Samsung Economic Research Institute1

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Jung, Ku-Hyun

Samsung Economic Research Institute

January 2005

Samsung Story

Samsung Economic Research Institute2

Samsung Electronics joins ’$10billion club’.

• Samsung Group as a whole also made record profit in 2004.(Won 19 trillion)

• Members of this exclusive club include:

Samsung Economic Research Institute3

0%

10%

20%

30%

40%

0 10 20 30 40 50 60 70 80

삼성전자(54.3, 19.8%)

3M

Intel

Microsoft

AB ElectroLux

Nokia

Hwelet-Packard

Sony

순이익/자기자본

매출액(십억 달러)

평균수익률(16.0%)

평균매출액(42.4)

◈ Samsung vis-à-vis global competitors (2003)

Significance of Samsung’s Rise

Sales (bil. US$)

ROE

ROE Avg.(16.0%)

ROE Avg.(16.0%)

Sales Avg.(42.4)

Sales Avg.(42.4)

SEC

▲

HP

Samsung Economic Research Institute4

◈ Sales / Profit / Market Value- Sales : US$ 13.6 bil. → US$ 96.5 bil. (7-fold increase)

- Profit : US$ 239 mil. → US$ 8.6 bil. (36-fold increase)

- Market Value : approx. US$ 75.1 bil. (Mar. 2004)

Samsung : 1987~2003

0

20

40

60

80

100

120

140

87 89 91 93 95 97 99 01 03(2)

0

2

4

6

8

10

12

Profit

Net sales (tril. Won) Profit before Tax (tril. Won)

Sales

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◈ Work force : 210,000 employees (2004.12)

135,000 (domestic) / 75,000 (overseas)

◈ Globalization: 67 countries / 287 branches (2004)

◈ 22 World best products (DRAM, Flash memory, TFT-LCD…)

◈ Brand Value

◈ Ranked the 32nd for ‘The Most Admired Company’ (FT, 2004)

Samsung Today

Year 2000 2001 2002 2003 2004

Ranking 43 42 34 25 21Brand Value

(bil. US$) 5.2 6.4 8.3 10.8 12.6

Source: Interbrand / Businessweek (2004. 8.2, p.68)

Samsung Economic Research Institute6

◈ Business Portfolio : Electronics / Finance / Trade & service (64 companies)

Samsung Today

Sales(2003) Profit(2003)

Electronics(51%)

Electronics(90%)

Finance(29%)

Finance (-4%)

Service(12%)

Service (5%)

Chemical (4%)

Shipbuilding (4%)

Shipbuilding (1%)

Chemical (4%)

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◈ Quantum leap- Domestic → Global company

- Low → High value-added products

- Manufacturing → Technology-driven company

Significance of Samsung’s Rise

Private BrandPrivate BrandOEMOEM

IT industryIT industryLight industryLight industry

Knowledgeintensive

KnowledgeintensiveLabor intensiveLabor intensive

Heavy industryHeavy industry

Capital intensiveCapital intensive

Past Present

Samsung Economic Research Institute8

Paradox of Samsung Management

◈ Management of 4 paradoxes

Big OrganizationSmall

(speedy & flexible)

Diversified Strategy Specialized

Family Governance Professional

JapaneseManagement

SystemAmerican

Legacy from the past

Transformation since 1987

Samsung Economic Research Institute9

Chairman Lee’s “New Management (新經營 )”

◈ The Beginning (1987)

◈ Paradigm Shift in the 1990s

◈ Launch of “New Management” in 1993

◈ Economic Crisis in 1997~98

◈ Lee’s Vision and Perseverance

RestructuringRestructuring

LeadingGlobal

companyin 21C

LeadingGlobal

companyin 21C

Vision

IT RevolutionIT Revolution

Paradigm Shiftin the 1990s

Paradigm Shiftin the 1990s

“NewManagement”

in 1993

“NewManagement”

in 1993

GlobalizationGlobalization

End of Cold WarEnd of Cold War

Economic CrisisIn 1997~98

Economic CrisisIn 1997~98

Samsung Economic Research Institute10

◈ Short history

How It All Happened: the story of semiconductors

Turning points

1974 Korea Semiconductor Co - acquired

1983 Entry into the VLSI Business

1987 Kun-Hee Lee appointed as Chairman

1992 No. 1 in DRAM market worldwide

Developed world's first 64M DRAM

1993~2002 Top in the global memory chip market

2003 No. 1 in Flash memory market worldwide

1996 Unprecedented Worldwide depression in Semiconductor industry - SEC strengthened non-memory business

1996 Unprecedented Worldwide depression in Semiconductor industry - SEC strengthened non-memory business

2001 SEC declined Toshiba’s joint venture proposal in NAND flash memory - 2001 M/S : SEC (26%), Toshiba (45%) - 2004 M/S : SEC (65%), Toshiba (30%)

2001 SEC declined Toshiba’s joint venture proposal in NAND flash memory - 2001 M/S : SEC (26%), Toshiba (45%) - 2004 M/S : SEC (65%), Toshiba (30%)

1988 Samsung Semiconductor & Tele- communications Co. - merged with SEC

1988 Samsung Semiconductor & Tele- communications Co. - merged with SEC

1988 SEC Semiconductor business came out of the red. - US-Japan Semiconductor Agreement

1988 SEC Semiconductor business came out of the red. - US-Japan Semiconductor Agreement

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Technologydriven

Technologydriven

1. Goal stretching1. Goal stretching

2. Aggressive investments2. Aggressive investments

3. Technology-push3. Technology-push

4. Emphasis on top talents4. Emphasis on top talents

5. Self-driving org. culture5. Self-driving org. culture

6. Speed (time to market)6. Speed (time to market)

7. Synergy from clustering 7. Synergy from clustering

Capital drivenCapital driven

Speed drivenSpeed driven

How It All Happened: the story of semiconductors

Globalcompetition

Globalcompetition

SEC’s Key Success Factors

Semiconductor IndustryCharacteristics

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Core Competence

Decision-to-actionDecision-to-action

Time-to-marketTime-to-market

Major Factors

R&D capabilityR&D capability

Manufacturing skills Manufacturing skills

Management innovationManagement innovation

Knowledge sharingKnowledge sharing

Cost efficiency Cost efficiency

Digital convergenceDigital convergence

Core Competences

Speed

InnovativeLearning

SynergyEconomies of

scope

Samsung Economic Research Institute13

◈ Core Competence (1) - Speed

Core Competence

Decision-to-actionDecision-to-action Time-to-marketTime-to-market

- Ownership- Empowerment

- Simple decision-making process- Goal stretching / Self-driving

- IT infrastructures (SCM, ERP)- Vertical integration

- Incentive system (PS, PI)- Passion of employees

Culture & System

Major Factors

Speed

Samsung Economic Research Institute14

◈ Core Competence (2) - Learning

Core Competence

R&Dcapability

R&Dcapability

Managementinnovation

Managementinnovation

- Goal stretching / Self-driving- Attention to detail

- Learning-oriented corporate culture

- HR development system- Professional learning teams

- Change agents (6 sigma)- Clustering

Culture & System

Major Factors

Innovative Learning

Manufacturingskills

Manufacturingskills

Samsung Economic Research Institute15

◈ Core Competence (3) – Synergy: economies of scope

Core Competence

Knowledgesharing

Knowledgesharing

Digital Convergence

Digital Convergence

- CEO as a coordinator- Corporate culture: shared values

- HQ’s control & monitoring function- Inter-organizational committees

- Clustering- Knowledge management system

Culture & System

Major Factors

Synergy

Cost efficiency

Cost efficiency

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Case study #1 – Mobile Phones:Developing intangible competitive advantages

1. Achievements

Design and product innovation b

ecoming a key factor: Innovator i

n mobile phone market (watch p

hone, TV-phone, MP3-phone, ‘int

enna’ phone..)

Global market leadership:

High-end market across all mark

ets

Samsung Brand Value: finally ov

ercoming a ‘me-too product’ ima

ge

Samsung Economic Research Institute17

Case study : Mobile Phones (cont.)

2. Key success factors

Speed: simple decision making

process, cross functional meetings,

short time to market

Innovative Learning: adopting

American technology and improving

it to commercial use.

Mass-customization: Maintaining

multi-platform products and

adapting to global market segments

Synergy: Knowledge, technology,

information, know-how sharing with

other business units in SEC

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Case study #2 – TFT-LCDs:Replication of SEC semiconductor success

1. Achievements

Similar product and technology

characteristics as memory chips

No. 1 global leader in TFT-LCD as

of 2003 : caught up with advanced

rivals in a short period of time

Leading technological and market

standards

Overwhelming cost leadership :

excellent yield rate

Samsung Economic Research Institute19

Case study : TFT-LCDs (cont.)

2. Key success factors

Synergy: resource transfer from

semiconductor business unit

Innovative Learning: intra-firm

knowledge transfer

Speed: Aggressive investments and

time-to-market (going on now)

Preempt product standards:

alliances with global top companies

Vertical integration and regional

clustering

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Samsung Management System:Old and New Configuration

[ Old Configuration ]

Leadership

Patriarchal

Strategy

Quantity-driven

Structure

Hierarchical

Process

Attention todetail

Human Resource

Internal Sourcing

Compensation

Seniority System

CulturePride

[ New Configuration ]

Strategy

Quality-driven

Structure

Empowerment

Human Resource

Transfusion

CompensationPerformance

-based

Leadership

Goal-stretching

CultureSelf-driving

Process

Speed

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Interpretation of Samsung Way

◈ Window of opportunity vs. Strategic thrust

◈ Unique system vs. Do It Better

◈ Pre-1987 vs. Post-1987

◈ Samsung Electronics and Other Business

◈ Chairman Lee’s Leadership and Sustainability

◈ Core competence

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Who will be next ?

Company RevenueOperating

IncomeOperating Profit

Margin(%)

Samsung Electronics 50,387 10,509 21.0

Hyundai Motors 24,041 1,964 8.0

LG Electronics 21,560 1,093 5.1

POSCO 17,305 4,419 26.0

SK Corporation 15,213 1,413 9.3

KT Corporation 10,434 1,989 19.1

SK Telecom 8,484 2,063 24.3

Korea Gas 8,001 540 6.7

S-OIL Corporation 9,016 960 10.6

LG Philips LCD 7,281 1,511 20.7

$.mil. 2004