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VIDEOCompanies That Almost Weren't: Samsung
For his second act, the company's leader became a maker instead of trader.
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Samsung is a world leader in electronics, and yet its brand encompasses more than 60 other businesses, some eclectic and wholly unrelated -- like life insurance and shipbuilding. This obviously didn’t happen overnight. Its beginnings are humble and surprising, and, to this day, it remains a sort of family business, albeit the most powerful in South Korea.
On March 1, 1938, Lee Byung-chull (Lee is the family name) opened a small trading company in Taegu, Korea, then still a poor colony of Japan. He used his nest egg of 30,000 won (about $2,000) and hired 40 employees. At the start, his business focused on trade export, selling dried Korean fish, vegetables, and fruit to Manchuria and Beijing. The name Lee gave his business -- Samsung -- means “three stars” in Korean, three being a lucky number.
Lee’s company enjoyed moderate growth before the Communist invasion in 1950 forced him to start all over. When he abandoned his operations in Seoul, looting from both sides of the conflict reduced his inventories to almost nothing. Ever the entrepreneur, Lee started over in 1951 with savings contributed by one of his managers; within one year, his business had grown twenty-fold.
Lee set up a sugar refinery in 1953 -- the first manufacturing facility built in South Korea after the Korean War -- and added textiles, wool, flour, and other commodity businesses before moving into heavier manufacturing. In each industry Lee entered, Samsung became a leader.In the 1960s and 1970s, Samsung became a global company in various businesses, aided in part from the national government. Obsessed with economic growth and development, the government of Park Chung-hee centralized power in the hands of a few giant companies, known as chaebols. In order to rapidly develop the economy, the government provided the chaebols with protection from competition and financial assistance. Samsung became the biggest chaebol, a key partner in the government’s drive, and not just into electronics but shipbuilding, petrochemicals, heavy machinery, and construction.
Samsung Electronics was created in 1969 as part of the larger Samsung Group, and it set the foundation for the brand it's become. The division’s first product was a simple black-and-white television that it began selling in the early 1970s, and Samsung then branched out into all types of consumer electronics and appliances. Key among these was Samsung's entry into the dynamic random access memory, or DRAM, chip-making sector.
In the late 1970s, the Korean government protected Samsung's interests in the burgeoning field of memory-chip manufacturing by asking all foreign companies interested in gaining access to the domestic market to share their technological know-how first. With that data, Samsung began making chips in 1978 and grew to become the world's largest supplier of the memory chips, which are used in flash-based devices, smart phones, and MP3 players.
In January 2009, Samsung Electronics reported profit losses for the first time ever, along with other electronic conglomerates and computer-parts suppliers, but the company recently announced that it plans to increase its market share of the DRAM sector to 45%, up from the current projected 36%. In October, the company, which has also become the leading maker of liquid crystal display (LCD) screens, also reported its strongest third-quarter earning ever. According to the New York Times, Samsung's net profit in the third quarter rose to 3.72 trillion won ($3.14 billion), up from 1.22 trillion won a year ago.
Samsung's founder, Lee Byung-chull, died in 1987, and his son, Kun-hee, took over the company. The junior Lee directed Samsung toward building its high-tech reputation, one like Sony (SNE), in which quality would trump quantity. That effort has been seen as widely successful, allowing the company to mostly shake its reputation for producing cheap, low-caliber electronics.In 2007, however, controversy clouded the Samsung halo when a former top legal executive at the firm said the company was a corrupt place where the company kept a slush fund of nearly $220 million to bribe public officials and keep them from prying into management practices, as reported in The Globe and Mail.
The case wasn't the first or last of Samsung's legal troubles, many of which the company has managed to escape in relatively good shape. The 2007 whistle-blowing incident, however, did lead to the resignation of former chairman Lee Kun-hee. His son, Jae-yong, is now a senior executive at the conglomerate. The company is being "represented" by Lee Soo-bin, CEO of Samsung Life Insurance, who isn't a relative of the Lee family.
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