Samsung’s new ‘engines’ are idling

Samsung Electronics, the flagship of Korea’s largest conglomerate Samsung Group, wowed Americans with a funny Superbowl ad last week and wowed investors last year with record breaking performances in both revenues and operating profits.

In fact, the company’s 201 trillion won ($183.3 billion) in sales is estimated to account for 65 percent of the overall Samsung Group revenues. If so, that would be the highest proportion ever.

Which begs one very urgent question of the nation’s leading tech firm: Is its future secure?

The electronics company’s outstanding performance was largely due to runaway sales of smartphones, sleek and “smart” televisions and semiconductors.

But some of its other businesses ? including some that have been labeled growth engines for the future ? are spinning their wheels.

The five new business areas identified three years ago as keys to its future --LEDs, solar batteries, automotive batteries, bio medical products and medical equipment ? are struggling, even after the company earmarked investments of 23 trillion won by 2020.

This is creating tension within the group. Chairman Lee Kun-hee, who is has been out of the country since last month, often stresses the need to pinpoint viable projects that will sustain growth for the next 10 years.

The five projects were the core of Lee’s vision.

“The new business projects seem to be lost,” said Pyo Hak-kil, Seoul National University economics professor, “without a distinct direction while Japan Inc. is resurrecting itself with the help of a weakening yen and while Chinese companies are coming up behind with advanced technologies.”

Stuck in the mud

Samsung announced it would invest a total of 8.6 trillion won on LEDs by 2020. The idea was to expand the business from the flat panels used in televisions to a much broader range of uses. A business department exclusively dedicated to this project was set up in late 2011.

More than a year later, the department has not yet produced significant results. And now the company is faced with the prospect of giving up the product altogether after the government last year categorized LEDs as a field that is best suited to - and reserved for - small and medium-sized companies.

Samsung Electronics’ bio-medical product business also appears stuck.

The development of the company’s first so-called bio-similar, SAIT101, was abruptly halted in October. The company had been conducting clinical trials in 16 countries since last March including Taiwan, Spain and the UK. The company said it stopped the trials to meet new U.S. FDA requirements. The SAIT101 is meant to be a competitor to Roche’s cancer and rheumatoid arthritis treatment Rituxan, which brings the Swiss-based pharmaceutical company $7 billion a year in sales.

There’s also speculation that the company could be diverting its attention from bio-similars to new drugs for aging after Park Sang-chul, former head of Gachon University’s Lee Gil Ya Cancer and Diabetes Institute and Seoul National University medical school professor, became head of Samsung Advanced Institute of Technology’s aging researcher center last month.

The company’s solar energy department is also struggling. Government support for the industry has waned across the globe and Chinese companies have gobbled up market share.

On automotive batteries, although Samsung has signed a supply contract with BMW and Delphi, it failed to expand the market further.

The medical equipment sector, in contrast, succeeded in acquiring NeuroLogica, a U.S. company specializing in computed tomography on Jan. 29, but it’s just dipped its toe into the market for high-end medical equipment market and still has a long way to go.

Seeking overseas talents

At a meeting with top executives of Samsung in 2011, Chairman Lee stressed the importance of “soft” technologies: software, design and services. Since then the company has been beefing up its workforce in these fields and they amount to over 32,000 today.

However, the company is faced with a problem in its foreign research teams: Holding onto them.

Thanks to its enhanced brand power and recognition around the globe, Samsung easily attracts talented human resources abroad, including software developers. But many can’t take the hard-driving work culture of a Korean company.

Working late into the night, immense pressure on performance and a vertical command structure is not new for Korean employees but that culture scares away a lot of foreign employees.

“The most commonly understood Korean word among employees that were hired for our overseas operations was ‘Kka,’” said a Samsung Electronics official stationed at an overseas office. Kka in Korean means, “Do as you’re told.”

“Foreign talents who place importance on processes and interpersonal relations feel uncomfortable in the performance-driven culture and end up leaving the company in less than a year,” the official added.

Changing from scratch

Ahn Hyun-ho, a former vice minister of the Knowledge Economy and vice chairman of the Korea International Trade Association, warned in a recent lecture that Korean companies such as Samsung Electronics and LG Electronics have less than a decade at the top of the global electronics market ? selling top products like phones, TV, and refrigerators, before Chinese companies catch up.

Market research agency IDC projected that in three years, six out of 10 smartphones sold around the world will be developed and made in China.

“[Companies] need to provide answers to how they will secure their futures,” said Kim Jung-sik, a Yonsei University economics professor. “Only then will they motivate employees to come up with various ideas for new projects.”

By Shim Jae-woo, Park Tae-hee [ojlee82@joongang.co.kr]