The Samsung evolution

Von Jacob Joseph

At the Samsung Global Road-show at Shanghai this October, one can be forgiven for mistaking the South Korean company for a Chinese one. Samsung Electronics Co. Ltd. has been a market leader in China since it first entered the market more than a decade years ago.

In the last three years alone, Samsung"s sales in the country have grown at a rate of around 60 percent annually. In 2003, sales in China of US$6.7 billion made up more than 17 percent of Samsung Electronics" global sales. Sang Hyun-Lee, President of Samsung Electronics China is confident that he can make this figure up to 30 percent in time for the 2008 Beijing Olympics. In comparison, the South Korean domestic market accounts for 15 percent of its revenues this year.

Under the theme "Creating the Future Together," the Global Road-show 2004, held at the Shanghai"s Science & Technology Museum showcased the entire breadth of the company"s digital offering and demonstrated its latest mobile handsets, digital TVs, home entertainment systems and other examples of design-led, technologically innovative products.

In the keynote speech of the show, Mr. Jong-Yong Yun, Vice Chairman and CEO of Samsung Electronics, described the advent of the Two-way Video Communication Age as the "next big thing" and how it would bring about a fundamental change in the way people communicate with each other.

The journey

Samsung has come a long way since 1997 Asian crisis forced it to radically restructure its focus from cheap consumer electronics to the top end of the market. Lee Kun-Hee, Samsung?s chairman, recognized there was no future for price-led, volume manufacturing in South Korea as the country?s cost base increased and competition intensified from China.

By capitalizing on its existing R&D resources and adding new momentum to its branding exercise, Samsung has succeeded in emerging as one of the world"s fastest growing technology companies. Heavy investment in capacity and technology has made Samsung?s production lines among the most efficient in the industry. Last year market capitalization touched $57 billion and $5.2 Billion in net profits.

Prior to 1997 the consumer electronics business was dismissed as a cheap imitations manufacturer of more sophisticated Japanese products. Now its products have become the most innovative and desirable on the market. It also now the world?s largest manufacturer of two of the main components used in digital products, namely, LCDs (Liquid Crystal Displays) and Semiconductors.

In fact it is this advantage, of being the manufacturer of digital components, that has provided them with a reliable supply of key components that has helped them to make sure that their products are on the market to meet demand while other brands and trying to source them from third party OEMs (Original Equipment Manufacturers), for example, Japanese TV-makers are increasingly concerned about their reliance on Korean and Taiwanese OEMs for LCDs.

With profits expected to double this year to be more than $10 billion dollars this year, Samsung will be on the same league as General Electric Co. and Citigroup Inc. By the end of this financial year Samsung is forecasted to be world"s second largest manufacturer of mobile phones, overtaking Motorola Inc. and just behind Nokia Corp. It is now challenging the very same Japanese manufacturers it was once thought of as imitating for leadership in flat-screen TVs and digital components.

Getting back to the Global Road Show, the message was clear in very presentation and Senior Executive one spoke to, "Samsung wants to position itself at the top end of its markets where margins are highest". For example, in mobile phones, it now specializes on Internet-enabled, color screen camera phones. Similarly in the LCD market, it is aiming for leadership in large sized TV screens, leaving Taiwanese, Korean and Chinese manufacturers to make the compete among themselves for lower-value monitors. In semiconductors also, it has diversified from its core dynamic random access memory production into more sophisticated chips such as NAND flash, used in many digital devices such as digital cameras and mobile phones.

The interview

Dr. David G. Steel has held the position of Vice President in Samsung Electronics since January 2002. He was the first nonKorean to take a regular executive position in Samsung. As VP, he is responsible for marketing in the Digital Media Business, which is a $6.5 billion operation.

Prior to his current position, Dr. Steel spent three years in the Samsung Global Strategy Group, an internal consulting group for the Samsung group of companies.

What is the spectrum of the Digital Media Business division you head?

Samsung has five divisions, Semiconductors, Telecommunications, Home Appliances, LCD panels and everything else falls under the category of Digital Media Business. It further breaks down into two parts, the first half is Audio-Video (AV), this deals with, Television, MP3 players, DVDs, Camcorders, Digital Cameras etc., the other half deals with Information Technology (IT) products such as desktops, notebooks, printers. IT is now 55 percent and AV is 45 percent. My team looks after all the marketing related to AV and IT worldwide.

Samsung is now aiming for the premium products segment, especially in the Digital Media. In these segments, how your brand is perceived plays an important role in purchasing decisions, don"t you think having a wide portfolio or products from notebooks to washing machines might affect your branding negatively? For example, why should I but a notebook from a washing machine company/brand?

What we are trying to do is excel in every category we are present. In the future you are going to see a lot of convergence of products, especially in your home appliances. It is therefore important for us to take each of these segments seriously and lead in its development. In a networked home of the future, your digital lifestyle will not be just limited to just your computer and entertainment devices, but also to appliances such as the refrigerator etc. There are a lot of synergies that you will start seeing soon between appliances and IT products in the neat future. I am sure that if we concentrate on producing quality products which are well designed, our channel will be confident and our customers will appreciate the brand even better, whether it a notebook or a washing machine. It"s about building an ecosystem, how can we pioneer in home networking if we ignore home appliances?

Is Digital Media segment all about entertainment products?

I would save it is about entertainment largely, but also productivity. If you look at the AV side, it is entertainment oriented. But on the IT side it is more productivity oriented. In future when we have more convergence of products, this classification will be dissolve and we will be using products for both entertainment and productivity.

Samsung has come a long way since the crisis of 1997, you had laid off 40,000 people to over come it. IBM Corp. went through a similar phase, they had this philosophy that if they are not in the top two of any product segment, they would leave that space. With so many products now, where do you stand? Do you see a point in being in a market in which you are number three or our?

GE also had a similar policy. Its right, if we are weak in a product category, or losing money and damaging the brand, we get out of it. But there are not many of our products that are not world leaders, we have kept the benchmark high for our products and how it is marketed. If you look at my business areas, in printers we are number two, in monitors we are number one and have remained in that position for the last 16 years. TV we are number one, high-end projection we are number one, LCD we are number two, Plasma we are number four and video products we are number one. So on most products we are on the top, that"s were the management wants to be. If we are not there, then we will need to re-think our strategy. In the Middle East, we are number one in most of the product markets we operate in. Our products are of the best quality, whatever we make. This has ensured customers trust our brand.

There is a lot of customization taking place in terms of products depending on the regional markets they are launched in. How does Samsung go about this process? How do you ensure that your products are well received in a particular region?

There are two levels to this, the first level is putting in a feature or function, such as phones for women with special features etc. At a deeper level, you can customize according to market demand. This is going to be a very interesting space to watch in the future. A feature or function is something you add once at the manufacturing stage for a mass market. What we are aiming for is a customization option that any individual or organization can do to suit their environment. They way to do this is by localizing R&D, design and having a feel of what the market needs. A good example is the Indian market, we discovered that for the Indians audio output is very important. We have an R&D center in India to make sure our products are well received. We have five such design centers around the world, Just one feature here or there is not going to make a difference, we need to have a local presence to access that the local needs are.

Do you have any plans to localize R&D in the Middle East region? Or do anything other than sales and marketing in the region?

We don"t have plans as of now. But this is evolving, we have set-up manufacturing in Russia, Brazil, UK etc., They key is, local expertise. Do we have local expertise to set-up an R&D center? In Poland there is a good expertise for Video products, in India there is an expertise for software development, we have two software R&D centers in India. In the Middle East, if we can find an area of expertise, we should be there at the earliest. We are just looking for talent pool.

Do you have plans to get into retail directly?

We have "experience" showrooms. They are not points of sale but customers can try out Samsung products and ask questions. We don"t intent to sell directly, our channel is well experienced, trained and are doing a very good job of it. There is no need for us to get into it at this point.

How does it feel to be the first nonKorean on the board of Samsung?

I am just lucky to be the first, I am sure I won"t be the last. Samsung as a company is going through an evolutionary process. It is becoming a global company, so it is only natural that we have more members from the different regions we operate in.