Samsung Group has dismantled its Future Strategy Office, the de facto control tower of the group, for the first time since its establishment 58 years ago and vowed to beef up its respective subsidiaries’ autonomous management. Accordingly, every group-wide project has come to a halt, inviting controversy over possible crisis of Samsung as well.
Some affiliates, which fell out of the umbrella of the group in the process without preparation, are expected to have a tough road ahead. This is largely due to the fact that they turned over most of their profits through deals with other affiliates of the group.
According to business industry sources on March 2, the disappearance of the Future Strategy Office will significantly decrease inside deals between Samsung subsidiaries in the future, and encourage them to make contracts depending on their own interests. An official from the industry said, “Without the Future Strategy Office, which served as an arbitrator between affiliates, they will make a decision only based on their own interests. They will also make a greater effort to improve the quality and price competitiveness but to reduce production costs.
Samsung subsidiaries have already started a radical reform. Samsung Electronics has established the Global Quality Innovation Office, a quality control office that will report directly to the company’s chief executive officer, on the same day. The combined sales of Samsung Group’s 59 affiliates reached 272 trillion won (US$237.66 billion) as of 2015. Samsung Electronics accounts for 49.7 percent, or 135 trillion won (US$117.96 billion), of the total sales, and it wields absolute influence over the group’s electronics subsidiaries such as Samsung SDI, Samsung Display, Samsung Electro-Mechanics and Samsung SDS.
As the sales dependence of Samsung Display and Samsung Electro-Mechanics on Samsung Electronics exceeds 50 percent and they have high business relations it is virtually impossible to pull off all the subsidiaries’ autonomous management right away. Samsung SDS’ dependence on Samsung Electronics in terms of sales still surpasses 70 percent. Samsung SDI also sees 40 percent of its sales come from Samsung Electronics, though it is showing an improvement.
Another official from the industry said, “Unless the group decreases the dependence between subsidiaries, the autonomous management will end in mere gesture. When Samsung Electronics forces the affiliates to reduce production costs and suddenly change supply contracts, there will be a considerable ripple effect on subsidiaries,” expressing concerns.
He added, “Even now, the group needs to reduce the dependence between subsidiaries by diversifying customers. They are expected to see their short-term performance more important and struggle with the intense competition in sales in the future.”
To top it off, their unified brand image under Samsung is highly likely to weaken than now and they will face more challenging selling environment.
In addition, some affiliates, which have difficulties running business due to less favorable market conditions, including Samsung Heavy Industries and Samsung Engineering, now need to survive by themselves as they will not be able to enjoy benefits under the umbrella of the group any more.