Issue No: 82 January-July 2013
By Jiwon Han, Wol-san Liem and Yoomi Lee
Samsung Electronics. Consumers know it well, yearning to purchase its products, which they experience as a single brand. In fact, Samsung Electronics is not that simple and it is incorrect to see it as a single company/brand.
Samsung Electronics is the flagship company of Samsung Group, which is composed of 516 companies worldwide. Of these companies 195 are full-fledged Samsung Electronics subsidiaries, meaning they are incorporated entities of which Samsung Electronics owns more than a 50 percent share. In addition, Samsung Electronics controls a further 63 companies which make components for the subsidiaries, although it does not own a majority share in them. The mobile phones, televisions and all 264 products under the Samsung Electronics brand are produced and sold through Samsung Group’s network.
The ownership structure of these 500 plus companies is formed through a complex web of circular investments. This structure, which makes it possible for an investor to control an entire company without directly owning as much as a 10 percent share, characterizes Korean chaebols (conglomerates), including Samsung. The group is in fact a representative case, in which the owner is able to control the entire group, despite not having a majority share in many of the companies.
Lee Kun-hee, chairman of Samsung Group, and his family own only a 2 percent share in Samsung Electronics directly. They are nonetheless able to control Samsung Electronics because of the circular equity structure of Samsung Everland,
Samsung Life, Samsung C& T and Samsung Card. The total shares in these companies held by Lee and his family are worth roughly KRW 11 trillion (roughly US$11 billion) and as such amounted to only 2 percent of Samsung Group’s total market value KRW 338 trillion (USD 289 billion) at the end of 2012. Nonetheless, Lee and his family exercise absolute management authority over the Samsung Group. This circular investment structure found in South Korean chaebols, which allows this sort of control, is currently a hotly debated economic issue.
In 2012, Samsung Electronics and its 195 direct subsidiaries recorded revenue of KRW 201 trillion and operating profit of KRW 29 trillion. This represents an increase in revenue of 66 percent and in operating profit of 383 percent over the past five years. Samsung Electronics has been one of the fasting growing companies in the world since the onset of the global financial crisis in 2008-2009. In the midst of the crisis, the group was able to push Japanese companies out of the display market. It also pushed Nokia out of the mobile phone market, and now shares market dominance with Apple. The fact that after 2008, more than half of Samsung Electronics’ operating profit has been made from smart phone sales demonstrates the sudden growth in this segment.
Samsung Electronics’ four principle divisions use self-supporting accounting systems, meaning that they independently calculate revenue and profit. These four divisions are Consumer Electronics (CE), IT & Mobile Communications (IM), Semiconductors, and Display Panels (DP). Until as late as 2000, semiconductors and LCD panels accounted for more than half of both revenue and profit. After 2008, however, mobile product sales have grown by more than 50 percent each year, such that the mobile telephone division now accounts for almost 60 percent of Samsung Electronics’ profit.
Samsung Electronics’ headquarters are located in South Korea. Like other transnational electronics corporations, however, most of its factories are located abroad. The vast majority of products produced in South Korea are not consumer products but semiconductors, LCD panels and other central electronic components. Consumer durables (i.e., home
appliances), such as refrigerators, air conditioners and washing machines, are produced in South Korea only to the extent necessary to satisfy domestic demand. Almost all TVs, printers and computers a
re produced abroad. The majority of mobile phones, which could be said to be Samsung Electronics’ driving product, are produced in Vietnam and China.
Until 2012, semiconductors and LCD panels were produced almost entirely in South Korea. However Samsung Electronics plans to have roughly half of the semiconductor and LCD panel production located in China by 2014~2015.
Samsung Electronics’ domestic and overseas subsidiaries together employed some 221,000 workers at of the end of 2011. This is a 53 percent increase from five years ago. With roughly 100,000 workers employed in South Korea and 120,000 employed abroad, the number of overseas employees surpassed domestic employees for the first time in 2011.
Roughly 41,000 workers— the largest number of employees working in any single country outside of Korea—are employed in China. In the rest of the Asia region, Samsung Electronics employees number roughly 43,000. Next comes South America with roughly 21,000 employees and Europe with 13,000.
Samsung Electronics’ revenue equals roughly 20 percent of the value of South Korea’s GDP. In addition, to say that Samsung Electronics and its subcontractors are South Korea’s electronics industry would not be an exaggeration. Roughly only 30 percent of all electronics companies in South Korea are independent of Samsung Electronics. The majority of these are LG Electronics’ subcontractors.
The system of component production and supply for Samsung Electronics is made up of five layers. The first layer is composed of Samsung Group subsidiaries and accounts for roughly 11 percent of the value of components purchased by Samsung Electronics. The second layer is made up of transnational electronics component suppliers who have independent technical capability. The American companies Qualcomm, which has a CDMA patent, and 3Com, which has a wireless patent, are examples of companies in this layer.
The third layer comprises suppliers to which Samsung Electronics outsources production of parts that it could produce itself, but chooses not to for cost or production capacity reasons. These companies principally supply small-scale LCD panels. Samsung Electronics gets these low-price LCD panels from companies such as the Taiwan-owned AU Optronics Corp (AUO) and Chunghwa Picture Tubes Ltd (CPT). The fourth layer is composed of domestic subcontractors that supply parts that Samsung Electronics could not produce itself. The main companies in this layer include Intops LED Company Ltd, which handles both the production of mobile phone cases and the assembly of mobile phones, and Interflex Company Ltd, which produces printed circuit boards (PCBs).
The final layer in the supply chain is composed of small and medium-size parts suppliers located in industrial parks. As these companies supply low-cost parts, Samsung Electronics frequently switches among them, exacerbating price competition. It also imports some parts from China. These are the companies most exploited by Samsung Electronics.
Samsung Electronics is known in South Korea for its faithful adherence to a no union policy. From the time of Samsung’s founder, Lee Byung-chull, to the current leadership of Lee Kun-hee, Samsung has used any and all means to stop employees from forming unions. This policy has affected not only Samsung Electronics, but the entire electronics industry. This is because Samsung Electronics intervenes actively to prevent the formation of unions at its suppliers.
The effectiveness of Samsung Electronics’ no union policy is evident in the fact that union participation in the South Korean electronics industry is only about 3 %. This figure includes the members of the LG Electronics union, which is affiliated with the Federation of Korean Trade Unions (KFTU) and is a true-blooded company union. Excluding the LG union, less than one percent of all workers in the electronics industry are union members; there are only 300 union members in all the electronics companies that make up Samsung Electronics’ supply chain.
At the center of Samsung Electronics’ no union strategy are careful workplace control and a thorough system of selective inclusion and exclusion. At Samsung Electronics, the labour management department monitors each individual worker closely. For example, when a few Samsung SDI workers started to form a union in 2000, the management issued orders for all of them to be dispatched overseas. Those who refused the order were dismissed for disciplinary reasons. At the same time, Samsung SDI tapped workers’ phones, followed them, approached their families with threats and appeasements, and even put location tracking devices in the mobile phones that the workers themselves made. Similar cases have occurred several times over the last ten years, for example, at Samsung Aceone and Samsung Electronics’ Suwon factory in 2004, at Samsung SDI in 2005 and at Samsung Everland in 2011.
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Earning Releases, 2012-4Q
Quarterly Report, 2012-3Q
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