Knowledge sourcing by foreign MNEs,Using the case of Samsung

Based on the article:Knowledge sourcing by foreign MNEs: Patent citation analysis

in the U.S. semiconductor industry by Paul Almeida

By:Ermilate Amina and Jadot Nicolas

Solvay Business School – Universit� Libre de BruxellesCourse Assignment for R&D in Multinational Enterprises

Professor Michele Cincera

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TABLE OF CONTENTS

INTRODUCTION...................................................................................................................... 3

PART 1: ANALYSIS OF THE ARTICLE ....................................................................................... 4ARTICLE SUMMARY................................................................................................................. 4

a) Methodology: ......................................................................................................... 4b) The model:.............................................................................................................. 5c) Results: ................................................................................................................... 6d) Main findings and conclusion.................................................................................. 8

CRITICS ................................................................................................................................ 8

PART 2: THE CASE OF SAMSUNG......................................................................................... 10SAMSUNG ELECTRONICSCO., LTD.: COMPANY PROFILE ............................................................... 10A BRIEF ANALYSE OF SEMICONDUCTORS SECTOR......................................................................... 11SAMSUNG ELECTRONICSCO., LTD.: R&D STRATEGY AND EXPENSES ............................................... 12

a) R&D organisation and Key Figures ........................................................................ 12b) Patents within SAMSUNG Electronics.................................................................... 14

KNOWLEDGE TRANSFER WITHIN SAMSUNG ELECTRONICS .............................................................. 15

FINDINGS AND CONCLUSION.............................................................................................. 19

BIBLIOGRAPHY.................................................................................................................... 20

APPENDIX ........................................................................................................................... 23

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Introduction

R&D is a key factor for many companies and countries. Indeed, as companies need R&D to keep an up to date competitive advantage in a given industry, countries need to attract highly intensive R&D companies to improve their growth. Therefore, countries, as companies, have interest in the R&D FDI. One of the central questions of the theory of foreign direct investment is therefore to know about the learning patterns of multinationals.

The discussion introduced in the article of Almeida is directed on the country level rather than on a company level as he tries to assess the gains and losses of a host country regarding foreign MNE’s R&D subsidiaries.

This report is divided in two parts: the first part consists of a summary and an analysis of the article “Knowledge sourcing by foreign MNEs: Patent citation analysis in the U.S. semiconductor industry” by Paul Almeida. The second part examines the Samsung Company, which illustrated well the article.

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PART 1: ANALYSIS OF THE ARTICLE

Article summary

In this section, we will do a review of the article Knowledge sourcing by foreign MNEs: Patent citation analysis in the U.S. semiconductor industry by Paul ALMEIDA writed in 1996 in the 17 volume of the Strategic Management Journal.

In his paper, Almeida takes the hypothesis that the motivations of firms going abroad is to acquire technological knowledge (making HBA investment). Therefore, he searched to find out if MNCs do actually learn something by investing abroad. A second thing he wants to assess is if those foreign MNCs contribute to local knowledge. His research is supported by previous work on semiconductor industry. The main findings state that technical knowledge in the semi-conductor industry remains localized in the U.S.A. and particularly in Silicon Valley (Almeida and Kogut 1994) and that this industry shares a culture of intraregional communication and interfirm mobility that causes local knowledge sharing between firms (Braun and MacDonald (1982) and Saxenian (1991)).

To respond to these questions, the author assesses three hypotheses, two learning hypothesis:

1)Hypothesis A: Foreign subsidiaries in the U.S.A. use local (regional and country) knowledge to a greater extent than would be expected given the geographic distribution innovative activity in the industry.

2)Hypothesis B: Foreign subsidiaries in the U.S.A. use local knowledge to a greater extendthan similar domestic firms.

And a contributing one:3)Foreign subsidiaries in the U.S.A. contribute to local (regional and country) knowledge

to a greater extent than would be expected given the geographic distribution of innovative activity in the industry.

a) Methodology:

To establish those three hypotheses, P. Almeida takes the case of the U.S. semiconductor industry, which is characterized by an intensive R&D consumer and an intensive use of patent applications.

The author uses both patent citations and interviews to assess his hypothesis. He first identified every foreign semiconductor firms with subsidiaries engaged in either design or fabrication activity in the U.S.A. Then he picked up randomly a maximum of three designs and three fabrication patents filed between 1980 and 1990 for each company. That gives some 114 US patents of foreign MNCs (sample A) that the author compared to a sample of

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equivalent patents from US companies (sample B). The two samples contain patents of equal importance since the patents of both samples has the same citations rate.

Almeida also took into account the fact that the sample patent and the cited patents show geographic coincidence may reflect the distribution of patenting activity rather than the localization of knowledge. He constructed a control sample to adjust from any bias from it. For each patent cited by Sample A, he identified a corresponding control patent, belonging to the same patent class of the cited patent and with an application date as near as possible to the cited patent

b) The model:

A first statistical test is design to control the first hypothesis. It tests the frequency probability PA that the patent from Sample A and the cited patent are geographically matched against PAcon the corresponding frequency probability that the patent from Sample A and the control patent are geographically matched. The nul hypothesis is:

H1A0: P A= PAcon

and the alternate hypothesis is:H1Aa: PA > PAcon

The t-statistic is calculated as follows:

TA = (PA-PAcon)/((PA(1-PA) + PAcon(1-PAcon)/n)0,5

A positive significant value of Student's t indicates support of the proposition that knowledge flows (represented by patents cited by Sample A) are geographically more localized than expected. The test was similarly constructed to test the Contributing Hypothesis. For the contributing study, we geographically matched the patents in Sample A with the patents that cited these sample patents (as opposed to those cited by a sample patent as was the case in the learning study) and calculated the t-statistic. The statistical test for Learning Hypothesys B differ from the first one by the second hypothesis: PAcon is replace by PB , the corresponding frequency probability that the patent in Sample B and their cited patents are geographically matched.

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c) A positive significant value of Student's t, therefore, indicates support of the proposition that knowledge flows are geographically more localized for Sample A than for the matched Sample B.Results:

Table 1. Learning study: Means test of localization of knowledge1

Source: Paul Almeida, Knowledge sourcing by foreign MNEs: Patent citation analysis in the U.S. semiconductor industry.

On the table 1, we see the results of the two learning studies hypotheses. Learning Hypothesis A is supported at the two geographic levels, since the t-stat is significant in both cases, meaning that those companies cite more localized patents than expected. The author therefore concluded that the knowledge building patterns of foreign subsidiaries are localized.

Learning Hypothesis B is only supported at the regional level, the t-stat at the country being not significant. Those results tend to show that foreign subsidiaries do not only learn more from the region than expected but do it at a greater extend than domestic companies.

1 Source: Paul Almeida, Knowledge sourcing by foreign MNEs: Patent citation analysis in the U.S. semiconductor

industry, 1996, Strategic Management Journal, page 161.

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Table 2. Contributing study: Means test of localization of knowledge2

The table 2 represents are the results of the third hypothesis. Those results support the Contributing hypothesis, the foreign patents tend to be more cited than expected and the t-stat is significant.

After analyzing the three hypotheses, P. Almeida tries to assess differences of patterns of MNE’s from different regions. He looks at three regions: Europe, Japan and South Korea ant build a model to see the technical advantages of those countries compared to USA. It was normally expected that if MNE’s do invest abroad to acquire technological knowledge, the host country should be stronger in the desired technology than the home country of the MNE’s. The findings show that if it was the case for European and Korean firms, it was not so for Japanese ones.

Finally, the interviews serve to contribute to his findings by emphasis on the roles played by employees and suppliers in the process of acceding to local knowledge. It appears that people working in the Silicon Valley tend to pass from one to another company, carrying with them the knowledge of companies. This “workers migration” plays a great role for MNEs that are more likely to hire them. Over 90 percent of the executives interviewed by the author had indeed previously worked for other local firms. Executives also confirm that the primary reason that guided the subsidiary location was to keep track of advanced technological developments and expand the firm's knowledge existing in their home country.

2 Source: Paul Almeida, Knowledge sourcing by foreign MNEs: Patent citation analysis in the U.S. semiconductor industry, 1996, 17 volume of the Strategic Management Journal, page 161.

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d) Main findings and conclusion

The main finding of the learning part of the study is that foreign MNE’s tend to learn from local knowledge at a greater extend than local companies. The study reveals also a firm-to-firm linkage. Foreign companies may indeed not be only targeting regions but also companies they want to learn from.

The contributing part of the study shows that foreign companies do also contribute to local knowledge. According to the author, the main explanation could be explained by the interaction and intraregional mobility of the engineers, an hypothesis supported by previous research (see Almeida and Kogut, 1994). He therefore concluded that learning without contributing might not be possible.

The conclusion of the article is that foreign MNE’s subsidiaries are both active players in the process of interfirm knowledge exchange and regional technological development and absorbers of knowledge.

Some 292 articles cited this paper according to Google Scholar.

Critics

A first critic is that the author does not provide any information about the interview; it would be interesting to know how he picked the interviews and what the kind of questions he asked was.

A second element that bothered us is that the author does not investigate on how the knowledge flow works. The only explanation he mentioned is about the employee. However, others study, as well as our investigation on Samsung, state that merger and acquisition as well as partnership between companies are likely to play a great role in the acquisition of local knowledge.

Finally, this study is based on a very specific field, in which knowledge seems to remain concentrated in one single region. The advantage that it is therefore relevant to be only focus on the United States while studying the sector. In this special case, it is expected to find empirical evidences to support the hypothesis of the author; Silicon Valley is indeed well-known by every one as the place to be when working in the semiconductor sector. However, further studies on different industries should be done to support the findings in order to get a broader picture of R&D FDI. We could find that the reasons to invest abroad differ with industries. As the author said it himself, the results depend on the geographic patterns of knowledge diffusion, which may depend on the field of knowledge.

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Comparison to others literature:

In this section, we try to put the article in perspective with others, more recent, research on the subject.

According to Jasjit Singh3, if there is a significant flow of information between companies and the host country both ways, the outflows of information, from the country to the company, seem to greatly overweight the inflows for technologically advanced country. Foreign subsidiaries, therefore, are more absorbers of technology than local contributor of knowledge. This study, established in 2006, was conducted in 30 countries and studied different sectors and was based on patent citation.

On the other hand, Ford found others advantages to foreign R&D subsidiaries in the United States. Actually, R&D subsidiaries tend to hire high paid local people, who in the long term, results demonstrate that FDI has a greater impact on per capita output growth than domestic investment for US states that meet a minimum human capital threshold. Ironically, the most active states in the recruitment of FDI tend to fall below this threshold4.

3 Jasjit Singh, Asymmetry of knowledge spillovers between MNCs and host country firms, Journal of International Business Studies. Washington: Sep 2007. Vol. 38, Iss. 5; pg. 764.

4 Timothy C Ford, Jonathan C Rork, Bruce T Elmslie, Foreign Direct Investment, Economic Growth, and the Human Capital Threshold: Evidence from US States, Review of International Economics, 2008.

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PART 2: THE CASE OF SAMSUNG

Samsung ElectronicsCO., LTD.: Company profile

Samsung Electronics– member of Samsung Group - is South Korea’s leader in semiconductor, telecommunication, digital media and digital convergence technologies, with 2006 sales of $91.9 billion and net income of $8.5 billion. Founded in 1969, Samsung Electronics employs approximately 138 000 people in 56 countries. It provides IT products as digital TVs, memory chips, mobile phones, printers and LCDs; semiconductors such as DRAMs, RAMs and flash memory. The vision of Samsung Electronics is "Leading the Digital Convergence Revolution" and its mission to carry out this vision is to become a “Digital-ε Company5.

Samsung Electronics consists in five main business units: Digital Media Business,

LCD Business, Semiconductor Business, Telecommunication Network Business and Digital Appliance Business.

Figure 1 : Samsung Business Unit Revenue Contribution

Source : Samsung Semiconductor, Inc., Corporate Overview, 2007

Semiconductor unit: it is one of the largest providers of DRAMs, SRAMs and flash memory. Through its R&D infrastructure and its strategy of continuous technology development, Samsung Electronics has been remaining one of the leaders in the memory market. It provides also a variety of core semiconductor components for mobile and digital consumer applications. The semiconductor unit represents 32% of revenue contribution. Actually, even during the semiconductor industry’s slump of 2000-2002, Samsung Electronics plowed billions dollars into capital improvements and new factories, including chip plants in South

5 Samsung Annual report 2006

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Korea and facilities in China. Its strategy consisted to make high-margin DRAMs forspecialized applications helping Samsung Electronics to put ahead competitors as Micron Technology. Moreover, Samsung Electronics spent $800 million as a mean of upgrading its memory production lines. In 2008, the spending comes to $ 1.37 billion on Samsung’s semiconductor business despite a continuous decrease of the prices coupled with rising demand6. In 2006, Samsung represented 8% of the market shares7.

Digital Media unit: this business develops and makes digital TVs, color monitors, DVD recorders etc.

LCD Business: through continuous technology advancements, LCD unit becomes the first to develop and launch large screen LCD panels, representing 20.5% of market shares in 20068.

Telecommunication Network Business: Samsung Electronics has become a leader of mobile phone and telecommunication system market. It was ranked as the world’s third largest manufacturer of mobile phone with a market share of 11.6% in 20064.

Digital Appliance Business: it provides home appliance as refrigerators, air conditioners, and microwaves.

A brief Analyse of Semiconductors Sector

The semiconductor is a small device – a solid-state transistor - created sixty years ago. Since, its industry represents one of the greatest ones. The demand for semiconductor comes mainly from informatics, telecom and electronics industries.

After a slump period in 2000-2002, the market has been increasing, recording a growth of 25% in 20049. However the growth in this sector has tented to remain constant.

As for worldwide sales, it has surpassed a quarter of a trillion dollars in 2007. U.S.A are controlled approximately 46% of the market shares. Semiconductor sales to the North American market continue to decline accounting for less than 17% in 2007. Concerning exportation, U.S.A. is the second largest exporter of semiconductor10.

About worldwide investment expensive, it represented $ 45.5 billions in 20046. Those massive investments have lead to advanced technologies driving higher productivity through faster, easier and cheaper tools of production. Therefore, declining of the prices coupled with increased in performance have provided consumers with greatly increased computing power at lower prices.

6 http://cobrands.hoovers.com/global/cobrands/proquest/overview.xhtml?ID=552777 See Appendix : Semiconductor Industry and Samsung Competitors8 Samsung Profile 2007, http://www.samsung.com/us/aboutsamsung/samsunggroup/annualreport/SAMSUNGGroup_GroupAnnual2006.html9 http://www.journaldunet.com/solutions/dossiers/pratique/semiconducteurs.shtml10 Annual Report, Semiconductor Industry Association, 2008

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In order to analyse Samsung Electronic performance in R&D, we compare it with three main competitors active in electronics industry: Sony, Micron Technology and Matsushita Electric.

Sony: This Japanese company - one of the world's top consumer electronics firms - is mainly known for producing digital and video cameras, Walkman stereos, and semiconductors; these products account for nearly two-thirds of the company's sales.

Micron Technology: It is one of the bigger semiconductor making. Established in USA (IDAHO), it makes DRAMs, flash memory chips, and memory modules, as well as image sensor chips. Its core customers are Dell and HP (account for 10% of sales11). Micron is mainly presents in the Asia/ Pacific region (half of its sales) and USA (30% of sales)

Matsushita Electric: its name may sound unfamiliar but its brands are very recognizable: Panasonic, JVC, Quasar etc. This Japanese firm is an electronics maker: DVD’s players, PC’s, cellular phones, etc. It also sells semiconductors. Its products are sold worldwide.

Samsung ElectronicsCO., LTD.: R&D strategy and expenses

a) R&D organisation and Key Figures

Samsung Electronics is always striving to keep leadership positions through a continuous commitment to R&D. For this reason, Samsung Electronics has 16 R&D centres – 6 in Korea –and 36000 worldwide. In addition, R&D activities are organized in three layers within each business unit. “The first one, the development team, is responsible for launching products scheduled to enter the market within one or two years. The R&D centres focus on technology that is expected to bring results in three to five years. Finally, the Corporate Technology Operations (CTO) are responsible for the technological future of SAMSUNG Electronics.”12 This organization, called the "control tower", has three main roles:

1) Ensure strategic investments, technology initiatives and high-efficiency R&D approaches strategy.

2) Generate greater royalty revenues by implementing a system to secure the long term intellectual properties.

3) Enhance company’s technological sophistication and competitiveness in value-added business areas.

Concerning R&D investment, Samsung Electronics continues to increase spending in order to provide state-of-the-art equipments. In 2007, The Institute for Prospective Technological

11 http://cobrands.hoovers.com/global/cobrands/proquest/overview.xhtml?ID=1411612http://www.samsung.com/uk/aboutsamsung/companyprofile/researchanddevelopment/CompanyProfile_RD_WorkforceOrganization.html , See Appendix The Companywide R&D Organization

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Studies ranked Samsung Electronics10th in R&D investment ranking of the world’s top 50 companies13. According to SAMSUNG Electronics, they have had a great impact on the electronics industry, pushing competitors to spend more on R&D. The R&D expenditure has been rising since 2002 reaching $6.01 billion in 2006 - 9.5% of the sales.

Figure 2: Samsung Electronics R&D expenses in % of sales

Source: Annual Report 2006

About R&D workforce, the goal is to provide Samsung Electronics with the capability to lead the “digital convergence revolution “in the currently fast-changing IT market. Therefore, the R&D personnel are increasing by some 20% a year and will surpass 50,000, or over 30% of all employees, in 201014. Further, Samsung Electronics hires always the top-notch local researchers in order to meet its R&D strategy.

Figure 3: Total number employees vs. R&D personnel11

The chart below compares Samsung Electronics with overall performances in EU and Non-EU areas and its main competitors. We can notice that, in terms of absolute value, Samsung Electronics is the one expending the most in R&D research. Its performance in R&D intensity follows the non-EU top 1000 companies’ average trends. However, it appears that the

13 2007 EU Industrial R&D Investment Scoreboard14 R&D workforce and organization, www.samsung.com

(as of December 2006)Total Workforce Domestic Overseas

No. of Employees 138,000 86,000 52,000

R&D Personnel 36,000 31,600 4,400

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percentage of R&D intensity within Samsung Electronics is relatively low comparing with Micron Technology (14.13%), Sony (8.28%) or Matsushita Electric (6.34%).

Figure 4: R&D Intensity- 2007 15

b) Patents within SAMSUNG Electronics

We can notice that the number of issued patents is correlated to R&D expenses. Therefore, an important amount of patents filled or/and granted has been observed during the past year. The charts below highlight this trend.

Figure 5 : Patents collection since 197616

Source: USPTO data base

As we can observe, Samsung Electronics has acquired 21723 patents since 1976. However, comparing with the competition, it is ranked 3rd. Regarding patents granted, the quantity has been considerably increasing, ensuring thus the first rank for Samsung Electronics with 2641 patents in 2006 against Matsushita Electronics (2229).16

15 2007 EU Industrial R&D Investment Scoreboard. 16 See Appendix USPTO Database

EU 1000 Non-EU

1000Samsung

ElectronicsMatsushita

ElectricMicron

Technology Sony

R&D Investment ( € bn) 121,1 250,5 3,86 3,10 0,51 3,7

Net Sales (€ bn) 5156,1 6474,3 126,5 48,91 3,61 44,66

R&D intensity (%) 2,3 3,9 3,05 6,34 14,13 8,28

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Figure 6: Worldwide Patents by year of grant in U.S.17

Source: USPTO data base

To sum up, we can notice an overall trend which consist of the continuous R&D commitment of Samsung Electronics. During the past year, it has been increasing the whole R&D activities through human capital as well as R&D expensive and facilities (cf. infra). In terms of patents, Samsung Electronics was ranked second behind IBM which has been top for 14 years.

Knowledge transfer within Samsung Electronics

According Linsu Kim18, Korea firms, in general, use some alternative to universities collaboration in order to ensure knowledge transfer: learning-by-hiring, R&D outpost to acquire necessary knowledge, merger and acquisition of high tech foreign firms, strategic alliance with leading multinational firms.

Human mobility: learning-by-hiring

As seen previously, Samsung Electronics is hiring excellent engineers in every region in where it establishes. According to Teece and Winter19, human mobility provides a way for firms to access knowledge developed at other firms without their approval. Learning-by-hiring is therefore considered as an important driver in the rapid growth of the semiconductor industry in the United States (Rogers and Larson 1984, Holbrook et al. 2000). While Samsung Electronics entered the semiconductor industry, it deliberately hired American scientists and engineers as a way to acquire critical knowledge (Kim).

17 See Appendix18 Linsu Kim, The dynamics of technological learning in industrialization, International Social Science Journal (NWISSJ), 200119 Referred in Learning-by-Hiring: When is Mobility More Likely to Facilitate Interfirm Knowledge Transfer?, J. Song, P. Almeida, G. Wu, Management Science, 2003

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R&D outpost

To determine in which region inventors work, we analyze R&D centers location. It appears that research centers are mainly based in USA, UK, China, Japan, and Russia. Samsung Electronics ha s, in fact, been creating research centers for each major geographical region. The strategy is to establish R&D centers specific regions known for specialised technologies.

Figure 7 : Location of main R&D Centres

Source: http://www.samsung.com/uk/aboutsamsung/companyprofile/researchanddevelopment/CompanyProfile_RD_WorkforceOrganization.html

Centre Name R&D Areas

SAMSUNG Information Systems America, Inc. (SISA)

Strategic parts and components, core technologies

Dallas Telecom Laboratory (DTL) Technologies and products for next-generation telecommunications systems

Samsung Electronics Research Institute (SERI)

Mobile phones and digital TV software

Moscow SAMSUNG Research Centre (SRC)

Optics, software algorithms and other new technologies

Samsung Electronics India Software Operations (SISO)

System software for digital products, protocols for wired/wireless networks and handsets

SAMSUNG Telecom Research Israel (STRI)

Hebrew software for mobile phones

Beijing SAMSUNG Telecommunication (BST)

Mobile telecommunications standardisation and commercialisation for China

SAMSUNG Semiconductor China R&D (SSCR)

Semiconductor packages and solutions

Samsung Electronics(China）R&D

Centre (SCRC)

Software, digital TVs and MP3 players for China

SAMSUNG Yokohama Research Institute

Core next-generation parts and components, digital technologies

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As Paul Almeida mentioned in his article20, multinationals in semiconductor industry tend to invest new research centre into high-technology regions like Silicon Valley. Actually, Samsung has established in 1988, SISA, Samsung Information System America, in San Jose, the “capital” of Silicon Valley. It is in fact a strategic location to develop semiconductor technology21. This centre is aimed to develop technologies for creating new businesses and to focus on research for existing products as Hard Disk Drive (HDD), Digital TV products, Printer Architecture, Home Networking as well as other new and emerging technologies. Active cooperation – joint research, training, consulting- between the outpost in Silicon Valley and the Korean lab ensures a fluent flow of knowledge between the two regions. Moreover, Samsung Semiconductor, Inc. (SSI) was established in 1983 as a mean to provide the customers with advanced Samsung components. Operations include a manufacturing plant in Austin, Texas. The headquarter is in San Jose, near to the R&D centres in order to ensure close collaborations. Being constantly in contact with customers, SSI can inform the research centre of the consumers’ perceived quality of Samsung products. As a result, Samsung Electronics can imagine and create future devices suitable for its customers and upgrade existing products.

In order to confirm Almeida statements, we analyze data concerning Samsung patents inventors’ localization at the moment the patent is filed.

Figure 8 : Country and state of residence of the inventor at the time of patent issue22

It appears that Korean firms issue the majority of patents ( 20726 since 1976) following by the USA ( 937 since 1988)23. However, this difference is due to the fact that first Samsung established its core activities in Korea. The R&D centres in USA and in others regions opened

20 Paul Almeida, Knowledge Sourcing by Foreign Multinationals : Patent Citation Analysis in the U.S. Semiconductor Industry, Strategic Management Journal, 199621 Linsu Kim, The Dynamics of Samsung’s Technological Learning in Semiconductors, California Management review, 199722 USPTO data base - See Appendix 23 USPTO data base

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lately. Moreover, we can oberve that Samsung Electronicsis the most productive member of Samsung Group in terms of R&D activities, issuing more than 90% of the group patents.

We can also notice that Samsung inventors live in USA, particularly in California ( 536)21. Therfore, we can conclude that Samsung Electronicstends to establish its R&D lab in order to maximize its exposure to Silicon Valley knowledge. Most of researchers who invente new technology outside Korea settled in USA.

Merger and Acquisition

At the beginning of its expansion, Samsung Electronics made acquisition as a stepping stone to secure necessary prior knowledge related to semiconductor s 24. Therefore, in 1980, Samsung Group purchased Korea Telecommunications Company and renamed it Samsung Semiconductor and Telecommunications, becoming an important producer of memory chips. In 1988, it merged with Samsung Electronics. They together developed the world's first 64M DRAM in 1992.

Moreover, Samsung Electronics collected licenses from troubled small American firms as a mean to shorten the time in learning and production and to gain knowledge. In order to assimilate licensed technologies, it provided also training for its engineers.

In 2007, Samsung took over the company TransChip Israel Ltd., a chip designer and thereby establishing an R&D centre in Israel. The purpose of the acquisition is to strengthen Samsung Electronics development capabilities in the image sensor business (chip made for camera phones and digital cameras). This market represents a potential area of growth for Samsung Electronics and it is a way to diversify activities viewing the falling memory chip prices.

Strategic alliance with leading multinational firms

Samsung Electronics is growing in partnership. It is indeed a way to take advantage of the very best R&D data and resources it can find.

For instance, in 1986, a government research institute, The Electronics and telecommunications research centre had collaborated with universities, semiconductors makers as Samsung to develop 4M DRAM. Through this project, Samsung Electronics registered fifty-six patents related to 4M Dram and was able to mass produce it as faster as Japanese firms.

In 1994, Samsung Electronics established a strategic agreement with ISB whereby Samsung Electronics helped them develop next-generation chips. In exchange, Samsung Electronics was allowed to use ISD’ technologies on semiconductors.

24 Linsu Kim, The Dynamics of Samsung’s Technological Learning in Semiconductors, California Management review, 1997

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In March 2003, Samsung Electronics joined IBM, Chartered and Infineon to develop semiconductor logic process. This alliance allowed Samsung Electronics to share chip making technology with computing giants.

Another crucial partner was the group Sony with whom Samsung Electronics has developed and produced large LCD television screens. That S-LCD Corp. joint-venture built a $2 billion LCD plant making the “eight-generation LCD’s in 2007. 25

“To this end, we will continue to seek out universities, other research institutes and venture start-ups that possess valuable new technologies or existing technologies that we lack, and we aim to partner with and/or invest in them. “ Samsung Electronics Team

FINDINGS AND CONCLUSION

Almeida concludes in his article that foreign MNE’s subsidiaries should be seen as active players in the region of their subsidiaries.

Samsung Electronics appears that it established its lab in San Jose as a mean of acquiring new knowledge. Nevertheless, Almeida focused only on simply ways of flow of exchange such as the interaction between engineers from different companies.

Samsung Electronic strategy has also consisted of establishing partnerships with leading firms and acquiring small companies with specific know-how. Acquisitions, mergers and partnerships have played a great role and an important amount of patents has been granted through those collaborations. On the other hands, empirical evidences state that the flow of knowledge seems to be more important from USA to Samsung Electronics that the reverse.

25 Samsung Electronics Ltd. Information, Hoover, 2008

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BIBLIOGRAPHY

Articles:

Timothy C Ford, Jonathan C Rork, Bruce T Elmslie, Foreign Direct Investment, Economic Growth, and the Human Capital Threshold: Evidence from US States, Review of International Economics, 2008, Vol. 16, Iss. 1; pg. 96.

Jaeyong Song, Paul Almeida and Geraldine Wu, Learning-by-Hiring: When Is Mobility More Likely to Facilitate Interfirm Knowledge Transfer?, Management Science, Vol. 49, No. 4, 2003, pp. 351-365.

Jasjit Singh, Asymmetry of knowledge spillovers between MNCs and host country firms,Journal of International Business Studies. Washington: Sep 2007. Vol. 38, Iss. 5; pg. 764.

Linsu Kim, The Dynamics of Samsung’s Technological Learning in Semiconductors, California Management review, 1997

Linsu Kim, The dynamics of technological learning in industrialization, International Social Science Journal (NWISSJ), 2001

Paul Almeida, Knowledge Sourcing by Foreign Multinationals: Patent Citation Analysis in the U.S. Semiconductor Industry, Strategic Management Journal, 1996

P. Almeida, G. Wu, Learning-by-Hiring: When is Mobility More Likely to Facilitate Interfirm Knowledge Transfer?, J. Song, Management Science, 2003Jung-a Song, COMPANIES ASIA-PACIFIC: Chips are down for Samsung as growth fizzles, Financial Times, Apr 13, 2007,http://search.ft.com/ftArticle?queryText=samsung+merger&y=0&aje=false&x=0&id=070413000815&ct=0

Song Jung-a, Samsung buys Israeli chip group, FT.com site, Oct 31, 2007http://search.ft.com/ftArticle?queryText=samsung+acquisition&y=0&aje=true&x=0&id=071031000553&ct=0

Yves DROTHIER, Comprendre le march� des semi-conducteurs, JDN Solutions, 2005 ,http://www.journaldunet.com/solutions/dossiers/pratique/semiconducteurs.shtml

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Websites:

Samsung Websites:

HTTP://WWW.SAMSUNG.COM/US/ABOUTSAMSUNG/COMPANYPROFILE/BUSINESSAREA/COMPANYPROF

ILE_SEMICONDUCTORBUSINESS.HTML

http://www.sait.samsung.com/eng/main.jsp

http://www.samsung.com/uk/aboutsamsung/companyprofile/researchanddevelopment/CompanyProfile_RD_WorkforceOrganization.html

Hoover Website:

Samsung Electronics Ltd. Co. Information:

http://cobrands.hoovers.com/global/cobrands/proquest/factsheet.xhtml?ID=55277

MICRON TECHNOLOGY, INC. :

http://cobrands.hoovers.com/global/cobrands/proquest/factsheet.xhtml?ID=14116

SONY CORPORATION :

http://cobrands.hoovers.com/global/cobrands/proquest/factsheet.xhtml?ID=41885

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

http://cobrands.hoovers.com/global/cobrands/proquest/factsheet.xhtml?ID=41873

USPTO Website:

http://www.uspto.gov/

Annual Report:

Samsung Annual Report 2006,

http://www.samsung.com/us/aboutsamsung/ir/financialinformation/annualreport/downloads/2006/AnnualReport_2006_Eng.pdf

Samsung Semiconductor, Inc., Corporate Overview, 2007

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http://www.samsung.com/us/business/semiconductor/news/downloads/SamsungCorporateBrochure0607.pdf

Samsung Profile 2007,

http://www.samsung.com/us/aboutsamsung/samsunggroup/annualreport/SAMSUNGGroup_GroupAnnual2006.html

Annual Report, Semiconductor Industry Association, 2008,

http://www.sia-online.org/downloads/SIA_AR_2008.pdf

2007 EU Industrial R&D Investment Scoreboard,

http://www.jrc.es/newsandevents/new.cfm?new=87

23

APPENDIX

Semiconductor Industry and Samsung Competitors

Samsung Semiconductor, Inc., Corporate Overview, 2007

http://www.samsung.com/us/business/semiconductor/news/downloads/SamsungCorporateBrochure0607.pdf

Identity Cards of competitors

Micron:

Key Numbers

Company Type Public (NYSE: MU)

Fiscal Year-End August

2007 Sales (mil.) $5,688.0

1-Year Sales Growth 7.9%

2007 Net Income (mil.) ($320.0)

2007 Employees 23 500

1-Year Employee Growth 0.0%

24

MATSUSHITA ELECTRIC INDUSTRIAL CO., LTD.

Key Numbers

Company TypePublic (NYSE: MC [ADR];

Exchange: Tokyo)

Fiscal Year-End March

2007 Sales (mil.) $77,419.4

1-Year Sales Growth 2.4%

2007 Net Income (mil.) $1,846.1

2007 Employees 328,645

1-Year Employee Growth (1.7%)

1-Year Net Income Growth 40.7%

SONY CORPORATION

Key Numbers

Company TypePublic (NYSE: SNE [ADR];

Exchange: Tokyo)

Fiscal Year-End March

2007 Sales (mil.) $70,513.4

1-Year Sales Growth 11.0%

2007 Net Income (mil.) $1,073.8

2007 Employees 163 000

25

1-Year Employee Growth 0.0%

1-Year Net Income Growth 2.8%

Annexe: R&D expenditure within Samsung Electronics

Samsung Profile 2007,

http://www.samsung.com/us/aboutsamsung/samsunggroup/annualreport/SAMSUNGGroup_GroupAnnual2006.html

Some figures about R&D expenditure and intensity.

Source: 2007 EU Industrial R&D Investment Scoreboard,

http://www.jrc.es/newsandevents/new.cfm?new=87

26

27

28

29

30

31

The Companywide R&D Organization

Source: www.samsung.com

Digital Media

Telecommunication Networks

SemiconductorsLCDsDigital

Appliances

GBM Labs

Product development

Division Labs

R&D for core technologies used in innovative productsAdvanced R&D Team

CTOSearch for future platform technologies and incubate new businesses

USPTO Data Base

Patents collection since 1976

Micron Technology 15729

Samsung 21723

Sony 26507

Matsushita Electric 28126

32

Received patents for invention

2000 2001 2002 2003 2004 2005 2006

Samsung 1441 1446 1328 1313 1604 1641 2451

Micron Technology 1304 1643 1833 1707 1760 1561 1610

Sony 1385 1363 1434 1311 1305 1135 1171

Matsushita Electric 1137 1440 1544 1774 1934 1688 2229

http://www.uspto.gov/go/oeip/taf/topo_06.htm#PartB

Inventor Country: This field contains the country of residence of the inventor at the time of patent issue.

KR 24230 Samsung Electronics KR 20726

USA 1017 USA 937

JP 309 JP 171

RU 91 RU 75

GB 12 GB 12

CN 5 CN 5

IN 2 IN 2

IT 2 IT 1

Inventor State : This field contains the US state of residence of the inventor at the time of patent issue.

CA 591 Samsung Electronics CA 536

Texas 151 Texas 142

NEW JERSEY 107 NEW JERSEY 102

VIRGINIA 104 VIRGINIA 103

NEW YORK 17 NEW YORK 17

33

Colorado 10 Colorado 9

Floride 7 Floride 7

ARIZONA 7 ARIZONA 4

ILLINOIS 7 ILLINOIS 4

Georgia 6 Georgia 3

Conneticut 4 Conneticut 4

IDAHO 3 IDAHO 3

WASHINGTON 3 WASHINGTON 3