Samsung Diversity Strategy Essay Sample

9 September 2017

In 1995. the Korean chaebol Samsung diversified into car fabrication with the constitution of Samsung Motors Inc ( SMI ) . The timing of this venture turned out to be instead unfortunate. as SMI’s foremost auto rolled off the Pusan production line in the center of the Asiatic economic crisis. In serious fiscal hurt. Samsung had to abandon SMI. selling it to Renault in 2000. This survey explores the procedure of SMI’s creative activity. and follows the alterations in Samsung’s strategic direction during and after the crisis. Two inquiries are raised in the research:

( 1 ) How did Samsung come to put in cars? and ( 2 ) How did the Korean crisis in general. and the crisis in the car market in peculiar. alteration Samsung’s strategic decision-making procedure? Central to its variegation scheme were the president of Samsung and cardinal members of the planning squad at the Office of the Chairman. We find that non-economic influences prevailed over economic influences in the determination to prosecute the variegation scheme. and that due in portion to the strength of these influences. Samsung underestimated the market hazard and overestimated the part its nucleus competences and synergism could do. Matters were made worse by the important costs incurred in reassigning Samsung’s nucleus competences d its high quality repute and civilization vitamin D to the new concern. By the clip Korea eventually emerged from the crisis. the finance squad at the Office of the Chairman had taken charge of strategic direction. increasing fiscal control and stressing internal efficiency. O 2007 Elsevier Ltd. All rights reserved.

Research on corporate diversi?cation has proliferated over the past several decennaries. supplying both faculty members and practicians with profound penetrations on the affair. Seldom. nevertheless. has the dynamic procedure of formulating and implementing diversi?cation schemes in organisations really been examined. The ‘black box’ of diversi?cation may include such procedures as how the 0024-6301/ $ – see front affair O 2007 Elsevier Ltd. All rights reserved. doi:10. 1016/j. lrp. 2007. 06. 011

direction acquires the motive to prosecute diversi?cation ; how it is supported. resisted. and approved ; and how resources for its execution are allocated in organisations. Research on chaebols ( extremely diversi?ed Korean pudding stones ) besides suffers from the same job. go forthing many inquiries unreciprocated. such as why and how the chaebols became diversi?ed. The chaebols’ rapid enlargement. nevertheless. became unsustainable when the Asian ?nancial crisis spilled over into Korea in December 1997. coercing half of the top 30 chaebols into bankruptcy or debt exercises. and obliging the balance to prosecute sweeping alterations. 1 These alterations involved signi?cant displacements in the corporate schemes and managerial doctrines that had been employed with great success for decennaries. They required a displacement in accent off from external growing and towards operational ef?ciencies. There are now some concerns in Korea that the chaebols. one time the nation’s major driver of economic development. have lost their growing impulse.

Of all the pre-crisis variegation attempts. one stands out: Samsung’s move into car industry. Of all the chaebol diversi?cation attempts that occurred before the crisis. one instance stands out: Samsung’s move into car industry. In fact. no corporate diversi?cation in the history of the chaebols in Korea received more public attending than that of Samsung Motors Inc. ( SMI ) . Although SMI’s diversi?cation followed the typical chaebol plan for growing. it had to be sold to Renault due to its serious ?nancial state of affairs caused. in portion. by the crisis. Since so. there have been signi?cant alterations in the strategic direction procedure at Samsung. These. and the motive behind the diversi?cation. are analyzed in this article. which focuses on the undermentioned peculiar research inquiries: 1 ) How did Samsung come to put in cars? 2 ) How did the Asiatic crisis in general. and the crisis in cars in peculiar. alteration Samsung’s strategic decision-making procedures?

It is hoped that ?nding the reply to the ?rst inquiry will pave the manner for a deeper apprehension of the chaebols’ diversi?cation procedure and why they are so extremely diversi?ed. and that the reply to the 2nd inquiry will take to an apprehension of the impact of the Asiatic crisis on the chaebols’ current strategic direction system and procedures. In add-on. while some organisation larning surveies have suggested that big ?rms seldom learn from crises and failure2 we examine whether this averment holds true for Samsung. As Korea’s most in?uential chaebol. Samsung’s major corporate schemes and direction patterns used to be widely benchmarked by other chaebols. This instance survey is therefore believed to uncover some of the typical features of the chaebols’ strategic direction system and procedure. although the usual restrictions of a individual instance survey still use.

This survey entailed doing observations. carry oning interviews. and reexamining internal and external paperss to determine what happened at Samsung with regard to SMI. and why it happened. The survey is besides a piece of action research. since one of the research workers was for 10 old ages a director in the planning squad of the Of?ce of the Chairman at Samsung. in charge of explicating and implementing strategic programs for the launch and divestment of SMI. while the other was a main research worker at the Samsung Economic Research Institute d the Samsung group’s think-tank. The research was ab initio done inductively through the aggregation of informations from internal and external paperss. which were used to build a chronology.

The intent of the preliminary research. which was bolstered by personal experiential histories and informal interviews. was to retrace what really happened to Samsung and SMI during the period. When the large image had been ascertained the research issues were determined. and the relevant literature reviewed. An analytical model that would steer the research was so constructed. To garner more elaborate information for a re?ned research. extra in-depth interviews with cardinal decision-makers were conducted. Finally. extra informations were collected and analyzed to con?rm and complement the interview ?ndings. 3 This survey is organized as follows. First. the undermentioned subdivision gives an history of the events that transpired in relation to Samsung’s constitution of SMI. and so the theoretical model that was formulated to steer the instance analysis is presented. This model was used as a footing for replying our two research inquiries. Finally deductions for theory and pattern and research restrictions are discussed.

A short history of Samsung Motors. Inc. ( SMI )
In 2006. Samsung was Korea’s taking chaebol. both in footings of entire assets ( $ 233. 8 billion ) and the figure of its af?liates ( 58 ) . 4 Samsung had been founded on March 1. 1938 by the late Chairman Byung-Chull Lee. who passed off in 1987. He was succeeded as president by his boy Kun-Hee Lee. at which point Samsung was the figure two chaebol behind its arch-rival Hyundai. In 1988. to tag the fiftieth day of remembrance of Samsung’s establishing. Kun-Hee Lee announced the ‘second foundation’ of the company. with the purpose of transforming Samsung into a first corporation. In the same twelvemonth. he launched Samsung General Chemical Co. . his ?rst diversi?cation undertaking as the new president. He besides prepared to establish a long been delinquent undertaking vitamin E Samsung’s entry into the car concern. In 1994. missing critical know-how about car production. Samsung leveraged a old concern relationship to hammer a engineering licensing understanding with Nissann and Samsung Motors Inc ( SMI ) was established in the undermentioned twelvemonth. Table 1 summarizes the major historical events taking up to this watershed event.

Many argued that Samsung could ne’er set up a sustainable place in such a concentrated industry. By the eightiess. Korea already boasted the world’s ?fth largest automotive industry. fragmented among four rivals. Samsung’s ?rst rider auto rolled off its Pusan production line in March 1998. merely three months after the economic crisis had begun. This crisis. and the attendant political turbulences. adversely affected SMI in assorted ways. non least of which was the steep autumn in the demand for cars. as shown in Figure 1. In 1998 SMI sold merely approximately 45. 000 autos. many of them bought by Samsung Group employees themselves. and SMI’s public presentation deteriorated aggressively. losing about $ 192 million in the ?rst two quarters of the twelvemonth entirely. The economic crisis transformed the competitory landscape of the full Korean car industry. Kia Motors. the 2nd largest car maker in Korea. collapsed in 1997 along with six other major chaebols. Kia was put up for auction in June 1997.

Samsung concluded that the lone feasible option for SMI was to get the ?oundering company. anticipating this move to decide over-capacity and overinvestment in the industry. However Samsung withdrew from the ?nal unit of ammunition of command on October 19. and Hyundai emerged as the victor. This meant that Samsung was ?nally abandoning SMI. whose viability was extremely questionable without the amalgamation. and the group announced it would put SMI in tribunal receivership for settlement. Two-thirds its US $ 3. 7 billion debt was personally assumed by the president. and the balance by the company’s af?liates.

With its debt job eliminated. SMI’s ‘clean’ assets were sold to Renault for US $ 562 million. and the joint venture Renault-Samsung Motors was born in the twelvemonth 2000. The sale of SMI caused contention in Korea. with some critics reasoning that its assets had been sold at a monetary value far below their true value. It was estimated that Samsung had poured more than US $ 4 billion into the building of its production installation entirely. and that the trade allowed Renault to obtain a state-of-the-art fabrication installation on attractive footings and debt-free. This was a twelvemonth after President Dae-Jung Kim’s of?cial proclamation that South Korea had to the full recovered from the Asiatic currency crisis. By the terminal of 2002. Renault-Samsung Motors had bounced back. making break-even point in its net incomes thanks to its low ?nancial load and he superior quality of its saloon. which now accounts for 30 % of the Korean large-size auto market section.

Analytic model
The debut to this article asks the undermentioned speci?c inquiries: ( 1 ) How did Samsung come to put in cars? and ( 2 ) How did the Korean crisis in general. and the crisis in cars in peculiar. alteration Samsung’s strategic decision-making procedures? In other words. this survey aims to find the primary motive behind Samsung’s diversi?cation. and so to clarify the company’s strategic direction procedure in relation to this diversi?cation. The analytical model used in this survey is shown in Figure 2. To build the model. the corporate scheme literature was ?rst reviewed. and the two major in?uences on corporate scheme ( i. e. . in this instance. diversi?cation ) were identi?ed as economic and non-economic factors ( as shown in the upper portion of Figure 2 ) . In this subdivision. both factors will be examined and compared to place which had the dominant in?uence on the diversi?cation determination.

Although much old research on diversi?cation has identi?ed motives from the position of economic sciences. there are some of import plants that examine diversi?cation from a noneconomic position. For illustration. it has been suggested that institutional alterations in the U. S. . such as the reinforced federal government’s antimonopoly policy in the fiftiess. generated strong inducements for corporations to diversify. 5 Research has besides shown that corporate diversi?cation was really much an ‘organizational fad’ in the U. S. in the seventiess. pursued with the usage of such popular tools as portfolio planning. 6 This position is particularly relevant in explicating the utmost diversi?cation of concern groups such as the Korean chaebols and the Nipponese keiretsu. which operated in really different socio-cultural and institutional environments ( particularly with regard to authorities and industrial policy ) to Western ?rms.

Some research workers have even argued that the institutional traits of the chaebols help explicate their economic success and organisational ?tness many chaebols were accused of exerting inordinate market power through cross-subsidization On the other manus. the economic motives for diversi?cation can be loosely classi?ed into two: market power and synergism. 8 Although the bureau job is another of import motive for diversi?cation. we have excluded it from our analysis because we thought the symptoms of bureau jobs would non be easy to ?nd in the strategic direction procedure.

The chase of market power and synergism. on the other manus. can be easy identi?ed. For illustration. many chaebols. including Samsung. are often accused of exerting inordinate market power through cross-subsidization. in which the ‘deep-pocketed’ ?agship company subsidizes a new subordinate. In add-on to such anti-competitive motives. Michael Porter’s position of scheme as deriving a favourable place in an attractive industry. which is consistent with the averment that Porter’s view originates from the market power position. was besides included in this class. 9 As for the synergy position. two theories were drawn on. First. the resource-based position was adopted to analyze whether Samsung leveraged its existing resources and capablenesss to get down its rider auto concern. Second. dealing cost theory was adopted to see whether transactional synergism had been obtained in the mobilisation of Samsung’s resources for diversi?cation intents.

Figure 2. Analytic Model

Although economic and non-economic factors are both of import drivers of corporate scheme. the internal organisational procedure affecting how these two factors are conceived. interpreted. resisted. and formalized in an organisation are looked into in this survey. as shown in Figure 2. First of wholly. as the president of Samsung was the individual most in?uential ?gure in puting the strategic way of the full group. the chairman’s leading was separated from other company’s strategic direction procedure constituents to let for a closer scrutiny. His leading was treated as the mediating construct linking the company’s corporate scheme with its organisational procedure. take a breathing verve and energy into both. 11 The strategic direction procedure may besides include both formal and informal procedures. which are in?uenced by organisational inactiveness. civilization and internal political relations. At Samsung. group-level scheme was formulated at the corporate central office. once called the Of?ce of the Chairman.

It can be expected that in such a big chaebol. with its long and celebrated history. organisational inactiveness in the signifier of nucleus rigidness may in?uence both formal and informal strategic planning. and that a strong organisational civilization will hinder or ease the formal and informal strategic direction procedure. Finally. the strategic way of the corporation will depend on who assumes power as a consequence of internal political processes the strategic way of the corporation will depend on who assumes power The impact of the Asiatic crisis on Samsung’s strategic direction procedure was besides analyzed. as shown on the right side of Figure 2. Keeping path of the alterations inside Samsung during the passage period allowed us to place what Samsung learned in footings of keeping its ‘?tness’ in the thick of the altering environment. 13 Speci?cally. we examined the alterations that the new strategic direction procedure and leading had undergone in their attempts to cover with the economic and non-economic in?uences on corporate scheme. The undermentioned subdivisions detail how this model was used to turn to our two research inquiries.

Motivation for variegation
Non-economic motives: Competitive imitation and legitimacy-seeking The non-economic motives for Samsung’s diversi?cation are presented ?rst. as our analysis of the informations leads us to believe that these prevailed over economic motives in Samsung’s determinations. First of all. there is the inquiry as to whether Samsung’s strong competitory competition with Hyundai motivated its determination to come in the car industry. This requires us to reexamine Samsung’s ` before history vis-a-vis its arch-rival Hyundai. which in the 1980s had pushed Samsung off the top-ranking chaebol topographic point it had enjoyed during the sixtiess and 1970s. ( Table 2 shows the rankings of the top ?ve chaebols from the 1960s to the 1990s. ) Samsung and Hyundai had merely comparatively late become direct rivals in a figure of industries. Hyundai started as a building company in 1950 and subsequently diversi?ed into heavy industry. including cars ( 1967 ) and ship building ( 1973 ) . which played cardinal functions in its subsequent concern portfolio enlargement.

Samsung. which focused on hi-tech industries such as electronics ( 1968 ) and semiconducting materials ( 1974 ) . besides invested in heavy machinery and the petrochemical industry. set uping Samsung Heavy Industries ( 1974 ) . Samsung Shipbuilding ( 1977 ) . and Samsung Petrochemical ( 1974 ) . Unlike the 1960s and the seventiess. when concern was to a great extent regulated by the authorities. the 1980s and 1990s was a period of liberalisation and denationalization. There was needfully a much greater grade of uncertainness in the concern environment. and the chaebols reacted chiefly by come ining the same major industries. 14 Hyundai followed Samsung’s illustration by diversifying into hi-tech during the 1980s. set uping Hyundai Electronics ( 1983 ) . Hyundai Media Systems ( 1988 ) . and Hyundai Information & A ; Communications ( 1989 ) . It is of import to observe that one of the grounds for Hyundai’s success in 1980s and 90s was the manner it efficaciously imitated Samsung’s concern portfolio during the 1980s.

The tenseness between the two companies was heightened in 1988 when both diversi?ed into petrochemicals with Samsung General Chemical and Hyundai Petrochemical. Given such a history of competitory kineticss. we believe the strong competition between the two chaebols compelled them to copy each other’s concern portfolio. By 1990. the two groups’ concern portfolio had become rather similar. except for Hyundai’s laterality in car concern. Mr. Kun-Hee Lee was really cognizant that this was an country which gave Hyundai a great advantage over Samsung. and internal paperss and interviews with cardinal executives at Samsung con?rmed that Samsung entered the car concern in the hope of being able to control Hyundai’s laterality in this industry. The 2nd of import non-economic in?uence behind Samsung’s entry into the car concern was ‘legitimacy seeking’ .

A brief reappraisal of the history of the leading of chaebols presidents suggests a repeating desire to turn out their managerial art by shiping on ambitious enlargements. 15 To a big grade. the chaebols’ phenomenal record of growing in the yesteryear was a consequence of their presidents taking large hazards which paid off when many had judged them impossible. For case. under former Chairman Byung-Chull Lee. Samsung plunged into the supposedly already-saturated semiconducting material industry. and successfully emerged as a universe leader. Hyundai’s legendary Chairman Joo-Young Chung met similar success with his monolithic investing in the ship building industry. once more. despite terrible resistance. The yesteryear was full of illustrations of chaebol presidents going genuinely magnetic leaders by doing major parts to their corporation. and even to the national economic system.

The yesteryear was full of illustrations of chaebol presidents doing major parts to their corporation. and even the national economic system. After wining his male parent. Chairman Kun-Hee Lee’s ?rst undertaking was the constitution of Samsung General Chemical Co. a raid that unluckily ended in failure. His following ‘big bet’ was on the car industry. which. being extremely capital intensifier and holding a signi?cant spillover consequence on the national economic system. he saw as an appropriate challenge to ‘prove’ his leading certificates.

This was his quest to hit a major success. fiting those of other chaebol presidents. and therefore go recognized nationally as a great concern leader. in bend increasing his legitimacy both inside his organisation and beyond. The undermentioned quotation mark from the president seems to con?rm this motive ( which was besides con?rmed in other interviews ) :16 I started the rider auto concern because I believed that it would certainly be an of import strategic concern in Korea after 10 or 20 old ages. I know that we can non do money in the first five or six old ages even though we invest 10 billion dollars. However. I know that the 10 billion dollars would certainly raise the national fight of our car industry in the long tally.

Economic motive: Market power vs. synergism It is all excessively easy. with hindsight. to measure Samsung’s diversi?cation into the overcrowded car industry on the border of the economic crisis as an overly hazardous venture. This subdivision looks at the economic logical thinking behind Samsung’s entry. and examines the two economic motives of market power and synergism. As celebrated earlier. Porter’s position of scheme as ‘positioning in an attractive industry’ can be considered a market power position. From this point of position. the Korean car industry at the clip of Samsung’s entry was non at all attractive. Numerous information shows that the domestic car industry was already bedeviled by overcapacity. and its growing had already been slowing significantly after 1995. good before the economic crisis. For the ?rst clip. replacings accounted for more gross revenues than ?rst-time purchases. bespeaking that the domestic market had reached adulthood.

In the 1990s. the Korean car industry experienced a general impairment in overall profitableness. with mean ratios of runing income to gross revenues staying at 4. 9 % between 1991 and 1997. down from 6. 1 % in 1981-90. 18 Of the four major car makers in the market at the clip. Hyundai was the lone 1 with positive cumulative cyberspace pro?ts ?gures between 1991 and 1997. Clearly. industry attractiveness entirely can non explicate Samsung’s determination to diversify. Another component of diversi?cation which relates to market power is the anti-competitive pattern of cross-subsidization. a manner of leveraging their market power of which the chaebols had been publically accused in the yesteryear. Indeed SMI was to a great extent dependent on Samsung’s other af?liates for ?nancial support. and although the inside informations can non be discussed here. it is deserving observing that the Korean Fair Trade Commission had slapped a significant punishment on Samsung in 1998 for supplying discriminatory ?nancial assistance across seven af?liates. including SMI

Samsung’s diversi?cation can besides be interpreted from the position of synergism. To analyze this possibility. we ?rst tried to place beginnings for economic system of range. such as the sharing of resources and capablenesss between SMI and other af?liates. We besides sought to determine whether mobilisation of resources for diversi?cation yielded signi?cant decreases in dealing costs. After analysing several of import internal paperss and interview ?ndings. we were able to place of import motivations concerned with sharing capablenesss.

First. Samsung believed that one of its nucleus competencies e the repute of its trade name name. and its constituted civilization of high quality that stemmed from its dedicated and extremely competent directors vitamin E could be transmitted to SMI. and would be equal to get the better of its late mover disadvantage and finally let SMI to stand out over the established participants. Second. Samsung expected that leveraging the capablenesss of Samsung Electronics would bring forth transactional synergisms with SMI. From the position of dealing cost theory. internal minutess with Samsung Electronics should hold incurred signi?cantly lower dealing costs. and the undermentioned extracts from an internal study to the president reveal Samsung had such purposes before come ining the car concern.

1 External Factors Supporting Investment 1 ) Korea’s economic growing in the twenty-first century will be led by the electronics and car industries 2 ) Comparative advantage in car fabrication is switching from Western states to Japan. and from Japan to other Asiatic states including Korea. 2 Internal Factors back uping Investment 1 ) In the close hereafter. the car industry will finally meet with the electronics industry. in which Samsung already has great advantages. SMI can besides recognize synergisms with Samsung’s af?liates in the machinery and chemical/materials industries every bit good as Samsung Electronics. 2 ) Although the market seems saturated. the bing makers are neglecting to run into the demand for choice rider autos. With engineering licensed from Nissan. Samsung could bring forth highquality saloons to fulfill this unmet demand.

Chairman Kun-Hee Lee was particularly optimistic about the possibility of convergence between car and electronics industry. anticipating it to give transactional synergism as the undermentioned quotation mark suggests:21 In the car industry. 30 % of all parts are electrical or electronic. a proportion expected to increase to 60 % or 70 % by 2010 vitamin E greatly film overing the differentiation between the ‘automotive’ and ‘electronics’ industries. The treatment therefore far on the motive for diversi?cation is summarized in the 2nd column of Table 3.

Strategic direction procedure before the crisis
Strategy preparation procedure This subdivision examines the internal strategic direction procedures triggered by the motives for diversi?cation. Judging from the analysis so far. Samsung’s diversi?cation seemed to be prompted ab initio by both competitory imitation and legitimacy-seeking motivations. We besides found these in?uences were ampli?ed by the alone function played by the chairman’s of?ce in the organisation. The Of?ce of the Chairman was created in 1959 to command and organize the activities of Samsung’s assorted af?liates. Supporting and helping the president. it wielded considerable power and authorization over the group’s af?liates. and most other Korean chaebols rapidly imitated Samsung’s organisational construction and established their ain corporate caput of?ce. 22 The Of?ce of the Chairman at Samsung had several squads and. when SMI was established. the two most in?uential were the planning and ?nance squads.

The planning squad crafted and implemented long-run schemes including diversi?cation. while the ?nance squad managed capital affairs at the group degree and exercised ?nancial control over the af?liates. Under competitory force per unit area from Hyundai. the planning squad at the Of?ce of the Chairman submitted a study to the president in 1990. giving an in-depth analysis of the differences between the two powerful chaebols’ concern portfolios. reasoning that Samsung would ne’er catch Hyundai up without come ining the car concern. 23 The chairman’s purpose to come in the market for grounds of competitory competition with Hyundai seems to hold been reinforced by this internal strategic direction map.

The chairman’s [ motive ] of competitory competition with Hyundai was reinforced by internal strategic [ sentiment ] of the planning squad. It is necessary to measure the planning team’s nucleus capablenesss to understand its function in the formation of SMI. Supporting Samsung’s rapid diversi?cation from the 1960s to the eightiess. the planning squad had emerged as the growing engine of Samsung. As it expanded into assorted industries. it accumulated generic diversi?cation capablenesss. such as intelligence assemblage for new concern chances. formal long-run planning accomplishments. new concern constitution. and resource mobilisation from its af?liates. Through its perennial success. the planning team’s nucleus capableness of pull offing growing became institutionalized within the organisation. and was portion of the team’s mundane world. In short. past diversi?cation experiences had made an unerasable impact on the mentality of the planning squad. strongly informing and keeping the team’s cultural continuity for growing.

The planning team’s growth-oriented civilization was reinforced by its repeated successes. finally giving rise to organisational inactiveness. with the squad efficaciously going closed to differing sentiments and disputing thoughts. 25 Therefore. while there were hazard factors involved in come ining the concentrated car market. such information was non emphasized in the organisation. The squad likely believed that it would still be possible to boom in a structurally unattractive industry by leveraging its nucleus competencies and developing new 1s. 26 The planning squad sought to carry decision-makers opposed to its vision by garnering any positive economic informations it could ?nd to back up its instance. and. in 1993. commissioned the Nomura Research Institute – a Nipponese consulting and research ?rm vitamin E to bring forth a feasibleness survey on the Korean rider auto industry. Contrary to the conventional wisdom that the domestic market was already saturated. Nomura predicted that the market’s long-run market growing would be equal to suit one more participant. Encouraged by this professional advice. the investing determination was ?nally put to the ‘Supreme Operation Committee’ . composed of the Samsung group’s most in?uential senior executives.

Committee members from Samsung Electronics ab initio opposed the investing thought. anticipating that most of the investing financess would be drawn from pro?ts generated by their semiconducting material division. In malice of its initial reserve. this squad was finally persuaded as to the feasibleness of the program. and gave its formal understanding to the diversi?cation undertaking in 1993. The planning squad could continue with the following diversi?cation procedure. with strong backup from the president.

Strategy execution procedure Once the organisation reached its consensus. the scheme was implemented at an unbelievable velocity. Merely two and a half old ages after the decision of the engineering transportation understanding with Nissan. Samsung had completed building and tooling of a state-of-the-art production installation and was ready to bring forth autos. a singular effort merely possible because Samsung could to the full leveraging its market power and synergism. The procedure of how these advantages are created is presented here. First of all. cross-subsidization in assorted signifiers. such as direct subsidy and debt warrants. was instrumental toward securing the necessary capital at low cost. Second. two types of synergism vitamin E economic systems of range and decreases in dealing costs e enabled Samsung to make competitory advantage at the group degree. Resource sharing and mobilisation. for illustration. were non merely planned for. but really realized between different af?liates. Without such a signi?cant economic system of range. the production line would hold required much more clip to finish. and at a higher cost.

In footings of human resource sharing. by January 1998 2. 024 employees out of SMI’s entire work force of 3. 482 had been transferred from other af?liates. including the most ‘dynamic capability’ underpinning [ the move into cars ] was the managerial capableness of the planning squad. Although this resource sharing greatly facilitated the new concern launch. the most ‘dynamic capability’ that underpinned all these advantages was the managerial capableness of the planning squad. 27 Throughout Samsung’s long history of diversi?cation. they had accumulated signi?cant know-how in the launching of new concerns. and team members now behaved as if they were ‘internal entrepreneurs’ in marshalling and mobilizing resources. With their strong ‘visible hands’ endorsed by the president. they coordinated resource parts from different af?liates in Samsung to accomplish their intended synergisms. While their attempts to reassign Samsung’s repute and civilization of high quality to SMI met with success. it was at an tremendous cost.

From the start. Chairman Lee encouraged contrivers to visualize a large-scale and first fabrication installation. and monolithic investings were made in constructing a ‘perfect’ fabrication installation which enjoyed state-of-the-art hardware and significant human resources. More than 1. 300 SMI line workers and applied scientists from the 90 Korean providers were sent to Japan in 1995 to have intensive proficient preparation at Nissan workss. while over 200 Nissan applied scientists and technicians were dispatched to the Pusan works to develop Samsung employees and local providers. As a former SMI executive put it. the prevailing ambiance at that clip was of ‘a entire committedness from top directors to line workers to construct perfect cars. ’ Unfortunately the cost of reassigning the corporate repute and civilization of high quality proved to be excessively high. and rendered SMI extremely vulnerable to external daze.

Strategic direction procedure after the crisis
The 1997 ?nancial crisis triggered a cardinal alteration in Samsung’s strategic direction procedure. The most noteworthy alteration was the displacement in control of doing strategic determinations from the planning squad to the ?nance squad. In the same manner as the IMF and Korean authorities tightened national ?nancial controls. the ?nancial squad now assumed the taking function in preparation of the group’s scheme. The displacement in power was readily evident over the issue of the program for SMI to get the troubled Kia motors. The dark before Samsung’s command for Kia. there was an intense argument among the cardinal decision-makers at the Samsung group central offices. including core members of the planning and ?nance squad. Unlike the growth-oriented planning squad. the ?nance squad had traditionally been conservative in doing major investing determinations. Key ?nance squad executives strongly opposed the planning team’s proposal to get Kia. reasoning that farther enlargement during such an economic crisis was highly hazardous.

Their averment proved persuasive to the president. and Samsung decided to retreat from the command. SMI executives interpreted the determination as a mark that Samsung was ?nally releasing hope for SMI’s hereafter. Two cardinal members of the planning squad resigned and left Samsung after the team’s failure to see through the acquisition of Kia. From so on. the ?nance squad emerged as the most in?uential unit in the Samsung group after merely the president himself. and assumed the planning team’s traditional strategic planning map. In 1998. the Of?ce of the Chairman changed its name to the ‘Corporate Restructuring Headquarters’ . In add-on to ?nancial direction at the group degree. the ?nance squad exerted considerable in?uence on of import strategic determinations that affected the full Samsung group. It would non be an hyperbole to province that Samsung’s strategic direction procedure changed wholly after it failed to do a success of SMI. and its planning squad was disbanded. All af?liates’ major strategic investing programs now had to derive ?nance squad blessing before being reported to the president. The ?nance squad besides coordinated the preparation of the ‘Long-term Group Strategy’ . antecedently a nucleus undertaking of the planning squad.

The full corporate civilization of Samsung became re-oriented. and. alternatively of external growing. central offices began to concentrate on internal ef?ciency at each af?liate. Economic and quantitative managerial methods such as EVA ( Economic Value Added ) and Six Sigma quality controls were introduced and strongly promoted. From 1999 the ?nance squad started to use EVA in measuring its af?liates’ public presentation and tightened its ?nancial control over their activities. The new central office strategic be aftering doctrine in bend in?uenced the strategic direction procedure at each of the af?liates. There was small treatment of ambitious diversi?cation undertakings such as SMI. since it was evident throughout the group that such enterprises would be screened out at central offices. Although a few investing undertakings were initiated by single af?liates. they were much smaller in graduated table than the diversi?cation undertakings typically pursued before the crisis. From the managerial point of position. the new alteration enabled more decentralised decision-making for the group as a whole. since the seeable manus of central offices now rarely intervened in af?liates’ direction for resource mobilisation or cross-subsidization intents.

In short. the old strong behavioural control that required conformance with cardinal authorization now gave manner to ?nancial control that emphasized ef?ciency. In 2006. Samsung renamed the Corporate Restructuring Headquarters as the ‘Strategic Planning Of?ce’ . reduced the figure of squads from ?ve to three and slashed staff Numberss from 147 to 99. The ?nance and direction consulting squads were merged and renamed the ‘Strategic Support Team’ . while the planning and PR squads were incorporated into one joint squad. The new strategic support squad now formulates long-run scheme for the group. identi?es new concern chances. and conducts internal auditing of af?liates. Previous ?nance squad members who became portion of the new strategic support squad still play critical functions in the nucleus strategic direction procedure today. whereas the new ‘Planning & A ; PR team’ is responsible merely for trade name scheme and the Samsung Group’s corporate individuality.

Deductions and decision
A individual instance can non to the full re?ect all the of import strategic alterations in the chaebols that occurred over the past decennary. However. the facts that Samsung is the taking and most representative of Korea’s chaebols. and its managerial patterns have been so widely imitated by other groups. suggest that this instance may assist to understand the chaebols’ strategic direction in general. The short history of SMI should involvement both theoreticians and practicians interested in the recent history and developments of the Korean chaebols. There seem to be at least three theoretical deductions for faculty members. First. this survey may be one of the few qualitative surveies to analyze the elaborate strategic direction procedure inside the Of?ce of the Chairman of a chaebol. Our analysis con?rms the position that non-economic in?uences play of import functions in Asiatic concern groups’ strategic direction procedure. For illustration. we were able to place mimetic and legitimacy-seeking motives to diversify. and besides analyze how they were reinforced by organisational inactiveness in the scheme preparation procedure. It should besides be remembered. nevertheless. that in implementing its diversi?cation scheme. Samsung took advantage of its market power and synergism. as economic positions predicted. and this survey provides inside informations about how these are really created and transferred in chaebols.

It was due to both these advantages that Samsung was able to establish SMI so rapidly. The Of?ce of the Chairman was the bid tower in this procedure. mobilising resources from its af?liates and providing them to SMI at its discretion. every bit good as making group-level synergism by interceding internal minutess between the af?liates and SMI. signi?cantly cut downing the dealing costs and times. At the same clip. it shared its ain generic capableness of launching and pull offing a new concern with SMI. Such organizing attempts exerted by many chaebol central offices have played cardinal functions in their rapid growing. lending positively to Korea’s past rapid economic development. Second. the consequences of the survey show that Samsung has learned from the economic crisis it had gone through. and from the failure of its diversi?cation attempts. This is contrary to the consequences of recent empirical surveies. which suggest that companies learn little from their failures. and that companies learn less from their big failures than from their little 1s. This happens when directors see their big failures as holding idiosyncratic and exogenic causes. and when there are societal and proficient barriers to larning from big organisational failures.

How did Samsung get the better of the societal and proficient barriers to its acquisition? An illustration of societal barrier is a strong organisational civilization with small tolerance for failure. while proficient barriers to larning addition when the multiple causes of a big failure are profoundly embedded in a big organisation. How did Samsung both avoid imputing its failure to exogenic causes ( such as the Asiatic economic crisis ) . and at the same clip overcome the societal and proficient barriers to its acquisition? We suggest that the being of organisational political relations between the planning and ?nance squads of Samsung facilitated the company’s larning procedure. If there were no internal competition between the planning and ?nance squads. larning might non hold occurred at all. or might hold taken much longer. The fact that there were two alternate positions as to the best scheme for covering with SMI. and that the in?uence of one group. which had predominated for some old ages. was overtaken by the positions of the other in the argument about the Kia auction. meant that Samsung non merely had two clear positions to larn from. but could besides rapidly follow the 2nd position. with its civilization of conservativism and ef?ciency. as a new form. and therefore leave the other behind more flawlessly.

The positive function of internal power and political relations in easing organisational acquisition has non been discussed much in the bing literature on this topic: this survey suggests that research workers may necessitate to pay attending to the possibility of the interplay of these forces functioning as a vehicle for organisational acquisition. Third. the ?t between the environment and the organisation was examined dynamically over clip. The environment non merely in?uenced the structural features of the organisation. but besides changed the strategic direction procedure at Samsung. In an environment of high industry growing. the planning squad took charge of Samsung and exercised strong behaviour control under a centralised construction. When Korea experienced an utmost economic downswing. the ?nance squad emerged and exercised greater ?nancial control under a more decentralised construction. It is of import to observe that Samsung maintained its ‘?tness’ to the new environment by larning from the crisis and by altering its scheme. construction and processes over clip. 29 Although the Asiatic economic crisis seems to hold been mostly responsible for Samsung’s failure. a figure of of import managerial issues may besides hold played a function in the affair. We believe that the instance has the undermentioned managerial deductions for practicians.

The ?rst and most direct lesson top directors can deduce from this instance is that undervaluing the underlying economic sciences when doing a strategic determination can take to black effects. With non-economic motives. such as competitory imitation and legitimacy-seeking. prevailing at Samsung. sound economic logical thinking was non possible. Under these strong non-economic in?uences. Samsung overestimated its internal nucleus competences and group-level synergism. and underestimated the danger of come ining an already overcrowded industry. Samsung seemed to believe that it could boom in an unattractive industry by leveraging its nucleus competences. such as its quality-focused organisational civilization. and by making synergism with its af?liates. Although there was grounds of chances for economic systems of range and synergism. these were non suf?cient to get the better of the low market demand. To do affairs worse. the cost of set uping a high-quality production installation in Pusan was excessively high. Directors frequently commit critical errors by presuming that they can easy reassign their company’s intangible nucleus competences. such as repute and civilization. to other units. This survey. nevertheless. clearly shows that sharing and reassigning intangible assets can sometimes incur excessively great a cost.


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Woonghee Lee is an Associate Professor of Strategic Management at Hanyang
University. Korea. He received his Ph. D. grade in Strategic Management at the Ohio State University. Before he joined Hanyang University. he was a main research worker at Samsung Economic Research Institute. His research involvement includes strategic confederations. diversi?cation. and perpendicular integrating. School of Business. Hanyang University. 17 Haengdang-Dong. Sungdong-Ku. Seoul. Korea. Tel +82 ( 2 ) 2220-1072. electronic mail: [ electronic mail protected ]Nam S. Lee is the President and CEO for Taihan Textile Co. . Ltd. in Seoul. Korea. He received his D. Phil in Management Studies from the Saˆ Business School. University of Oxford. His old functions at Samsung from ?d 1990 to 2000 include Senior Manager for Samsung Motors Inc. and Samsung Chairman’s Of?ce. In peculiar. he served as a member of a undertaking force to continue with Samsung’s entry into a rider auto industry advancing Korean authorities and blessing and developing a long-run growing scheme for Samsung’s rider auto concern. As a practician and academic. his research involvements focus on schemes for turning unit of ammunition worsening industries through growing and organizational alteration. President. Taihan Textile Co. Ltd. 25 Taihan edifice. Yoido-dong. Yongdeungpo-gu. Seoul. Korea 150-878. Tel: +82 2 368 0135. Electronic mail: [ electronic mail protected ]

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