The Verge is negative on Samsung and Lee Kun-hee’s business practices

by WangKon936 on December 3, 2012

Now Sam Byford over at The Verge writes an interesting English language article on the controversial rise of Samsung and their history of legal issues.

Sam acknowledges that Samsung grew rapidly and made smart business decisions:

During the late 80s and early 90s it seemed all but inevitable that Japan would become the dominant manufacturing power in the world. Of course, today the country struggles against South Korean rivals, battered by a hostile exchange rate and sky-high labor costs, but it was Lee’s foresight around two decades ago that allowed Samsung to get the jump on the likes of Sony. He saw Japanese firms dragging their feet on digital technology, creating an opportunity for Korean companies to muscle in on their turf with better, more efficient business practices.

However, he holds no punches on the negatives of the chaebol family system and its relation with government:

While Lee Kun-hee once implored his workers to “change everything but your wife and kids,” that change may not go far enough for Samsung. The traditional chaebol model has helped the company become one of the most successful in the world, but its conservative values are unlikely to help it become a major force for innovation. Lee Kun-hee’s controversial time in charge has undeniably brought the company success — for Samsung to become a truly loved brand, however, it must start looking to a new generation of leadership that prioritizes design and originality over ruthless competition.

Although the article is linked here, it does not necessarily mean that its opinions are shared or endorsed by this blog. Any ways, a very lively comments section- very Marmotesque.

{ 21 comments… read them below or add one }

1 ZenKimchi December 3, 2012 at 3:43 pm: “Any ways, a very lively comments section- very Marmotesque.”

Yeah, if you scroll really quickly, it looks like a running horse.
2 JW December 3, 2012 at 3:53 pm: it must start looking to a new generation of leadership that prioritizes design and originality over ruthless competition.

Christ not this nonsense again. Samsung is a business entity, which means that it’s reason for being is MAKING PROFIT. Things like design and originality are all means to this end. And if there are great costs to trying to come up with new design, then they should NOT attempt to go that route. Microsoft Surface tablet provides a good concrete example of why going that route would be a stupid thing to do.
3 Wedge December 3, 2012 at 5:15 pm: He does say, “for Samsung to become a truly loved brand…” So, if that is indeed their objective, they need to reshuffle their leadership. Of course, that isn’t their priority.
4 Anonymous_Joe December 3, 2012 at 5:55 pm: #2 JW: Christ not this nonsense again. Samsung is a business entity, which means that it’s reason for being is MAKING PROFIT. Things like design and originality are all means to this end.

This is a small difference (and I don’t mean it as a nitpick but more as an opportunity to understand the best way to view the purpose of businesses), as a business entity, the purpose of the BOD is to maximize shareholder value.

…Still, I understood your intended point. One crucial difference is short term vs. long term.
5 Brendon Carr December 3, 2012 at 6:27 pm: I wonder who thinks Samsung is not a “truly loved brand”. Everywhere I go on God’s green earth, I find people praising Samsung products. It usually comes up in the context of me telling them that I live in Korea — when I see the blank faces, I say “Samsung” and “Hyundai”, and then the gushing starts. Invariably, these days, alas, the next thing I hear is Oppa Gangnam Style.
6 H.Schmidt December 3, 2012 at 6:29 pm: Verge looks like a very anti-Samsung and pro-Apple site.
7 H.Schmidt December 3, 2012 at 7:38 pm: As a westerner I’m embarrassed by the name “Apple”. Come on, a company named after a fruit? Not classy.
8 Anonymous_Joe December 3, 2012 at 7:56 pm: Apple Computers was not named for the fruit.
9 Anonymous_Joe December 3, 2012 at 8:09 pm: I just looked it up to verify. According to Wikipaedia,

According to Steve Jobs, Apple was so named because Jobs was coming back from an apple farm, and he was on a fruitarian diet. He thought the name was “fun, spirited and not intimidating”

Still, the story that circulated for many years was that Steve Jobs was a big Beatles’ fan, and he named the company after their creative umbrella company. The Beatles’ Apple company granted Apple Computers, Inc. permission to use the name so long as Apple Computers, Inc. didn’t get into the music or music distribution business. I remember a falling out between the two companies once Apple, Inc. got into iTunes. The row was recently (past few years) resolved.

I have heard that Apple Computers was named in homage to the Beatles’ Apple company for so long that I still think so and that Jobs said the above to avoid copyright infringement.
10 Anonymous_Joe December 3, 2012 at 8:15 pm: Regardless, H.Schmidt, think how ridiculous the name Three Stars would have sounded.

…and that’s not yet another gratuitous shot at Ringo.
11 hamel December 3, 2012 at 9:34 pm: Anonymous Joe:

…and that’s not yet another gratuitous shot at Ringo.

I am not sure if you say that knowing that Ringo/lingo in Japanese means “apple”. And Mr. Starkey made some commercials in Japan for apple juice…

Seriously.
12 slim December 3, 2012 at 9:40 pm: As an actual Westerner, I think douchenozzles like H.Schmidt, who pose as Westerners to try and provide supposed cover for their nationalistic crap, should be swiftly banned as trolls, suffering the same fate as that guy who posed as a Korean for years and was found in a photo self-fellatiating. Cultivating the ability to suck your own dick WOULD be a more productive use of your time than coming here, Schmidtie. I hear yoga is a helpful first step.
13 PeterDownUnder December 3, 2012 at 10:08 pm: The comments have deteriorated into Apple vs Androd fanboy warfare…
14 hamel December 3, 2012 at 10:28 pm: H. Schmidt: yes, but what about the mail order bride industry? Do you think Samsung should get into that too?
15 Robin Hedge December 3, 2012 at 11:04 pm: I always thought Apple was a great name — so clean and so fresh. I hate it when American companies use macho names, like Motarola’s Razr phones, or for computers the HP Envy or Spectre Ultrabook. Puh-lease… Like a topless bodybuilder at a club… just gross. Or like a razorblade called the Stealth III. I’m not usually trying to kill terrorists and shave at the same time…
Meanwhile I agree that Samsung is now a world class brand.
16 Bendrix December 4, 2012 at 12:23 am: I read the Verge regularly and they are huge Apple fanboys. Every review of a new Apple product gets a 9 out of 10 or so, and is gushing with praise the entire time. It’s embarrassing even as a reader. I’ve read comments on Apple rumor sites about how people think the Verge are fanboys.
17 WangKon936 December 4, 2012 at 4:28 am: On the positive side, it appears Samsung is making a effort to reform excessive drinking practices in Korean business outings:

http://blogs.wsj.com/korearealtime/2012/11/29/as-south-korea-tackles-drinking-culture-samsung-sets-guidelines/
18 R. Elgin December 4, 2012 at 11:20 am: Considering the idea promoted by the Verge that Samsung basically steals money or throws money at people, in the form of bribes, it is interesting to compare their approach to marketing as well:

http://www.asymco.com/2012/11/29/the-cost-of-selling-galaxies/

So one of the more remarkable aspects of Samsung’s success has been their willingness to increase promotional spending. Considering that their other divisions don’t require as much “marketing expense” (semiconductors, LCD certainly, and TVs and Appliances to a lesser degree due to a smaller sales growth) we can imagine that the vast majority of this promotional spending has been in support of their mobile brands, Galaxy in particular. . . (Check out the graphs) It might be surprising to note that Samsung spends considerably more than Apple and Microsoft, but it also spends more than Coca Cola, a company whose primary cost of sales is advertising.
However, advertising is not the only form of promotional spending. Samsung also pays commissions and “sales promotion“. The following chart shows the value of these sales promotions relative to the ad spending budgets above.

The short version: Samsung throws money at marketing (more than CocaCola) to promote sales. Per one commenter:

“Apple’s marketing tells the story of their design work.
The original poster is quite correct that the typical criticism of Apple from Microsoft and Samsung fans is horribly ironic once you look at what Samsung spends to make 1 sale.”

meaning Samsung throws money at its problems – legal and technological – to solve them. This is not the action of an innovative company but a business POV that comes from uninspired mindset.
19 R. Elgin December 4, 2012 at 11:26 am: P.S. IMHO, if the Peoples Republic of China had acquired Samsung, they would probably run it in the same manner as it is run right now.

Ouch.
20 WangKon936 December 5, 2012 at 4:03 am: R. Elgin,

I agree with you that Samsung is spending A LOT of money on marketing and sales promotion. However, I am going to argue that it makes sense for them.

Here is some background data that might be helpful. Apple makes about 45% profit margins from their phones and Samsung makes about 25%. Apple and Samsung has decided they are happy with those margins. Samsung, because they are crazy vertically integrated, can probably make similar profit margins that Apple can, but they have elected that they are perfectly happy with 25% profit margins because of their contributions to sales and marketing. 25% profit margins are not bad. HTC, Nokia, Motorola, LG, and et al. are making A LOT less. So, even at 25%, this means that Samsung is still making A LOT of money and beating 80% of their competitors.

In addition to making money, Samsung has elected to gobble up market share. This is almost as important to Samsung as making money. This follows more of a “Go” (Korean baduk and Chinese wéiqí) strategy of controlling real estate. So, from their cultural context, owning real estate has long-term strategic benefits that are better than simply making money. However, Samsung is still doing both. At some point Apple may need to sacrifice margin to keep market share.

Who knows who will win out in the end? I don’t know. But Apple does need to retain at least some market share in order to stay relevant and Samsung cannot maintain market share if they can’t stay and/or improve innovation.
21 R. Elgin December 5, 2012 at 10:46 am: Exactly Wangkon, Samsung can only take this strategy (POV) so far. They should have moved on already.
A person or company should make change lest change is forced upon you.