Paradox Samsugn Rise

PARADOX SAMSUGN RISE
As today’s emerging giants face
the challenge of moving beyond
their home markets, they have
much to learn from the pathbreaking experience of South Korea’s Samsung Group,
arguably the most successful globalizer of
the previous generation.
Twenty years ago, few people would
have predicted that Samsung could transform itself from a low-cost original equipmentmanufacturer to a world leader in
R&D, marketing, and design, with a brand
more valuable than Pepsi, Nike, or American Express. Fewer still would have predicted the success of the path it has taken.
For two decades now, Samsung has been
grafting Western business practices onto its
essentially Japanese system, combining its
traditional low-cost manufacturing prowess with an ability tobring high- quality,
high-margin branded products swiftly to
market.
The two sets of business practices could
not have seemed more incompatible. Into
an organization focused on continuous process improvement, Samsung introduced a
focus on innovation. Into a homogeneous
workforce, Samsung introduced outsiders who could not speak the language and
were unfamiliar with the company’sculture. Into a Confucian tradition of reverence for elders, Samsung introduced merit
pay and promotion, putting some young
people in positions of authority over their
elders. It has been a path marked by both
disorienting disequilibrium and intense
exhilaration.
Like Samsung, today’s emerging giants—Haier in China, Infosys in India, and
Koç in Turkey, for instance—face a paradox: Theircontinued success requires turning away from what made them successful.
The tightly integrated business systems
that have worked in their home markets
are unlikely to secure their future in global
markets. To move to the next level, they,
too, must reinvent themselves in ways that
may seem contradictory. And when they
reach new plateaus, they will need to do so
again.
For sevenyears, we have traced Samsung’s progress as it has steadily navigated
this paradox to transcend its initial success
in its home markets and move onto the
world stage. It is a story we believe holds
many important lessons for the current
generation of emerging giants seeking to
do the same.
The Rise of a World Leader
Founded in 1938, the Samsung Group is
the largest corporate entityin South Korea, with $227.3 billion in revenue in 2010
and 315,000 employees worldwide. Best
known for its l agship, Samsung Electronics (SEC)—producer of semiconductors,
cell phones, TVs, and LCD panels—the
group’s highly diversii ed businesses span
a wide range of industries, including financial services, information technology
services, machinery, shipbuilding, and
chemicals.
By1987, when Lee Kun-Hee succeeded
his father as only the second chairman in
the company’s history, Samsung was the
leader in Korea in most of its markets. But
its overseas position as a low-cost producer
was becoming untenable in the face of
intensifying competition from Japanese
electronics makers, which were setting up
manufacturing plants in Southeast Asia,
and rising domesticwages in South Korea’s
newly liberalizing economy.
In the early 1990s, Lee spotted an opportunity in the reluctance of Japanese
companies—the analog market leaders—to
adopt digital technology, which consumers
were l ocking to in cameras, audio equipment, and other electronic products. This
opened the door for Samsung to surpass its
rivals if it developed the agility, innovativeness,and creativity to succeed in the new
digital market.
For those qualities Lee looked to the
West. In 1993, he launched the New Management initiative to import Western best
practices related to strategy formulation,
talent management, and compensation
into Samsung’s existing business model.
The aim was to markedly improve marketing, R&D, and design while retaining core
strengths in...