The Paradox of Samsung’s Rise

Team Chandragupta Maurya

Samsung - A Brief History
● Samsung, is the largest corporate entity in South Korea with $22.3 billion in revenue was
founded in 1938
● As a brand Samsung is more valuable than the likes of world leaders like Nike, and Amex
● From a low cost OEM manufacturers, they went on to become a world leader in R&D and
marketing
● As an organisation, Samsung is focussed on continuous improvement
● It’s flagship company, Samsung Electronics (SEC) is one of the world’s largest producer of
Semiconductors, cell phones, LCD panels and Televisions
Samsung - Emergence as a World Leader
● Samsung, which is often positioned as a low-cost OEM producer, entered into digital space
in the 90’s
● Lee Kun-Hee succeeded his father and launched the new management initiative by
identifying, adapting and implementing the best practices of the west like Strategy
formulation and talent management into Samsung’s existing business model
● They aimed markedly improve marketing, R&D and design while retaining their core
strengths in manufacturing, continuous improvements and plant operations
Samsung - Traditional Japanese + Western Strategies
● Samsung created identified the key Western strategies and created a hybrid by matching
them with their traditional Japanese practices
● Instead of diversification, they diversified with giving more focus to their existing business
● By combining their low cost production with the R&D techniques of the west, they were
able to bring high quality and high margin products to the market
● They maintained a long term relationship with their suppliers at the same time encouraged
competition by choosing suppliers based on market pricing
● Instead of just depending on internal capital market, they explored both internal and IPO
based external capital market
Samsung - Traditional Japanese + Western Strategies
● They used to stick with local talents but with the new strategy, they balanced between the
local talents and outsider workforce which they lured with better market-standards
compensation
● They used to limit recruitment only to the entry-level employees and later they created a
hybrid model of annual recruitment of entry-level positions and on-demand recruitment of
experienced professionals
● Although they didn’t move away from their standardized incentive plans, they also
incorporated individual incentives to motivate people to perform
Samsung - A Stellar Success with external inputs
● By 2004, Samsung became the world’s 2nd largest profitable manufacturer, behind Toyota
with $55.2 billion in revenue.
● Since then, SECs profit have been higher than all of the other largest Japanese electronics
firms (Sony, Panasonic, Toshiba, Hitachi and Sharp) combined.
● In 2010 ,company achieved a record profit of $14.4 billion on $138 billion compared to Intel
$11.7 and Panasonic $0.86 and a net loss of $3.2 billion for Sony.
● Seniority-based pay structure and a merit-based compensation system modeled after the
best practices of GE, HP and TI.
● Incorporating Six Sigma into their practices, Samsung involved the entire rank and file to
participate in trainings. Six Sigma from GE.
● Socialized profit sharing from HP’s model.
The Case of Eric Kim
● Eric was instrumental in the campaign “Samsung DigitAll:Everyone’s Invited” which turned
Samsung into a truly global brand
● Although he was the brainchild behind many implementations, he was often downplayed by
the senior management
● He always felt that he was emotionally isolated by the senior management and eventually he
joined Intel as the CMO
Samsung - Exchange of Talents
Bringing outside talent into the system

● As the CEO, Lee incentivised the recruitment team by giving annual appraisals for their
performance in retaining and hiring Senior-level talents
● He instituted a formal mentoring program by which he met each of the Senior-level
executives to exchange feedback
● By 1997, he setup the Global Strategy Group (GSG) under which, he hired non-korean
grads from top western business schools and trained them for 2 years before assigning them
to work under Samsung’s subsidiary in their home country
Samsung - Exchange of Talents
Sending insiders out to get better exposure

● Lee devised plans to send their high potential employees to countries like Japan to obtain
advanced training in engineering
● He also sent them to US to get experienced in western ideas of marketing and management
styles
● This helped them to understand the regulations and tax systems of various countries and
also identify opportunities in the global market
Impact of CEO’s plans - Trade-offs
● Samsung’s globalisation efforts under Lee incurred a substantial investment of time and
money
● For every plan, he had to obtain the go from the executives as well
● Under his plans to train and support regional specialists, SEC spends about $1,00,000 over
and above their annual compensation
● One more key factor to mention here is the opportunity costs and turnover risks the
company incurs by taking elite employees away from key positions for 15 months