Samsung’s lessons to Sony

Fierce rivals, Samsung and Sony also face many of the same problems: overstretched businesses, a dearth of game-changing products, hierarchical corporate structures and proud places in their national psyches. But South Korea’s Samsung is proving how nimble even huge legacy names can be. Sony should pay attention.

Samsung headquarters has responded quickly to last quarter’s 49 percent plunge in net income. Admitting that the slump in its once-thriving smartphone business probably isn’t temporary, the company recently transferred about 500 employees from mobile phones to Internet-related initiatives that hold more promise. This week, Samsung moved to streamline operations by unwinding holdings involving at least eight businesses. It sold stakes in chemicals and defense interests and the all-important electronics division, while repurchasing $2 billion of its own stock. The company has been shifting resources toward batteries, bio-pharmaceuticals, the next generation of memory chips, organic light-emitting diode (OLED) displays and medical equipment. Earlier this month, Samsung announced a tie-up with U.S. biotechnology company Thermo Fisher Scientific.

And Sony? Well, the company appears to be staring at its feet hoping that a weaker yen will bolster profits. When CEO Kazuo Hirai admitted to investors on Nov. 18 that his company has been slow in adapting to change, his very presentation reinforced the point: In the age of rampant piracy, movie-and-video game download apps and changing consumer tastes, Hirai said the company would focus its efforts on its entertainment division. That’s the unit, mind you, that New York hedge fund star Daniel Loeb called a dog before selling out of Sony this year.

Samsung’s moves have hardly solved all of its problems, of course. While the stunning success of Galaxy phones and tablets made life at Apple headquarters interesting for awhile, those products are now losing buzz. Samsung’s devices are being squeezed from below by cheap Chinese manufacturers like Xiaomi and from above by a rejuvenated Apple (which is now worth nearly four times as much as Samsung). In such an environment, being great at high-end manufacturing isn’t enough; the company needs to innovate. In that way, Samsung epitomizes the dilemma facing Korea Inc. itself: The grip of powerful “chaebol” groups needs to be loosened over time, and start-ups nurtured.

One can argue that for the moment, Samsung’s family-owned structure is an asset. With longtime Chairman Lee Kun-hee sidelined by a heart attack in May, his son Jay Y. Lee, 46, has the freedom to dictate changes in strategy swiftly. Still, Sony’s public ownership doesn’t excuse the plodding leadership Hirai has displayed by comparison. Most of Sony’s competitive instincts, unfortunately, seem to be directed inward - one business unit facing off against another. As CEO, Hirai needs to have the will to smash through those fiefdoms.

These challenges will sound familiar to students of Japan’s economy. A key reason Prime Minister Shinzo Abe’s restructuring drive has stalled is complacency among myriad levels of bureaucrats and other vested interests, who believe that the model that lifted Japan out of its postwar devastation can still work.

That, in a nutshell, is the Sony mind-set, too. Thirteen years after Apple’s iPod, the creator of the world-changing Walkman still doesn’t have a global answer. Seven years after the iPhone created whole new business ecosystems, Hirai’s team is still eyeing incremental enhancements to existing products and pinning its hopes on Hollywood and gamers buying the next pricey Playstation console.

The key to sustained growth, as Jefferies Group analyst Atul Goyal told Bloomberg News recently, is responding quickly and wisely to new challenges - something Samsung at least appears willing to attempt.

“When they see something working even if a little bit, they will speed up much faster, shift people and resources into it and push very aggressively,” said Goyal.

That’s not to say every one of the company’s initiatives will succeed. But their chances look a lot better than Sony’s.

The author is a Bloomberg View columnist based in Tokyo and writes on economics, markets and politics throughout the Asia-Pacific region.

by William Pesek