10th of May will mark fifth year since Chairman Lee Kun-hee of Samsung Group was hospitalized due to acute cardiac infarction. Since he was hospitalized, Vice-Chairman Lee Jae-yong of Samsung Electronics, who is Chairman Lee’s son, took the command of Samsung Group and has brought many changes to the group.
Although some were concerned about poor performance of the group when Chairman Lee was hospitalized, Samsung Group found its stability as Vice-Chairman Lee pushed for performance recovery and investments into future businesses. However, Vice-Chairman Lee was involved in a political scandal led by Choi Soon-sil and was imprisoned as a result. Although he is free now as his prison sentence was suspended, he is waiting an outcome of a trial from Supreme Court. Controversy involving accounting fraud by Samsung Biologics is another unfavorable factor. While these issues were taking place, Samsung Electronics’ performance dropped sharply at the beginning of this year. It is urgent for Samsung Group to find stability for its management and performance and it needs to find driving forces for the future and prepare measures that will maintain such driving forces.
◊Samsung Electronics’ performance goes through a rollercoaster
Samsung Electronics was already going through difficult times when Chairman Lee was hospitalized. Its operating profit in third quarter of 2014 was only $3.46 billion (4.06 trillion KRW). Its annual operating profit for that same year was also only $21.3 billion (25.0251 trillion KRW) that was 32% lower than that of 2013. Lack of sales of Smartphones, which had helped performance of Samsung Electronics, was the main factor.
Despite this situation, Vice-Chairman Lee stood at the front of Samsung Group’s management and he had helped Samsung to recover its overall performance. In 2017 and 2018, Samsung had had its best years due to semiconductor boom and recovery of Smartphone business. Operating profits of Samsung Electronics in 2017 and 2018 were $45.8 billion (53.645 trillion KRW) and $50.2 billion (58.8867 trillion KRW) respectively.
However, performance of Samsung Electronics dropped sharply as global semiconductor economy started to go on a downward trend since end of last year. Samsung Electronics recorded its lowest quarterly performance recently in the last ten quarters. Forecast of its performance in second quarter is unclear. Samsung Electronics’ priority task is to recover its performance.
There have been many changes within Samsung Group. It sold its chemical and radiation sectors to Hanwha Group and Lotte Group respectively. It also established a comprehensive Samsung C&T Corporation and got rid of minor businesses and it is continuing to reorganize its corporate structure.
Samsung Group’s subsidiaries are also focused on strengthening their competitive edges through their own respective systems. As a result, electronics-related subsidiaries are beginning to depend less on Samsung Electronics. While performance of Samsung Electronics heavily affected performance of other electronics-related subsidiaries in the past, they have overcome this issue by expanding their own businesses and strengthening their competitiveness. Although performance of Samsung Electronics was poor in last quarter, other electronics-related subsidiaries brought fairly satisfactory performance.
◊Samsung Group looking to become ‘new Samsung’
As Vice-Chairman Lee stood at the forefront of Samsung Group’s management, he has been focusing on securing driving forces for the future. Global electronics and IT industries are going through rapid changes. New trends such as IoT (Internet of Things), automotive convergence, 5G, and blockchain have emerged rapidly. Significant changes are being brought to electronics and IT industries as these new technologies begin to be adopted by various industries.
Samsung Electronics acquired various global businesses such as LoopPay, SmartThings, Viv Labs, Joyent, and Dacor and invested into many businesses from startups to major corporations. Climax of these investments was when Samsung Electronics acquired Harman, Samsung Electronics acquired Harman for $8 billion, which is the largest amount for M&As by South Korean businesses, leaped into a global business in automotive electronics parts.
Vice-Chairman Lee announced responsible management when he became a member of board of directors of Samsung Electronics in October of 2016. However, an unfavorable factor occurred when he was about to expand his stride within management. He had gone through many investigations when he was involved in Choi Soon-sil political scandal and it was difficult for him to perform normal management activities. As a result, M&As and investments that were led by Vice-Chairman Lee came to a halt.
However, Samsung is carrying out these M&As and investments once again as soon as Vice-Chairman Lee became free as his prison sentence was suspended.
◊Samsung Electronics focusing on recovering trust of people and carrying out transparent management
Samsung’s biggest task is to recover trust of people in South Korea. Not everyone in Samsung Electronics views Samsung in positive manner and this does not correspond with a business that represents South Korea and is number one in financial industry.
Samsung is attempting many changes. It changed how its board of directors is operated to have transparent management system. It separated chairman and president of its board of directors and it composes its outside director recommendation committee with only outside directors. It is attempting to meet global standards by incorporating outside directors that used to work for global businesses.
Samsung Electronics finally settled its semiconductor leukemia issue after 11 years and made a public apology. Fact that it is officially recognizing labor activity is also a change. Starting from the 1st of January, Samsung Electronics Service employed 8,700 people from its partners. It also satisfied South Korean Government’s policies by actively resolving cross-shareholding link. Its shareholder-friendly policies and new social contribution activities are also its effort to change.
Samsung also needs to speed up the process of becoming ‘new Samsung’ and present its visions as the number one business in financial industry. Samsung Electronics recently put out its plan of becoming the top non-memory business in the world by investing $113 billion (133 trillion KRW) for the next ten years.
“Samsung has gone through many changes after Vice-Chairman Lee was involved in a political scandal and it has implemented many systems that meet social expectations and transparent management.” said a representative for the financial industry. “However, it has yet to completely restore trust of people and society of South Korea and it needs to continue to put in efforts to completely restore trust of them.”
Staff Reporter Kwon, Keonho | wingh1@etnews.com