Tycoons call for innovation to get through 2014

Lee Kun-hee, Chung Mong-koo and Koo Bon-moo

Samsung Chairman Lee Kun-hee stressed a shift in focus from hardware to software in his New Year message yesterday, as he ushered in another decade of his “new management initiative” of 1993.

Lee also encouraged a mind-set in which crises can be turned into opportunities, a message echoed by other leading conglomerates at a time of slow growth.

The fourth-largest economy in Asia has come up against another economic stumbling block: an overly strong currency. The nation’s leading bourse started the New Year yesterday by falling 2.2 percent to 1,967.19 points due in part to increased concern about the appreciation of the won against the yen. Samsung Electronics, the market’s bellwether, plunged 4.6 percent.

“Let us boldly throw away the business models and strategies of the past five and 10 years,” said the 71-year-old Lee in a message to Samsung Group’s 420,000 employees around the world. “Let us move beyond our hardware-oriented processes and corporate culture.”

Samsung, the world’s largest vendor of smartphones, had huge success in that business last year, but concerns over a narrow portfolio of products has deepened. The company, which also makes the most TVs and memory chips in the world, signaled a move last year to expand into the software arena, where it is not yet a match for American companies Apple and Google.

The tech giant is expected to unveil its first smartphone featuring the Tizen operating system next month, which is meant to lessen its dependence on Google and its Android operating system.

“We must push ourselves to improve our business structure so that we can lead industry trends,” Lee said. “We must innovate technologies that can help us compete in an uncertain future.”

Samsung posted a record-high operating profit of 10.16 trillion won ($9.67 billion) in the third quarter, more than 60 percent of which came from mobile devices. But foreign investors have dumped its stocks for five straight trading days since Dec. 23 on speculation of a disappointing earnings report next week.

BNP Paribas said in a report yesterday that Samsung Electronics’ operating profit in the fourth quarter will be 14 percent lower than the previous quarter. Mirae Asset Securities predicted Samsung will post around 9.21 trillion won worth of operating profit in the first quarter of this year, which is 1 percent lower than its fourth-quarter estimate for the conglomerate.

A series of costly patent disputes with Apple, which the chairman dubbed “do-or-die battles,” could plague the company again this year. A U.S. court has ordered Samsung to pay $930 million to Apple for infringing patents, which Samsung is appealing.

“Our leading businesses are constantly being challenged by competitors, while time is running out for our less dynamic businesses,” Lee said. “It is therefore time to change once again.”

The recovery of traditional economic powers such as the United States, Japan and Europe is expected to inject some momentum into the global economy this year, and Korea, the seventh-largest trader in the world, posted a record-high trade surplus, $44.2 billion, last year.

But the Ministry of Trade, Industry, and Energy said on Wednesday that the surplus will drop by 24.2 percent this year.

“Economic slowdowns can present opportunities too,” Lee said in his message.

“Let us see farther from a higher vantage point and create new technologies and markets.”

Other local conglomerates also signaled they will try to focus on qualitative growth and innovation this year, rather than aggressive expansion.
“The economic condition is still difficult, especially with the strengthening of the won and the dragging out of the economic recovery,” said Koo Bon-moo, chairman of LG Group, the country’s fourth-largest conglomerate, in a New Year message.

“All executives and employees should be clearly aware that this is a crisis for us .?.?. we have to review every business activity of ours in order to overcome such a crisis.”

In his New Year address, Hyundai Motor Group Chairman Chung Mong-koo said that the group should focus on strengthening the foundation of future growth by building up its capability.

Chung urged the group to bring innovation to its global management system so that each unit can quickly and flexibly react to business environment changes. The 75-year-old chairman also emphasized expanding investments in R&D for innovative technologies.

Similar themes were stressed by other conglomerate leaders yesterday, including GS Group Chairman Huh Chang-soo, who also heads the Federation of Korean Industries.

Hyundai Heavy Industries Chairman Lee Jae-sung emphasized uncertainties in the business environment. The world’s largest shipbuilder set a target of $29.6 billion in orders for 2014 and a sales target of 26.57 trillion won, up 9 percent from last year.

Hanjin Group Chairman Cho Yang-ho said his group should concentrate on the bottom line.

The troubled conglomerate, which owns the nation’s flag carrier, Korean Air Lines, last year announced a plan to raise 3.5 trillion won to address a cash shortage.

Hyundai Group, also hit by a fiscal crisis last year that forced it to pledge to raise 3.3 trillion won by selling subsidiaries, including its financial units, needs intensive innovation to build a foundation for long-term growth, according to Chairwoman Hyun Jeong-eun yesterday.

LS Group Chairman Koo Ja-yeol emphasized law-abiding management. The nation’s largest cablemaker last year was in trouble for supplying poor quality cables to the country’s nuclear power plants.

Financial groups put emphasis on strengthening internal fundamentals in their New Year rituals.

Lim Young-rok, chairman of KB Financial Group, the nation’s largest financial group, reacted to an embarrassing slush fund scandal involving an executive in its Tokyo branch. Lim pledged to make his group stronger in the local market.

“Last year was tough for us with decreased profitability and aggravated fiscal soundness,” Lim said. “KB will enhance its competitiveness in the retail financing business, traditional turf for us, in order to improve the overall management of the group.”

The chairman also unveiled plans to recover profitability through mergers and acquisitions of nonbanking businesses.

“We will establish solid internal growth by expanding into securities, life insurance and asset management businesses,” he added.

KB was selected as preferred bidder for Woori Financial late last year. KB also made a bid to acquire Woori Investment and Securities, but its rival NH Nonghyup Financial Group was selected as the preferred bidder instead.

KB’s aggressive move in the financial merger and acquisition market is based on its plan to diversify its businesses that are currently focused more in the banking sector as in the nonbanking sector.

Local banks suffered last year because low interest rates led to a drop in profits.

Hana Financial Group Chairman Kim Jung-tae said yesterday that financial companies need a new paradigm that makes them competitive, not only in the traditional banking business but also in the nonbanking sector.

Hana Financial Group is the owner of both Hana Bank and Korea Exchange Bank.

“A fundamental change is needed,” he said. “For example, the financial industry has been drawing a line between ordinary households and businesses, but that will no longer fit a changing market.

“Households and businesses are interconnected. We need to secure more consumers by utilizing Big Data and linking the two.”

Kim suggested utilizing the nation’s cutting-edge IT technologies to understand consumers’ needs better and bring greater profitability to various operations.

He said his group will compete not only with other financial groups but also with IT businesses by becoming as innovative as the IT sector in order to meet consumers’ demands in a more efficient way.

BY MOON GWANG-LIP, JOO KYUNG-DON AND SONG SU-HYUN [joe@joongang.co.kr]