Lessons for Lanka from Samsung

Any of you in the FMCG business of Sri Lanka may be feeling the heat due to the downturn in the trade and the 1.2 million people affected by the drought. Whilst we develop ways to handle this challenge, the fact remains that this will have an impact on the monies spent on R&D given that many companies are becoming cautious due to the downward rating of the GDP growth in the country and the impacts of the fallout in EU and US markets.

The current street protests all also do not help the overall market momentum, given that the agitation is all about the drastic reforms that are wanted by the people of Sri Lanka. The challenge is how the private sector can support this cause.

Tough times

My mind goes back to the famous Asian crisis in 1988 and how the Korean electronics giant Samsung used the opportunity to enter the market. At the initial inception the Koreans were widely regarded as a supplier of cheap imitations in comparison to superior Japanese brands like Sony.

With the legendary Akio Morita at the helm, Sony became a household name with brands like the Walkman and a choice of TVs and VCRs. In fact it was the strongest top-of-the-mind brand among many households in the world. But little did this company know that this dynasty was going to hit the slopes very soon given the aggressiveness of Samsung in an economy that was rough just like what Sri Lanka is up against now.

 Beat Sony

The fact was that Samsung just had 36 employees and started life by assembling electric fans in a small workshop in the city just south of Seoul. At that time, the focus of its business was on memory chips and low-margin items such as microwave ovens and cheap TVs, which were mainly sold through discount stores. The company took the name of Samsung Electronics. Today it this company is the world’s largest and profitable consumer electronics company.

Its 123,360 employees make a range of products as diverse as cell phones and flat-panel televisions, washing machines, vacuum cleaners, semiconductors and LCDs and now remodelled the iPhone and iPad with the Galaxy Tab that has made this company the world’s most valuable consumer electronics brand, unseating the legendary Sony brand according to a survey by Interbrand Consulting Group.

The question among many is, can a Sri Lankan company do the same in a depressed market like Sri Lanka given the emerging new realities?

 The key issue

The fact of the matter is that with deep pockets, Samsung has won over consumers with clever designs and multifunctional gadgets, like competitors to the iPhone and iPad that has swept the consumer off the feet which I guess is the power of new product development in today’s world.

Last year, the company had $ 100+ billion in sales and reported profit of $ 15 billion plus, which is 13 times as much earnings forecasted by rival Sony. Whist the company has become an outstanding company for refining other people’s inventions, a strategy that worked fine, while the company was climbing to the top a top official of the company said: “Samsung has not mastered one crucial factor: Originality. It is the issue of focus. I believe that identifying the key issue when one is successful is the key to building a great business and Samsung has done it, meaning it will now develop a way to address this.”

Investing in research

The beauty about this company is that Samsung invested money in the market that was depressed by creating novel products of its own. It believed that staying ahead meant not just launching minor hits, but breakthrough inventions like the Apple iPod, iPad and now the iPhone 5 or for that matter the likes of the ‘Teamgeist’ performance qualities of the New Adidas Football that was used at the World Cup finals of 2011.

I strongly feel that Samsung is at a pivotal moment in history for driving product development in difficult market conditions. Should Sri Lankan companies do the same? The answer is yes, but it needs courage like what Munchee has done with the launch of Apple Puff.

Process and leadership

The latest reports say that the company is investing $ 40 billion in research and development during the next five years, double what is spent in the preceding five years. The company has reported that it has double the number of researchers, to 32,000 from the 13,900 six years ago.

The company has built a state-of-the-art research and development centre in Suwan, and in fact is supposed to be the largest R&D centre in Asia. It has towering glass offices and sprawling laboratories.

Suwon’s newest facility is the Digital Research Centre, to be completed in September with floor space of 30 football fields and special picture and sound labs big enough for 9,000 researchers, of which 150 are from foreign countries like China, India, and the United States.

This reflects Sams-ung’s shift away from simply developing products, towards strategic research which will find the next big idea. In 2012 Samsung is suppose to invest US$ 11.4 billion in R&D, which is 8.3% of the total sales of the company and the results are staggering. The company has been recognised with 1,600 patents in the United States alone.

Identifying market opportunities

With today’s market value exceeding US$ 150 billion, Samsung excels in identifying new technologies and business opportunities early, and then seizing control of the market with overwhelming production volume. It did this with rear-projection TVs and the Galaxy Tab, to name a few. Apparently the break to the United States happened when Texas Instrument approached it during a 2001 trade show in Tokyo and Texas Instruments gave Samsung information about a new computer chip it had developed that used millions of microscopic mirrors to project images into screens.

The American company had already shopped the chip to Japanese makers Hitachi, Matsushita, and Mitsubishi Electric, who were each developing a single TV model using the chip. Samsung jumped technology and took the high ground using the technology, called digital light processing with prices of TVs ranging from US$ 3,500 to US$ 5000, which is less than 50% of the prices of the Japanese brands.

They showed the world how Samsung understands the changing consumer needs and invests in research to find the big idea and then launches to the world the next generation product at penetrative prices like the Galaxy Tab. The company also reversed the trend set by Japanese companies that charge a premium price for innovative products. This explains the dominance of Samsung and its strategy to achieve sustainability of the business in the future.

Hiring the best talent

Another key lesson for Sri Lanka is that Samsung is a classic example of a company that is not only ruthlessly moving faster than competition to catch up, but is also passing the leader of yesterday strongly.

The best example is the latest refrigerator model by Samsung that has a built-in tablet computer that not only controls the temperature but also allows users to surf the internet, watch TV and send e-mail messages. One of its cell phone models that is to be launched works like a fully-fledged digital camera and also plays music.

The key to this success is that the company is hiring the best talent for the top positions in the company from around the world. This gives the company a typical international culture, making it almost a non Korean company which is a cue that Sri Lankan companies can pick up.

The consumer

Another key area of focus is the design. The company has opened designer centres in Los Angeles, San Francisco, Tokyo, Shanghai, and Milan. The recent design for flat-panel TVs are based on trends noticed at furniture shows in Italy.

At headquarters in Seoul, designers are told to find inspiration outside the office, and are given Wednesday afternoons off to do so. One popular cell phone was modelled after the dashboard of a German sports car, which demonstrates the marketing-oriented approach the company has where the brand is wrapped around a consumer’s everyday life – a sure recipe, never to fail.

The problem

However, I strongly feel that the company, with all its accomplishments, has failed to win the sort of brand recognition enjoyed by companies like Apple and Sony. Stepping up to the next level of corporate advancement requires inventing a product that reshapes an entire industry and serves as an icon for future generations. Apple did it with the iPad and Sony with the Walkman. This will result in a niche being occupied in a consumer’s mind that the Japanese enjoy, but Samsung is yet to achieve.

Samsung is a great company but its products are still basically identical to everyone else’s. The world is yet waiting for Samsung to come out with a Walkman. Whist the company is yet to get into iconic status, it has sure become the research power house in the world that has driven a company to be the number one in the industry.

I would think it’s only a matter of time before Samsung comes up with the sort of hit that will catapult it into the pantheon of global innovators. But the company has sure given a showpiece to the world on how research-led business can direct a company to greatness.

(The author is an award winning marketer and business personality and now serves the United Nations – UNOPS – as the Head of National Portfolio Development for Sri Lanka and Maldives. The thoughts are strictly his personal views.)