[Viewpoint] Last lesson for Samsung from Sony

Speaking two years ago on how Korea used to view Japan’s economic development, former Samsung Electronics Chief Executive Yun Jong-yong said, “Japan was too far ahead. We felt we would never be able to catch up with it in our generation.” He was referring to his own thoughts 30 years ago, but now times have changed.

Samsung’s electronics arm was created to produce TV sets and other home electronics when Yun was in his fourth year with the group in 1969. He was among those who received training at Sanyo Electric and Matsushita Electric Industries, former Panasonic, of Japan, and was swept up with awe and envy for his counterparts in Japan. Since then, like most of Korea, he has been preoccupied with finding ways to catch up with Japan.

Samsung Group founder Lee Byung-chull and his son and heir Lee Kun-hee modeled the electronics unit after similar enterprises in Japan. In declaring a new direction for management in June 1993, the younger Lee jokingly ordered employees to change everything except for their wives and children. As they constantly benchmarked the Japanese way of doing business, “learning” became a euphemism for “copying.” Samsung based its corporate philosophy on its founder’s belief that “imitation is the mother of creation.” Samsung Electronics imported not only capital and technology, but also management style, staff training and other programs from Japan. It relied on Japanese sources for information on international economic, business and political affairs. Lee would open the year in Japan and announce the year’s new management plans in Tokyo.

The company’s entry into the electronics and semiconductor businesses also owed a debt to Japan. Samsung Electronics was launched at the advice of Sanyo Electric’s chairman in 1969. The company’s monumental announcement in 1983 that it would be entering the memory chip-making business came after a study by a pool of Japanese experts. The company also relied on Japan for capital and technology as it teamed up with Sanyo, NEC and Sharp to produce semiconductors. Matsushita and Sony, world leaders in this industry at the time, rejected Samsung’s entreaties to partner up.

However, by the mid-2000s, Samsung Electronics had evolved to rank among the world’s top five TV makers. But Sony remained unmatched as a household consumer brand in the global market. Samsung was snubbed as an electronics dwarf trying to throw stones at Goliath. Sony was not only huge in size, but symbolized the innovation and drive behind Japan’s economic and technological success. Sony was an iconic company that enjoyed a comparable level of admiration to that enjoyed by Apple today. The Walkman, the portable audio cassette player it released in 1979, changed the way people listened to music around the world.

But today, the situation has been reversed. Japanese manufacturers are languishing and hopefully envying Samsung Electronics at it rakes in astronomical profits and passes by them at a galloping pace. In 2006, it outpaced Sony in global TV sales for the first time and has maintained its top rank ever since. Moreover, its gap with Japanese rivals continues to widen. In 2009, it reported revenue of 100 trillion won ($88 billion) and operating profit of 10 trillion to become the world’s largest electronics maker. The combined profits of Japan’s nine major electronics companies, including Sony and Toshiba, could not even match this. Furthermore, Samsung’s electronics teacher and partner Sanyo went bankrupt, and Sharp was sold off to a Taiwanese company. Sony and Panasonic are facing enormous difficulties. They reported deficits of 8 trillion won and 11 trillion won, respectively, last year, and announced mass job cuts. Samsung Electronics, in contrast, raked in its largest-ever operating profit of 16 trillion won on revenue of 165 trillion won last year.

Many have studied the reasons why. They agree that the Samsung unit went beyond emulating Japan by outhustling its rivals with a strategy to “join them and beat them.” When Sony clung to an analog system, even on high-definition TV sets, Samsung shifted to a digital coding standard and pursued digital TVs. It also innovated in terms of dynamic random memory chips, but Japan lacked such entrepreneurs and believed Japan and Sony could not be dethroned.

The lesson to be learned here is that Samsung could also fall from grace if becomes overly self-indulgent. First place is not a right but an accomplishment. This principle should also be born in mind by newly elected legislators and political parties.

* The author is an editorial writer of the JoongAng Ilbo.

by Kim Yeong-ook