Asia has been an important destination for Samsung’s direct investment for
a number of reasons. In addition to the company’s interest in recovering cost competitiveness
by utilizing the low-cost resources available in Southeast Asia, it was also
pursuing some of the major customers for its components as well as some of the
world’s most dynamic markets.
A Singapore based purchasing office was established in 1991 to speed up the
internationalization of production, in part by being a supplier of low-cost
parts for Korea-based production sites. Ironically, the purchasing office has
directly bought components from Korea-based components suppliers because it is
cheaper than going through SEC headquarters in Korea. The office has grown dramatically
since its creation and was eventually able to satisfy Singapore’s requirements
for the preferential tax treatment granted to regional headquarters. The
vertically integrated operations in China were set up more quickly than those
in Southeast Asia, possibly reflecting the firm’s increased confidence in overseas
production. Since 1994, Samsung has announced the creation of other integrated
production complexes in its strategic markets.
To date, interaction between Samsung’s two Asian subnetworks has been mostly
limited to CRTs sent from Malaysia to a China CTV affiliate and Chinesemade VCR
components sent to a Thai affiliate. This is because the two subnetworks were
originally designed to serve two largely separate Asian markets. The key intermediary
is the Singapore-based purchasing office, which purchases and distributes a
huge amount of components among the Samsung affiliates and those of their
Japanese counterparts in the regions.33 However, the most important intra-firm
transactions are still highly centralized, occurring between the affiliates and
the Korea-based product division, or between the affiliates and the Korea-based
global marketing division
The separateness of the two subnetworks may prove a competitive disadvantage.
Japanese producers in the region usually divide their product mix geographically
according to the subsidiary’s technological capability, facilitating the
achievement of scale economies. By comparison, Samsung’s production networks in
Asia are still at a primitive stage, incorporating certain redundancies.
The weakness of Samsung’s performance in the consumer goods sector meant that
it found itself with excess capacity in its overseas plants. In practice, this
has meant that the offshore plants are underutilized—in spite of their vocation
to improve cost-competitiveness—because Samsung’s employee evaluation system is
oriented to performance at the plant level, making employees resistant to transferring
production overseas when no activity would fill the void at the Korean plant.
In fact, Samsung’s Asian television
production network has been deeply enmeshed virtually from its inception with
those established earlier by Japanese firms. For example, not only does the CRT
producer SED-Malaysia sell the bulk of its output to nearby Japanese affiliates
of Sanyo, Matsushita, Sharp, and Funai, it also sources about a third of its total components from
mostly Japanese suppliers such as NEG and Asahi.34 Clearly, the
establishment of offshore production has led to complex interdependence between
Samsung and its Japanese competitors.
It was the presence of its Japanese customers
that permitted Samsung to reduce the risk inherent in starting
capital-intensive production overseas. For example, having already become a
successful supplier of CRTs to Japanese CTV producers, SED could be reasonably
certain that its Malaysian affiliate could meet demanding Japanese quality
assurance requirements SED-Malaysia fills a specific role in the regional
division of labor of Japanese firms; by providing 14- inch CRTs, it permits the
component subsidiaries of Japanese producers to specialize in larger, more
higher value-added picture tubes.
Samsung’s production presence in Asia is
increasingly connected to marketing objectives. To that end, the firm has
established ties with mainland and overseas Chinese partners, typically as a
prerequisite for market entry, in addition to establishing its own distribution
channels. Its local joint ventures are thus the mirror of those it established
in Korea in the 1970s with Japanese partners, trading production know-how for
market access—only now the know-how is Samsung’s.
In at least one case, an affiliate
established for the local market was
forced by poor performance to shift to exports. But more generally sales were able
to shift from export to local markets.
So far these locally oriented operations have
achieved local and even regional linkage between production and marketing
activities, but design and product development activities still belong to
organizations in Korea: “…we continue to move Korea-based manufacturing sites
overseas. Instead, leave the concept of design, development, research
institutes at home” But this has left a void in affiliates for which the local
market is important. For instance, the Indonesian affiliate distributing CTVs
to the local market is searching for locally marketable products that differ
from the products designed in Korea for global markets.
In early 1995 SEC formed a new product
planning post at its Singapore-based regional headquarters. The team was to
concentrate on supporting product design and development activities targeted to
the Asian regional market. Yet, there is no sign that this team has actively
interacted with the group affiliates Yet
SEC is under pressure to carry out product design closer to individual markets
as Japanese and European rivals have increasingly done, frequently co-locating
product design with offshore production. Recently, a new executive officer who
had worked for the department in charge of product
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