Choi Gee Sung, president and chief executive officer of Samsung Electronics Co., arrives for morning sessions at the 28th annual Allen & Co. Media and Technology Conference in Sun Valley, Idaho on July 7, 2010. Photographer: Matthew Staver/Bloomberg
South Korea's electronics giant, after passing Sony in flat-panel TVs and Motorola in mobile phones, aims to more than triple revenue to $400 billion by 2020.
About an hour south of Seoul, bulldozers are demolishing the last vacant factories at Samsung Electronics Co.'s Suwon campus, erasing signs that South Korea's most valuable public company once made its headquarters in a smoke-fuming industrial complex.
In their place are ice cream and pizza parlors, research labs and open space that's been groomed as parks. Engineers in T-shirts play basketball on this sunny June morning before heading to their choice of nine cafeterias for a free lunch featuring Korean, Indian and Western dishes prepared to please employees from 50 countries.
Women, who until recently were forced to wear conservative business suits and were absent from top jobs, stroll through gardens in slacks and formerly banned open- toed shoes, Bloomberg Markets magazine reports in its October issue.
The 28,000 engineers, designers and marketers who arrive by bicycle or one of 556 company-funded buses at this bustling center could be in Silicon Valley or a technology park in India except for a sign at the eight- lane entrance: Samsung Digital City.
The campus, along with required English lessons for managers and research into everything from solar cells to humanoid robots, are part of Samsung Electronics' mission to vault itself into the ranks of the world's great innovators and become one of the top five brands.
Apple, Google, Facebook
"The global list of top companies is being replaced by the likes of Apple, Google and Facebook," says Choi Gee Sung, 59, who -- in a partial nod to the recently relaxed dress code -- is tieless in his navy-blue pinstriped suit and white shirt with light-blue stripes for his first interview since becoming chief executive officer in December. "Our job is to prepare the organization for the next generation so it can continue to evolve into a truly great company. We need to be on our toes."
To be successful, Samsung -- a company with a history of top-down managers and obedient employees -- will need to shift strategy, a process for which it has few guideposts.
"Samsung today is in an incredible position to create the evolution of consumer electronics," says Shaun Cochran, who heads Korean research at brokerage CLSA Asia- Pacific, which rates Samsung Electronics a "buy." "The problem is, in a place like Apple, it's a culture of trying to be creative as a matter of who they are. At Samsung, the way of thinking has always been, "?We can do it faster, better and cheaper.'"
Going Global
Samsung Electronics has already taken giant steps from its early days as a copycat appliance manufacturer. Now, as a consumer electronics behemoth, it has expanded beyond South Korea and the nation's industrial, conglomerate-run shipyards, steel mills and auto plants.
In the past decade, Samsung Electronics has rocketed past Sony Corp. as the largest maker of flat-panel TVs. It has edged out Hewlett-Packard Co. in color laser printers that scan, fax and copy. It's also the biggest in other technology-dependent areas such as liquid-crystal-display TVs and computer monitors.
No. 2 in mobile phones, Samsung is pushing the Galaxy S smartphone to challenge Apple Inc.'s iPhone and narrow the gap with leader Nokia Oyj. Samsung claimed a 22 percent global mobile-phone share in the first quarter, up from 14.4 percent in 2007, when it overtook Motorola Inc., market researcher Strategy Analytics says.
All of this gear has helped Samsung Electronics quadruple annual revenue to 139 trillion won ($116 billion) in the 10 years that ended in 2009. During that time, Samsung Electronics shares rose 10-fold.
"?Buy' Ratings
Since Choi became CEO on Dec. 17, the shares rose 1.4 percent as of Aug. 30 after peaking at a record 870,000 won per share on April 5. Thirty-seven of 38 analysts who track the stock rate it a "buy."
The company is aiming to increase revenue again -- this time more than tripling it from 2009 to $400 billion by 2020.
Choi, under the direction of reclusive Lee Kun Hee, 68, son of the founder of parent Samsung Group and now chairman of the electronics unit, is driving Samsung's expansion into solar batteries, medical diagnostic tools and biopharmaceuticals.
"When other global companies hesitate, we must move ahead decisively to take this opportunity," Lee told executives on May 10, according to a statement in which Samsung Group unveiled plans to invest 23.3 trillion won by 2020 in five new businesses, including light-emitting diodes and batteries for hybrid cars. "This will also benefit the country's economy."
Branching Out
Samsung Electronics, which supplies 60 percent of its parent's revenue, will probably invest about 9.3 trillion won of that total.
That's on top of the record 26 trillion won it's spending this year -- up 61 percent from 2009 -- to increase manufacturing at its mainstay semiconductor, display, television and mobile-phone units and on research for the next wave of electronics.
"We are facing a real crisis," Lee said in a March statement announcing his return to the chairmanship. "Many global companies are experiencing enormous challenge and uncertainty of the future, and Samsung is no exception. In 10 years, the majority of products that represent Samsung may no longer exist. We must have a new start. There is no time to hesitate."
Samsung is trying to inspire employees to take up Lee's call to innovate by softening a culture that encourages obedience over creativity.
Softening Culture
The company began letting workers wear casual clothes, instead of suits, in 2008. Last year, it offered flexible work time as long as employees put in eight hours a day.
The company has eased its boot camp for new recruits, which once woke them up with a blaring alarm for a 6 a.m. jog. It shortened the training to five days from 27 days in the early 1990s. And it is hiring more female and foreign workers.
"We are at an inflection point," says Choi in a 37th-floor meeting room overlooking the 425-acre (172- hectare) campus. "We want to transform ourselves to create new value."
Not everyone is sure transformation is possible.
Samsung's strengths -- single-mindedness, swift execution and unquestioning employees -- are weaknesses in a creative environment, says Chang Sea Jin, a business professor at the National University of Singapore.
"Can Samsung really push against the inertia of decades of culture and become a radical innovator? Perhaps. Can they do that while continuing to excel at what they're doing now? I doubt it," says Chang, who chronicled the rise of Samsung and fall of Sony in "Sony vs. Samsung" (John Wiley & Sons, 2008).
Software Innovation
Samsung has grown by studying rivals and then improving manufacturing and design. Now it has to imagine totally new products and create them from the ground up.
"Leading radical innovation in the tech world today requires strength in software, not just hardware," says David Yoffie, a professor at Harvard Business School in Boston. "Software innovation requires a very different culture than a traditional consumer electronics or semiconductor company."
Analyst J.J. Park at JPMorgan Chase & Co., who has the only "hold" rating on Samsung Electronics, says earnings may drop because of an oversupply of dynamic-random-access memory chips, the most common type of computer memory. Competition among TV makers is also heating up.
Park's worries haven't panned out yet. Second-quarter net income jumped 83 percent to a record 4.28 trillion won, fueled by memory chips.
Korean Economy
Samsung Electronics and other top units of family- owned industrial groups, or chaebol, such as Hyundai Motor Co. and LG Electronics Inc., are feeding an already thriving South Korean economy.
The nation's global competitiveness rose by four notches to 23rd in the World Competitiveness Yearbook for 2010 published by the International Institute for Management Development in Lausanne, Switzerland. The institute tracks efficiency and economic performance. For the first time, South Korea outpaced Japan, which ranked 27th.
"The Koreans have an industrial ecosystem that is geared toward being very productive," Cochran of CLSA says. "For one country to take a market share from another country takes decades. Korea has been able to do that."
Encouraged by an improving global economy and soaring overseas shipments of semiconductors and cars, the central bank increased its 2010 growth forecast for South Korea to 5.9 percent in July from 5.2 percent in April.
Credit Rating
Moody's Investors Service raised the nation's credit rating to A1 from A2 in April. Korean exports surged 33 percent to $263 billion in the first seven months of this year.
"South Korea's exports are booming, and Samsung Electronics personifies that," says Oh Suk Tae, a senior economist at SC First Bank Korea Ltd. Oh has raised his 2010 GDP forecast twice this year -- to 6 percent in early July. "Korea's sandwich position between advanced Japan and rising China turned out to be a good thing because it allowed Korean companies to offer products that optimize quality and price."
South Korea's long-standing love-hate relationship with its chaebol hasn't moderated.
Supporters praise the conglomerates for pulling the country out of the ashes of the 1950 to 1953 Korean War and transforming it into the world's 13th-largest economy.
Yet even President Lee Myung Bak, in what some analysts described as a populist move to shore up voter support, said in July the chaebol must help the nation's struggling smaller companies as conglomerates rack up profits.
Smaller Firms Struggle
Lee, who himself is a former CEO of Hyundai Engineering & Construction Co., was elected in 2007 after campaigning for pro-business policies.
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