A Lesson for Samsung in the Fall of Japan's Electronics Giants

Samsung Electronics' operating profit in the third quarter amounted to W4.23 trillion, which is more than twice the size of the combined quarterly operating profits of nine major Japanese electronics companies, including Sony, Panasonic and Hitachi, according to the Japanese press (US$1=W1,183). The Asahi Shimbun reported, "Japanese CEOs have acknowledged that Samsung's products are more competitive than theirs." The daily said this signifies the defeat of Japan's electronics giants by Korea. The business daily Nihon Keizai Shimbun compared the electronics rivalry between the two countries to a marathon and said Samsung had taken a long lead.

During the 1980s Japan became the world's top semiconductor manufacturer, defeating the U.S. which had reigned supreme since the 1960s. A wave of bankruptcies and layoffs ensued in the U.S. electronics industry. Intel closed six U.S. factories, laid off 8,000 workers and completely withdrew from the DRAM memory business. Only two U.S. memory chip makers -- Micron and Texas Instruments -- were able to survive.

Samsung made a late entry into the semiconductor race by borrowing technology from Japan's Sanyo. But the Korean company succeeded in developing 16 kilobit and 64 kilobit DRAM chips, overtaking its Japanese rivals to dominate the global DRAM market in 1992 and becoming the world's leading memory chipmaker in 2002. The gap has been widening between Korean and Japanese chipmakers since then, eventually arriving to the current point -- where nine Japanese companies together make only half as much money as Samsung. Japan's pride in its electronics industry has been shaken to its very foundation.

Celebrating its 40th anniversary on Sunday, Samsung vowed to achieve W400 trillion in sales by 2020 to emerge as the undisputed leader in the world's electronics industry and become one of the world's top 10 businesses. Samsung is expected to post sales of W130 trillion this year, so the goal means tripling the size of the company over the next 10 years. But it must heed the valuable lessons in the downfall of Japan's giants.

After overtaking their U.S. rivals, Japanese chipmakers used their monopolistic status to conspire to adjust output levels and determine prices. They sacked CEOs every two to three years and failed to come up with long-term plans. They also missed valuable timing when it came to expanding assembly lines. Pride from beating U.S. rivals made them blind to their strengths and weaknesses.

Is the same thing happening to Samsung? Many people these days say that the quality of Samsung's products seems to have declined. The company recently had to recall 200,000 refrigerators because of an exploding electrical component, and there is said to have been a marked rise in consumer complaints about the quality of its cell phones, including the Anycall model. And while the company has boosted revenues through improved designs and clever marketing, there has been little progress in developing its own components. As it imports most of key software it needs, it is also being criticized for its decreasing efforts to develop its own technologies.

One can always be overtaken in a race, and it is getting tougher for a company to maintain dominance in a particular business area. U.S. chipmakers reigned for 20 years, while Japanese manufacturers were at the pinnacle for 15 years. Samsung's future hinges on what lessons it can learn from its global rivals.