Samsung: ruler of its own galaxy
Ahead of its results next week, Matt Warman charts Samsung's rise to global domination
ON THE stage at the Odeon Leicester Square, Prince Charles is handing out awards from his charity, The Prince’s Trust, to dozens of young people who turned their lives around in the most challenging circumstances.
Behind him, interspersed with the fleur de lis of the royal charity logo is not a great British brand but the blue ellipse of South Korea’s Samsung.
For a technology giant built on selling millions of televisions, washing machines, mobile phones and more, the regal setting is a long way from its roots selling noodles in a provincial peninsula town.
Samsung — the name means three stars — was founded in 1938, but it wasn’t until 1993 that the company started on the road to turn itself into the global conglomerate it has now become.
While Sony now makes most of its money from selling insurance and Panasonic makes a hefty annual loss and wants to reinvent itself as a green giant, Samsung is building its success on making the gadgets that are reshaping the world.
It’s not bad for a family business that is just three generations old. It has grown to such a size that it forms a key part of the whole growth strategy for South Korea.
The company continues to power ahead. It estimates that profits announced this Friday will be over £5 billion. More data is downloaded via Samsung mobile phones and tablets than those made by Apple, and it is the only major mobile phone manufacturer using Google’s operating system to make a profit.
But whatever the figures, the business faces two major hurdles: the challenge it set itself to dominate every major field in which it operates, and that the markets it has entered are approaching saturation point.
Although much of the talk may be about Apple’s falling share price, Samsung’s too has dropped by almost a quarter this year. Two thirds of Americans own a smartphone, most of them Apple. As the mobile market becomes more focused on upgrades, and even televisions start to rely on software rather than hardware, Samsung’s challenge is to grow where it can and also – more difficultly – to maintain its position as No 1 everywhere.
The company started out as a small but prosperous grocers, trading a mixed bag of goods including those noodles. It was only after the Korean War that it diversified, and it was not until 1960 that it entered the electronics market that was to make it a global player.
Like Sony, Panasonic and its other rivals, it was the advent of television and consumer electronics that sparked its expansion, And like its Japanese rivals it built its fortunes on a huge and diverse range of interests.
From construction to department stores and from paper to semi-conductors, Samsung was once the model of a vast conglomerate, whose focus was difficult to define but whose brand in its native South Korea was ubiquitous.
To a great extent, that is still the case. The most direct descendant of the original Samsung is not the TV and tablets behemoth, but the construction arm. Today, Samsung is still defined by “Korean-ness” in a way that Sony is not defined by coming from Japan. But while it may have built the Petronas Towers in Malaysia, Taipei 101 and the Burj Khalifa in the UAE – the three tallest towers in the world – the company is focusing its expansion plans more tightly than ever on a digital future.
That transformation was prompted by what is known in company lore as the Frankfurt Declaration. This was not so much a declaration as an exhaustive analysis, a three-day speech made in Frankfurt in 1993 by chairman Lee Kun Hee. Prompted by a world tour Lee made of Samsung’s businesses, both in shops and factories, it set out to define the company that Samsung could become, and it stated explicitly the ambition to dominate every market from televisions to telephones.
This has been achieved. None of the group’s ambitions can be said to be significantly off track. Lee is still in charge.
Frankfurt, however, has taken on greater significance. It defines what Samsung’s employees think the company means, and what they think it means to work for the company.
Every new Samsung employee is taken to visit a model of the conference room, which includes the original paintings and décor bought from the original suite in the Falkenstein Grand Kempinski Hotel.
On that pilgrimage, Samsung employees walk past signs saying, among other things, “We will devote our human resources and technology to create superior products and services, thereby contributing to a better global society”.
A snappier one sums up Samsung’s attitude rather better: “Go! Go! Go!” That certainly reflects the corporation’s approach. While some companies make three models, Samsung has tried big phones, tiny phones, cheap phones and expensive phones. Some of them stick; others are quickly dumped.
Lee may not have the reputation of Steve Jobs, but within Samsung he is treated, arguably, with even more reverence than the Apple founder.
The company does not offer Lee to the media, preferring to use the new co-chief executive, JK Shin, to make announcements on new products which are in the main compered by a star of TV or Broadway.
There have been some mis-steps. Launching the Galaxy S4 mobile phone in New York earlier this year, the company was criticised for a show that was an extraordinary pastiche of theatre and musical, with jokes that sailed over the heads of its geek-heavy media audience and led to accusations of sexism. It was an attempt to inject “personality” into a brand defined by its products.
Indeed, Samsung is acutely aware of its failings. It is renowned for analysing every word of feedback from the media and paying close attention to its fans and critics on social media. It made the transition from a manufacturer of cheap televisions to a global player in less than a decade. Many of its staff have been there long enough to remember what the place used to feel like. Lee certainly has, and his son, Lee Jae Yong, is vice-chairman and widely tipped to take over.
For a company that made $179bn in revenues last year and employs some 400,000 people, that sense of history is a powerful force. Sources in the company admit that it is a hard taskmaster. Working hours are as long as any company on the peninsula; silos are as rigid as any too.
If you work on washing machines, you must own a Samsung phone, but it is likely you’ll know no more about it than any customer.
As Samsung’s products increasingly need to talk to each other, not least so that Samsung can build brand loyalty, those structures will become more challenging. The Korean cliché of workers never being allowed to leave before their boss and consequently sneaking off for an afternoon nap in their cars may have to change too, or the business might be stretched to breaking point.
When Lee made his three-day speech, he said he wanted Samsung to be a global player by the year 2000. He told managers to “change everything but your wife and children”.
The principles of what Samsung came to call “New Management” are neither revolutionary nor novel. Lee also adorned the business with a commitment to quality that culminated, in 1995, with a bonfire of 150,000 sub-par mobile phones.
Today the plan, it seems, is to continue the relentless expansion. Critics of the company say it is built not on innovation but on copying other companies, not least Apple, and on enormous marketing budgets and tiny margins.
Mobile phone retailers say the pressure to sell Samsung is huge and that the pressure leads to a momentum that gains a force of its own. Market dominance forces out competitors, even when they’re the size of Nokia, HTC and BlackBerry.
Whether Apple copied Samsung or vice versa, two things are certain: courts around the world have swung both ways, but it is Samsung which benefited from being seen as such a threat to Apple that the iPhone maker felt it needed to sue.
Now, things seem to be edging toward an uneasy truce, and certainly Samsung continues to manufacture millions of Apple’s chips. Even if Apple wanted to sever its links with its great rival, it’s testament to Samsung’s market dominance that it would be difficult.
One Samsung source said this year that the company’s challenge was “how we spend less money on advertising”. As the company focuses on larger mobile devices, tablets, a new kind of PC and making all its televisions “Smart TVs”, it is increasingly commissioning adverts that are not afraid to mock the “fanboys” who are loyal to Apple even regardless of the product.
And it is not afraid, either, to admit journalists into its Korean inner sanctums. Where the company was largely hidden from view, it has recently run trips to show the media how extraordinary its white goods arm is, or how its photography research is more advanced than Sony’s or Nikon.
The aim is straightforward: global domination in every sphere, and quietly continuing to build the buildings and towers in which it sits too. Perhaps most remarkable is not how quickly this has happened or even how thoroughly – it is that Samsung remains a business built on its products, rather than a brand with which consumers claim to have a profound emotional connection.
Matt Warman, Technology.co.uk