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Article 1: PARADOX OF SAMSUNG'S RISE

1. What do you think is unique about Samsung in South Korea in terms of its
history, current strategies and management practices? Explain rationale for
your answer.
Samsungs Japanese roots are strong: When the company was founded, South
Korea was a Japanese colony. Samsungs first chairman, Lees father, was educated
in Japan, and the company built its corporate muscle in industriesconsumer
electronics, memory chips, and LCD panelsthat Japan once dominated. Samsung
Group was founded in 1938 in South Korea. It had a revenue of $227.3billion with
315,000 employees worldwide. Samsung had a pathbreaking experience in South
Korea. It faced stiff competition from Japanese electronics makers, which were
setting up manufacturing plants in Southeast Asia, and rising domestic wages in
South Koreas newly liberalizing economy. In the early 1990s, Lee, the then
chairman, discovered that Japanese companies, who were leaders in analog
markets, were reluctant to adopt digital technology which consumers wanted in
cameras, audio equipment, and other electronic products. So, he thought it as an
opportunity to surpass samsungs rivals by introducing such technology in the
digital market. For this, Lee launched the New Management initiative to import
Western best practices related to strategy formulation, talent management, and
compensation into Samsungs existing business model. The aim was to markedly
improve marketing, R&D, and design while retaining core strengths in
manufacturing, continuous improvement, and plant operations. Execution of this
mix-and-match strategy took three broad forms:

A formal process to identify, adapt, and implement the most appropriate


Western best practices.

Steady efforts to make Samsungs culture more open to change by bringing


outsiders in and sending insiders abroad.

Intervention by Lee to protect long-term investments from short-term


financial pressures.

Samsung rose to prominence in its home market under the Japanese model of
unrelated diversification and vertical integration in pursuit of synergies.
Diversification suited South Koreas weak external capital markets because it
allowed the company to rely on internally generated cash from one operation to
fund the others.

2. Outline some of the strategies and management processes used by Samsung


over the years. How are they different from the strategies and management
process of MNEs based in Japan, USA and West European Countries?
Although Samsung faced stiff competition from Japanese electronics makers, which
were setting up manufacturing plants in Southeast Asia, and rising domestic wages
in South Koreas newly liberalizing economy, Lee, the then chairman in early
1990s, thought to adopt digital technology which consumers wanted in cameras,
audio equipment, and other electronic products. So, he launched the New
Management initiative to import Western best practices related to strategy
formulation, talent management, and compensation into Samsungs existing
business model and introduced such technology in the digital market. To compete
outside its home markets, Lee knew, Samsung would need to move beyond its
well-integrated system to engage with non-Koreans in non-Korean contexts. That
meant introducing practices inconsistent with the status quo. He took great care to
change only what needed to be changed and to ensure that Samsung adopted the
most appropriate practices in a way people could understand and embrace. The
company established new organizations to seek out and adapt best practices from
abroad. Lee advocated directly for the practices he deemed most critical and
solicited employees input in the development of each. Samsung injected some
highly incompatible business practices into its business model. For instance, the
company slowly introduced into its seniority-based pay structure a merit-based
compensation system. Another example is Samsung similarly adopted a socialized
profit-sharing program in which all employees, not just top and general managers,
are eligible for a bonus based on a percentage (up to 50%) of their salary. Although
it reduced disruption, it also slowed progress. Lee thought of gaining ideas from
somewhere which he did in two ways: by bringing new thinkers in from outside and
by sending insiders abroad. Japanese system had a diversification strategy and
western had focus one but Samsung had both diversification and focus strategies.
Japanese focused more on internal markets, western on external and Samsung on
both of them. Japanese focused mostly on continuous operational improvement to
prepare for price completion and western on innovation, marketing and design to
establish strong brands and premium pricing whereas Samsung focused on
combination of both. Japanese had long-term relationships with suppliers based on
deep unconditional co-operation, western people had contingent relationships
based on market pricing. On the other hand, Samsung had long-term co-operative
supplier relationships but with some level of competition. Japanese depended on
internal labor market, which results in long-term employment, western people
depended on external labor market attracted by market based compensation. But

Samsung had a interweaving of internal work force with outsiders attracted


through market-based competition. Japanese had limited recruitment only for
entry-level positions, western had open recruitment for all positions but Samsung
had both type of recruitments. Japanese had seniority based promotion and
compensation, and standard incentives, western had merit-based promotion and
compensation, and individual incentives whereas Samsung incorporated both. The
above discussion can be seen below.

3. Which of Samsungs management practices you feel should be emulated


by other globally leading MNEs based in different countries? Why?
Samsung adopted two brilliant techniques which should be adopted by other
companies:

Bringing new thinkers in from outside - The previous employees


had played crucial roles in Samsungs ascent in less than a decade to
global leadership in the chip industry. But when Lee tried to extend the
approach to Samsungs senior executive rankswhat the company
refers to as S-level talentthe newcomers met with a formidable wall
of resistance. Because promotions at Samsung had always come from
within, the newcomers were perceived to be (and actually were) taking
advancement away from incumbents. The incumbent managers closed
ranks, setting the newcomers up to fail by withholding important
information, exaggerating their mistakes, and excluding them socially.
At first, some of Samsungs recruits had a poor grasp of what was
expected of them, and sometimes they were actually more junior than
the company had intended. Improving the quality of the S-level recruits
and their reception inside the companywas no small task. Samsung
sent international recruiting officers (IROs) abroad to familiarize
themselves with foreign talent. 30% of the annual performance
appraisal of Samsung affiliates CEOs was made dependent on hiring
and retaining S-level talent. Newcomers, after stepping into the
organization, was asked to serve in an advisory capacity in their first
months to get to know something of their colleagues, the culture, and
the business before taking up their posts. Formal mentoring program
was organized in which he met at least quarterly and feedbacks were
taken from each S-level recruit. Samsungs efforts to recruit and retain
non-Korean MBAs and PhDs were hindered by cultural, social, and
political tensions, all of which were magnified by the language barrier.
To help assimilate these recruits, group headquarters were ordered to
set up a unique internal management consulting unit, the Global
Strategy Group (GSG), which reports directly to the CEO. Its members
non-Korean graduates of top Western business and economics
programs who have worked for leading global companiesspend fully
two years in GSG and are required to learn rudimentary Korean before
taking up their posts. Even so, many of them have eventually been
assigned to overseas subsidiaries, usually in their home countries.
Cultural fit is a hard nut to crack and it became somewhat successful.

Sending insiders abroad - Samsung sent high potentials to Japan for


advanced degrees in engineering; to the United States for further
education in marketing and management; and to Singapore, Hong
Kong, and New York for training in high finance. On returning home,
these employees fill key positions and, in implementing what they
have learned, become important change agents. Each year for more
than two decades, Samsung sent some 200 talented young employees
through an intensive 12-week language-training course followed by
one full year abroad. For the first six months, their only job was to
become fluent in the language and culture and to build networks by
making friends and exploring the country. In the second six months,
they carried out one independent project of their choice. Like their
colleagues who have trained abroad, the specialists come back to
major posts at headquarters or in the business units at home and
abroad. In those roles they disseminate information about how
successful foreign companies operate, and they advocate for and
experiment with best practices. Samsungs experience suggests that it
may be time for Western companies and business schools to place
more emphasis on developing strong regional connections and
expertise.

Article 2: FDI IN INDIA TREND, ISSUES AND


CHALLENGES
1. Do a critical analysis of this article mentioning the majorly highlighted
points.
Foreign Direct Investment(FDI) is a controlling ownership in a business
enterprise in one country by an entity based in another country. Before 1991,
the Indian financial system was isolated from the international financial
markets. Indian companies could only access the Indian capital markets
which means their sources of finance were restricted with in India. After the
economic liberalization, the openness was introduced in the Indian financial
system and option of global market was opened for Indian business
entrepreneur. FDI has become an integral part of national development
strategies for almost all the nations globally specially for developing
countries. Its global popularity and positive output in augmenting of
domestic capital, productivity and employment; has made it an
indispensable tool for initiating economic growth for countries. In India, FDI is
considered as a good source of flow of foreign capital as it not only adds
value to the domestic resources but also an important source of technology
and global best practices. Foreign direct investment is done for many

reasons including to take advantage of cheaper wages in the country, special


investment privileges such as tax exemptions offered by the country as an
incentive to gain tariff-free access to the markets of the country or the
region. It includes mergers and acquisitions, building new facilities,
reinvesting profits earned from overseas operations and intra company
loans. We can classify FDI as
Green Field Investment which involves constructing new
infrastructure for the purpose of business or investment abroad by
opening branches.
Mergers and acquisitions which is either purchasing a running
company altogether or merging with a running foreign company.
Brown Field Investment means maintaining the existing company or
small additions to the existing one.
An Indian company may receive Foreign Direct Investment under the two
routes:
Automatic Route No prior permission required either by the
government of India or the Reserve Bank. The investors should only
notify the concerned regional office of RBI within 30 days of receipt of
inward remittances and file the required documents with that office
within 30 days of issuance of shares to foreign investors.
Government Route/FIPB Route - FDI approval is made by three
institutions like the Foreign Investment Promotion Board (FIPB), the
Secretariat for Industrial Assistance (SIA) and the Foreign Investment
Implementation Authority (FIIA).
FDI in India is subject to certain Rules and Regulations and is subject to
predefined limits in various sectors which range from 20% to 100%. There
are also some sectors in which FDI is prohibited. To revise the FDI Limits to
attract more foreign investment in India, the Union Government constituted
a committee named, Arvind Mayaram Committee headed by the Economic
Affairs Secretary. On 16th July, 2013, the Government approved the
recommendations given by the Arvind Mayaram Committee to increase FDI
limits in 12 sectors out of the proposed 20 sectors, including crucial ones
such as defense and telecom. Some sectors like floriculture, horticulture,
coal and lignite mining, alcohol, coffee and rubber, drugs and
pharmaceuticals,
banking,
insurance,
telecommunication
are
automatic whereas sectors like tea plantation, defence production,
broadcasting, commodity exchanges, print media are FIPB routed.
Mauritius country has the highest foreign investment in India with 38.14%.
Mauritius is at top in investing FDI in India followed by Singapore, UK, Japan
and so on. U.S.A also gets 5th position in this category with 5.84%. India is
the fourth largest economy in terms of purchase power parity. India have the
second largest road network in the world, spanning 3.3 million kilometers,
easy availability of labour at cheap rates, raw materials supplied abundantly

and fully developed banking system. These are the reasons which facilitate
the flow
of FDI from different countries in India.
Some issue face by FDI are:
Predatory pricing issue- Threat of NCs using predatory pricing
policies to wipe out competition from the market. Thus a possibility of
unfair trade war cant be wiped out.
The promise of back end sourcing within tunes of 30% might not
materialize as seen in case of IKEA- the furniture giant refusing to be
bound to source from local manufacturers over quality issues.
FDI promises to provide jobs to people but the jobs will mostly be high
end and lots of jobs lost to unskilled employees.
Recent controversy of Wal-Mart allegedly paying bribe to secure FDI in
several nations like China, India and Brazil cast shadows over the
transparency of
the whole idea of FDI.
FDI investment implementation decision is left to states but recently
Delhi and now Rajasthan with changed non-Congress regime have
decided to not implement it while first agreeing when ruled by
Congress govt. The whole unpredictability and lack of firm guidelines
make it a shoddy investment for foreign companies as it involves huge
investment to begin with.
High Entry Barriers might be erected-Issue of Hypermarkets being
promoted or MNC/ mall culture being promoted might lead discourage
small entrepreneurs from entering the market.
Some challenges are:
Resource Challenge
Equity Challenge
Political Challenge
Federal Challenge
Investment Challenges
Inadequate and region specific infrastructure
Income disparities, bureaucracy, corruption etc.
There is still an acute shortage of employable working population. Indian
economy is largely agriculture based. issue of food security, interest of small
farmers and marginal farmers need cannot be ignored for the sake of
mobilization of foreign funds for development. Thus, a balance needs to be
achieved for sustainable and all round development. India has a welldeveloped equity market but does not have a well-developed debt market.
Steps should be taken to improve the depth and liquidity of debt market as
many companies may prefer leveraged investment rather than investing
their own cash. In order to improve technological competitiveness of India,
FDI into R&D should be promoted.