Nike Sneakers Made a Billionaire of This Ex-Convict South Korean
(Bloomberg) -- It’s hardly unheard of for billionaire businessmen to be sentenced to prison and return to the top echelons of corporate Korea. Over the past decade, they’ve included the chairmen of Samsung Group, SK Group and Hyundai Motor Group.
Now there’s another such titan joining the billionaire ranks: Park Yen-cha, who built an empire of more than 70,000 employees making shoes for Nike Inc. His Taekwang Industrial Co., which has been making Nikes since the late 1980s, took advantage of the trend to move manufacturing offshore and now makes all of its Nikes -- 60 million or 12 percent of all Nikes sold last year -- in Vietnam, Indonesia and China.
He’s now moving his company toward a conglomerate model, into businesses including power generation and fertilizer production, and possibly taking a stake in a port operator.
Park has a net worth of $1.3 billion, according to the Bloomberg Billionaires Index, based primarily on Taekwang’s valuation. Park and his children own 98.4 percent of Taekwang, according to a company report. Park also holds stakes directly and through Taekwang and his family members in plastic pipes manufacturer Jeongsan Aikang Co. and in Taekwang affiliate Huchems Fine Chemical Corp., where he’s chairman.
It wasn’t success with Nike that put Park in the spotlight. A decade ago, he was at the center of a multi-million-dollar corruption scandal that involved dozens of politicians, including former President Roh Moo-hyun, who killed himself in 2009 after being questioned over allegations that his family members took millions in bribes from Park. In 2011, Park, whose name is alternatively spelled Yeon-cha, was sentenced to 30 months in jail for tax evasion and bribery involving other officials.
Fellow billionaires Chung Mong-koo of Hyundai Motor, Chey Tae-won of SK, and Lee Kun-hee of Samsung were all sentenced to prison on charges such as bribery, tax evasion or embezzlement, although Chung’s and Lee’s sentences were suspended. All three were pardoned by previous presidents. In the latest such conviction last month, Lee’s son, Jay Y. Lee, the vice chairman of Samsung Electronics Co., was jailed on charges including bribery. He is appealing.
The 71-year-old Park was born to a poor farming family and completed only elementary school. In a society where family background and personal connections based on school networks matter for achieving success, Park worked to cultivate relations with those in power.
While Park was away, Taekwang hired professional managers to run the company, but Park still made important business decisions, imparting them to Taekwang executives during visits to the jail. The company reported revenue growth of more than 20 percent every year during Park’s imprisonment.
After his release in 2014, Park returned to the helm of Taekwang. Of his four children, only a son in his early 30s, who’s considered an heir apparent, currently has a management role at the company. Revenue, which grew 14.5 percent last year to 1.82 trillion won ($1.6 billion), nearly doubled since 2011.
A Taekwang spokesman declined to comment on Park’s net worth.
Founded in 1971, Taekwang was among hundreds of footwear companies that turned Busan, South Korea’s second-largest city, into the world’s sneaker capital during the 1970s and ’80s. Global sports retailers such as Nike, Adidas AG and Reebok International Ltd. flocked to South Korean shoe factories, attracted mainly by low-cost, abundant labor and the factories’ high production.
“Taekwang was not a big name in the industry at the beginning,” said Michael Ku, a former vice president at Taekwang, who worked at the company from 1984 to 1997. “But it was quick to adopt a computer-aided manufacturing environment, shifting from labor-centered strategies to a technology-centered approach.”
For example, shoe molds produced manually couldn’t provide enough design details, so computer-assisted technology helped apply 3D curves and geometry, Ku said.
Taekwang’s strong ties with Nike were key to its survival when the tide turned against the South Korean shoe-making industry in the late 1980s. Foreign brands were moving to countries with cheaper wages, forcing once-profitable footwear companies to close. Taekwang established subsidiary Taekwang Vina, which in 1995 became one of five Nike contractors in Vietnam.
In the late-1990s, Taekwang came under scrutiny for allegations of unsafe labor conditions in Vietnam. An Ernst & Young audit found workers at the company’s factory near Ho Chi Minh City being exposed to dangerous levels of toxic solvents. The resulting protests and consumer boycotts led Nike to announce the elimination of such substances at its subcontractors.
A spokeswoman for Nike said that all Taekwang factories are in compliance with Nike’s code of conduct, which meets or exceeds international standards, and are subject to regular audit. A Taekwang spokesman declined to comment on its labor practices.
"Taekwang has shown a commitment to progress through their approach to modernization, a culture of safety and lean-based management for health, safety, environment and human resource management," Claire Wahl, a Singapore-based vice president for sourcing for Nike in Asia, said in a statement. "We continue to build our relationship with Taekwang as they evolve."
Today, Taekwang’s two factories in Vietnam produce almost 71 percent of its output. The company is currently building a third factory in the southern city of Can Tho in order to boost its ability to supply Nike by as much as 15 percent.
Yet with Nike’s growth rate expected to slow to the low- to mid-single digits, according to Cindy Wang, an analyst at Taipei-based CL Securities Taiwan Co., Taekwang is turning to other projects for the long term. In July, the company received a license to build a $2.3 billion, 1,200-megawatt thermal power plant in northern Vietnam. To be completed in 2022, it would allow Taekwang to sell electricity to the Vietnamese government for 25 years.
Taekwang also started work last year on a $60 million fertilizer plant in Vietnam. A Taekwang spokesman said the company was also in talks to purchase a stake in Gemadept Corp., Vietnam’s biggest private port operator.
Taekwang currently relies on Indonesia and China for almost 17 percent and 13 percent of its shoe production, respectively, and has plans to ultimately increase production in Indonesia.
"Overall, in the long run, Nike will always be around, right?" said Wang. "Nike’s growth will slow, but given its scale, the number of orders for shoes will still be massive."