Chapter 3. Samsung Electronics
3.1 Company History
3.1.2 Transform into a Global Company (1988-2008)
3.1.2 Transform into a Global Company (1988–2008) New Management Initiative
Lee Kun-hee, the third son of founding Chairman Lee Byung-Chull, became Chairman of Samsung Group in December 1987. And since chairman, Lee announced “New Management Initiative” In 1993, Samsung group aggressively re-aligned every aspect of Samsung’s management system to its new quality-driven goal and invest preemptively in R&D, brand marketing, and design capabilities for emerging digital products. During this period, Samsung Electronics strengthened its global management system by aggressively entering emerging markets and pursuing robust overseas business.
Becoming a Global Corporate
Samsung Electric Industries merged with Samsung Semiconductor and Communications to form Samsung Electronics in November 1988. And as a part of New Management Initiative, the company started to challenge itself to restructure old businesses and enter new ones with the aim of becoming the world's top five electronics companies.
The Asian financial crisis occurred in late 1997, caused profits to drop from 194 million dollar in 1996 to 87 million dollars in 1997. To cope with its difficulties, Samsung Electronics started a bold restructuring initiative, which aimed to restructure the company in accordance with global standards. Samsung decided to lay off its employees, and it sold or spun off unprofitable business units and manufacturing facilities. The company also shifted more resources to the Liquid Crystal Display (LCD) and mobile phone businesses in order to diversify its revenue sources, which had previously relied on the semiconductor business. Through these efforts, Samsung Electronics became more competitive in global market and became more robust in its financial structure; and swung back to profitability in 1999.
Business Performance
The company’s unyielding emphasis on quality, innovation, and globalization resulted in significant changes within the organization, became its foundation for future growth. During this
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period, Samsung Electronics had a number of technological breakthroughs with its ceaseless innovation.
In 1992, DRAM ranked as No.1 in the world market share, and in 1995, SRAM topped on the list. In 1994, the company developed the world's first 256 mega-DRAM, and ranked first in the world, surpassing the US and Japanese companies in terms of technology.1
Meanwhile, Samsung Electronics launched its first mobile phone the SCH-100, a mobile phone that weighs 450 grams and is the size of a brick, in 1988 in the South Korean market.
Sales were initially poor; Samsung only held 10 percent market share by the early 1990s. Its mobile phone division struggled with poor quality issue and inferior products until the mid-1990s. In 1993, Samsung Electronics released the 'SH-700', which weighs 100g, and launched a bestseller cellular phone 'Anycall' in Korea.2
Samsung Electronics was ranked as the world's No. 1 LCD maker in 2002, and then was ranked world number one on TV in 2006. Since then, the company has become a world leader in applications such as DRAM, SRAM, flash memory, display drive chips (DDI), LCDs, TVs, computer monitors, A4 laser multifunction devices, MP3 players, smart card chips for SIM cards, and it is keeping the first place. Samsung has lead the global TV market by introducing high technology products such as OLED, UHD, SUHD, curved TV with curved display after LCD TV and PDP TV.
In 2004, Samsung Electronics developed the world's first 8Gb NAND Memory chip and a deal to supply Apple with memory chips was sealed in 2005 and, it has remained the key supplier of Apple components.
3.1.3 Pioneering the Digital Age and Searching for Growth Engines (2009–present) This period can be described as Samsung Electronics’ age of digital pioneering and it continues to strive to search for growth engines.
In 2009, Samsung Electronics overtook Hewlett-Packard and became the world largest
2 Wikipedia Samsung Electronics, accessed May 24th, 2017, https://en.wikipedia.org/wiki/Samsung_Electronics
3 Wikipedia, Ibid., accessed May 24th, 2017.
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technology company, amassing revenues totaling USD 117.4 billion.
Since then, the business performance of Samsung Electronics has continued to perform well.
Emphasis on Insecurity and New Strategic Vision
Despite the company’s consistent development, its chairman Lee Kun-hee, after returning from a two year retirement, emphasized the importance of financial stability and the potential for future crisis. Therefore, the company set an ambitious strategic goal called “the Vision 2020”.
In a company statement in March 2010 he said:
“This is a time of real crisis. Global companies are crumbling. Now, we have to start a new.
Let’s move on, with eyes set straight ahead. Samsung Electronics' future is not guaranteed because most of our flagship products will be obsolete in 10 years from now." 4
This statement was issued partially due to iPhone’s launching in South Korea in December of 2009, which was referred to the iPhone shock.
However, with a sense of possibility of crisis and endeavoring toward continuous development, Samsung achieved record earnings in the third quarter of 2013. Their operating profit rose to about KRW 10.1 trillion. This was due to smartphones sales especially low-price cellular phone sales from emerging markets, and was boosted by memory chip sales from customers like Apple.5
Searching for New Growth Engines
Recently, due to heavier smartphone competition from Apple as well as a slew of Android competitors, Samsung Electronics needs to look for new growth engines for the future. The company bought two smart home appliance makers “SmartThings” and “LoopPay”. These companies are magnetic secure transmission (MST) technology firms that can help Samsung Pay compete against other mobile payment services like Apple. In June 2016, Samsung Electronics
4AFP, SEOUL, "Lee Kun-hee Returns to Samsung", Taipei Times, March 25th, 2010 accessed May 25th,2017 http://www.taipeitimes.com/News/worldbiz/archives/2010/03/25/2003468850
5 Jungah Lee, Lulu Yilun Chen, "Samsung's Record Pressures Rivals as HTC Posts Loss", Bloomberg, October 5th, 2013, accessed May 26th, 2017
https://www.bloomberg.com/news/articles/2013-10-03/samsung-profit-beats-estimates-on-cheaper-galaxy-smartp hones
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announced its acquisition of the cloud-computing company “Joyent”, for the purpose of growing its cloud-based services for its smartphones and Internet-connected devices.6
In November 2016, Samsung Electronics also purchased American automotive equipment maker Harman for USD $8 billion.7 Through these acquisitions, Samsung is expected to gain a solid footing in the automotive component business, as Harman is a Tier 1 supplier, with deep relationships with a wide range of car makers. These acquisitions will also allow Samsung Electronics to diversify their revenue source.
3.2 Overview of Samsung Electronics
3.2.1 Business Divisions of Samsung Electronics
Samsung Electronics Co., Ltd. is a South Korea-based multinational electronics and information technology company, which is the flagship affiliated company of the Samsung Group. It is also South Korea's the biggest chaebol, which is a traditional, family-run conglomerate with nearly 90 subsidiaries.
As of the end of 2015, Samsung had 325,677 employees in 80 countries and 199 worldwide operation hubs, including 15 rational head offices, 38 manufacturing subsidiaries, 34 global R&D center and 6 global design centers.8
Since 2013, Samsung reinforced a global management system into three key divisions; IM (IT and Mobile Communications), CE (Consumer Electronics) and DS (Device Solutions). (refer to figure 3.1 and table 3.2)
6Catherine Shu, "Samsung will acquire cloud-computing company Joyent", Techcrunch, June 15th, 2016, accessed May 26th, 2017
https://techcrunch.com/2016/06/15/samsung-joyent/
7 Full Bio, “Why Samsung Is Buying Harman”, Forbes, Nov 16th, 2016, accessed May 26th, 2017
https://www.forbes.com/sites/greatspeculations/2016/11/16/why-samsung-is-buying-harman/#31b0934352e5
8 Samsung Sustainability Report 2016, p11, accessed May 26th, 2017 http://www.samsung.com/us/
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Table 3.2 Business Divisions of Samsung Electronics
Classification Major Products
IM HHP (Handheld Player), network system, computer
CE TV, monitor, refrigerator, laundry machine, Air conditioner, medical equipment
DS DRAM, NAND Flash, mobile AP, LCD panel, OLED panel
IT and Mobile Communications Division
IT and Mobile Communications (IM) Division is divided into mobile communication business and network business.
The operation profit of IM division is about KRW10.8 trillion which is 37.0% of total operating profits in 2016, its telecommunication network business area includes multi-service DSLAMs and fax machines; cellular devices such as mobile phones, PDA phones, mobile intelligent terminals (MITs); and satellite receivers.
According to Strategy Analytics report in 2015, Samsung Electronics was ranked as No.1 vendor in both Mobile phone (21.2%) and smartphone (22.2%) market and No.2 vendor in Tablet
market (15.0%). Samsung Electronics seems to firmly maintain its leader position in the global mobile business by keep providing cutting-edge innovation products. In addition, in recent year Samsung Electronics seems to constantly develop future growth engines like Samsung pay, wearable devices, and Internet of Things (IoT), while also reinforce products line not only for high-end market but also for low-end market like Galaxy A and Galaxy J series.
At the same time, Samsung Electronics seems to do great job in networks business as well.
The company has played a pioneer role in the network equipment market based on its 4G LTE communications technology and now it pursues leadership position in newly emerging 5G communications technology market.
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Consumer Electronics (CE) Division is divided into visual display business and digital appliance business, printing solutions business and heath/medical business.
The operation profit of CE division posted KRW 2.6 trillion in operating profit which accounts 8.9% of total operating profits in 2016, and its main products are TV, monitor, refrigerator, laundry machine, Air conditioner, medical equipment etc.
In the visual display business sector, Samsung TV was once again ranked as the world’s No.1 with 27.6% of TV market share in 2015, and it has been for the last 11 years consecutive.
Particularly, Samsung Electronics is leading company in global UHD TV market; it accounted 34.1% market share in 2015. The market of high-end TV such as UHD and curved TVs is predicted to grow continuously; the company is expected to keep its leading position in the premium TV market in the future. Even if the consumer electronics division’s profit contribution is relatively low (see Figure 3.2 ), Samsung Electronics continues to lead in digital appliance and medical equipment sector, and business is anticipated to achieve even greater growth by
combining future promising technologies like Internet of Things (IoT) and Big data technology which will also serve to strengthen the company’s dominancy.
On the other hand, Samsung sold Printing solution Business to HP for $1.05 Billion in September 2016, and the transaction including regulatory approval is expected to close within 12 months.9 It seems to be the part of the business portfolio slimming down, and it can be seen as an action to strengthen and concentrate on the better-performing sector.
Device Solutions Business
Device Solutions (DS) business is divided into two business units; memory business and system LSI business. And its System LSI business division is largely divided into four segments;
system on chip (SoC) team which develops mobile APs, LSI development team, which designs
9 Clark Don and Jeong Eun-Young, “HP Agrees to Acquire Samsung Printer Business for $1.05 Billion”, The Wall Street Journal, Sept. 12, 2016, accessed May 20th, 2017
https://www.wsj.com/articles/hp-to-acquire-samsung-printer-business-in-1-billion-deal-1473667204
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display driver chips and camera sensors, foundry team and support team.10
Samsung Electronics has lead the global memory semiconductor industry for 24
consecutive years; According to IHS research report, the company accounted 45.3% of market share in DRAM market and 39.1% market share in NAND Flash market in 2016.
3.2.2 Financial Snapshot
In recent years, the world economy showed constant uncertainties, such as changes in U.S.
monetary policy, increased volatility in emerging market stock markets, fluctuating exchange rates, and a radical drop in international oil prices, and so on. At the same time, Korea’s economy also had continuous difficulties such as increased household debts and the business restructuring of the shipbuilding and steel industries.
Despite such uncertain economic conditions, Samsung Electronics delivered sales of KRW 201.9 trillion and earned KRW 29.2 trillion in operating profits on a consolidated basis in 2016.
(refer to figure 3.3) From the financial perspective, Samsung maintained a financial structure by recording a debt ratio of 35.87 percent, a return on asset ratio of 9.0 percent, and a return on equity ratio of 12.2 percent on a consolidated basis in 2016. (refer to figure 3.4)
3.2.3 Development of Samsung’s Marketing Strategy 1990s
Samsung electronics went into the cellular phone business in 1988 – Samsung launched its first mobile phone in 1988 in South Korea.11 Even though the company took full advantage of its strong manufacturing capacities, the technology was still undeveloped at that time.
The branding of Samsung was extremely fragmented. During the early 1990s, Samsung had developed numerous sub-brands to the U.S market such as Planp, Tantus and Yepp.12
10 Cho Jin-young , “System Semiconductor Business: Will Samsung Electronics Create Fabless, Foundry Business Divisions?”, BusinessKorea, Nov 23th, 2016, accessed May 5th, 2017
http://www.businesskorea.co.kr/english/news/ict/16557-system-semiconductor-business-will-samsung-electronic s-create-fabless-foundry
11 Michell, Tony. Samsung Electronics: And the struggle For Leadership of the Electronics Industry. Hoboken: John Wiley & Sons, 2010.
12 Michell, Tony op. cit., pp93-94.
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When Samsung became the leading manufacturer of mobile phones in the Korean domestic market in 199613, the chairman of the company, Gun Hee Lee, started to pay more attention to the expansion of its business into the overseas market. It was during this year that Samsung moved away from sub-brands to a single-brand strategy.
According to the press interview by Samsung’s former chief marketing officer, Greg Lee, the change was made by the chairman of Samsung, because he wanted to build a brand, not just a product.14
This was the start of the Samsung making a shift to a single master brand strategy.
The company understood that the master-brand strategy was the only way to reach present day consumers and to be competitive in the global market. At that time, BMW, which was and still is a high-end, prestigious car brand, was regarded as an excellent example of a solid brand identity for Samsung Electronics to imitate.15
When Eric B.Kim joined Samsung Electronics in 1999, he was responsible for executing the master-brand strategy. In 2001, the chairman of Samsung agreed to run a test campaign in the U. S market, and based on those results, the company would decide whether to go global or not.
The marketing campaign was very successful, –resulting in doubled sales, so Samsung Electronics launched its new global advertising campaign to position it as a leader in
digital-convergence applications. The name of campaign was “DigitAll-Everyone’s Invited”.16 The marketing campaign focused on appealing to the emotions of consumers and changing to a premium brand strategy.
During Eric Kim’s leadership, the company also promoted the concept of “The Journey to be a Global Brand” which mean its transformation into a global leader in the consumer electronics
13 Lee Dongyoup, “samsung Electronics – the Global Inc.”, YSM, 2006.
14 Michell, Tony, op. cit., p94.
15 Bloomberg BusinessWeek,“ Online Extra: Samsung's Goal: Be Like BMW”, August 1st, 2005, accessed May 3th, 2017. https://www.bloomberg.com/news/articles/2005-07-31/online-extra-samsungs-goal-be-like-bmw
16 Harvard Business Review. Samsung Electronics Company: Global marketing Operations, Brighton, MA: Harvard Business Review. Fab, 2005.
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business. To actualize this goal, Samsung Electronics also invested heavily in the innovative design and technology.
The success of the single brand strategy was also a result of massive investment.
In 2002, Samsung’s overall marketing expenses exceeded 900 million U.S dollars, of which the company spent about 20 percent of the budget on the advertisement of Samsung brand. This company spending represented an increase of more than 21 percent over the previous year.
By the end of 2004, market valuation of Samsung had risen to USD $62 billion, and after-tax profits reached USD $10 billion; which was the highest among electronics and hardware companies in South Korea and second globally.
Although Samsung Electronics improved its brand image as an innovative technology, high-end design, and new sensation, people still thought of the company brand as “cold”.
2005-2008
In 2005, Samsung Electronics was on their way to success, indicated by the company stealing market share from Sony.
However, promotion of the company’s brand in customer’s mind had not run enough and as a result didn’t close much of the gap between Samsung Electronics’ target brand image and its status at that time.
The successor of Eric B.Kim, Gregory Lee, tried to make some changes during his tenure which included sport marketing and Entertainment marketing strategies.
In 2006, Samsung Electronics began to unveil its new storyboard “The Journey to be a Global Brand”; in which the company highlighted its transformation from market follower to global leader. Samsung Electronics used the Olympics as a great lever to establish itself as a premium global brand. Gregory Lee and top executive believed that the Olympics were a great way to be recognized as a global brand. Therefore, Samsung became sponsor of the 1988 Seoul Olympic Games, the company later on became part of TOP–The Olympic Partners– for every Olympic Games. Samsung’s Olympic sponsorship and other local sports sponsorships, for sure,
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could increase brand awareness by highlighting the company’s name at international and local sporting competitions. However, within sport marketing it is very challenging to convey the concept of Samsung’s design, technology and desire or innovation.
The entertainment marketing strategy was a concept that promoted Samsung products in collaboration with key Hollywood filmmakers. Successful examples of movie marketing were seen in “The Matrix Reloaded” in 2003 and “The Fantastic Four” in 2005.17 Award-winning marketing contributed to an increase in brand awareness and raises market position; however it didn’t correspond with the goal of building brand value of Samsung Electronics.
To build a company image as one of the world’s leading producers of lifestyle enhancing products; Samsung Electronics launched the first phase of a new worldwide advertising campaign, called “Imagine”. It showed examples of the many ways that innovative products from Samsung Electronics could brighten lives wherever and whenever people lived, worked, or played. Each advertisement asked consumers to imagine how their world could be more fun, exciting, and productive with the creative design and technology of Samsung Electronics.18 Gregory Lee, chief marketing officer for Samsung Electronics, commented,
"With this new campaign, our aim is to expand on this recognition to build a warmer, more emotional connection with our customers. The only limit is their imagination."
2009-Present
2009 was a monumental year for Samsung Electronics’ marketing strategy. The company’s new vision “Vision 2020: Inspire the World, Create the Future” — emphasized new technology, innovative products and creative solutions—served as guidance for marketing strategy. At the same time, the first Samsung Galaxy (GT-I7500), flagship smartphone of Samsung electronics, was launched on June, 2009.
17 Lee Dongyoup, Op. cit., pp.63-64.
18 Businesswire, “Samsung Electronics Introduces First Phase of New Global Brand Marketing Ad Campaign”, Businesswire, June 9th , 2005, accessed May 15th, 2017
http://www.businesswire.com/news/home/20050609005432/en/Samsung-Electronics-Introduces-Phase-Global- Brand-Marketing
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The company identified a clear direction and goal with tech and innovative products, the role of Younghee Lee was to shine. Younghee Lee, who used to work for cosmetic brands L’Oreal and Lancome before joining Samsung Electronics in 2007, has led the next wave of change until now. With her previous experience as an executive at a cosmetics company, she tried to reshape Samsung Electronics brand image from one of engineering based technology brand into fine and fashionable brand. She wanted consumers to start feeling something about Samsung Electronics and its products instead of just thinking about the company.19
Younghee Lee also introduced consumer-oriented strategies, understanding and conveying
Younghee Lee also introduced consumer-oriented strategies, understanding and conveying