Samsung Electronics

Samsung Electronics, which begin in 1972 as a manufacturer of cheap B&W TV sets, in 2002 had sales of over $34 billion and net profit of 5.9 billion dollars which was less than Microsofts profits but more than IBM and Nokia earned who were number three and four in industry profitability. In part due to product leadership Samsung achieved third place in world wide mobile handset sales closing on second (after Nokia), became the second place seller of semiconductors (after Intel) and was the largest manufacturer of television sets and computer monitors in the world.

The products delivered function and more. Their products from plasma TV screens to robotic vacuum cleaners to fridge-freezers that tell you when you are low on milk to bracelet cell phones were cool and had a buzz. Business Week recognized Samsung as the number one Information Technology company in the work and its brand was valued by Interbrand at 8.3 million dollars, the 34th most valuable brand in the world. This performance was astounding given the fact that only five years earlier Samsung was financially crippled in the face of a Korean economic crisis and some bad strategic decisions.

In some respects it was the worst of times in late 1996 when Yun Jong Yong became CEO. He addressed the financial crises in part by cutting some 24,000 people, shutting factories, and selling business units. But in the face of this adversity, he set the stage for gaining global leadership by enunciating a bold strategy.

The strategy had several components. First, Samsung would change its market position in the US and Europe from a price-oriented copy-cat manufacturer to a premium priced product leaders sold in the most upscale retail outlets. Essentially no part of his management team agreed with this direction as it meant walking away from much of their business and would be risky to implement. Second, Samsung would continue its policy to be vertically integrated and turn its memory and component design and manufacturing into an asset by providing direct access to the latest technology. Nearly all other firms felt that strategic flexibility required moving away from vertical integration. Third, Samsung would be a leader in creating new products that would be designed to be distinctive and cool. Further, the organization would become much faster to market with its new products. Fourth, it would build the brand especially outside Korea as brand would be crucial in becoming the leader in the coming years.

The new course was somewhat aided by the New Management initiative launched in 1993 by Lee Kun-Hee, the CEO of The Samsung Group of which Samsung Electronics is a part. No less than a total change in the way that the group thinks, works and serves the customer, the initiative included a focus on quality, listening to the worlds markets, creating distinctive advantage, being the worlds best, anticipating the future, creating organizational environment to foster innovation and growth, and contribute to a better global society. The initiative was re-launched in 1996 as it had received little traction. As part of the re-launch, Lee set up in 1996 a training center for information related infrastructure topics.

There were several key aspects to the implementation of the strategy. One was the hiring of Eric Kim to be global marketing head in 1999. Kim, who left Korea at the age of 13, had an engineering and marketing background. He was determined to get the global silos to be on the same page. Toward that end he consolidated the disparate business operations and drove toward a single vision around the new cool, upscale brands with leadership technology around digital convergence. He replaced the 55 advertising agencies with one global agency. In part to emphasize the global future of Samsung, Kim made his first big presentation to 400 managers in English.

Another initiative was sponsorship and advertising. Yun believed that the new Samsung could best be communicated by sports sponsorship. The logic was that sports competition, which involved hard work by athletes striving to achieve ones highest potential, suited the industry and the associations that Samsung wanted to nurture. Sports also provided a stage to demonstrate technology. Samsung sponsored several events include the 1998 Bangkok Asian Games but the crown jewel was the sponsorship of the Olympics starting with the 1998 Winter games in Nagano Japan. In 1999 Samsung embarked in a $400 million advertising effort around the tagline DIGITall which signaled that Samsung was a leader in the digital convergence world and it would apply to all people and all products.

Among the misadventures of Samsung that contributed to the financial crises of 1997 was the AST adventure. AST in the early 90s was among the top four PC manufacturers in the US. However, they struggled to keep up and began losing money at an alarming rate in part because their acquisition of the Tandy PC business in 1993 was not managed well and because their product development tended to be late (they missed a Christmas selling season one year). Meanwhile Samsung which had 30% of the computer market in Korea tried and failed in its effort to crack the critical US market, a failure attributed to a lack of marketing savvy and distribution clout. Their solution was to invest in AST in 1995 and buy the balance in 1997. Inserting a Korean CEO in 1996 who instituted needed manufacturing efficiencies and some co-marketing efforts with Disney. When that did not stem the tide at effort to focus on the business market failed, Samsung bailed out in December of 1998 after having lost well over $1 billion dollars.

For Discussion
1. Yun lacked support for his new strategy. Is it important that the strategy be accepted? That it be enthusiastically be embraced? How could the CEO make that happen?

2. What are the organizational implications of vertical integration and the new product program? With respect to vertical integration, how would you make sure that the component suppliers are incented to become efficient even though their customer is captive?

3. How would you change the reward system to reflect the new strategy? In the past all units have been largely measured on sales and market share.

4. Why didnt Lees initiative gain traction in 1993? What is needed to make it happen?

5. How should Kim gain acceptance for himself and his ideas? Was it risky to speak in English? In creating a global strategy would you use a top down or bottom up approach?

6. Do you agree with the logic of the Olympic sponsorship? How would you get organizational support for it? How would you decide what sports events to sponsor?

7. What was the objective of the AST acquisition? Why did it fail?

Source: Samsung Electronics Annual Reports1997 to 2002. Cliff Edwards, Moon Ihlwan, & Pete Engardio, The Samsung Way, Business Week, June 16, 2003, pp. 56-61.