Samsung Electronics Globalisation

This
section will analyse how Samsung managed to achieve rapid and successful
globalisation from the mid-90s to recent years. Samsung’s aim was to become a
global leader and establish a reputation for state-of-the-art products across
the world. As mentioned in section 1, in the 1990s Samsung were considered a
second-class brand outside Korea, particularly in the developed West. 2.1. Strategic
ChangesIn
1993, current chairman Lee Kun-Hee set about implementing new management
strategies. Samsung would “change everything but their wives and children” [4]. Samsung Electronics
would be the primary focus.Samsung
achieved a breakthrough shortly afterwards, surpassing competitors in the
semiconductor market and producing the world’s first Giga DRAM chip in 1999.
The reason for its success was that it was faster than its competitors from
innovation to market. This was because of Samsung’s ability to simultaneously
manage mass production of the current generation and initiate development for
next generation of products [3]. Samsung Group could
achieve this due to its large size relative to its competition. It also benefited
from economies of scale.Success was additionally
attributable to a new production process technology. The new technology enabled
concurrent engineering; Research and development (R&D) and production
departments worked closely on current and future products. This avoided the
slow and inefficient sequential approach, and reduced the potential for errors.
Samsung
also began investing heavily in R&D. In 2011, Samsung were granted almost
5,000 patents, the second highest of any global company. This compares with 200
patents in 1991 (see Figure 2.1). Samsung used aggressive investment and
focused on technologies with clear trajectories. A reduction in errors and
increased innovation were essential for Samsung Electronics in producing market
leading products.  Another
factor for success was Samsung beginning vertical integration of production
processes. DRAMs, flash memory and mobile chips produced by the semiconductor
division were supplied to the firm’s computers, digital home appliances and
communication divisions. It introduced advanced supply chain management (SCM)
system to achieve fast delivery times and to minimise inventory costs. Using this
system, Samsung forecasted demand using enterprise resource planning (ERP), by considering
various variations such as market demand, trends, experience and target market
share.Furthermore, Samsung
continuously search for new relationships with competitors, partners and suppliers.
This was aided by its organisational restructuring; offshoring of manufacturing
and sales (Section 2.2). It based its relationships off a desire to achieve
strategic advantages, but also with a desire to be fair, and produce win–win
relationships [3].
2.2. Structural ChangesSamsung
had traditionally relied on local OEM manufacturing, from Korea and the Asia-Pacific
region. With the decision in 1993 to develop Samsung as a brand globally, this
was a significant issue. In the next thirteen years Samsung built six new production
units in North, Central and South America, the UK, China and Malaysia. These
facilities were fully integrations to cover the entire value chain, including manufacturing
and sales of consumer products. This resulted in several benefits, including
the creation of various synergies, sharing of local knowledge and saving of
cost factors such as labour and purchasing [3]. As of 2010, the
breakdown of Samsung Electronics production plants can be seen in Figure 2.2a.        In
1996, Samsung began implementing regional headquarters. Each region would be
able to make independent strategic decisions. The aim was to improve efficiency
of production and sales units for each area. However, this change was
surprisingly unsuccessful, and regional headquarters was discontinued. The
reason for failure that some of the offshore operations were not profitable,
due to increased wage and production costs away from Korea [5].On
the back of this set-back, Samsung created a new Global Product Manager (GPM)
organisation, comprised of seventeen divisions. Each division was responsible
for global production and sales organisation. The head of the GPM in Korea
would decide on crucial issues such as; strategy, pricing and scheduling. The
goal of the GPM was increased productivity and reduce material costs, and it
was a success. This structural change is more centralised than the regional
headquarters system, but it worked globally due to the nature of the Samsung’s
products (continued Section 3) [6]. Despite
the initial success, the GPM system struggled under increasing refinement.
Samsung noticed that the GPM managers were mostly former engineers, and valued
production efficiency too highly, whilst neglecting the running of the
business. As a result, Samsung altered its GPM system to a Global Business Manager
(GBM) system in 2001. The difference was a wider perspective to focus on the
business as a whole [5]. Section
2.3 will summarise the reasons for Samsung’s globalisation success.2.3.
Summary of Factors Samsung
managed to achieve rapid and successful globalisation from the mid-90s to the
present day. A summary of the crucial contributing factors mentioned in this
section are shown below: 1.      Samsung Group’s already
large size – it could manufacture and develop products simultaneously2.      Increased product quality
through error reduction (new process technologies) and more innovation (greater
R&D investment & number of patents)3.      Implementing new offshore
manufacturing and sales, leading to improved process efficiency, cost
reductions, synergies and access to new strategic relationships4.      Organisational structural
changes; GPM after regional HQs failed, followed by GBM Section
3 will study some academic theory and best practices on globalisation, how this
compares with Samsung’s crucial factors for success. It will mainly consider
point factor 3 and 4 from the list above. 3.
Globalisation Theory According to Daly [7], globalisation is global economic integration of national economies into
one global economy. It is often achieved through free trade and free capital
mobility. For Samsung Electronics globalisation was about becoming a
class-leading brand across the world. It needed to overtake competitors by
producing high quantity, high quality products whilst controlling costs.    Samsung
Electronics was an ideal division for a globalisation project due to the nature
of the products. Figure 3a categorises industries by its international trade
and international investment. Samsung Electronics are renowned for semiconductors
and consumer electronics, categorised as global industry products, with high
international trade and investment. Samsung Electronics’ globalisation success
was certainly aided nature of its products.  Samsung’s
construction of six new facilities between 1993 and 2006, four of which were
outside of Asia, represented a move to offshore manufacturing and sales to more
locations around the world.

Sales

 

   

   

 Samsung’s
offshoring would have required a change in logistical strategy. The diagrams
above describe an evolution in logistical strategy as a firm becomes increasing
globalised [8]. In 1993 and previously,
Samsung were most similar to a Stage 1 company, relying on local manufacturing.
In 2006, Samsung were most like a Stage 4, with manufacturing taking place
overseas. The benefits Samsung saw were labour and production cost reduction, increased
synergies and improved relationship opportunities. Traditional advantages of
offshoring consist of lower unit costs (from increase production efficiency),
increased access to specialised suppliers and services, and economies of scale.
Therefore, Samsung received the expected benefits of offshoring with this move [9].Disadvantages
associated with offshoring include hidden costs, risk over uncertain product
quality/customer service, and reduced protection of intellectual property [9]. Samsung saw the
effects of increased hidden costs when implementing its regional headquarters
system. It was not profitable due to increased wage and production costs away
from Korea. Had Samsung considered the possibility of such costs beforehand it
could have either; planned accordingly, making the move a success (if possible).
Or saw that the move would failed and not proceeded. The
following move to a GPM, then evolution to GBM was ultimately a success. This
was a more centralised approach, but Lee [6] believes it worked due
to the global nature of Samsung Electronics’ industry (Figure 3a).A
key aim for Samsung in its globalisation move was to produce high quality
products. It did not suffer from reduced component quality, it in fact
increased. This was due to new processes and technologies put in place, as well
as its high R&D investment.4. Conclusions & Recommendations Samsung
Electronics are an excellent example of a company who transformed from a large
national firm in the mid-90s, to a global leader fifteen years later. It
achieved this due to several important factors (see Section 2.3). Academia
shows Samsung managed to capitalise on the potential advantages of increased
globalisation such lower unit costs, economies of scale, and increased access
to suppliers and services. It simultaneously avoided some of the possible
negatives, such as risk of reduced quality, by implementing effective processes
and technologies that focused on this area. It
encountered a hidden cost issue when implementing its regional headquarters, a
move that ultimately failed. This failure could have been avoided with
appropriate planning and consideration of cost factors. However, it managed to
find alternative approaches (GPM & GBM). These structures managed to work
due to the global industry Samsung Electronics were operating in, and may not
have otherwise. For
the future, Samsung should maintain its high R&D investment to keep
innovation high, in both its products and processes. This is crucial in continuing
as a global market leader. Samsung should be wary of emerging rivals who will be looking
to replicate its successes e.g. Huawei and ZTE from China.