Shape up and ship out

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Shape up and ship out

Korea’s top two manufacturers have fallen from grace over product controversies. Samsung Electronics on Tuesday announced it was halting global production, sales and exchanges of Galaxy Note7s after the United States and Korean regulators have advised users against using the phone as it is prone to overheating and explosion.

There had been eight cases of overheating and burning with the replacement phones after a month-long self-imposed sales ban. The causes have not been verified, except that the one in Korea stemmed from outside shock. Experts now believe there could be other reasons than the battery. The enhanced functions, such as iris scanning, may have caused overheating. Whatever the reason, the phone has been found to be seriously flawed.

Samsung Electronics faces a major setback. It has been making a comeback after losing its share in the global market after its Galaxy S7 series, released in March, was well received. But all its endeavors and profit will be wiped away due to the exploding Galaxy Note7.

Analysts believe the replacements for other phones and refunds will cost the company 1 trillion ($89 million) to 1.5 trillion won and hurt sales by 700 billion won by the end of the year. Samsung Electronics shares tumbled 10 percent over the last two days, wiping out its market capitalization of 24 trillion won. Its suppliers and affiliated industry will also be hard hit.

Worse, the toll on the Samsung brand could be big. The company promptly responded to the first series of explosion reports in August by identifying the battery as the cause, and announced a generous recall program to replace all models sold in the first month. But this time, it stumbled to find the exact cause. It must act fast to identify the real problem and come up with countermeasures. It also should consider whether it was too hasty in jumping from the Galaxy Note5 to the Galaxy Note7 series.

Hyundai Motor also has its hands full with damage control. The strike-ridden carmaker had to pay owners of 470,000 Sonatas manufactured from the Alabama production lines from 2011 to 2014 to fix their engine problems, having discovered a defect in the Theta II engine. The repairs have reportedly cost the company tens of millions of dollars. It also faced a lawsuit from Korea’s transportation ministry for concealing air bag defects in 2,360 Santa Fe vehicles produced in Korea in June of last year and failing to take timely recall action.

The two are household names for Korea Inc. Their revenues take up more than 30 percent of the country’s gross national product. Korea therefore cannot afford their complacency. They must uphold the Korean brand through solid technology and quality control. The cases of Toyota in 2010 and Volkswagen recently showed that even international majors can shake due to quality problems. These companies must prove their resilience through new innovation and strict quality control.

JoongAng Ilbo, Oct. 12, Page 30
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