Samsung heir Lee Jae-yong arrested: Impact on company and Korean economy

Samsung heir Lee Jae-yong has finally been arrested on charges of abetting corruption and bribery. The case is linked to the influence-peddling scandal surrounding President Park Geun-hye and her friend Choi Soon-sil.

Lee's company, Samsung, has been accused of giving donations to non-profit foundations operated by Choi under his guidance in exchange for the state-run pension fund's approval for a smooth merger of two Samsung affiliates. The latest arrest comes after the South Korean prosecutors were denied an arrest warrant despite Lee admitting that he gave the money under pressure from President Park.

"The rationale for and the necessity of (Lee's) arrest is acknowledged considering the new charges and additional evidence collected," the court said according to Yonhap.

As of now, Lee is said to be held at a detention center in Uiwang, south of Seoul, where he is waiting for the ruling. The arrest, however, does not reflect a court opinion on guilt or innocence and the prosecution have 20 days to file formal charges until the matter goes to trial.

Lee will be the first from the business family to face formal arrest even though his father Samsung Chairman, Lee Kun-hee was convicted for a slush fund scandal. He faced a fine and three years' suspended jail time.

Impact on Samsung and Korean economy

Lee's arrest will cause an immediate void in the Samsung Group's leadership, a dreadful scenario that the company has been bracing for a while. Lee was due to take up his father's role sometime this year but the arrest now calls for a leadership restructuring.

An executive reshuffle at the company was scheduled to be held in December 2016 but was postponed. The company is soon expected to release a statement regarding who will take charge in place of Lee. Reports had earlier suggested, mobile chief DJ Koh could be called on take the lead in times of crisis.

As for the Korean economy, experts opine that Lee's arrest will put a small, but clear dent in Korean economy. The Korea Employers Federation (KEF) has said it is shocked to learn about Lee's arrest and is gravely concerned for the local economy.

"Samsung Electronics is a leading South Korean company that accounts for 11.7% of overall sales and 30% of operating profit in the manufacturing sector. The apparent absence of leadership at Samsung will likely expand uncertainties here, which in turn may lead to a drop in the country's creditworthiness and thus work as a major burden on the local economy," said the federation.

The Korea International Trade Association (KITA) went a step ahead and said Lee's arrest should have been weighed in and that the warrant for his arrest was thoughtless.

"There are concerns about whether there had been any consideration for the negative impact it will have on the local economy when deciding to arrest the top executive officer of the leading global firm," said the trade body.

Samsung is one of the biggest electronics companies in the world and the biggest shipper of smartphones. The company's leader being arrested will significantly harm the company's brand image. The smartphone giant is already facing a reputation crisis post the Galaxy Noe 7 fiasco.