation project and it is greatly interested in AI. I guess Samsung will invest a huge amount of money in investment and M&A projects.

 

Stuck between Apple and Xiaomi, Samsung Electronics unveiled two new foldable smartphones on August 11, in an apparent bid to turn the situation around. The Korean tech giant set 2021 as the first year of popularizing foldable phones and gave up releasing a new Galaxy Note model this year. It has traditionally launched its new Note models in the second half of a year since the release of the first model in September 2011. But this tradition has been broken now. We’ll have to wait and see how Samsung’s decision will turn out and whether its smartphone business will flourish again to contribute to improving the company’s performance, along with the semiconductor business. Attention is also drawn to Lee’s role in the process. 

Samsung Electronics makes up a significant portion in the global semiconductor market. Lee’s parole can be understood in this vein, and he should play a proper role and take due responsibility. I think Samsung has already mapped out carefully-planned investment strategies. Semiconductors have played a big role in advancing the Korean economy. But now, Korea needs to move beyond semiconductors and explore new industries including self-driving vehicles and healthcare. Samsung should contribute to unveiling a new vision for the Korean economy, while developing its semiconductor business further. 

Samsung Electronics has used the term “super-gap” technology in memory semiconductors. It refers to the company’s commitment to widening the gap with its competitors through unrivaled technology. However, foreign competitors have followed Samsung closely to narrow the gap. 

There are pros and cons over the parole granted to Lee Jae-yong. But Koreans probably have the same expectations that Lee and Samsung Electronics will be able to successfully secure future growth engines for the Korean economy on the back of the company’s super-gap technology. In addition, we hope the company will spur the process of making corporate management more transparent.