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Samsung Group struggles to find new growth engine

Korean conglomerate puts focus on M&As, converging businesses

With heir apparent Lee Jay-yong filling the management vacuum left by his ailing father, Samsung chairman Lee Kun-hee, South Korea’s largest conglomerate is trying to find new growth engines, acquiring foreign ventures at an increasing rate and jumping into new business areas.

Since last May when its chairman was hospitalized due to a heart attack, Samsung has conducted eight mergers and acquisitions, almost equal to the combined number of M&As done by the conglomerate in 2012 and 2013.

Many of those firms acquired by Samsung for the past 12 months ― including open smart home platform developer Smart Things, mobile payment system firm Loop Pay, and mobile cloud printing solutions maker PrinterOn ― engage in rising Internet of Things and fintech (a combination of finance and technology) businesses.

Behind Samsung’s thirst for those M&As is Jay-yong’s quest for new growth momentum to weather fierce competition in the global smartphone and home appliance markets, where Samsung has enjoyed an upper hand, according to market analysts.

Samsung Electronics’ semiconductor complex in Xian, China. (Samsung Electronics)
Samsung Electronics’ semiconductor complex in Xian, China. (Samsung Electronics)

“The growing number of M&A deals is also aimed at achieving convergence between heterogeneous businesses and technologies to find new cash cows,” said a market analyst who declined to be named.

Jay-yong, currently vice chairman of Samsung Electronics, said at the annual economic conference Boao Forum for Asia in China in March, “Samsung sees great opportunities in convergence between IT, medicine and biotechnology,”

Lee has especially set a keen eye on the Chinese financial sector.

He had meetings with Chang Zhenming, the chairman of China-based financial giant CITIC Group to discuss business ties during the forum in China, and is reportedly scheduled to meet with Jiang Jianqing, chairman of the Industrial and Commercial Bank of China in Seoul on May 28 during the annual Korea-China CEO roundtable meeting.

The upcoming meeting between the Samsung vice chairman and the head of the world’s largest bank by total assets, if held, will be the third of its kind.

Market watchers said the meetings with the big names from the Chinese financial sector were to foster fintech businesses in both nations and seek collaboration in expanding Samsung Electronics’ mobile payment system Samsung Pay.

Lee, who studied at KEIO Business School and Harvard Business School, boasts a wide network around the world, which helps Samsung to keep close ties with prominent business and political figures.

Lee also had meetings with top executives from global credit card firms including Mastercard in the U.S. in February, and met up with Paypal cofounder Peter Thiel in the same month in Seoul.

Legal settlements with U.S. tech giants Apple and Microsoft also came after junior Lee’s one-on-one meetings with the chief executive of each company ―Tim Cook and Satya Nadella.

Lee pins high hopes on the battery business for electric vehicles.

Samsung SDI, the battery business wing of Samsung Group, inked an exclusive deal to supply batteries for BMW’s electric cars, i3 and i8. Many attribute the deal with the German carmaker to Jay-yong’s longtime, amicable relations with BMW’s top executives.

The junior Lee has somehow proved his capabilities to lead the Korean conglomerate during the past year with Samsung’s earnings slowly-but-steadily getting back on track ― the operating profit of the conglomerate’s traditional cash cow Samsung Electronics improved 40 percent quarter-on-quarter to 2.74 trillion won ($2.5 billion) in the January-March period.

Some critics, however, said that he needs to communicate with people across a broad range of society should he hope to receive respect as the head of the largest conglomerate in Korea.

“For the past year, Lee seems to have served as an acting CEO of the conglomerate on behalf of the ailing chairman, meeting with global CEOs and figures in the upper strata of society,” Kim Sang-jo, an economics professor at Hansung University in Seoul.

“In order for him to become a respected leader of Samsung Group, he also needs to communicate with people in a wider spectrum of society,” he said.

By Kim Young-won (wone0102@heraldcorp.com)
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