Giant Samsung is source of admiration, resentment in S. Korea

November 22, 2012

By AKIRA NAKANO/ Correspondent

SEOUL--Samsung Electronics Co. is riding high on its spectacular success in the market for smartphones and other mobile products, jumping in quickly to compete against Apple Inc. and winning its own fans with frequent and innovative offerings.

Samsung is now the highest-ranked non-U.S. company in one ranking of global brands, at ninth, eclipsing its cautious Japanese rivals that are foundering in its wake.

But the company is not without critics at home as South Korea has been witnessing widening income disparities over more than a decade, despite the nation's economic expansion led by Samsung and other family-owned conglomerates. One critic derides South Korea's economy as "Samsung Republic."

In the crowded smartphone market, Samsung seems set to grab even a larger market share.

At a recent launch of an upgraded smartphone-tablet model in Seoul, Shin Jong-kyun, chief of the mobile division at Samsung, expressed confidence about the new device joining the company's other hits.

“Equipped with a range of innovative functions, this is our new offering that we are proud of,” Shin told hundreds of reporters who gathered for the unveiling of the Galaxy Note 2 at a Samsung Group building in late September. “We are sure that it will be a lot more successful than our previous model.”

The Note 2, with a 5.5-inch screen that dwarfs most smartphones but is still smaller than a 7-inch tablet, can record and send data that a user writes or draws with a dedicated pen on the screen, an innovative feature.

The company held similar launches for the Note 2 in Hong Kong, Jakarta, Shanghai and Cape Town after its release in South Korea.

Smartphones and other products in its mobile electronics division are the driving forces behind Samsung.

The company reported about 52.2 trillion won (about 3.77 trillion yen, or $47.2 billion) in group sales for the July-September period this year.

Its consolidated operating profits for the same period totaled approximately 8.1 trillion won, a record, the third consecutive quarter it has set new highs.

Mobile devices accounted for about 70 percent of its consolidated operating profits over that quarter.

Samsung has earned global respect and recognition in the world commensurate with its breathtaking rise.

Samsung was ranked ninth in “Best Global Brands 2012,” released in October by Interbrand, a U.S. brand consultantcy.

It was ahead of the 10th-ranked Toyota Motor Corp.

In last year’s ranking, Samsung was 17th and Toyota 11th.

Although Samsung is a leading player in the smartphone market, its first smartphones in 2008, the Omnia series, was trashed by reviewers due to its sluggish performance.

But Samsung was quick to respond only a year after Apple released its first iPhone while Japanese makers of mobile phones took a wait-and-see stance to gauge consumers’ interest in smartphones.

Samsung introduced its popular Galaxy series in 2010.

“It is in our corporate culture to try to offer our own version if an innovative product has been introduced to the market,” said a Samsung official. “We don’t consider the alternative to sit quietly and watch others, given the fierce in-house competition.”

Samsung’s predecessor, Samsung Electric Industries, was founded in 1969.

The late Samsung Group founder, Lee Pyong-chol, who built a family conglomerate through trade, textile and shipbuilding, made inroads into the market for electronics products and took over Korea Semiconductor in 1977.

Samsung grew into the world leader in semiconductor business under the leadership of Lee Kun-hee, who succeeded his father in 1987.

Shin Dong-youb, professor of management at Yonsei University, said Samsung’s strength lies in the fact that it is a family business.

“The company is run by its owner, so it can make a swift decision on investment and other important matters,” Shin said. “It is adept at catching up with companies that are ahead.”

Samsung’s presence in emerging markets as a maker of TV sets and white goods such as refrigerators and washing machines helped the company’s growth in terms of brand recognition.

A former Samsung director with many years of overseas assignments recalled that Samsung hungered for such markets because of Japanese manufacturers.

“We were frustrated because our products did not sell at all in advanced countries,” said the former Samsung director, who joined the company when it was in its formative years. “If Japanese companies primarily aimed at the well-to-do population in developed economies, we expanded our clientele in the middle class in emerging economies.”

In 1990, Samsung inaugurated a program that sent its employees to many parts of the world to familiarize them with local languages, customs and traditions.

The program turned out to be a big help in rolling out products that best meet local needs.

So far, Samsung has posted about 2,000 employees on such assignments. It has 10 regional headquarters for the program, including one in Africa.

In emerging markets, it operates factories in China, Brazil, India and Vietnam.

Those employed in Samsung’s overseas units account for more than half of its total work force of about 220,000 employees worldwide.

In the business year 2011, 84 percent of its overall sales were generated out of South Korea.

The expansion of the South Korean economy went hand in hand with those of conglomerates.

Samsung Group is the largest of all conglomerates, currently representing 22 percent of the nation’s gross domestic product and about 20 percent of the total value of South Korea’s exports.

But the gap between the top 20 percent and the bottom 20 percent in the nation doubled to 14 times from seven times over the past 15 years.

Employees of conglomerate companies receive fat paychecks and founding families are getting richer and richer with dividends and other income.

But ordinary Korean workers are struggling under the weight of soaring prices.

Most South Koreans no longer believe amid the changing economic landscape that hard work will eventually pay off in better and more prosperous lives.

A government survey last year found that 60 percent of respondents replied that their social and economic status will not rise even if they work hard. Thirty percent of the respondents replied otherwise.

Candidates in the presidential election in December are all calling for measures to curb the domination of conglomerates, exemplified by Samsung Group.

Moon Jae-in, the candidate from the main opposition Democratic United Party, said a ban should be imposed on “cross sharing of opaque shares” within conglomerates to pave the way for their dissolution.

Companies in Samsung Group, comprising Samsung Electronics and 83 companies, possess each others’ stocks in a complex arrangement.

Members of the founding family take the helm of major group companies, which are controlled by Samsung Everland Inc., a private company.

Park Geun-hye, the nominee from the ruling New Frontier Party, is advocating steps aimed at preventing large businesses from abusing their power.

A third candidate, Ahn Cheol-soo, an independent and software executive, is pushing for reform of conglomerates.

Kim Sang-jo, an economics professor at Hansung University who calls South Korea “Samsung Republic,” said that the entire nation should be able to share in the fruits of Samsung's spectacular ascent.

“The whole country, including small and midsize companies and their employees, should benefit from a large company’s growth,” Kim said. “Samsung, as a global presence, faces the question of how it should transform itself to find an answer.”

By AKIRA NAKANO/ Correspondent
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A large number of reporters, including those from foreign media outlets, pack Samsung Electronics Co.'s event to unveil its new Galaxy Note 2 smartphone in Seoul in September. (Akira Nakano)

A large number of reporters, including those from foreign media outlets, pack Samsung Electronics Co.'s event to unveil its new Galaxy Note 2 smartphone in Seoul in September. (Akira Nakano)

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  • A large number of reporters, including those from foreign media outlets, pack Samsung Electronics Co.'s event to unveil its new Galaxy Note 2 smartphone in Seoul in September. (Akira Nakano)
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