The Birth of Korean Cool (24 page)

Then, Samsung was dealt a very lucky card at the beginning of the presidency of Park Chung-hee, who was determined to push Korea’s economy out of the dark ages. In 1962, the government
chose some established companies, like Samsung and Hyundai, to be a tool and petri dish for economic planning. Here, “tool” means a real company capable of manufacturing, without which
Korea had no chance of lifting itself from post–Korean War poverty. The Korean government helped Samsung and the other golden-ticket-winning chaebols by securing foreign loans.

Companies like Samsung couldn’t manufacture so much as a paper clip unless they bought machinery from overseas. But Korean companies had no capital, so they had to borrow from Korean
banks—which had no money either—so they in turn had to borrow from foreign banks. None of this was going to happen by itself, and foreign banks weren’t knocking each other over to
invest in Korean companies with no machinery and no money. So President Park had to arrange the loans his government would guarantee (by raising taxes if necessary), which enabled the enterprise to
flourish. In 1969, with the new machinery and capital, Samsung started making electronics.

Fortunately for Samsung, Lee Kun-hee, the third son of Samsung founder Lee Byung-chull, took over as chairman of Samsung in 1987. In 1993, he held a conference for hundreds of Samsung executives
at a hotel in Frankfurt, Germany, where he delivered a three-day speech, which became known as the Frankfurt Declaration of 1993. There he famously told his staff, “Change everything but your
wife and kids.”

Lee was fond of highly dramatic gestures. In 1995, when he found out that some of Samsung’s new line of cell phones were defective, he paid a visit to the factory that made them in the
town of Gumi in south-central Korea to give the workers there a piece of his mind. On the factory floor, he hung a sign printed with the words “Quality is my personality and my self
worth!” He made the two thousand factory workers wear paper bands around their heads with the words “Quality Assurance” written on them. Then he had the workers put the
factory’s entire inventory in a pile—including some hundred thousand mobile phones—and ordered the workers to smash the items with a hammer. Then he
ordered them to set the
whole thing ablaze.
It was a $50 million bonfire.

Of course, highly toxic bonfires aren’t enough to make a company succeed. As Chang said, “One of the more important factors of Samsung today is that there was a revolution from
analog to digital. If Samsung had tried to compete on the analog stage, it would be impossible to catch up with Matsushita or Sony, because in the analog world experience matters. There  were
several elements of engineering—mechanical and circuitry—in which Samsung was behind.”

So Samsung didn’t even try to develop its analog technology. Digital technology, on the other hand, was an ideal blank slate. As Chang explained, “In the digital world, if you make
an industry-standard chip, they’re all the same quality.” Obviously, he doesn’t mean that anything goes. He explained, “In the digital world, everything is zero and one, so
it’s presized in terms of reproduction and transmission.”

I remember the first time I learned this. I was in high school during the period when CDs were starting to make cassette tapes obsolete. A friend had copied a Paul Simon CD for me, based on a
copy he had made for himself, borrowing another friend’s original CD. I said, “Isn’t this a copy of a copy? Is the sound going to be okay?” My friend laughed and explained
condescendingly that I was thinking in terms of that ancient technology called cassette tapes, in which, indeed, if you were to copy a tape that was itself a copy, then the sound would be
compromised. “CDs are binary,” he said. Seeing I still didn’t understand, he said, exasperatedly, “That means all copies are perfect.”

All of which means that Samsung didn’t have to worry about quality in the same way as in an analog world, because everyone was equal in this new digital world in which you only had to
worry about getting your zeros and ones right.

As was often the case in modern Korean history, being behind in the current technology meant the nation could vault ahead in the next. Nonetheless, the digital gamble was not a sure thing. Lee
Kun-hee was a visionary, but he wasn’t psychic. Luck and timing were on his side. It may be hard to believe now, but in 1995, it still was not obvious that digital would overtake analog to
the extent that it has, as quickly as it has.

Analog technology still had strong proponents in the 1990s, especially in the audiovisual world. Samsung digital TVs depended on countries making the switch from analog to digital television,
which is why Samsung TVs did not take over world market share until this century. The United States was very reluctant to make the switch, and did not officially do so until June 2009; the UK made
the switch in 2012. That kind of change requires a central government mandate that takes quite a long time in most democracies. Radio, for example, continues to be analog. Part of the reluctance
came from citizens who felt that it was fascistic for a government to force people to buy all new televisions. Others, particularly fans of vinyl records, believed firmly that zeros and ones could
not convey music with the same intensity and feeling as vinyl, which is largely true.

But inexorably the world did go digital. More important for Samsung, it also went mobile. As Chang writes in his book, the Korean government stepped in again with semiprotectionist measures to
ensure the success of its native mobile phone industry. In 1996, the Korean government designated code division multiple access (CDMA) as its communication technology, rather than global system for
mobile communication (GSM).

Korea’s decision not to adopt GSM was a radical one, as GSM is the global standard for mobile communications, with around 80 percent market share worldwide. But it worked: since most
non-Korean phones wouldn’t work in Korea, this allowed a brief window during which Samsung and other Korean mobile phone manufacturers could get their phones on the Korean market and create
brand loyalty. Furthermore, Samsung added bells and whistles to its phones at a rate that far outpaced that of its competitors. One 2008 model Samsung sold in Korea had a movie projector built into
the phone, so you could screen movies on a blank wall using your phone.

But there was one pesky problem: Samsung still needed to refashion its brand image. There was a worrisome phrase floating around the business world in the 1990s, the “Korea
discount.” This term, more politely called the “emerging market discount,” meant either that Korean companies were undervalued on the stock exchange or that Korean commercial
goods had to be sold at a cut rate in order to be competitive on the global market. Either way, it was a slight: it meant that Korea was falling victim to its old stereotype as a maker of shoddy
products with too much corporate turmoil.

Fortunately, Samsung had been building a dream team. In 1996, Lee appointed a former in-house engineer, Yun Jong-yong, as CEO and vice chairman. In 1999, Samsung brought aboard a Korean American
business wunderkind, Eric Kim, to head up its global marketing. They were the new faces not just of Samsung, but of the next generation of chaebol: western, scientifically minded, and rebelling
against the old-world model of blind corporate allegiance and endless hierarchies.

Lee Charm explained the cultural significance of Lee Kun-hee’s radical reforms. In the old days, said Lee, “Samsung was the model of a Confucian-style [company],” meaning that
it was run on a strictly hierarchical follow-the-leader policy. “Then came the Lee Kun-hee revolution. Before, to make a decision, twenty-five people had to give approval. Lee Kun-hee
[changed all that], saying there would be no more than three levels of decision-making.”

Thus, within a span of a few years, Samsung had made a fundamental quality change (bonfire), bet on the right horse (digital technology including semiconductors and mobile phones), and
modernized the corporate chain-of-command structure. The final component of rebranding was a matter of spin. Samsung had to shake off the “Korea discount” label. As any schoolchild will
tell you, getting rid of nicknames and reputations is no easy task.

Samsung knew it could not rely on its overseas reputation evolving organically over time. For the first time, Samsung had to do a major western press offensive, meaning it had to do something
that at the time did not come naturally to Korean companies: rely on an independent public relations firm.

During the Asian financial crisis of 1997, Samsung nearly went bankrupt. It had only a few years’ worth of operating cash. In July 1998, CEO Yun and nine other Samsung executives locked
themselves up in a hotel and wrote their resignation letters. They made a pact that they would put the letters away for five months, at the end of which they would actually resign if they
didn’t cut company costs by 30 percent. This pact spurred executives to wade into the unfamiliar waters of aggressive public relations.

Spinning Samsung was not going to be significantly easier than spinning Korea as a whole. Samsung had not yet released its Galaxy smartphones. To the outside world, it was a second-tier company
that was mostly known for manufacturing unsexy individual components like microchips. A western journalist could hardly be blamed for not getting that excited about it.

But all the cajoling and corporate matchmaking paid off. On June 11, 2001,
Forbes
’ front-page story was “Look Out, Sony,” describing Samsung’s ambition at the
time. The article was a milestone that would forever change the way Korean companies talked to the western press. Rather than the usual modus operandi of acting like inscrutable gods, the Sam-sung
executives interviewed for the article showed unprecedented frankness: CEO Yun blatantly and strategically admitted Samsung’s weaknesses in order to make a larger point: “We were 30 to
40 years behind in the analog age, but in the digital age, the playing field has been leveled.” And Eric Kim, Samsung’s head of global marketing, made it clear: “We want to beat
Sony. . . . Sony has the strongest brand awareness; we want to be stronger than Sony by 2005.”
⁵

Forbes
commented, “That sounds off the wall.” At the time, most people would have agreed. Sony was known for making high-quality electronics that made people happy:
camcorders, televisions, CD players, PlayStations. Sony had invented the transistor radio and the Walkman. It was seemingly unbeatable, an iconic brand. If you were to unwrap a birthday present and
see the word “Sony” peeking out from beneath the wrapping, you’d most likely get very excited. It’d be unlikely you’d have felt that way about getting a Samsung memory
chip. To challenge Sony seemed like insanity on Samsung’s part.

Yet Samsung did beat Sony; in 2002, three years ahead of schedule and just one year after
Forbes
called the idea “off the wall,” Samsung’s market capitalization
exceeded Sony’s. By 2005, its market cap of $75 billion was twice that of Sony’s.
⁶
In addition to its mobile phone dominance, it has since 2005
been the world’s top manufacturer of flat-screen display panels, televisions, and of course, the backbone of the company, those unassuming microchips.

Samsung wasn’t content to rest on its laurels. The Sam-sung executive suite was more wound up and ambitious than ever before, so much so that on September 19, 2005,
Fortune
stated, “Samsung’s VIP Center is home to a uniquely paranoid culture—and that’s the way the boss likes it.”
⁷
Paranoid in what
way? Well, it is most apparent at the VIP Center, a five-story building in Suwon, an hour south of Seoul, and intentionally separate from the main corporate offices. It’s the technology
version of Willy Wonka’s Chocolate Factory, serving as a laboratory and brain trust where Samsung’s ideas are born and developed.
Fortune
described the center as “an
invitation-only, round-the-clock assembly line for ideas and profits where Samsung’s top researchers, engineers, and designers come to solve their grittiest problems.”
⁸

“Failure is not an option,” the article continues, quoting Kyunghan Jung, a senior manager of the VIP Center: “Vice Chairman Yun stresses that if you relax, if you become
complacent, a crisis will find you.” Jung adds, “There is a lot of tension here.”
⁹

And it’s not just quality control. Samsung by then had such advanced technology that corporate espionage began to become a realistic concern. In the men’s bathroom, according to the
article, each urinal has at eye level a picture of one of the planes crashing into the World Trade Center on September 11, 2001. This is meant to serve as a reminder that loose lips sink ships.
Needless to say, there’s an obvious logic gap here: September 11 didn’t occur because of poorly kept secrets. The image is just meant as a scare tactic.

As amazing as Samsung is, its international appeal doesn’t derive directly from Hallyu. People who buy Samsung Galaxy phones or flat-screen TVs don’t usually think about bands like
Big Bang or movies like
Oldboy
. In that sense, Samsung at first glance seems to fall slightly outside the Hallyu pattern. Which is to say, part of the appeal of K-pop is that it’s
Korean. For Samsung, that’s not likely to be the case.

That said, Samsung is a crucial part of the overall Hallyu ecosystem. As culture critic Lee Moon-won opined, “Hallyu started with Samsung.” In other words, the popularity of Korean
music and movies is hard to separate from the confidence that Samsung created in Korea the Brand. Most countries that have dominated world culture or the pop culture scene were already wealthy by
the peak of their influence. Samsung helped buoy the Korean economy, which allowed the government to finance popular culture products; Korean pop culture, in turn, benefits Samsung, which in turn
benefits Korea as a nation. And so on.

But going forward, Korea cannot continue to rely so much on any one company for its economic success. That’s why the nation is embarking on the next phase of its development—the
“creative economy.”