At stake is Samsung's yearning to be leader

By Kim Yoo-chul

What should Samsung Electronics do once its legal battle with Apple ends?

The Korean firm needs to find a clear answer to this question as the company hopes to transform from just selling its products to becoming a market creator that sells values.

Samsung executives told The Korea Times they are being asked to pursue another type of corporate evolution with new business models and initiatives.

The company has grown by defeating rivals. It was a ``fast follower’’ and that strategy was very effective thanks to the firm’s top-down decision-making structure and fast implementation.

``There is a history of challenges,’’ said a senior executive. Sony, Hewlett-Packard and Nokia were Samsung’s primary targets and now the company has defeated them all in terms of revenue and market share.

``Basically, Samsung now has no targets that need to be defeated, but rather rising Chinese companies are targeting the firm. We need to get a completely-new business momentum to guarantee corporate sustainability,’’ said the executive by telephone.

Only then will Samsung become a market creator in a real sense.

According to Horace Dediu, who runs consultancy Asymco, it still has a long way to go. ``Unfortunately, manufacturing excellence is not enough to remain successful in the long term. American companies were successful, then those from Japan, Taiwan, Hong Kong and now China. Companies either adapt or become irrelevant. Building ecosystems is the new basis of competition but it's not the only option,’’ Dediu said in an email interview.

Samsung is the world’s top supplier of chips and flat-screens and the company is also the top TV manufacturer, while it recently emerged as the biggest mobile phone producer.

``We don't know what will be necessary to build the next basis. What matters is experimentation and the building of new businesses. I can't offer specific recommendations as there is no recipe for how to create new markets,’’ said the founder of the equity-research firm.

Such observations are echoed by Samsung’s top corporate office head Choi Gee-sung, formerly the CEO of Samsung Electronics. In January this year, Choi told reporters that the company was worried about how to handle innovative capabilities to create new ecosystems, business models and values, though it has proven excellence in manufacturing.

``The global technology trend has already shifted towards content from manufacturing. We are trying our best to be reborn as a global leader, not just as a well-known East Asian firm,’’ Choi said in a dinner meeting with the Korean media on the sidelines of his participation at a technology forum in Las Vegas.

Market analysts and Samsung insiders say the Suwon-based outfit is ideally-positioned to use its own appealing software for its products thanks to its edge in manufacturing. But software is hard to produce and expertise can’t be quickly acquired.

It must be patient and there will be experiments like Samsung’s own mobile operating system Bada as well as leading the development of Tizen with Intel. Google purchased its Android software in 2005 after backing its developer, and Apple started working on its iOS in 2003.

Despite the challenges, Samsung is seeing a ``mild transition’’ towards a value-creating company by diversifying its portfolio into once-untouched territories.

Bada’s impact was negligible when launched but it is now the world’s fifth most popular mobile platform after passing Microsoft’s Windows, according to research firms.

``Actions speak louder than words. Samsung has doubled the number of software developers and it is receiving more benefits and incentives. Samsung’s originality is manufacturing, however, we are increasingly in the mix with software,’’ said a software developer identified only as Lim.

In line with the company-wide initiatives, Samsung has been expanding strategic partnerships with content providers and the company recently acquired U.S.-based MSpot, the company’s first complete acquisition of an overseas content firm, in an attempt to acquire patents and to internalize Samsung’s software-related capabilities.

``Foreign news outlets are blasting Samsung’s passiveness in striking acquisitions, and they are busy underestimating our efforts to become a game changer. We have our own paths. Because Samsung runs cash-intensive and cyclical chip and flat-screen businesses, it’s very tough to see sudden change,’’ said another Samsung executive.

Understandably, he defended the ongoing internal changes. ``But the key point is the fight with Apple awakened us.’’

``More likely to be a problem for Samsung are ZTE and Huawei. They are on the same trajectory that Samsung was on 10 years ago. For Samsung to beat them in the future it will need to develop products that nobody can copy,’’ Dediu stressed.