Samsung Group has decided on a path that allows it to focus on its core businesses with the sales of its chemical and defense units to Hanwha Group announced Wednesday.

The conglomerate is selling its chemical unit Samsung General Chemicals and its defense unit Samsung Techwin as well as selling Samsung General Chemicals’ 50 percent stake in Samsung Total, a joint venture with the French energy firm Total, and Samsung Techwin’s 50 percent stake in a joint venture with French defense firm Thales. The deal, estimated at 1.9 trillion won, is expected to be completed by the first half of next year.

With what has been described as a “Big Deal,” Hanwha Group stands to strengthen its positions in the chemical and defense industries, the group’s core businesses. Founded in 1952 as Korea Explosives, Hanwha will rank No. 1 in the domestic defense industry with sales expected to total 2.6 trillion won when the deal is completed.

Hanwha Chemical, the group’s cash cow, will also get a significant boost, with its sales estimated to jump to 18 trillion won, raising it to the No. 1 spot in the petrochemical industry as well.

The deal marks a significant watershed in the history of Korean conglomerates, which have expanded into virtually all businesses, such behavior earning the moniker “octopus tentacle-like expansion.” Once they had started a company, they stuck with it even if it proved unprofitable.

In fact, the very few times that the conglomerates did shed their units, they did so only because they were forced to do so. In 1999, in the wake of the Asian financial crisis, the Kim Dae-jung administration forced a major deal between LG and Hyundai groups’ semiconductor units. That deal is now regarded as a failure, a textbook case of how government should stay out of business dealings.

The only time that the Samsung Group shed one of its units was when it was forced to give up the automobile business. Samsung Motors went into court receivership in 1999 and was sold off to a French firm, Renault, the following year.

The first-ever “voluntary” M&A between conglomerates is expected to be a win-win situation for Samsung and Hanwha. Samsung is shedding its struggling businesses to focus on its core businesses of electronics, finance, construction, heavy industry and services, while Hanwha will be able to boost the competitiveness of its core businesses through economies of scale achieved through the new acquisitions.

Beset with sluggish growth in its key smartphone business, Samsung is forced to streamline its vast business empire to focus on its core businesses in order to create globally competitive companies. The selling of its non-core businesses is a step in the right direction.

Samsung and Hanwha have set an example that could be followed by other conglomerates. Conglomerates over the past several decades have over-extended themselves and when changes in the business environment are happening at lightning speed, the groups need to adopt modern business practices to ensure survival.

The young heir-apparent of the country’s largest business group has taken a significant step that has ramifications not only for his group, which is seeking its next growth driver, but also for other groups that will be looking to see if similar deals would be profitable for their businesses as well.