Samsung Moves Upmarket

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Since the early 1990s, Samsung has led the global market in DRAM semiconductors, the memory chips that are vital to almost every digital product we use. During the current slump, as competitors like Hitachi and NEC have been backing away from the chip business, Samsung has been diving in, introducing two new lines. The company has leveraged its digital know-how to dominate the manufacturing of computer monitors and state-of-the-art flat-panel displays. This summer Samsung, in conjunction with Texas Instruments, will introduce the world's first 50-in. TV with digital light-processing technology, now used mostly in movie theaters. Analysts who have seen the picture say it is sharper than anything on the market. And Samsung revolutionized the world of microwave ovens with a technology that senses when your food is properly cooked.

Consider that Samsung got into the U.S. phone business only in 1997, through a $600 million deal with Sprint. Samsung Telecommunications America, established that year in Dallas, pledged that it would become a Top 5 phonemaker within five years. It made it in two, with the clamshell-shaped 3500, which became America's top-selling cell phone in 2000. Last year, among a rush of other introductions, Samsung started selling the I300, a Palm-based PDA with a built-in wireless phone. Although there are plenty of combo PDA phones on the market, none have sold as well or enjoyed as much acclaim. "People pull these out at meetings to show off, which makes them a walking brand advertisement," says Peter Skarzynski, an STA vice president. "That's what Sony's Walkman did for them." And that's what Samsung's products and a big advertising investment are doing for it. Last year its global brand recognition grew a stunning 22%.

The climb to prominence hasn't been easy. Just a few decades ago, Samsung Group founder Lee made the annual December pilgrimage to Japan for how-to books and advice from economists and business leaders, some of whom were his classmates in the 1930s at Tokyo's prestigious Waseda University. As recently as the late 1970s, Samsung engineers were huddled over Japanese TV sets, trying to reverse-engineer their components and produce them for less. As late as 1993, Samsung Electronics remained a little-known company within one of Korea's sprawling industrial conglomerates, or chaebols. The firm was just beginning to focus hard on quality when the 1997 financial crisis swept through Asia, forcing Korea to seek an International Monetary Fund bailout. Samsung Electronics paid heavily for its parent's misguided investments, which included a $3 billion foray into carmaking.

Under the leadership of Yun Jong Yong, an avid disciple of American management gurus like Jack Welch, the electronics company laid off a third of its work force, or about 30,000 people, slashed costs and dropped sideline businesses like pagers and electric coffeepots. Yun recruited top managers and engineers from the U.S. Back in Seoul, recruits were put through a four-week boot camp in which they were awakened before 6 a.m. every day to martial anthems extolling the virtues of being a Samsung man. Marathon mountain hikes were part of the drill.