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Introduction: The Japanese threatened to take over the world twice in the last century: first with their

military strength and later with their electronic goods. This century, it is the South Koreans' turn - at least so it seems in India. The South Korean companies - Samsung Corp and LG Electronic Corp - have proved that with their innovative and aggressive strategies, Korean products, which even until the 1990s were considered low-end massmanufactured stuff, cannot only rule markets in India but can also push multinationals and their Indian competitors a long way behind. In mid-1990s. India had just opened to foreign competition, and consumers were yet to get a taste of relatively high-technology products. The Japanese majors were undecided about India's potential, and other multinationals such as Whirlpool, GE, and Electrolux were yet to get a foothold. Indian brands, which included BPL, Videocon, Kelvinator and Godrej, had the market all to themselves. It was against this backdrop that the Koreans grabbed the opportunity India's liberalizing economy offered, and they entered the country with a simple message: we mean business and never before have Indian consumers been exposed to the price performance of the products we have to offer. And seven years down the track, while the cautious Japanese and quite a few foreign brands in the home durables sector are still struggling and some of the Indian brands - such as BPL and Kelvinator - are almost going into oblivion, Korean brands are storming in and taking over the markets in each of their product categories. Korean products are now all-pervasive in Indian homes; they are everywhere from cars, TVs, washing machines and microwave ovens to computer accessories and, ultra high-tech home networking products that can enable a refrigerator to order supplies over the Internet and control room air-conditioners and even record a DVD movie from a TV through a mobile phone. Their growth rates are stunning. For instance, in five years Hyundai has sold more than 350,000 cars - nudging the 400,000 mark - to become the fastest-growing and second-largest car manufacturer in India. Samsung and LG clocked the second and third positions in the home appliances and electronic products market, and right now they are the fastest growing home appliance companies in the country too. India wasnt exactly virgin territory for the Koreans entered-consumer electronics. There was a clutch of players, both Indian and multinational, that were already present. But the Koreans grew and now they are bigger than a whole generation of FERA companies such as Glaxo-Smithkline, Phillips India, Colgate-Palmolive, Cadbury, Nestle and Castrol. If we look at market domination as an indicator; L G is the clear leader in the electronic products business, followed by Samsung. Between the two, they dominate the consumer electronics business, which includes a 30% share in colour televisions (CTVs). And companies of all nationalities Indian (BPL,Videcon), European (Electrolux, Philips), American (Whirpool) and Japanese (Matsushita,Sony)have collapsed before their onslaught and Koreans have emerged as winners. The timing of their entry into India was more propitious. They came after industrial licensing made its exit. It was after imports controls on inputs and equipment had largely ended. So they were able to produce in India what was cheaper to produce

here, and did not have to follow a preconceived plan of import substitution. And cheaper production meant that they had a fighting chance in competition, both in India and abroad. But timing was not everything; the Koreans have also brought with them certain gifts of great value in the Indian environment. One is the way these companies set their objectives. India is a price sensitive country and they have not neglected that. They have derived price targets from the local market; they have aimed to be competitive, not necessarily cheap. But within those price objectives they have achieved reliable quality and sought to be a step ahead in product technology. Their greatest asset has been the trust of consumers they have gained. Their next biggest advantage is their nimbleness. They have set up subsidiaries that are large by our standards; but their speed of reaction to market changes, speed of correction of course, speed of execution of strategic initiatives are too good. The working conditions in the office are also different from the others. Like European and Anglo-Saxon model has been focused on results, their approach to work place has been reasonably laissez-faire. For Koreans, its different. The work place is pretty hierarchical and seniors are given tremendous respect. Marketing Strategies: They studied closely and picked up the salient features of the Japanese manufacturing and made themselves an expert in that. Their planning is very meticulous on the execution of the job in hand. The Koreans never shown any bias against India. The Americans and Japanese took their brand equity for granted. The Koreans did not. As a result of this they didnt make any value judgments of the Indian customers and introduced contemporary products. This way they got their brand noticed. Both L.G and Samsung have consistently launched contemporary models-be it fuzzi logic washing machines, flat screen TVs or microwave ovens-in step with their launch globally. Further power was added to this strategy of dazzling Indians with global products was their high advertising spends. L.G spent Rs 110 crores in advertising while Samsung spent Rs 80 crore in 2001. In 2003 L.G spent Rs 225 crores and Samsung Rs 100 Crores. Such high voltage advertising has made the Koreans the biggest spenders in their businesses, and they outspend competition by a factor of at least two. These spends have placed the Koreans in the class of some of the highest spenders in India such as Colgate, ITC, Dabur and Hindustan Lever. They are huge buyers of advertising so they exude through a lot of visible brand building. The Koreans have also started making a name for their ability to understand what customers want. They practice this shibboleth with unusual vigor. They figure out quickly and very well what the consumer wants. But the important part is they quickly adapt their strategies accordingly. Unlike U.S companies following the office marketing strategy the Koreans follow the principle of Feet marketing. That means even the higher officials roam about the market to give boost to dealers and also to gather the first hand information on

the current market conditions. This helps in knowing the ground realities better which results in a better strategy. The Koreans always think big and take risks. Thats why they have infused so investment, which is now bearing the fruits. Players like Whirpool and Electrolux that made a foray into consumer electronics around the same time that L.G and Samsung did. They hedged bets by buying existing brands and capacities here (Kelvinator, Maharaja, Allwyn, and the like) while the Koreans built capacity from scratch and gives them an edge over the competitors. The Koreans want to outdo the Japanese. They dont start on a hunch. Their planning is meticulous. When they take up a job they take it very seriously. All Korean managers bring on board a monk like devotion to their task at hand. This ensures quick execution of the work. The Koreans believe that manufacturing is a key strength and thats why they eschew contract manufacturing and invest in their own manufacturing facilities around the globe. They have culture sensitive workshops to ensure that the Koreans and Indians work well together. They bundle one product with another so as to promote the weaker one backed by the established product. They have well-entrenched the consumers in India by sponsoring a number of premier events like cricket matches and others with a high TRP ratings. According to prof. R.R.Krishnan at center for East Asian Studies of Jawaharlal Nehru University the insecurity element in the history of Korean comprising colonization, acquisition of their country in the past tends them to form a marketing strategy that requires best of them. Though the Koreans are making huge profits in India they have not fully presented themselves in India. Many business like chip manufacturing, humungous chemicals, energy business etc. which they are operating in other countries has not found its way to India. The reason being the instability and lack of infrastructure of India to support these businesses. This shows their marketing tactics and their inclination towards the prelaunch test that they conduct before induction of each product in India. The Koreans always do a prelaunch market survey unlike its Japanese or U.S counterparts who take their brand equity for granted. This research gives useful inputs to the Korean players and also time to adapt themselves for the new situation.

Industry profile:
OVERVIEW OF THE CONSUMER DURABLE INDUSTRY Definition Of The Consumer Durable Industry: Consumer goods like washing machines, motorcars, TV sets, audio-video systems etc, which yield services or utility over time rather than being completely used up at the moment of consumption can be termed as the consumer durables. Most consumer goods are durables to some degree, and the term is often used in a more restricted sense to denote relatively expensive, technologically sophisticated goods consumer durables such as the examples given above which implies high involvement at the time of purchase. The consumer durables segment can be segregated into consumer electronics (TVs, VCRs/VCPs and audio systems) and consumer appliances (also known as white goods) like refrigerators, washing machines, air conditioners (ACs), microwave ovens, vacuum cleaners and dishwashers. Over the years demand for consumer durables has increased with the rising level of incomes, double income families, changing lifestyles, availability of credit, increasing consumer awareness and the introduction of new models by the Indian as well as multinational companies. Consumer durable industry was once considered to be luxury item with targeting the upper-middle class for consumption. With increasing competition, price wars, branding and promotional strategies, the concept has melted down to the masses and has become a part of the households necessities even in the lower-middle class and rural part of the countries. Most of the segments in this sector are characterized by intense competition, emergence of new companies (especially MNCs), and introduction of state-of-the-art models, price discounts and exchange schemes. Despite of that MNCs are entering in to Indian market because growing Indian middle class of around 250 millions. Also it is widely accepted that consumer durable penetration increases rapidly after per capita income (PCI) crosses a threshold limit of $2000. In India, the PCI is low at $370, though it is equivalent to $600 on PPP (Purchasing Power Parity) basis and expected to see a consistent growth of over 6% over the next years to come. According to NCEAR survey estimates, the number of households in the higher and middle-income categories will rise rapidly. There will also absolute reduction in the number of households in the low incomes. This will lift large number of households to income levels at which they can become purchasers of consumer durable products. Continuous economic growth and higher income levels will drive growth in volumes, any reduction in the duties will leads to lower down of the values and this will bring more customers for the durable products.

The biggest attraction for MNCs is the growing Indian middle class (approx. 250 m). This market is characterized with low penetration levels. MNCs hold an edge over their Indian counterparts in terms of superior technology combined with a steady flow of capital, while domestic companies compete on the basis of their well-acknowledged brands, an extensive distribution network and an insight in local market conditions. The Indian middle class market of 250 million is the biggest attraction for the MNCs along with the level of the penetration of consumer durables in the India has more attracted Multinationals to the India, in the case of consumer durables penetration levels of TV is believed to the highest, and after that the penetration of the refrigerator comes. In the future, earnings will be driven by rising demand for consumer durables in general. As per the National Sample Survey Organization report of "Use of durable goods by Indian households", the per capita total expenditure on durable goods increased from Rs112.89 in 1987-88 to Rs148.02 in 1993-94. Similarly, NCAER estimates point to the fact that the number of households with monthly incomes above Rs 10,000 in metros and Rs 5,000 in non-metros is expected to rise from 22.7 million in 1995-96 to a huge 57.2 million in 2005-06. This will mean that firstly, there will be a perceptible shift towards branded products and secondly, the level of aspiration buying will increase. Size Of The Market: The total Rs. 15500 crore consumer durables industry consists of Colour Televisions, Black and White Televisions, Refrigerators, Washing Machines, Air-conditioners, Microwave Ovens, Vacuum Cleaners, Audio Systems, Electronic Appliances and Water Purifiers. The table below shows the Estimated industry size and the competition in the various segments. Estimated industry size: (Figures are in crore Rs.) Segment 2000-01 2006-07 (E) Colour Television 6500 9100 B&W Television 1250 500 Refrigerators 3700 5460 Washing Machines 1500 3200 Air-Conditioners 1000 2100 Audio Systems 1000 2000 Microwave Ovens, Vacuum Cleaners, Electronic Appliances and 550 1000 Water Purifiers (Source: BPL annual report 2000-01) Now considering consumer durables industry in general, the drivers that will leads to the growth of the industry in general will be: The degree of distribution network in the market. The advertising and marketing strategy adopted by the players in the industry. The brand image of the product as perceived by the consumer.

The technology used by the company viz. state-of-the art technology or and older version. The ability of the company to introduce newer products and newer product features. The capability of the company to service its products. The discount schemes and consumer finance facility available. The market positioning of the product. The cost competitiveness and pricing strategy of the company. The financial strength of the players. The competition in the industry has intensified after the liberalization and more and more MNC are coming to India to target the huge middle class of the country. The competition is dependent upon the brand strength and distribution network. In other words, the advertising and marketing expenses play a vital role in competition. As a result of the increased competitive activity, the advertising and marketing costs as a percentage of operating income have increased over the years. This ratio for the industry has increased from 4.4 percent in 1993 to 6.7 percentage in 2000. However, the export prospects are least or minimal because indigenous manufacturers do not possess adequate brand equity or excellent product quality. There are even constraints like transportation due to poor infrastructure and relatively under developed markets in the neighboring countries. Changes In The Strategies: There is a shift in trend as the emphasis has moved from the manufacturing process to marketing and advertising strategies. In other words, the marketing game has become a vital factor for driving sales as against the manufacturing process of the products in the past. Players are now concentrating on the creation of brand image in order to economize their scale of operations and to increase their brand strength. The advertising expenses of the companies operating in this segment are going high every year and the returns are diminishing still the brand will play a major role in selling of the product. Because of this, most of the manufacturers like, Videocon and Electrolux are acting as OEM manufacturers for manufacturing refrigerators of Samsung and LG. Even, players have increased the percentage of their advertising and marketing costs as a percentage to operating income over the years; the ratio for the industry has increased from 4.6% in 1993 to around 7% in 2000. The brand building is very critical in the industry and constant advertising is necessary.

BACKGROUND: Prior to liberalisation, the Consumer Durables sector in India was restricted to a handful of domestic players like Godrej, Allwyn, Kelvinator and Voltas. Together, they controlled nearly 90% of the market. They were first superceded by players like BPL and Videocon in the early 1990s, who invested in brand-building and in enhancing

distribution and service channels. Then, with liberalization came a spate of foreign players from LG Electronics to Sony to Aiwa. Both rising living standards, especially in urban India, and easy access to consumer finance have fuelled the demand for consumer durables in the country. Also, the entry of a large number of foreign players means the consumer is no longer starved for choice. But this has also resulted in an over-supply situation in recent times as growth levels have tapered off. MAJOR PLAYERS: The major players in the consumer durables industry, operating in different sectors such as air conditioners, washing machines, refrigerators & television include: Agrawal Group - Manufactures consumer electronic products; radios, tape-recorders, car stereos and CD systems. View profile. Anchor - Manufactures electrical switches, accessories, lighting luminaries, PVC wires, domestic appliances like electrical irons, mixers, grinders, toasters and fans. Bajaj International - Exporters of electrical fans, household appliances, lamps, fluorescent tubelights, light fittings, hoists etc. Imports steel and engineering items. BOSS Portable Blenders - Manufacturer and exporter of portable blender and home appliances includes hand held mixers, juice makers, stainless steel blender and more. E.P.C Industrial Fans & Motors - Manufacturers & Exporters of industrial fans, domestics fans, instrument cooling fans, cabin fans, electric fans & electric motors.

Eureka Forbes - Details on consumer products include vacuum cleaners, floor care equipment, high pressure water jet cleaners and electronic security systems. Global Wonders - The fastest search engine, directory, map and web guide for information on the most popular websites. Features list of wholesaler, retailer along with products list, consumer durable and more. Hotshine Appliances - U.P - Manufacturers of gas cookers & stoves & electrical appliances, product range includes cooking ranges, steam irons, oven toaster and grillers. Kelvin Systems - Dealers for Carrier Aircon Ltd (air-conditioning equipment), Honda (Siel) Power Products Ltd (portable electric generators), and Eureka Forbes Ltd (vacuum cleaners). Mangal Singh & Sons - Dealers in home appliances, consumer goods and electrical appliances, includes television, refrigerator, audio products, washing machines, vacuum flask, cooking range, oven and dining sets.

Moniba - Manufactures chemical pump, air operated pump, water purifier, health care product, bacteria free water, home appliances and chemical plant machinery. Nadi Industrial Fans - Manufacturers of fans; product range includes axial fans, centrifugal fans and special fans. Onida- Provide an online showroon to purchase the entire range of Onida products. Offers free delivery. Orient Fan - Specialized in manufacturing mini motors, deluxe decorative ceiling fans, shaded pole motors, box fans, food blender, food mixer, fruit juicer, vacuum cleaner etc. Padmini Appliances - Manufacturers of gas stoves, oven-toaster-griller, juicer-mixergrinder, electric hot plates, washing machines, ceiling fans, water heaters, irons etc. Philips - Details for consumer electronics, lighting, domestic appliances, semi conductors, components, enabling technologies, multi media projectors etc. PICASSO Home Products - Manufacturer and Exporter of various home appliances like roti maker, mixer grinder, sandwich maker, oven toaster griller, Non Stick Appliances and more. Salora - Manufactures black-and-white & colour television sets, Panasonic fax machines, printers, and digital cameras; colour monitors and cordless phones. Sansui - India - Manufacturer of electronic products, audio systems, home theatres, projection TVs, video CDs and home appliances. Singer - Manufacturers of sewing machines, food processors, refrigerators, televisions, oven, toasters, washing machines, electric irons etc. Sony India - Details of product ranges from colour TVs, hi-fi music systems, video CDs, home theatre systems, DVDs, portable audio systems, digital cameras, RMEG products, Wega T.V etc. Sony World - Features wide ranges of products: car audios, handy cams, digital cameras, VCD, LD, DVD players, cordless phones, walkman, disc mans, and Televisions. Sumeet - Manufacturers of mixer-grinders. Offers details about the machines, recipes, Sumeet outlets and more. Sunflame Appliances - Manufacturers of kitchen appliances, home appliances and electrical appliances in India. Usha International - Manufacturer of sewing machines, fans, air conditioners, water

coolers, home appliances, agricultural and domestic pumpsets, and auto products. Usha Lexus - Makers of home appliances like sandwich toasters, juicer, mixer grinders, ovens, ventilating fans, irons and room coolers. Videocon - Suppliers of home appliances, TVs, refrigerators, ACs, air conditioners, audios, tape recorder, colour monitors, digital organisers, Kenwood digital hi-fi systems, television sets etc. Vijay Sales - Dealers in consumer durables includes details for their product, customer care, schemes, consumer finance, and more. Voltas Limited - Makers of room airconditioners and refrigeration equipment, water coolers, cranes, pumps and office furniture; includes machine tools, industrial chemicals etc L.G India - Details of product ranges from colour TVs, hi-fi music systems, video CDs, home theatre systems, DVDs, portable audio systems, digital cameras, RMEG products, T.V etc. Features wide ranges of products: car audios, handy cams, digital cameras, VCD, LD, DVD players, Cdma mobiles, walkman, disc mans, and Televisions.

Samsung Electronics India Ltd - Details of product ranges from colour TVs, hi-fi music systems, video CDs, home theatre systems, DVDs, portable audio systems, digital cameras, RMEG products,T.V etc. Features wide ranges of products: car audios, handy cams, digital cameras, VCD, LD, DVD players, mobiles, walkman, disc mans, and Televisions. DEMAND/SUPPLY: The colour television (CTV) segment of the consumer durables industry has been hit by stagnant demand in recent times. CTV manufacturers like BPL and Videocon have effected price cuts while others have lowered production levels in the face of rising inventories. They have also initiated drives to clear old stocks. The results are mixed. For instance, demand for 14-inch CTVs was hit by the reduction in the prices of 20-inch CTVs. Demand for larger sets (25 & 29 inch) has also slowed because of the price factor. So companies like LG and Samsung are now expected to reduce prices in the premium categories. As for the other segments, air conditioner demand was up in recent months. In the case of refrigerators, a chunk of the sales are still in the direct cool segment as against the frostfree one, But replacement buyers tend to go for technologically improved models. Hence, sales of frost-free refrigerators have grown steadily over a period of time.

The washing machine market consists of two broad segments - semi-automatic and fully automatic. The first accounts for a chunk of the market. In terms of loading type, top loading machines sell in greater numbers than front-loading ones. OUTLOOK Companies like LG Electronics are exploring the online route to grow their business. It plans to connect around 1,700 direct dealers and distributors to its recently launched B2B portal, www.lgdealernet.com as part of its drive to become an integrated online business undertaking by the end of 2003. In the CTV segment, a number of new and innovative products are being launched. Technological upgradation and pricing are the key drivers in this highly competitive market. Even in the case of washing machines and refrigerators, new models are being developed. In refrigerators, companies like Electrolux (which has four established brands in Electrolux, Kelvinator, Voltas and Allwyn) are specially targeting high-end consumers. The demand for fully automatic washing machines is expected to increase over semi-automatic ones. Also, second-time buyers are likely to go in for larger machines. Research and development is expected to be a key issue in future as players try to keep pace with changing consumer preferences and expectations as well as the evergrowing competition. IMPACT: CONSUMER DURABLES MEASURES

Reduction in customs duty on colour televisions, refrigerators, air-conditioners and washing machines. Reduction in customs duty on colour picture tubes and compressors is also expected to benefit the sector.

IMPACT The consumer durables industry in India is a Rs 8000 crore industry and the measures announced in the Mini-Budget 2004 is expected to have a favorable impact on the sector. Reduction in customs duty on colour picture tubes and compressors is also expected to benefit the sector. Although there is no major impact on account of reduction in customs duty on durable goods, CTV makers are likely to benefit from reduction in picture tube prices. Refrigerator players focused on the higher capacity refrigerator segment will also benefit, as these are largely imported.

Refrigerator and AC players will benefit from the reduction in the customs duty on compressors, a key input in the manufacture of these products.

OUTLOOK Penetration levels in the sector are dependent on income levels, power and lifestyle. However, the largest growth rates last year were seen in categories where the penetration is below 30 per cent. CTVs, Washing machines, Mixers, Refrigerators and VCRs fall under this category. Current levels of competition in the industry is very high and threat of imports is another worry. In terms of production numbers, the highest number of units produced were seen in refrigerators followed by TVs, Washing machines and air conditioners. The CTV market has grown at a CAGR of 25 per cent in the last five years. Going forward, the western and northern regions are expected to account for the bulk of the demand in the category. The sector is expected to grow at a CAGR of 18 per cent for the next three years with CTV, Refrigerators and A-Cs being the outperforming segments. As GDP growth increases, analysts feel that better disposable income would lead to a demand upsurge and higher consumer discretion in the sector. The listed players in the sector currently trade at average earnings discounting of 4.2x, compared to the current Sensex discounting of around 18x. Impact - Positive SAMTEL The company is Indias largest manufacturer of Color Picture Tubes (CPT) with its manufacturing facility located in Ghaziabad near Delhi. The companys exports currently constitute about 7 per cent of its sales. Reduction in customs duty on Colour Picture Tubes is expected to help the company reduce its raw material costs. Except for Sony, all major domestic Color TV manufacturers like Samsung, LG, Videocon source their requirements from Samtel Color. The companys capacity utilisation has increased from 50.5 per cent in 2003-04 to 72.3 per cent in 2002-03 and sector analysts expect higher utilisation in the future. MIRC ELECTRONICS MIRC has not only survived the onslaught of MNCs such as Samsung, LG and Sony but has also consistently raised its market share and maintained margins. CTV makers on the whole are likely to benefit from reduction in picture tube prices and Mirc wont be an exception to that. Expansion of the ONIDA brand in domestic as well as international markets is a strong growth driver. Analysts expect the companys thrust into West Asia and Russia to result in a sharp upswing in exports to 20 per cent in the next three years from the present 5 per cent. The interest component has come down dramatically over time and the management expects the company to be debt free by the middle of 2004.

BLUE STAR Blue Stars central air-conditioning business is the core to the operations and remains the growth engine. Reduction in customs duty on compressors would be a strong case for the company to reduce its manufacturing costs, lowering prices and stimulating demand, specially in the window and split air conditioner segments. Blue Star is the largest single source for air-conditioning equipment in India. Analysts say that the demand from sunrise sectors such as software, retail banking, and other service industries are expected to continue to grow rapidly in the next five years at least, providing enough growth opportunities for Blue Star. The company also provides turnkey customized cooling solutions.

SAMSUNG (GLOBAL)
Profile:
Founded: 1938 Chairman (since 1987): Kun-hee Lee Founder: Byung-Chull Lee (1910-1987) Headquarters: Seoul, South Korea Global Operations: 285 offices, Finance, and Trade and Services Number of Employees: 175,000 worldwide Number of listed companies within the group: 14 Listed Companies : - Samsung Electronics Co., Ltd. - Samsung SDI Co., Ltd. - Samsung Electro-Mechanics Co., Ltd. - Samsung Techwin Co., Ltd. - Samsung Heavy Industries Co., Ltd. - Samsung Chemicals Co., Ltd. - Samsung Fire & Marine Insurance Co., Ltd. - - Samsung Securities Co., Ltd. - Samsung Corporation - Samsung Engineering Co., Ltd. - Cheil Industries Inc. - Shilla Hotels and Resorts Co., Ltd. - SI Corporation.

Shaping Up of Technological Capabilities, Marketing Strategies and Samsung Electronics' International Production Network in Asia :

Korean electronics firms have been aggressively involved in learning and knowledge accumulation over the past two decades. Their consumer products, including color television sets (CTVs), video cassette recorders (VCRs), and microwave ovens, were able to remain competitive in the low-end segment of world markets until the late 1980s, generating the cash flow needed to support development of more advanced technologies. In recent years, however, Korean products are meeting increased competition, particularly from Japanese producers that have recovered their competitiveness by investing in low-cost offshore production. Increased overseas production has been a major component of Korea's strategic response. Korean production networks in Asia now extend beyond the ASEAN region to China and

India. The ratio of overseas production to total production has increased sharply in recent years, from 19 to 27% for CTVs and from 16 to 17% for VCRs during the period 19921994. However, those of their Japanese electronics counterparts increased even faster, from 67% to 86% for CTVs and from 36 to 71% for VCRs during the same period (see Table 1), keeping competition intense in the cost-driven struggle for low-end markets.

Table 1 Overseas Production Ratio Of The Korean And Japanese Electronics Industries 1991 CTV Korea Japan VCR Korea Japan NA 63 % NA 29 % 1992 19 % 67 % 16 % 36 % 1993 20 % 72 % NA 48 % 1994 27 % 86 % a 17 % 71 % b 1995 28 % NA 20 % NA

Note: Overseas production ratio in the table is the ratio of the unit quantity produced overseas divided by the total unit quantity produced overseas and in the home country. a The figure of Sharps overseas production ratio. b The figure of Sanyos overseas production ratio. Source: Electronics Industry Association of Japan (EIAJ), Tsuda and Shinada (1995), Junja Shinmun (28 Feb. 1994), Electronics Industry Association of Korea (23 Feb 1995), Hankuk-Ilbo (10 Apr 1995), Jungang-ilbo ( 24 Feb 1995). Perhaps a better comparison would be with another newly industrialized Asian country. Outward foreign direct investment (FDI) by Korean electronics firms lagged behind their Taiwanese rivals. The cumulative FDI by the former amounted to $US 0.85 billion (EIAK, 1993), while for the latter it was $US 1.05 billion. In 1993, the three major Korean producers, Samsung, Goldstar and Daewoo, announced their intention to increase their overseas production ratio from an average of 20% in 1993 to 60% by 2000 (Korea Economic Daily, 21 July 1993). This paper will focus on the experience of Samsung, which has the highest overseas production ratio of the three. The paper is arranged chronologically, focusing both on the forces driving Samsung to develop offshore networks and on the struggle to adapt the nature of its networks to its capabilities. Particular attention will be placed on the networks connecting its offshore affiliates in East Asia.

The firms involved are all part of the Samsung Group, a highly diversified conglomerate. The core electronics producer is Samsung Electronics Co. (SEC) and its affiliated firms are Samsung Electron-Devices Co. (SED), Samsung Electro-Mechanics Co. (SEM) and Samsung Corning Co. (SC). The sources for this study are primarily internal Samsung publications, including monthly bulletins relating to international production, technological development, and organizational processes, as well as interviews that were conducted at Samsung in Seoul during November 1994. The organization of Samsungs international production networks in ASEAN were also reviewed during July 1995. The first section examines the 1970's, following Samsung's entry into the electronics sector. The focus was on the development of mass production capability, and international linkages were used to acquire product designs and marketing outlets, allowing Samsung to concentrate its resources on the development of mass production capability. The second section looks at Samsung in the 1980s. The majority of the group's resources were channeled into the highly demanding production of advanced semiconductors. While the effort was eventually successful, it appears to have retarded the development of design and marketing capabilities for its mass-production goods, leaving the group dependent on foreign sources of product design and distribution. The decade also saw the company's initial foray into international production to cope with trade pressure in its major markets, and explores how the group's internal organization was poorly adapted to the needs of overseas operation and to the task of organizational learning. The third section considers Samsung in the 90s. Samsung has been pursuing a variety of strategies, including internal organizational reform, rapid expansion of offshore production, and aggressive acquisition of technology.

Table 2 provides an overview of the profile of the group in each decade. Table 2 Samsungs Technological Capabilities And Features Of International Production 1970s 1980s Entry into DRAM market 1990s Organizational reform, internationalization

Key activities

Conglomerate diversification J/V partners, Original Equipment Manufacturer (OEM) buyers and overseas training

Main sources of capabilities

OEM buyers, foreign licensing, reverse engineering

Acquisitions, strategic alliances, in-house R&D.

Level of technological capabilities

Capabilities in mass production (TVs)

Broader product range (VCR, MWO, DRAM, components), but very weak in ability to introduce a major change of product. US & EC for low-end markets (limited success). Centralized intra-firm interaction.

Continued weakness in product development

International production and scope of interaction

International production of low-end items in peripheral regions. Moving toward decentralized intra- and inter-firm interaction.

The fourth section examines Samsung's Asian production networks in detail. Initial investments were for consumer goods for both export and local markets. The networks were promptly integrated backwards and linked to the networks of other producers in the region. A final section provides a brief summary of the findings about Samsung's production networks, along with an analysis of the directions the firm must go in if it is to remain competitive in a rapidly changing environment. Samsung in the 1970sFrom Textiles to Televisions Samsung was first incorporated in 1938 by Lee Bung-Chull, and its main business line was trade. The trading function has continued to be important, first with imports, and later exports, starting in the mid-1970's. Samsung had become one of Koreas top ten firms by 1950. In the mid-1950s Samsung entered two manufacturing sectors: sugars in 1953 and textiles in 1956 (SED 1990). Domestic demand was huge, and Samsung could start production using imported equipment from Japan and Germany. It was not until 1969 that the firm entered the electronics industry, with the incorporation of Samsung Electronics Co. (SEC). Samsungs entry into the electronics industry had four important features which continued to characterize Samsung's electronics activities into the 1980's: an emphasis on mass production, reliance on foreign technology, a follow-the-leader strategy, and government support. First, its electronics business was significantly influenced by the two manufacturing activities of textiles and sugars. Both industries required a large scale of operation, and Samsung developed know-how through learning-by-doing for more than a decade before it entered the electronics industry. Secondly, its business started with imported foreign technology, having a close relationship with Japanese electronics

firms. Having been educated in Japan, Lee Byung Chull was able to establish informal contacts. Originally Samsung had considered cooperation with American firms, but it finally chose Sanyo and NEC as joint venture partners because of the language difficulties inherent in learning about the American technology (SEC 1989). Thirdly, Samsung entered the Korean electronics industry as a market follower. Another Korean firm, Goldstar Electrical, had started assembling vacuum tube radios for a US firm in 1959 and had built up export capabilities for ten years before Samsung entered the industry. Finally, Samsung enjoyed government support for its expansion into electronics. In 1968, the Korean government introduced the Electronics Industry Promotion Law, marking the beginning of official support for the industry. Samsungs initial strategy was nothing more (or less) than the mimicking of its Japanese rivals. Its aim was to become a vertically integrated electronics firm: "...from materials to components to end-products, including consumer and industrial electronics" (SEC 1989). However, entry barriers were so strong that the government set a condition for Samsung that all products should be exported (SEC 1989). Given its lack of previous experience in electronics, Samsung had no choice but to be simultaneously involved in learning a number of different technologies. To accomplish this, it turned to foreign sources of technology in management, production and marketing. It created several joint venture companies with foreign technology suppliers such as NEC, Sanyo, Corning Glass Works and other companies. It also reached numerous agreements to assemble electronics products for foreign original equipment manufacturer (OEM) buyers, who provided it with design and engineering support as well as with an international market. Investment in design and international marketing remained limited while Samsung concentrated on improving its production capability through such measures as the training of technicians in Japan. A series of joint ventures allowed Samsung to rapidly achieve its goal of becoming a vertically integrated producer of television sets. In December 1969, the recently-established SEC established one joint venture firm, Samsung-Sanyo, with Sanyo (40%) and Sumitomo Trading (10%), and in January 1970 another joint venture company, Samsung-NEC, with NEC (40%) and Sumitomo Trading (10%). According to the two joint venture agreements, Samsung alone had local market sales rights, while Sanyo and NEC had the export rights. However, it was not until the mid-1970s that Samsung was allowed to distribute its products within the domestic market and reap higher profits due to domestic market protection. Samsung thus had to rely on foreign linkages from the very beginning of its electronics endeavors. In March 1973 Samsung-Sanyo Parts, from which Samsung Electro-Mechanical (SEM) originated, was set up. Its shareholders were Samsung-Sanyo, SEC and Sanyo. This company was to produce parts for televisions, including tuners, deflection yokes, transformers and condensers. In December 1973, Samsung formed another 50:50 joint venture company, with Corning Glass Works of the U.S. in order to produce glass bulbs for the production of cathode ray tubes (CRTs). Foreign linkages thus permitted Samsung

to achieve a high level of vertical integration in the production of televisions in a remarkably short time. Furthermore, apart from the first three years of the venture with Corning, all ventures were under Samsung's management control (SC 1994). Its joint venture partners provided significant training to Samsung's employees. An early example is NEC. The first intake of sixty-three Samsung-NEC employees was sent to NEC in Japan, from September 1969 to February 1970, in order to master the skills of assembling technologically simple products. In 1970, about twenty employees went to Japan for training with vacuum tubes and black & white CRTs, which Samsung-NEC was successfully assembling by the end of the year (SEC 1989). In accordance with a technical assistance agreement, NEC technical experts came to Korea annually to train eighty Samsung-NEC technicians (SED 1990). Starting in 1977 when NEC licensed Samsung-NEC to produce color picture tubes, several groups of Samsung-NEC technicians were once again sent to Japan for one to four months training. Foreign training has remained a feature of Samsung's partnerships in a variety of electronics fields, including Sanyo (radios and television sets), ITT (telecommunication switches), and Honeywell (semiconductors). Although Sanyo divested its shares with Samsung, NEC and Corning Glass Works are still share-holders in Samsung Electron Devices (SEDa CRT producer) and Samsung Corning (SC), respectively. SEC expanded and improved its assembling capability, producing nearly 10 million black and white TV sets by the end of the 1970s, by which time Samsung was exporting a considerable volume of television sets to the U.S., its only significant overseas market. On the strength of its mass-production capability and the Korean government's support for exports, SEC was able to seize a fairly high share of the US market (although far less than its Japanese counterparts), particularly in low-end products. SECs exports were significantly concentrated on the US market. USA (77%), Canada (7%), Europe (3%), South America (3%) and others (10%). The products exported were black and white TV sets (43%), color TV sets (44 %) and audio products (9.6%). Most sales were through OEM channels. OEM buyers provided Samsung with product design, quality control and engineering support, leaving Samsung to increase its manufacturing capability through the intensive training of employees, particularly shoplevel technicians. Apart from the NEC and Sanyo channels, Samsung tried to get access to other international distributors. As growing connections with international direct marketing channels increased its bargaining power, Samsung was able to ease the restrictions initially imposed by its joint venture partners. When the agreement with Sanyo was renewed in 1972, the original export marketing restriction, which had been unfavorable to Samsung, was terminated. In addition to assembled products, Samsung also engaged in the direct sale of components to other firms. As SECs quantity of production increased, its demand for

core components produced by its affiliated part suppliers such as SED, SEM and SC increased accordingly.However, SEC was not able to purchase all the components produced by the affiliates, who were obliged to find non-Samsung customers in Korea or Japan. Samsung expanded its OEM channels and capabilities by adding two new products VCRs and microwave ovens. Samsung tried to get access to technology for the two products in the mid-1970s, but gaining foreign licensing was more difficult than for television sets. Therefore, Samsung had no choice but to get it through "reverse engineering" (SEC 1989: 248- 250). In 1976, SEC formed a product development team which began to dismantle a Panasonic microwave oven. The project was successfully completed in 1978. In 1979, Samsung succeeded in developing its own VCR through reverse engineering. According to Jun and Han (1994: 317) Samsung still showed no improvement in creative development unless a similar sample or manual was available as the basis. Samsung further diversified its business line into the telecommunications sector through a 1977 joint venture with GTE of the U.S. But even as its product engineering and assembly capabilities improved, the Samsung group's development of market knowledge was stymied by its internal organization, further stunting the creation of original product designs. Samsung Corporation, the group affiliate involved in general overseas trading, distributed the electronics products manufactured by SEC through international branch offices (Cho 1983). According to an interview, SECs expansion into foreign marketing had been blocked by Samsung Corporation, whose priority was the increase of export performance in order to meet the export-led industrialization policy. It was not until 1978 that SEC was actively engaged in overseas marketing through its own sales affiliate established in the U.S. Yet, intra-firm interaction between the US-based sales affiliate and Korea-based production site was not effective. The affiliate belonged to the department handling export marketing, not to the production department. Once again, SEC was not able to recombine knowledge of the U.S. market with that accumulated in Korea. In short, there was no organizational support for links between production and international marketing. One cause may be the profit-center system that was introduced in 1975 to stem the losses incurred for the first five years of operation (SEC 1989). Each affiliate operated independently in its own interests, and the same was true for each business division. Autonomy was limited by the central control of the Chairmans Secretariat. The profit-center system led to at least two negative effects. First, the strategic direction of each affiliate put much more importance on the short-term than the mid- and longterm. The system was reinforced by an employee evaluation system which focused on short-term performance which remained in place up to the early 1990s (Samsung 1993). Secondly, the system generated unproductive competition rather than cooperation

between affiliated organizations within the group, and between organizations within a firm. Despite the organizational difficulties it experienced, Samsung made considerable progress during its first decade in the electronics business. But the next decade would see Samsung's electronics operation reach new levels of sophistication. Samsung in the 1980sTechnological upgrading The 1980's saw Samsung expanding and diversifying. Table 3 shows how the company's revenues were expanded first by the addition of microwave ovens, then VCRs, and later by successive generations of memory chips. We will begin the review of this critical period in the firm's history with integrated circuits, which have become its primary focus, before returning to the history of its product divisions which are, in fact, the source of Samsung's international production networks in Asia.

Table 3 Samsung Electronics Corporation Major export products in the 1980s (US$million) 1982 CTVs VCRs MWOs REFs W/Ms A/Cs EPBXs Keyphones FAXs Computers Watch chips 88.2 59.8 12.5 0.7 0.2 8.1 1983 151.7 95.2 10.8 1.0 2.3 0.8 7.7 1984 196.7 2.6 149.5 16.0 1.4 2.5 0.2 0.02 12.8 1985 141.9 134.5 127.4 24.0 2.5 1.6 5.2 0.8 13.1 1986 221.6 297.4 238.8 34.4 5.6 1.9 0.4 13.2 7.9 27.5 1987 353.8 401.7 308.4 53.6 13.4 12.4 0.5 62.0 22.5 21.1 1988 408.9 581.7 367.1 89.8 18.1 14.6 1.6 48.4 2.2 69.5 21.9

Linear ICs Transistors 64K DRAM 256K DRAMs 1 M DRAMs

4.6 1.2 -

5.9 1.2 -

10.9 7.6 5.5 -

15.8 13.7 12.4 27.0 -

22.0 17.8 33.2 50.3 -

37.3 38.8 21.7 134.2 6.0

45.6 50.0 76.9 253.4 221.3

Note: MWOs = microwave ovens; REFs = refrigerators; W/Ms = washing machines; A/Cs = air conditioners; EPBXs = electronics private branch exchanges; FAXs = facsimile machines Source: SEC (1989:1032, 1036, 1053, 1057,1067) Integrated Circuits Samsung's vertical integration strategy was extended quite early to embrace semiconductor technology, which was to be SEC's key focus in the 1980's. In 1974, Samsung acquired Korea Semiconductor Co. (KSC), a joint venture between Korea Engineering & Manufacturing Co. and Integrated Circuit International, a U.S. firm which manufactured simple integrated circuits ("chips") for electronic watches. This time, Samsung acted well ahead of its rival, Goldstar, which entered the market by acquiring Daehan Semiconductors in 1979. The firm hoped that internalization of core components technology would reduce its heavy dependence on Japanese suppliers (SEC 1989). SEC suffered from the outside purchase of core components because its production quantity of CTVs and VCRs were limited by component availability. In the late 1970s, Kim Kwang-Ho (currently CEO of the Electronics division), who had worked for the TV production department, was transferred to the semiconductor sector. It seems that his primary mission was to develop core ICs such as the "chroma IC" that were then imported from Japan. The mission was accomplished in November 1981, followed by another important developmentthe motor drive ICin 1982. To successfully achieve its objective, Samsung once again tried to learn foreign technology through a broad range of formal and informal contacts. The acquired technology was internalized through learning-by-doing, backed by a large pool of resources. The decade-long effort to develop semiconductor capabilities may well have limited learning and knowledge accumulation in other areas. In 1983 Samsung expanded beyond production for its internal needs and entered the merchant market for dynamic random access memories (DRAMs), which require the most advanced manufacturing technologies and huge capital outlays. As for its initial

entry into electronics, government support was a factor, with a semiconductor promotion law enacted in 1983. To the extent that the company was known to be naturally very cautious on entering new business ventures (Jun and Han 1994), the entry decision would not have been made without nearly a decade of successful chip manufacturing experience. Samsung was able to shorten its learning process by a variety of interactions with foreign technology sources. In June 1983, Samsung licensed a DRAM design from Micron Technology, a mediumsized American producer. Samsung claims that it was the only source of DRAM design after contact with various firms including Texas Instruments, Advanced MOS, Motorola, NEC, Toshiba, etc. For the process development of 64 K DRAM, Samsung was fortunate to get access to Sharp which was the only source of process technology such as 16K SRAM and 256K ROM technology. In November 1983, a 64 K DRAM chip was developed at Samsung, and in mid-1984 mass production started. Samsung placed great importance on informal learning and training in addition to the purchase of foreign technology. This provided Samsung with an opportunity to overcome problems whenever critical situations occurred. For instance, Samsung succeeded in managing more than 300 manufacturing steps, excepting only eight key process steps, and overcame this obstacle by adding "three experts who had participated in the project of 64K DRAM in the US and been trained at Micron Technology" (SST 1987: 203). Japanese technology advisers who had maintained a relationship with the ex-Chairman, Lee Byung Chull, consulted to the firm about the semiconductor technology and market trends. Similarly, the current Chairman Lee Kun Hees informal networks with technology sources were significantly beneficial during the development of the 4M DRAM. But inter-personal networks were insufficient to develop capabilities in a demanding field where Korea was so far from the center of activity, necessitating the globalization of Samsung's technology development. Soon after its entry in the DRAM market, Samsung set up a research institute Samsung Semiconductor Inc. (SSI) in Silicon Valley. SSIs first objective was to develop 64K and 256K DRAMs. The office began producing silicon wafers in 1985 with 300 engineers and was expanded in 1987 to study IC applications in computers, office and telecommunications equipment. That same year, SEC opened its Tokyo Design Centre for ICs. SSI became an important platform for collecting information about up-to-date technology and markets as well as a training post for Korean engineers. Samsung was also able to recruit several Korean DRAM experts educated in the US who would play an important role in helping Samsung to develop and commercialize DRAMs.

The company adopted a dual strategy for development of the 256K DRAM generation, following extensive "reverse engineering" of Micron's design (Ernst 1994b: 81). Two teams, one in Silicon Valley and the other in Korea, simultaneously started the same work. In October 1984, the Korea-based team developed a 256K DRAM sample. In early 1985 the Silicon Valley team developed one, and this was the sample adopted for mass production (Ernst 1994b). The DRAM case provides one of the most important examples of Samsung's practice of creating new capability by quickly combining new knowledge and information from foreign sources with its accumulated current skill base. As it developed subsequent generations1 M DRAM (July 1986), 4M DRAM (Feb. 1988), 16M DRAM (Sep. 1990) Samsung mastered the necessary capabilities bringing it ever closer to the frontier of innovation. In the early 1990's it became the world's largest producer of DRAMs, and was one of the first companies to ship engineering samples of the 64M generation in 1995. Foreign linkages have continued to be important. Samsung's development of the 64M and 256M generations was undertaken in close cooperation with NEC. Samsung's progress in internalizing DRAM know-how improved its ability to develop integrated circuits for its consumer electronics, industrial, and telecommunications products. By the late 1980's, SST was able to produce sixty-one kinds of telecommunications ICs, for use in phone sets, computers, private automatic branch exchanges (PABXs), and facsimile machines. Similarly, SEC could produce a total of thirty-seven kinds of ICs for use in its VCRs (SMM Jan 1987). As a result, it was freed from dependency on Japanese suppliers for these core components. The mastery of integrated circuit technology meant not only the internalization of supply but also the development of new capabilities to be deployed in new and existing products. In 1988 SEC developed 2-micron bi-polar process, which combined with other breakthroughs leading to its development of VCR motor control ICs, which improved the quality of the picture and sound of its VCRs (SMM Mar 1989). Samsung developed voice synthesis ICs in 1989 for use in robots, automobiles, microwave ovens, refrigerators, washing machines and electronic toys. However, the success in DRAM came at a price. The combination of long-term investment commitments and cyclical demand from downstream users meant that DRASM prices were unreliable. A sustained price drop in the mid-80's lead to huge losses, reducing the cash flow to other group affiliates. The OEM Trap Because of the drain on resources inflicted by the integrated circuit operation during much of the 1980's, other divisions and affiliates had few strategic options except that of exploiting the company's previously-developed strength in production. Except for shortterm investments generating immediate cash, most other investments were strictly

controlled by the Chairmans Secretariat. Relatively little effort was spent on product development or strategic marketing, and Samsung's emphasis remained on the mass production of relatively low-end products. Another important characteristic of the group's operation in the 1980's was the internal production of core components. SED became one of the world's largest producers of CRTs. The strategy was extended to newer products such as VCRs and microwave ovens, for which Samsung produced most of its own magnetrons. The development of product design capabilities was undermined by the company's major commitment to integrated circuits. Of course, SEC had a minor change capability that required ability for doing reverse engineering, but was very weak in major change capability. As a result, it continued to use foreign sources of technology even for its main export products, which were seen mainly as a means of generating cash to support the IC project. Nevertheless, Samsung slowly built an institutional infrastructure to increase its internal technological capability. Three directions were pursued. First, the company expanded Korea-based R&D centres involved in the assimilation and adaptation of acquired foreign technology and acknowledged that the original objective was to set up an integrated R&D organization. The Samsung Advanced Institute of Technology (SAIT) was created to inter-link several affiliates, but, at least initially, it was unable to transcend the demand for projects which were commercially exploitable in the short-term (Koh, 1992). Second, Samsung established foreign-based R&D centres which could provide it with new technologies, up-to-date information, and training for Korean R&D personnel. These were used mainly for integrated circuits and, starting in the late 1980s, for computerrelated technologies.The third form of effort was continued collaboration between SEC and its affiliated components suppliers. The ability to use R&D to build new capabilities was constrained by accounting perspectives. Research projects were held to extremely short-term objectives, preventing the development of know-how beyond what was needed for simple adaptation to mass production requirements. Table 4 shows a typical example of how the company evaluated the impact of R&D on sales and profits, placing a strong emphasis on immediate sales growth.

Table 4 Samsung Electronics Corporation Measures of R&D Expenditure And Its Effect (1980-1983) (million Won) 1980 R&D expenditure (A) 768 1981 1,323 1982 2,092 1983 2,417

Attributed sales increase Profit (B) Net Profit (A-B) Net profit (Accumulated) Source: SEC (1989: 284)

2,099 277 - 491 - 491

36,137 691 - 632 - 1,123

22,028 2,116 24 1,099

133,406 28,976 26,559 25,460

Another victim of Samsung's concentration on integrated circuits may have been its international marketing capabilities, which remained weak. Samsung started distribution of its own-brand products, making minor changes from models it had built from designs provided by the US and Japanese customers, but success was limited. SEC gradually established a network of foreign sales affiliates. It would typically set up a foreign branch office, and then the office turned into a sales subsidiary when it had accumulated a certain degree of foreign market knowledge. However, the hierarchically integrated organization structure restricted the interaction of its own foreign sales channels with Korea-based production sites, limiting feedback from customers to factories. Accordingly, OEM channels remained dominant in the company's sales (Table 5).

Table 5 Samsung Electronics Corporation Exports (US$million ) 1984 OEM export (A) 443 Total export (B) OEM ratio (A/B) 669 66.2% 1985 483 743 65% 1986 813 1,146 70.9% 1987 1,130 1,727 65.4% 1988 1,205 1,840 65.5%

Source: SEC (1989: 1037)

Samsung maintained close relationships with OEM buyers such as JC Penny, Sears Roebuck, GTE, Toshiba, IBM, Hewlett-Packard, RCA, and Crown Corporation. However, its clients were generally not providing Samsung with leading-edge product design, and Samsung did little to upgrade its internal capabilities in this area, confining itself to low-end market segments. In the early 1980s, the U.S. market was by far the most important for Samsung, but by the end of the decade it had greatly increased the geographic diversity of its distribution channels, particularly in Europe and Southeast Asia (see Table 6).

Table 6 Samsung Electronics Corporation Exports By Region (%) 1982 North America Europe South America Southeast Asia Oceania Middle East/ Africa Source: SEC (1989: 1036) In the early 1980s, CTVs imported from Japan, Korea and Taiwan became a controversial trade issue in the US and Europe (Bellance 1987), and Korean firms faced anti-dumping duties on their CTV exports. SEC had no alternatives but to protect existing export markets mostly in the US and EC. In order to protect its access to the U.S. market (Jun, 1987), SEC set up an affiliate producing CTVs in the United States in 1984 (two years after its domestic rival, Goldstar, had made a similar move, transferring production capability accumulated at home. The experience proved unsuccessful and the firm started to divest from the United States in 1989 and shift to Mexico as part of a low-cost strategy. There were two main reasons for the retreat: the U.S. production organization failed both to develop high-end products for the American market and to link with local components suppliers, continuing to rely on components from its Korean factories. 62.1 7.1 9.3 8.2 2.2 11.1 1984 75.6 6.5 6.0 6.9 1.6 3.4 1986 62.4 19.1 7.3 6.2 1.6 3.4 1988 35.5 26.0 8.0 20.0 1.5 8.6

In general, the U.S. affiliate failed to upgrade overall capabilities in strategic marketing. There was no effective interaction between the marketing and production departments. This case is totally different from that of its Japanese rivals who had superior technological capabilities; they succeeded in providing high-end products and linked well with local component suppliers. In short, SECs failure was due to the fact that SEC was forced by trade issues to set up an international production platform in the US without the prior accumulation of capabilities in product design and development. Samsung In the 1990s: Challenge and Response The 1990's have presented Samsung with a number of challenges requiring adaptive strategies. The key strategic shift is from quantitative to qualitative growth. This has been manifested in a series of organizational reforms and in new approaches to technology management. Another major thrust of recent years has been an increasingly aggressive globalization of production. Declining competitive advantage leads to organizational restructuring In recent years, Samsung has had to cope with a very changed environment from the world it faced twenty years earlier as it entered the electronics business. On the one hand, its investments in semiconductors paid off handsomely. But on the other hand, its traditional cash-generating product linesin which it has sunk considerable investments began to face serious challenges in both foreign and domestic markets. In 1993 Samsung Chairman Lee Kun-Hee described the electronics business as suffering from cancer. One aspect of this decline is a series of changes that have occurred in the markets Samsung serves. First, Samsung's major export markets for consumer electronics in the US and Europe have become saturated. The reduced growth in demand has severely increased price competition, and has increased the importance of smaller markets with specialized demandturning Samsung's marketing weakness into a major problem (Ernst and OConnor 1992). Second, Korea's domestic electronics market, which had long been protected from foreign competition, has been liberalized as Korea prepares to join the ranks of industrialized nations, eroding an important source of profits. Liberalization of imports by the Korean government has led global players to enter the Korean domestic market, which had long been protected from foreign electronics products. In 1989, import quotas on consumer electronics goods were removed. From July 1991, foreign retail distribution outlets were allowed to possess up to ten stores with less than 1,000 sq. ft. in size (Jun 1992) far bigger than the 100-130 sq. ft. that local Korean outlets usually occupied (SEMM Apr 1991). By 1993 there was a plan to cut the average tariff rate to below 10% for all imported electronics goods (Bloom 1992). Samsung conducted an internal analysis of Taiwans market liberalization (SEMM Apr 1991). It found that Taiwanese producers lost huge market shares when faced with competition from Japanese brand products. The market share of Japanese goods between

1986 and 1990 rose from 18.5% to 77.5% for CTVs; from 43.3% to 86% VCRs; from 35.5% to 62.2% for refrigerators; from 48.7% to 72.1% for washing machines); and from 21.6% to 40.7% for air-conditioners. In 1991, imported electronics goods accounted for 5% of the Korean market, but that figure was expected to increase to 15% (SEMM Apr 1991). This was a threat to Korean electronics firms, considering that Samsung, Goldstar and Daewoo were fighting to increase their market share by 1 or 2 % per year. During the early 90's, virtually every major producer has developed and begun to implement plans for penetrating the Korean market. Meanwhile, international economic forces had further eroded Samsung's competitiveness. Generalized system of preferences (GSP) privileges were withdrawn from Korean electronics goods by the U.S. and the E.C. in 1988 (EIAK 1989: 255). At the same time, the Won had appreciated about 20% against the dollar, making exports from Korea less attractive in their major markets. Such demand-side developments are particularly troublesome to a firm like Samsung which followed a "market-pull" approach rather than the "technology-push" strategy of product innovators like Japan's Sony (Yu Seongjae, 1989). Samsung's low-end products were increasingly squeezed out of the market by more sophisticated goods which were nonetheless price-competitive. Furthermore, the speed of technological obsolescence has accelerated, with shorter product cycles making it more difficult for a mass-productionoriented firm like SEC to amortize its production set-ups. A shift of resources from OEM to own-brand production made matters worse because, unbacked by adequate product development capabilities, it was doomed to failure. In the 1990's, the share of Samsung's sales attributable to own-brand merchandise has actually risen to about 60%, but this is due in large part to an absolute decrease in OEM business. Samsungs leadership responded with two sets of initiatives. One change is increased internationalization, which will be considered in a separate section. The other initiatives involved organizational reform designed to overcome the lack of coordination and cooperation between different organizations within and across group member firms (Samsung, 1993; Jun and Han, 1994). Particular attention has been paid to the essential realm of technology management. Starting in the early 1990s, SEC undertook a gradual organizational integration to increase coordination between production, marketing and research both within and across product lines. In 1991, Samsung set up a strategic management section in SEC, which was in charge of planning, internationalization and strategic technology management (SEMM, Aug 1991). In December 1992, SECs multiple product sectors were fully integrated under a single CEO, Kim Kwang Ho, previously head of semiconductor operations (SMM Dec 1992). In January 1993, SEC restructured further by merging the audio and video business divisions (SEMM Jan 1993). In mid-1993 Samsung started to

initiate more radical reform than it had done before. In October 1994, Kim Kwang Ho was appointed as head of all electronics affiliates, including SEC, SED, SEM and SC. One of the key reasons for this consolidation was to improve the dissemination of knowledge throughout the group. An integrated technology management division was established in 1993 (SEMM, Jan 1993). During the 1990s, internal improvement in DRAM technology has generated technological spill-over effects, so a number of core components were being developed and produced due to the advanced production capability. Samsung says that the semiconductor sector created technological synergy for use among all of its related businesses. For instance, the development of DRAM process technology caused the level of Samsungs overall precision process technology to improve significantly (SST 1987). Yet, till the early 1990s, SEC had done little to upgrade its capabilities in product design and development. This lapse became particularly dangerous as competition increased in its non-component product markets. Furthermore, product design capability was an important complement to the internationalization of production; as low-value-added goods were increasingly produced offshore, new and better products were needed to avoid the hollowing out of production in Korea. As competitive conditions changed in the electronics market, foreign licensing of important technologies and designs became more difficult. Samsung, flush from the achievement of profitability in its semiconductor business, began to acquire new capabilities through the outright acquisition of, or direct investment in, foreign firms. Table 7 shows that the acquisitions and strategic investments dating from the time when Samsung's boldest organizational reforms were being implemented covered a broad range of technology such as telecommunications, computers and semiconductors.

Table 7 Samsung Electronics Corporation Two Years of Investments (Apr.'93 to Feb.'95) Name of firm Array Microsystems (US) Harris Microwave Semiconductor (US) Date Apr. 1993 May. 1993 Scope and content SEC acquired 20% of Array and established cooperative arrangement in digital process chip technology used in multimedia products. HMS specializes in gallium arsenide chips and is one of the worlds leading makers of optical semiconductors.

Acquisition (51%) of Japanese hi-fi audio maker: LUX (Japan) May 1994 - LUX: development and sales - SEC: manufacturing and sales Control Automation Inc. (US) ENTEL (Chile) Integrated Telecom Technology (US) Integral Peripherals (US) Jun. 1994 Sep. 1994 Dec. 1994 Jan. 1995 Acquisition (51%) of the CAD/CAM software technology company. Investment (15.1%) in the largest operator of telecommunications systems. Acquisition (100%) of ITT that specialized in ATM technology. Investment (4%) in shares of US based firm specializing in HDD technology; joint development of HDD products. Investment (40.25%) in shares of US based computer company; broad range of commercial relationships including supply and pricing of critical components, joint product development, cross OEM-arrangements and cross-licensing of patent.

AST Research (US)

Feb. 1995

Source: SEC 1995b In addition to improving its competitiveness in consumer electronics, the investments reported in Table 7 make clear Samsung's desire to diversify further into the information technology sector. Samsung reports that in 1994 the structure of its sales was consumer electronics (38%), semiconductors (40%), and information systems (22%) (SEC 1995b). However, the share of information systems would be more or less 15% if a large proportion of components such as CRTs and computer monitors were excluded from it. Samsung's computer business had experienced only low growth despite a series of investments and alliances struck in the 1980's with leading US firms such as HewlettPackard, Micro-Five Corp., IBM, and Control Data. SECs system design capability has lagged behind that of its Taiwanese rivals, and SECs OEM ratio for computer products was much higher than that of Taiwanese firms. Its position in computer systems outside of Korea was particularly weak. The recent major investment in AST Research provides Samsung an alternative means of overcoming its internal weakness in the computer business. The agreement enables Samsung to share the AST brand name and to sell memory chips to the AST. SEC is actually not entitled to be directly engaged in the ASTs management for the first four years of acquisition (Junja Shinmun, 9 March 1995).

However, Samsung's acquisition of foreign firms (except perhaps Lux and Control Automation Inc.) was not aimed at ameliorating Samsung's internal weakness in product design and development, but at acquiring frontier technologies seen as essential to the production of next generation products. Internationalization of Production Although Samsung's organizational strategy for the 90's revolves around consolidation, the strategy for its physical production facilities involves increasing movement offshore (Samsung 1993: 145). Samsung's earliest overseas production efforts were a Portuguese joint venture operation started in 1982, a US subsidiary established in 1984, and a subsidiary set up in Mexico in 1988. They had competence in the production of CTV sets and many core components. By the end of 1988 it also had twelve sales subsidiaries outside Korea. Following unsatisfactory results with U.S. production, Samsung focused more intensely on establishing low-cost manufacturing plants in Mexico, peripheral Europe, and Southeast Asia. Several factors stimulated this move. We have already discussed above the various factors eroding Samsung's competitiveness, including market saturation, loss of preferential tariff status and appreciation of the Won. But an important motivation may have come from the strategies of its rivals. Moves by Japanese and other Korean electronics firms seem to have induced Samsung to adopt a follow-the leader strategy. In the mid-1980s, Japanese companies such as Matsushita, Toshiba, Sony, and Sanyo started to move into Southeast Asia to establish production subsidiaries. For instance, Matsushitas foreign investment projects in Southeast Asia and China numbered five in 1987, four in 1988, three in 1990, four in 1991, three in 1992 and eight in 1993 (Itoh and Shibata 1994). The consumer electronics goods produced by Japanese overseas affiliates started to penetrate into the low-end global market where Korean firms had predominated (although not under their own names) until the late 1980s. Here was a strong challenge for Samsung. The Japanese brand products made in the ASEAN region were cheaper than the products made in Korea. In the case of microwave ovens, the cost of the Sanyo product, manufactured in Southeast Asia for the OEM market, was 13% cheaper than that made in Korea. The same is true for the components. Matsushita started to produce CRTs and tuners in Southeast Asia, and expanded into China (Nihon Keizai Shimbun 21 Apr 1992). Sony built a color CRT plant in Singapore (Nihon Keizai Shimbun 27 Nov 1989). Toshiba, Matsushita, and Hitachi also established CRT production in the US. Similarly, Asahi Glass and Nippon Electric Glass (NEG) set up overseas operations. Strategies based on international production were also adopted by Samsung's Korean rivals. In 1988, Goldstar signed a contract with the Chinese government to acquire

165,000 sq. m. of land in the Zhuhai Economic Zone for the construction of a manufacturing plant to produce CTV sets and audio equipment to be sold on the Chinese market (Nikkei News Bulletin 20 May 1988). Around the same time, Goldstar moved into Thailand with Samsung right behind. Finally, it should not be overlooked that Samsungs recent thrust into offshore production was enabled by its successful accumulation of technological capabilities which could now be transferred. Nearly all of Samsung's foreign affiliates are engaged in the production of standardized products, utilizing mass production capability transferred from Korea. It has been able to build on its initial forays into foreign production. Recently SEC transferred Park Byung Moon, who had been a head of an Indonesian affiliate for a couple of years, to India, where it is setting up a new CTV plant. Samsung's centralized structure has limited the transfer of technological capabilities to overseas affiliates, even as they face new competitive requirements. Samsung's affiliates have been forced to interact with a growing variety of economic actors, including those within the group. Hence, each organization in the network requires a greater autonomy to avoid bureaucratic paralysis in the network as a whole. In early 1995, shortly after a wave of administrative consolidation had swept over its Korea-based operations, Samsung extended the concept to its offshore production networks by designating five regional headquarters around the world. Of the five, two were in Asia. Their locationsSingapore and Beijingreflected the relative separateness of the two offshore production networks that had been created by Samsung in the region. SECs in-house R&D operations have also continued to be centralized. The hierarchical integration has failed to provide researchers and engineers with satisfactory R&D circumstances. According to company surveys (reported in Koh, 1992: 36), Samsung engineers complained most about: an unsatisfactory R&D working environment (54%); being overloaded with projects (30%); insufficient time for the feasibility study of future projects (27%); and being overwhelmed with documentation and paperwork requirements (26%). Many of the organizational problems that hindered the development of effective product innovation in the past continue to plague SEC. Koh (1992) reported that production departments are seldom involved in the early stages of new projects, that projects were chosen by the corporation on the basis of their expected short-term impact on individual strategic business units, projects reflecting a longer-term outlook were likely to be suppressed by marketers or by the SBUs themselves, and that communication was poor among marketing and engineering departments and the company's R&D center (pp.36-7). Perhaps to decentralize some of its innovator activities away from this inauspicious environment, SEC went overseas, establishing foreign design centres in order to upgrade its product development capability. The centers have been established in each of Samsung's main market regions to help develop products better suited to local needs, following a pattern already well-established by its Japanese rivals.

The first such center was established in the consumer electronics bastion of Osaka in 1991 with five employees for audio and video products. The following year, a center was set up in Frankfurt, Germany, for the development of products to be distributed in Europe. In 1994 SEC set up Samsung Design America in the US for consumer electronic products for the US market in cooperation with a local design corporation, IDEO (US). In early 1995, SEC established a product planning post in Southeast Asia for the development of regionally marketable product models. Its activity has currently been limited to collection of market information with only three Korean personnel. Table 8 shows evidence suggesting that Samsung's regional focus began to pay off rapidly in its European market.

Table 8 Local market share of Samsung brand products Product Microwave ovens Microwave ovens Facsimile machines VCRs Cordless phones Country Spain Netherlands UK Spain Sweden 1991-1992 4.5% 16.0% 15.0% 10.7% 20.0% 1993 11.1% 24.2% 21.0% 16.6% 23.0%

Source: The authors interviews with SEC in Korea during Nov. 1994 SECs market development activities were confined to the US and Europe. It is not surprising that recognition of the Samsung brand name in Asia is relatively weak. Samsungs Production Networks in Asia Overview Asia has been an important destination for Samsung's direct investment for a number of reasons. In addition to the company's interest in recovering cost competitiveness by utilizing the low-cost resources available in Southeast Asia, it was also pursuing some of the major customers for its components as well as some of the world's most dynamic markets.

Table 9 shows how Samsung's network in Asia spread rapidly since 1989, when it opened a TV assembly plant in Thailand for low-end products. Samsungs production in Asia ranges from end-products to components, and has spread from ASEAN to China, Vietnam and India. Currently, the regional network has two central nodes located in Singapore and Beijing. A Singapore-based purchasing office was established in 1991 to speed up the internationalization of production, in part by being a supplier of low-cost parts for Koreabased production sites. Ironically, the purchasing office has directly bought components from Korea-based components suppliers because it is cheaper than going through SEC headquarters in Korea. The office has grown dramatically since its creation and was eventually able to satisfy Singapore's requirements for the preferential tax treatment granted to regional headquarters.

Table 9 Evolution Of Samsungs International Production Networks In Asia 1989 1990 1991 1992 1993 VCR Thailand CTV tuner, FBT, DY (SEM) REF VCR, Audio MWO Malaysia CRT (SED) IPO Audio products audio components, keyboards (SEM) VCR VCR VCR components tuners, VCR heads, motors (SEM) CRT glass (SC) monitors 1994 1995 W/M sales CTV, sales

Indonesia

Singapore China

RHQ CTV

transformers (SC) Vietnam India


Note: REF= refrigerators, W/M= washing machines, FBT= flyback transformers, DY= deflection yokes, CRT= cathode ray tubes, CPT= color picture tubes, MWO= microwave ovens, IPO= international procurement office, RHQ= regional headquarters

CTV CTV

All affiliates established by SEC except as indicated. Source: The authors interview and Samsung internal publications (various years) The vertically integrated operations in China were set up more quickly than those in Southeast Asia, possibly reflecting the firm's increased confidence in overseas production. Since 1994, Samsung has announced the creation of other integrated production complexes in its strategic markets. To date, interaction between Samsung's two Asian sub-networks has been mostly limited to CRTs sent from Malaysia to a China CTV affiliate and Chinese-made VCR components sent to a Thai affiliate. This is because two sub-networks were originally designed to serve two largely separate Asian markets. The key intermediary is the Singapore-based purchasing office, which purchases and distributes a huge amount of components among the Samsung affiliates and those of their Japanese counterparts in the regions. However, the most important intra-firm transactions are still highly centralized, occurring between the affiliates and the Korea-based product division, or between the affiliates and the Korea-based global marketing division (in charge of export arrangements). The separateness of the two sub-networks may prove a competitive disadvantage. Japanese producers in the region usually divide their product mix geographically according to the subsidiarys technological capability, facilitating the achievement of scale economies. By comparison, Samsungs production networks in Asia are still at a primitive stage, incorporating certain redundancies. The weakness of Samsung's performance in the consumer goods sector meant that it found itself with excess capacity in its overseas plants. In practice, this has meant that the offshore plants are underutilizedin spite of their vocation to improve costcompetitivenessbecause Samsungs employee evaluation system is oriented to performance at the plant level, making employees resistant to transferring production overseas when no activity would fill the void at the Korean plant.

This has been much less of a concern in the case of plants producing components, which have been able to sell the majority of their output to other firms operating in the region, particularly Japanese affiliates. Samsung's Asian networks have thus been able to build on the company's past history of OEM relationships with Japanese companies. For example, two component-producing subsidiaries SEM-Thailand and SED-Malaysia supply more than 80% of their output to Japanese companies. In fact, Samsung's Asian television production network has been deeply enmeshed virtually from its inception with those established earlier by Japanese firms. For example, not only does the CRT producer SED-Malaysia sell the bulk of its output to nearby Japanese affiliates of Sanyo, Matsushita, Sharp, and Funai, it also sources about a third of its total components from mostly Japanese suppliers such as NEG and Asahi. Clearly, the establishment of offshore production has led to complex interdependence between Samsung and its Japanese competitors. It was the presence of its Japanese customers that permitted Samsung to reduce the risk inherent in starting capital-intensive production overseas. For example, having already become a successful supplier of CRTs to Japanese CTV producers, SED could be reasonably certain that its Malaysian affiliate could meet demanding Japanese quality assurance requirements (SEM 1990: 238). SED-Malaysia fills a specific role in the regional division of labor of Japanese firms; by providing 14-inch CRTs, it permits the component subsidiaries of Japanese producers to specialize in larger, more higher-value added picture tubes. Samsung's production presence in Asia is increasingly connected to marketing objectives. To that end, the firm has established ties with mainland and overseas Chinese partners, typically as a pre-requisite for market entry, in addition to establishing its own distribution channels. Its local joint ventures are thus the mirror of those it established in Korea in the 1970s with Japanese partners, trading production know-how for market accessonly now the know-how is Samsung's. In at least one case, an affiliate established for the local market (in Indonesia) was forced by poor performance to shift to exports. But more generally sales were able to shift from export to local markets. So far these locally-oriented operations have achieved local and even regional linkage between production and marketing activities, but design and product development activities still belong to organizations in Korea: "... we continue to move Korea-based manufacturing sites overseas. Instead, leave the concept of design, development, research institutes at home" (Samsung 1993: 145). But this has left a void at affiliates for which the local market is important. For instance, the Indonesian affiliate distributing CTVs to the local market is searching for locally marketable products that differ from the products designed in Korea for global markets. In early 1995 SEC formed a new product planning post at its Singapore-based regional headquarters. The team was to concentrate on supporting product design and

development activities targeted to the Asian regional market. Yet, there is no sign that this team has actively interacted with the group affiliates (or with non-affiliated organizations). Yet SEC is under pressure to carry out product design closer to individual markets as Japanese and European rivals have increasingly done, frequently co-locating product design with offshore production. Recently, a new executive officer who had worked for the department in charge of product development has been assigned to the Indonesian refrigerator affiliate, signaling a possible decentralization of product development within the region. The component-producing affiliates are also experiencing product design difficulties. They currently lack the capability to implement minor changes requested by nonaffiliated customers in the region, and are forced to forward all requests back to Korea. Samsung is thus unable to compete effectively with numerous other rivals which have already decentralized such capabilities. Thus one of Samsung's continuing challenges is to make the leap from mass to flexible production. But even as they try to exploit local markets, Samsung's Asian affiliates are part of a global production network, supplying a considerable number of components to Samsung affiliates in Europe and America. Examples include: SEM-Thailand which has supplied parts to SEC in Europe, Brazil and Korea; SED has exported 14-inch CRTs to Mexico; SEC-Indonesia has assembled PCBs for a Portugal based VCR plant; and SED-Malaysia has been supplying electron-guns for CRTs to SED-Germany, and SED-Mexico. Much as its Japanese partners did in the 1970s, Samsung has trained the employees in its Asian affiliates, often by sending them to Korea, or by sending Korean trainers to the affiliate. The Korea-based plants play a central role in Samsung's regional technology network. This differs from the practice of Samsung's Japanese rivals in the region, whose training sites are increasingly offshore. In 1990 forty technicians from the recently-established refrigerator plant in Indonesia were sent to a Korean factory for three months. One-third of the workers at Samsung's microwave oven plant in Malaysia were also trained in Korea, and Korean technical instructors also trained local workers (SEMM Jan 1993). A major glass bulb factory in Malaysia sent local technicians to Korea for training both before and after operations started (SC 1994:315). The heads of production lines at a components plant in Thailand received more than three months training in Korea, and fifteen Korean technical instructors were dispatched to train local employees (SMM Sep 1989). Little is known about the level of local linkages of Samsung's affiliates. One Indonesian affiliate reported local content ratios of 15% for audio components and only 5% for VCRs in 1992, its first year of production. At the Thailand CTV affiliate, the initial level of local content was about 10%. Within several years, the ratio of components sourced from local and nearby regional suppliers had risen above 50%. It was also reported that three Korean components suppliers moved to Malaysia to supply Samsung's microwave oven plant, showing that local content does not necessarily mean linkages to locallyowned firms. The Malaysian CRT plant is also anticipating the arrival of Korean

suppliers. Dongguan Samsung Electro-Mechanics, a producer of audio components and computer keyboards in China, procures 80% of its materials from Korea versus 19% in China. Southeast Asia Samsung's operations in Southeast Asia started out somewhat tentatively, primarily focusing on assembling final goods for exports. As the company developed its capabilities to set up offshore production, it added output in core components requiring a larger initial commitment of resources. The experience of its network creation in Southeast Asia undoubtedly simplified the subsequent creation of other intra-group networks in China and in Europe. Thailand was the starting point for Samsung's entry into Southeast Asia. In 1987 SEC set up a branch office in Bangkok. In 1988 it established a joint venture companyThai Samsung Electronicswith Saha Pathana Interholding, one of the three biggest business groups in Thailand (SMM Mar 1989). SEC had a 51% share, and Saha Pathana 49%. SEC provided the management, technology, machinery and brand name, whereas Saha Pathana provided the land and local manpower, as well as knowledge of the local market. TSE started producing CTVs in 1989, with production rising steadily 500,000 per year in 1994 (SEMM, June 1994). VCRs were added in 1993, and washing machines two years later. TSE intended to distribute half of its output to the local market, and the rest to the US and the EC through SECs marketing channels (SEC 1989: 626). The goal of 50% local sales had not quite been achieved by 1994, but the level has gradually increased. Soon after setting up production in Thailand, Samsung established a 50:50 joint venture in Indonesia for refrigerator production with Maspion, a local distributor of consumer electronics products. Once again Samsung provided equipment, know-how, and a brand name, while Maspion provided a plant, labor and land (SMM Mar 1989). Originally the project was designed with the expectation that local market would absorb much of the output. Despite a capacity of 60,000 units per year, production reached only 11,000 units in the first year, 1990, and 20,000 in 1991. In 1992, the affiliate, Samsung Maspion Indonesia, changed its strategy and targeted regional and global markets, supported by its own overseas sales network. This strategy was successful and the affiliate has made a profit since July 1992. In 1991, the pace of investment picked up. A second affiliate in Indonesia was established to produce VCRs and CD players for export. Samsung controls 80% of PT Samsung Metrodata Electronics. The minority partner is Metrodata Indonesia, which had previously been the sole distributor of Samsung products such as monitors and office equipment. Production started in August 1992. The audio output was exported mostly to Europe and elsewhere in Asia. Video products were exported worldwide, but in Europe a previously-established VCR affiliate in Spain foreclosed much of that market. Most of the production was sold under the Samsung brand name, but it also undertook OEM sales with GE, Akai and other companies. In early 1995 the affiliate started to manufacture CTVs for the local market.

1991 was also the year that Samsung began production in Malaysia. One investment was an export-oriented plant producing microwave ovens, Samsung Electronics Malaysia, a wholly-owned subsidiary. All its products are exported to the US, Australia and Europe through Samsung's international marketing subsidiaries. Very recently, the affiliate was busy preparing to produce microwave ovens to be sold for the local market. Also established was Malaysia Samsung Electron Devices, its first backward integration in the region, and its first offshore production of CRTs anywhere in the world. By 1989, SED was exporting more than 60% of its CRT production, mostly to Japan, Southeast Asia, Hong Kong and China (SED 1990: 490). SED Malaysia, a wholly-owned subsidiary, was set up with an annual capacity of 1.7 million units, which has since been doubled, along with increases in the plant's automation level. Given the strong level of demand in the region, it's not surprising that the operation achieved profitability after only six months of operation. Less than 20% of its output went to Samsung's Thai television affiliate, with the rest being sold to nearby affiliates of Sanyo, Funai, PTI, Thomson and other companies. By this time, clearly, Samsung had mastered the organizational skills needed to move production offshore. This success undoubtedly helped Samsung decide to undertake a second round of backward integration in the region (SC 1994: 565). In 1992, Samsung received approval from its US partner Corning Glass Works to establish a glass bulb plant in Malaysia near the CRT affiliate. Once again, this was Samsung's first offshore production for this product. Initially, it had sought to reduce the risk by setting up a joint venture with Asahi Glass, a major Japanese producer. But when Asahi decided not to go ahead with the project, SC proceeded on its own, investing $25 million (SC 1994). Starting in 1993, Samsung Corning (Malaysia) assembled panels and funnels imported from SC-Korea, with an annual capacity of 2.5 million units. SC-Malaysia has diversified its product lines from 14-inch glass bulbs to 20 and 21-inch glass bulbs. It also plans to increase its vertical integration by building a glass fusion plant (SC 1994:316). SC-Malaysia is also expected to produce bulbs for plants established by the other major Korean CRT producers, Orion and Goldstar, in Indonesia, China, and Vietnam (SC 1994: 561). SCMalaysia planned to expand its production capacity to 3.6 million units by 1995, investing an additional US$200 million (SEMM Aug 1992). Another component operation was started in 1993, this one in Thailand. SEM-Thailand, a wholly-owned subsidiary of Samsung Electro-Mechanics was actually announced in late 1990, but didn't begin operations until 1993 because it had to be sure of market demand (Jun and Kang 1994). It produces a variety of components, such as deflection yokes and flyback transformers for CTVs, and oil condensers for microwave ovens, plus other parts for audio-visual equipment (SMM Sep 1989). Its production capacity in 1993 was 1.4 million tuners, 2.4 million DYs and 3.9 million FBTs (EIAK 1993). Only about 10% of its output went to Samsung's local CTV affiliate, with the rest being distributed to unaffiliated companies in the region, particularly Japanese manufacturers such as NEC,

Toshiba, and Sharp, along with small supplies to Samsung's Malaysia-based microwave oven plant and its Indonesian affiliate, Samsung Metrodata. Table 10 summarizes Samsung's investments in Southeast Asia.

Table 10 Samsung's Affiliates in Southeast Asia by Country COUNTRY Thailand AFFILIATE NAME Thai Samsung Electronics SEM-Thailand Indonesia Samsung Maspion Indonesia Samsung Metrodata Electronics Malaysia Samsung Electron Devices (Malaysia) Samsung Electronics Malaysia Samsung Corning (Malaysia) China Samsung's network in China is actually divided into two relatively separate pieces, one of which is located at Tianjin, and the other in Guangdong Province. A new electronics complex has recently been announced for the Singapore-sponsored Suzhou Township, located about half-way between Samsung's southern and northern China plants. In the early 1990s, Samsung selected Tianjin, which is close to Korea, as a strategic FDI location. SEC rapidly set up integrated operations to build first VCRs then CTVs. Samsung Aerospace Industries joined in this location to produce cameras for the local Chinese market. Tianjin Samsung Electronics (TSEC) was SECs fourth offshore VCR plant, and its second in Asia. It was established in early 1993 as a 50:50 joint venture with a state-run electronics firm. A total of US$64 million was invested in the vertically-integrated project, which produces VCRs, VCR decks and VCR drums. In 1995 it produced 400,000 VCR sets. Half of its products are being sold locally, while the remainder have gone to Australia and the former Soviet Union. PRODUCTS, ESTABLISHMENT DATE CTVs, VCRs and washing machines, 1988 CTV and VCR components, 1990 Refrigerators, 1989 VCRs and audio products, 1991 CRTs, 1991 microwave ovens, 1991 CRT glass bulbs, 1992

Just prior to the VCR affiliate, Samsung Corning set up a plant to produce rotary transformers for VCRs, a product it had made in Korea since the late 1980s (SC 1994). In late 1992, after the approval of Samsung-Corning's US partner, SC-Tianjin started to produce rotary transformers with a capacity of 800,000 units, which was rapidly expanded in the following months. From 1993, it added more sophisticated products such as four-channel rotary transformers, in addition to the two-channel type (SC 1994). SCTianjin planned to expand to a capacity of 5 million units per year by 1995 (SC 1994:561). In December 1993, SEM established Tianjin Samsung Electro-Mechanics, an 80:20 joint venture with one of the state-run electronics corporations, to manufacture a variety of components which could be used in the VCRs produced nearby and in the CTVs that were soon to be produced. The total investment required was US$60 million. Production started in May 1994 with the following capacities: 3.6 million TV and VCR tuners; 2.4 million VCR heads; 3.6 million precision motors; 600,000 computer spindle motors (SEM Jan 1994). This is of course much more than can be absorbed by Samsung's local affiliates. In 1994, SEC formed Tianjin Tongguang Samsung Electronics, a 50:50 joint venture with the same partner as the VCR plant, to produce color TV sets. SEC invested US$30 million for a production capacity of 1 million sets. It is the largest of Samsung's overseas CTV plants, and recent annual output was 800,000 units, absorbing about one-third the tuner capacity of the nearby components plant. Samsung Aerospace Industries appears to have made an unrelated opportunistic investment by setting up a 50:50 joint venture to produce cameras with a large local camera maker, Tianjin Camera. The total investment was a relatively small US$10 million. The target markets are China, Hong Kong, Thailand and Singapore. Its future expansion will be mostly dependent on the marketing efforts of the Chinese partner. In southern China, Samsung established a smaller network for audio products. First came components, with Dongguan Samsung Electro-Mechanics, a wholly-owned subsidiary in Guangdong Province. It was technically the first offshore plant of Samsung's SEM branch, having been established in mid-1990, at the same time as several other Korean companies invested there, but production didn't begin until 1992. An expansion in 1994 raised production capacity: from 400,000 audio decks to 800,000; from 1.8 million audio speakers to 4 million; and from 100,000 computer keyboards to 300,000. Most of the output is shipped to Southeast Asia, China, America, and Korea (EIAK 1993). Starting in late 1992, SEMs Dongguan affiliate began supplying audio components to Huizhou Samsung Electronics, another Guangdong affiliate. SEC owns 90% of the shares in this company, while its Chinese and Hong Kong partners hold 5% respectively. In November 1992, Huizhou SEC started production of audio products. Its capacity in 1994 was 540,000 units, and 15% of its production is sold on the local market.

Samsung is also involved in the Chinese telecommunications market. Samsung Sandong Telecommunications was set up in 1994 to assemble time division exchange (TDX) central office switches for local use, which had been developed by Samsung in cooperation with the Korean government. The joint venture with two local partners, one of which is a state-run telecommunications corporation in Sandong, represents an investment of US$20 million. It is currently producing 370,000 TDX switches. In 1994, Samsung announced a $100 million dollar investment plan for Suzhou Township. The initial plants would be devoted to household appliances and the assembly of transistors and linear ICs for use in consumer electronics. Samsung Electro-Mechanics said that it would manufacture oil condensers and air conditioning motors there as well. Table 11 summarizes Samsung's investments in China.

Table 11 Samsung's Affiliates in China by Region REGION Tianjin AFFILIATE NAME Samsung Corning Tianjin Tianjin Samsung Electronics Tianjin Samsung Electro-Mechanics Samsung Aerospace Industries Tianjin Tongguang Samsung Electronics Guangdong Dongguan Samsung Electro-Mechanics Huizhou Samsung Electronics Suzhou Suzhou Samsung Electronics PRODUCTS, ESTABLISHMENT DATE rotary transformers, 1992 VCRs, VCR decks and VCR drums, 1993 VCR drum motors, tuners 1993 cameras, 1994 CTVs, 1995 speakers, keyboards, etc., 1990 audio products, 1992 refrigerators, microwave ovens, washing machines and air-conditioners, 1994

Samsung reveals a dynamic interaction between firm capabilities and international production networks. In the early stage, when Samsung was building capabilities, foreign linkages were needed for technology and marketing. As the group's capabilities grew, it ventured into international production. However, its capabilities in mass production were inadequate to ensure the success of its initial efforts to bypass trade barriers in its major markets by building offshore production bases there. It was only by following a reorientation of its international production to low-cost operation in peripheral areas that it

was able to correctly match its current capabilities with its network structure. Meanwhile, it has re-oriented the nature of its non-production linkages with foreign firms to help foster the development of the design and marketing capabilities it has lacked in the past, frequently through acquisition. Internally, the Samsung Group's electronics activities have suffered from an almost complete de-linkage between production (in Asia), marketing (in the United States and EC), and design and development (in Korea) over the two decades after the 1970s. This paper tends to confirm the argument by Kogut and Zander (1993: 635) that the key to successful international production is "... to recombine the knowledge acquired at home with the gradual accumulation of learning in the foreign market". Thus Samsung's affiliates in Southeast Asia were gradually able to increase the percentage of output sold in the local market, relying at first mostly on exports. Yet the continued centralization of product development has slowed the learning process in offshore affiliates. Given the weakness of product development in the Korean electronics sector, it is possible that centralization is necessary during the period in which major innovation capabilities are acquired. But we have already seen that this leaves offshore production centers vulnerable as they try to penetrate local markets in competition with rivals who use minor change capability to tailor products for local customers. The different technology management pattern established by Samsung's Japanese rivals seems to be relevant. The major Japanese consumer electronics firms have decentralized minor product change capabilities at many of their production affiliates in Southeast Asia, increasing the flexibility of their production networks and freeing up engineering resources in Japan for more valuable work. Samsung's international production networks are also different from those of Taiwanese firms. While Samsung tends to focus on economies of scale, largely in consumer electronics products manufactured in a vertically integrated system, Taiwanese firms focus on economies of networking in the region that permit a large degree of flexibility to adapt to the rapidly changing information technology market. Thus, we can note in passing that this research supports the idea that international production systems have developed in divergent, rather than convergent ways. Korean industrial policies have been important for facilitating, and even inciting, the firms international competitiveness by requiring foreign firms to transfer technology in exchange for market access, supporting exports, protecting the home market, and supporting research. However, policy errors have also occurred. The first was near-sightedness in creating a top heavy industrial structure mimicking that of Japan but without that economy's underlying dynamic of continuous upgrading of product design. The second involved the creation of a Korean innovation system with a relative weakness in basic research, which may prove a major problem as Korea nears the technology frontier and can no longer license or buy all it needs from more advanced countries.

FDI has helped Korean firms maintain their competitiveness in low-end goods, but they have not completely succeeded in the transition to higher-value production back home that is required after a massive re-location of productive resources. They have partly responded by finding new, more complex products to mass-produce, such as advanced flat panel displays. But this merely postpones the transition to market-driven product development that will be necessary for continued competitiveness. The recommendations of Ernst (1994b) that the Korean government should shift from "export-led market expansion" to "FDI-led market expansion", and that national innovation policies from "sectoral targeting" to "diffusion-oriented policies" appear sound. At the same time, the government must fundamentally change its traditional education system, which is extremely uniform and no longer relevant under the new competitive requirements in order to build up the creative capability of human resources as suggested by Kim (1991). The challenge for Samsung (and for other Korean electronics firms) in the context of its international production network is to successfully develop and transfer adaptive product design know-how to its offshore affiliates. Improvement of the competitive advantage of overseas affiliates is directly dependent on how quickly a firm can create and diffuse required capabilities, which properly adapt to changing conditions. Deeper linkages within Samsung's organizational network both in Asia and around the world will be needed to face the next round of competition in the electronics sector.

The Current Status: In 1993, SAMSUNG introduced a new corporate identity program in honor of its 55th anniversary and 5th anniversary of the introduction of the "second foundation." It was aimed to strengthen competitiveness by bringing the attitudes and behavior of all employees in line with SAMSUNG's desired perception by the public. SAMSUNG's corporate logo was redefined to project SAMSUNG's firm determination to become a world leader. The SAMSUNG name is now written in English, expanding its global presence throughout the world. The name is superimposed over a dynamic, new logo design, giving an overall image of dynamic enterprise. The elliptical logo shape symbolizes the world moving through space, conveying a distinctive image of innovation and change. The first letter, "S", and the last letter, "G," partially break out of the oval to connect the interior with the exterior, showing SAMSUNG's desire to be one with the world and to serve society as a whole. Major Products: 1. TV: 63" Wall PDP (Wall Mountable) The built-in tuner in the 63?plasma TV increases user convenience HDTV ready and High Definition Image with w-XGA (1366 x 768) resolution Life-like digital picture with DNIe?(Digital Natural Image engine) Technology A dramatically simple black casing frame and ultra-

slim and lightweight design. Connect digital devices such as PC, D-STB, D-VHS and DVD Players, as well as guarantees the interface with upcoming digital devices of the future with DVI (Digital Video Interface). 2. TV: 32" LCD A Premium Home Theater TV that features State-of-the-Art technology Transmit visual signals at 100% without any loss of signals, resulting in a picture-perfect reproduction of images with DVI (Digital Video Interface) Life-like digital picture with DNIe?(Digital Natural Image engine) Technology Equipped with 5.1 channel Dolby Digital Surround Sound and Dolby Pro Logic II for magnificent sound that will heighten your home theater experience.(5.1 channel speaker and 2.1 channel speaker are optional) The external adapters are cleared away and you don't need to be bothered by the external bulky adapter anymore. 3. Monitor: 40" LCD Monitor Provide an optimal environment in places that need to attract attention: hotel lobbies, shopping malls, exhibition sites, airports, and theaters. Control multiple displays at a distant location using RS-232C communication protocol. Support total connectivity between various multimedia devices with DVI, D-sub, BNC connector, S-Video, composite, component, etc., Deliver clear image even in brightly-lit settings, ensuring that your customers will be able to get the information they want at a glance. 4. Laptop: SENS X10 Ultra Slim and Super Light design (23.8mm, 1.8kg) Intel Centrino Mobile Technology with Mobile Exclusive CPU and Wireless LAN Fingerprint recognition security system (option) Strengthened Body with Magnesium Alloy 5. DVD Player: Combo DVDP (DVD-V3500) DVD, VCD, Music CD, MP3 Disc, CD-R, CD-RW, DVD-R, DVDRW and VHS Tape Playback Convert and copy from DVD to VHS Combines all the functions of a DVD and VTR, one remote controller for TV/DVD/VTR, Chapter search (DVD), enlarge screen (DVD), search speed 128X (DVD), Zoom (DVD) EZ-View letterbox eliminator lets you enjoy full-screen pictures on 4:3 aspect-ratio TVs. 6. Digital Camcorder: SCD27 Simple menu search and set up function by using EZ Navigator Power Night Capture (Night Capture + Slow Shutter) feature lets you capture the image in completely dark conditions Multi Screen feature makes you see 6 still pictures on a screen at the same time Optical 10x/ Digital 800x Zoom Lens, Digital still camera function and equipped with 3.5" LCD. 7. Laser printer: ML-1750 The world smallest cassette type Laser printer Fast 16ppm(Ltr. 17ppm) print speed / 1200dpi class resolution Various OS Support : Windows 98/Me/2000/XP,Mac OS(8.6), Various Linux OS Push & Save button : 40% TONER SAVE.

Global Market Share of Samsung in its Premier Products. (2002. 12) Product Market Share TV 10% Monitor 22% VCR 25.1% DVDP 14.8% Camcorder 15.1% Printer (Mono LBP segment) 9.6% Rank 1st 1st 1st 2nd 3rd 3rd

SAMSUNG Electronics is emerging as a global enterprise through joint R&D projects with leading overseas companies; along with technology transfer arrangements and joint investments. Based on open management and the desire to bring the world together as one, SAMSUNG Electronics, together with overseas companies which are leading the electronics business in the world, will make products that help people have richer and more abundant lives. There are various companies through out the globe with whose cooperation and alliance Samsung had added to its domain a number of new markets. In many areas Samsung has made the strategic alliances, which has given it a clear edge over its competitors. Though alliances are there but Samsung has always insisted on equal cooperation in which both companies can be the benefitters. The alliance is more of technology sharing than the interdependence on each other. Samsung has also a history of outsourcing its product line materials to the other companies. There are many companies, which has collaborated with Samsung to provide the world-class products. Some of them are as follows: The Companies with which Samsung has collaborated are: Name Infineon Germany Kent University Mastushida Microsoft Softbank Japan Bell Canada HP Mitsubishi Date Field Next-generation Semiconductors for Feb. 2003 Smart Phone Mar. 2003 CD fundamental technology Jan. 2003 DVD Recorder Nov. 2002 Pocket PC Nov. 2002 'IP Set Top Box' Nov. 2002 Next-generation Wireless Technology Sept. 2002 DDR DRAM Sept. 2002 Core solution chip for camera in mobile

Microsoft Oracle Korea T-Mobile Best Buy ORANGE Group Mitsubishi MicroSoft Sony AOL - Time Warner Dell Intel Rockwell Automation MicroSoft, SAMSUNG ElectroMechanics, Internet TV Networks MicroSoft Battle Top Converge Yahoo! Harris, NDS, 4DL,SkyStream Warner Bros. 3com Cornig Thales Arne Nortel Adept Alpha Processor, Inc.

devices Aug. 2002 CPU for PDA Anycall MITs (Mobile Intelligent Aug. 2002 Terminals) Aug. 2002 Cellular phones July. 2002 Side-by-side Refrigerators June. 2002 Cellular phones May. 2002 Washing Machine Oct. 2001 Digital Home Technology Aug.2001 Flash memory card (memory stick) Jul. 2001 Digital products, advertising, marketing Mar. 2001 Memory chips, display products, ODD Feb. 2001 Rambus DRAM Jun. 1999 Automation Feb. 2001 Jul. 2000 Jun. 2000 Jun. 2000 May. 2000 Mar. 2000 Apr. 2000 Mar. 2000 Feb. 2000 Feb. 2000 Nov. 1999 Sep. 1999 Jun. 1999 Dec. 1998 Jun. 1998 Internet TV Next-generation mobile communications Internet game E-commerce Internet solution Interactive digital TV DVD player IMT-2000 Optics Defense industry Refrigerator MT-2000 Automation (robot & control system) Non-memory chips

Conclusion:

Samsung revealed a dynamic interaction between firm capabilities and international production networks. During these past times it has build on the technology and the production capability as well as worked on its foreign linkages to enter into highly technological fields with a marketing support also. It has bypassed the trade restrictions and attained capabilities in mass production. It has done a re-orientation of its international production to low-cost operation in peripheral areas to correctly match its current capabilities with its network structure. Meanwhile, it has re-oriented the nature of its non-production linkages with foreign firms to help foster the development of the design and marketing capabilities it has lacked in the past, frequently through acquisition. According to Samsung the key to successful international production is "... to recombine the knowledge acquired at home with the gradual accumulation of learning in the foreign market". Samsung has decentralized minor product change capabilities at many of their production affiliates in Southeast Asia, increasing the flexibility of their production networks and freeing up engineering resources. Samsung tends to focus on economies of scale, largely in consumer electronics products manufactured in a vertically integrated system. Korean industrial policies have been important for facilitating, and even inciting, the firms international competitiveness by requiring foreign firms to transfer technology in exchange for market access, supporting exports, protecting the home market, and supporting research. The challenge for Samsung (and for other Korean electronics firms) in the context of its international production network was to successfully develop and transfer adaptive product design know-how to its offshore affiliates. Improvement of the competitive advantage of overseas affiliates was directly dependent on how quickly a firm can create and diffuse required capabilities, which properly adapt to changing conditions. Deeper linkages within Samsungs organizational network both in Asia and around the world were needed to face the next round of competition in the electronics sector. And the sales figures of the current tell us exactly that they succeeded. Right from the beginning Samsung has done the groundwork to acquire the top slot and due to its mass production capability and technological advancement backed by a distribution network it has acquired. Heavy advertising backed by low-cost bulk manufacturing as well as huge investments in the potential market has enabled Samsung to gain foothold in most of the countries it is operating and to emerge as one of the leader. Samsung has converted its organization into big companies as it thinks big and is ready to take risks along with a quick decision making capability.

Financial Overview
Total Years Currency Net sales Assets 2002 Won U.S.Dollar Euro Won U.S.Dollar Euro Won U.S.Dollar Euro Won U.S.Dollar Euro 146,052.3 116.8 110.4 127,459.2 98.7 110.2 135,037.6 119.5 129.3 111,233.0 93.5 87.7 187,335.1 156.1 163.5 164,823.3 124.3 140.6 143,236.4 113.7 120.6 133,651.0 116.7 116.2 Total Total Net Stockholders Liabilities Income Equity 132,414.5 54,920.6 11,072.5 110.3 45.8 8.9 115.5 48.0 8.4 117,707.1 47,116.3 5,764.6 88.8 35.5 4.5 100.4 40.2 5.0 106,828.4 35,408.0 8,301.6 84.8 28.9 7.3 90.0 30.7 8.0 101,412.0 32,239.0 2,561.0 88.5 28.2 2.2 88.1 28.1 2.0

2001

2000

1999

Aggregate value of stock at year-end (based on the 14 listed companies): % of Korean Stock Years Won U.S.Dollar Euro M 2001 62,100 48.8 52.8 24.3 2000 37,200 29.5 31.3 20 1999 64,200 56 55.8 18.4

SAMSUNG (India)
Company Profile: August 1995 Certificate for commencement of business received by Samsung India

December Samsung launch in India. Operations in North. Launch held in Agra 1995 on December 2, 1995. May 1996 Launch in South Home Appliances Launch June 1996 Foundation Stone laid for CTV Factory at Noida, Uttar Pradesh. October Launch in West 1996 June 1997 CTV Factory Inaugurated with Initial Plant Capacity of 400,000 units per annum

November Sponsorship of Indian Contingent to 13th Asian Games in 1997 Bangkok. December Sponsorship of the lighting of the Permanent Asian Games Flame 1997 Ceremony at the National Stadium, New Delhi. January All India operations with launch in East 1998 May 1998 New White Goods Launch Double Productivity Award from SEC - ISO 9002 Certification for CTV Factory from BSI, UK and STQC Directorate, Department of Electronics. July 1998 Visit of Mr. Jong Yong Yun , Vice Chairman & CEO , Samsung Electronics Co. Ltd September Mr. K. S. Kim appointed as the new Managing Director of 1998 Samsung India. Took charge from Mr. B. M. Park who was MD, Samsung India between August 1995-September 1998. November Samsung Running Festival held at New Delhi. Part of Samsung's 1998 Bangkok Asian Games Programme, it drew participation from around 8000 people from all walks of life. Samsung awarded 'SAP Star Award' by SAP AG January Samsung announced maiden profits of Rs.5 crores on a turnover of 1999 Rs.540 Crores for the Calendar year 1998. February Samsung showcases Digital Technology at IETF '99 1999 Samsung India signs a 2 year contract with Kapil Dev to promote Samsung as Brand Ambassador March Samsung India commences manufacturing microwave ovens at 1999 Noida Facility with Capacity of 50,000 units per annum April 1999 A1+ Rating assigned by ICRA for Samsung's Commercial Paper Programme. A1+ Rating indicates Highest Safety. September Millennium Digital Campaign from Samsung. Launch of Digital 1999 products in the country. February Launch of Samsung's Bio range of Products ; 'Bio Ceramic' 2000 Microwave Ovens, 'Bio Fresh' refrigerator range and Insta-Chill Airconditioners. Signs Cine Star Tabu for endorsing the Home Appliances Range Sets up an R&D Center for Color Television at Noida. Investment : US$5 million Indian R&D Centre made the Regional Hub , catering to design requirements in India , Middle East and South east Asia March P1+ Rating by CRISIL for Samsung's Commercial Paper 2000 Programme May 2000 Launch of Samsung Electronics India (P) Ltd - Samsung's 100 per cent subsidiary for IT and Telecom products in the country

July 2000 Samsung India produces its One Millionth Colour television in India - The first MNC to achieve this milestone in India September Samsung India commences exports of 'Made in India' Colour 2000 televisions to Western Europe Second Production Line set up at Noida for the manufacture of Projection TVs in India Samsung sponsors the Indian Olympic Team to the 2000 Sydney Olympics October Awards Rs.5 lacs as Cash Reward to K. Malleswari for winning the 2000 Bronze Medal at the 2000 Sydney Olympics. In addition, her Coach, Mr. Leonid Taranenka was awarded Rs.2.5 lacs . November Vice Chairman & CEO, Samsung Electronics, Mr. Jong Yong Yun 2000 visits India Announces fresh investments of US$10 million for setting up a high tech, state-of-the-art Colour Monitor Plant in India. December On December 2, 2000, Samsung India completed 5 Years of 2000 Operations in the country. January Samsung India announces its Corporate Initiative for the Year 2001 2001 -To be a Digital E-Company April 2001 Mr. K S Kim, MD of Samsung India between September 1998 March 2001 returns to Korea as Sr. Vice President , Global Display Division, Samsung Electronics Co. Ltd. Mr. S S Lee takes over charge as Managing Director, Samsung India. Mr. Lee was MD of Samsungs' subsidiary in Vietnam between January 1995 and March 2001. July 2001 Samsung's seventh Colour Monitor Plant in the world and the First Colour Monitor Plant in India commences production. Plant Capacity : 1.5 million units October Samsung launches the hugely successful Consumer Promotion , the 2001 Samsung 'Phod ke Dekho' Offer between October 10-November 20, 2001 .The Company generated Rs 275 Crores Sales from this Promotion in the months of Oct-November 2001. November Samsung India begins the domestic production of Fully automatic 2001 washing machines at its 1 lac capacity per annum unit at Noida.. December Samsung India wins the Rajiv Gandhi National Quality 2001 Commendation Certificate for Best Quality in the Electrical and Electronics Industry for the Year 1999 January Samsung launches MDC or Market Driven Change Initiative 2002 February Samsung India commences domestic production of 2002 Airconditioners. Plant Capacity : 1 lac units per annum.

Samsung operations in India include its Consumer Electronics and Home Appliances Company, Samsung India Electronics Ltd (SIEL) formed in 1995; its R&D Center in Bangalore, Samsung India Software Operations unit (SISO), set up in 1996 and its wholly owned subsidiary for IT/Telecom products, Samsung India Electronics Information Technology & Telecommunication Division (SIEL-IT). Headquartered in Delhi, SIEL-IT was launched in May 2000. Representing Samsung Electronics' first foray into the Indian market, Samsung India Electronics Ltd (SIEL) today is a leading provider of high-tech, Consumer Electronics products in the country, enjoying leadership in several of the product categories that it is currently selling in the country. The Samsung Product Portfolio comprises of state -of -the-art Consumer Electronics and Home Appliance Products. Samsung India's product portfolio comprises of Audio-Video and Home Appliances products; colour televisions in the 14"~53" screen size segment; refrigerators in the 170 litre ~200 litre Direct Cool and 300 litre~640 litre frost-free segment; Microwave Ovens in the 20 litre~32 litre capacity segment, Air-conditioners in the range 1.0T~2.0T package unit including both window and split type, VCD/DVD Players, Camcorders, Yepp Players, Home Theatre and Mini & Micro Systems. The SIEL product portfolio comprises of PC Monitors - ranging from 15" to 40" sizes, including the state-of-the-art TFT-LCD Monitors, Storage products: Hard Disk Drives ranging from 20GB to 160 GB, Optical Disk Drives (52X CD-ROM, 16X DVD-ROM, CD-RW, DVD-RW, Combo Drives 52X), Laser Printers, Multifunctional Products, Fax machines and Mobile Phones including an MP3, CDMA phones and Camera phone. Samsung also markets Keyboards, Speakers & FDDs in India , which, adding to the above products, constitute 70% of any PC, value wise.

Vision:
Samsung India's Vision entails helping people improve the quality of their lives by providing them with superior quality, state-of-the-art technology products at the right time and the right price. But beyond its role as a purveyor of quality products in India, Samsung seeks to contribute to the economic growth of the country though its export commitments and large scale production facilities generating secured employment for hundreds of Indian people. At Samsung, we strive to contribute to the development of the electronics and components industry in India by enhancing the knowledge levels of our workforce through the introduction of our advanced management systems and production know-how in our manufacturing facilities by introducing our Indian vendors to our world class quality systems and helping them in improving them in their own quality systems and production processes and setting benchmarks for the industry both in terms of after sales service for our products, quality systems and management techniques at our facilities or our products themselves.

At Samsung, we believe in returning to the community some of the profits we earn from it, through the social causes we espouse. We view ourselves not as an MNC operating in India, but as an 'Indian Company' operating here, conforming to the laws of the country and committed to working for the Indian community. We want and to be seen as the 'Most Respected' Indian Company.

Performance:
In a short span of six years since its entry into the Indian market in December '95, Samsung India today is recognized as a leading provider of high tech Consumer Electronics and Home Appliance Products in the country. It has a market share 11% in the highly competitive colour television market in India and holds the No.2 Position in the Flat Television category. It holds significant market shares in the Frost free refrigerators, washing machines and Air-conditioned categories, while holding the No. 2 Slot in Microwave Ovens. With 'Market Driven Change' being the guiding principle, the Company's strategies to achieve its targeted turnover of Rs.1520 Crores include : Strengthening the Home Appliances Range Having made a strong impact in the market with its 'Bio' range of Home Appliances- 'Bio Fresh' refrigerators , 'Bio Ceramic ' Microwave ovens and its 'Bio Cool' series of Conventional refrigerators , Samsung India plans to further reinforce its Home Appliance range by launching 4-6 new models in every product category this Year .The Company commenced the domestic production of Washing Machines (November 2001) and ACs (February 2002) , which is giving it the flexibility to meet the needs of the Indian customers . The Company expects the Home Appliance contribution to turnover to grow to 44 % in Y 2002 compared with 41.5% contribution in Y2001. R & D Center at the Samsung Factory, Noida Samsung India invested US$ 5 million in setting up an R & D Centre at its Noida facility. The R & D Center is helping the Company customize its CTV Range to meet the preferences of Indian customers . The R&D Centre has been made the Regional R&D Hub for Samsung's requirements not just for India but the entire Middle east and South east Asia regions . Initiating a Challenge 4000 Campaign at the CTV Factory In terms of production, through focused campaigns like the ACE 4 Programme , the Samsung CTV Factory expects to increase its production capacity to 1.0 million units and 1 lac units each for the Airconditioner and washing machine units . The Company expects to sell 700,000 CTVs in the domestic CTV Market in Y2002. Web based Service Management

The entire spares and service management of Samsung India has become web based with the implementation of Service net , its B2B Initiative linking a majority of the Authorised Service Centers to the Company through the web. Online Call Registration Facility on the web. Attaining digital leadership in the country In line with the Global Digital Initiative of the Parent Company, Samsung India is seeking to acquire digital leadership in India by introducing its digital products in India. Some of the digital products that have already been introduced in the Indian market include Digital Video Disk (DVD) Players; Digital ready televisions like the 40" LCD Projection TV, 43" Projection TV and the Plano series of Flat Colour televisions . Samsung India targets to be a 'Top Electronics Company' in the country by the Year 2003 with a turnover of Rs.4000 Crores , including its Consumer Electronics and IT Peripherals Business (SEIIT).

Case study of Microwave Ovens:


Introduction: In March 1999 Samsung India commences manufacturing microwave ovens at Noida Facility with Capacity of 50,000 units per annum. Its been around four years and unlike the west microwave ovens are still considered a thing luxury than utility in India.

Market Research:

Objective: To study the buying behaviour hence knowing the impact of different players on consumers. Scope of study:

Type of data collected: Psycho graphic: Facts that describe the life style of an individual or of a group in some respect pertinent to the study. This is relevant type as still microwave ovens are considered as a thing of luxury than utility in India. Behavioral: What people do, how they actually behave, are facts of high importance in many marketing studies.

Methods of data collection: 1. Primary Data Collection: The primary data was collected through two tools. a) Personal interview: We interviewed several dealers regarding the buying pattern and behaviour of the consumers as well as their likes and preferences. Also an interview was conducted with sales executive of Samsung India situated in Ahmedabad dealing with the sales of microwaves. b) Questionnaire: Another tool used for data collection was questionnaire. We have made questionnaire in such a way that through dealers we can know the buying behaviour of the consumers. Our survey was dealer-based survey. The questionnaire was designed in a such a way that the data collected will be of phychographic and behavioral type. 2. Secondary Data Collection: The secondary data is collected from various sources like magazines, internet, books, journals, company brouchers, newspapers.

Measurement and Scaling: The Ordinal level of measurement was used in finding out the attitudes of the consumers. Ordinal Measurement: An ordinal scale provides information about the ordered relationship among objects. This level of measurement contains all the information of a nominal scale plus a measure of whether an object has more or less of a characteristic than some object but not how much more or less. Its used for the measurement of attitudes, preferences, occupation, social class. The scale used is Itemized Rating scale. The itemized rating scale is perhaps the most frequently used in marketing research because of its simplicity and its adaptability to most measurement situations. This form of rating scale requires a respondent to indicate his or her attitude by selecting a position on a continuum that reflects the range of possible views regarding an attitude object. The various position on a continuum are set up in a sequential order in terms of the scale positions.
LOW MODERATE HIGH

10

Tools for Analysis:-

The statistical package used for analyzing the data is SPSS. Its a statistical package used for statistical operations on two or more variables simultaneously. It is very powerful tool in analyzing and interpreting data. Also MS Excel is used for the calculation and analysis. Theoritical Aspect During the research we have studied the buying behaviour pattern of the consumers. Also we have studied effect of different marketing variables like product, place, price, promotion. Product:- In India still people consider microwave oven as a thing of luxury. The people who are buying microwave ovens belongs to higher income group. So product features and quality are given more emphasis while making the purchase decision. The quality aspect plays a pivotal role as far as microwave oven is concerned which is a premium product. Place:- In recent years the product availability has increased substantially. Like Kenstar which through its credit policy to dealers has woven a network of distributors ranging from small electrical shops, Vasan bhandar to big show rooms. The Korean players are also not far behind. Apart from giving dealerships to the existing ones they have also created many new dealers but with a difference. They have not targeted the smaller players to increase their reach instead they have focused on much bigger showrooms and helped them to have a greater sweep. Price:- Price has been a predominant factor as far as Indian market is concerned. Indian market has been price sensitive right from the beginning. But there has been a slight shift in this trend as far as microwave ovens are concerned. It is considered as a luxury product and people buying it are of higher income group. So price does not play an important role in microwave oven as it plays in rest of the consumer durables. Promotion:- In comparison to other players like IFB, Whirlpool, Videocon whose awareness among consumers is negligible; Korean players have invested heavily in promotion and created a brand awareness much higher than their Indian counterparts. Their heavy promotion has lead to an impression in the minds of the consumers that only two or three brands like LG, Samsung and Kenstar produces the microwave ovens. Korean players have used promotion effectively as a tool to curb the competition and thereby remain at the top of the consumers mind. Research findings and Conclusion: Sales of Microwave oven:

WHIRPOOL .5% VIDEOCON 1.0% SHARP 1.3% IFB 1.5% KENSTAR 25.0%

SAMSUNG 49.4% L.G 17.4% NATIONAL 3.9%

Conclusion: The sales figures indicate that Samsung and L.G the Korean players command more than 60% of the sales in the market. This clearly shows their penetration, brand equity, and sales potential. Rating of different brands by the dealers:

Mean

0 RIFB RKENSTAR RL.G RSAMSUNG RNATIONA RVIDEOCO RWHIRPOL RSHARP

Conclusion: The rating by the dealers is based on their personal perspective, effectiveness of the brand and consumers opinion. Here again the Korean players are leading in the brand equity in the market. This also depends upon the support and service provided by the companies to the dealers. Samsung is leading L.G by a margin in the rating.

Brand Recall By the Consumers:

.8

.6

.4

.2

Mean

0.0 BIFB BKENSTAR BL.G BSAMSUNG BNATIONA BVIDEOCO BWHIRLPO BSHARP

Conclusion: Brand recall is considered as one of the best scales to measure the effectiveness of the advertising and promotion. Both the Korean players by their heavy promotion and advertising are way ahead than their competitors. For example cooking classes, free in house demonstration by company trained demonstrators. Here also the Samsung has greater brand equity than L.G. Preference for extra accessories: As a promotional campaign and facility to the customers the company itself provides extra accessories like gloves, borosil bowls etc. The preference for these accessories though necessary varies from customer to customer. Like some customer demands discount in place of the accessories. Some people do not require accessories as they already have the required ones. The average preference for the extra accessories on a 10-point scale tens to stand at 6.96875. That tends to round about 70% customers prefer extra accessories. Point of purchase promotion:- In highly technical products point of purchase material plays a significant role. But as the microwave oven concept is new to India more people believe on word of mouth and dealers advice while making the purchase decision as they lack the technical knowledge to fully understand the pop. The average effect of pop on

consumers buying decision is about 4.1040625 an a 10 point scale. Thus it could be inferred that pops are less effective as a promotional tool in case of microwave oven. The live demonstration of the product by the trained demonstrator is much more effective. The approximate price range of customers:- When a customer enters a shop he has following average price range in his/her mind: Solo: Rs.6109.063 Grill: Rs.9984.063 Convection: Rs.15105.938 According to dealers since the microwave oven is bought by higher income group ; there are no monetary constrains. They mainly go for technology and reliability where the Korean companies have an edge over its competitors. Its upto the dealers that how they persuade the customers for a particular brand. But apart from this the brand equity of Korean players earned by them due to heavy advertising has a significant effect on the purchasing decision of the customer. Effectiveness of Promotions:
2.6

2.4

2.2

2.0

1.8

1.6

1.4

1.2

Mean

1.0 EMOM EMOV ERCD

Conclusion: Of the three promotional activities by the company namely Microwave Oven Mela.(EMOM)

Microwave Oven Van.(EMOV) Residential Colony Demonstration.(ERCD) According to the dealers residential colony is the most effective way of the promotion followed by the microwave oven mela and of the three least effective is the microwave oven van. The reason attributed to residential colony demonstrations effectiveness is that it is more consumer interactive. Effective way of Advertising:.7

.6

.5

.4

Mean

.3 IAD cad

Conclusion:- There are two ways of local advertising. One is the general ad (CAD) given by the company mentioning all dealers. The second is individual ad (IAD) in which the dealer gives his individual ad. Though the general ad is much bigger and has more capability to attract the attention but as it includes the name of all dealers the customer gets confused as from where to buy. Whereas the individual ad though small in size bears a clear choice of the dealer to the consumer. These ads have more specifications about the place and price of microwave. The dealers know their local market well and so appropriately they design the ad. So the individual ad is more effective. NOTE: The above observation and conclusion is drawn from the dealers perspective.

Bibliography:

Articles From: Business Today The Economic Times (Brand Equity) The Hindu Business Line (Industry Analysis) Samsung Mannual.

Websites: www.etintelligence.com www.indiainfoline.com www.google.com www.equitymaster.com www.projectshub.com www.samsungindia.com www.asiatimes.com www.samsungdigital.com www.ciionline.com www.icicidirect.com www.indiadirectory.com www.businessstandard.com www.brie.com

Book: Marketing Research By: Luck and Rubin. Research Methodology By C.R. Kothari. Software: SPSS. MS Excel.

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