CASES

CASE 21
SAMSUNG ELECTRONICS 2019*
In February 2019, Samsung Electronics celebrated the 10th
anniversary of its introduction of the Galaxy S line of smart-
phones by introducing several new models. The Galaxy S10
models ranged in sizes and price from a more compact
model with a 5.8-inch display to a full-size model with a
6.4-inch one. It even launched a souped-up model with
a 6.7-inch screen that featured 5G technology. These new
models also feature a “Infinity-O display,” which cuts a hole
for the front camera in the upper right corner to allow the
display to maximize the entire front of the phone.
These anniversary models capped a period of two years
during which Samsung Electronics had to cope with the
conviction of its de facto leader, Lee Jae-yong, on charges
of bribing South Korea’s former president. Lee has been
providing broad direction to the firm since his father, Lee
Kun-hee, became incapacitated after suffering a heart attack
* Case prepared by Jamal Shamsie, Michigan State University, with the
assistance of Professor Alan B. Eisner, Pace University. Material has been
drawn from published sources to be used for purposes of class discussion.
Copyright © 2019 Jamal Shamsie and Alan B. Eisner.
in 2014. These troubles with its leadership have not diminished
Samsung’s status as an innovative—and highly profitable—
powerhouse in the technology world (see Exhibits 1 and 2).
It has gained in stature as the world’s largest maker of memory
chips, smartphones, and televisions among other electronic
products (see Exhibit 3).
But the removal of Lee came at a tough time for
Samsung, which has been seeking new avenues for growth
as sales of its market-leading smartphones seem to be
slowing down. A few months later, Samsung’s chairman of
the board, Kwon Oh-hyun, shocked everyone in the firm by
suddenly announcing his resignation. Kwon claimed that
the firm need to turn to a younger generation of leaders
who could search for new growth engines by studying fu-
ture trends. “I believe the time has now for the firm to start
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
all three of its co-chief executives that were heading its
main business lines—mobile, electronics components, and
consumer electronics.

EXHIBIT 1 Income Statement (billions of KRW)

Years Ending December 31

2018 2017 2016 2015 2014 2013
Revenue 243,771 239,575 201,866 200,653 206,206 228,693
Gross Profit 111,377 110,284 81,589 77,171 77,927 90,996
Operating Profit 61,159 56,195 30,713 25,960 27,875 38,364
Net Income 43,890 41,344 22,415 18,694 23,082 29,821
Source: Samsung Financial Statements (2013–2018).

EXHIBIT 2 Balance Sheet (billions of KRW)

Years Ending December 31

2018 2017 2016 2015 2014 2013
Total Assets 339,357 301,752 262,174 242,179 230,422 214,075
Total Liabilities 91,604 87,260 69,211 63,119 62,334 64,059
Total Shareholders Equity 240,068 207,213 186,424 172,876 162,181 144,442

Source: Samsung Financial Statements (2013–2018).

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 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
Market Shares afford a higher-priced brand such as Sony or Mitsubishi. It
2018 2017 2016 had also become an established low cost supplier of various
components to such larger and better-known manufacturers
Samsung 19.0% 20.9% 18.1% around the world.
Although they were making profits, Yun was concerned
Apple 13.4% 14.0% 18.3%
about the future prospects of a firm that was relying on a
Huawei 13.0% 9.8% 10.6% strategy of price competition with products based on tech-
nologies that had been developed by other firms. The suc-
Xiaomi 7.9% 5.8% 3.6%
cess of this strategy was tied to the ability of Samsung to
OPPO 7.6% 7.3% 7.3% continually scout for locations that would allow it to keep
its manufacturing costs down. At the same time, it would
Others 39.1% 42.2% 41.8% need to keep generating sufficient orders to maintain a high
Source: Gartner, 2019; Statista 2017. 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
EXHIBIT 4 Revenue by Division (trillions KRW) up in other countries such as China.
Yun’s concerns were well founded. Within a year of his
Business Division 2018 2017 2016 takeover, Samsung was facing serious financial problems
Semiconductor 86.3 74.3 51.2 that threatened its very survival. The company was left with
Display Panel 32.5 34.5 26.9 huge debt as an economic crisis engulfed most of Asia in
1997, leading to a drop in demand and a crash in the prices
Consumer Electronics 42.1 44.6 45.1 of many electronic goods. In the face of such a deteriorat-
IT & Mobile Communication 100.7 106.7 100.3 ing environment, Samsung continued to push for maintain-
ing its production and sales records even as much of its
Source: Samsung Electronics Announces Fourth Quarter and FY 2018 Results.
Samsung, January 31, 2019.
output was ending up unsold in warehouses.
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 bil-
Although smartphones have accounted for as much as two- lion worth of businesses like pagers and electric coffeemak-
thirds 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 compo-
nents 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
largely on the lower price of its offerings. Consequently, he
Discarding a Failing Strategy 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 par-
shift in the firm’s strategy, the transformation could not ticular, Yun placed considerable emphasis on the develop-
have 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 focus-
and CEO in 1996. When Yun took charge, Samsung was ing on such products, Yun hoped that he could develop

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 Samsung into a premium brand that would allow him to
charge higher prices.
In order to achieve this, Yun had to reorient the firm
and help it to develop new capabilities. He recruited new
managers and engineers, many of whom had developed
considerable experience in the United States. Once they
had been recruited, Yun got them into shape by putting
them through a four-week boot camp that consisted of mar-
tial drills at the crack of dawn and mountain hikes that
would last all day. To create incentives for this new talent,
Yun discarded Samsung’s rigid seniority-based system and
replaced it with a merit-based system for advancement.
As a result of these efforts, Samsung began to start
launching an array of products that were designed to make
a big impression on consumers. These included the largest
flat-panel televisions, cell phones with a variety of features
such as cameras and PDAs, ever-thinner notebook comput-
ers, and speedier and richer semiconductors. The firm calls
them “wow products” and they are designed to elevate
Samsung in the same way the Trinitron television and the
Walkman helped to plant Sony in the minds of consumers.
Finally, to help Samsung change its image among con-
sumers, Yun hired a marketing whiz, Eric Kim, who worked
hard to create a more upscale image of the firm and its
products. Kim moved Samsung’s advertising away from 55
different advertising agencies around the world and placed
them with one firm—Madison Avenues’ Foote, Cone &
Belding Worldwide—in order to create a consistent global
brand image for its products. He also begun to pull Samsung
out of big discount chains like Walmart and Kmart and
place more of its products into more upscale specialty
stores such as Best Buy and Circuit City.
Yun also began a practice of working closely with retail-
ers to get more information about the specific needs of pro-
spective consumers. Samsung teamed up with Best Buy to
create the Samsung Experience Shop, a store-within-a-store
that allows customers to test the company’s newest prod-
ucts as well as receive training in mobile products they
already own. This has allowed them to better understand exist-
ing markets and innovating inside them. “We get most of our
ideas from the market,” said Kim Hyun-Suk, an executive vice
president at Samsung.3
Speeding Up New Product Development
Yun also took many steps to speed up Samsung’s new prod-
uct development process. He was well aware that he could
only maintain the higher margins as long as his firm kept
introducing new products into the market well ahead of its
established rivals. Samsung managers who have worked for
big competitors say they have to go through far fewer layers
of bureaucracy than they had in the past to win approval for
new products, budgets, and marketing plans, speeding up
their ability to seize opportunities.
Apart from reducing the bureaucratic obstacles, Yun was
able to take advantage of the emerging shift to digital tech-
nologies. He made heavy investments into key technologies
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ranging from semiconductors to LCD displays that could
allow Samsung to push out a wide variety of revolutionary
digital products. Samsung has continuously invested more in
research and development than any of its rivals—almost $15
billion by 2018. It has a assembled a large force of designers
and engineers that work in several research centers spread
all around the world. More recently, Samsung has started a
C-Lab at its headquarters—an in-house incubation center
that encourages employees to build and develop their own
ideas for growing a business.
Yun also forced its own units to compete with outsiders
in order to speed up the process for developing innovative
new products. In the liquid-crystal-display business, for ex-
ample, Samsung bought half of its color filters from
Sumitomo Chemical Company of Japan and sourced the
other half internally, pitting the two teams against each
other. “They really press these departments to compete,”
said Sumitomo President Hiromasa Yonekura.4 As a result
of these steps, Samsung claims that it has been able to re-
duce the time that it takes to go from new product concept
to rollout to as little as five months, compared to over a
year that it used to take the firm in 2000.
In large part, this has resulted from the effort of the firm’s
top managers, engineers, and designers who work relentlessly
in the five-story VIP center nestled amid the firm’s industrial
complex in Suwon. They work day and night in the center,
which includes dormitories and showers for brief rests to work
out any problems that may hold back a product launch. This
allows the firm to get its products to move quickly to manufac-
turing with minimal problems and at the lowest possible cost.
Kyunghan Jung, a senior manager of the center explained:
“Seventy to eighty percent of quality, cost, and delivery time is
determined in the initial stages of product development.”5
The speedier development process has allowed Samsung to
introduce the first voice-activated phones, handsets with MP3
players, and digital camera phones that send photos over a
global system for mobile communications networks. As an ex-
ample of the firm’s speed and agility, Charles Golvin of
Forrester Research talked about its ability to create four differ-
ent specifications of its Galaxy S smartphone for four varying
wirelesss network types around the world and deliver them
simultaneously. “They’ve had a long history of responding to
market trends with a lot of alacrity,” he remarked.6
Perfecting a Design Process
As Yun was building the Samsung brand, he was already
trying to position the firm to compete with all others on the
basis of the irresistible design of its wide range of products
ranging from home appliances to handheld computers to
flat-screen televisions that, eventually, would all be linked
to each other. In fact, the firm does seem to be well placed
to develop attractive gadgets that straddle traditional tech-
nology categories. “We have to combine computers, con-
sumer electronics, and communications as Koreans mix
their rice with vegetables and meats,” said Dae Je Chin, the
head of Samsung’s digital media division.7
CASE 21 :: SAMSUNG ELECTRONICS 2019 C169
 Although Samsung tries to pack its products with various
attractive features, it draws on the knowledge of over 1,500
designers with backgrounds in disciplines as diverse as psy-
chology, sociology, economics, and engineering. These
designers in turn draw on information that is collected by
over 60,000 staff members working in 35 research centers
across the globe in cities such as San Francisco, London,
Tokyo, Mumbai, and Shanghai. Inside these centers, design-
ers observe the way that consumers actually use various prod-
ucts. The wide Galaxy Note phone, for example, resulted
from the responses of focus groups who wanted a device that
was good for handwriting, drawing, and sharing notes. Asian
consumers said that they found it easier to write characters
on a device using a pen than typing on a keyboard.
“The research process is unimaginable,” said Chang
Donghoon, an executive vice president of Samsung who has
led the company’s design efforts. “We go through all avenues
to make sure we read the trends correctly.”8 Samsung has
therefore been sending its growing group of designers to
various locations to spend a few months at fashion houses,
furniture designers, and cosmetic specialists to stay current
with trends in other industries. Designers of the latest
Galaxy smartphone said they drew inspiration from trips to
ruins in Cambodia, vistas in Helsinki, a Salvador Dali art
exhibit in London, and even a balloon ride in Africa.
Furthermore, Samsung appointed designers to manage-
ment positions in order to make sure that they can get their
ideas to top executives. In 2015, the firm managed to recruit
Lee Don-Tae, who had been a top executive at a leading UK
design agency. He joined Chang Don-Hoon, who was given
charge of the firm’s design strategy team, overseeing the de-
sign of products across all of the product lines. In the fall of
2014, Samsung unveiled a slick design website to shore up
its self-proclaimed status as a design powerhouse. “Samsung
strives to consistently lead the consumer electronics indus-
try in product design and engineering innovation,” an exec-
utive said.9 As a result of these efforts, Samsung has
managed to win several hundred design awards over the last
years. In 2018 alone, the firm won 49 IDEA Design Awards,
the most it has won in a single year thus far.10
Samsung has also been relying on the attractiveness of
its products to make them the center piece of a digital
home. In a showroom in the lobby of its headquarters in
Seoul, the firm shows off many of its latest offerings rang-
ing from tablet computers to digital cameras. Visitors can
put on goggles to watch characters jump out on 3-D televi-
sions or shuffle their feet on an interactive LED floor.
Roger Entner, a wireless industry analyst at Neilson said
about Samsung’s efforts: “With its resources and experi-
ence, it’s trying to capitalize on the emergence of smart
connected devices. The question is, ‘Can they be a cutting-
edge trendsetter like Apple?’”11
Creating a Sustainable Model?
Samsung has been trying to deal with the setback that its de
facto leader’s arrest may have caused to its efforts to reassert
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its reputation for building innovative products. Although
there are some doubts about its prospects for continued
growth, the firm is confident in its savvy investments in
chipmaking over the years. By 2017, Samsung had surpassed
Intel to become the leading producer of semiconductors in
the world.12 This leadership will allow it to move into new
growth areas such as artificial intelligence, autonomous
driving, and growing Internet-based applications. “Samsung
can actually advance into new areas leveraging its strength in
the existing chip business, as we embrace a new era where
memory capacity will be really important,” said Marcello
Ahn, a fund manager at Quad Investment.13
In the meantime, Samsung continues to invest into its
existing businesses, such as its market-leading smartphone
business. It has announced its plans to launch a smart-
phone with a foldable screen that folds like a book and
opens to tablet size. The phone, whose screen would ex-
pand to 7.3 inches when opened, is expected to be launched
in September 2019.14 The hope is that the new offering will
help Samsung compete with the growth of sales from lower-
cost Chinese rivals. It could also lift sales, pushing consum-
ers away from the recent trend of holding on to their hand-
sets for longer periods of time.
At the same time, Samsung has been building a reputation
for its efforts to advance the push for more sustainability. The
firm has been making all of its products more energy efficient,
allowing it to earn awards for some of its products. Its latest
initiative, Galaxy Upcycling, allows consumers to transform
the Galaxy phones that they no longer need into smart de-
vices such as LCTVs, gaming consoles, and personal comput-
ers. This new approach is being gradually expanded to reach
more and more consumers around the world.
Of all the new areas for growth of its chipmaking busi-
ness, Samsung is most optimistic about the push for auton-
omous driving. According to Peter Yu, an analyst with BNP
Paribas: “Autonomous driving will require huge data pro-
cessing power, and Samsung can provide essential compo-
nents such as sensors, storage chips, cameras, and dis-
play.”15 But in spite of the opportunities that can arise from
such new developments as autonomous driving, the firm
does face competition from several existing and potential
entrants. Analysts therefore believe that Samsung’s success
with its movement into these new growth areas is likely to
depend on its ability to convert its expertise of one sort of
mobile technology to others.
Change everything except your wife and children.
—Address to employees from Samsung chairman Lee Kun-hee to
push for its transformation to a leading electronics brand
ENDNOTES
1. Harris B. and Song Jung-A. Samsung record profits mask looming
crisis. Financial Times, October 14-15, 2017, p. 15.
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
Times, February 11, 2013, p. B1.
 4. Lewis, P. A perpetual crisis machine. Fortune, September 19, 2005,
p. 65.
5. Edwards, C., Ihlwan, M., and P. Engardio. The Samsung way.
BusinessWeek, June 16, 2003, p. 61.
6. Yu, R. Samsung cranks up creativity. USA Today, November 16, 2010,
p. 4B.
7. Rocks, D. and M. Ihlwan. Samsung design. BusinessWeek, December
6, 2004, p. 90.
8. Chen, B.X. Samsung’s strategy to brake Apple juggernaut. New York
Times, February 11, 2013, p. B1.
9. Anonymous. 2008. Samsung Electronics gets 46 CES innovations
awards for 2009. Wireless News, November 24.
10. Samsung News. 2018. Samsung Electronics wins 49 IDEA Design
Awards. September 20. https://news.samsung.com/global/samsung-
electronics-wins-49-idea-design-awards.
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11. Yu, R. Samsung cranks up creativity. USA Today, November 16, 2010,
p. 4B.
12. Gartner. 2019. Market share held by semiconductor vendors
worldwide from 2008 to 2018 [Graph]. In Statista. April 11, Retrieved
from https://www-statista-com.rlib.pace.edu/statistics/266143/global-
market-share-of-leading-semiconductor-vendors/
13. Harris B. and Song Jung-A. Samsung record profits mask looming
crisis. Financial Times, October 14-15, 2017, p. 15.
14. The Associated Press. 2019. Samsung folding phone is different but
also almost $2,000. WTHR, February 20. https://www.wthr.com/
article/samsung-folding-phone-different-also-almost-2000-1.
15. Harris B. and Song Jung-A. Samsung record profits mask looming
crisis. Financial Times, October 14-15, 2017, p. 15.
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