SAMSUNG ELECTRONICSSeoul, Korea

Japan / Korea Trip 2001Fabio ArmaniJulian 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)

Electronics28%

Machinery & Heavy

Equipment6%

Chemicals2%

Financial Services

26%

Other38%

• distribution• hotels• amusement

theme parks• trading• construction• textile• advertising• baseball team• security

• cameras• aircraft• ships• dump trucks• oil trucks

• polymerized compounds• plastics• specialty chemicals

• life insurance• credit card services• securities trading• finance and trust

management services

• home appliances• wireless

communication• semiconductors

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 MarketsHome Multimedia Mobile Multimedia

Personal Multimedia Core Components

Samsung Electronics

Semiconductors 40%

Digital Media 29%

Telecommunications 23%

Home Appliances 8%

% Sales ($27B) % Operating Profit

Semiconductors 79%

Digital Media 6% Telecommunications 12%

Home Appliances 3%

Financial Overview

• Revenue growth and Operating Income suffered in 1996

• 1997: New CEO Jong Yong Yun– major turnaround

• new business focus

• new management practices

– very positive results in 1999, but…

Operating Income (billion Won)

Revenue (billion Won)

Stock Performance

Common Stock Preferred Stock

… Samsung is feeling the effects of the downturn in the high-tech market

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

Digital Media

Semiconductors

Information &

Communications

Home Appliances

Samsung Electronics

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