The ABCD Framework of K-Strategy
The Secret to Korea’s Success
Hwy-Chang Moon Dean and Professor of International Business Strategy Graduate School of International Studies Seoul National University [email protected] Contents
1. The Janus Face of Korea’s Success 2. Review of Existing Studies on Korea’s Development
3. The Framework and Theoretical Background - The ABCD Framework - Existing Studies on Competitive Advantage
4. Application to the Success Cases - Country Level: Korea’s Economy - Firm Level: POSCO, Samsung Electronics, Hyundai Motor Company
5. Implications for Economic Development
2 National vs. Firm Competitiveness
Small and Medium-Sized Countries
Firm Competitiveness > National Competitiveness Korea • UK • Korea • Italy • Spain
National Competitiveness > Firm Competitiveness • Singapore • Qatar
• Israel Firm Competitiveness Firm
Note: Firm Competitiveness: Average ranking of Fortune Global 500, FT Global 500, and Forbes Global 2000 (All are based on 2013 data); National Competitiveness: Average ranking of IMD, WEF, and IPS-EE 2013 reports National Competitiveness 3 Different Performance: Economy vs. Society and Politics
Three Major National Competitiveness Reports Korea’s Rankings
IMD WEF IPS-EE World Competitiveness Global Competitiveness Report National Competitiveness Yearbook 2013 2013-2014 Research 2013
Sub-factors Rank Sub-factors Rank Sub-factors Rank
Domestic Economy 19 Macroeconomic Environment 9 Demand Size 13 International Trade 14 Infrastructure 11 Demand Quality 11 Economy Firm Structure 14 & Tech. Infrastructure 11 Business Sophistication 24 Business Scientific Infrastructure 7 Innovation 17 Firm Strategy* 11 Business Legislation 39 Institutions* 74 Politicians 50 Society Social Framework* 42 Goods Market Efficiency 33 Bureaucrats 22 & Politics Health and Environment 28 Labor Market Efficiency 78 Quality of Labor Force 26 Management Practices* 50 Financial Market Development 81 Social Context (Entrepreneurs) 38 Overall Ranking 20 Overall Ranking 25 Overall Ranking 18
Note: 1) * represents the sub-factors including criteria related to “safety.” The figure in the parenthesis below represents Korea’s ranking. Social Framework: personal security and private property rights (42) Management Practices: health, safety, and environmental concerns (46) Institutions: security such as business costs of terrorism (106), crime and violence (60), organized crime (73), reliability of police service (47) Firm Strategy: health, safety, and environmental concerns (29) 2) The number of countries evaluated in IMD, WEF, and IPS-EE reports is 60, 148, and 62, respectively. 4 The Ferry Accident (April 16th, 2014): Social and Political Problem
Many Problems
• Speed • Late and inefficient reaction Agility • Precision • No manual
• Imitation (learning) • No training Benchmarking • Global-standard • Violation of the “global standard” safety rule
• Mixing • Mixed reports, mixed rescue teams Convergence • Synergy-creation • No control tower
• Diligence • Captain stayed in his cabin at the critical moment of accident Dedication • Goal-orientation • Mission: the safety of passengers?
Human Error or System Failure?
5 Economic Growth: Korea and Some Other Countries
30000 GDP per capita (US$)
25000
20000
15000
10000
5000
0
1967 1992 2004 1960 1961 1962 1963 1964 1965 1966 1968 1969 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2005 2006 2007 2008 2009 2010 2011 2012 2013
Kenya Korea Malaysia Saudi Arabia
1961 1971 1981 1991 2001 2011 2012 2013
Korea 91 300 1846 7,118 10,655 22,388 22,590 25,973
Kenya 95 153 406 336 404 800 943 1,073
Malaysia 287 404 1,796 2,626 3,878 10,058 10,432 10,946
Saudi Arabia - 1,122 17,544 7,846 8,760 24,116 25,136 25,163
Source: Data (1960-2012): World Bank World Development Indicators; Korea’s data for 2013: Korean Statistical Information Service; Kenya, Malaysia, and Saudi Arabia’s data for 2013: IMF World Economic Outlook (estimation). 6 Korea’s Economic Growth and Industrial Upgrade
GDP per capita (US$)
25,973 (2013) 21,590 WTO OECD (2007) (1995) (1996)
Capital Market 11,468 Open (1995) (1992) Imp. Substitution Exp. Promotion
1,042 91 (1977) (1961)
Source: Data (1960-2012): World Bank World Development Indicators; Data (2013): Korean Statistical Information Service.
7 Foreign Perspectives: Korean Companies Cannot Succeed?
• POSCO: IBRD Report - In 1968, Korea should first develop labor-intensive industries before steel. - Korea used a part of Korea’s claims against Japan for agriculture - In 1986, Dr. Jaffe in the general meeting of International Iron and Steel Institute (IISI) - Koreans were beyond common sense
• Samsung Electronics: Mitsubishi Report - Five reasons to be failed - Korea’s market size, related industries, social overhead capital, company size & technology - A few Japanese companies helped - Semi-conductor VLSI tech from Sharp Corporation
• Hyundai Motor Company: U.S. Consumer Report - The lowest rankings evaluated by U.S. consumers in the early 1990s - Worst! Never buy again! - Frequently cited at comedy shows - Junk! Toy!
8 Contents
1. The Janus Face of Korea’s Success 2. Review of Existing Studies on Korea’s Development 3. The Framework and Theoretical Background - The ABCD Framework - Existing Studies on Competitive Advantage
4. Application to the Success Cases - Country Level: Korea’s Economy - Firm Level: POSCO, Samsung Electronics, Hyundai Motor Company
5. Implications for Economic Development
9 Existing Studies on Korea’s Development
Study Argument
• Learning existing Western technologies rather than innovation 1. Amsden (1989)
• Efficient government intervention policy in the optimal allocation of resources • Outward, Industry, and Growth (OIG) strategy
2. Song (1997) • Confucian ethic as an underlying basis for development before • Land use, a family-planning program, savings and consumption behaviors • Rapid physical and human capital accumulation 3. World Bank (1993) • Government’s market-friendly policy • Abundance of good workers of high standard of literacy, discipline, and desire to grow 4. Cho (1994) • Vigorous entrepreneurship • Export-led growth strategy along with effective government development strategy
• (1) government intervention, (2) US technical and financial support, (3) land reform, (4) 1997 Financial Crisis Financial 1997 transition from import substitution to export promotion, (5) authoritarian planning, (6) state 5. Toussain (2006) control over banking sector, currency exchange, capital flows and product prices, (7) US The Miracle of Han River of The Han MiracleRiver protection, (8) education, (9) scarcity of natural resources • Slower rates of population growth favored investment in education and incentives for 6. Mason (1997) saving, which accelerated the economic development • The internal operations of Korean business groups and their role in the Korean economy 7. Chang (2003) • Financial crisis due to the failed adaptation to changing external environments by the business groups and Korean government • Learning and government policies for promoting economic growth 8. Eichengreen, Perkins, • Adaptation to the global economic environment and Shin (2012) • Rapid shift of export structure to focus on high-growth products • Export diversification
Most of them focus on the economic success of Korea at the developing stage. 10 Conflicting Arguments between Studies
Export-oriented Trade Policy
Song (1997), Toussaint (2006) Amsden (1989)
Korea’s economic success was due to its vs. The content of institutional frameworks export-oriented trade polices and the capacity to implement policies are more important.
Industrial Policy and Structure
World Bank (1993) Eichengreen, Perkins, and Shin (2012)
The industrial policy of promoting several The industrial policy played an important targeted sectors (e.g., chemical and heavy vs. role for the transition from light to heavy industries) had little apparent impact on industry in the early stages of Korea’s industrial structure. growth.
11 Previous Studies and Porter’s Diamond Model
1: Amsden (1989) 2: Song (1997) Government 3: World Bank (1993) 4: Cho (1994) Firm Strategy, Structure, • Intervention: 1, 2, 3, 5, 8 5: Toussaint (2006) and Rivalry 6: Mason (1997) • 5-year plan: 4, 5 7: Chang (2003) • Learning: 1 8: Eichengreen et al. (2012) • Nurture of chaebol: 1, 7 • industry-orientation: 2 • New Confucian ethic: 2
Factor Conditions Demand Conditions
• Fertility: 2, 6 • Growth-orientation: 2 • Human capital: 2, 3, 4 • Openness-orientation: 2, 5, 4, 8 • Savings: 2 • Land reform: 2, 5 • Scarcity of natural resources: 5 • Entrepreneurship: 4 Related and Supporting Industries
• Institutions: 1, 8 • Education: 5 • US technical and financial support: 5 • Protection by the US: 5
Previous studies explain subsets of the determinants of the diamond model. 12 “What” vs. “How” Approach
Existing Studies New Study
“What” Approach “How” Approach
• Superior resources • Similar resources - Cheaper labor - Similar labor cost, but HOW? - Higher technology - Similar technology, but HOW? • Focus on “input” factors • Focus on “process” factors • Static view • Dynamic view • Ex post • Ex ante
Y = β0 + β1X1 + β2X2 + β3X3 + β4X4 …
• “What” Approach: X1, X2, X3, X4 …
• “How” Approach: β1, β2, β3, β4 …
As the gap in “What” factors has been narrowing, the “How” approach becomes more important.
13 Contents
1. The Janus Face of Korea’s Success
2. Review of Existing Studies on Korea’s Development 3. The Framework and Theoretical Background - The ABCD Framework - Existing Studies on Competitive Advantage
4. Application to the Success Cases - Country Level: Korea’s Economy - Firm Level: POSCO, Samsung Electronics, Hyundai Motor Company
5. Implications for Economic Development
14 The ABCD Framework
4 Factors 8 Sub-factors
Speed AAgility Precision
Imitation (Learning) BBenchmarking Global-standard (+α)
Mixing CConvergence Synergy-creation
Diligence DDedication Goal-orientation
15 The ABCD Framework: An Integration of Established and Emerging Theories
Established Theories Emerging Theories
Agility Fast follower advantage • Speed Early mover advantage (Economies of speed) Process techniques with human touch • Precision Automation (from L-int to K-int) e.g., JIT, TQM, 6 sigma Benchmarking Absorptive capacity • Imitation [Resource-based view of the firm] (Economies of learning) Incremental innovation • Global-standard Destructive innovation e.g., Kaizan, creative imitation Convergence [Specialization capability] Combinative capability • Mixing [(Economies of scale)] (Economies of diversity) Related diversification Related & Unrelated diversification • Synergy-creation (Economies of scope) e.g., Chaebol, smartphone (platform strategy) Dedication Perspiration • Diligence [Inspiration] (Economies of hard-working) Continued growth after catch-up • Goal-orientation Unique positioning e.g., constructed crisis, extra commitment
16 The ABCD Framework: Theories and Cases
Established Theories Emerging Theories Cases
Agility Fast follower advantage • Speed Early mover advantage (Economies of speed) Automobile Industry Process techniques (Ford, Toyota, Hyundai) • Precision Automation e.g., JIT, TQM, 6 sigma Benchmarking [Resource-based view of Absorptive capacity • Imitation the firm] (Economies of learning) Steel Industry Incremental innovation (US steel, Nippon steel, POSCO) • Global-standard Destructive innovation e.g., Kaizan, creative imitation Convergence [Specialization capability] Combinative capability • Mixing [(Economies of scale)] (Economies of diversity) Electronics Industry Related diversification Related & Unrelated diversification (NOKIA, Apple, Samsung) • Synergy-creation (Economies of scope) e.g., Chaebol, smartphone Dedication Perspiration (East) • Diligence [Inspiration (West)] (Economies of hard-working) Economic Development Continued growth after catch-up (WEST: US, Europe) • Goal-orientation Unique positioning e.g., constructed crisis, extra (EAST: Japan, Korea) commitment 17 Agility = Speed + Precision A B C D
Agility Established Theories Emerging Theories Cases Fast follower advantage • Speed Early mover advantage (Economies of speed) Automobile Industry Process techniques (Ford, Toyota, Hyundai) • Precision Automation e.g., JIT, TQM, 6 sigma
Fordism Toyotaism Hyundaism
• Faster catch-up with increased • Mass production • Higher productivity and quality precision • Not flexible in responding to the • Appropriate in the stable market, • Better response to foreign markets market diversity but not in the emerging market • US: 10-year, 100,000-mile warranty • BRICs: Locally customized
18 Benchmarking = Imitation + Global-standard A B C D
Benchmarking Established Theories Emerging Theories Cases [Resource-based view of the Absorptive capacity • Imitation firm] (Economies of learning) Steel Industry (US steel, Nippon steel, POSCO) Incremental innovation • Global-standard Destructive innovation e.g., Kaizan, creative imitation
US Steel Nippon Steel POSCO
Dominated the world steel industry until Dominated the world steel industry in Became the world top company in the the 1950s the 1980s 1990s
• Learned from Europe • Learned from US and Europe • Learned from Japan and the West • Created hot strip mill system • Created combined blown converter • Created FINEX • Produced a smoother sheet with • Increased efficiency and reduced • Increased cost efficiency and eco- more uniform thickness unit consumption of raw materials friendliness
• Japan: The best student of the West • Korea: The best student of Japan and the West • Imitate, Improve, Innovate! 19 Convergence = Mixing + Synergy-creation A B C D
Convergence Established Theories Emerging Theories Cases [Specialization capability] Combinative capability • Mixing [(Economies of scale)] (Economies of diversity) Electronics Industry (NOKIA, Apple, Samsung) Related diversification Unrelated diversification • Synergy-creation (Economies of scope) e.g., Chaebol, platform strategy
Nokia Phone Apple iPhone Samsung Galaxy
1987 2007 2010
• 1987: Mobira Cityman 900 • 2007: iPhone (2G) • 2010: Galaxy S • The first mobile phone • The first iPhone • The largest market share since 2012 • Maintained as the largest phone • Phone + Internet + camera • Three biggest advantages: longer maker for 14 years (1996-2009) • 2008: iPhone (3G) battery life, water-resistance, and • iPhone (2G) + 3G wireless larger display
• The first smartphone in 1996 • Designed by Apple in California, • Good mix of components and • Research efforts fragmented and Assembled (Made) in China finished products disconnected among departments • Outsourcing (e.g., Foxconn) • Insourcing
20 Dedication = Diligence + Goal-orientation A B C D
Dedication Established Theories Emerging Theories Cases Perspiration (East) • Diligence [Inspiration (West)] (Economies of hard-working) Economic Development (WEST: US, Europe) Continued growth after catch-up (EAST: Japan, Korea) • Goal-orientation Unique positioning e.g., constructed crisis, extra commitment
Krugman (1994), The Myth of Asia’s Miracle Japan Korea
West East • Lost decade • Continued growth • “Kangaroo” generation1 • Still inspired for future growth Inspiration Perspiration • 35-44 years old: 16.1%2 • GDP per capita of $40,000 3 • USA • Japan and growth rate of 4% • Europe • NICs
Per capita GDP relative to that in the USA (GDP at constant prices per capita, using 2005 PPP)
Source: Korea Daily, May 2nd, 2012; The Business Insider, January, 5th, 2010; The Economist, November 12th, 2011 Note: 1. the adults that are economically and psychologically dependent on their parents; 2. the percent of Kangaroo generation to the total population aged 35-44 years old in 2010; 3. President Park’s 3-year plan for Economic innovation Source: Asian Productivity Organization (APO) Productivity Databook 2013 21 Contents
1. The Janus Face of Korea’s Success
2. Review of Existing Studies on Korea’s Development
3. The Framework and Theoretical Background - The ABCD Framework - Existing Studies on Competitive Advantage
4. Application to the Success Cases - Country Level: Korea’s Economy - Firm Level: POSCO, Samsung Electronics, Hyundai Motor Company
5. Implications for Economic Development
22 Korea’s Economic Success: Agility A B C D
Speed and Precision Korea’s Overseas Construction Industry Korea’s Shipbuilding Industry
1970s and 1980s Comparative Advantage of China, Japan, and Korea • Source of competitiveness in the Middle East • Cheaper? • Japan: high technology • Faster and harder! • China: cheap labor • Construction export: Increase by 528 times (1973-1981) • Korea: efficient management (speed and precision) Since 2000s • The time needed for constructing a small new city • Korean firms: 5-7 years • UK, Japan and other established firms: 20-30 years Source: Kim (1988), Chosun Newspaper, 03/23/2010
Koreans learn quickly from the crisis
1997 Asian Financial Crisis • One of the countries worst hit by the crisis • Recovered faster than anyone expected (Park and Lee, 2002, ABDI Research paper)
2008 World Financial Crisis Source: Daily Yomiuri Online, • One of the countries least hit by the crisis http://www.yomiuri.co.jp/dy/business/T121003002935.htm • Make quick economic recovery without prolonged stagnation Korea’s Top 3 = World’s Top 3 (New York Times, January 6th, 2011) 50% of Global Market Share in Value
23 Korea’s Economic Success: Benchmarking A B C D
Imitation and Global-standard Korea’s Technology Trade Korea’s Entertainment Industry
• Import: Imitation and learning • Export: Technological advantage • Import > Export • Total value (2 times) • Import, improve and export! • Most industries except for construction
Korea’s Technology Export and Import by Industry (2013) Unit: million US$ Export Import Industry Value % Value % Electric & 2,029.3 38.2 6,496.2 58.8 Electronics Machinery 1,029.5 19.4 1,249.9 11.3 Information & 957.5 18.0 1,180.7 10.7 Communication Construction 947.2 17.8 366.8 3.3 Chemistry 104.7 2.0 485.8 4.4 Materials 12.9 0.2 227.4 2.1 Forestry & Fishery 111.1 2.1 117.3 1.1 Textile 4.9 0.1 93.1 0.8 Others 113.7 2.1 834.8 7.6 Total 5,310.8 100.0 11,052.0 100.0 Source: The Ministry on Future Creation and Science (2013) 24 Korea’s Economic Success: Convergence A B C D
Mixing and Synergy-creation
Korean Chaebol’s Strategy From unrelated mixing To unrelated & related synergy-creation • Entering new businesses for profits • Sharing resources: finance, brand, technology, • Expanding the size for government help management • Developing core areas of business
Example: Changing Business Structure of Samsung Group Unite: % 1965 1976 1987 1998 2012 Food 48.0 Textiles 28.0 Wholesale & Retail Trade 35.0 Wholesale & Retail Trade 35.0 Electronics 58.1 Textiles 40.0 Food 25.0 Finance (Insurance) 30.2 Finance (Insurance) 24.4 Finance 15.4 Insurance 12.0 Home Appliance 24.0 Home Appliance 18.3 Home Appliance 19.9 Wholesale & Trade 5.8 Insurance 18.0 Food & Leisure 4.4 Vehicles 6.3 Chemical products 5.5 Paper 3.0 Textile 3.7 Semiconductor 6.0 Transportation equipment 4.7 Construction and science Construction 1.0 Vehicles 3.3 Textile 3.5 2.9 technology service System integration and Construction 2.4 Other Services 1.6 1.5 management Semiconductor 0.8 Food & Leisure 1.1 Retails 1.3 Paper 0.5 Telecommunications 1.0 Machinery, Iron, & Steel 0.1 Minerals 1.0 Nonmetallic Minerals 0.1 Machinery, Iron, & Steel 0.4 Telecommunications 0.1 Paper 0.3 Other Services 0.1
Source: Data for 1987 and 1998: Chang (2003), Data for 2012: http://www.ceoscoredaily.com/news/ article.html?no=3129 25 Korea’s Economic Success: Dedication A B C D
Diligence and Goal-orientation
Hard Working The Changing Goals of Government Policies Overcoming Creating • Koreans work average 44.6 hours a week, the Government longest working hours of the 34 OECD nations Disadvantages Advantages • Foreign borrowing • Growth of chaebols Park (1963-71) Source: OECD website • Low interest rates • Learning from MNCs • Vocational schools • Long-term financing • Korea had the most diligently implemented Park (1972-79) • Government-run research • Saemaeul movement economic and reformation procedures since facilities 1997 economic crisis … … … • Joined WTO & OECD • Liberalizing capital market Kim (1993-98) Source: Economist • Financial reform • Developing high-technology • Three spirits of New Village Movement (1970s): … … … • Flexible labor market • Promotion of FTAs Lee (2008-13) Diligence, self-help and cooperation • Market-friendly polices • New engine of growth Source: NVM website • Reforming public sector • Convergence of industries Park (2013-18) • Restoring principles • Enhancing ICT industries Hard Learning The Changing Goals of Korean Companies Studying in America: Top 3 Countries, 2011-2012 (Continuing Momentum) Number of Per million % of Total • POSCO Students population “Turn Right” Spirit: Failure is not an option China 194,029 25.4 144 • Samsung India 100,270 13.1 81 Changing Target of Rivals: Continuing Challenges Korea 72,295 9.5 1446 • Hyundai Source: Institute of International Education website Constructed Crisis: Grow or Die
26 The ABCD Framework at Work: POSCO
27 The Success of POSCO: Agility A B C D
Speed and Precision
Speed of Construction Process (Pohang Works) Precision of Construction Quality • Completed the plants much ahead of schedule When the primary construction of the steel plant was well • 23 out of 26 facilities completed earlier than the underway, CEO Park discovered a problem; immediately plan by more than 12 months stopped the construction; exploded the concreted structure; and ordered to redo it. Corporate Systems for Speed (1998-2001) • Enterprise Resource Planning (ERP) • Supply Channel Planner (SCP)
Performance of Process Innovation (PI)
Items Before PI After PI Delivery time 30 days 14 days Establishing sales/ 60 days 25 days production plans Six Sigma for Precision and Quality Monthly closing time 6 days 1 day Conventional 6 Sigma Budgeting 110 days 30 days • Defect-free rate: 99.99966% of the products Standard costing • A set of techniques and tools for process improvement 15 days 3 days accounting period and quality management POSCO New 6 Sigma Source: POSCO ICT (Engineering and IT Company) • “Total Solution” by engaging all employees and solving all problems with precision
Source: POSCO Company Website 28 The Success of POSCO: Benchmarking A B C D
Imitation and Global-standard
• 1970s: Acquired standardized technologies mainly From Blast Furnace Learned from Japan to FINEX Technology through cooperation with Japan • FINEX technology: Next generation iron making technology • 1980s: Conducted own R&D activities to catch up • Reduced operating costs, preliminary process, and environmental harm advanced technologies • Exported to other countries (e.g., China) - Imitate, Improve, Innovate, Export
Steel Industry Mil. Metric Tons Rank 40 0
10 30 20 20 30 10 40
0 50
POSCOPOSCO Production조강생산량 신일본제철Nippon Steel 조강생산량 Production POSCOPOSCO 순위Ranking 신일본제철Nippon Steel 순위 Ranking
Source: World Steel Association, www.worldsteel.org 29 The Success of POSCO: Convergence A B C D
Mixing and Synergy-creation
Mix for convenience Synergy with POSCO family companies • Located everything near the port to minimize the • Steel, E&C, Trade, ICT, Energy, Material-Chemistry, logistics costs and so on • Synergy creation among the family companies in • Placed the entire production process in one building to building the steel works in Indonesia efficiently connect different functions • Entered other industries, including new energy and new Integration across company materials (so, weaker financial performance) • Mega-Y: Coordination between large scale plants (e.g., Pohang Works and Gwangyang works) • Big-Y: Coordination between divisions in the same Mix with foreign experience plant • Sent workers for overseas training • Small-Y: Coordination within a single process or department • Held seminars to share their experience and knowledge with other workers Mega-Y (Plant) Mix with the market • Established “The Steel Solution Center (2014)” to Big-Y Big-Y integrate marketing strategy into POSCO’s latest (Division) (Division) technology
Small-Y Small-Y Small-Y Small-Y Small-Y Small-Y (Team) (Team) (Team) (Team) (Team) (Team)
30 The Success of POSCO: Dedication A B C D
Diligence and Goal-orientation
• The company was built with the fund from the war • The strong goal-orientation motivated CEO Park compensation paid by Japan. and his employees to be committed to the work and sacrifice personal time. • CEO Park spent most of his time with the workers on site. He immediately stopped all leisure • “Turn right and jump into the East Sea, if we fail in activities and hobbies to focus on his work in the the construction of the steel mill.” steel plant.
The Soul of POSCO: “Right Turn Spirit” Learning inside POSCO for different needs (Failure is not an option)
Saturday Study Executives Weekly
Leadership School Top Management Team (TMT) Monthly + Semiannual Learning Sessions
General Lifelong Study Employees Rotational
31 The ABCD Framework at Work: Samsung Electronics
32 The Success of Samsung Electronics: Agility A B C D
Speed and Precision
Characteristics of Samsung's Management New Management (1993) • Speed management • Frankfurt Declaration in 1993 • Timing management “Change everything except your wife and children!” • Talent management • At the gathering of about 200 executives in Frankfurt after two months of traveling around the U.S., Europe and Japan to experience the top quality Mach Management (2014) products
• Mach Speed Speed faster than the speed of sound
• Mach Management
• Relentless efforts and changes to break one • In 1995, CEO Lee and 2,000 employees watched a barrier after another pile of 150,000 phones and fax machines being • Speed beyond that of early Samsung: Change destructed to signify the change for “good quality.” in every specific unit of business • 90% of Samsung products are produced within (i.e., engine, design, parts, materials) Samsung’s own production facilities to ensure quality.
33 The Success of Samsung Electronics: Benchmarking A B C D
Imitation and Global-standard
Samsung has started off and grown by learning and Accumulated Technologies imitating Japanese firms… This year, it should make • Samsung semiconductor: Japan, US + α more money than the top 15 Japanese electronics groups combined • Samsung TV: Sony + α - Financial Times, 2010/2/25 • Samsung Mobile: Motorola, Nokia, Apple + α
Rank Semiconductor Industry
0 2 4 6 8 10 12 14 16 18
삼성전자Samsung Intel Corp. Texas Instruments Toshiba Semiconductor Electronics
Source: Gartner Dataquest Corp. (1987~1999), iSuppli Corp. (2000~2011)
Imitation (Improve & Innovate) Global-standard 34 The Success of Samsung Electronics: Convergence A B C D
Mixing and Synergy-creation
(Early Stage of Development) (Mature Stage of Development)
Sugar Electronic & Semiconductor Electronic & Electronics, IT and Mobile, Industries Semiconductor Semiconductors, Apparel Industries Display Panels
• Richer product line-up • Vertically integrated supply structure The Success of Samsung Electronics: Dedication A B C D
Diligence and Goal-orientation
Working Hard Rivals in the Competition • Samsung employees are actually working themselves to the bone in the race to beat Apple ... 1st Stage 2nd Stage 3rd Stage • Samsung designers worked 22 hours a day while Sony Nokia Apple working on Galaxy S smartphone. Source: The New York Times, 2012, “After Verdict, Assessing the Samsung Source: The Huffington Post, 2012, The Verge 2012 Strategy in South Korea,” September 2nd.
Samsung’s Crisis Culture Learning More “We need heightened sense of crisis” • Maximized personal/organizational competitiveness – Lee Kun Hee (1997) through training the best specialists in different • Notices and responds to market change fast, before sectors crisis turns into disaster • Continues its investment despite some heavy losses • Established an in-company educational system to during the first several years customize different needs for different positions of Results? workers, managers, executives and overseas • Over 1600 patents each year, the industry’s lowest employees. costs, highest profits, and weekly announcements of “world’s first” or “world’s best”
36 The ABCD Framework at Work: Hyundai Motor Company
37 The Success of Hyundai Motor Company: Agility A B C D
Speed and Precision Philosophy • Quality Management Toyota Honda Hyundai “Lose Quality, Lose Everything” Consistency Innovation Speed • New quality division to intervene in any stage of Source: CNN News (2010). Hyundai smokes the competition design, engineering or production • Qualativity: quality + productivity • 10-year, 100,000-mile warranty to ensure quality • Internationally renowned designers Book written by Don Southerton (2014)
• Hyundai learned quickly from its mistakes • Global Command and Control Center (Ulsan) • Did not waste a crisis, wasted no time in finger- • Monitoring every global plant for 24 hours pointing and kept its vow to do better • Preventing accidents and mistakes for quality Source: The Washington Post, 2012
• Rapid and hands-on decision making by CEO • 10 year, 100,000-mile warranty: Snap decision by CEO Jung within a day • On-site visibility of management team for speedier decision making • Record of producing 1 million cars in the shortest time in Beijing, China J.D. Power Awards Command and Control Center Source: Hyundai Motor Company Website for Quality (2004) 38 The Success of Hyundai Motor Company: Benchmarking A B C D
Imitation and Global Standard
Learning Different Things (1968 – 1980s) Import, Improve and Export
Ford Mitsubishi Production Operation • 1990: Used Mitsubishi engine Models Engines • 1991: First Korean-developed engine (Alpha) • 1997: First independently developed engine (Epsilon) • 1998: First world-class engine (V6 Delta) • 2000: First diesel and large commercial engine • Japan: engine block design, transmissions, rear axles • 2006: First world-class diesel V6 S-engine • UK: factory construction, layout, internal combustion engines • Italy: car designs New Leader in Engine
Reverse Engineering Becoming World’s Best Engine • Dissembled all parts from cars of the industry leaders • 2008-2010: Ward’s Auto 10 Best Engine (Tau) • Learned and adopted the best practices of the leaders • 2011: Ward’s Auto 10 Best Engine (Gamma)
39 The Success of Hyundai Motor Company: Convergence A B C D
Mixing and Synergy-creation
Hybrid Production System (HPS) Hyundai Construction Hyundai Group & Civil Engineering Company (1947) Combination of Fordism and Toyotaism
Hyundai Motor Hyundai Heavy Fordism Toyotaism Company Industries (1968) (1974) (Mass Production) (Lean Production)
Selected models and Many models and small Models mass production production When building an embankment at Sosan in 1984, the current was too strong to be blocked. CEO Chung then solved this System Push Pull problem by sinking an old ship down the sea to suspend the fast current from obstructing the construction. Inventory Asset (Just-in-case) Debt (Just-in-Time)
Space Large lot Small lot
Process Specialization Flexibility
Automation with human Worker Automation (Mechanic) touch
Source: Kim et al. (2009)
40 The Success of Hyundai Motor Company: Dedication A B C D
Diligence and Goal-orientation
Hard Working Hyundai’s Goal-setting and Results • In the beginning, Hyundai was less skilled and experienced compared to Japanese workers. Constructed Crisis at Hyundai Motor Company • So, they worked harder than their Japanese Goal 1 Goal 2 Goal 3 counterparts to improve quality and productivity. Develop Go global Become “Korean” cars Top 10
Hard Learning
• Mabuk Campus was established in 2012 to provide a variety of educational programs with a university concept but with more focused and customized. Result 1 Result 2 Result 3
Hyundai’s own Global standard Global Top 5 technology and and global since 2010 Mabuk Campus: model expansion Hyundai Motor Group University, the headquarters of training Hyundai people in the group
41 Contents
1. Korea’s Success Story
2. Review of Existing Studies on Korea’s Development
3. The Framework and Theoretical Background - The ABCD Framework - Existing Studies on Competitive Advantage
4. Application to the Success Cases - Country Level: Korea’s Economy - Firm Level: POSCO, Samsung Electronics, Hyundai Motor Company 5. Implications for Economic Development
42 Implications for Economic Development
• The ABCD framework is not exclusive for Korea, and can be applied to other countries.
• Different stages of economic development need different development strategies.
Less Developed Stage More Developed Stage
Agility Speed Precision
Benchmarking Imitation (Learning) Global-standard
Convergence Mixing Synergy-creation
Dedication Diligence Goal-orientation
• The usefulness of ABCD Framework 1) To suggest Korea for further development 2) To help other countries for efficient and sustainable development 3) To apply at various units of analysis: country, industry, firm and individual level 4) To apply at various areas: economy, society and politics
43 References
Amsden, A.H. (1989). Asia’s Next Giant: South Korea and Late Industrialization. New York and Oxford: Oxford University Press. Chang, S. J. (2003). Financial Crisis and Transformation of Korean Business Groups: The Rise and Fall of Chaebols. Cambridge: Cambridge University Press. Cho, S. (1994). The Dynamics of Korean Economic Development. Washington, D.C.: Institute for International Economics. Cho, D.S. and Moon, H.C. (2013A). From Adam Smith to Michael Porter (Extended Edition). Singapore: World Scientific Publishing Co. Cho, D.S. and Moon, H.C. (2013B). International Review of National Competitiveness. Cheltenham and Northampton: Edward Elgar Publishing Ltd. Eichengreen, B., Perkins, D.H., and Shin, K. (2012). From Miracle to Maturity: The Growth of the Korean Economy. Cambridge, MA: Harvard University Asia Center. Kim, H.C. et al. (2009). Toyota DNA (in Korean). Seoul: Jongang Books. Kim, S. (1988). The Korean Construction Industry as an Explorer of Services. The World Bank Economic Review, 2(2): 225-238. Lee, O.F., Tan, J. A., and Javalgi, R. (2010). Goal Orientation and Organizational Commitment: Individual Difference Predictors of Job Performance. International Journal of Organizational Analysis, 18(1): 129-150. Moon, H.C. (2010). Global Business Strategy: Asian Perspective. Singapore: World Scientific Publishing Co. Moon, H.C. (2012). K-Strategy: Korea’s Growth Strategy Model (in Korean). Seoul: Mirae Chang Publishing Co. Moon, H.C., Parc, J., Yim, S.H., and Park, N. (2011). An Extension of Porter and Kramer’s Creating Shared Value (CSV): Reorienting Strategies and Seeking International Cooperation. Journal of International and Area Studies, 18(2):49-64. Moon, H.C., Parc, J., and Yin, W.Y. (2012). Types of Nation’s Operating System and a New Economic Development Model: A Case Study of Korea’s Economic Development. Review of International Area Studies, 21(2): 1-30. (in Korean) Moon, H.C., Rugman, A.M., and Verbeke, A. (1998). A Generalized Double Diamond Approach to the Global Competitiveness of Korea and Singapore. International Business Review, 7(2):135-150. Park, Y.C. and Lee, J.W. (2002). Financial Crisis and Recovery Pattern of Adjustment in East Asia, 1996-1999. Asian Development Bank Institute Research Paper Series, No. 45. Song, B.N. (1997). The Rise of the Korean Economy (2nd ed.). Hong Kong: Oxford University Press.-to-order. MIT Press, Cambridge Toussaint, E. (2006). South Korea: The Miracle Unmasked. Economic and Political Weekly, 41(39): 4211-4219. World Bank. (1993). The East Asian Miracle: Economic Growth and Public Policy, Policy Research Report. Washington D. C.: The World Bank. 44 Appendix
45 Firm vs. National Competitiveness
Large Countries
Group A Group B Firm Competitiveness > National Competitiveness >
National Competitiveness Firm Competitiveness
Small and Medium- Sized Countries
Group A
FirmCompetitiveness
Group A
National Competitiveness FirmCompetitiveness
Note: Firm Competitiveness: Average ranking of Fortune Global 500, FT 500, and Forbes Global 2000; National Competitiveness: Average ranking of IMD, WEF, and IPS-EE 2013 Reports Group B
National Competitiveness 46 R&D Expenditure
• Nokia is losing ground despite spending $40 billion on research and development over the past decade— nearly four times what Apple spent in the same period • And Nokia clearly saw where the industry it dominated was heading. But its research effort was fragmented by internal rivalries and disconnected from the operations that actually brought phones to market.
Source: Wall Street Journal, July 18, 2012, http://online.wsj.com/news/articles/SB10001424052702304388004577531002591315494 47 Apple iPhone 5s vs. Samsung Galaxy S5
iPhone 5s Galaxy S5 Winner SIZE AND WEIGHT - Dimension 112g 145g Apple - Materials anodised aluminum dimpled soft-touch plastic Apple SCREEN - Screen size 4in display 5.1in screen Samsung - Resolution 1,136x640 1,920x1,080 Samsung - Screen technology LCD technology AMOLED Samsung PERFORMANCE - Processor dual-core processor Snapdragon 801 processor Apple - Graphics Power VR G6430 GPU Adreno 330 GPU Samsung - Memory 1GB of RAM 2GB of RAM Samsung 16GB and 32GB, micro SD card - Storage 16GB, 32GB and 64GB Samsung ? (128GB) - Battery 14h 31m 17 hours 30 minutes 8-megapixel, back side illuminated CAMERA 1/2.6in sensor Samsung (BSI) rear camera sensor fingerprint sensor, heart rate sensor, FEATURES Touch ID sensor Samsung water- and dust-resistant SOFTWARE iOS operating system Android ? all major 2G, 3G and 4G LTE + LTE Category 4 and LTE-Advanced 4G and Wi-Fi Samsung frequency bands modes
http://www.expertreviews.co.uk/smartphones/1306720/samsung-galaxy-s5-vs-apple-iphone-5s
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