Samsung's Journey from Zero to Hero
In 1989, I returned to the U.S. with my family; my wife and I were to pursue the PhD program at the University of Maryland, College Park business school (now, the Robert H. Smith School of Business). Our elder daughter joined the Aerospace Engineering program at the university and younger daughter joined a junior high magnet program. We needed a microwave for our apartment and purchased an inexpensive Samsung – “cheap and best” as someone in India might characterize such a product. Samsung wasn’t a brand people with means would buy in those days. Nevertheless, the microware worked well for us for many years.
Fast forward three decades. Samsung is #5 in Interbrand’s Best Global Brands 2020 ranking, ahead of Coca-Cola, Facebook, Intel, and Mercedes-Benz. Three Samsung Group companies are on the Fortune Global 500 list, with the flagship, Samsung Electronics, ranked #15. Late last month, the Samsung Group announced a $200 billion expansion plan, which will bring 40,000 new employees into the company over the next three years. The investments will be in new technologies, such as telecommunications, robotics, biologics, and advanced chipmaking.
How did a company from a once developing country go from zero to hero in a span of three decades, that too in a hypercompetitive global business environment?
Well, much has been written about Samsung’s success journey in both professional magazines and scholarly journals. Obviously, the company did many, many things exceptionally well (and a few things it should not have done!). A Harvard Business Review article by Tarun Khanna, Jaeyong Song, and Kyungmook Lee (July 2011) describes how Samsung introduced “Western business practices on to its essentially Japanese system.” It also adopted risky business practices, such as bringing outsiders into the company who did not speak the language and were not familiar with Samsung’s (and Korea’s) culture. It adopted merit-based promotion, compensation, and individualized incentives that co-existed with the seniority-based system prevalent in Japan, Korea, and other Asian nations at the time. Samsung adopted many other practices that were antithetical to the ways in which Korean companies did business.
This blog is about Samsung’s approach to learning and capability building, which I believe has been central to their competitive successes at home and abroad. Learning, capability building, and innovation provide the foundation for firms’ superior performance. The global economy offers multinationals the opportunity and challenge to acquire new capabilities and skills and innovations from multiple sources, including foreign subsidiaries, customers, suppliers, partners, competitors, trade associations, universities, governments, and other sources worldwide.
Organizations learn essentially in two ways – from others and from their own experiences. Learning involves thinking and mental processes such as perception, judgment, reasoning, and memories, most of which are the domain of the individual rather than of the organization (organizations do have memories stored in paper and electronic files). All learning is thus individual learning, and organizations learn through their individual members.
“We read, ask questions, explore, go to lectures, compare notes and findings, consult experts, daydream, brainstorm, formulate and test hypotheses, build models and simulations, communicate what we’re learning, and practice new skills.” - Bill Gates
The 2011 HBR article cited above highlights how Samsung learned and acquired capabilities from others, such as Western businesses, and how it brought foreign experts into the company. At the same time, Samsung introduced a robust program to learn from its own experiences that, in my opinion, was critical to its success, especially in foreign markets. A company can learn about foreign markets by sending employees to attend trade shows in the countries of interest; participating in dual chambers of commerce; and sending employees abroad on foreign assignments, among other approaches. While many companies send employees on short or long foreign assignments, Samsung’s Regional Specialist program has proved to be quite extraordinary.
In 1990, Samsung Chairman Lee Kun-Hee started a program to nurture and develop global talent within the company. Under its Regional Specialist program, Samsung selected about 200 young professionals from the company and sent them abroad for one year to immerse themselves in different cultures, learn about the ways and business practices of the world, meet with local people, and build networks – all without any specific operational responsibilities. After completing the year abroad, employees would return to the company headquarters in South Korea and be designated Regional Specialists. The program has continued ever since, with about 200 young professionals being sent abroad, now, for a period of up to two years. While abroad, they also interact with local Samsung employees and share their experiences with other Samsung employees through the company’s intranet. When the program started, it cost the company about $80,000 per employee, on top of their salaries and benefits, for the year abroad – plus the fact that these employees had no other job responsibilities during that year.
When I first learned about the program in 1993, I wrote a paper for presentation at the annual conference of the Strategic Management Society, “Come Year 2000, Would You Want to Compete with Samsung?” My prognostication has come to pass!
According to Samsung’s 2014 Sustainability Report, the company had fostered about 5,000 Regional Specialists during the prior two decades (an average of 250 per year), each spending up to two years abroad, and costing the company about KRW 100 million (about $95,000) per regional specialist per year, in addition to their salaries and benefits. When the program began, prospective Regional Specialists were sent to the United States, Europe, and a few other countries. To date, employees have been sent to about 80 countries under the program, which now begins with three months of training at a company facility in South Korea to learn the language and social and business practices of the country in which they will be spending the rest of their overseas training.
Sending employees abroad to learn the ways of the world is not a new idea; Japanese trading companies had been sending employees abroad for similar training for decades. Some other South Korean companies, including Hyundai Oilbank and LG Chemical, have also started similar programs, though not quite as extensive. While many companies send employees abroad on foreign assignments, Samsung’s Regional Specialist program is in a class of its own in terms of its long duration, high cost, longevity, and the fact that these employees have no other regular job responsibilities during their training.
So, was it the Regional Specialist program that brought Samsung to its pre-eminent position in global business? It is impossible to credit one individual strategic intervention for a company’s global success; any performance outcomes are the result of many strategies, even luck. However, I believe the Regional Specialist program played an overarching role in Samsung’s journey from zero to hero!
What do you think?