The ABCD Framework of K-Strategy...vs. Industrial Policy and Structure vs. World Bank (1993) The...

Hwy-Chang Moon

Dean and Professor of International Business Strategy

Graduate School of International Studies

Seoul National University

[email protected]

The ABCD Framework of K-Strategy

The Secret to Korea’s Success

Contents

2

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

National vs. Firm Competitiveness

3

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

Fir

m C

om

peti

tiven

ess

National Competitiveness

Korea

Firm Competitiveness >


• UK

• Korea

• Italy

• Spain

National Competitiveness >

Firm Competitiveness

• Singapore

• Qatar

• Israel

Small and Medium-Sized Countries

Different Performance: Economy vs. Society and Politics

4

Three Major National Competitiveness Reports Korea’s Rankings

IMD World Competitiveness

Yearbook 2013

WEF Global Competitiveness Report

2013-2014

Sub-factors Rank

Domestic Economy 19

International Trade 14

Tech. Infrastructure 11

Scientific Infrastructure 7

Business Legislation 39

Social Framework* 42

Health and Environment 28

Management Practices* 50

Overall Ranking 20

Sub-factors Rank

Macroeconomic Environment 9

Infrastructure 11

Business Sophistication 24

Innovation 17

Institutions* 74

Goods Market Efficiency 33

Labor Market Efficiency 78

Financial Market Development 81

Overall Ranking 25

Economy

&

Business

Society

& Politics

IPS-EE National Competitiveness

Research 2013

Sub-factors Rank

Demand Size 13

Demand Quality 11

Firm Structure 14

Firm Strategy* 11

Politicians 50

Bureaucrats 22

Quality of Labor Force 26

Social Context (Entrepreneurs) 38

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.

The Ferry Accident (April 16th, 2014): Social and Political Problem

5

Many Problems

Agility

Benchmarking

Convergence

Dedication

• Late and inefficient reaction

• No manual

• No training

• Violation of the “global standard” safety rule

• Mixed reports, mixed rescue teams

• No control tower

• Captain stayed in his cabin at the critical moment of accident

• Mission: the safety of passengers?

Human Error or System Failure?

• Speed

• Precision

• Imitation (learning)

• Global-standard

• Mixing

• Synergy-creation

• Diligence

• Goal-orientation

Economic Growth: Korea and Some Other Countries

6

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

0

5000

10000

15000

20000

25000

30000

19

60

1

96

1

19

62

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3

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64

1

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5

19

66

1

96

7

19

68

1

96

9

19

70

1

97

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19

72

1

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3

19

74

1

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5

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76

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7

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78

1

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9

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80

1

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82

1

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3

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84

1

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5

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86

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1

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9

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90

1

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92

1

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9

20

10

2

01

1

20

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2

01

3

GDP per capita (US$)

Kenya Korea Malaysia Saudi Arabia

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).

Korea’s Economic Growth and Industrial Upgrade

7

Imp. Substitution

Exp. Promotion

Source: Data (1960-2012): World Bank World Development Indicators; Data (2013): Korean Statistical Information Service.

OECD (1996)

WTO (1995)

Capital Market

Open

(1992)

GDP per capita (US$)

91

(1961)

1,042

(1977)

21,590

(2007)

11,468

(1995)

25,973

(2013)

Foreign Perspectives: Korean Companies Cannot Succeed?

8

• 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!

Contents

9










Existing Studies on Korea’s Development

10

Study Argument

1. Amsden (1989) • Learning existing Western technologies rather than innovation

• Efficient government intervention policy in the optimal allocation of resources

2. Song (1997)

• Outward, Industry, and Growth (OIG) strategy

• Confucian ethic as an underlying basis for development

• Land use, a family-planning program, savings and consumption behaviors

3. World Bank (1993) • Rapid physical and human capital accumulation

• Government’s market-friendly policy

4. Cho (1994)

• Abundance of good workers of high standard of literacy, discipline, and desire to grow

• Vigorous entrepreneurship

• Export-led growth strategy along with effective government development strategy

5. Toussain (2006)

• (1) government intervention, (2) US technical and financial support, (3) land reform, (4)

transition from import substitution to export promotion, (5) authoritarian planning, (6) state

control over banking sector, currency exchange, capital flows and product prices, (7) US

protection, (8) education, (9) scarcity of natural resources

6. Mason (1997) • Slower rates of population growth favored investment in education and incentives for

saving, which accelerated the economic development

7. Chang (2003)

• The internal operations of Korean business groups and their role in the Korean economy

• Financial crisis due to the failed adaptation to changing external environments by the

business groups and Korean government

8. Eichengreen, Perkins,

and Shin (2012)

• Learning and government policies for promoting economic growth

• Adaptation to the global economic environment

• Rapid shift of export structure to focus on high-growth products

• Export diversification

Th

e M

ira

cle

of

Han

Riv

er

befo

re

19

97

Fin

an

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l C

ris

is

Most of them focus on the economic success of Korea at the developing stage.

Conflicting Arguments between Studies

11

Export-oriented Trade Policy

Song (1997), Toussaint (2006)

Korea’s economic success was due to its

export-oriented trade polices

Amsden (1989)

The content of institutional frameworks

and the capacity to implement policies are

more important.

vs.

Industrial Policy and Structure

vs.

World Bank (1993)

The industrial policy of promoting several

targeted sectors (e.g., chemical and heavy

industries) had little apparent impact on

industrial structure.

Eichengreen, Perkins, and Shin (2012)

The industrial policy played an important

role for the transition from light to heavy

industry in the early stages of Korea’s

growth.

Previous Studies and Porter’s Diamond Model

12

Factor Conditions Demand Conditions

Related and Supporting

Industries

Firm Strategy, Structure,

and Rivalry

• Fertility: 2, 6

• Human capital: 2, 3, 4

• Savings: 2

• Land reform: 2, 5

• Scarcity of natural resources: 5

• Entrepreneurship: 4

• Growth-orientation: 2

• Openness-orientation: 2, 5, 4, 8

• Institutions: 1, 8

• Education: 5

• US technical and financial support: 5

• Protection by the US: 5

• Learning: 1

• Nurture of chaebol: 1, 7

• industry-orientation: 2

• New Confucian ethic: 2

Government

• Intervention: 1, 2, 3, 5, 8

• 5-year plan: 4, 5

1: Amsden (1989)

2: Song (1997)

3: World Bank (1993)

4: Cho (1994)

5: Toussaint (2006)

6: Mason (1997)

7: Chang (2003)

8: Eichengreen et al. (2012)

Previous studies explain subsets of the determinants of the diamond model.

“What” vs. “How” Approach

13

“What” Approach “How” Approach

Existing Studies New Study

• Superior resources

- Cheaper labor

- Higher technology

• Focus on “input” factors

• Static view

• Ex post

• Similar resources

- Similar labor cost, but HOW?

- Similar technology, but HOW?

• Focus on “process” factors

• Dynamic view

• 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.

Contents

14










Agility

Benchmarking

Convergence

Dedication

The ABCD Framework

15

Speed

Precision

Imitation (Learning)

Global-standard (+α)

Mixing

Synergy-creation

Diligence

Goal-orientation

A

B

C

D

4 Factors 8 Sub-factors

The ABCD Framework: An Integration of Established and Emerging Theories

Agility

• Speed Early mover advantage Fast follower advantage

(Economies of speed)

• Precision Automation (from L-int to K-int) Process techniques with human touch

e.g., JIT, TQM, 6 sigma

Benchmarking

• Imitation [Resource-based view of the firm] Absorptive capacity

(Economies of learning)

• Global-standard Destructive innovation Incremental innovation

e.g., Kaizan, creative imitation

Convergence

• Mixing [Specialization capability]

[(Economies of scale)]

Combinative capability

(Economies of diversity)

• Synergy-creation Related diversification

(Economies of scope)

Related & Unrelated diversification

e.g., Chaebol, smartphone (platform strategy)

Dedication

• Diligence [Inspiration] Perspiration

(Economies of hard-working)

• Goal-orientation Unique positioning Continued growth after catch-up

e.g., constructed crisis, extra commitment

16

Established Theories Emerging Theories

The ABCD Framework: Theories and Cases

Agility


(Economies of speed) Automobile Industry (Ford, Toyota, Hyundai)

• Precision Automation Process techniques


Benchmarking

• Imitation [Resource-based view of

the firm]

Absorptive capacity

(Economies of learning) Steel Industry (US steel, Nippon steel, POSCO)



Convergence




(Economies of diversity) Electronics Industry (NOKIA, Apple, Samsung)



Related & Unrelated diversification

e.g., Chaebol, smartphone

Dedication

• Diligence [Inspiration (West)] Perspiration (East)

(Economies of hard-working) Economic Development (WEST: US, Europe)

(EAST: Japan, Korea) • Goal-orientation Unique positioning

Continued growth after catch-up

e.g., constructed crisis, extra

commitment

17

Established Theories Emerging Theories Cases

Agility = Speed + Precision

18

Agility Established Theories Emerging Theories Cases


(Economies of speed) Automobile Industry

(Ford, Toyota, Hyundai) • Precision Automation

Process techniques


• Mass production

• Not flexible in responding to the

market diversity

• Higher productivity and quality

• Appropriate in the stable market,

but not in the emerging market

• Faster catch-up with increased

precision

• Better response to foreign markets

• US: 10-year, 100,000-mile warranty

• BRICs: Locally customized

Fordism Toyotaism Hyundaism

A B C D

Benchmarking = Imitation + Global-standard

19

Benchmarking Established Theories Emerging Theories Cases

• Imitation [Resource-based view of the

firm]

Absorptive capacity

(Economies of learning) Steel Industry

(US steel, Nippon steel, POSCO)



US Steel Nippon Steel POSCO

Dominated the world steel industry until

the 1950s

Dominated the world steel industry in

the 1980s

Became the world top company in the

1990s

• Learned from Europe

• Created hot strip mill system

• Produced a smoother sheet with

more uniform thickness

• Learned from US and Europe

• Created combined blown converter

• Increased efficiency and reduced

unit consumption of raw materials

• Learned from Japan and the West

• Created FINEX

• Increased cost efficiency and eco-

friendliness

A B C D

• Japan: The best student of the West

• Korea: The best student of Japan and the West

• Imitate, Improve, Innovate!

Convergence = Mixing + Synergy-creation

20

Convergence Established Theories Emerging Theories Cases




(Economies of diversity) Electronics Industry (NOKIA, Apple, Samsung)



Unrelated diversification

e.g., Chaebol, platform strategy

Apple iPhone Samsung Galaxy Nokia Phone

• 1987: Mobira Cityman 900

• The first mobile phone

• Maintained as the largest phone

maker for 14 years (1996-2009)

• 2007: iPhone (2G)

• The first iPhone

• Phone + Internet + camera

• 2008: iPhone (3G)

• iPhone (2G) + 3G wireless

• 2010: Galaxy S

• The largest market share since 2012

• Three biggest advantages: longer

battery life, water-resistance, and

larger display

1987 2007 2010

• The first smartphone in 1996

• Research efforts fragmented and

disconnected among departments

• Designed by Apple in California,

Assembled (Made) in China

• Outsourcing (e.g., Foxconn)

• Good mix of components and

finished products

• Insourcing

A B C D

Dedication = Diligence + Goal-orientation

21

Dedication Established Theories Emerging Theories Cases

• Diligence [Inspiration (West)] Perspiration (East)

(Economies of hard-working) Economic Development

(WEST: US, Europe)

(EAST: Japan, Korea)

• Goal-orientation Unique positioning

Continued growth after catch-up

e.g., constructed crisis, extra

commitment

Krugman (1994), The Myth of Asia’s Miracle

West East

Inspiration Perspiration

Japan Korea

• Lost decade

• “Kangaroo” generation1

• 35-44 years old: 16.1%2

• Continued growth

• Still inspired for future growth

• GDP per capita of $40,000

and growth rate of 4%3

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

• USA

• Europe

• Japan

• NICs

A B C D

Per capita GDP relative to that in the USA

(GDP at constant prices per capita, using 2005 PPP)

Contents

22










Korea’s Economic Success: Agility

23

Korea’s Top 3 = World’s Top 3

50% of Global Market Share in Value

Speed and Precision

1970s and 1980s

• Source of competitiveness in the Middle East • Cheaper?

• Faster and harder!

• Construction export: Increase by 528 times (1973-1981)

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

Comparative Advantage of China, Japan, and Korea

• Japan: high technology

• China: cheap labor

• Korea: efficient management (speed and precision)

Source: Kim (1988), Chosun Newspaper, 03/23/2010

Source: Daily Yomiuri Online,

http://www.yomiuri.co.jp/dy/business/T121003002935.htm

Korea’s Overseas Construction Industry Korea’s Shipbuilding Industry

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

• One of the countries least hit by the crisis

• Make quick economic recovery without prolonged

stagnation

(New York Times, January 6th, 2011)

A B C D

Korea’s Economic Success: Benchmarking

24

Korea’s Entertainment Industry

Industry Export Import

Value % Value %

Electric &

Electronics 2,029.3 38.2 6,496.2 58.8

Machinery 1,029.5 19.4 1,249.9 11.3

Information &

Communication 957.5 18.0 1,180.7 10.7

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

Korea’s Technology Export and Import by Industry (2013)

• Import: Imitation and learning

• Export: Technological advantage

• Import > Export

• Total value (2 times)

• Import, improve and export!

• Most industries except for construction

Source: The Ministry on Future Creation and Science (2013)

Korea’s Technology Trade

A B C D

Imitation and Global-standard

Unit: million US$

25

Korea’s Economic Success: Convergence

Korean Chaebol’s Strategy

From unrelated mixing

• Entering new businesses for profits

• Expanding the size for government help

Example: Changing Business Structure of Samsung Group

Source: Data for 1987 and 1998: Chang (2003), Data for 2012: http://www.ceoscoredaily.com/news/ article.html?no=3129

To unrelated & related synergy-creation

• Sharing resources: finance, brand, technology,

management

• Developing core areas of business

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 1.0 Vehicles 3.3 Textile 3.5 Construction and science

technology service 2.9

Construction 2.4 Other Services 1.6 System integration and

management 1.5

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

A B C D

Mixing and Synergy-creation

Unite: %

Korea’s Economic Success: Dedication

26

Government Overcoming

Disadvantages

Creating

Advantages

Park (1963-71) • Foreign borrowing

• Low interest rates

• Growth of chaebols

• Learning from MNCs

Park (1972-79) • Long-term financing

• Saemaeul movement

• Vocational schools

• Government-run research

facilities

… … …

Kim (1993-98) • Joined WTO & OECD

• Financial reform

• Liberalizing capital market

• Developing high-technology

… … …

Lee (2008-13) • Flexible labor market

• Market-friendly polices

• Promotion of FTAs

• New engine of growth

Park (2013-18) • Reforming public sector

• Restoring principles

• Convergence of industries

• Enhancing ICT industries

The Changing Goals of Government Policies Hard Working

• Koreans work average 44.6 hours a week, the

longest working hours of the 34 OECD nations

Source: OECD website

• Korea had the most diligently implemented

economic and reformation procedures since

1997 economic crisis

Source: Economist

• Three spirits of New Village Movement (1970s):

Diligence, self-help and cooperation

Source: NVM website

The Changing Goals of Korean Companies

(Continuing Momentum)

• POSCO

“Turn Right” Spirit: Failure is not an option

• Samsung

Changing Target of Rivals: Continuing Challenges

• Hyundai

Constructed Crisis: Grow or Die Source: Institute of International Education website

Number of

Students % of Total

Per million

population

China 194,029 25.4 144

India 100,270 13.1 81

Korea 72,295 9.5 1446

Hard Learning

Studying in America: Top 3 Countries, 2011-2012

Diligence and Goal-orientation

A B C D

27

The ABCD Framework at Work: POSCO

Six Sigma for Precision and Quality Conventional 6 Sigma

• Defect-free rate: 99.99966% of the products

• A set of techniques and tools for process improvement

and quality management

POSCO New 6 Sigma

• “Total Solution” by engaging all employees and solving all

problems with precision

The Success of POSCO: Agility

28

Performance of Process Innovation (PI)

Source: POSCO ICT (Engineering and IT Company)

Items Before PI After PI

Delivery time 30 days 14 days

Establishing sales/

production plans 60 days 25 days

Monthly closing time 6 days 1 day

Budgeting 110 days 30 days

Standard costing

accounting period 15 days 3 days

Corporate Systems for Speed (1998-2001)

• Enterprise Resource Planning (ERP)

• Supply Channel Planner (SCP)

Speed of Construction Process (Pohang Works)

• Completed the plants much ahead of schedule

• 23 out of 26 facilities completed earlier than the

plan by more than 12 months

Source: POSCO Company Website

Speed and Precision

A B C D

Precision of Construction Quality When the primary construction of the steel plant was well

underway, CEO Park discovered a problem; immediately

stopped the construction; exploded the concreted structure;

and ordered to redo it.

The Success of POSCO: Benchmarking

29

Source: World Steel Association, www.worldsteel.org

0

10

20

30

40

500

10

20

30

40

POSCO 조강생산량 신일본제철 조강생산량 POSCO 순위 신일본제철 순위

Rank Mil. Metric Tons

Nippon Steel Production POSCO Production POSCO Ranking Nippon Steel Ranking

• 1970s: Acquired standardized technologies mainly

through cooperation with Japan

• 1980s: Conducted own R&D activities to catch up

advanced technologies

From Blast Furnace Learned from Japan to FINEX Technology

• FINEX technology: Next generation iron making technology

• Reduced operating costs, preliminary process, and environmental harm

• Exported to other countries (e.g., China)

- Imitate, Improve, Innovate, Export

Steel Industry


A B C D

Mix for convenience

• Located everything near the port to minimize the

logistics costs

• Placed the entire production process in one building to

efficiently connect different functions

• Entered other industries, including new energy and new

materials (so, weaker financial performance)

The Success of POSCO: Convergence

30

Synergy with POSCO family companies • Steel, E&C, Trade, ICT, Energy, Material-Chemistry,

and so on

• Synergy creation among the family companies in

building the steel works in Indonesia

Integration across company • Mega-Y: Coordination between large scale plants

(e.g., Pohang Works and Gwangyang works)

• Big-Y: Coordination between divisions in the same

plant

• Small-Y: Coordination within a single process or

department

Mega-Y (Plant)

Big-Y (Division)

Big-Y (Division)

Small-Y (Team)

Small-Y (Team)

Small-Y (Team)

Small-Y (Team)

Small-Y (Team)

Small-Y (Team)


A B C D

Mix with foreign experience

• Sent workers for overseas training

• Held seminars to share their experience and

knowledge with other workers

Mix with the market

• Established “The Steel Solution Center (2014)” to

integrate marketing strategy into POSCO’s latest

technology

The Success of POSCO: Dedication

31

• The strong goal-orientation motivated CEO Park

and his employees to be committed to the work

and sacrifice personal time.

• “Turn right and jump into the East Sea, if we fail in

the construction of the steel mill.”

The Soul of POSCO: “Right Turn Spirit”

(Failure is not an option)

Executives

Top Management

Team (TMT)

General

Employees

Saturday Study Weekly

Leadership School

Monthly + Semiannual

Learning Sessions

Lifelong Study Rotational

• The company was built with the fund from the war

compensation paid by Japan.

• CEO Park spent most of his time with the workers

on site. He immediately stopped all leisure

activities and hobbies to focus on his work in the

steel plant.


A B C D

Learning inside POSCO for different needs

32

The ABCD Framework at Work: Samsung Electronics

The Success of Samsung Electronics: Agility

33

New Management (1993)

• Frankfurt Declaration in 1993

“Change everything except your wife and children!”

• 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

products Mach Management (2014)

• In 1995, CEO Lee and 2,000 employees watched a

pile of 150,000 phones and fax machines being

destructed to signify the change for “good quality.”

• 90% of Samsung products are produced within

Samsung’s own production facilities to ensure

quality.

Characteristics of Samsung's Management

• Speed management

• Timing management

• Talent management

• Mach Speed

Speed faster than the speed of sound

• Mach Management

• Relentless efforts and changes to break one

barrier after another

• Speed beyond that of early Samsung: Change

in every specific unit of business

(i.e., engine, design, parts, materials)

Speed and Precision

A B C D

The Success of Samsung Electronics: Benchmarking

34

0

2

4

6

8

10

12

14

16

18

삼성전자 Intel Corp. Texas Instruments Toshiba SemiconductorSamsung

Electronics

Rank Semiconductor Industry

Imitation Global-standard

Source: Gartner Dataquest Corp. (1987~1999), iSuppli Corp. (2000~2011)

• Samsung semiconductor: Japan, US + α

• Samsung TV: Sony + α

• Samsung Mobile: Motorola, Nokia, Apple + α

Samsung has started off and grown by learning and

imitating Japanese firms… This year, it should make

more money than the top 15 Japanese electronics

groups combined

- Financial Times, 2010/2/25

Accumulated Technologies


A B C D

(Improve & Innovate)

The Success of Samsung Electronics: Convergence

(Early Stage of Development)

Sugar

Apparel

Electronic &

Semiconductor

Industries

(Mature Stage of Development)

Electronic &

Semiconductor

Industries

Electronics, IT and Mobile,

Semiconductors,

Display Panels

• Richer product

line-up

• Vertically

integrated

supply structure


A B C D

The Success of Samsung Electronics: Dedication

36

Working Hard

• Samsung employees are actually working

themselves to the bone in the race to beat Apple ...

• Samsung designers worked 22 hours a day while

working on Galaxy S smartphone.

Source: The Huffington Post, 2012, The Verge 2012

Source: The New York Times, 2012, “After Verdict, Assessing the Samsung

Strategy in South Korea,” September 2nd.

Rivals in the Competition

1st Stage Sony

2nd Stage Nokia

3rd Stage Apple

“We need heightened sense of crisis”

– Lee Kun Hee (1997)

• Notices and responds to market change fast, before

crisis turns into disaster

• Continues its investment despite some heavy losses

during the first several years

Results?

• Over 1600 patents each year, the industry’s lowest

costs, highest profits, and weekly announcements of

“world’s first” or “world’s best”


A B C D

Learning More

• Maximized personal/organizational competitiveness

through training the best specialists in different

sectors

• Established an in-company educational system to

customize different needs for different positions of

workers, managers, executives and overseas

employees.

Samsung’s Crisis Culture

37

The ABCD Framework at Work: Hyundai Motor Company

The Success of Hyundai Motor Company: Agility

38

• 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

Source: Hyundai Motor Company Website

• Quality Management

“Lose Quality, Lose Everything”

• New quality division to intervene in any stage of

design, engineering or production

• Qualativity: quality + productivity

• 10-year, 100,000-mile warranty to ensure quality

• Internationally renowned designers

• Global Command and Control Center (Ulsan)

• Monitoring every global plant for 24 hours

• Preventing accidents and mistakes for quality

Toyota Consistency

Honda Innovation

Hyundai Speed

Philosophy

Source: CNN News (2010). Hyundai smokes the competition

J.D. Power Awards for Quality (2004)

Command and Control Center

Book written by Don Southerton (2014)

Speed and Precision

A B C D

• Hyundai learned quickly from its mistakes

• Did not waste a crisis, wasted no time in finger-

pointing and kept its vow to do better

Source: The Washington Post, 2012

The Success of Hyundai Motor Company: Benchmarking

39

• Japan: engine block design, transmissions,

rear axles

• UK: factory construction, layout, internal

combustion engines

• Italy: car designs

Reverse Engineering

• Dissembled all parts from cars of the industry leaders

• Learned and adopted the best practices of the leaders

Ford

Production

Models

Mitsubishi

Operation

Engines

Learning Different Things (1968 – 1980s) Import, Improve and Export

• 1990: Used Mitsubishi engine

• 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

• 2006: First world-class diesel V6 S-engine

Becoming World’s Best Engine

• 2008-2010: Ward’s Auto 10 Best Engine (Tau)

• 2011: Ward’s Auto 10 Best Engine (Gamma)

New Leader in Engine

Imitation and Global Standard

A B C D

The Success of Hyundai Motor Company: Convergence

40

Hybrid Production System (HPS)

Combination of Fordism and Toyotaism

Fordism

(Mass Production)

Toyotaism

(Lean Production)

Models Selected models and

mass production

Many models and small

production

System Push Pull

Inventory Asset (Just-in-case) Debt (Just-in-Time)

Space Large lot Small lot

Process Specialization Flexibility

Worker Automation (Mechanic) Automation with human

touch

Source: Kim et al. (2009)

Hyundai Group


A B C D

When building an embankment at Sosan in 1984, the current

was too strong to be blocked. CEO Chung then solved this

problem by sinking an old ship down the sea to suspend the

fast current from obstructing the construction.

Hyundai Construction

& Civil Engineering

Company (1947)

Hyundai Motor

Company

(1968)

Hyundai Heavy

Industries

(1974)

The Success of Hyundai Motor Company: Dedication

41

• In the beginning, Hyundai was less skilled and

experienced compared to Japanese workers.

• So, they worked harder than their Japanese

counterparts to improve quality and productivity.

Hard Working

• Mabuk Campus was established in 2012 to provide

a variety of educational programs with a university

concept but with more focused and customized.

Hard Learning

Constructed Crisis at Hyundai Motor Company

Goal 1

Develop

“Korean” cars

Goal 2

Go global

Goal 3

Become

Top 10

Mabuk Campus:

Hyundai Motor Group

University, the headquarters

of training Hyundai people in

the group


A B C D

Result 1

Hyundai’s own

technology and

model

Result 2

Global standard

and global

expansion

Result 3

Global Top 5

since 2010

Hyundai’s Goal-setting and Results

Contents

42

1. Korea’s Success Story









Implications for Economic Development

43

Dedication

Speed

Imitation (Learning)

Mixing

Agility

Benchmarking

Convergence

Less Developed Stage

Precision

Global-standard

Synergy-creation

More Developed Stage

Diligence Goal-orientation

• The ABCD framework is not exclusive for Korea, and can be applied to other countries.

• 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

• Different stages of economic development need different development strategies.

References

44

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.

45

Appendix

Firm vs. National Competitiveness

46

Fir

m C

om

pe

titi

ve

nes

s

National Competitiveness Fir

m C

om

pe

titi

ve

nes

s


Small and Medium-

Sized Countries

Large Countries

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 A Firm Competitiveness >


Group B National Competitiveness >

Firm Competitiveness

Group A

Group A

Group B

R&D Expenditure

47 Source: Wall Street Journal, July 18, 2012, http://online.wsj.com/news/articles/SB10001424052702304388004577531002591315494

• 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.

Apple iPhone 5s vs. Samsung Galaxy S5

48

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

- Storage 16GB, 32GB and 64GB 16GB and 32GB, micro SD card

(128GB) Samsung ?

- Battery 14h 31m 17 hours 30 minutes

CAMERA 8-megapixel, back side illuminated

(BSI) rear camera sensor 1/2.6in sensor Samsung

FEATURES Touch ID sensor fingerprint sensor, heart rate sensor,

water- and dust-resistant Samsung

SOFTWARE iOS operating system Android ?

4G and Wi-Fi all major 2G, 3G and 4G LTE

frequency bands

+ LTE Category 4 and LTE-Advanced

modes Samsung

http://www.expertreviews.co.uk/smartphones/1306720/samsung-galaxy-s5-vs-apple-iphone-5s

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