You are on page 1of 30

SAMSUNG CORPORATE

STRATEGY

Submitted To Submitted By

Prof. Sonu Goyal Group 10


Contents
Samsung Group ............................................................................................................................................. 1
Practicing Corporate Strategy of Samsung Group ........................................................................................ 2
Corporate Goals ............................................................................................................................................ 3
Non-economic objectives ............................................................................................................................. 5
Samsung Stakeholder Management ............................................................................................................. 8
Strategic Fit……………………………………………………………………………………………………………………………………………11
Approach to adding or divesting business units ......................................................................................... 12
Funding Decisions ................................................................................................................................... 13
Internal Operational Processes facilitating acquisitions ......................................................................... 13
Organizational Structure ............................................................................................................................. 17
Generic functional policies of Samsung Group ........................................................................................... 24
References…………………………………………………………………………………………………………………………………………….27
Samsung Group
Introduction
Samsung was founded by Lee Byung-chul in 1938 as a trading company. Over the next three
decades, the group diversified into areas including food processing, textiles, insurance, securities
and retail. Samsung entered the electronics industry in the late 1960s and the construction and
shipbuilding industries in the mid-1970s; these areas would drive its subsequent growth.
Following Lee's death in 1987, Samsung was separated into four business groups – Samsung
Group, Shinsegae Group, CJ Group and Hansol Group. Since 1990s, Samsung has increasingly
globalized its activities and electronics, particularly mobile phones and semiconductors, have
become its most important source of income.
Notable Samsung industrial subsidiaries include Samsung Electronics (the world's largest
information technology company measured by 2012 revenues, and 4th in market
value), Samsung Heavy Industries (the world's 2nd-largest shipbuilder measured by 2010
revenues), and Samsung Engineering and Samsung C&T (respectively the world's 13th and 36th-
largest construction companies).] Other notable subsidiaries include Samsung Life Insurance (the
world's 14th-largest life insurance company), Samsung Everland (operator of Everland Resort,
the oldest theme park in South Korea) and Cheil Worldwide(the world's 15th-largest advertising
agency measured by 2012 revenues).

1
Practicing Corporate Strategy of Samsung Group
Portfolio Management:

The concept of Corporate Strategy is practiced through portfolio management which is


primarily diversification through acquisitions. Corporations acquire companies which are sound
and present in attractive industries which are also under-valued. Through this strategy, the
corporations aim to create the shareholder value by using expertise supplying the acquired
companies with expertise, resources and skills which in turn create corporate advantage to the
corporation.
Samsung has started in 1938 as a small trading company dealing in groceries and
noodles. Over the next three decades it diversified in to food processing, textiles, insurance,
securities and retail. Later, it diversified in to electronics in 1960’s, construction and shipbuilding
in 1970’s. It has later established and acquired a lot of companies to diversify in multiple
industries.
Portfolio of Companies under Samsung Group includes:
Samsung Electronics Co. Ltd. Samsung Engineering Co.
Samsung SDI Co. Ltd. Chiel Industries Inc.
Samsung Electro-Mechanics Co. Ltd The Shilla Hotels and Resorts Co.
Samsung Techwin Co. Ltd Chiel Communications Inc.
Samsung Heavy Industries Co. Ltd. Samsung Corporation
Samsung Fine Chemicals Co. Ltd. SI Corporation
Samsung Fire & Marine Insurance Co. Ltd.
Samsung Securities Co. Ltd.

Acquisition Timeline:

 Acquired Ankuk Fire & Marine Insurance in 1958 and renamed as Samsung Fire &
Marine Insurance in October 1993
 Acquired DongBang Life Insurance in 1963 and renamed as Samsung Life Insurance in
July 1989
 Acquired Kukje Securities Co. in 1992 and renamed as Samsung Securities Co.
 Samsung Electronics acquired U.S. firm HMS in 1993
 Acquired McKinney Communications, a US-based and Bravo, a Chinese firm in 2012

2
Restructuring:

Restructuring strategy seeks out undeveloped, sick, or threatened organizations or industries on


the threshold of significant change. The parent intervenes, frequently changing the unit
management team, shifting the strategy, or infusing the company with new technology. Then it
may follow-up acquisition to build a critical mass and sell off unneeded or unconnected parts and
thereby reducing the effective acquisition cost.

Transferring Skills:

Transfer of skills can lead to competitive advantage if activities involved in the businesses are
similar enough which makes sharing meaningful. Transferring skills is an active process that
significantly changes the strategy or operations of the receiving unit. Transferring skills meets
the tests of diversification if the company truly mobilizes proprietary expertise across units.

Sharing Activities:

The ability to share activities is a potent basis for corporate strategy because sharing often
enhances competitive advantage by lowering cost or raising differentiation. But not all sharing
leads to competitive advantage and companies can encounter deep organizational resistance to
even beneficial sharing possibilities.

Samsung Group established Samsung Advanced Institute of Technology (SAIT) to support a


group level effort in Research and Development as an incubator of cutting edge technologies
with R&D labs present round the globe.

Samsung Human Resource Development Centre (SHRDC) is the headquarters of Samsung


education and learning system. Its mission is to serve as a value sharing centre as well as
knowledge creating centre to realize improvement in performance.

Innovative Design Lab of Samsung (IDS) provides post-graduation design education for in-
house Samsung designers. Its objective is to nurture the talents of creative designers and to
inspire design spirit with in Samsung companies.

Samsung Fashion Institute (SFI) offers consulting for Samsung affiliated companies in the areas
of fashion design and marketing and provides training for young designers.

Corporate Goals
At Samsung, they follow a simple business philosophy: to devote their talent and technology to
creating superior products and services that contribute to a better global society.
Their leaders search for the brightest talent from around the world and give them the resources
they need to be the best at what they do. The result is that all of Samsung products—from

3
memory chips that help businesses store vital knowledge to mobile phones that connect people
across continents— have the power to enrich lives.
Economic Objectives:
Samsung has been into diverse and complex roads in the industry and its humble beginning has
been its foundation towards establishing a famous name in the electronic industry.
Another remarkable moment that takes a big part of its success is establishing companies all over
the world. This helps Samsung to start competing in hardware and telecommunications industry.
The Samsung has maintained the financial indicator moderate enough in spite of headwinds
blowing in various firms. The Samsung electronics profit sunk by 19% as it has lost its market to
the Chinese rivals. In spite of this, key profitability indicators seem to be decent enough as
shown below:

The Samsung Heavy Industries found the going tough despite the gradual recovery from the
financial crisis, the ship building and offshore business has experienced tough environmental
conditions due to a sharp decrease in new orders triggered by Eurozone crisis and falling oil
prices.

As per the balance sheet of FY15


Net Loss (in thousands of Korean Won): 121.2 million
Total Equity (in thousands of Korean Won): 426.5 million
Return on Equity: -28.5%

In the case of Samsung Life Insurance Net Income decreased by 10% when compared with the
previous year due difficult business environment of low interest, for the current year the
management estimates investment profit to increase from equity disposal of gains and
management efficiency improvement for new business value and loss ratio. So, better numbers
are predicted for FY16.

As per the balance sheet of FY15


Net Loss (in thousands of Korean Won): 1.2095 million
Total Equity (in thousands of Korean Won): 23.7217 million
Return on Equity: 5.09%

4
Based on the annual reports of various firms under the Samsung group it could be said the
growth rate and ROE would be in the range of 5%-10%.

Non-economic objectives

Samsung Electronics Hope for Children Program:


For more than 60 years, Samsung has raised the quality of life for people everywhere. As the
world’s largest electronics company, Samsung applies the same innovation, technology and
resources that have driven its commercial success to advancing the education and health of
children around the world through its global citizenship program, Samsung Hope for Children.
It's one of the ways that Samsung uses innovation to support the development of people.

Samsung Heavy Industries Dream Class & Dream School:


SHI-I CSR Initiative:
The SHI-I team in August of 2013, started off with Dream Class & Dream School - 2 Projects
with different objectives aimed for the welfare of the society as part of the CSR initiative. Both
the projects have been running pretty well since its outset. We have a dedicated team for CSR
activities which comprises of our own employees who take time out from their working schedule
to teach the young children.
DREAM CLASS:
The basic objective of Dream Class team is to provide helping hand to the students in the field of
education by enhancing their basic knowledge & to develop their personalities which will add to
the overall growth of children. For the less fortunate children studying in Government schools,
it’s an opportunity to fulfil their dreams & to compete on equal footing with the world. Through
Dream Class Project we aim to provide wings to the dreams of these children & help them
achieve greater heights.
DREAM SCHOOL:
SHI-I in collaboration with an NGO (NKJKS) started the Dream School Project to make the
dreams come true for the lesser privileged people living in poor areas of village “Parthla”. The
main objective of the project is to provide a better standard of living & education for the children
& women in the area as well as to help the women earn their livelihood by providing them with
vocational skill trainings for sewing, stitching & designing.
The school would provide free education to the children from neighbouring areas, instil good
human values in them and stress upon them the importance of hygiene and proper sanitation.
Nutritional snacks would be distributed in the school to take care of malnutrition amongst
children & the study material, note books, pen/pencil, books would be provided free of cost.

5
Samsung Life Insurance Sesalmaul:
Sesalmaul was founded under the belief that the core fundamental of the child development
materialized the first three years after birth. This is a systematic childcare development program
which takes a holistic approach and offers childcare courses to parents and grandparents.
Sesalmaul also aims to increase low fertility by alleviating new parents’ stress associated with
pregnancy and child rearing. A one-stop childcare service was set up to provide informational
sessions to expectant mothers and grandparents who also care for the new born baby. In addition,
a congratulatory visit to celebrate the birth of the baby was added.
The 3 year-old unique program hopes to foster young, bright and genuine mind leaders of the
future from a wider expansion of Sesamaul services to young parents.

Code of Conduct
Samsung Electronics:
Samsung Electronics endeavors to become a world leading company by following its
management philosophy of “Devoting its talent and technology to creating superior products and
services that contribute to a better global society.” Samsung Electronics’ value chain of
“Management Philosophy, Core Values and Management Principles” is rooted in this
management philosophy and constitutes the spiritual guidelines for all its employees in their
effort to realize the corporate vision of being a world leader. Samsung Electronics announced the
“Five Samsung Business Principles” in 2005. The principles serve as the foundation for its
global code of conduct in compliance with legal and ethical standards.

6
Samsung Heavy Industries Code of conduct:

We value customer satisfaction at top and pursue co-prosperity through trusts among
employees, customers, business partners, shareholders, local societies, country, and
humanity.

We compete freely and fairly in all areas and countries of our business activities where
the cultures and customs will be respected and laws and regulations will be confirmed.

We value responsibility, creativity and challenging mind and maintain SHI reputation and
dignity through good etiquette and manner based on humanity and ethical thinking.
We do our best in our work with honesty and devotion, and create sound
corporate culture based on humanity and respectful labour relationship.

7
Samsung Stakeholder Management
Samsung Electronics:
Samsung uses an array of communication channels to engage stakeholders in productive and
relationship-driven conversation. The company hosts public stakeholder forums and maintains
online blogs in an effort to encourage stakeholders to express their honest points of view on any
matter related to the company.

Stakeholders Engagement
Samsung pursues open, relationship-driven communication with stakeholders in order to
promote shared growth. Samsung’s’ diversity of stakeholders includes shareholders, customers,
employees, NGOs, local communities, suppliers, mass media, and the government. Taking care
to match the appropriate communication channel with each group, Samsung carefully considers
each piece of feedback from stakeholders, and makes every effort to reflect lessons from the
feedback in the company’s future corporate policies and actions. In order to facilitate effective
communication with stakeholders, Samsung Electronics has designated a specialized
communications department for various stakeholder groups. Each of these departments holds
forums, responds to inquiries, conducts surveys and runs advisory groups for its particular group
of stakeholders.

8
Samsung Heavy Industries:
Stakeholder Communication Principle
In efforts to systematically communicate with stakeholders, who have direct and indirect
influence on SHI business activities, SHI classified stakeholders into different categories in
2015. Through its diverse communication channels, SHI is engaging in active talks with its
stakeholders and it sharing its major sustainability management related issues with them as well.
SHI further endeavours to realize sustainable development and healthy growth by reflecting the
stakeholders’ interest to SHI’s business operations.

9
Stakeholder Communication Channels
SHI puts many efforts into accommodating the opinions of its various stakeholders through
operating a diversified communication channel. Moreover, from the opinions obtained through
such channels, SHI strives to reflect such voices into its business strategy. Lastly, the selection of
major topics addressed in its sustainability reports is also derived from analyzing stakeholders’
opinions.

10
Strategic Fit
Strategic fit is organization’s match of resources and capabilities with respect to external
opportunities. Resources are inputs to the production whereas as capabilities are attained through
continues learning. For a conglomerate like Samsung the resource and capabilities of one
company can be utilized by another and gain the corporate advantage. The experience in
manufacturing of chips can be utilized in manufacturing of TV’s, LCD screens etc. From a
trading company to insurance company to Securities and Retail, Samsung entered into
electronics industry in 1960. The company had produced 800 million phones till date and had
become one of the largest electronics parts manufactures.

The group has presence in various sectors such as Electronics, Heavy industries, Financial
Services, Defense and Research & Education centers.

Samsung Electronics and its subsidiaries in electronics industry operates in 3 divisions -


Consumer electronics, Information management & Mobile Communications, and Device
Solutions

From 1980, Samsung invested heavily in R&D facilities to become world largest electronics
company.

SNO R&D Center Region


1 Samsung Research America America
2 Grandis America
3 Samsung Nanoradio design Center Europe
4 Samsung R&D institute Rus Europe
5 Samsung Denmark Research Europe
6 Samsung France Research Center Europe
7 Samsung Cambridge Solution Center Europe
8 Samsung Semiconductor Israel R&D Center Middle East
9 Samsung R&D institute India - Bangalore Asia
10 Samsung R&D institute Bangladesh Asia
11 Samsung Mobile R&D Center China- China
Guangzhoa
12 Samsung Tianjin Mobile Development China
Center
13 Samsung R&D institute China- Shenzhen China
14 Beijing Samsung Telecom R&D Center China
15 Samsung Semiconductor R&D Center China
16 Samsung Electronics China R&D Center China
17 Samsung R&D Institute China-Xian China

These 17 R&D resources are used as shared assets by all the Samsung electronics subsidiaries.

11
Sharing of resources such as Financial, Physical Assets, Technology, Human Resources,
Reputation (Brand) and culture provide the best fit in handling the business. Also, the
capabilities such as knowledge of doing businesses across countries will help in establishing new
subsidiaries in various countries. Knowledge on financial strategies for capital sensitive
companies can be replicated to other high capital sensitive investments. The distribution
networks of one company can be used for other companies which require selling of similar
products. A corporate attains best fit among businesses when it shares it resources, capabilities,
best practices for greater good.

The best example for sharing the knowhow for better strategic fit among businesses is
transformation of Samsung C&T from Construction Company to solution provider. The
innovation story of Samsung electronics is known across the world and even the Chinese giants
like Huwai tried to imitate it. The R&D of Samsung Electronics shared some best practices to
Samsung C&T which helped in innovating in its construction business.

As of now Samsung C&T has constructed many mega structures such as Burj Khalifa in Dubai
and Petrones Twin towers in Malaysia and stands as one of the top construction companies in the
world.

Knowledge sharing and asset sharing across the corporate in Samsung helped it to again the
corporate advantage

Approach to adding or divesting business units

Samsung regards M&A as one of its key business strategies, in conjunction with organic growth,
and it continues to remain open to partnership and acquisition opportunities. Over the years, the
conservative company has been more openly acquiring companies with a view to find new
sources of revenue along with technologies that could improve Samsung’s position in its key
mobile and consumer electronics businesses.

Through M&A, Samsung aims to reinforce current businesses, secure talent and find new
opportunities. The company has already spent about US$1 billion investing in 14 companies
since 2010 and has been gradually shifting its focus of investment from making gains in existing
markets to “new market creation". This strategy is likely to continue in the near future as a new
report by the Financial Supervisory Service shows that aggressive mergers and acquisitions are
indeed helping Samsung boost business overseas.

The company has reportedly added eight new overseas subsidiaries in 2015 by either acquiring
substantial stakes or setting up new companies. The total number of subsidiaries is said to have

12
reached 159 last year with only six based in the United States and the rest across Asia. This
expansion strategy becomes all the more significant in today’s time when Samsung is trying to
discover next growth engines to reduce reliance on traditionally strong businesses like
smartphones or appliances which are increasingly coming under pressure now. The subsidiaries
it picked up last year include LoopPay which provided technology that’s integral to Samsung
Pay, a printing service company called Simpress as well as a semiconductor technology company
called Future Technology & Service. Such moves are also part of the efforts to expand its
presence into untapped yet promising areas such as the Internet of Things (IoT).

Samsung has also been investing big on the patent front. In 2010, the company set up an
intellectual property center to centralize its patent capability efforts, along with country-level IP
centers worldwide. Samsung also ropes in its in-house team of patent experts, which number
about 600, into the new product development cycle at the planning stage.

Funding Decisions
At the end of December 2014, Samsung had a cash reserve of $56 billion and the group aims to
use this cash pile to fund growth including acquisitions.

The group has a catalyst fund of $100 million dedicated to startups focused on disruptive ideas,
components, systems and infrastructure to fuel innovative technologies and business models.
With Samsung’s technology and global presence, innovators and entrepreneurs can bring their
visions to market more effectively.
The group also created $1 billion Samsung Ventures America Fund that targets companies of all
sizes. This arm invested $160 million in 20 companies in 2012.

Internal Operational Processes facilitating acquisitions


Samsung has a Global Innovation Center, or GIC, that brings software and services innovation
to Samsung Electronics by working with technology startups and entrepreneurs through
investments, acquisitions, partnerships and the Samsung Accelerator. The GIC’s deep integration
with Samsung consumer electronics and mobile business units provides entrepreneurs and
startups with unparalleled access to Samsung resources, decision-makers, product roadmap, and
the world’s largest platform for distribution. Opened in 2013, the GIC operates across offices in
Mountain View, Palo Alto, New York City, and Suwon, South Korea.

The Innovation Center includes separate teams dedicated to acquisitions, early stage investments
and strategic partnerships. These teams contribute to the overall Samsung mission of excelling in
both the hardware-software and services space by acquiring and partnering with innovative
startups (such as LoopPay, now Samsung Pay and SmartThings), as well as supporting new
product launches (such as Gear and Gear VR). On the corporate venture side, it provides
entrepreneurs more than just the financial resources.

13
A startup team working at GIC

The atmosphere at GICs is decidedly dressed down and startup friendly. Many surfaces double
as whiteboards, covered in flow charts and product ideas.

GIC office in New York

14
Acquiring a startup versus investing or partnering

Samsung initially approaches conversations with a startup in a structure-agnostic fashion. If the


Samsung Global Innovation Center is primarily interested in the current product and the startup
is simply attracted to Samsung’s reach, a partnership is usually the easiest (and quickest) way to
deliver value to the respective users.
But in situations when the offering is not yet mature enough to be rolled out globally to millions
of users, Samsung may invest to stay close to a promising team, while facilitating conversations
and collaborations with internal stakeholders or it may consider an acquisition if it sees great
talent that has the potential to act as internal leaders within their areas of expertise.
The acquisition is not necessarily viewed as the most ideal form of collaboration. Samsung
believes that an acquisition is forever, so it doesn’t usually buy companies for the current product
or business. Rather, it buys companies primarily for the talent and the potential that it believes
they have for creating great products down the line.
The acquisition process at Samsung focuses from the very start on exploring whether the two
sides are on the same page and are equally passionate about a desired goal.
If the negotiation is primarily about price, that is usually a sign that the deal may not be ideal in
the long run. If the target’s management team wants to do right by their investors, but is just as
excited about the value they will create together by going forward, that’s the team Samsung is
willing to advocate for.
The second key factor is thoughtful integration. At many companies, the integration team is not
invited to participate in a deal until after a term sheet is signed, or only after the deal closes.
At the Samsung Global Innovation Center, the integration team is involved from the very start of
a process. The integration colleagues help the transaction teams focus on what matters. By doing
so, they reduce opportunities for frustration during delicate deal negotiations or diligence
sessions.
This helps build the needed trust well before the deal closes, and sets the teams up for a likely
successful execution.

Acquisition & divestment in recent times


SmartThings - home automation- 14 August 2014
Samsung made a big push into being the center of the smart home with its acquisition of
SmartThings, which allows people to sync up their connected gadgets onto a single smartphone
app and hardware hub.

LoopPay - U.S. mobile payments firm - 18 February 2015


Samsung made a significant move in mobile payments by acquiring LoopPay, a mobile-
payments technology startup, thereby potentially supercharging its ability to enable its customers
to pay for goods and services with their smartphones.

15
Pixie - smart TV app – 2014

Samsung acquired the smart TV app called Pixie that pulls data and creates a smart feed which
displays conversations happening on social media alongside the action on your TV.

Divestments - (2014-15)

The Samsung Group sold its stakes in four chemical and defence firms for 1.9 trillion won ($1.72
billion) to Hanwha Group, in the massive task of restructuring itself.

 Samsung Electronics sold a 32.4 percent stake in defence firm Samsung Techwin Co Ltd
to Hanwha Corp for 840 billion won

 A 57.6 percent stake in Samsung General Chemicals Co Ltd sold to Hanwha Chemical
Corp and Hanwha Energy Corp for 1.06 trillion won

 Samsung's portion of Samsung Thales Co Ltd, a joint venture with Thales, and Samsung
Total Petrochemicals Co Ltd, a joint venture with Total SA, transferred to Hanwha firms.

Samsung does kill off projects that don’t produce a great product or consumer traction. While
Pixie and LoopPay are examples of American startups whose software is now deeply integrated
into Samsung hardware, things don’t always work out. GIC was the unit behind the acquisition
of Boxee, one of the pioneers in delivering over-the-top television services. The company was
working on a top secret feature called Samsung PX, a smart TV system with a dedicated tablet
that would take the place of a traditional remote control. Originally slated to unveil at CES 2015,
the product was delayed, and then killed off, with many Boxee staffers including CEO Avner
Ronen departing from Samsung.

Upcoming plans
Samsung marketing division eyes acquisitions in India
Cheil Worldwide, a marketing company under the Samsung Group, is looking at acquiring
multiple agencies in India's advertising technology space as it seeks to build digital capabilities
in a country that it ranks as a priority market, ahead of even China.

16
Organizational Structure

Global Network and Control

17
Although Samsung affiliated subsidiary companies are spread over a range of industries and
regions worldwide, but they operate independently and share the same overall management
philosophy, code of conduct and corporate identity. Chairman is responsible for determining the
long term vision and decision of strategy for the group, while Chief Executive Officers of each
unit have the responsibility for autonomous decision making on ordinary business issues and
problems.
Samsung shelved out a blueprint of global success as “New Management” for the 21st century:
1. Intellectual capital
2. Organizational Creativity
3. Technological Innovation
4. Employee Empowerment
Moreover, this has to be spread across all its units and create global information systems for
sharing of information and building synergies between them.

18
Control over business units and Subsidiaries
 By and large the Samsung Group has either 100% stake or majority stake in its
subsidiaries. Samsung Electronics aims to continuously advance all processes as they
relate to manufacturing and production, logistics, development, marketing, quality,
human resources and management. The company pursues simultaneous innovation in all
sectors and large-scale innovation across the company in all divisions.
 Samsung follows a pyramidal structure to preserve control in the family, even when
ownership is diluted. The pyramid represents a chain of corporate control. Typically, the
Samsung Group at the top retains a controlling stake in all of its subsidiary companies; in
return the group forgoes a large share of the cash flows from the lower layers, which may
be paid out as share dividends to the other investors.
 Divisional Control: When suppose two divisions are competing against each other to
develop a new product they are reluctant to share technical know-how and to resolve this
problem Samsung Group uses integrating mechanisms, such as the liaison role, and
assigning the responsibility for leveraging technological know-how across divisions to
key individuals. This culture has been developed all throughout the company and the
group believes in having a common belief and vision.
 Metrics and review mechanisms to track Progress: Samsung Group has set up an
internal business appraisal mechanism to ensure profitability and ROI. In this system,
new investment should have a payback of four years, while upgrade (additional)
investments have just two years of margin to break even. These benchmarks function to
screen out numerous projects for failing to meet the requirements and to selectively focus
on projects that are viable in short-term as well as in long-term.
 Samsung Culture Index (SCI): Samsung Group conducts an annual survey among all
the global employees in five categories: Work Smart, Think Hard, Build Trust,
Leadership and Policy. This survey illustrates the work satisfaction, reliability and
fatigue levels of employees companywide. In areas with low scores, the company strives
to make immediate improvements by offering customized programs through various
consultative services. The response rate for the overseas subsidiaries has increased from
83 percent to 88 percent between 2012 and 2013.
Resource Allocation and Incentive Mechanisms
 As a strategy to enter global markets, Regional specialists are dispatched as expatriates
or heads of overseas branch linked with the global leader fostering track. Over 4,700
regional specialists have been posted in 80 countries since 1990. They also take a role in
pioneering emerging markets and marking the company’s presence into the region.
Moreover, these regional specialists provide business opportunities to gather vast
regional data around the world and this can be useful when company decides to enter
similar markets in future.
 To compete outside its home markets, Samsung comes into collaborations with non-
Koreans in non-Korean contexts so that local market can be studied more appropriately
and that insight may come in handy to cater to customer needs. Samsung has established
new organizations (refers to subsidiaries) to seek out and adapt best practices from
abroad. They have also introduced a focus on innovation into a company optimized for
continuous process improvement, including merit pay and promotion into an organization
rather than senior based promotion policy.

19
20
From the above classification of Total revenue coming of the group from different business
divisions reflects the amount of resources that have gone into each segment. Moreover, the
allocation is purely on the basis of Operating Performance and the bottom-line. Also we can see
that there are various aspects which these divisions share in common: Manufacturing Base and
Inter Division Sales I.e. Internal Sales (see above table).

Management Style
 Management tells its employees to attack bravely and timely. They have created such a
culture that employees built up a crisis situation when all is well and then attack when
crises strike them. The focus is on quality-based management which in turn emphasize on
technology resources which is driving force for formulating best corporate quality.
Human Resources and Technology must be the key enabler of company’s strategy.
21
Design should reflect the philosophy and culture of a company. New slogans like
“change begins with me", "start with the easy tasks", "start changing now", from the top
were created and shared to create consensus about fundamental innovation. Improvement
in quality and design is the foundation for brand building.
 Samsung has been focusing more on leveraging its global presence and brand rather than
earlier strategy of cost competitiveness. Moreover, there is complete decentralization of
responsibilities and authority in the organization across business units. Even though the
controlling stake is owned by the Samsung group in each affiliate, each business unit
works independently having their own management team and control over business. But
the culture and vision is common. Moreover, there are certain aspects which are shared
which gives competitive advantage for the group overall. Also the R&D, production
facility and brand usage is common across business units and across regions. This shows
the shared synergies between the divisions and their combined efforts to make the brand
strong at the global front.
 Each SBU has its own financial reporting and review mechanism. But they are
answerable to the group as the parent company holds majority stake and thus in this way
transparency is brought into the system. There is lot of interdependence between the
businesses because of the same business they are in and the competencies, capabilities
and resources required are more or less the same.
Create a sense of urgency: CEO Lee has pushed the company relentlessly during the 1990s to
reinvent itself as a more innovative, customer-oriented company (Arensman, 2001). For
example, in early 1990s he staged rallies at which workers were encouraged to smash poor-
quality products with hammers and told to: “change everything except your wife and children”.
Provide employees with the skills they need to work effectively: SEC is well known for its
effective new employees training program, in which new employees go through four weeks in-
house training at the training center to transform college graduate to “warrior workers” loyal to
the organization, so called “Samsung-man” (Kearney, 1991). The training assimilates military
training Problems and Perspectives in Management / Volume 5, Issue 3, 2007 136 culture, and
provides employees with information on the history, organization, vision of SEC as well as
technical aspects and general management. SEC human resource (HR) policy is also considered
to be progressive and effective. SEC reformed its traditional human resource (HR) policy in
1995 from seniority based promotion to performance and creativity based one in order to
stimulate productivity and creativity while lowering labor costs for the organization. This is
facilitated by points system used for annual performance appraisal, which allows the HRM team
to quantitatively assess employees’ skills and performance. SEC is considered to be most
progressive in its HRM policy among Korean Chaebols, as it has the highest ratio of non-family
member executives in its top management (Healy, 2001).

22
Reorganization of the Imaging Business Division to Boost Manufacturing Competitiveness
In 2013, Samsung Electronics carried out a partial structural realignment of the Mobile
Communications Business Division. In order to enhance competitiveness of the camera business,
the Digital Imaging Business Division was reorganized into the Imaging Business Team and
integrated under the Mobile Communications Business Division. This move was aimed at
providing differentiated products by combining capabilities and manufacturing competitiveness
of the Mobile Communications Business Division, which ranked No. 1 globally in smartphones,
with the added optical technology of the Imaging Business Division. Through the reorganization,
the IM sector, which had previously consisted of four business divisions, has been reorganized
into three business divisions – the Mobile Communications Business Division, the Network
Business Division and the Media Solution Center.

23
CE = Consumer Electronic
IM = IT and Mobile Solutions
DS = Device Solutions

Generic functional policies of Samsung Group


Samsung group has strong Japanese roots in its culture as South Korea is a Japanese colony
when the company was established and also Samsung’s first chairman was educated in Japan. As
a result, the growth of the group rose implementing Japanese model of unrelated diversification
and vertical integration in pursuit of synergies.
The corporate-wide approach for central functions like finance, labor and Technology are given
as follows.

24
Finance
As we already said that Samsung has strong roots of Japanese culture, diversification is done
relying only on internally generated cash from one operation to fund the others. The two main
reasons for following such a strategy are:
1. The capital markets in South Korea are weak and cannot generate adequate capital for
expansion
2. Similar to Japanese integrated family structure where income generated by one person
can be utilized by another person, funds generated from one business is mobilized to the
utilisation of another business considering it as a part of the same family.
Currently, the capital structure of the corporate is
(In millions of Korean won)

2014 2013
Debt 62334770 64059008
Equity 168088188 150016010
D/E ratio 0.371 0.427

Similarly, the cash reserves and retained earnings of the group are
(In millions of Korean won)

2014 2013
Retained earnings 148,600,282 119,985,689
Cash Reserves 16,840,766 16,284,780

The company has huge cash reserves and high retained earnings. Moreover, the capital structure
is robust with less debt and more equity. Therefore, depending on the weak Korean capital
markets by diluting equity is not a preferred option. So mobilization of internal cash reserves to
the development of other businesses is opted.

Labour
Labour is also an important factor for the progress of an organization. Samsung follows Japanese
hierarchical labor model. The absence of a well-developed stock market and of sufficient
competition for talent, combined with a strong Confucian tradition of respect for elders, led to a
seniority-based compensation and promotion system. The institutions underpinning South
Korea’s managerial labor markets were underdeveloped, making mobility across corporations
rare. This culture is strongly opposite to that of the western style of labor model. As a result,
during Globalization, Samsung faced huge problems with culture related issues.
Therefore, Samsung established new organizations to seek out and adapt best practices from
abroad. These organizations advocated directly for the practices their deemed most critical and
solicited employees’ input in the development of each. In this way, Samsung injected some

25
highly incompatible business practices into its business model. One such practice was
introducing merit-based compensation avoiding slowly its seniority-based pay structure, in 1997.
Similarly, Samsung took steps to allow high performers to advance more rapidly through its
seniority-based promotion system by steadily shortening the minimum number of years they
were required to stay at a particular level.
Due to these measures, disruption is achieved along with some resistance in the organization. To
reduce this resistance and increase receptivity Samsung started sending insiders abroad and
bringing new thinkers in from outside. This lead to injecting new ideas from elsewhere.

Technology
Samsung’s one of the major competitive advantages is its Technology. Its R&D is very robust
with minimum cost incurring and most efficient. As a result, the sunk costs of Samsung are very
low and are able to price the product at the low price when compared to its competitors. These
economies are achieved majorly by location choice. The company builds manufacturing plants
and R&D centers in ideal places of each continent depending on local costs.
China and Vietnam are used as cheap labor cost suppliers for the Asian market. In 2013,
Samsung started the construction of the world's largest mobile phone plant in the Thai Nguyen,
Vietnam. Similarly, for European market Samsung manufactures its electronic products in
Poland where there is a good compromise between labor costs and sufficient knowhow. For
R&D centers Samsung uses the high competencies of local employees but also economies of tax.
When the company opened a center in the Silicon Valley, the Californian government granted a
tax discount to attract. Similarly, the “Chaebol” established its HQ in Suwon, because the
Korean government gives huge tax discounts compared to its other foreign competitors such as
Apple. Thus, it gives Samsung an advantage to reduce tax and delivery costs.
Therefore, because of these economies Samsung commands more margins compared its peers
merely by making a good location choice. Due to this Samsung is a Technological leader in
smart phone market. As a result, even Apple, its prime competitor outsources its retina display
systems of its IPhones to Samsung only.
Samsung adopts a similar strategy to become a Technological leader in all its other Businesses.

26
References
http://www.theverge.com/2015/8/13/9147201/samsung-startups-global-innovation-center-gic-
david-eun
http://www.sammobile.com/2016/02/18/mergers-and-acquisitions-helping-samsung-boost-
business-overseas/
http://www.telegraph.co.uk/technology/samsung/11417898/Samsung-eyes-new-acquisitions-
with-56bn-cash-pile.html
https://news.samsung.com/global/startups-the-secret-ingredient-of-samsungs-open-innovation
http://www.samsung.com/us/aboutsamsung/corporateprofile/history03.html
http://www.sait.samsung.com/saithome/Page.do?method=main&pagePath=01_about/&pageNam
e=index
http://www.planetpdf.com/planetpdf/pdfs/samsung_presskit2_duffj.pdf
http://www.samsunglife.com/companyeng/invest/financialInfo/report/SLI_FY15_2.pdf
http://www.shi-india.com/index.php?page=csr
http://www.samsung.com/us/aboutsamsung/investor_relations/corporate_governance/corporateso
cialresponsibility/downloads/Stakeholder.pdf
https://www.samsungshi.com/Kor/common/downfile/2015%20%EC%82%BC%EC%84%B1%E
C%A4%91%EA%B3%B5%EC%97%85%20SR%20eng_overview.pdf
https://www.samsungshi.com/Kor/common/downfile/2015%20%EC%82%BC%EC%84%B1%E
C%A4%91%EA%B3%B5%EC%97%85%20SR%20eng_overview.pdf
http://www.samsung.com/us/aboutsamsung/samsung_group/values_and_philosophy/
http://www.samsung.com/us/aboutsamsung/investor_relations/financial_information/annual_rep
orts.html
http://www.samsung.com/us/aboutsamsung/investor_relations/financial_information/financial_st
atement.html
https://hbr.org/2011/07/the-globe-the-paradox-of-samsungs-rise
https://www.researchgate.net/publication/285370984_International_Strategy_The_Strategy_of_S
amsung_Group
http://www.samsung.com/us/aboutsamsung/samsung_group/affiliated_companies/
http://www.samsung.com/us/aboutsamsung/investor_relations/financial_information/downloads/
2015/2015_con_quarter04_all.pdf
https://en.wikipedia.org/wiki/Samsung

27
https://en.wikipedia.org/wiki/Strategic_fit
http://web.b.ebscohost.com/ehost/publication?sid=f55b6799-b41e-42cd-bad6-
63c15e52a2b3%40sessionmgr102&vid=2&hid=102
http://www.secc.co.kr/eng/html/company/summary.asp

28