Provisional Translation

The Management Strategy of Samsung in East Asia

November 26, 2003

Lee Soo Chul, Executive Vice President, Samsung Corporation

Contents

I II III

Changes in the Global Economic Environment, and Economic Cooperation in East Asia Issues on Korean Economic Cooperation Samsungs Global Management and Management Strategy in East Asia

I.

Changes in the Global Economic Environment and Economic Cooperation in East Asia

Threats against global trade liberalization

Failure to reach consensus at the WTO Ministerial Conference in Cancun:

Multilateralism Bilateralism, regionalism

Strengthening of regional economic cooperation regimes

Bilateral/regional trade agreements: 184 as of May 2003 Expanding economic cooperation in the EU, NAFTA, and CIS regions

Emergence of China and the potential of ASEAN

China, the Worlds FactoryTrade volume in 2002: $620.8 billion (6th in the world)

ASEANPopulation: 570 million, total trade volume: $700 billion Accelerated promotion of economic cooperation among ASEAN, Korea, China, and Japan

II. Issues on Korean Economic Cooperation

Korean Views on a Korea-Japan FTA

Increasing necessity of regional trade expansion and sense of urgency

Reinforcement of economic blocs, relative disadvantages of countries outside the region, etc .

Expectations: modernization of industrial structure; market expansion Concerns: trade imbalance; excessive dependence on Japanese technology Consent to an FTA in principle, but harbor certain concerns.

Cooperation between Korean and Japanese entrepreneurs is important. Korean businesses must strive to develop technologies and improve quality in order to enhance their competitiveness.

II. Issues on Korean Economic Cooperation

Developing Korea into a Business Hub in Northeast Asia

Business hub in Northeast Asia

Logistics base
- Ports, airports

Business center
- Invite multinational corporations to locate their Asian headquarters in Korea - Financial center in Northeast Asia
System modernization Area development - Designation of Incheon, Bus an, and Gwangyang as Speci al Economic Zones, and deve lopment thereof - Expansion of IT infrastructure Improvement of the environment - Operating environment (Tax, foreign exchange,labor/ management relationships, etc.) - Living environment (Education, housing, culture, etc.)

Improvement of core facilities

- Incheon International Airport - Busan/Gwangyang ports -> The Eurasian Silk Road

- Improvement of laws and

systems - Customs-Free Zones, international logistics support centers

Relaxed tensions on the peninsula and south-north economic cooperation

Favorable environment for foreign people and firms

II. Issues on Korean Economic Cooperation Trade structure of Korea, China, and Japan
Koreas trade with China
($100 million)

1990
Export Import
Trade balance

1995 91 74 17

2002 238 174 64

($100 million)

6 23 17
($100 million)

Chinas trade with Japan

Japans trade with Korea

1990
Export Import
Trade balance

1995 359 219 140

2002 618 400 218

Export Import
Trade balance

1990 185 126 59

1995 326 170 156

2002 299 151 148

120 61 59

III. Samsungs Global Management and Management Strategy in East Asia Samsungs overseas operations

116 subsidiaries in 67 countries Sales from local subsidiaries in 2001: $29 billion
SEG,SSEG (Electronics) FFT branch (Corporation) SDIG (SDI), SCD (Corning) Local corporation for Electro-Mechanics

SECA(Electronics)

SER (Electronics)

SEBN,ELS (Electronics) SEMUK,SEUK,SSEL (Electronics) SENA (Electronics) STP (Corporation) SEP (Electronics) SHE (Electronics) (Electronics) SPEM (Electro-mechanics) SEF (Electronics), SHPOL Corporation SEI (Electronics), Corporation SESA (Electronics) Kazakhstan (Corporation) TSED,SSEC,TSEC,TTSEC,SST,SESS (Electronics) TSOE (Techwin), TSEM,DSEM (Electro-Mechanics) UNION (Techwin) SSDI,TSDI (SDI), TSSC,SSG (Corning) SDSC (SDS) SDIH(SDI) SET (Electronics), Corporation

SAS,SEA,STA,SISA,SSI (Electronics) NY,LA (Corporation), San Jose corporation (Electro-mechanics) SDIA (SDI), SDSA (SDS), SOA (Techwin) NY corporation (Life Insurance, Securities) SEM,SAMEX (Electronics) SDIM (SDI) SEMSA (Electro-mechanics)

SGE (Electronics) SIEL (Electronics)

SELA (Electronics)

SAVINA (Electronics) SEMPHIL (Electro-Mechanics) SEPCO (Electronics) TSE (Electronics) SEMTHAI (Electro-Mechanics) SECL SDMA,SEMA (Electronics) SDIM (SDI) SCM (Corning), Corporation SAPL (Electronics) Corporation/Electro-Mechanics SEDA (Electronics) SDIB (SDI) SEIN (Electronics), Fire & Marine Insurance

SEAU (Electronics) Sidney (Corporation) SSA (Electronics) SEASA (Electronics)

III. Samsungs Global Management and Management Strategy in East Asia Samsungs business performance

Over 5 years (1998 to 2002) -Sales and net income increased 1.6 times and 45 times, respectively.

Brand value $10.8 billion in 2003 (25th in the world) ($8.3 billion in 2002, 34th) $70 billion in 2010

Sales in 2010: 1.9 times that of 2002 Pre-tax profit expected to increase 2.1 times
Sales Net Income

116.8 72.0

(US$ Bil)

8.9

0.2
1998 2002
(Source: INTERBRAND)

III. Samsungs Global Management and Management Strategy in East Asia Overseas investment strategy

1980s: Globalizations beginnings Established sales subsidiaries mainly in developed countries. Built production facilities in Southeast Asia and Eastern Europe for roundabout export. Early 1990s: Acceleration of Global operation Responding to the international trend of regional trading blocs entered local markets. Entered the Brazilian, Indian, and Chinese markets. Expansion into the U.K., Mexico, Malaysia, and other countries together with Samsun gs partners and affiliated companies. Late 1990s: Restructuring stagnated businesses due to quantity-oriented overseas operations, and shifting the strategy to IT business

Established new subsidiaries in China, India, and other emerging markets.

2000s : Differentiation based on local characteristics Aspiring to enhance the synergy effect of the entire company.

III. Samsungs Global Management and Management Strategy in East Asia Management strategy by market
Center for local marketing, and introduction of new Technologies and information Production facilities to secure entry into local markets
Europe

Parts/semimanufactures

U.S.A - Local marketing center - R&D center (product development, design)

Technologies Base for roundabout export - Produce low-to-medium Mexico class products - Produce and supply parts

Finished products

- Produce high-price-range products - R&D and design centers - Local marketing center - Establish regional control headquarters

Global strategy control headquarters Korea - R&D

- Develop and produce high value-added products -Develop international management resources China

Second most fundamental market

-Second domestic demand market -Production site for the global market -Utilize rich human resources

Production site for multiple purposes

Southeast export Asia - Supply parts to the U.S.A.
-Production for roundabout

New export market Center for Introducing new technologies Japan -R&D center Local marketing center

and Europe - Production for re-import to Korea -Establish procurement and regional control headquarters

III. Samsungs Global Management and Management Strategy in East Asia

Operations in China

68 locations nationwide 26 production facilities Sales in 2002: $7.7 billion Sales in 2003: $10 billion

Tianjin

Electronics, ElectroMechanics, SDI, Corning, etc. Electronics

Beijing

Weihai

China

Souzhou

Shanghai
Ningbo

Heavy Industry

Shenzhen Dongguan

R&D Center Electro-Mechanics Corporation

Shunde

Huizhou

Hong Kong

Electronics, SDI, Corning

10

III. Samsungs Global Management and Management Strategy in East Asia Chinese market strategy

Advance into the global market more aggressively utilizing China as a production center. Increase production facilities, operate R&D centers, and secure excellent human resources.

Increase production facilities: 19 in 1999 26 in 2002 R&D: Establish related R&D centers (including communication research facilities), when building factories. Secure high-quality human resources under the initiative of the Head Office in Korea.

Implement a strategy that emphasizes brand (image) in order to differentiate the companys products from others. Adopt a two-way sales strategy.
Export of products made in China directed by the Head Office in Korea. Domestic sales in China conducted mainly by local sales subsidiaries.

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III. Samsungs Global Management and Management Strategy in East Asia Operations in Southeast Asia

Electronics-related corporations

21 locations in 6 countries Sales in 2000: $3.1 billion Sales in 2002: $4.2 billion

(38% growth)

Samsung Corporation, Dai-ichi Kikaku, Samsung Fire & Marine Insurance, Samsung Heavy Industry, etc.
Electronics, Electro-mechanics

Electronics, SDI, Corning

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III. Samsungs Global Management and Management Strategy in East Asia

Southeast Asia market strategy

Enhance brand value. Increase top market share products in each country and expand sales of high-end products.

Supply aspect (production costs) Demand aspect (market and earning opportunities) Introduce innovative processes and implement bench marking among affiliated companies. Conduct joint sales activities.

Enhance synergy effect of affiliated companies.

Secure high-quality human resources.

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Thank You

Lee Soo Chul, Executive Vice President, Samsung Corporation