SamsungElectronics Corporation Limited, along with its subsidiaries, is dedicated toconsumer electronics, mobile communication, information technology, and devicesolutions businesses around the globe (Yahoo Finance, 2017). As a diversifiedelectronics conglomerate, Samsung produces and sells not only smartphones, butalso telecom network equipment, medical equipment, home appliances, printers,and semiconductor chips. In 2017, the return on assets and net profit margin ofthe company are both higher than the industrial average (Morningstar, 2017),showing sound financial performance. Samsung hasengaged in aggressive global expansion over the years, and in 2001, its marketshave expanded to 46 countries, with 66,000 people being employed, making thecompany become the biggest memory TFT-LCD producer around the world, as well asa global leader in consumer electronics, semiconductors and digital convergencetechnology (Samsung, 2001). The major international markets of Samsung are theUnited States, Europe, China, and Japan. Around the world, the company has 15listed affiliates and 43 non-listed affiliates.
The regional headquarters ofthe company are in North America, Africa, Middle East, China, Southeast Asia,Southwest Asia, Europe and Latin America (Samsung, 2016). In 2016, although theglobal market share of Samsung smartphones slightly declined, at 21.2% comparedto the 22.3% in 2015, it was still the global market leader as far assmartphones were concerned. In India, Samsung led the smartphone market by a26% market share (Rogers, 2017).
As a representative of the Korean electronicmultinationals, Samsung has set up competitive leadership in internationalmarkets. In this report,the global expansion strategies of Samsung will be compared with otherindustrial players in Asia, so that the related issues regarding theinternational business models of the Asian electronic multinationals can beexplored and clarified. TheFDI activities of Samsung compared to other companiesIn 1970, Samsungmanaged to successfully manufacture 12 vacuum tube black and white TV, andafterwards, the company tried to improve the quality of the TV and export themto Latin America. After 1974, the company began to export the AM/FMradio-cassettes to the United States (Samsung, 2012). In the 1980s, Samsunggrouped together electronics and mobile phone sections and started to make highinvestment in research and development, to smoothly expand to Texas, Austin,England, Tokyo, New York, and Portugal. The company began to grow into aninternational company in its real sense since the 1990s, with its constructionprojects expanding to Malaysia, Taiwan, and UAE. In 2011, Samsung bought thestake of Sony in their joint ventures to fully control the LCD panelpartnership.
Apart from exports, joint ventures, and acquisitions, the companyalso constructed a semiconductor production plant in Austin Texas of the US asa greenfield investment (Burris, 2017). Samsung follows astage-oriented process facilitated by isomorphic pressure and incrementalexperiences, and tends to focus global expansion initiatives on culturally andgeographically proximate nations, which may be compared to Japanesemultinationals (Hemmert & Jackson, 2016). However, there are alsodifferences between the two, with Samsung and other South Korean companiestending to be more risk-taking in global expansion, making more rapidinvestment in emerging markets, which can explain the more successful businessexpansion of Samsung in China than Japanese electronics companies (Hemmert& Jackson, 2016). Compared toJapanese firms, Samsung entered international markets relatively late.
Forinstance, it started business operations in China as late as around 1992. Theentry into China is market-seeking, and joint ventures are the popular form ofentry mode, along with wholly-owned subsidiaries in the 1990s. Afterwards whenthe company started to set up local production in China (Hemmert & Jackson,2016), the nature of its Chinese expansion became one for resource-seeking,mainly the cheap and abundant labor sources in China. Thus, market and resourceseeking may be two of the major motivations of Samsung to becomemultinationals. Thetheoretical explanation of the FDI activities of SamsungThere may be manyFDI theories that can explain the Samsung’s activities. First, the Hymer’s MonopolisticAdvantage Theory indicates that incomplete competition, as a kind of marketstructure deviated from complete competition, can help form monopolisticadvantage to become the determinant of FDI (Hymer, 1960; 1976). In this regard,it can be judged that the investment by Samsung in the markets of developingcountries is based on its monopolistic advantages compared to local firms thathad not developed mature technologies, products and marketing experiences whenthe Samsung’s FDI was made. In addition, Vernon’s product life cycle theory(1966; 1979) can also be used to explain Samsung’s FDI; Vernon states that themonopolistic advantage no longer exists during a product’s standardizationperiod whilst its cost and prices become more important.
As a result of this,the developing countries are highlighted as the best manufacturing locationsfor multinationals due to their low-cost advantages. The manufacturing basesestablished by South Korea in developing countries agree with this theory.However, this theory cannot explain the factory built by Samsung in the UnitedStates. The comparative advantage theory of Kiyoshi Kojima (1966) also cannotexplain the factory in the US, because there may be no comparative advantage forSamsung given the fact Apple operates in America. When theinternalization theory of Rugman is applied, there may be a certain kind of explanationfor the FDI made by Samsung in the developed countries, namely, because the initialcost of R&D into product research is high, the best way is to create aninternal market within the firm in an artificial way to cover the rent expenses(Rugman & Verbeke, 2003). According to Rugman and Oh (2008), the R&Dexpenses of the largest 10 Korean companies account for 70% of the total amongthe biggest 550 firms in the country.
The three biggest companies; Samsung, LGand Hyundai account for 51% of the overall R&D expenses of the 550 biggestcompanies in South Korea (Rugman & Oh, 2008). The R&D investment ofSamsung is huge. Thus, to protect its intellectual properties and interests,Samsung invests in the US to eliminate the uncertainty between the buyers andthe sellers, as well as eliminate the adverse influence of the market. Inaddition, the company can also avoid the intervention by the government,transfer capital, or even evade taxes. In this way, Samsung tried to establishits global competitive leadership.In this sense, itcan be judged that the entry into the Chinese market by Samsung may be marketand resource seeking, while the entry into the US market by the company may beefficiency seeking. However, the FDI by Samsung may not be for technologicalasset seeking. This is different from the multinationals of some developingcountries such as India which acquired foreign assets to help themselves accessnew technologies and products to overcome their restricted product developmentcapabilities (Pradhan, 2010).
Samsung possesses relatively mature,independently-developed products and technologies, and it does not need toengage in aggressive technological-asset seeking FDI. Samsung is also differentfrom Chinese multinationals that have been always motivated to make investmentin specific locations to seek assets, such as the natural assets in LatinAmerican and Australasian countries. However, Samsung may be similar to thoseChinese MNEs which seek strategic assets in North America and relational assetsin Asia (Liu & Scott-Kennel, 2011). As mentionedabove, compared to Japanese MNEs, Samsung and other Korean MNEs engaged in FDIactivities relatively late. But Korean MNEs began foreign expansion earlierthan Chinese MNEs.
Regarding strategy and entry mode, Korean MNEs preferredsharing control rights with a local partner if their affiliate was in aresource-based industry; or if they entered a nation that had a big blackmarket; or if there were big socio-cultural difference between the home countryand South Korea (Chun, 2009). On the other hand, in high-income countries,Korean multinationals would set up their affiliate production bases to evadethe trade restrictions (Lee, 2004). Lee et al. (2011) also found that SouthKorean MNEs favored a new business establishment when they entered a foreignmarket, namely, to set up a wholly-owned subsidiary. There is similaritybetween South Korean MNEs and Japanese MNEs in terms of the preference ofgreenfield investment to acquisition, since greenfield investments could helpJapanese firms eliminate or reduce future protection in the US and Europeanmarket, such as “quid pro quo investment” to prevent the backlash by acquiringa local company (Yamawaki, 1994). TheOLI or the LLL factors of the FDI by SamsungIn terms of thesuccessful factor of Samsung’s engagement in the FDI, they can be explainedbetter by the OLI framework, namely, ownership, location and internalization(Dunning, 1981), rather than by the LLL paradigm, consisting of linkage,leverage and learning (Mathews, 2006).
This is because the LLL paradigm may bemore appropriate to explain the FDI by developing country’s MNEs such asChinese, Indian, Russian and Brazilian companies to benefit themselves byaccessing advanced technologies through imitation, so that the property gapscould be reduced between them and the developed countries. However, for Samsung,this LLL theory may be not that proper since before engaging in FDI, Samsungwould generally develop an advanced technology or product first and then moveinto foreign markets. Samsung has ownership advantage in the OLI theory, and itis mainly seeking locational advantage and internalization by carrying out FDI.For instance, it invests in China to seek the location advantage such as hugemarkets and cheap labor, while it enters the US to pursue the advantage ofinternalization. In terms ofproduction and operation, Samsung has big, complicated and worldwide supplychains in most produced products, and takes broad advantage of SCM processinnovations and solutions to improve and support its operations, such asadvanced planning and scheduling systems. The company has been selected as the seventhbest company around the world in supply chain excellence. In addition, theadopted Six Sigma methodology enables Samsung to have excellent product quality(Yang, et al.
, 2007). In terms of R&D and innovation, Samsung has more than50,000 employees working in 42 research centers around the world (Samsung,2017), and the company uses a systematic method to innovate, laying thefoundation for its success (Shaughnessy, 2013). On top of that, the company excelsin multiple other aspects such as marketing, product design and branding (Yoo& Kim, 2015). These internal capabilities and resources are the ownershipadvantage possessed by Samsung making it unnecessary to pursue leverage andlearning by carrying out FDI. Instead, the company only needs to take advantageof its ownership advantage to further seek the location and internalizationadvantages of FDI. Managementand organizationRegarding managementand organization, it’s known that Samsung is a family-owned firm.
This meansthe company has a centralized organizational structure which may lead to thenegative effects such as sibling rivalries, succession battles, espionage andsabotage (Shen, 2015). The company does not possess the public corporateorganizing structure of most companies in the US and Europe. The management ofthe company is divided into three business divisions, Device Solutions,Consumer Electronics, and IT Communications (Samsung, 2015). Despitethe concentrated ownership structure, the company has a set of affiliatedbusinesses and subsidiaries generally using the brand name of Samsung(Nordqvist, 2014). Therefore, the level of centralization may be high if seencomprehensively from the perspective of Samsung Group.
However, from thesubsidiaries and affiliated business perspectives, the global operations andmanagement of Samsung may be a decentralized one. This can be explained by theinternalization theory of Rugman, namely, using the combination of acentralized group structure and a decentralized subsidiary structure,internalization can be achieved to form an internal market to prevent thelosses of technological advantage. It is also used to meet the needs of specialproduct transactions, to pursue economies of scale, to obtain high monopolyadvantage, avoid foreign exchange control, and avoid taxes by taking advantageof internal transfer prices (Waheed, 1992). Therole of governmentFrom theperspective of the South Korean Government, as the most powerful family inSouth Korea, Samsung is supported by the national Government in its globalexpansion (Harlan, 2012). It was reported that in 2012, the Korean Governmentendowed Samsung more than $155 million in subsidies directly, despite thecriticism that national subsidies would be more effectively utilized to assistin SMEs rather than large companies (Lee & Ryu, 2014).
Therefore, theoutward FDI by Samsung is under the strong support of the South Korean Government.Regarding the internalization and locational advantage pursued by Samsung inforeign markets, the role of foreign Government in stimulating inward FDI is significant,such as the Reform and Opening-up Policy of China. ConclusionIn conclusion, asthe representative of South Korean multinationals, Samsung’s FDI activitieswhich allow it to compete globally may have some similarities to those ofJapanese companies, such as stage-oriented process facilitated by isomorphicpressure and incremental experiences, focusing of global expansion initiativeson culturally and geographically proximate nations. However, there are alsodistinctions between South Korean, Japanese and Chinese MNEs in their outwardFDI, such as different time periods to start and surge, different entry modesand strategies. During the 1980s, the Asia-Pacific multinationals engaging inFDI were mainly from Japan, followed by the South Korean multinationals in the1990s, and the Chinese MNEs since 2000.
Such sequences can be better explainedby the product life cycle FDI theory by Vernon. In a series of FDI theories,apart from the OLI paradigm by Dunning, other theories either cannot explainthe FDI motivations of Samsung, or can only partially explain them. OLI, as acomparatively comprehensive summary of existing FDI theories, can explain theownership advantage possessed by Samsung to help it gain global competitiveleadership. On the other hand, the LLL theory cannot explain well Samsung’sglobal leadership, since the company has fostered a set of internalcapabilities that can enable it to bypass the learning and leveraging purposeswhen engaging in FDI which is insightful for the companies that expect to gainglobal presence and competitive advantage via FDI initiatives.