Samsung, A Falling Empire Or Not?

The objective of this site created is not to direct hostile criticism towards any brand/product nor spread gossip about their corporate founder's personal and family affair. Up to this moment, my plan's to casually share only things fun & easy-to-read; nothing explicit. If you prefer reading some 'hardcore' thesis or research study, sorry for the disappointment. You probably have to go where else.

I wasnt meant to blog about the Samsung Galaxy Note 7 'Exchange Program', but an old colleague, a loyal diehard 'Note' user, made remarks on my FB and humorously talked me to write about this developing story, so here we go. It all got started out from the FB post about his disappointment towards the new Note 7 design and specifications in a few weeks ago as I replied with the possibility of quality issue after Samsung Chairman's Prostitution Scandal went public in Korea. During then, it's a witty discussion between two ex-Eggers, and a tingling 'six-sense', developed as a gift of decades long of corporate life, plus the news headlines of Samsung Galaxy's 'exploding' battery incidents well served in my memory.

Here's my observations combined with some outsider perspectives about this 'deadly' incident to both end users and global empire.

By far, there are a total of 37 known cases of exploding Note 7 batteries out of 2.5+ millions mobile phones sold globally. An exploded battery recently reported in Taiwan while the phone was not charging, and one recently confirmed AUD $1,300+ explosion damage (No injury) in an Australia hotel room resulting in a 'full refund' volunteering recall of 51,000 units by the Samsung Electronic Australia. Note 7 shipments are currently suspended worldwide, and wl be replaced with a new Galaxy Note 7S after mid Sep. The problem seems to be inside the batteries packaged in Korean and Vietnam by ITM Semiconductor, subcontracted by Samsung's own affiliate, SDI, in which 70% of Galaxy Note 7 are equipped with; The rest of 30% is made by Amperex (ATL), the AAPL key supplier in small batteries, in China. Per internet news, Samsung Electronic discarded all battery supplies fr its affiliate to contain the 'plague' barely a few days ago.

During the first incident reported online, I 'stereotypically' assumed the problem must have sprouted fr the "Made in China" batteries. I was totally wrong. Today, China's Quality of Manufacturing equals the world-class craftsmanship, even counterfeits are made better than originals. The South Korean company's engineers might have fallen into the same misconception as mine when determining the supply chain allocation between two battery suppliers. Also, looking at its 70/30 ratio (South Korean/Chinese batteries respectively), their decision was meant to benefit its own affiliate, possibly stemming the recent catastrophe.

The problematic exploding issue seems not related to its phone design, but suffers from the battery's substandard package manufacturing process, causing 'chemical leakage' inside the battery compartment, triggering internal combustion.The serial number of exploded units have been tracked down and identified thru Enterprise Management System (EMS). Unfortunately, this 'explosive' problem might have affected beyond a small batch of batteries, and couldnt be solved without a comprehensive solution, conceivably triggering a domino effect to the stock performance of Samsung: A gargartuan '$1 billion' global exchange expense. It became a dilemma Samsung executives are now struggling with.

As you may have noticed, the term 'Exchange' was used thruout my post and applied in all Samsung statements, but not the word 'Recall'. Samsung US and its globe HQ, until this very second, havent yet issued a formal recall statement, except announced a 'voluntary' replacement program enabling customers to exchange for a Galaxy S7, S7 Edge, or Note 7S plus a $25 gift card or bill credit from select carrier retail outlets. Customers who received the phone as a gift or fr overseas can only patiently call 1-800-SAMSUNG to address (and hopefully resolve) their concerns. On the other hand, Oculus,the Samsung Gear VR strategic partner, already made its customers aware of the Product Exchange Program on their website's frontpage. Carriers like AT&T choose to proactively communicating with its customers thru various media channels, avoiding potential legal issue. T-mobile took a step further offering a full refund, waive fees, and more to maintain high customer satisfaction.

Yet, this matter has NOT formally reported to the U.S. Consumer Product Safety Commission, and caused a serious concern fr the government officials, press, and media like Consumer Reports.

In last 24 months, Samsung Electronics company as a whole, suffered a negative YoY growth in total sales and significant amount of finance and performance pressure fr shareholders. A $548 Mill jury verdict in its first design patent infringement versus AAPL, the shrink of its DRAM and LCD business due to slow IT market and PCs, and competitor challenges in Greater China region such as Huawei, OPPO and VIVO in the mobile phone market took away their share. Coincidently, this product crisis has fully blown out in a week before the AAPL iPhone 7 launch today. All these may have whipped its corporate executives to step up and take responsibilities for the mountain of financial write-offs. Icing on the cake: The substantial damage attained to its brand premium. Their agitation can be perspicuously detected in the 166-words first statement written by the PR of Samsung US and its global headquarter (Q&A in UK Statement).

From the decades of work experience in product management, marketing and sales, Samsung executives and their teams have my empathy. Even still, the crisis could have be reversed into branding opportunity by providing customers more transparency in information dissemination, and forming stronger collaboration with government authority. But they didnt. This is not the first case of design and manufacturing flaws in mobile phone industry. Years ago, AAPL iPhone 4 caused 'antennagate'. Steve Jobs turned things around offering free phone cases and stood up like a leader to the spotlight made a public apology.The contrast between how issues are handled between two companies reflects their very different social and corporate cultures.

Samsung, once generated up to 20% of South Korea's GDP, has been long overshadowed by the affairs of its Founder Chairman, the richest man in Korea, Lee Kun-hee and his families.He resigned in 2008 after charges of bribing government officials and politicians (found not guilty), and convicted of tax-evasion. In the following year, his case's unwontedly pardoned by the South Korea government. He then returned as the Chairman of Samsung in 2010. The dramas and bleak history (daughter and grandson committed suicide) in the Chairman Lee's family, the extremely intensified antipathy of work environment, and the well-known 'Drinking' culture set a time-bomb of internal politics and bureaucracy within the organization, seeding deadly consequences that spawned today's events. In the States, Zenefit, once a perfect startup in Silicon Valley, is also another good example of a disruption by its own culture: The irony of an HR company that suffers fr HR problem. An entangled corporate culture undoubtably hinders its employees' judgement to making ethical decision. This appears to be the case here. Many other global brands shall observe and learn from the story of exploding battery that will soon come to an end.

Is Samsung a falling empire? Only time'll tell.

Update (01.22.2017): Samsung Electronics Announces Cause of Galaxy Note7 Incidents in Press Conference

*Kudo to Victor Duan Damais in editing.

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