SAMSUNG ELECTRONICS

Seoul, Korea
Japan / Korea Trip 2001
Fabio Armani
Julian Carey
Jennifer Goodwin
 Agenda
• Samsung Group – History & Structure
• Samsung Electronics
– History
– Company Focus
– Financial Overview
– Strategy
– Organizational Structure
– Challenges
 Samsung Group
• Founded in 1938
– exporter of dried fish, vegetables, and fruits
– flour mill and confectionery machines
• 1950’s Economic Stabilization
– Korean War - Samsung lost all assets
– aimed to help rebuild Korean economy; entered the
manufacturing industry (sugar,fabrics)
– became a leader in modern business practices (recruiting
from outside)
• 1960’s Expansion of Key Industries
– entered electronics and chemical industries
– 1969 established Samsung Electronics Co.
 Samsung Group
% of Sales ($72B)
• home appliances
• wireless
• distribution Electronics communication
• hotels
28% • semiconductors
• amusement
theme parks
• trading
Other
• construction 38%
• textile
• advertising • cameras
• baseball team • aircraft
• security • ships
Machinery • dump trucks
& Heavy • oil trucks
Equipment
6%
Chemicals
2%
Financial
• life insurance
• credit card services Services • polymerized compounds
• securities trading 26% • plastics
• finance and trust • specialty chemicals
management services
 Samsung Electronics
• Established in January, 1969
• 1970’s: Bet the future on electronics
– laid the groundwork for electronics in Korea
– helped the domestic economy grow
– paved the way for exports
• 1980’s: A more comprehensive electronics company
– established plants in Portugal and US
– established Semiconductor and Communication corporation
– began memory chip business
• Early 90’s: Integration and Globalization
• Mid-Late 90’s: Implementing new management
strategies
• New Millenium: Digital Vision
 Focus: 4 Core Markets
Home Multimedia Mobile Multimedia

Personal Multimedia Core Components

 Samsung Electronics
% Sales ($27B) % Operating Profit

Digital Media 6% Telecommunications

Semiconductors Digital Media 12%
40% 29%
Home
Appliances 3%

Home Telecommunications Semiconductors

Appliances 8% 23% 79%
 Financial Overview
• Revenue growth and Revenue (billion Won)

Operating Income
suffered in 1996

• 1997: New CEO Jong

Yong Yun
Operating Income
– major turnaround (billion Won)

• new business focus

• new management
practices
– very positive results in
1999, but…
 Stock Performance
… Samsung is feeling the effects of the downturn
in the high-tech market

Common Stock
Preferred Stock
 Strategy
1997 Turnaround:
• Cut a third of workforce, cut debt
• Sold and spun off divisions
• Set “firewalls” to other Samsung Divisions
• New business proposition: profits
• Streamlined inventories
• Diversification
 Strategy
New Economy:
• Exodus of engineers and managers to startups
• Top 4 conglomerates: $1.2B in startups
(Samsung: $520M)
– Stakes of up to 29.9% in 80+ startups
• Startups benefit from links to global networks
and financial expertise
“You simply can’t survive without adapting to the
fast-changing Internet era, and one solution is
linking up with startups”
 Strategy
Digital Vision: “A Company that leads the digital
convergence revolution”
• Brand power, logistics, IP:
– High-margin products
– Create value chain that integrates competencies of all
areas
– Customer and market oriented
• Global network by function
• Performance evaluation and compensation
system
 Strategy
Digital Vision:
• Innovation, meeting challenges and creativity
• Target debt-to-equity ratio: 50%
• R&D: 7% of total revenues
• Overseas partners:
– Joint R&D projects
– Technology transfer arrangements
– Joint investments
 Organization Structure
• 4 main groups with 14 divisions

Samsung Electronics

Information
Digital Media &
Communications

Home
Semiconductors
Appliances
 Management & Employees
• 59,000 employees
• Development of employees strategic to
success
• “Making rounds” encouraged as a key
management practice
 Recruiting and Training
• Heavy investment
• Focus on creating agents of change
• Expertise in technology and marketing
 Culture
• Entrepreneurial
• Profit focused
• Decisive
• Different from other firms in Korea and within
chaebol
 Current Challenges
Internal: “You must maintain a sense of crisis to
stay competitive”
• Profits vs. Growth
– Financial discipline
• Foster creativity
• Executives jumping ship for startups
 Current Challenges
External:
• Abandon dependence on cheap commodity
products
• Emphasis on goods developed in-house
– Rivals are outsourcing production and design
• Guide the company into the global electronics
elite
 Current Challenges
Corporate Governance:
• Cross-shareholding among affiliates
– Shifth funds among subsidiaries
– Manipulate debt-to-equity ratios
• Outside directors appointed by family
• Lack of accountability to outside shareholders