REV: FEBRUARY 27, 2009
JORDAN I. SIEGEL JAMES JINHO CHANG
Kun Hee Lee, chairman of the Samsung Group, contemplated his company’s strategy while sitting in the basement office of his home. His office had a one hundred-inch screen on the wall, and in front of the screen there was a short desk, just one foot in height. Lee spent much of his day in this room, studying the strategies of his competitors and overseeing multibillion-dollar investment decisions. Beside his desk were hundreds of DVDs and videos, many examining his competitors’ histories and strategies. Every new product made by Samsung and its competitors sat along the walls. Trained as an engineer, Lee eagerly picked apart every product, examining its design and quality of manufacturing.1 As he sat next to his low desk and sipped a cup of Korean green tea, Lee wondered whether his legion of Samsung employees was following his stern advice to always demand superiority in product design and process efficiency. He had grave concerns about complacency in his company. He remembered how he mentioned in a senior management meeting: “To an outsider, reprimanding a manager whose division racked up [billions of dollars] in profit might seem bizarre. But I don’t see it that way. Our abilities and efforts did play a role in our success, but we must realize that most of it came from the leading companies’ negligence, pure luck, and our predecessors’ sacrifice.”2 Under Lee’s leadership, Samsung had risen to become the world’s leading memory producer for all types of PCs, digital cameras, game players, and other electronics products. As recently as 1987, Samsung was a bit player, years behind its key Japanese rivals. But by 2003, Samsung’s memory division towered over its Japanese rivals in both size and profits. Samsung used the earnings from its memory division to invest in other technology products. By 2003, with the help of mobile phones, liquid crystal displays, and memory products, Samsung had generated the second-largest net profit of any electronics company outside of the United States. In spite of Samsung’s current success, Lee now worried about mainland Chinese companies that were beginning to attack Samsung in the same way that Samsung had attacked the Japanese companies 20 years earlier. The memory chip industry was expected to experience a cyclical downturn in 2005, and while Samsung had survived the past two downturns with the best performance in the industry, some outside observers believed that the Chinese entry would fundamentally change industry conditions in the years ahead. ________________________________________________________________________________________________________________ This case was prepared by Professor Jordan I. Siegel and Professor James Jinho Chang, Yonsei University. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2005, 2006, 2008, 2009 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1-800-545-7685, write Harvard Business School Publishing, Boston, MA 02163, or go to http://www.hbsp.harvard.edu. No part of this publication may be reproduced, stored in a retrieval system, used in a spreadsheet, or transmitted in any form or by any means—electronic, mechanical, photocopying, recording, or otherwise—without the permission of Harvard Business School.
Over the previous five decades, the semiconductor industry had grown in economic importance. In 2000, the industry enjoyed $200 billion in sales, and the industry grew by an average of 16% per year since 1960.3 Semiconductor products were classified into two broad categories of chips: memory and logic. Logic chips were used to process information and control processes, and...