By Kim Jae-kyoung
SINGAPORE ― Samsung Electronics must form more alliances with startups and smaller firms to find new business models and accelerate innovation, according to a leading academic expert on this.
“Korean chaebol have ushered new ways of thinking about global innovation, and they’ve proven that massive industrial investment and cooperation could lead to global success,” Bruno Lanvin, INSEAD’s executive director for Global Indices, said in a recent interview.
“It is now important for giants such as Samsung and Hyundai to think beyond their current sectors of activity, and anticipate where and how innovation will be generated.”
Lanvin is founder and co-editor of INSEAD’s global indices, comprising the Global Innovation Index, the Networked Readiness Index of the Global Information Technology Report, and the Global Talent Competitiveness Index.
He expects disruptive innovation will emerge from new business models rather than just from technological breakthroughs.
In this regard, he recommended Samsung and Hyundai keep an eye on startups and smaller competitors rather than focusing exclusively on in-house innovation.
“Adding more content to a smartphone could require strategic alliances with content providers in the media and movie industries, including Virtual Reality (VR) and Augmented Reality (AR),” he said.
“Similarly, the automobile industry should seek alliances with battery manufacturers, software innovators, such as for self-driven cars, but also urban architects and smart city experts.”
Tesla and Google are good examples of how to seek innovation through alliances, according to him.
“Tesla is establishing a new model in the automobile sector, combining significant in-house innovation, and synergy with other sectors such as space ― strategic battles to acquire GPS guiding applications,” he said.
“Google is establishing a strategic alliance with Avis to manage its fleet of self-driven cars, suggesting they are not looking at an ownership business model.”
The advice comes as Samsung and Korea’s other large firms, which emerged as global players by adopting a fast-follower strategy, struggle to find new business models.
The interview was conducted after INSEAD, one of the world’s leading business school, released the Global Innovation Index 2017 a week ago. The index was co-produced by Cornell University and the World Intellectual Property Organization.
In the 2017 index surveying 127 economies, South Korea ranked 11th in the world and second in the Asia-Pacific region.
Korea's ranking, unchanged from last year, placed it ahead of countries such as Japan, France and Hong Kong.
Switzerland ranked highest as the world’s most innovative country, followed by Sweden, the Netherlands, the U.S. and the U.K.
Lanvin, who worked for the World Bank before joining INSEAD, said that in order to join the Top Ten, Korea’s society and economy must most significantly improve their performance in the area of “openness.”
Korea, in particular, is lagging behind in trade openness, with the nation standing at 88th on tariffs and 100th on ICT services imports as a percentage of total trade. Its openness to external financing of research and development (R&D) ranked 89th and to foreign investment 111th.
However, he stressed Korea has good reason to become an innovation leader, citing its strength in the areas of Human Capital and Research (second), and Knowledge and Technology Output (sixth).
“Considering the points made above, Korea definitely has a great future as an innovative country,” Lanvin said.
“From a policy point of view, fostering the openness of Korea’s economy and society would be a promising avenue.”
Lanvin suggests Korea take a cue from Switzerland, noting that best practices of how to become more open can often be found in the experience of countries that did not have a choice.
“One hundred and fifty years ago, Switzerland was among the poorest countries in Europe. Since it is landlocked and has practically no natural resources, it had to open its borders to trade, investment and ideas,” he said.
“Quickly, the talents of its merchants, hotel managers, engineers and bankers helped the country to build its reputation far beyond cuckoo clocks and chocolate.”
To foster corporate openness, the professor called for the “internationalization of governance of large Korean conglomerates by inviting foreigners to sit on their boards.”
According to the 2017 innovation index, Korea did particularly well on indicators gauging patents (first), industrial design (first), gross expenditure on R&D (second) and research talent (second).
However, it came in 107th on the flexibility of labor markets for “cost of dismissal” and 55th for political stability and safety.