Samsung Electronics - Essay Example

?SAMSUNG ELECTRONICS CO., LTD INTRODUCTION The electronics industry in Korea, which was the largest industry in terms of employment and output, started during the late 1950s which then engaged in export industry. Some U.S. electronics producers began to invest in Korea during the late 1960s. There were two sectors in the development of the Korean electronics: labour-intensive consumer products and integrated circuit (IC) assembly. One of the top players in the manufacturing and exporting of electronics products in Korea was Samsung (Steinberg, 2010). 2. BRIEF HISTORY Samsung Electronics Co., Ltd. was established in 1969. It was one of the top divisions of the Samsung Group which was founded by Byung-Chull Lee. The name Samsung meant in Korea as "three stars." His first line of business was sugar refinery. Then few years later, Lee entered the manufacturing business. He also built other lines of businesses in 1960s such as insurance, broadcasting, securities and department stores. On late 1960s, Samsung Electronics began its operations with the help of some American, European, and Japanese manufacturers. As the company entered into the world of electronics, they made a huge investment to train their employees about the technologies used at the same time partnered with several overseas companies to make it possible (Funding Universe, n.d.). The 1970s period marked the beginning of Samsung's competitive vision to be the world's top contender in manufacturing electronics. The company's pride was the development of various electronics items which include semiconductors, computers, telecommunications hardware and finished consumer electronics products (Samsungn.d.a). In 1980s, the company expanded their business in the form of exports and partnering with other big companies and other suppliers of technology from other countries. They made huge sales and profits from export. In 1990s, the company experienced crisis in which it rooted from the crisis that the Korean government went through during the 1997 International Monetary Fund crisis. However, the company made a full stand during the crisis by adopting a series of restructuring as a form of rescue operation. The company was successful on their risky move. In the new millenium, the company spread even more their vision as they proclaimed to the world their plan of becoming the world's top producer and exporter of digital electronics. 3. SCOPE OF ITS INTERNATIONAL MARKETING 3.1 GOVERNMENT VS. INDUSTRY “Industrial transformation is the process in which an industry changes its production technology, market distribution, product scope, and location” (Shin & Ho, 1997). Government policies are among the factors that affect the transformation (Shin & Ho, 1997). On January 28, 1969, the Electronics Industry Promotion Law was enacted by the Korean government. This law was to promote major electronics export industry by developing new technology products and increase sales activities outside the country (Amsden, 1989). On that year also, development and training with tax incentives, low-cost loans and direct subsidies promotion were provided by the Ministry of Trade and Industry (MTI). Samsung, as one of the chaebols (domestic conglomerates), was one of the companies who received these benefits from the government (Dedrick & Kraemer, 1998). 3.2 DEVELOPMENTS WITH JOINT VENTURES AND COLLABORATIONS 3.2.1 SAMSUNG’S ENTRY TO ELECTRONICS INDUSTRY - 1970s. After the SEC was established, the company was able to form a joint venture agreement with foreign companies. First was Sanyo and Sumitomo Trading with 40% and 10% respectively as well as with NEC and Sumitomo Trading. The Samsung-NEC employees went to training in Japan for couple of months to learn the simple products assembly and with the technical assistance agreement; those employees will undergo training annually by NEC's technical experts. Futhermore, with the emergence of Samsung-Sanyo Parts in March 1973, the company was able to produce television parts with tuners, deflection yokes, transformers and condensers. Also in that year, another joint venture was formed and it was with Corning Glass Works of the U.S. with 50:50% agreement. They produced glass bulbs for cathode ray tubes (CRTs) production (Borrus, Ernst, & Haggard, 2000). On the other hand, Korea Semiconductor Co. was acquired by SEC in 1974 who manufactures integrated circuits for electronic watches. This resulted to an advantage against its rival, Goldstar (Kim, 1997). During this decade, SEC's production of black and white TV sets made a huge volume of exports to the U.S. which resulted to a high share earning of the U.S. market. Among of the companies whom SEC made a huge export were Mitsubishi; MGA and Hatzlack in U.S.; Hermeck and Beltrans in Europe; AGS in Canada; and other exports in Panama. In 1977, a GTE joint venture of the U.S. was formed, 51% with SEC while 49% with GTE. They produced and marketed the electronic private automatic branch exchanges (EPABX). After the acquisition of Korea Telecommunication Company and with the collaboration of BTM in Belgium, they produced electronic switching exchanges (ESS). During the end of the 1970s, exports in USA were strong compared to Canada, Europe, South America; with 77% in USA while only 10% and below to other areas. Because of this imbalanced distribution, SEC was forced to establish a CTV production plant in the US (Kim, 1997). 3.2.2 MORE COMPREHENSIVE ELECTRONICS COMPANY - 1980s. During this decade, Samsung Electronics showed off their fangs when they expanded from televisions, microwave ovens and VCRs to memory chips. The development of "chroma IC" in 1981 and subsequent development of "the motor drive IC" in 1982 was successful, thanks to the help of Kim Kwang-Ho who made the development possible in the semiconductor sector which he started on late 1970s (Kim, 1997). The enactment of the semiconductor promotion law in 1983, Samsung further expanded its market by producing the dynamic random access memories (DRAMs). However, a help from foreign technology sources was needed. Micron Technology, an American producer, helped Samsung in its DRAM design after prior contacts with Texas Instruments, Advanced MOS, Motorola, NEC and Toshiba. Samsung partnered with Sharp in the development of 64K DRAM and subsequently made a mass production when the 64K DRAM chip was developed in 1984. The 16 kilobit EEPROM and 16 kilobit SRAM was also produced in this year which was likewise licensed from Micron (Rowley & Bae, 1998). After the successful entry of DRAM, Samsung Semiconductor Inc. was established to study IC applications, thus SEC eventually opened Tokyo Design Centre for ICs in which they were able to produce thirty-seven kinds of ICs for VCRs in 1987. A year after that, SEC was able to develop the 2-micron bi-polar process and VCR motor control ICs (Kim, 1997). 3.2.3 INTEGRATION AND GLOBALIZATION - 1990s. During this decade, Samsung Electronics made several investments to foreign countries. In 1993, the company acquired 20% of Array Microsystems of U.S. for their multimedia products. Later on that year, the company collaborated with Harris Microwave Semiconductor of U.S. that focuses the gallium arsenide chips development. By 1994, the company acquired LUX of Japan, Control Automation Inc. and Integrated Telecom Technology of U.S. for the hi-fi audio manufacturing, CAD/CAM development and ATM technology specialization respectively. On that year also the company invested on ENTEL of Chile for the telecommunications systems division. Futhermore, they've also invested at Integral Peripherals and AST Research of U.S. for the development of HDD products and extensive commercial relationship growth. Korea invested also into Asian countries because of labour cost which had significantly increased as well as protectionism. An example of its international marketing activity expansion was in 1995 when SEC made a joint venture with Reasonable Computer Solution Pvt. Ltd. in Ahemdabad India with 51% and 49% respectively. It then became Samsung India Electronics Ltd. (SIEL) (Rajagopal, 2007). Thailand, Indonesia, Malaysia, Singapore, China and Vietnam were also the main players in contributing to the success of international production of Samsung Electronics (Kim, 1997). 3.2.4 THE DIGITAL AGE - NEW MILLENIUM. It started in 1999 wherein Samsung Electronics visioned itself in forming global brand awareness. This focused mainly on becoming a leader in digital technology which turned out in adopting a brand communication strategy. This campaign lasted in 2004 as it was evaluated as inadequate performance. By 2005, the company modified their campaign. It focuses in achieving a premium brand image. They changed their target market and they classified three elements of its new brand essence: sensory premium, technology leadership, and design focus. The result was highly favorable when the international market recognised the company as a reliable and credible manufacturer. In fact in 2006, brand value of the company raised from US$ 8.31 billion to US$ 16.6 billion (Rowley & Paik, 2009). One example of company’s strategy in making brand awareness to the public is Samsung’s continuous sponsorships of Olympic Games (Papadopoulos & Heslop, 1993). The 2010 Interbrand’s Best Global Brands, the company earned the No. 19 spot (Samsung, n.d.a). 4. FINANCIAL REPORT One company engineer testified that during the early development of DRAM, the company earned losses, with US$ 100 million per annum (n.d., cited in Rowley & Bae, 1998). In 1985, because of the market downturn and price decline of memory circuits, SEC faced financial difficulties, in which they even asked for financial support by trading technology with Excel Microelectronics and Micron (Rowley & Bae, 1998). On the other hand, according to the Annual Sales report disclosed by the Samsung Groups in their website, an overall financial data showed that a significant increase of exports brought the company into the top from US$ 17.9 billion in year 1991 going up to US$ 39.7 billion in 1995. The electronics sector made sales of about 30.7% of the total sales of Samsung Groups (Samsung, n.d.b). However, during the midst of IMF crisis in 1996 and 1997, Samsung's net income dropped drastically. From US$ 3,802 million in 1995, it went down to US$ 164 million in 1996 and went up again by 36% only in 1997. Although reports on net sales and exports seemed went well, but having this kind of declining net income stresses out that the company was more focused in generating more on its assets rather than its profits. The total assets of the company recorded US$ 50.6 billion in 1993 then 4 years after it went up to US$ 111.8 billion in 1997. Basically, that's one of the major causes why the IMF crisis occurred (Samsung, n.d.c). The company's vision for 21st century made a positive result as they earned US$ 119.5 billion net sales and generated US$ 7.3 billion net income in 2000 (Samsung, n.d.d). Ten years after, its net sales went up to US$ 172.5 billion with net income of US$ 13.8 billion with a total of 173,965 employees in Samsung electronics sector alone (Samsung, n.d.e). 5. TECHNOLOGICAL CAPABILITY AND MANAGEMENT By mid 1970's, SEC had a difficulty in gaining foreign licensing when they started to expand their OEM channels and capabilities by adding VCR's and microwave ovens. However in 1979, because of the reverse engineering method, they were able to develop their own VCR a year prior to the success of the product development team who dismantled a Panasonic microwave oven (Kim, 1997). In the early 1980s, SEC developed a diversification strategy limited only to electronics area: from consumer electronics and home appliances into personal computers and peripherals, communications equipment and semiconductors. With this diversification, SEC's product lines grew (Yu, 1998). The company's source of technological capability came from OEM buyers, foreign licensing and reverse engineering. However, the company was graded as weak in product development. They would distribute the products with only small changes that designed by US and Japanese customers. In the middle of the booming demand of DRAM, the company's success can be rooted from the extensive investment in research and development (Cyhn, 2002). There are R&D centers abroad like the one in Boston Masachusetts. Samsung Electronics Telecommunication, were established to support the company in utilizing its resources that's significant on its operations. In 1997, 7% of the company's sales was spent for R&D and went down to 6.5% in 2000. By 2004, it raised again to 8.3%. It entails that the company usually spent around 6-8% R&D investment from its total sales (Lee, 2006). 6. FROM INNOVATION FOLLOWER TO INNOVATION LEADER According to Jong-Yong Jun, SEC's vice chairman, to become the world's best company, every business must be innovative following six parallel tracks (n.d., cited in Jones & Lee, 2006): product innovation - to deliver high quality innovative products; technology innovation - to make R&D investments while developing new technologies; marketing innovation - to make strategies in maintaining customer relationship; cost innovation - control cost while maintaining operational efficiency; organizational culture innovation - to have an environment that shares common goal and perspective; and global management - to develop strategies in engaging world market. 7. THE CRISIS In December 1997, the Korean government went through a huge crisis as they named it as the International Monetary Fund crisis or "IMF crisis". The following are the major causes of IMF crisis in Korea (Lee, 1998): Top Korean chaebols over-expanded their industries which was perceived that they have more debts than their equity bases; Crisis in Asian currencies; Korean government's slow response of the crisis as they tried to hide their decreasing foreign reserves; Political alliances between the government and the top conglomerates made the crisis worsen; Korean big companies were governed on the idea of increasing their assets rather than increasing their profits; Korea's foreign currency continuously decline; Huge short-term debt from foreign banks; Reckless borrowings from foreign sources; and Investors started on doubting Korean companies due to their lack of financial reports transparency. During the IMF crisis, Samsung Electronics was not an exemption. This happened when Yun Jong-yong was the appointed CEO of Samsung Electronics. In Yun’s era, Samsung Electronics started on their restructuring program. He imposed the ‘Concentration on Selective Resources’ policy in which it addresses on investment reduction, cutting company debts, balancing payroll without labor unrest and shutting down operations which were not profitable. Also, one of the ways that the company was able to survive was the proposal the government made to Daewoo and Samsung Electronics. Daewoo would take over Samsung’s Motor sector, while Samsung would take over Daewoo’s electronics sector (Michell, 2010). The most significant result from this reform was the decline of the overall company’s debt-to-equity ratio, from 365% down to 104% (Samsung, n.d.c). According to Chairman Kun Hee Lee, "...We have to change if we are to survive. That is our only chance." He realized that the company already came to a point where it has to change because of the major suffering that the electronics industry is experiencing (Lee, 2006). 8. CONCLUSION The company always sees to it that whenever they are producing a product, it will be a product for everybody; useful to all consumers and businesses. As it expands in the world market, global challenges will always be at their tail to test their strength. One of the best factors that will always contribute to the success of a certain company is good leadership. Samsung's success rooted mainly from the brilliant visions of their founder, Byung-Chull Lee and other CEOs appointed to different sectors like Yun Jong-yong in the electronics sector. They made risky moves for the flourishment of the company. Samsung, who was once a follower in its industry, now becomes a leader to all other companies and proclaimed as one of the best companies in the world. Innovation was also a major factor for them. Once they set a vision, it's always important to look farther in the future. In this kind of thinking, they always succeed on every endeavor they'd partake. Even though that endeavor is critical, they always counter attack it by giving emphasis more on research and development program. From the formation period until its present period, the company's evolution in becoming what they are right now only shows how magnificiently brilliant they are in utilizing all of its resources. References Amsden, A. H., 1989. Asia's next giant: South Korea and late industrialization. New York: Oxford University Press. Borrus, M., Ernst, D., & Haggard, S., 2000. International production networks in Asia: rivalry Or riches. [Internet]. New York: Routledge. Available at: http://books.google.com/books?id=KV-Rx0paVywC&pg=PA169&dq=sec+samsung+electronics+company+1989&hl=en&ei=2stkTcPwIojYrQeK3-mKBw&sa=X&oi=book_result&ct=result&resnum=7&ved=0CEwQ6AEwBg#v=onepage&q=sec%20samsung%20electronics%20company%201989&f=false. [Accessed 23 February 2011]. Cyhn, J. W., 2002. 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