Reference no: EM132838652
Samsung Electronics: the emergence of a Korean flagship company
Samsung Electronics was founded in 1969 as an affiliate of the Samsung group, which has become Korea's largest chaebol. Since the 1980s, it emerged as Samsung's leading group company and later on as the country's largest industrial enterprise in general. The company's beginnings were humble, as it was established initially as Samsung- Sanyo Electric; a joint venture with Japan's Sanyo Electric intended to produce household and consumer electronics in Korea based on the Japanese partner's technology. In the 1970s, the company grew rapidly, and it produced relatively simple electronic products, such as TVs, refrigerators and micro-wave ovens. However, technological independence was gradually achieved during this period. The next stage of the company's development in the 1980s was signified by a first wave of internationalization. Production and sales affiliates were established in different parts of the world, and a large part of the revenues now came from overseas markets. How-ever, the company's business was still mainly focused on mature, low- tech products. In 1987, Lee Byung-chul, Samsung's founder and chairman died and his son, Lee Kun-hee, became the new chair-man of the Samsung Group. Later on, in 1998, he also assumed the chairman-ship at Samsung Electronics. He led the company into a new direction by allocating more resources to hi- tech products, including semiconductors, digital panels and mobile devices. This strategy was apparently successful, as Samsung Electronics entered the highly competitive semiconductor industry from a latecomer position, but achieved global leadership in the memory chip market no later than 1992. It became the world's leading memory chip producer and has never given up this position. Its success has been largely attributed to its aggressive investment in R& D and production facilities and its ability to dominate rivals through shorter development and ramp- up cycles that are crucial in this industry where every few years one generation of products is replaced by a new one. In particular, Samsung's initial success was a result of its counter- cyclical investment behavior during the global memory chip market recession of 1990- 1991, when it aggressively built new capacity at a time when its main rivals cut or delayed their investments. Whereas Chairman Lee's leadership definitely played an important role in the company's strategic direction throughout the past 20 years, his approach is clearly different from those of many other chaebol owners, as he transferred much of the responsibility for on- going business decisions to professional managers and focuses himself on the formulation of long-term, overarching strategies. A large part of Samsung's recent success is attributed to Yun Jong-yong, a manager not associated with the Lee family who was the company's CEO from 1996 to 2008, and his managerial team.
Since the late 1990s, the following managerial policies have been pursued at Samsung Electronics:
- Technological leadership and innovative-ness: the company has continued to invest aggressively in R& D. It is now one of the leading R& D spenders in the world and accounts for more than a quarter of Korea's total business R& D. It has also become a globally leading patent producer. Moreover, employees of all ranks are encouraged to develop new ideas and problem-solving approaches.
- Efficiency drive through internal competition: internal business divisions, while still assisting each other when appropriate, have been induced resulting in intense company internal competition. At the same time, strong performance incentives have been introduced for individual managers as well as for divisional units as a whole.
- Enhanced global marketing and brand management: whereas the company's marketing and branding efforts had been formerly dispersed throughout the world, strong attention has been given to the creation of a strong, coherent Samsung brand. As a result, the company's brand value has been evaluated in 2012 as ninth in the world and as the highest among all Asian companies.
- Further globalization: Samsung Electronics' global sales, production and R& D networks have been considerably extended and deepened, giving it a strong presence in all parts of the world. In 2011, 30 per cent of its revenues came from the United States, 24 per cent from Europe, 16 per cent from Korea, 14 per cent from China and 17 per cent from other regions.
Recently, the company caught global attention through a series of spectacular achievements. It became the world's largest technology company in terms of revenues and took the largest global market share in the mobile phone industry. Notwithstanding all this success, Chairman Lee sent a strong sign that the company cannot rest on its laurels and warned all employees in 2011 that fundamentally the company is facing a crisis as most of its current products will have disappeared from the markets within 10 years. As shown in Figure 11.1, the company has four large business divisions and as a whole is very profitable. However, the data hint at some on- going challenges Samsung is facing. Most of the company's profits are generated by the semi-conductor and telecommunication divisions, whereas the other divisions are less successful. At a more fundamental level, the company is likely to face two other key challenges. First, how to balance the innovativeness and creativity needed to be a global technology leader with traditional Korean top- down management. Second, how to become a truly global company not only as regards its business but also as regards its managerial leader-ship without giving up accumulated strengths which appear to be strongly embedded in the company's home base.
Questions:
- Which internal and external factors have helped Samsung Electronics growing into its current position?
- In which aspects has the management of Samsung Electronics throughout the past decades been typical for Korean management? In which aspects has it been atypical?
- Do you think Samsung Electronics has to transform itself fundamentally to remain successful in the future? Why or why not?