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Samsung Electro-Mechanics has a plant in Dongguan City in southern China's Guangdong Province. The plant has been receiving a succession of visitors from Samsung Group's affiliate companies, academia and institutes to observe and learn from it. In 2005 alone the plant rang up a deficit of US$24.3 million, suffering the worst crisis of its existence. That was just two years ago. Last year the company surged back to life, ranking top among overseas South Korean enterprises in terms of corporate evaluation.
When I visited the plant last week along with members of the Chosun Economic Forum, I found it full of vitality. On the walls of the workshop where they turn out power supply devices, the plant's main product, were hung large boards with lists and photographs of the leaders and members of each assembly team. Conspicuously placed below each team member's photograph was a blue button or red button for each working day, alongside a personal ranking.
Blue means success, indicating the team member met that day's goal and reached a certain production level. Red means failure. "Each of the plant's 2,400 assembly line workers are ranked from top to bottom in terms of productivity every month," said Yu Chang-ho, the assistant manager of the plant's innovation department.
The daily evaluation system was introduced in 2006. At the end of each quarter, the company checks the boards and evaluates each worker's performance. Based on the system, the plant gives promotions and special bonuses of 30 to 300 percent of their annual salary to the top 10 percent of the workers, and punishes the bottom 10 percent with demotions or transfers.
The plant has implemented other innovative programs in the last two years, such as a "production master" system (a best worker system) and a "10 cm closer" campaign. In the latter, the plant shortened the distance that workers moved between production processes by 10 cm. That campaign reduced the total average distance that all workers move each day by 750 km, saving working hours and sharply improving efficiency.
"Thanks to our efforts, the plant has increased the quality of its products 3.9 times higher than four years ago and productivity has gone up four-fold in eight years," said Yu Hyo-sung, the president of the plant. "I'm confident that the plant will see its best-ever performance this year by earning at least $32.5 million in profit."
Success at the plant also came through downsizing staff and focusing on a smaller number of production items. The number of executives and employees topped 6,000 in 2004, but now it's at less than half that. The plant made 23 items in 2004, but now it produces just six.
Simone Handbag, a South Korean firm in nearby Guangzhou, also turned a crisis into an opportunity. Simone used to make medium-priced handbags using the area's cheap labor. But facing a serious crisis in 2000 caused by rising wages and a shrinking labor force, Simone CEO Kenny Park took a gamble.
"For six months at the time, we gave intensive training on quality control to about 5,400 employees," Park said. "We boosted their morale by increasing their wages by about 20 percent more than other local companies."
With these innovations in place, Simone has been receiving orders from designer brands such as Burberry and Givenchy for the last three years. While many South Korean companies in Guangdong Province have shut down, Simone has been on a roll, earning more than $120 million in annual sales.
In July last year, SK Telecom became the second largest stock holder in China Unicom, China's second largest wireless operator, by paying $1 billion for a 6.7 percent stake in the company. The move paid out handsomely for the South Korean, helping it earn more than W700 billion (US$1=W904) in appraisal profits in just a year. "This is the result of painstaking efforts over the past decade to take a share in the Chinese market," said SK official. "Our strategy of buying a stake proved to be successful."
According to a report released by the Export-Import Bank of Korea, one in two South Korean businesses in China is now facing such a difficult management environment that they are operating in the red.
But the three abovementioned South Korean companies -- Samsung Electro-Mechanics, Simone Handbag and SK Telecom -- have proactively responded to the changing business environment. They have provided success secrets for other South Korean businesses wishing to take a share of the Chinese market.
The key points of their secrets may boil down to painstaking innovation efforts, improved technologies, and unique strategies with which to outmaneuver local Chinese businessmen and their rivals.
This column was contributed by Song Eui-dal, the Chosun Ilbo's correspondent in Hong Kong.
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