SK innovation transforms into total energy company

Former SK Group Chairman, the late Chey Jong-hyon, second from left. [Courtesy of SK innovation]

South Korean energy company SK innovation made a significant shift in its core products, transitioning towards batteries and separators and aligning with its ‘Carbon to Green’ strategy. This pivot has repositioned the company as a leader in green energy and materials, with the driving force behind this ‘Deep Change’ stemming from a robust R&D-centric management led by its top executives. As SK innovation marks the 40th anniversary of its R&D-centered management, Maeil Business Newspaper presents a three-part series detailing the company’s four-decade-long R&D journey.

Former SK Group Chairman, the late Chey Jong-hyon, emphasized the need to transition from solely operating as an oil company to becoming an integrated energy corporation. He envisioned a strategic shift towards long-term involvement in various energy sectors including gas, electricity, solar energy, nuclear power, and batteries.

The roots of SK’s R&D management date back to 1983 when the company, under Chey’s leadership, acquired Yukong, one of Korea’s largest enterprises at that time. Subsequently, in November 1983, the company established a technical support research institute within its Ulsan factory.

Yukong, formed in 1962 through a joint venture with the American oil company Gulf, was privatized after Gulf withdrew from the business due to the oil crisis. Reflecting on this period, former SK Vice Chairman Park Sang-hoon recalled a shift from investment profitability to in-house technological advancements after the Yukong’s acquisition.

Upon becoming Yukong CEO in January 1981, Chey noted the absence of new facilities, welfare amenities, and R&D capabilities within the company. His critique during his initial visit in December 1980, which highlighted the absence of R&D functions, was a pivotal moment in the company’s history.

Investing 10 billion won ($ 767 million), Yukong built a 5,000 square meter research facility within the Ulsan factory in 1983, allocating 8.5 billion won for state-of-the-art research equipment.

The institute was named ‘Technical Support Research Institute’ to signify its role as a support hub for producing high-quality products and to fill the gaps in essential process technologies not shared by foreign companies. Initially focusing on quality enhancement and process efficiency, the institute gradually developed crucial proprietary technologies such as lubricant base oil from low-quality oil, lithium-ion battery and its necessary separators, biotech, and petrochemical products.

While SK innovation officially began its R&D management in 1983, Chey endeavored to instill an R&D spirit within the group earlier on. In 1976, he invested 20 billion won to found Sunkyung Chemical and ventured into polyester film development.

Despite internal skepticism due to difficulties in acquiring cutting-edge technologies from leading Japanese firms, Chey pushed forward with polyester film development, ultimately succeeding in 1978.

An SK innovation official highlighted Chey’s commitment despite facing a debt of 40 billion won and an interest rate of 25 percent at that time, emphasizing that this dedication to proprietary technological development laid the foundation for today’s R&D management.

Chey’s dedication to R&D management aligns with entrepreneurial spirit. He introduced the concept of earned value in a lecture, signifying the difference between the export price of a product and the cost of raw materials used in production. This emphasized the production of high-value-added goods in Korea’s trade-dependent economy.

In a lecture in 1983, Chey highlighted how producing films yielded significantly higher earned value compared to raw material exports, highlighting the importance of aggressive R&D investments even in uncertain times to enhance competitiveness.

From the Technical Support Research Institute to the current Environmental Technology Research Institute, SK innovation’s R&D management has remained at the core of the company, leading to the development of flagship products such as batteries, which the company has invested in since 1985.

The pursuit of ‘energy accumulation batteries,’ which Chey directed in 1986, led to significant research culminating in the development of the batteries by 1991, including a three-wheel electric vehicle powered by solar panels. SK on Co. Ltd.’s current lithium-ion battery technology stems from the efforts that began in 1986.