The document details Samsung Electronics' approach to ethics and social responsibility amid challenges in leadership and market competition. It highlights a significant leadership transition, strategy shifts towards innovation, and the development of a premium brand image, while also addressing financial struggles faced by the company. Samsung's commitment to sustainability and its efforts to stay current with market trends are emphasized as critical to its ongoing growth and competitive advantage.

1. What is the Ethics and Social Responsibility of samsung? SAMSUNG ELECTRONICS 2019*
In February 2019, Samsung Electronics celebrated the 10th in 2014. These troubles with its
leadership have not diminished anniversary of its introduction of the Galaxy S line of smart-
Samsung's status as an innovative-and highly profitablephones by introducing several new
models. The Galaxy S10 powerhouse in the technology world (see Exhibits 1 and 2). models
ranged in sizes and price from a more compact It has gained in stature as the world's largest
maker of memory model with a 5.8-inch display to a full-size model with a chips, smartphones,
and televisions among other electronic 6.4-inch one. It even launched a souped-up model with
products (see Exhibit 3). a 6.7-inch screen that featured 5G technology. These new But the
removal of Lee came at a tough time for models also feature a "Infinity-O display," which cuts a
hole Samsung, which has been seeking new avenues for growth for the front camera in the upper
right corner to allow the as sales of its market-leading smartphones seem to be display to
maximize the entire front of the phone. slowing down. A few months later, Samsung's chairman
of These anniversary models capped a period of two years the board, Kwon Oh-hyun, shocked
everyone in the firm by during which Samsung Electronics had to cope with the suddenly
announcing his resignation. Kwon claimed that conviction of its de facto leader, Lee Jae-yong,
on charges the firm need to turn to a younger generation of leaders of bribing South Korea's
former president. Lee has been who could search for new growth engines by studying
fuproviding broad direction to the firm since his father, Lee ture trends. "I believe the time has
now for the firm to start Kun-hee, became incapacitated after suffering a heart attack anew with a
new spirit and young leadership" he said. 1 This led the firm to shake up its senior ranks in order
to address concerns about a leadership vacuum. It replaced drawn from published sources to be
used for purposes of class discussion. main business lines-mobile, electronics components, and
Copyright 02019 Jamal Shamsie and Alan B. Eisner. consumer electronics. EXHIBIT 1 Income
Statement (billions of KRW) EXHIBIT 2 Balance Sheet (billions of KRW)
EXHIBIT 3 Smartphone Sales Worldwide still making most of its profits from lower-priced
appliances that consumers were likely to pick up if they could not afford a higher-priced brand
such as Sony or Mitsubishi. It had also become an established low cost supplier of various
components to such larger and better-known manufacturers around the world. Although they
were making profits, Yun was concerned about the future prospects of a firm that was relying on
a strategy of price competition with products based on technologies that had been developed by
other firms. The success of this strategy was tied to the ability of Samsung to continually scout
for locations that would allow it to keep its manufacturing costs down. At the same time, it

2. would need to keep generating sufficient orders to maintain a high volume of production. In
particular, he was concerned about the growing competition that the firm was likely to face from
the many low-cost producers that were springing up in other countries such as China. Yun's
concerns were well founded. Within a year of his takeover, Samsung was facing serious financial
problems that threatened its very survival. The company was left with huge debt as an economic
crisis engulfed most of Asia in 1997 , leading to a drop in demand and a crash in the prices of
many electronic goods. In the face of such a deteriorating environment, Samsung continued to
push for maintaining its production and sales records even as much of its Source: Samsung
Electronics Announces Fourth Quarter and FY 2018 Results. output was ending up unsold in
warehouses. Samsung. January 31, 2019. By July 1998, Samsung Electronics was losing millions
of dollars each month. "If we continued, we would have Everyone at Samsung has been hoping
these new ap- gone belly-up within three or four years" Yun recalled. 2 He pointments will bring
fresh blood in order to help revitalize knew that he had to make some drastic moves in order to
the firm. Analysts claim that the firm faces strong pressures turn things around. Yun locked
himself in hotel room for an because of its heavy reliance on competing with its hard- entire day
with nine other senior managers to try and find a ware while other competitors, ranging from
Apple to way out. They all wrote resignation letters and pledged to Xiaomi, offer software and
Internet services that set their resign if they failed. products apart from all others because it runs
only on their After much deliberation, Yun and his management team devices. Samsung did
introduce its own operating system, decided to take several steps to try and push Samsung out
Tizen, but this is unlikely to challenge existing systems such of its precarious financial position.
To start, they decided to as Google's Android. lay off about 30,000 employees, representing well
over a Executives at Samsung have claimed that the firm's third of its entire workforce. They
also closed down many of strength lies in the diverse line of its products that include Samsung's
factories for two months so that they could get televisions, cameras, laptops, and even washing
machines. rid of its large inventory. Finally, they sold off about $2 bilAlthough smartphones
have accounted for as much as two- lion worth of businesses like pagers and electric
coffeemakthirds of their profits, they can also increase their revenues ers perceived to be of
marginal significance for the firm's from their other offerings (see Exhibit 4). Furthermore, un-
future. like their rivals, Samsung makes most of their own components that allow it to offer
better products with lower costs. Developing a Premium Brand They can generate profits even if
profit margins on some of Having managed to stem the losses, Yun decided to move these
products continue to decline. Samsung away from its strategy of competition based Discarding
argely on the lower price of its offerings. Consequently, he began to push the firm to develop its
own products rather Although Samsung chairman Lee Kun-hee had called for a than to copy
those that other firms had developed. In parshift in the firm's strategy, the transformation could

3. not ticular, Yun placed considerable emphasis on the develophave been possible without the
ceaseless efforts of Yun ment of products that would impress consumers with their Jong Yong,
who was appointed to the position of president attractive designs and their advanced technology.
By focusand CEO in 1996. When Yun took charge, Samsung was ing on such products, Yun
hoped that he could develop
Samsung into a premium brand that would allow him to ranging from semiconductors to LCD
displays that could charge higher prices. allow Samsung to push out a wide variety of
revolutionary In order to achieve this, Yun had to reorient the firm digital products. Samsung has
continuously invested more in and help it to develop new capabilities. He recruited new research
and development than any of its rivals-almost $15 managers and engineers, many of whom had
developed billion by 2018. It has a assembled a large force of designers considerable experience
in the United States. Once they and engineers that work in several research centers spread had
been recruited, Yun got them into shape by putting all around the world. More recently, Samsung
has started a them through a four-week boot camp that consisted of mar- C-Lab at its
headquarters-an in-house incubation center tial drills at the crack of dawn and mountain hikes
that that encourages employees to build and develop their own would last all day. To create
incentives for this new talent, ideas for growing a business. Yun discarded Samsung's rigid
seniority-based system and Yun also forced its own units to compete with outsiders replaced it
with a merit-based system for advancement. in order to speed up the process for developing
innovative As a result of these efforts, Samsung began to start new products. In the liquid-
crystal-display business, for exlaunching an array of products that were designed to make ample,
Samsung bought half of its color filters from a big impression on consumers. These included the
largest Sumitomo Chemical Company of Japan and sourced the flat-panel televisions, cell
phones with a variety of features other half internally, pitting the two teams against each such as
cameras and PDAs, ever-thinner notebook comput- other. "They really press these departments
to compete," ers, and speedier and richer semiconductors. The firm calls said Sumitomo
President Hiromasa Yonekura. 4 As a result them "wow products" and they are designed to
elevate of these steps, Samsung claims that it has been able to reSamsung in the same way the
Trinitron television and the duce the time that it takes to go from new product concept Walkman
helped to plant Sony in the minds of consumers. to rollout to as little as five months, compared to
over a Finally, to help Samsung change its image among con- year that it used to take the firm in
2000. sumers, Yun hired a marketing whiz, Eric Kim, who worked In large part, this has resulted
from the effort of the firm's hard to create a more upscale image of the firm and its top managers,
engineers, and designers who work relentlessly products. Kim moved Samsung's advertising
away from 55 in the five-story VIP center nestled amid the firm's industrial different advertising

4. agencies around the world and placed complex in Suwon. They work day and night in the center,
them with one firm-Madison Avenues' Foote, Cone & which includes dormitories and showers
for brief rests to work Belding Worldwide-in order to create a consistent global out any problems
that may hold back a product launch. This brand image for its products. He also begun to pull
Samsung allows the firm to get its products to move quickly to manufacout of big discount
chains like Walmart and Kmart and turing with minimal problems and at the lowest possible
cost. place more of its products into more upscale specialty Kyunghan Jung, a senior manager of
the center explained: stores such as Best Buy and Circuit City. "Seventy to eighty percent of
quality, cost, and delivery time is Yun also began a practice of working closely with retail-
determined in the initial stages of product development." ers to get more information about the
specific needs of pro- The speedier development process has allowed Samsung to spective
consumers. Samsung teamed up with Best Buy to introduce the first voice-activated phones,
handsets with MP3 create the Samsung Experience Shop, a store-within-a-store players, and
digital camera phones that send photos over a that allows customers to test the company's newest
prod- global system for mobile communications networks. As an exuets as well as receive
training in mobile products they ample of the firm's speed and agility, Charles Golvin of already
own. This has allowed them to better understand exist- Forrester Research talked about its ability
to create four differing markets and innovating inside them. "We get most of our ent
specifications of its Galaxy S smartphone for four varying ideas from the market," said Kim
Hyun-Suk, an executive vice wirelesss network types around the world and deliver them
president at Samsung. 3 simultaneously. "They've had a long history of responding to market
trends with a lot of alacrity," he remarked. 6 Speeding Up New Product Development Yun also
took many steps to speed up Samsung's new prod. Perfecting a Design Process uct development
process. He was well aware that he could As Yun was building the Samsung brand, he was
already only maintain the higher margins as long as his firm kept trying to position the firm to
compete with all others on the introducing new products into the market well ahead of its basis
of the irresistible design of its wide range of products established rivals. Samsung managers who
have worked for ranging from home appliances to handheld computers to big competitors say
they have to go through far fewer layers flat-screen televisions that, eventually, would all be
linked of bureaucracy than they had in the past to win approval for to each other. In fact, the firm
does seem to be well placed new products, budgets, and marketing plans, speeding up to develop
attractive gadgets that straddle traditional techtheir ability to seize opportunities. nology
categories. "We have to combine computers, con- Apart from reducing the bureaucratic
obstacles, Yun was sumer electronics, and communications as Koreans mix able to take
advantage of the emerging shift to digital tech- their rice with vegetables and meats," said Dae Je
Chin, the nologies. He made heavy investments into key technologies head of Samsung's digital

5. media division. 7
Although Samsung tries to pack its products with various its reputation for building innovative
products. Although attractive features, it draws on the knowledge of over 1,500 there are some
doubts about its prospects for continued designers with backgrounds in disciplines as diverse as
psy- growth, the firm is confident in its savvy investments in chology, sociology, economics, and
engineering. These chipmaking over the years. By 2017, Samsung had surpassed designers in
turn draw on information that is collected by Intel to become the leading producer of
semiconductors in over 60,000 staff members working in 35 research centers the world. 12 This
leadership will allow it to move into new across the globe in cities such as San Francisco,
London, growth areas such as artificial intelligence, autonomous Tokyo, Mumbai, and Shanghai.
Inside these centers, design- driving, and growing Internet-based applications. "Samsung ers
observe the way that consumers actually use various prod- can actually advance into new areas
leveraging its strength in ucts. The wide Galaxy Note phone, for example, resulted the existing
chip business, as we embrace a new era where from the responses of focus groups who wanted a
device that memory capacity will be really important," said Marcello was good for handwriting,
drawing, and sharing notes. Asian Ahn, a fund manager at Quad Investment. 13 consumers said
that they found it easier to write characters In the meantime, Samsung continues to invest into its
on a device using a pen than typing on a keyboard. existing businesses, such as its market-
leading smartphone "The research process is unimaginable," said Chang business. It has
announced its plans to launch a smartDonghoon, an executive vice president of Samsung who
has phone with a foldable screen that folds like a book and led the company's design efforts. "We
go through all avenues opens to tablet size. The phone, whose screen would exto make sure we
read the trends correctly." 8 Samsung has pand to 7.3 inches when opened, is expected to be
launched therefore been sending its growing group of designers to in September 2019. 14 The
hope is that the new offering will various locations to spend a few months at fashion houses, help
Samsung compete with the growth of sales from lowerfurniture designers, and cosmetic
specialists to stay current cost Chinese rivals. It could also lift sales, pushing consumwith trends
in other industries. Designers of the latest ers away from the recent trend of holding on to their
handGalaxy smartphone said they drew inspiration from trips to sets for longer periods of time.
ruins in Cambodia, vistas in Helsinki, a Salvador Dali art At the same time, Samsung has been
building a reputation exhibit in London, and even a balloon ride in Africa. for its efforts to
advance the push for more sustainability. The Furthermore, Samsung appointed designers to
manage- firm has been making all of its products more energy efficient, ment positions in order
to make sure that they can get their allowing it to earn awards for some of its products. Its latest
ideas to top executives. In 2015, the firm managed to recruit initiative, Galaxy Upcycling, allows

6. consumers to transform Lee Don-Tae, who had been a top executive at a leading UK the Galaxy
phones that they no longer need into smart dedesign agency. He joined Chang Don-Hoon, who
was given vices such as LCTVs, gaming consoles, and personal computcharge of the firm's
design strategy team, overseeing the de- ers. This new approach is being gradually expanded to
reach sign of products across all of the product lines. In the fall of more and more consumers
around the world. 2014, Samsung unveiled a slick design website to shore up Of all the new
areas for growth of its chipmaking busiits self-proclaimed status as a design powerhouse.
"Samsung ness, Samsung is most optimistic about the push for autonstrives to consistently lead
the consumer electronics indus- omous driving. According to Peter Yu, an analyst with BNP try
in product design and engineering innovation," an exec- Paribas: "Autonomous driving will
require huge data proutive said. As a result of these efforts, Samsung has cessing power, and
Samsung can provide essential compomanaged to win several hundred design awards over the
last nents such as sensors, storage chips, cameras, and disyears. In 2018 alone, the firm won 49
IDEA Design Awards, play. 15 But in spite of the opportunities that can arise from the most it
has won in a single year thus far. 10 such new developments as autonomous driving, the firm
Samsung has also been relying on the attractiveness of does face competition from several
existing and potential its products to make them the center piece of a digital entrants. Analysts
therefore believe that Samsung's success home. In a showroom in the lobby of its headquarters in
with its movement into these new growth areas is likely to Seoul, the firm shows off many of its
latest offerings rang- depend on its ability to convert its expertise of one sort of ing from tablet
computers to digital cameras. Visitors can mobile technology to others. put on goggles to watch
characters jump out on 3-D televisions or shuffle their feet on an interactive LED floor. Change
everything except your wife and children. Roger Entner, a wireless industry analyst at Neilson
said -Address to employees from Samsung chairman Lee Kun-hee to about Samsung's efforts:
"With its resources and experi- push for its transformation to a leading electronics brand ence,
it's trying to capitalize on the emergence of smart connected devices. The question is, 'Can they
be a cuttingedge trendsetter like Apple?'"I ENDNOTES 1. Harris B. and Song Jung-A. Samsung
record profits mask looming Creating a Sustainable Model? crisis. Financial Times, October 14-
15, 2017, p. 15. Samsung has been trying to deal with the setback that its de 2. Gibney, Jr, F.
Samsung moves upmarket. Time, March 25, 2002, p. 49. 3. Chen, B.X. Samsung's strategy to
brake Apple juggernaut. New York facto leader's arrest may have caused to its efforts to reassert
Times, February 11, 2013, p. B1.