High-Tech Giant Gears for Future
The president of Samsung Electronics Company talks about tough competition ahead for companies in Asian countries and South Korea's challenge in moving from a low-wage labor force to one with high-wage, high-skill jobs
SUWON CITY, SOUTH KOREA — SOUTH Korean business leaders are spending sleepless nights trying to escape a dilemma: How can they compete with third-world countries that produce goods less expensively, and at the same time try to catch up with Japanese firms that have an edge in high technology.
Korean firms have neither the low wages that the country once enjoyed nor the advanced technology needed to compete with the Japanese.
"My company is sandwiched between Southeast Asian nations and Japan," says Jong Yong Yun, president of Samsung Electronics Company, the world's fifth-largest electonics firm. The company is a division of the $43 billion Korea-based conglomerate, The Samsung Group, the world's 18th-largest company.
In an interview with the Monitor at his office in Suwon City, Mr. Yun, known as a driving force in Korea's electronics industry, reveals some of Samsung's long-term strategies.
When asked whether Samsung gets technological assistance from Japan, he responds that "technology is a new currency.... These days the Japanese won't share any new technology with us. We have to develop our own." Spending on research
Developing new technology does not come easily, however. Since 1988, the firm has increased its research-and-development budget threefold. Last year, it spent about $600 million on R&D. "We have not reaped the fruit of our investment yet," he says.
Within the next two to three years, however, he says that Samsung will make progress against the Japanese in terms of quality and prices. Currently Korean electronics products are selling 5 to 10 percent below the prices of comparable Japanese goods, he notes.
"Producing high-value products with the next generation consumer electronics and improving product images among consumers are our main goals," he says. Super-videocassette recorders, high-definition television, and advanced memory chips will be the growth products for Samsung in the near future, Yun says.
One major obstacle the firm faces is the difficulty of obtaining the necessary capital to finance R&D projects, due to the tight credit market in Korea, he says. Companies pay at least 18 to 20 percent interest for short-term loans from Korean banks.
Samsung employs more than 200 Korean researchers who earned PhDs in the US. This large pool of talent is the force behind Samsung's development of advanced microchips such as 64-megabit DRAM chip (dynamic random-access memory), standard components of computers and consumer electronics goods.
Yun attributes the development of new generations of memory chips to the country's economic growth. "When our GNP level was below $2,000 [per capita], it was unthinkable for us to develop memory-chip technology. But when the level hit above $4,000, we were able to attract many excellent Korean researchers from overseas."
When the company wanted to hire an experienced Korean researcher from Bell Laboratories quite a long time ago, it had to pay him a $100,000 salary along with a senior title and free housing. But this is no longer necessary. In recent years, many Korean researchers have been willing to work for Samsung for less money as more of them are looking for jobs at home. The total number of research personnel is expected to rise to 12,150, or 26.1 percent of total employees in 1992, up from 8,800 or 20 percent of the total in 1991.
Yun anticipates that China is another country that will benefit from the return of Chinese engineering students from the US. When the GNP level reaches around $3,000 in China, he says, many top-notch Chinese students in the US may decide to go home. "Once this happens, there will be a boom in the memory-chip industry there," he says.
While other countries are benefited by these returning students, the US industry is wrestling with a shortage of highly trained researchers, he says. Most PhD candidates in the US graduate engineering programs are foreigners, he notes.
Last year, Samsung Electronics generated $7.1 billion in revenues, up from 15 percent in 1990. US sales account for 15 percent of the total. Samsung is trying to diversify throughout Asia and into Latin America, the Middle East, and Europe. Overseas investment
Recently, Samsung agreed to build a $50-million videocassette-recorder plant in Tianjin, China as part of a joint venture. China provides not only a huge market for Samsung but also an inexpensive labor source, Yun says.
The average Korean worker's monthly wage is about 17 times higher than that of a Chinese worker, according to a survey by a Korean bank.
In recent years, because of soaring wages and the labor shortage, a large number of Korean firms have moved their manufacturing facilities to South Asian countries such as Thailand and Indonesia. Yun says that when Korean companies set up joint ventures in these countries, in many cases they become competitors within a few years.
"This is the harsh reality of international competition," he says. Under these circumstances, South Korean firms would rather invest in North Korea than other countries. There are several advantages in doing this, he says, including proximity and language. The country also has one of the world's best-disciplined work forces, he adds.
Despite these advantages, Yun cautions that jumping into the North Korean market is premature because of the uncertain political climate there. If North Korean leaders change their minds, they can easily confiscate properties without compensation. For this reason, "there is too much risk involved investing there," he says.
South Korean firms are not the only players in this game, he adds. The Japanese are also interested. South Korean firms should establish a foothold before the Japanese do, he says.
When asked about the best way to compete with the Japanese, Yun laughs, "that's the question I have to ponder day and night."