Forbes Lee is chairman of the world's largest electronics manufacturing company (nearly $188 billion in revenue in 2012).

012). He wields significant influence in Asia -- Samsung is arguably Asia's best known brand -- and Silicon Valley. The South Korean manufacturer makes chips for Apple while the two tech giants are also locked in bittier patent-related legal battles. Lee is Korea's No. 1 richest person and this February he won an inheritance court case initiated by his two older siblings. Lee took over the chairmanship of the company in 1987 after his father died.

http://graphics.thomsonreuters.com/AS/pdf/samsung.pdf Samsung started its rise as a global brand after Byung-chulls death in 1987 when Kun-hee took the reins of the chaebol. His fathers formula has helped turn Samsung into a top global brand over the past decade or so, boasting a market value of $143 billion, bigger than Intel and Hewlett Packard and equal to the combined value of Sony Corp, Nokia, Toshiba and Panasonic Corp. Samsungs management is based on a complementary relationship between the founding family and professional managers. On the one hand, Chairman Lee Kun-hee provides long-term business visions and the basis for sustainability. On the other, professional managers bring to bear their day-to-day management skills without being unduly pressured by short-term and quarterly results. Whats good for Samsung is good for South Korea, Lee Kun-hee might well argue. His conglomerate after all accounts for around 20 percent of the countrys exports and a big chunk of its GDP. Yet he is constantly exhorting his employees to act as if the company was on the verge of extinction, warning them Samsung products could all be obsolete in 10 years if they dont keep up with the times. Change everything but your wife and children, he is fond of saying. Lee Kun-hee is likely to take a more subtle approach to restructuring Samsung, as he transfers ownership to his three children, the third generation of the Three Stars company. The restructuring will begin with companies where Jay Lee is the top shareholder, analysts say. He owns 25 percent of unlisted amusement park operator Everland, which is at the center of a spiderweb of crossholdings among companies in the Samsung chaebol. Some companies will be listed, others will be merged to simplify the structure. Samsung Group has also elevated Lee Kun-hees daughter, Lee Boo-jin as president of Hotel Shilla and Everland. The strength of the chaebol, analysts in Korea say, has always been their ability to make these kinds of decisions -- act quickly and move money around when the company is in trouble without fussing with a board or shareholders.

The Paradox of Samsung's Rise. By: Khanna, Tarun, Song, Jaeyong, Lee, Kyungmook

Founded in 1938, the Samsung Group is the largest corporate entity in South Korea Best known for its flagship, Samsung Electronics (SEC), the group's highly diversified businesses span a wide range of industries, including financial services, information technology services, machinery, shipbuilding, and chemicals.

By 1987, when Lee Kun-Hee succeeded his father as only the second chairman in the company's history, Samsung was the leader in Korea in most of its markets. But its overseas position as a low-cost producer was becoming untenable in the face of intensifying competition from Japanese electronics makers, which were setting up manufacturing plants in Southeast Asia, and rising domestic wages in South Korea's newly liberalizing economy. In the early 1990s, Lee spotted an opportunity in the reluctance of Japanese companies--the analog market leaders--to adopt digital technology, which consumers were flocking to in cameras, audio equipment, and other electronic products. This opened the door for Samsung to surpass its rivals if it developed the agility, innovativeness, and creativity to succeed in the new digital market. For those qualities Lee looked to the West. In 1993, he launched the New Management initiative to import Western best practices related to strategy formulation, talent management, and compensation into Samsung's existing business model. The aim was to markedly improve marketing, R&D, and design while retaining core strengths in manufacturing, continuous improvement, and plant operations. Execution of this mix-and-match strategy took three broad forms: o A formal process to identify, adapt, and implement the most appropriate Western best practices. o Steady efforts to make Samsung's culture more open to change by bringing outsiders in and sending insiders abroad. o Intervention by Lee to protect long-term investments from short-term financial pressures. This careful approach to importing Western business practices reduced disruption but also slowed progress. So, in a company where the chairman's authority coexisted with a need for consensus in the managerial ranks, Lee sought to increase receptivity to ideas from elsewhere. This he did in two ways: by bringing new thinkers in from outside and by sending insiders abroad. This careful approach to importing Western business practices reduced disruption but also slowed progress. So, in a company where the chairman's authority coexisted with a need for consensus in the managerial ranks, Lee sought to increase receptivity to ideas from elsewhere. This he did in two ways: by bringing new thinkers in from outside and by sending insiders abroad.

To compete outside its home markets, Lee knew, Samsung would need to move beyond its wellintegrated system to engage with non-Koreans in non-Korean contexts. That meant introducing practices inconsistent with the status quo. Lee did not underestimate how unsettling that would be. Accordingly, he took great care to change only what needed to be changed and to ensure that Samsung adopted the most appropriate practices in a way people could understand and embrace. The company established new organizations to seek out and adapt best practices from abroad. Lee advocated directly for the practices he deemed most critical and solicited employees' input in the development of each. Results were carefully measured. If resistance was too strong, the company delayed adoption, modified the practice, or--as was the case with stock options--abandoned it.

In this way, slowly and steadily but not always smoothly, Samsung has built its hybrid management system as a series of experiments, first in SEC and eventually throughout the Samsung Group In fact, Samsung's experience suggests that it may be time for Western companies and business schools to place more emphasis on developing strong regional connections and expertise Samsung's globalization efforts have taken substantial investments of time, money, and executive will In those roles they disseminate information about how successful foreign companies operate, and they advocate for and experiment with best practices. On returning home, these employees fill key positions and, in implementing what they have learned, become important change agents. Twenty years ago, few people would have predicted that Samsung could transform itself from a lowcost original equipment manufacturer to a world leader in R&D, marketing, and design, with a brand more valuable than Pepsi, Nike, or American Express. Fewer still would have predicted the success of the path it has taken. For two decades now, Samsung has been grafting Western business practices onto its essentially Japanese system, combining its traditional low-cost manufacturing prowess with an ability to bring high- quality, high-margin branded products swiftly to market. The two sets of business practices could not have seemed more incompatible. Into an organization focused on continuous process improvement, Samsung introduced a focus on innovation. Into a homogeneous workforce, Samsung introduced outsiders who could not speak the language and were unfamiliar with the company's culture. Into a Confucian tradition of reverence for elders, Samsung introduced merit pay and promotion, putting some young people in positions of authority over their elders. It has been a path marked by both disorienting disequilibrium and intense exhilaration. Like Samsung, today's emerging giants--Haier in China, Infosys in India, and Ko in Turkey, for instance--face a paradox: Their continued success requires turning away from what made them successful. The tightly integrated business systems that have worked in their home markets are unlikely to secure their future in global markets. To move to the next level, they, too, must reinvent themselves in ways that may seem contradictory. And when they reach new plateaus, they will need to do so again.

Bernstein Black Book - Samsung : Just the Beginning.

Within the Samsung Group, Samsung Electronics is the crown jewel, generating the bulk of the group's profits. The company is controlled by the Lee family, whose leadership is well aligned to long-term success. The company's management culture is distinct and this is a key driver of seamless execution across divisions. Internal divisions have to compete for business and are not artificially sheltered

Within the Samsung Group, Samsung Electronics is the crown jewel, generating the bulk of the group's profits. The company is controlled by the Lee family, whose leadership is well aligned to long-term success. The company's management culture is distinct and this is a key driver of seamless execution across divisions. Internal divisions have to compete for business and are not artificially sheltered As the de facto owner and direct descendent of the founder of the Samsung Group, chairman Lee has been highly motivated to drive the long-term success of the Samsung companies. His 20-30-year time horizon has enabled Samsung to invest in cyclical downturns for its long-term benefit. In a business where there is both uncertainty and a need for speed, a leadership structure that allows for responsibility and swift decision making meant Samsung was able to make a number of important decisions that has positioned it so well today,

Unlike Western firms where the CEO is the ultimate leader, Samsung is run by Chairman Lee through his special suite of chosen executives, once called the "Office of Secretaries" and then "Strategic Planning Office" and now the "Future Strategy Office." This team is selected from various affiliate companies, and manages the relationships among affiliates as well as company-specific strategies. Thus, the CEO takes more of a traditional CFO or COO role, while large moves such as significant M&A deals, executive appointments, large investments, and entry into new businesses require approval from the executive suite. Generally, finance, auditing, public relations, and human resource management are controlled at the group level at this office, rather than at the subsidiary level. Thus, there is a dual management structure, with four key senior people: Chairman Lee, Strategy Group Head GS Choi, CEO Oh Kwon, and COO Jay Lee. This structure can slow down decision-making and reduce innovation but allows for multiple checks and balances and hence reduces risk.

Samsung Electronics in the Context of the Larger Samsung Group SEC is part of the larger Samsung Group of companies. Overall, the Samsung Group generated KRW 274 trillion in revenue and KRW 20.3 trillion in net income in 2011 (see Exhibit 19). The group consists of 19 listed and 63 non-listed entities, along with several major joint ventures, both among group affiliates and with outside companies. The group is involved in almost every sector of the economy, including electronics, finance, construction, shipbuilding, chemicals, textiles, and hotels.

The Samsung Group is intertwined in a series of circular cross-ownership structures that allow Chairman Lee and his family to control the entire group. Samsung Everland, an unlisted entity owned entirely by the Lee family and affiliates, acts as the de facto holding company for the group

Samsung Electronics was founded in 1969, during Korea's rapid economic development. It started as a home appliance and television business, manufacturing out-of-date black and white TVs in the 1970s. It began its entry into DRAM in the early 1980s. From these humble beginnings as a relatively low-end brand in consumer electronics and a new entrant in semiconductors, the company emerged as a leader in the 1990s. In 1993, Samsung became the leading DRAM maker, and ever since it has distanced itself from competitors. The company became a leading mobile phone and TV manufacturer in the 2000s, overtaking the Japanese consumer electronics makers that it had once copied. Samsung Electronics is the flagship company of the Samsung Group, representing the majority of market cap, revenues, and operating profit. Given SEC's predominance to the broader Samsung Group, we believe that shareholders are generally well served despite the apparent lack of transparency and convoluted ownership structure. As mentioned earlier, SEC is the main focus of Chairman Lee and son/future chairman and COO Jay Lee. Chairman Lee's incentives to maximize the value of the group, particularly of SEC, are well aligned with long-term shareholders.

SEC comprises four major businesses: Consumer Electronics, IT & Mobile, Semiconductors, and Display Panel. The Consumer Electronics and IT & Mobile businesses together account for the "Sets" part producing integrated systems such as TVs, handsets, and PCs. The Semiconductor and Display Panel businesses comprise the "Components" side now called Device Solutions, which produces key components such as DRAM, NAND, Mobile Application Processors (APs) and LCD panels (see Exhibit 24). An interesting and unique aspect of SEC's management is that the four businesses operate quite independently, and especially both Set and Component businesses procure outside components and customers, and price internal clients fairly to outside market prices. Thus, Component businesses do not directly assist the Set businesses by providing below-market prices, nor do the Set businesses act as a "captive client" that absorbs low-quality output. This has been critical to Samsung's success in both sides of its business, as it has meant that its Set businesses can have access to the best and most cost-efficient components and its Component businesses are always competitive rather than being an internal-only supplier. This is one of the major differentiators of Samsung's strategy versus Japanese OEMs (such as Sony), which have often artificially sheltered their component businesses from external competition by acting as a captive customer.

We say thankfully, since Samsung is a "chaebol" - a family-run conglomerate, notorious for its privacy and all-encompassing societal reach. Chaebols like Samsung, LG or Hyundai permeate South Korea, its business culture, and its everyday life with so much influence, that they have become a hot potato issue in the upcoming elections.

So how do you evolve from selling noodles and dried seafood in 1938, when Lee Byung-hul started Samsung, into a company battling a Silicon Valley juggernaut like Apple for world dominance? The answer is chaebol - Lee the founder branched out into many areas such as insurance, construction, shipbuilding and yes, electronics, whereas Lee the son, who was pinpointed as the business heir in 1987, built on the founder's success by nurturing and encouraging innovation and independent thinking, and is now mentoring his kids to take over. He carried his father's push that Samsung must be the leader or one of the best in every new field it enters, and this is particularly paying off with the smartphone business now, which is well on the way to increase Lee Kun-hee's $8 billion personal wealth significantly. It's not all puppies and flowers in the family, of course - the older brother and sister are suing Lee Kun-hee for shares in Samsung valued at a combined $850 million. His lawyers, on the other hand, say the father was clear who had to run the business, and the issue should have been raised 25 years ago when he took the helm, not now when Samsung is raking in record profits. As you see, Apple's lawsuit is not the only legal trouble on the Samsung Electronics Chair's radar. In the early 90s, the current Chairman Lee Kun-hee realized that the company, as huge as it was, risked becoming a low-cost volume peddler, and said the famous quote: "Change everything but your wife and kids!"

Chaebol is a family-run conglomerate in South Korea. Such groups have been at the heart of its rapid industrial development over many years, and tower over almost every area of business: from stockbroking to theme parks; from supermarkets to heavy weapons. [1] Example Samsung, which began as a small noodle business in 1938, is now a behemoth. Companies linked to the group, of which Samsung Electronics is just one, make up about a quarter of the Kospi share index. Theres Samsung Heavy, which builds oil tankers, Samsung Everland, which runs a theme park and a zoo, and Samsung Life Insurance, which can presumably insure you against the possibility of being mauled by one of Samsung Everlands lions. [2] By 2012, this group is the largest chaebol which accounts for about a fifth of South Koreas exports. While the global success of chaebol like Samsung, and Hyundai, motor company, has boosted South Koreas standing abroad, at home their economic dominance has prompted concerns that they have developed a nearmonopoly on the countrys most talented workers, while restricting the prospects of the small companies that supply and compete with them. [3] Some Koreans blame chaebol for exacerbating the wealth gap by squeezing suppliers too hard. South Koreas Fair Trade Commission says their dominance also harms consumers. In 2010 it found 3,500 cases of price-fixing. Daniel Tudor, author of Korea: The Impossible Country, a forthcoming book, compares chaebol to tall trees beneath whose canopy nothing else can grow. Enormous conglomerates were nurtured as national champions under the dictatorship of Park Chung-hee, who ruled until 1979. That helped South Koreas warp-speed development. But, Mr Tudor argues, that a

totally chaebol-dominated economy is no longer suited to a country with higher per capita wealth than the European average on a purchasing power parity basis

SAMSUNG:

Samsung was once the largest of the chaebol. It was created by Lee Byung Chull, the son of a wealthy landowner. He grew up in a Korea occupied by Japan. He had a classical Chinese education in his early years, but when he was ten he was sent by his family to a primary school in Seoul. His university education was at Waseda University in Tokyo. He dropped out before completing his degree and returned to Seoul and did nothing for a few years. At 26 he used inherited money to start a rice mill in his home town. The venture was not particularly successful and he moved to Taegu and started a trucking and real estate business which he named Samsung, which means "three stars." The business went bankrupt in a credit squeeze that resulted from the Japanese invasion of Manchuria. But Lee went back into business and by the end of the war in 1945 Samsung was flourishing. He added domestic and international trading to the trucking and real estate business that he had started in. Samsung Trading Company was one of the ten largest trading companies in Korea when the Korean War broke out. Lee escaped from Seoul after the North Korean invasion and set up operations in Pusan. The business grew by leaps and bounds due to the war. In 1953 Lee started the first sugar refining company in Korea, which he called Cheil ("first") Sugar. Cheil Sugar was highly profitable and in 1954 Lee setup Cheil Wool Textile Company. Samsung's companies benefited from the import-substitution policy that the government pursued. Domestic producers were encouraged and imports were discouraged. By the end of the 1950's Lee had acquired control of several commercial banks and insurance companies. In 1961 Park Chung Hee carried out a military coup d'etat and immediately staged an anticorruption campaign. Lee was in Japan at the time and initially refused to return to South Korea because he knew he, as the richest man in South Korea, would be a prime target of Park's campaign. Later Lee returned to Seoul and struck a deal with Park that became the model for South Korea's chaebol. Samsung would be allowed to remain in business but it would have to be the vehicle for carrying out the development projects that Park wanted. Park was somewhat of a puzzle when he siezed power. When American government officials found that Park in his younger days had not only joined a communist cell, but had been, in fact, the organizer of the cell, they thought that the Communists had taken control of South Korea. Park had a fondness for collectivist-type slogans such as "Enrich the Nation and Strengthen the Army!" and "Steel is National Power." Lee offered to donate most of his wealth to the government and accept expropriation of his bank shares. Also he agreed to gain the cooperation of other businessmen in promoting Park's development projects.

The chaebol benefited greatly from this arrangement but the nature of the economic system of South Korea was closer to a centrally planned socialist state than the capitalism that it purported to be. The success of Samsung or any of the other chaebol in selling products cannot be taken to be proof of their success in profit making. It could just as well be a result of the South Korean government subsidizing in one way or another a money-losing venture. Samsung however has been a well managed and economically successful business. By the late 1960's Lee chose electronics to be the focus of Samsung's manufacturing. In 1977 Samsung put Korean engineers to work dismantling color television sets from the United States, Europe and Japan to see how they could be copied. It took about three years for Samsung to to go into production of color television sets. In 1979 Samsung started making VCR's and in 1980 microwave ovens.

Samsung (Three Stars, implying a business that would be huge and eternal). Samsung began as a small noodle business in 1938. Since then it has swelled into a network of 83 companies that account for a staggering 13% of South Korea's exports. The hottest chilli in the Samsung kimchi bowl is Samsung Electronics, which started out making clunky transistor radios but is now the world's biggest technology firm, measured by sales. It makes more televisions than any other company, and may soon displace Nokia as the biggest maker of mobile-telephone handsets. Small wonder others are keen to know the secret of Samsung's success. China sends emissaries to study what makes the firm tick in the same way that it sends its bureaucrats to learn efficient government from Singapore. To some, Samsung is the harbinger of a new Asian model of capitalism. It ignores the Western conventional wisdom. It sprawls into dozens of unrelated industries, from microchips to insurance. It is family-controlled and hierarchical, prizes market share over profits and has an opaque and confusing ownership structure. Yet it is still prodigiously creative, at least in terms of making incremental improvements to other people's ideas: only IBM earns more patents in America. Having outstripped the Japanese firms it once mimicked, such as Sony, it is rapidly becoming emerging Asia's version of General Electric, the American conglomerate so beloved of management gurus. As for Samsung, it is an admirable company, packed full of individual successes that managers (and not just ones in Asia) should study. But inevitably it has not always got everything rightwho now drives a Samsung car? And its overall success is not easily replicable. Samsung is patient and bold because the family of its late founder, Lee Byung-chull, wants it to be. Family control is guaranteed by a complex web of crossshareholdings. This is fine so long as the boss is as brilliant as the late Lee or his son, Lee Kun-hee, the current chairman. But if the founder's grandson, who is being groomed for the top job, fails to measure up, he will be harder for the company's shareholders to oust than his peers at GE, Sony and Nokia. To that extent, for all its modern technology, Samsung's story is an old one writ newthe well-run family firm, with a strong culture and a focus on the long term, which has made good use of an indulgent state. (http://www.koreaherald.com/common_prog/newsprint.php?ud=20130425000540&dt=2)