SAMSUNG ELECTRONICS Seoul, Korea Japan / Korea Trip 2001 Fabio Armani Julian Carey Jennifer Goodwin

Agenda Samsung Group – History & Structure Samsung Electronics –History –Company Focus –Financial Overview –Strategy –Organizational Structure –Challenges

Samsung Group Founded in 1938 –exporter of dried fish, vegetables, and fruits –flour mill and confectionery machines 1950’s Economic Stabilization –Korean War - Samsung lost all assets –aimed to help rebuild Korean economy; entered the manufacturing industry (sugar,fabrics) –became a leader in modern business practices (recruiting from outside) 1960’s Expansion of Key Industries –entered electronics and chemical industries –1969 established Samsung Electronics Co.

Samsung Group distribution hotels amusement theme parks trading construction textile advertising baseball team security cameras aircraft ships dump trucks oil trucks polymerized compounds plastics specialty chemicals life insurance credit card services securities trading finance and trust management services home appliances wireless communication semiconductors

Samsung Electronics Established in January, ’s: Bet the future on electronics –laid the groundwork for electronics in Korea –helped the domestic economy grow –paved the way for exports 1980’s: A more comprehensive electronics company –established plants in Portugal and US –established Semiconductor and Communication corporation –began memory chip business Early 90’s: Integration and Globalization Mid-Late 90’s: Implementing new management strategies New Millenium: Digital Vision

Focus: 4 Core Markets Home MultimediaMobile Multimedia Personal MultimediaCore Components

Samsung Electronics Semiconductors 40% Digital Media 29% Telecommunications 23% Home Appliances 8% % Sales ($27B)% Operating Profit Semiconductors 79% Digital Media 6%Telecommunications 12% Home Appliances 3%

Financial Overview Revenue growth and Operating Income suffered in : New CEO Jong Yong Yun –major turnaround new business focus new management practices –very positive results in 1999, but… Operating Income (billion Won) Revenue (billion Won)

Stock Performance Common Stock Preferred Stock … Samsung is feeling the effects of the downturn in the high-tech market

Strategy 1997 Turnaround: Cut a third of workforce, cut debt Sold and spun off divisions Set “firewalls” to other Samsung Divisions New business proposition: profits Streamlined inventories Diversification

Strategy New Economy: Exodus of engineers and managers to startups Top 4 conglomerates: $1.2B in startups (Samsung: $520M) –Stakes of up to 29.9% in 80+ startups Startups benefit from links to global networks and financial expertise “You simply can’t survive without adapting to the fast-changing Internet era, and one solution is linking up with startups”

Strategy Digital Vision: “A Company that leads the digital convergence revolution” Brand power, logistics, IP: –High-margin products –Create value chain that integrates competencies of all areas –Customer and market oriented Global network by function Performance evaluation and compensation system

Strategy Digital Vision: Innovation, meeting challenges and creativity Target debt-to-equity ratio: 50% R&D: 7% of total revenues Overseas partners: –Joint R&D projects –Technology transfer arrangements –Joint investments

Organization Structure 4 main groups with 14 divisions Digital Media Semiconductors Information & Communications Home Appliances Samsung Electronics

Management & Employees 59,000 employees Development of employees strategic to success “Making rounds” encouraged as a key management practice

Recruiting and Training Heavy investment Focus on creating agents of change Expertise in technology and marketing

Culture Entrepreneurial Profit focused Decisive Different from other firms in Korea and within chaebol

Current Challenges Internal: “You must maintain a sense of crisis to stay competitive” Profits vs. Growth –Financial discipline Foster creativity Executives jumping ship for startups

Current Challenges External: Abandon dependence on cheap commodity products Emphasis on goods developed in-house –Rivals are outsourcing production and design Guide the company into the global electronics elite

Current Challenges Corporate Governance: Cross-shareholding among affiliates –Shifth funds among subsidiaries –Manipulate debt-to-equity ratios Outside directors appointed by family Lack of accountability to outside shareholders