Samsung's Golden Touch
Once a copycat, the Korean giant has money, market share, and strong new products. Now it wants respect.
FORTUNE
Monday, April 1, 2002
By William J. Holstein
fortune.com
Last summer Chin Dae Je, the head of Samsung Electronics' digital media division, sent a laptop to Michael Dell. The two men had never met, but Samsung had recently signed a multiyear $16 billion deal with Dell Computer to provide components to the Texas PC maker. The laptop--thinner and lighter than a Sony Vaio--made such an impression on Dell that he sent one of his executives from Japan to South Korea to get a better look. Now Samsung is making a similar model that will be sold in the U.S. under the Dell label starting in April. And Dell himself, a spokeswoman confirms, travels with a Samsung-made laptop.
Chin's impulsive move is a sweet triumph both for him and for Samsung Electronics, the most profitable part of Korea's most valuable chaebol, or industrial group. "Five years ago we had to buy chips from Sony or Matsushita, so we were always behind," says the wiry, combative Chin, 50, sitting in his office in Suwon, south of Seoul. Now, he says, "we can be No. 1. There's no doubt in my mind."
This is Japan's worst nightmare. Fujitsu, Hitachi, Matsushita, NEC, and Toshiba are all losing money. Sony has been limping along, barely profitable. Meanwhile, Samsung Electronics, which started out in 1970 making cheap 12-inch, black-and-white televisions under the Sanyo label, is entering the top tier of the world's technology companies. It's no longer a copycat, making stuff designed by others. And it's no longer emulating the Japanese corporate model by promoting and rewarding employees on the basis of seniority alone, or by propping up losers.
Instead, Samsung Electronics has become a truly innovative company, creating cutting-edge technology across a spectrum of product lines, including combined cellphone and handheld devices, flat-screen TVs, and ultrathin laptops. Last year it ranked fifth in the world in patents, behind IBM, NEC, Canon, and Micron Technology--but ahead of Matsushita, Sony, Hitachi, Mitsubishi Electric, and Fujitsu. The company "can't be classified as a replicator of other people's technology" anymore, says Jonathan Dutton, head of equity research for UBS Warburg in Seoul.
Samsung Electronics made $2.2 billion in 2001, on sales of $24.7 billion--not its best year by a long shot, but not bad considering the times. It has built strong positions in memory chips (the world leader), thin-film displays (first, again), and wireless communications (fourth in handset production). At home it is the strongest of the four major chaebol. Hyundai (No. 2) is being split up among the sons and relatives of founder Chung Ju-Yung. LG (No. 3), the former Lucky Goldstar, has fumbled major investments and is losing money. Daewoo, the smallest, has suffered a spectacular meltdown, and founder Kim Woo Choong is in hiding abroad. With more than $100 billion in revenues, the Samsung Group is by far the largest corporate presence in South Korea, the equivalent of what a combined IBM-Intel-Citigroup-Caterpillar-Aetna would be in the U.S. And of the 25 companies that make up the chaebol, by far the most important is Samsung Electronics, which accounts for a quarter of the group's total revenues and three-quarters of its total net income.
But Samsung Electronics is not content with being one of Korea's most successful companies or even with outsmarting its Japanese rivals. It wants to become Korea's first great global company. To do that, it has to change its image in the world's largest market, the U.S. The company has already established its brand as a top-of-the-line choice for consumers in places like Russia and China. And it is a valued partner to U.S. firms like Dell, Hewlett-Packard, Compaq, and IBM, for which it makes components. But Samsung wants to be more than a supplier with a good reputation. It wants its brand to be seen in the West as just as good as, say, Sony. So it's spending $400 million this year on a stylish marketing campaign, including a high-profile role at the Salt Lake City Winter Olympics. And it's changing the way it sells, pulling out of big discount chains like Wal-Mart and Kmart and moving its products into more upscale stores. It's an expensive gamble, but if it works it could elevate Samsung's image--and its profits. |
