Understanding samsung's diversification strategy: The case of Samsung Motors Inc.

Abstract

In 1995, the Korean chaebol Samsung diversified into automobile manufacturing with the establishment of Samsung Motors Inc (SMI). The timing of this venture turned out to be rather unfortunate, as SMI's first car rolled off the Pusan production line in the middle of the Asian economic crisis. In serious financial distress, Samsung had to abandon SMI, selling it to Renault in 2000. This study explores the process of SMI's creation, and follows the changes in Samsung's strategic management during and after the crisis. Two questions are raised in the research: (1) How did Samsung come to invest in automobiles? and (2) How did the Korean crisis in general, and the crisis in the automobile market in particular, change Samsung's strategic decision-making process? Central to its diversification strategy were the chairman of Samsung and key members of the planning team at the Office of the Chairman. We find that non-economic influences prevailed over economic influences in the decision to pursue the diversification strategy, and that due in part to the strength of these influences, Samsung underestimated the market risk and overestimated the contribution its core competencies and synergy could make. Matters were made worse by the significant costs incurred in transferring Samsung's core competencies - its high quality reputation and culture - to the new business. By the time Korea finally emerged from the crisis, the finance team at the Office of the Chairman had taken charge of strategic management, increasing financial control and emphasizing internal efficiency.