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Chaebol: the story of Samsung and why Apple is after it

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Chaebol: the story of Samsung and why Apple is after it
Samsung reported about $6 billion profit in the last quarter. To put it in perspective, this was just a third shy of Apple's profits, near to what Microsoft made, save for the one-time aQuantive charge, and roughly twice Google's take. It is also about a third less than oil giant Exxon Mobil’s profit without the one-time income charges.

The bottomline is that Samsung became one of the most profitable companies in the world in the span of two years, riding the smartphone wave (no, not that Wave). Apple argues it's because Samsung followed the footsteps it has been trailblazing since 2007 with the first iPhone, and is now asking for $2.5 billion of patent infringement compensation in the tech trial of the century that started July 30.

For us to understand how Samsung got here, and where does this aggressive pursuit of innovation and market share we are observing now stem from, things need to be laid out in historical perspective. Thankfully, court filings that keep on leaking from the Apple-Samsung trial, are adding the last pieces to the Samsung puzzle.


Lee Kun-hee

We say thankfully, since Samsung is a "chaebol" - a family-run conglomerate, notorious for its privacy and all-encompassing societal reach. Chaebols like Samsung, LG or Hyundai permeate South Korea, its business culture, and its everyday life with so much influence, that they have become a hot potato issue in the upcoming elections.  

Chaebol: the story of Samsung and why Apple is after it
So how do you evolve from selling noodles and dried seafood in 1938, when Lee Byung-hul started Samsung, into a company battling a Silicon Valley juggernaut like Apple for world dominance? The answer is chaebol - Lee the founder branched out into many areas such as insurance, construction, shipbuilding and yes, electronics, whereas Lee the son, who was pinpointed as the business heir in 1987, built on the founder's success by nurturing and encouraging innovation and independent thinking, and is now mentoring his kids to take over. He carried his father's push that Samsung must be the leader or one of the best in every new field it enters, and this is particularly paying off with the smartphone business now, which is well on the way to increase Lee Kun-hee's $8 billion personal wealth significantly.

It's not all puppies and flowers in the family, of course - the older brother and sister are suing Lee Kun-hee for shares in Samsung valued at a combined $850 million. His lawyers, on the other hand, say the father was clear who had to run the business, and the issue should have been raised 25 years ago when he took the helm, not now when Samsung is raking in record profits. As you see, Apple's lawsuit is not the only legal trouble on the Samsung Electronics Chair's radar. 

In the early 90s, the current Chairman Lee Kun-hee realized that the company, as huge as it was, risked becoming a low-cost volume peddler, and said the famous quote: "Change everything but your wife and kids!" The slideshow below that has a timeline of Samsung's milestones, illustrates well the culture of innovation that was happening even before that battle cry.


Lee Kun-hee has a few other quotes, which establish him as a visionary leader, who is not overly concerned with the quarterly profits, but rather with building the right culture to secure strategic advantages for Samsung going forward:

  • "One genius can feed millions of others. For the upcoming era where creativity will be the most important driver of business success, we need to hire the best. The economic value of one genius is more than $1 billion."

  • "The business world has changed significantly. It is becoming increasingly difficult to foresee what sectors will prosper or opportunities will arise in the future. But if you hire the best and brightest, you will solve whatever issues arise in the future.

  • "It is difficult to understand the true dimensions of a problem or a situation when so many things seem to be happening on the surface. This is why I urge my employees to analyze a given situation from various perspectives. This way of thinking allows one to see the true aspects of a situation, which, in turn, allows one to respond wisely.

  • "Firing a CEO because his financial performance was poor is simply a bad decision. I've encountered several situations where a CEO once performed poorly in one sector then went on to perform much better elsewhere. This is one of the reasons Japanese corporations were able to compete successfully against US corporations."

Do those remind you of a certain company that says money doesn't matter, but rather the right products? In any case, as with every powerful figure, the Lee Kun-hee's reign is not without controversies, and we don't mean just the family feud for inheritance. In 2008 his house and offices were raided by the police, starting an investigation whether Samsung is maintaining a slush fund that compensates court officials and politicians for favors. Chaebols are often depicted in the media and movies in Korea as almost mafia-type organizations, and those allegations didn't help to dissuade the notion.

Korean chaebol movies often depict them as mafia-type organizations

Korean chaebol movies often depict them as mafia-type organizations

He stepped down as chairman and, after being found guilty in things like financial wrongdoing and tax evasion, Samsung's boss was fined $109 million, and issued a three-year suspended jail sentence. "We, including myself, have caused troubles to the nation with the special probe; I deeply apologise for that, and I'll take full responsibility for everything, both legally and morally", Lee Kun-hee commented after the verdict. Pardoned by the government in 2009 in order to help Korea's bid for the Winter Olympics, he returned as Samsung's Chairman in March 2010, then the first Galaxy S was outed in June, and we all know what happened since then.

33 Comments
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posted on 02 Aug 2012, 07:01 10

1. groupsacc (Posts: 232; Member since: 28 Feb 2012)


Good read. Thank you.

posted on 02 Aug 2012, 17:56 1

26. ardent1 (Posts: 1997; Member since: 16 Apr 2011)


They forget the part that Samsung would have been a communist concern had the North Koreans been successful in the take-over of Korea in 1950.

Samsung, as well as other Korean companies, owe their success to the US and other International countries that sent soldiers to stand against the North Korean communists in South Korea's darkest hours after being released from Japanese rule after WWII.

posted on 02 Aug 2012, 07:05 4

2. Droid_X_Doug (Posts: 5859; Member since: 22 Dec 2010)


Meh. Not much different than the Japanese keiretsu. You would probably see something similar in the U.S. if not for the anti-monopoly laws.

posted on 02 Aug 2012, 08:03 2

11. hung2900 (Posts: 804; Member since: 02 Mar 2012)


Similar in corporation structure, not corporation culture. The latter is proved that being the key of success everywhere on the world including Apple.

posted on 02 Aug 2012, 13:38 4

24. maxican16 (Posts: 363; Member since: 29 Sep 2011)


Agree completely. This after having worked in a large American corporation that strives to implement 6-sigma... and struggles immensely because of culture.

The philosophy read was fantastic!

"A judge speaks through judgments, an engineer speaks through products, and a designer should not need to speak."

Awesome stuff and now easier to see how Samsung got to where it is. Through INNOVATION and not simple copy cat. You don't become that hugely successful by hanging onto someone else's coattails. You do it through innovation, foresight, and hiring the brightest minds to drive your own future success.

posted on 02 Aug 2012, 07:16 2

3. Bluesky02 (Posts: 1439; Member since: 05 Dec 2011)


View as One Page, everytime I click that

posted on 02 Aug 2012, 07:25 7

4. marchels14 (unregistered)


great story,now i see why apple is threatened by Samsung because they are better at what they are doing then apple.

posted on 02 Aug 2012, 07:27 2

5. mercorp (Posts: 971; Member since: 28 Jan 2012)


Even if samsung is driven out of their electric business by apple,they can at least still rely on their construction and insurance divisions to survive. Phew!

posted on 02 Aug 2012, 07:30 15

6. Fayeznoor (Posts: 65; Member since: 15 Nov 2011)


nice article.

this is exactly what i tell my geek friends, you have to look into Apple's intention rather than copy cat claims. over past decade Samsung has gradually and successfully driven out the Biggest name and biggest innovators in electronic industry like sony, panasonic, toshiba from their core cash making business.

apple is also feeling the heat now, Samsung has already taken out smartphone market by surprise, they are gaining momentum in tablets too. the big question is, why is apple not going after other tablet makers, i don't see any difference in tablets at all. answer is simple, fear of losing the core business (apple core business is iphone and ipad now not macs or ipods)

and another perspective not related to apple , you must have noticed that Samsung is now even pushing hard in Digital Camera market and laptops too. ive used 3 Samsung laptops and they turned out to be amazing. and price for same offering was lower than HP, Dell, Toshiba still higher than Asus

posted on 02 Aug 2012, 07:42 2

9. rd_nest (Posts: 770; Member since: 06 Jun 2010)


well said man..these guys (referring to Samsung) are ruthless. they have not lost the race to anyone whichever industry they targeted.. it already started happening to smartphones, tablets will follow in few years years.

posted on 02 Aug 2012, 07:54 6

10. Daniel.P (Posts: 102; Member since: 14 Jul 2011)


They are "hungry and foolish" :)

posted on 02 Aug 2012, 11:10

21. plgladio (Posts: 311; Member since: 05 Dec 2011)


Foolish? In what way?

posted on 03 Aug 2012, 07:50

29. s.mrabet (Posts: 117; Member since: 26 Oct 2011)


In a good way !

posted on 02 Aug 2012, 09:37

17. u-suck-more (Posts: 529; Member since: 26 Aug 2011)


i agree! but my computer (which is a Samsung), is crap.. maybe their series5 ultrabooks are good but idk

posted on 02 Aug 2012, 10:14

20. Fayeznoor (Posts: 65; Member since: 15 Nov 2011)


ive series 5 ultrabook, samsung sf 310, and samsung series 3. though one thing common in them is whenever u boot the laptop firstime, the first step u must take is to uninstall all the Samsung Softwares, and ull see laptop flying high

posted on 04 Aug 2012, 02:59

30. u-suck-more (Posts: 529; Member since: 26 Aug 2011)


ooo.. is the series 5 any good?

posted on 02 Aug 2012, 07:36 18

7. Victor.H (Posts: 443; Member since: 27 May 2011)


Great read. I for once don't find it shocking that Samsung took cues from Apple. Every company would in some way copy a better product when it knows there is one. What impresses is how quickly the Samsung empire turned and managed to deliver competitive products while Nokia, RIM, Sony and many many others missed a couple of years.

Also, it's very interesting how back then Samsung realized the importance of screen size and talks about larger screens competing with eBook readers. That's one area where Samsung really took a risk with the Galaxy Note and won.

posted on 02 Aug 2012, 09:56 9

18. remixfa (Posts: 13935; Member since: 19 Dec 2008)


I dont see evidence of "samsung copying" anywhere in there, like Im sure we will see all over this thread.

That last memo was very telling. Hell, it even mimics things I and others have been saying.. Samsung nails the hardware part of the device better than anyone, but has been failing in its software. Thats part of the reason the SGS series is so popular to mod. With correct software, the phones are a monstrous dream. Also that is the reason I applauded when they made the move of hiring Steve Kond**k and started pulling talent from the Android modding scene.

What I see is a company very aware of its surroundings in the market place. Where Nokia, RIM, and HTC fell to blindness, Samsung quickly saw the market changing capabilities of Apple's iphone. They talk about apple's little effects that users like, like the shrink/grow rebounding of icons, yet that type of stuff was never implemented when it easily could have been (which would have been obviously copying)

I think this article shows without a doubt that Samsung didnt become the biggest android manufacturer.. and now the biggest phone manufacturer by accident or by copying. It became that by being very quick on its feet, very aware of the competition, and taking chances with the changes in UI (Touchwiz 2, 3,4, Nature UX are all very different and each more functional than the last), most definitely in pushing screen sizes and tech, and in their chips.. which are the most powerful chips on the market. They knew they were falling behind in software and they made dramatic steps to improve it through hiring (again, Cyanogen) and through complete UX redesigns.

Can any dissenter name 1 other phone company that reacts and changes that fast?

The article was a great read. :)

With that in mind and the articles presented, I can safely say that the market would be way better off with more "samsung" like companies and less "apple" like companies.

posted on 02 Aug 2012, 12:17 5

22. taco50 (banned) (Posts: 5506; Member since: 08 Oct 2009)


Samsing could put an Apple logo on the back of their phones and you still wouldn't see any copying.

posted on 02 Aug 2012, 14:41 2

25. thedarkside (Posts: 652; Member since: 30 Apr 2012)


yeah because minus the similarities between the iphone and the galaxy s1 there isnt any copying. none.

and how about that sony phone that apple copied?

posted on 03 Aug 2012, 01:29 1

28. zhypher_23 (Posts: 195; Member since: 04 Jun 2012)


Exactly, the G-Note is one of their flagship products besides the GS3, sh!t what about the G-Note II *Epicnezz :}

posted on 02 Aug 2012, 07:38 2

8. renegadeXC (Posts: 4; Member since: 02 Aug 2012)


Now, let me see. Samsung already predicted than phones would be used as e-book readers all the way back when there was no iBooks. I smell another lawsuit. Apple's seems to fail to grasp one thing though. It's not the flagship phones that really propel samsung ahead, but their mid-range devices just like what Nokia used to do. The mid-range is where the volume sales are. Samsung should be disclosing this as part of their court submission to prove the Galaxy S series sales where not all that stratospheric as Apple makes them out to be. What the Galaxy S did was actually drive the sales of the mid-tier phones which were capable but not Galaxy S (or iPhone) clone phones. They were mid-tier and really did the job well.

posted on 02 Aug 2012, 08:11 7

12. PapaSmurf (Posts: 8614; Member since: 14 May 2012)


This was a good article. Nice job. :)

posted on 02 Aug 2012, 08:50 7

13. Aeires (unregistered)


Exactly why the former top exec at RIM said Samsung sharpens their teeth when it comes to competition.

My only complaint about how this is going down is Apple is trying to stop a monopoly by creating one of their own to replace it with. While Samsung might have been influenced by others, they don't seek to ban other manufacturer's devices, it's a common practice in manufacturing. What Samsung does is simply out perform them with quality, something Apple needs to get back to doing. I read a comment earlier this year that nailed it, the analyst said Apple does best when they are ahead of the pack, but since Android, all they've done is run side by side with the big dogs. They lost the computer war and are terrified of losing the mobile war so they've gone into attack mode instead of developer mode. Apple is best when they are focused on innovation, something they've let slip these past 2-3 years. Even die hard Apple fans were let down with iOS6 and many doubt the vision is still there now that Steve has passed on.

posted on 02 Aug 2012, 08:51 2

14. Aeires (unregistered)


grr, being influenced is a common practice, not banning. Doh

posted on 02 Aug 2012, 21:43

27. joey_sfb (Posts: 3003; Member since: 29 Mar 2012)


Well said, to me Apple inc. used to represent Innovation with Style together with top notch marketing.

Now all their creditable engineers, designers and programmers spent their days in courtroom while others top notch manufacturers are busy designing other innovative product that may not even be a phone or tablet.

They adopt expensive lawsuits that force them to reveal more than they are comfortable and forget their primary success factor which is design product that are innovative and stylish.

They forget the world is much much bigger than American. The next innovation may not come from there.

posted on 02 Aug 2012, 09:09 4

15. shuaibhere (Posts: 1546; Member since: 07 Jul 2012)


Samsung did nothing wrong... its practice to do so in manufacturing....

now apple too put quad core processor in ip5 by seeing competition.....

its gud to see wat is happening around....

posted on 02 Aug 2012, 09:26 3

16. wsucoug13 (Posts: 164; Member since: 04 May 2012)


APPLE YOU SCARED OF THE BIG BAD CHAEBOL!!!!!! LOL

posted on 02 Aug 2012, 10:08 2

19. flipjzn (Posts: 173; Member since: 22 Jun 2012)


It seems like yesterday Samsung products were the last choice.
Tv's for instance, people who can't afford the over expensive Sony hi end tvs, Samsung was an alternate choice.
They did copy or tried to emulate and add more features or made their products better than the competition.
Today, their products are on top of the line.
I am not a fan boy, I change phones whenever something nice comes out ;)

posted on 01 Feb 2013, 10:09

32. McLTE (Posts: 711; Member since: 18 Oct 2011)


I recall the days when I sold electronics in the 90's.. I wouldn't give samsung stuff to my worst enemy! It was Sony or Panasonic or RCA even.

I recall reading an interview with top execs at Samsung back then. Their vision was clear.. to rise above and dominate. I was a bit skeptical, thinking.. beat Sony? Good luck!

Well they have. Sony like Apple have themselves to blame for it as well. Instead of striving to stay ahead of the pack, they got cocky and stalled. A company like Samsung is always driving forward.. getting better and they have.

As far as I'm concerned, Apple has nobody to blame for their apparant slide but themselves. Just look at their products.. So little has changed since the original iPhone came out.

It's unfortunate that being an American, where I try to stand by and support American companies.. I can't stand behind Apple, at all.

posted on 02 Aug 2012, 12:36

23. Superpiff (Posts: 36; Member since: 29 Jul 2012)


Lee kun should have his own chapter in the 48 laws of power,good article by the way

posted on 01 Feb 2013, 08:52

31. jasonjerkoff (Posts: 17; Member since: 12 Jul 2012)


visionary

posted on 04 Oct 2013, 10:48

33. evil.sidv (unregistered)


samsung family really knows how to invest their money. if im not mistaken korea's number one department store, shinsegae is also owned by one of the lee family

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