Q&A Tony Michell

Tony Michell is that most rare of Korea experts. His own local colleagues encouraged this learned, objective analyst to write about business here. Tony has worked at the Economic Planning Board, consulted for the World Bank, multinationals and governments, and is Professor of Strategy and Management at the KDI Graduate School of Policy and Management. He gave this exclusive interview to Business and Technology about his book, Samsung Electronics: And the Struggle for Leadership of the Electronics Industry (Wiley and Sons, 2010).

For our younger readers, recall the founder of Samsung’s background and major qualities.

Lee Byung-chull was the son of a wealthy merchant family, and attend¬ed (Japan’s) Waseda University during the 1930s before founding his first business (using) motor trucks to out compete his (rivals)... he was a remark¬able man (whose) business principles drove Samsung forward.

The Chinese say that the first generation wins, the second consolidates and the third one loses ... family firms fail. As for Lee Kun-hee, the son who took over -- size him up.

Lee Kun-hee was not the eldest of chairman Lee’s sons (so) this saying needs to be adapted since ... most of the Korean chaebol founders did not pass their business to their eldest sons

In Korea, it is said that the eldest son is likely to be the least successful. In the 19th century when Britain was ... founding new firms, it was generally felt that the successor was never as good.

Lee Kun-hee clearly learned some important princi¬ples about running a conglomerate as large as Samsung, (e.g.) to raise good lieutenants and future generals and not to micromanage. He has played the true chairman in setting the direction and vision, but not interfering in the work of his managers.

Samsung means three diamonds, and so does the Japanese corporation Mitusbishi’s name. How much did Samsung borrow or copy from Mitsubishi or Japan?

Lee Byung-chull studied in Japan and spent about half a year in Japan during much of his life. He would therefore have absorbed a great deal of Japanese think¬ing (and) kept a close eye on business opportunities that Samsung could learn.

Are the Korean chaebol similar in their values, ends, means, manage¬ment and ties to politics, say like tigers? Or does Samsung stand out among them -- like a tiger among antelope?

Each chaebol reflects the character of the founder and successors and the types of business which they (per-formed). Hyundai grew out of construc¬tion business at home and abroad, and until the present chairman always had a rough and ready character, while Samsung was always a more calm and collected company. LG is different again.

Within twenty years, Sam¬sung was a world class company. What is the nucleus explanation for this rapid ascent?

The book describes how Samsung Electronics rose to dominate drams. For the first 20 years down to the late 1990s, electronics was just one of Samsung’s com¬panies. It became the most important as vice chairman Yun sculpted the company into a global practitioner.

You argue that the 1997 financial crisis in Korea and East Asia severely challenged the company. What was the risk? How did it cope?

All chaebol were at risk, and half of the top 30 failed or survived in an attenuated form. Samsung also had enormous bank loans and three or four companies that were black holes that could not be filled by throwing money at them, only by closing them. Samsung Motors was the largest of these.

It came back stronger, but then faced the global near meltdown of 2008. What were the stakes and game plan then?

The crisis of 2008(was) a difficult time for Samsung given a slowdown in sales in 2007. However... Samsung’s prices fell less than (its) competitors (and) core sales of components continued to play their part in the overall company’s welfare. But the real success was in telecom¬munication, both for handsets and systems which by the end of 2009 was joined by a rise in the demand for Drams and NAND flash.

The restructuring of Sam¬sung meant that Samsung Electronics was not called on to help sister companies as in 1997-9 (and because) there was no financial meltdown in Korea unlike in the U.S. and Europe meant that the overall Korean economy was not too depressed. Samsung and other exporters gained by the depreciation of the won, which increased the profit¬ability of their exports, offset¬ting reduced export volumes to a degree.

You identify a Korean versus global voice in Samsung. Who is behind them?

Korean companies have very complex social networks. The Korean voice represented the conservatives (or) the old¬er managers. The global voic¬es were the leaders of Samsung like Yun and those who ran Samsung America.

Is this divided vision unique to Samsung or especially acute there?

No, it is part of the transition all Korean companies (face). Samsung reached it earlier because the overseas market was a more important part of the business, and selling in the U.S. was considered more important.

You note that Samsung has a massive R&D division of 30,000 people. Is this the world’s largest? Is it worth it to concentrate so many resources in one section?

Many Korean companies (have) large R&D depart¬ments. For an electronics company, this is not unrea¬sonable, but rather a strength (if) cash cow businesses ... supports the structure.

Why did you opt for the case study method over interviews with Samsung leaders and workers?

Samsung discourages “unauthorized” books about itself. As Isay in the introduction, to have interviewed people would have put them at risk. By using com¬ments already in print or using articles which substanti¬ated what Ifound out from other people, this made the book more secure in its foundations. Ithink the book will stand the test of time.

You do not quote the executives and em¬ployees much. Did you lack access?

I deliberately did not use off-the-record comments, instead using public statements precisely for the reason stated (above).

As for chaebol reform, many argue that these giants are too big, important and political¬ly connected to face seri¬ous reform.Your take?

Chaebol reform is 80 per¬cent over. Chaebol are not what they were, they are pro¬fessional and well managed. The one difficulty is in mak¬ing them fit a true holding company structure like GEor United Technologies, where the practice and control of the government in the past has made this difficult. For Samsung, the successful listing of Samsung Life, which the government prevented for many years is a further step in Samsung’s reform.

Who should copy Samsung’s experience? What aspects?

Obviously the Chinese new generation of businesses. Japanese businesses also have shown great interest in Korean companies as a contrast to their own perceived stagnation.

How is your analysis received in the company?

I have no comment.

Why did you gravitate to this issue among all those that a talented analyst could examine?

I was asked to write the book by several Koreans who thought that a Westerner who knew Korea well would be able to write objectively about Samsung.

Where can our readers get more specific, ongoing information on the chaebol?

I find the corporate websites and annual reports fas¬cinating. Likewise the Korean press writes a great deal on a daily basis.

Now to really test Tony Michell. Any predictions -- on the record -- as to Samsung over the next two, five or ten years?

Samsung has set its 2020 goal at $400 billion ... This is going to be attainable if it does not get distracted by new ventures and sticks to the knitting. (This means) the existing business since the convergence trend iden¬tified by chairman Yun and his cohorts in electronics continues and if Samsung can ride that wave through 3D TV and smart phones and adds a few more related business areas plus its core components, it can do it.

An alternative would be acquisition, though this would need to be in a related area and not the mistake Sony made by going into media.