Why Samsung's billionaire

chief is headed to North

Korea
by Sherisse Pham @SherisseSeptember 17, 2018: 5:57 AM ET
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The leader of Samsung's sprawling business empire

will visit North Korea this week along with the heads
of other top South Korean corporations.
Jay Y. Lee, Samsung's billionaire chief, is one of nearly a dozen business
leaders traveling to Pyongyang with South Korean President Moon Jae-in on
Tuesday, according to a statement from the president's office.
Moon will meet with North Korean leader Kim Jong Un during the visit — the
first trip to Pyongyang by a sitting South Korean president since 2007. It
reflects warming ties between the two governments, which have fueled hopes
of deeper economic cooperation.
Moon laid out ambitious plans last month that would dramatically transform
and connect the two economies, giving South Korea a land link to the rest of
the Asian continent, potentially opening up lucrative trade and infrastructure
links.
Such plans could eventually benefit Samsung and South Korea's other huge
family-run conglomerates, which are known as chaebol. Beyond Samsung
Electronics (SSNLF), the world's biggest smartphone maker, Samsung
businesses also include engineering, construction and shipbuilding.
"If South Korea can take the initiative to bring chaebol leaders to North Korea
... maybe it would be a good start for South Korean [money] to move into
Pyongyang," said Steve Chung, a Korea expert at the Chinese University of
Hong Kong.

Jay Y. Lee, vice chairman of Samsung Electronics, is joining a presidential

delegation visiting Pyongyang this week.

But it's doubtful Samsung will be setting up shop in North Korea any time
soon.
Lee and the other business leaders are joining the delegation more out of a
sense of obligation to the government than in search of promising business
opportunities, according to SK Kim, an analyst with Daiwa Capital Markets.
Moon's government has been pushing South Korea's conglomerates to clean
up their acts and improve corporate governance, Kim said, making it hard to
decline a presidential request to take part in the visit.
Lee, whose Korean name is Lee Jae-yong, was convicted last year of bribery
and other corruption charges but was released from prison in February after
his sentence was reduced.
The 50-year-old executive became the de facto chief of Samsung after his
father, the group's chairman, was incapacitated by a heart attack in 2014.
Other top South Korean executives heading to North Korea include the heads
of Hyundai Motor Group (HYMTF), LG Group and SK Group.
They will be meeting with North Korean Vice Premier Ri Ryong Nam, a
spokesman for the South Korean president's office said Monday. He said it
was "too soon" to provide an agenda for the meetings.
The spokesman pointed out that the leaders of South Korean conglomerates
had previously joined presidential delegations to North Korea in 2000 and
2007.
A Samsung spokesman declined to comment beyond the statement from the
president's office.
Risky business
North Korea's cloistered economy of 25 million people has attractive elements
for foreign investors, according to analysts. They include a cheap workforce, a
good geographic location and unexploited natural resources.
Samsung's investment arm, Samsung Securities, said in June that it was
establishing a research team to analyze potential future investments in North
Korea.
But doing business in North Korea comes with a lot of risks, most notably
heavy US and international sanctions on Pyongyang that companies would
have to navigate — unless the restrictions are lifted.
The sanctions have slammed the country's economy. Estimates released by
South Korea's central bank earlier this year show North Korea's economy
shrank 3.5% in 2017. This year is likely to be even worse.
North Korea's Kim Jong Un and South Korea's Moon Jae-in have met twice
before.

Given North Korea's economic plight, the "chances are low" that this week's
trip will lead to business opportunities for Samsung or the other South Korean
companies, said Kim, the Daiwa analyst.
Foreign companies that have ventured into North Korea previously have often
run into difficulties dealing with the ruling regime, including losing control of
assets.
If Samsung does eventually set up shop in a more open North Korea, it may
benefit from some brand recognition.
The authoritarian state has a strict ban on importing South Korean
smartphones. But such goods are often available on the black market, where
Samsung is reportedly one of the most popular smartphone brands among
savvy North Korean buyers.
-- Yoonjung Seo contributed to this report.
CNNMoney (Hong Kong)First published September 17, 2018: 5:57 AM ET