Sony vs Samsung

The Inside Story of the Electronics Giants' Battle For Global Supremacy

Sea-Jin Chang

• Publisher: Wiley
• Year: 2011
• ISBN:
  9780470830444
• Edition: 1
• Topic: Business
• Subtopic: Decision Making
• Index: Business

" Sony vs. Samsung is business history at its best! It explores the divergent fortunes of these two electronics giants in the last decade and identifies the true reasons behind Sony's decline and Samsung's rise. Contrary to popular belief, Chang shows that success (or failure) does not simply arise from different strategies. Rather, it emerges from major decisions that are deeply rooted in the companies' organizational processes and their executives' political behavior. This book is a must-read for any senior executive."
— Constantinos Markides, Robert P. Bauman Professor of Strategic Leadership and Chairman, Strategy Department, London Business School

"Sea-Jin Chang has produced that rarity in a business book--one that is as valuable to practicing managers as it is insightful to academic researchers. In this fascinating comparison of two modern global giants, he applies his high resolution research microscope to their changing fortunes by dissecting their contrasting strategies, and providing interesting insights into their divergent organizational processes and management practices. This is a very valuable contribution to the international business literature. It will end up in as many corporate boardrooms as faculty seminars."
— Christopher A. Bartlett, Thomas D. Casserly Professor Emeritus, Harvard Business School "Sea-Jin Chang has written a fascinating comparison of Sony and Samsung that will be valuable to anyone interested in strategy, organizations or international business. The interwoven and very detailed case studies of two very different companies in overlapping industries illuminate problems such as adaptation to technological change (analog to digital), organizational flexibility and globalization. His attempt to analyze both strategic development and implementation is successful and very useful. Both academics and practitioners will learn a lot from this book."
— Stephen J. Kobrin, William Wurster Professor of Multinational Management, The Wharton School, University of Pennsylvania "Refreshingly original and entertaining, this book analyzes major strategic decisions of Samsung and Sony and highlights organizational processes and top management leadership that have shaped their performances. This is a must-read for all executives who want to understand the strengths and weaknesses of Asian competitors. It also provides penetrating insights to other Asian companies with global ambitions."
— Myoung Woo Lee, President and CEO, iriver

1

Sony and Samsung: Portraits of Two Global Competitors

Digital technology… [presents] … the greatest opportunity for those manufacturers who did not have a top market share in the analog world. If they make the correct changes in strategy, they possibly could leap-frog well-entrenched industry leaders.

—Steve F. Smith, Editor-in-Chief, TWICE Magazine

Sony ruled a slower age when it could bring out a new gadget like the Walkman as a luxury item, then gradually lower the price and widen the market over time. Now, since the rise of cheap Asian manufacturing in the 1980s, companies need to bring out a stream of new products that sell immediately at high volume for a relatively low price, and are quickly displaced by the next new thing. Samsung is king of this age.

—Newsweek¹

The Fall of Sony and the Rise of Samsung Electronics

A Turning Point

A few years ago, the electronics industry reached a milestone. Sony had long been acknowledged as the world’s best electronics manufacturer, but in 2002, Sony’s market capitalization fell below Samsung’s, which had been an obscure memory chip producer not many years ago. Figure 1.1 shows some of the raw data behind this story. By December 2006, Samsung’s market capitalization was $106 billion, an increase of 400% since 2000 and twice that of Sony’s. Since becoming CEO in 1997, Jong-yong Yun, has become famous for turning Samsung Electronics into one of the most profitable companies in the electronics industry. By contrast, Sony’s Chairman Nobuyuki Idei and President Kunitake Ando resigned in 2005 and were succeeded by Howard Stringer and Ryoji Chubachi, respectively.

Figure 1.1 The Market Capitalization of Sony and Samsung Electronics

Source: Samsung Securities, Sony Fact Book.

Sony began from a position of strength. The late Chairman Akio Morita had shown the world that Sony had become a global company. Michael Porter, a strategy guru, praised Sony highly as one of the few Japanese companies that actually had a strategy.²

Sony’s troubles began, however, after it acquired Columbia Pictures in 1989 (see Figure 1.2). Things turned out so bad that by 1994 it had to write off accumulated losses of $3.5 billion. Sony then restructured its entertainment business to control costs. Sony’s profitability peaked in 1997 when it introduced PlayStation, but started to decline again soon afterward, and sales became stagnant. By contrast, although Samsung Electronics’ sales and profitability were highly volatile during the late 1990s, its revenue almost doubled between 2000 and 2006, and it had a considerably higher rate of profitability than Sony enjoyed during this period.

Figure 1.2 Sony and Samsung Electronics’ Sales and Profitability (1991- 2006)

Source: Annual Reports and Earnings Announcement of Sony and Samsung, respectively.

Some of the best evidence of Samsung’s rise and Sony’s fall appeared in the changing tones of Sony’s top management whenever they spoke about Samsung. Nobuyuki Idei noted in 2002 that “Samsung found Sony a model or a benchmark for their brand image. The product design and the product planning—they have learned from us. So Sony is a very good target for them.” To him, Samsung was merely one of the suppliers rather than a potential threat. He continued, “We still believe that Samsung is basically a component company.”³ Just a year later, Kunitake Ando, president of Sony, mentioned that he asked “for a report on what Samsung is doing every week.”⁴ In 2006, Sony’s newly appointed CEO, Howard Stringer, said that “Samsung is a first-rate company and they have a wealth of revenue coming from other areas. But, I think in the high-definition world, which is clearly our strategy for this year, we still have an advantage.” Sony was now openly acknowledging that Samsung Electronics had now become its competitor.⁵ Some of the popular press even inflicted the ultimate insult on Sony by commenting that it needed a lesson from Samsung. “As he looks for inspiration, Stringer might consider taking a page from Samsung Electronics. The Korean company has taken many of the steps that analysts believe Sony needs to take, ranging from collaborating more with partners to doing a better job taking its cues from the market. In doing so, it has become one of the nimblest players in the business.”⁶

The Media Hype

Sony had once dominated the electronics industry. So why did its fortunes drop so rapidly, just as Samsung was emerging from out of nowhere? The media have speculated about why the fortunes of these two companies changed so rapidly, but their evaluations are usually superficial and focus only on short-term performance. Often, journalists anoint a CEO as a Best Manager one year, only to dub him the Worst Manager just a few years later.

Sony had been nominated as one of the “World’s Most Admired Companies” by Fortune in 1997, which commented that “Sony was voted the most effective Asian company at doing business globally, the best company in Asia at wooing and winning topnotch people, and the most innovative electronics company in the world. Since he took over two years ago, Idei has shaken the place to its foundations, revamping the board of directors, restructuring major divisions, and clamping down on U.S. operations—especially Sony Pictures Entertainment.”⁷ The magazine’s evaluation of Sony and Idei soured, however, soon after the firm’s performance deteriorated. Business Week had nominated Idei as one of the World’s Best Managers in 1997 and 1999. But in 2004, the magazine put him on the World’s Worst list when he triggered the so-called Sony shock by announcing that the company had suffered a quarterly loss of about $1 billion, which triggered a sell-off of shares, plunging its stock price nearly 25% in two days.

Figure 1.3 Media’s Evaluation of Nobuyuki Idei

The most amazing accusation, according to the same magazine, was “Idei’s later admission that he himself had been caught off guard by the dismal earnings.”⁸ He was also criticized for failing to move far enough or fast enough in a corporate restructuring program he had announced in 1999 and for not being able to come up with innovative products. “Sony has pushed great-looking products made from the same digital components that everyone has. So it’s no surprise that its CD (Compact Disc) players, digital cameras, and other gadgets become commodities almost as soon as they hit the market.”⁹ While Stringer and Chubachi, the new management team, stopped the hemorrhage by closing down factories and laying off workers, it is not clear whether Sony can regain its reputation as the world’s most innovative consumer electronics powerhouse.

The media often misread up-and-coming firms. A few years ago, everyone wrote about Samsung Electronics as just one of the many anonymous Asian Original Equipment Manufacturing (OEM) companies that dumped cheap, low-quality products in discount stores. Until recently, it was hard to find an article that was favorable of Samsung Electronics. In an article about the Samsung Group that was written right after the financial crisis in 1998, Business Week described Samsung Electronics as a company that manufactured commodity chips, such as DRAMs (Dynamic Random Access Memory), and had been badly hurt by the Asian crisis and the downturn of the global chip business. “Senior managers have taken a 10% pay cut. Workers can no longer count on such perks as preschool tuition. At headquarters, the thermostat is now set so low that execs wear thermal underwear.”¹⁰

But fortunes soon changed. In 1997, Fortune had named Idei as “Asia’s Businessman of the Year.” But in 1999 it gave the same title to Jong-yong Yun of Samsung Electronics. He was now the man who “used Asia’s current chaos to reinvent a company that seemed near death.”¹¹ He was also praised for turning “a manufacturer of cheap black-and-white TVs into a $72 billion behemoth that earns more and has a more valuable global brand than archrival Sony.”¹²

Popular books such as Thomas Peters and Robert Waterman’s In Search of Excellence, Jim Collins’s Good to Great, and Jim Collins and Jerry Porras’s Built to Last describe the properties of successful companies as success factors that other firms should emulate.¹³ But Philip Rosenzweig, author of the Halo Effect, argues that those books merely summarize the characteristics of successful firms; they do not identify true success factors. Managers around the world are constantly looking for magic formulas to improve their bottom line. They find it difficult to resist the temptation to emulate firms like acquisition-savvy Cisco or HP, which does such a good job of cultivating employees. Boards are also looking for a charismatic leader such as Steve Jobs in the hope that he or she will bring tremendous instant success with a product like the iPod. Simply copying a corporate culture, leadership, value system, or strategy does not necessarily lead to success, however; these properties are not themselves the success factors.

Rosenzweig calls the tendency to observe the results first and then rationalize the company’s strategies the Halo Effect.¹⁴ The real challenge is to compare Samsung Electronics’ and Sony’s business structures, technology, brands, organizations, and management systems and to explain why these two giants have met with such drastically different fates during the past 10 years.

Comparison of Sony and Samsung Electronics: Motivations and Limitations

Any comparison of Sony and Samsung Electronics will inevitably be inexact. Sony is a significantly older firm. It was born as a start-up company, while Samsung Electronics began as a subsidiary of Samsung Group and shares that group’s company culture and management system. Further, the missions of these firms were very different. Sony was founded in the early years of post-war Japan and has attempted to make consumers’ lives more convenient by developing and producing innovative products such as the Walkman and the Compact Disc. Samsung Electronics, by contrast, was founded during Korea’s period of rapid industrialization. It created a long-standing identity as a manufacturer of key parts that are essential to the electronics industry. It lived by slogans like “semiconductors are the bread of the electronics business,” and “contribute to the nation by industry.” Moreover, the cultural differences between Japan and Korea add to the distinctions between these two companies.

In addition, Sony and Samsung Electronics’ key businesses are very different. Sony has devoted significant resources not only to the electronics business but also to music, movies, and software. It also has a B2C (business to customer) business structure, and thus sells mainly to end users. In contrast, although the Samsung Group as a whole is extremely diversified, Samsung Electronics produces and sells parts to other electronics firms, and its product portfolio is centered on the electronics industry. Even its mobile phone business is closer to a B2B (business to business) model than it is to B2C. Samsung Electronics sells its products mainly to a small number of operators.

But despite these important differences, a comparison uncovers valuable insights. First, Sony and Samsung Electronics simultaneously compete and cooperate with each other. They compete in the realms of TVs, DVDs, audio, camcorders, digital cameras, and mobile phones. But they cooperate in the production of LCDs (Liquid Crystal Display) through their S-LCD joint venture. Samsung’s leading LCD technology and Sony’s expertise in product development help both companies gain competitive advantages against their rivals. Further, Samsung Electronics supplies DRAMs and flash memory to Sony, but it purchases CCDs (Charge Couple Device) and batteries from Sony. Comparing two companies that simultaneously compete and cooperate reveals the overall dynamics of how firms in the electronics industry have responded to common trends.

Second, comparing Sony and Samsung Electronics may shed light on how the performance of different firms may change as they try to adjust to rapid technological developments in the electronics industry and how companies should effectively respond to such changes. Firms like Apple and Hewlett-Packard show how volatile the electronics industry can be. For example, Apple had a near-death experience when its Macintosh lines were marginalized by Windows-based personal computers, only to be resurrected by its unexpected success with iPod. Samsung Electronics and Sony have responded somewhat differently to the rapid digitalization of the electronics industry during the past decade. Sony invested in network technology and attempted to create synergy between hardware and software such as music and film. Samsung Electronics focused on manufacturing core parts. Its CEO Yun has a motto: “Stay at the forefront of core technologies and master the manufacturing and you control your future.”¹⁵ Sony and Samsung Electronics adopted different strategies as they responded to digitalization. Both strategies have their benefits and shortcomings.

Samsung Electronics and Sony are representative Asian companies, which lead the Korean and Japanese electronics industries. A comparison will reveal important strengths and weaknesses of Asiabased companies. In many cases, these companies are still owned and managed by their founders or founders’ families. In many cases the transition to professional managers that is typical in Western firms...

Table of contents

• Title Page
• Copyright Page
• Preface
• Chapter 1 - Sony and Samsung: Portraits of Two Global Competitors
• Part 1 Strategic Analysis
• Part 2 Organizational Process and Leadership
• Endnotes
• Glossary
• Index