Winnipeg Free Press - PRINT EDITION

Samsung revamp needed to succeed

Apple verdict forces focus on innovation

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SEOUL, South Korea -- A U.S. jury's $1-billion verdict against Samsung for what rival Apple claimed was the illegal copying of its iPhone and iPad designs signals a turning point for the South Korean electronics giant known for its prowess in adapting the innovations of others and nimbly executing production.

The verdict not only jolted the world of global gadgetry but also likely sparked some soul-searching in Suwon, South Korea, where the family-run Samsung conglomerate is based.

The world's top seller of smartphones finds itself in the post-iPhone reality, where the decades-long practice of industry mimicry now can mean a bruising legal challenge.

And so Samsung finds itself in a position of having to recreate itself as an innovator, not an imitator. But the switch, experts say, will be much more challenging and time-consuming than the shortcuts Samsung used to take.

"The case shows that Samsung is still inadequate in areas such as designs and patents," M.S. Hwang, a Hong Kong-based analyst at Samsung Securities, said in a commentary.

Samsung Electronics Co. has a top-heavy command structure that centres on the founding family. At the apex is 70-year-old Lee Kun-hee, who inherited the mantle from his father, Samsung founder Lee Byung-chull, in 1987.

The strict hierarchy has enabled speedy and bold investment and swift execution. That, plus the ability to build on the innovations of others such as Sony Corp., has helped Samsung become the world's largest maker of televisions, memory chips, liquid crystal display panels and now smartphones.

"It is impossible to be an innovator from the beginning," said Chang Sea-jin, a professor at National University of Singapore. "If you don't have a technology, imitating more advanced companies is the easiest way to catch up."

Samsung has long been regarded as a "fast follower" -- imitating or licensing technologies and then competing by lowering costs, improving quality and adding functions.

It overcame its belated entry into the memory chip business in 1983 with efficient mass production and investments. Today, Samsung supplies about 30 per cent of chips in electronic gadgets.

But when Apple released its cutting-edge iPhone in 2007, Samsung employees were likely too pressed to catch up to scrutinize possible patent encroachments. South Korea's idea of intellectual property is also less strict than that in the U.S., Chang said, and speedy execution is highly valued at Samsung.

Last Friday, a jury in San Jose, Calif., ruled Samsung went too far in copying the iPhone and iPad. It awarded Apple $1.05 billion, while a judge considers whether to ban sales of eight Samsung products in the U.S.

Samsung's stocks plunged 7.5 per cent in Seoul on the first trading day after the verdict, costing $12 billion in market value. While Samsung has vowed to appeal, unsuccessful legal battles against Apple in other countries means Samsung has few choices other than to create its own design identity.

Bill Fischer, a professor at the International Institute for Management Development in Lausanne, Switzerland, says Samsung still has not breached the divide between itself and consumer electronics companies such as Apple and Sony.

"They tend to take bigger risks regarding products brought to market, and they try to become creators of revolutionary new technologies," such as iPods and smartphones, Fischer said in an email to The Associated Press.

Choices Samsung has made "are not choices conducive to growing the sort of design and customer-centricity that has long made Apple unique," he said.

Samsung, which supplies mobile processors that work as a brain in the iPhone and iPad, as well as displays and memory chips to Apple, reaches into areas Apple does not, especially in electronics hardware manufacturing.

"Innovation does not necessarily mean an entire change. Doing better than the present and doing better than others are also innovation," said Lee Myoung-woo, who once led Samsung's consumer electronics businesses in the U.S. and is a professor at Seoul's Hanyang University.

"Even if other companies are not breaking away too far from the rules that Apple made with the iPhone, other companies can come up with product innovation in the areas that Apple didn't see," Lee said.

-- The Associated Press

Republished from the Winnipeg Free Press print edition August 29, 2012 B8

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