If you kept up with my blog from Korea in 2004, you knew all this already.
----- http://www.nytimes.com/2006/04/25/technology/25samsung.html?_r=1&oref=slogin April 25, 2006 Raising the Bar at Samsung By MARTIN FACKLER SUWON, South Korea Thirty-seven years ago, 36 employees began assembling electric fans in a small workshop in this city, just south of Seoul. That company was Samsung Electronics, and it is now the world's largest and most profitable consumer electronics company. Its 123,000 employees make a range of products as diverse as cellphones and flat-panel televisions, washing machines and vacuum cleaners. Last year, it unseated Sony as the world's most valuable consumer electronics brand, according to a survey by the Interbrand Consulting Group. So why is Kim Byung Cheol, a senior executive at Samsung, so anxious about his company's future? Because, Mr. Kim and others fret, Samsung still has not mastered one crucial factor: originality. With deep pockets, Samsung has won over consumers with clever designs and multifunction gadgets, like camcorders that download songs and refrigerators that also surf the Internet. It has swept up awards for cellphone designs that look like dashboards, tuxedos or pebbles in a stream. Last year, the company had $59.2 billion in sales and reported profits of $7.9 billion, 13 times as much as the 2005 earnings forecast by its rival Sony. But Samsung executives worry that the company, while excellent at refining other people's inventions, is relying on an outdated strategy that worked fine only as long as the company was climbing to the top. Now that it is the leader, they say, Samsung has to set itself apart by creating novel products of its own, especially if it wants to stay ahead of fast-rising rivals from China and Korea and fight off the comeback efforts of its Japanese competitors. This means coming up not just with minor hits, but with breakthrough inventions like the Apple iPod or the Sony Walkman. Otherwise, Samsung risks the same fate as many of the once-formidable Japanese electronics giants it overtook on its way to the top. "We are at a pivotal moment for the company," said Mr. Kim, a vice president in charge of long-term research and development. "If we don't become an innovator, we could end up like one of those Japanese companies, mired in difficulties." Mr. Kim is helping lead Samsung's push to reach this goal, which the company is pursuing with the same ferocity and determination that it has used to conquer global markets. The company plans to invest $40 billion in research and development during the next five years, double what it spent in the preceding five years. It has more than doubled its number of researchers, to 32,000, from 13,900 six years ago. Nowhere is Samsung's effort to reinvent itself more apparent than here in Suwon, where the company has built what it calls the largest research and development center in Asia. In recent years, it has erected towering glass offices and sprawling laboratories with space for 15,000 engineers. The center stands on the site of the company's original 1969 electric fan factory. Suwon's newest facility is the Digital Research Center, completed in September, with the floor space of 30 football fields and audiovisual labs big enough for 9,000 researchers, though it has so far hired only 5,200. Of those, 150 are from foreign countries, including China, India and the United States. Mr. Kim said the new labs reflected Samsung's shift from simply developing products toward basic research to find the next big idea. "If you look at Samsung's R.& D. 10 years ago, we had a lot more D. than R.," Mr. Kim said from his office here. "Today, R. is getting much more attention." If any company can transform itself, analysts say, Samsung can. With a market value exceeding $96 billion, Samsung has done well, they say, because it is the rare corporate giant that remains nimble on its feet. It excels at identifying new technologies and business opportunities early, and then seizing control of the market with overwhelming production volume. It did this perhaps most successfully with a new form of rear-projection TV, which replaced the first generation of bulky, dimly lighted sets that were the original big-screen televisions. The company saw its chance to break into the American market when Texas Instruments approached it at a 2001 trade show in Tokyo, Samsung executives said. Texas Instruments gave Samsung information about a computer chip it had developed that used millions of microscopic mirrors embedded in a rotating disk to project bright full-color images onto screens. The American company had already shopped the chip to the Japanese makers Hitachi, Matsushita and Mitsubishi Electric, who were each developing a single TV model, the executives said. Samsung jumped on the new technology, producing its first prototype within 12 months, in January 2002. Over the next months, Samsung introduced three models using the technology, called digital light processing, with prices for TV's ranging from $3,500 to $5,000, less than half the Japanese makers' prices at the time. By December 2003, Samsung had produced a million of the TV's, becoming the market leader. "This new technology was the chance we needed," said David Steel, a vice president in Samsung's digital media division in Suwon. "Then we ruthlessly executed by moving faster than the competition, not only to catch up but to pass." Mr. Steel says one secret to Samsung's speed is that it makes almost every major electronics component itself, from computer chips to plasma screens. Often, building new products means simply assembling these components in new combinations. He said this also permitted Samsung to go in new directions, building multifunctionality into household electronics and other consumer goods. Samsung offers a camcorder that can also serve as an iPod-like music player, voice recorder, portable TV set and computer flash drive. One refrigerator model has a built-in tablet computer that not only controls temperature but also permits users to surf the Internet, watch television and send e-mail messages. One cellphone model works like a full-fledged digital camera and also plays music. "We think big trends like convergence, and the move to wireless and networking, will play to our strengths," Mr. Steel said. Mr. Steel, a British citizen with a doctorate in physics, exemplifies a recent push by Samsung to attract foreign talent. Hired in 1999, he was the first non-Korean to reach top management. Samsung's rivals see it as a formidable competitor but not yet a trailblazer. But that could change soon, they say. "Our TVs are better," Nobuyuki Oneda, Sony's chief financial officer, said in an interview earlier this year. "But Samsung's cash flow is amazing. It is hard to invest in and develop products" at the same pace as Samsung. Another new Samsung strength, analysts say, is design. The company has design centers in Los Angeles, San Francisco, Tokyo, Shanghai and Milan. Recent designs for flat-panel TV's are based on trends from furniture shows in Italy. At headquarters in Seoul, designers are told to find inspiration outside the office, and are given Wednesday afternoons off to do so, said Christian Collins, a senior manager in Samsung's cellphone division. One popular cellphone was modeled after the dashboard of a German sports car, said Mr. Collins, an American hired away from Verizon Wireless to work for Samsung. Executives also note that Samsung has reinvented itself before. When the company was founded as part of the Samsung industrial group, it was so little known that the only market where it could sell its first black-and-white TV sets was Panama. By the early 1990's, Samsung had become a successful producer of cheap commodity electronics, many of them sold under different brand names. Then Lee Kun Hee, Samsung group chairman, started a sweeping makeover, pushing the company to focus on quality instead of quantity. "Change everything but your family," Mr. Lee told his work force. Samsung pushed its way up the technological ladder, elbowing aside previous incumbents, most of them Japanese. In 1992, it became the world's largest producer of memory chips. In 1995, it made its first liquid-crystal display screen, a technology it eventually mastered to the point that the former front-runner, Sony, joined it in a joint venture to build L.C.D. screens. Samsung has also tried hard to improve its international image. It has spent more than $6 billion since 1998 on marketing, helping sponsor the last five Olympics and erecting a large video sign in Times Square in 2002. But for all its accomplishments, Samsung has failed to win the sort of brand recognition enjoyed by companies like Apple and Sony. Stepping up to the next level of corporate advancement, analysts say, requires inventing a product that reshapes an entire industry and serves as an icon for a generation. Apple did it with the iPod, as Sony did a generation earlier with the Walkman, a 1979 product that still gives the company a technological cachet of cool that Samsung lacks. "Samsung is a great company, but its products are still basically identical to everyone else's," said J. J. Park, an electronics analyst in the Seoul office of J. P. Morgan Securities. "Samsung is still waiting for its Walkman." While acknowledging that it has not had such a hit product yet, Samsung says its push to turn itself into a research powerhouse is already showing results. Last year, Samsung registered 1,641 patents in the United States, ranking fifth among companies, behind Matsushita of Japan but ahead of Intel. Executives say it is only a matter of time before Samsung comes up with a hit that will catapult it into the pantheon of global innovators. "Those sort of innovative products come once in a generation," said Mr. Collins, of Samsung's cellphone division. "We've had lots of semi-iconic products, and we will have an iconic product soon enough." --~--~---------~--~----~------------~-------~--~----~ TELECOM-CITIES Current searchable archives (Feb. 1, 2006 to present) at http://www.mail-archive.com/[email protected]/ Old searchble archives at http://www.mail-archive.com/[email protected]/ -~----------~----~----~----~------~----~------~--~---
