Review of Samsung Rising: The Inside Story of the South Korean Giant That Set Out to Beat Apple and Conquer Tech
Penguin: 2020, by Geoffrey Cain.
Published in the Mekong Review May 2020
Samsung is everywhere these days. On towering screens in New York’s Times Square, partnering with leading edge designers at London Fashion Week, unveiling its latest foldable phone.
Even at the Oscars, where the grand-daughter of Samsung’s founder was on stage celebrating the multiple triumphs of the film Parasite, which she produced.
Mikey Lee at the 2020 Oscars
Samsung used to model itself on Sony. Today, though, Samsung’s stock market value is over three times the size of its former exemplar’s and its one serious rival is Apple.
How and why did this happen? Cain’s well-researched and often highly entertaining account offers plenty of clues to the rise of this extraordinary entity which bestrides the world of twenty first century high-tech while staying true to its East Asian roots.
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“Fuck Steve. He’s dead and we were right. Samsung was right.” So declared an American marketing executive at Samsung in 2017. Jobs had mocked Samsung’s large-screen phones when they first appeared, but years later Apple launched a series of similar phones themselves.
The greater frustration was that Apple, via the charisma of Steve Jobs, had created an image of creativity that helped it secure higher prices and higher profits while casting Samsung as copycats.
The reality was more complex. It was not Apple that first launched the smart phone, but Blackberry. Jobs borrowed liberally from Sony and even Panasonic. Samsung has been the trailblazer in foldable phones and phones equipped for “5G”, the next generation network that will enable full-length movies to be downloaded in seconds.
Teams of engineers can be innovative, as well as Californian hipsters. Samsung’s recipe is gaseon, the Korean version of the Japanese word kaizen, meaning continual improvement, which is often associated with Toyota.
Though best known to the public for its smart phones and large-screen TVs, Samsung is also a huge producer of flash memory chips and touch screens. One of its most important customers for these items is none other than Apple – from whose perspective Samsung is a crucial supplier. The two rival competitors are, in the words of one of Cain’s sources, “joined at the hip.”
Apple is so astonishingly profitable because it is a “platform company” that focusses on software and design. Production is outsourced to enormous job-shops such as Taiwan’s Foxconn (aka Hon Hai). The other members of the “FAANGs” group of high-tech companies (Facebook, Apple, Amazon, Netflix, Google) that dominate the high-tech landscape are newly-minted internet companies.
Samsung, by contrast, was founded eighty years ago. A traditional manufacturer with 310,000 employees world-wide, three times as many as Apple, it has a corporate culture that is rooted in its origins.
The Japan Connection
Samsung is a chaebol. Written with the same characters as the Japanese zaibatsu, the word means “industrial group”. Its founder, B.C. Lee, was educated at Waseda University in Tokyo, as were many members of the Korean elite in the colonial period. When he established his first company in 1936, a vegetable and dried fish shop, he chose the name ‘Samsung,’ meaning ‘three stars’, as a kind of homage to Mitsubishi, which means ’three diamonds.’
In 1950, B.C. visited war-battered Japan, where he viewed fifty factories and business sites and was bowled over by the resilience and work ethic of the Japanese just a few years after their shattering defeat.
“The Japanese steadfastly valued loyalty and prioritized the cosmic self over the individual and the public over the private,” he wrote later. “The Japanese capacity for unity and diligent work comes from that patriotism.”
Cosmic Samsung
In line with Japanese human resource practices, he prized loyal, lifelong generalists as employees and reportedly sat in on 100,000 recruitment interviews. For the “Samsung Man”, Cain notes, “company was family and family was company.” Stamina-sapping group activities, such as forty eight hour hikes, were used to build physical and mental toughness. There are obvious parallels with the ethos of Japanese “salarymen,” the hard-charging corporate samurai on whose labours Japan’s economic miracle was based.
B.C. was a frequent visitor to Japan and was to marry a Japanese woman, as other members of the dynasty have subsequently done. It was from his favoured Hotel Okura that he issued the “Tokyo Declaration” in 1983, committing Samsung to becoming a major force in semiconductors. Lee Kun-hee, his third son and eventual successor, visited Japan to meet semiconductor experts nearly every week.
“I tried to learn from them anything that might be of use,” he wrote in his memoirs. “I would often secretly bring in Japanese experts on Saturday and have them teach my engineers overnight.”
He would have had no problem in communicating with them. Like his father, Lee Kun-hee was a graduate of Waseda University and a fluent Japanese speaker. Jay Y. Lee, the founder’s grandson and current boss, studied at Harvard Business School, but also has an M.B.A from Keio University, the rival of Waseda, and is also a Japanese speaker.
Through its formative years and into this century, Samsung has always had top-level Japanese advisors whose opinions were taken very seriously, such as industrial designer Tameo Fukuda. Presumably, some of them facilitated the unofficial transfer of intellectual property that Lee Kun-hee mentions above.
How did a company which had so much in common with corporate Japan succeed so spectacularly when its Japanese rivals have floundered? In a sense, Samsung’s success is a tribute to the Japanese business model, yet there is one very significant difference between corporate Japan and Samsung: the ownership structure.
After the Second World War, the American occupation authorities dissolved Japan’s zaibatsu industrial groups on the dubious grounds that they had been largely responsible the rise of militarism. In the early post-war period, the zaibatsu coalesced again, but with one crucial difference. The founding families were no longer there. Instead, the companies developed an intricate network of cross-shareholdings which protected managements from outside pressure.
Japan’s post-war system of capitalism without capitalists meant that financially nobody had “skin in the game.” Ultimately that led to complacency and strategic inertia – even at Sony once Akio Morita, the charismatic founder, was gone. No “salaryman CEO” could issue Lee Kun-hee’s radical challenge to his staff – “change everything, except your wife and children.”
Jay Z likes Samsung
As Cain makes clear, Samsung is a controversial presence in South Korea. Samsung Electronics alone accounts for some twenty five percent of total stock market capitalization.
Any organization that big and wealthy is bound to become a political actor. Cain describes heated street confrontations between anti-Samsung demonstrators (mostly young and left-leaning) and Samsung supporters (mainly older and conservative). Attitudes to Samsung, as with attitudes towards Japan – the two are intimately connected – express a larger fracture in South Korean society.
Samsung has certainly been involved in its fair share of scandals. Jay Y. Lee, the effective leader of the chaebol, did jail time after being found guilty of corruption in 2017. Yet when South Korea’s leftist president took a delegation of businessmen to meet North Korean dictator Kim Jong-un in September 2018, prominent amongst their number was the recently released Jay Y. Lee. A South Korean business delegation without Samsung would be like the Barcelona football team without Lionel Messi.
Today Samsung dominates its sector as Japan’s electronic behemoths were once expected to do. In the Darwinian world of high-tech, it flies the flag for old-fashioned engineer-led manufacturing – and for old-fashioned dynastic capitalism.
It may not be super-cool and it may not be pretty, but the results speak for themselves.