Samsung Group : advertising & marketing profile (continued)

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History of Samsung

Free for all users | see full profile for current activities: Each of the chaebol has its patriarch, and Samsung's was Byung-Chull Lee, who established the company in 1938, trading dried fish with China and making noodles for domestic consumption. He chose the name Samsung because it means "three stars" and these stars resemble the Korean characters that mean "Let it be large, strong, and last forever". The company grew and diversified, despite the disruption of the Korean war. In 1953, different company subsidiaries began importing manufactured goods from the West and making domestic fabrics. Most important of all, Lee set up Cheil Sugar Company, then the country's only sugar refinery. The success of this venture helped set a path for future businesses. Over the next decade, the expanding group set up a series of other companies to make domestic substitutes for goods and commodities traditionally imported by Korea.

Samsung also moved into financial services, establishing or acquiring affiliate businesses to support its trading operations. These included Ankuk Fire & Marine Insurance (acquired 1958, now Samsung Fire & Marine Insurance) and DongBang Life Insurance (acquired 1963, now Samsung Life Insurance). In 1962, the group acquired Saehan Paper and merged it with its own subsidiary to form Chonju Paper Manufacturing (later sold to become Hansol Paper). The group also acquired real estate, department stores and newspaper interests.

Most important of all was Samsung Electronics, established in 1969 to replicate imported electronic goods for the domestic market. To support and feed this growing division, the group formed partnership ventures with other, mostly Japanese, electronics companies. Samsung-Sanyo Electronics and Samsung-NEC were both formed at the end of the decade to absorb skills for making monitors and display screens. Soon Samsung was re-exporting televisions, and later VCRs and microwaves into Western markets. Initially these were sold as private label products to American department stores, but Samsung began branding its products from the late 1970s.

The group expanded rapidly during that decade, with the financial support of the Korean government. Like its fellow chaebol, Samsung moved into heavy industry. Samsung Petrochemical Co and Samsung Heavy Industries Company were both formed in 1974. Three years later the group acquired Daesung Heavy Industry Company and renamed it Samsung Ship-Building Company. Samsung Precision Company (now Samsung Aerospace Industries) was established the same year. The group became a key player in the nascent semiconductor industry during the 1980s. During that decade the group threw itself into electronic manufacturing, establishing Samsung Data Systems (now Samsung SDS) in 1985, Samsung Economic Research Institute in 1986, and the Samsung Advanced Institute of Technology (SAIT) in 1987. By the end of the decade the group had expanded into electronics, semiconductors, high polymer chemicals, genetic engineering, and the aerospace industry.

In 1988, Byung Chull Lee died, and was succeeded by his son Kun Hee Lee. He presided over a huge expansion in the group's electronics business. By 1990, Samsung was the world's leading manufacturer of DRAM memory chips. Like the other chaebol, Samsung expanded into every conceivable line of business during the 1980s and early 1990s, from hotel management to insurance, from credit cards to commercial and passenger vehicles. However electronics remained its core business line. In 1994, core trading entity Samsung Corporation became the first Korean company to export more than $10bn worth of goods (this increased to $16bn by 1997). The same year the group was ranked as the world's 14th largest corporation by Fortune Magazine. In 1996, the group bought a 49% stake in PC manufacturer AST, taking up the rest of the stock the following year (but selling out in 1999). Most important of all, while other chaebol were resting on their laurels, chairman Lee began aggressively restructuring his empire to emulate more established competitors in Japan, the US and Europe.

Perhaps Kun Hee Lee's only serious corporate mistake was to get involved in car manufacturing. He established Samsung Motors in 1995 in order to compete with Daewoo and Hyundai. The timing was disastrous. The economic crash in Asia in 1998 left Samsung Motors with huge debt and manufacturing facilities, but no domestic market. Following the call to restructure, Samsung was one of the first of the chaebol to voluntarily streamline its business in an attempt to save itself. During 1998, the group sold its heavy construction division to Volvo for $572m, sold its 45% share of Hewlett Packard Korea back to Hewlett Packard, and merged petrochemical operation Samsung General Chemicals with Hyundai Petrochemical Co. Staff numbers were slashed falling from 267,000 in 1997 to 161,000 within two years. The group also attempted to offload its effectively bankrupt passenger car division to fellow chaebol Daewoo in exchange for the latter's electronics division. But Daewoo - itself on the verge of collapse - pulled out of the deal at the last minute because it couldn't afford Samsung Motors' debt.

Instead, the group opened discreet negotiations with French carmaker Renault. The cat was let out of the bag by a Korean newspaper in late 1999, although both sides claimed they were only talking about trucks. However by March 2000, it was clear that they were discussing a full sale of the Samsung Motors division. The fit with Renault was very neat - Samsung Motors was originally set up to launch a car based on the Nissan Maxima platform, now controlled by Renault. The two sides settled a deal in April 2000. Renault paid around $560m for a 70% stake in Samsung Motors, becoming the first foreign car company to break into the hitherto protected South Korean market. The Samsung group kept a 20% stake, while creditors retained 10%. The company continued production of the existing Samsung vehicle, and has gradually introduced a range of Renault- and Nissan-based vehicles adapted to the Korean market.

Elsewhere within the group, Samsung made strong progress, especially in its electronics division. Shifting strategy away from low-priced bulk copies of other manufacturers' products, Samsung set up design offices in the US and Europe, doubling the size of its team, with a brief to focus more on the high end of the market. (Between 2001 and 2005 alone the company picked up 19 prizes at the Industrial Design Society of America's prestigious Design Excellence Awards, more than any other manufacturer). More importantly perhaps, the group instituted strict quality control procedures. To provide a compelling incentive to employees to maintain standards, all faulty products were put on public display in the company's headquarters. During 1999, Dell Computer and Apple each agreed five year deals to purchase several billion dollars' worth of LCD displays from Samsung, and acquired substantial quantities of bonds, convertible to Samsung shares. The Dell deal was later extended to cover $16bn of other components including chips and disk drives. The group also launched a massive marketing campaign designed to boost general awareness of its products. Samsung spent almost $200m on global branding in 40 countries, including core sponsorship of the Olympics since 1998, as well as an association with blockbuster sci-fi movie series The Matrix between 2000 and 2002. More recently it signed a non-exclusive product placement agreement with New Line Cinema (a division of Time Warner) to supply electronics products for use in new movies.

However Samsung's soaring success, and the methods by which the Lee family maintained their hold on the business, also attracted the attention of Korean regulators. The group was finally punished for alleged past misuse of company funds in 2003 when senior executives including chairman Kun Hee Lee were ordered to pay a total of nearly Won100bn ($75.8m) of compensation. A new row erupted towards the end of the year when Lee was charged with illegally transferring shares in the group to his son Jae Yong Lee in order to avoid future inheritance tax. In 2005 another scandal erupted following revelations that the former publisher of a newspaper part-owned by Samsung had been used as a courier to deliver bribes totalling $10bn to presidential candidates in Korea’s 1997 election campaign. Detailed information regarding the bribes was collected on secret tape-recordings apparently made with the complicity of a former government intelligence official. The Lee family was said to be directly implicated in the scheme, and even Korean President Moo-Hyun Roh was touched by the scandal. (President Roh subsequently appointed the alleged courier as Korea's ambassador to the US, a move which at the very least threatened to leave him open to accusations of poor judgment). After several months of investigation, the Seoul District Prosecutors Office cleared Samsung of any wrong-doing at the end of 2005, but indicted the journalists who made the recordings.

Adding to the group's problems, Samsung Electronics admitted in the US in October 2005 that it had taken part in a plot to fix international prices of DRAM memory chips between 1998 and 2002. It agreed to pay fines of $300m, the second largest criminal antitrust fine ever levied by the US Justice Department, and agreed to assist with further investigations. Hynix Semiconductor and Infineon were also fined in connection with the conspiracy. Shortly afterwards a new investigation was launched by South Korean regulators after rival semiconductor manufacturers alleged that a deal by Samsung to supply Apple with flash memory chips for its iPod Nano MP3 players had been agreed at unfairly low prices. In a more tragic side to the Samsung saga, Mr Lee’s youngest daughter, just 26 years old, committed suicide in her New York apartment towards the end of the year.

Another legal battle came to resolution in early 2008 when Samsung was ordered to repay debts of $1.7bn still outstanding after the sale of its failed automobile unit to Renault. Rather than sell its remaining minority stake in what is now Renault Samsung Motors when control was sold to Renault, the group offered creditors shares in other group companies such as insurance subsidiary Samsung Life instead. The group was at the time intending to float that business, but those plans were later cancelled. A lawsuit ensued in 2006, and in January 2008, a Korean court sided with the creditors, ordering Samsung to pay the debts in cash.

In 2008, Jae Yong Lee was summoned for questioning by prosecutors over allegations that Samsung had maintained slush funds for lobbying politicians and government officials, and had also arranged illegal bond trades between family members to help them retain management control of the group. It was the first time that a member of the family had been officially questioned in this case. In April, Kun Hee Lee was charged by government prosecutors with evading around $115m in taxes payable on Samsung shares inherited from his father, and with breach of fiduciary duty in relation to the bond trades. He was found guilty and awarded a three-year suspended jail sentence. He resigned from his executive role in the group a few days later, along with the other executives implicated in the affair. No charges were brought over the bribery fund. Mr Lee's exile didn't last long. He received a presidential pardon in 2009 and was asked to head up a committee to bid for the Winter Olympics. In March 2010 he rejoined Samsung as group chairman. See full profile for current activities

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