Samsung’s vertical integration strategy was extended quite early to embrace
semiconductor technology, which was to be SEC’s key focus in the 1980s. In 1974,
Samsung acquired Korea Semiconductor Company a joint venture between Korea Engineering
& Manufacturing Co. and Integrated Circuit International, a US firm that
manufactured simple ICs for electronic watches. This time, Samsung acted well
ahead of its rival Goldstar, which entered the market by acquiring Daehan
Semiconductors in 1979. The firm hoped that internalization of core components
technology would reduce its heavy dependence on Japanese suppliers SEC suffered
from the outside purchase of core components because its production quantity of
CTVs and VCRs was limited by component availability. In the late 1970s, Kim Kwang-Ho
[chief executive officer of the electronics division], who had
The OEM trap
Because of the drain on resources inflicted by the IC operation during much
of the 1980s, other divisions and affiliates had few strategic options except
that of exploiting the company’s previously developed strength in production.
Except for a short-term investments generating immediate cash, other
investments were strictly controlled by the chairman’s secretariat. Relatively
little effort was spent on product development or strategic marketing, and
Samsung’s emphasis remained on the mass production of relatively low-end
products. Another important characteristic of the group’s operation in the
1980s was the internal production of core components. SED became one of the
world’s largest producers of CRTs. The strategy was extended to newer products
such as VCRs and microwave ovens, for which Samsung produced most of its own
magnetrons. The development of product design capabilities was undermined by
the company’s major commitment to ICs. Of course, SEC had a minor change
Nevertheless, Samsung slowly built an institutional infrastructure to increase
its internal technological capability. Three directions were pursued. First, it
acknowledged that the objective was to set up an integrated R&D
organization, and then the company expanded Korea-based R&D centers
involved in the assimilation and adaptation of acquired foreign technology. The
Samsung Advanced Institute of Technology
was created to interlink several affiliates, but, at least initially, it
was unable to transcend the demand for projects which were commercially
exploitable in the short-term Second,
Samsung established foreign-based R&D centers that could provide it with
new technologies, up-to-date information, and training for Korean R&D
personnel. These were used mainly for ICs and, starting in the late 1980s, for computer-related
technologies.19 The third form of effort was continued collaboration between
SEC and its affiliated components suppliers.
The ability to use R&D to build new capabilities was constrained by accounting
perspectives. Research projects were held to extremely short-term objectives,
preventing the development of know-how beyond what was needed for simple
adaptation to mass production requirements.
Another victim of Samsung’s concentration on ICs may have been its international
marketing capabilities, which remained weak. Samsung started distribution of
its own brand products making minor changes from models it had built from
designs provided by Japanese customers, but success was limited. SEC gradually
established a network of foreign sales affiliates. It would typically set up a
foreign branch office, and then the office turned into a sales subsidiary when
it had accumulated a certain degree of foreign market knowledge. However, the hierarchically
integrated organization structure restricted the interaction of its own foreign
sales channels with Korea-based production sites, limiting feedback from customers
to factories. Accordingly, OEM channels remained dominant in the company’s
sales.
Samsung maintained close relationships with OEM buyers such as JC Penney, Sears
Roebuck, GTE, Toshiba, IBM, Hewlett-Packard, RCA, and Crown Corporation.
However, its clients were generally not providing Samsung with leading-edge
product design, and Samsung did little to upgrade its internal capabilities in
this area, confining itself to low-end market segments.
In the early 1980s, the US market was by far the most important for Samsung,
but by the end of the decade it had greatly increased the geographic diversity
of its distribution channels, particularly in Europe and Southeast Asia
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