ed The 'Samsung shock'

Korea ought to reduce reliance on a few global players

When Samsung Electronics reported its second-quarter sales and profit figures three months ago, the domestic media called it an “earnings shock.”

The numbers are not all in yet, but the business showings of the world’s largest smartphone maker in the third quarter are so dismal as to make its April-June performance appear robust. What should we call this now ― the “Samsung shock”?

Samsung said Tuesday it expected an operating profit of 4.1 trillion won ($3.8 billion) for the July-September period, down 43 percent from the preceding quarter and 60 percent from a year ago, respectively. Sales tumbled 20 percent to 47 trillion won, from 59 trillion won a year earlier.

The decline of operating profit is somewhat inevitable as the global smartphone market is moving toward saturation. Even so, Samsung’s fall is too steep. More problematic are plunging sales which, along with its dwindling market share, indicate the business foundation of the nation’s largest and most famous company is being seriously shaken.

Samsung’s troubles were predictable to some extent. Often compared to a nut in crackers, the fast follower is sandwiched between slower but far cheaper followers in China and Europe, such as Xiaomi and Wiko, and the first mover, Apple. The Korean maker must be able to either provide the same phones at lower prices or devise more creative and sophisticated devices than its U.S. competitors’. It can do neither right now.

Company officials say they will focus on parts and components, as seen in the $15 billion investment in a state-of-the-art semiconductor plant, offer median-priced phones and differentiate expensive ones from its rivals’ products. None of these sound like a “game-changer,” a completely different gadget that Samsung desperately needs to alter the global industrial map and guarantee its sustainable growth for the time being.

What all this shows is in this rapidly developing sector, even a moment’s self-complacency can lead to a steep, irredeemable fall. Nokia and Sony come to mind. If what happened to Nokia and Finland occurs to Samsung and Korea, the overall economy is in for serious problems given the share the electronics maker takes up in the national economy. Add to that another similarly troubled global player, Hyundai Motor, which also has seen its sales and profits plunge in the face of tough challenges from its Japanese rivals armed with the weak yen, and many Koreans will be losing their sleep.

At stake is how both major businesses and the Korean economy can innovate. President Park Geun-hye was right when she called for a “creative economy” through the fusion of ICT (information-communication technology) and an up-to-date services sector. Like many of her policies, however, President Park says one thing, but does another. A case in point is the ongoing “cyber migration” ― the Korean Internet and smartphone users’ fled to foreign social network services for fear of the government’s snooping in cyberspace. Can Koreans show their creativity under this rigid social atmosphere?

At the same time, Park’s economic czar is bent on bolstering domestic demand through reviving the debt-financed housing boom when he should be promoting innovation by injecting more professional managerial talents in the family-dominated conglomerates and motivating them to cooperate with smaller but more agile partners.

It’s even hard to tell which is experiencing a more serious crisis: Samsung or the Korean economy?