Headquarters effect for Samsung and Motorola

Daniel Lau

SID: 0052899776

Headquarters effect for Samsung and Motorola

When an entrepreneur plans to start up a business, one has to decide where to locate the headquarters in order to coordinate the business in the most efficient way. Location is even more important in global firms because countries vary significantly in various aspects. Within the different factors to consider, economy, political policy and factors of production matters the most. I will choose the mobile industry’s two of the leaders, Motorola and Samsung, as an analysis.

Samsung electronics was founded in 1969 and it’s headquarter is in Seoul, South Korea. The headquarter was originally in South Korea obviously because the founder, Lee Byung-chul was a Korean. Moreover, Samsung electronics was originally manufacturing electronic appliances such as TVs, calculators, refrigerators, air conditioners and washers. Business was mainly local with design and manufacture all in South Korea, it was an obvious plan to place the headquarter there.

As Samsung Electronics merged with Samsung Semiconductor & Communications in 1988, their business started to expand to telecommunication network and semiconductor such as storage device and hard disk drive. Since then they started to become a global industry with headquarter in South Korea and sites world wide.

After the World War II and the Cold War, Korea was divided into South Korea and North Korea with South Korea backing up by the United States and the United Kingdom. Being in a capitalistic system, South Korea encourages free trade and investment, and businesses are owned by individuals instead of the government. Hence, under this capitalist political system, together with the moderate corporate tax rate, a lot of businesses are attracted to establish in South Korea. These steadily build up the prosperous side of South Korea, leading them to be one of the wealthiest countries in Asia.

With the capitalist economy, building headquarters in South Korea has an advantage over other countries in terms of the factors of production and supporting industry. First, the most important asset for a high technology industry is knowledgeable employee and research development. Since South Korea is open to investment, high technology companies are willing to put money into long term training for engineers. Moreover, South Korea has a strong focus on education, where they have the world’s highest estimated national IQ and they also ranked first in mathematics and science. With the pool of talent, establishing headquarters in Seoul guaranteed the future in human resources, which is a smart move for Samsung.

In addition to the education advantage, South Korea’s political economy also attracted other high technology business. In fact, South Korea was one of the leading country in technology. With the presence of related industries, ideas and innovation can flow around easily. For example, with more people interested in developing new mobile technology standards, conference can always be established to facilitate the discussions. Seoul is the Silicon Valley in Korea with a high concentration of technology companies.

With Seoul’s attractive business environment, it also stimulated the urbanization of South Korea. With a fast growing population of more than 2% a year, it has already emerged as a new megacity with 10 million in population. Together with the economic growth, South Korea and Seoul will be a good place for the headquarter of Samsung for years to come.

In the mobile industry, Motorola is another leader. Motorola is headquartered in the United States, Illinois. In terms of country’s policy, United States has been the most capitalistic country over the world.

However, in terms of location, Motorola’s headquarter does not have much benefit over the factors of production. Since United States is a huge land, different locations have their own advantage in a specific industry. For example, the west coast is technology focused with Silicon Valley a lot of research institute in place, while on the east coast it is packed with famous colleges and other non-tech enterprises. When Motorola places it's headquarter in Illinois, although it is convenient for them to recruit top talents in business area from schools such as Harvard, they are isolated from the main high-tech area, which is either in Silicon Valley or Texas, Austin. I think this will be a hard situation for them because in mobile design, designers have to communicate with industry very well to make sure industry standards such as bandwidth and spectrum requirements are met and so on. With headquarters locating thousands of miles away, it is not efficient to carry out the design. Moreover, travelling consumes valuable energy on earth, which makes both the world and the company less sustainable.

Even though location of the headquarter seems to have a big effect towards the operation of the company, I expect in the future 5-10 years, this effect will get smaller. The greatest impact in the future to global business would be government policy. Besides allowing free market economy, even more investments will come if the government give subsides or other stimulating policies. Another important factor would be nation's economy and strength of currencies. Although economic strength encourages companies to setup businesses, but strong currencies mean a higher price for costs of production factors, so there must be a balance between the two.

As far as distance is concerned, technological advancement will bring the already flat world even flatter. Telecommunication network made by both Samsung and Motorola and other enterprise brings the world closer together than ever. A lot of discussions and supervision work can be down using teleconference video technology and gigabits ethernet. Even if hands-on training is necessary, web simulation is able to provide users with training anytime and anywhere. Hence, in the future, the location of headquarter should be less affected by the distance with supporting industry.

Case Study 1: Matsushita’s Culture Changes with Japan

Case Study 1: Matsushita’s Culture Changes with Japan

Japan suffered one of the worst economic hit in history when the economic bubble deflated steeply in the 1990s. Stock prices and real estate slumped enormously mostly due to domestic monetary policies. As a result, companies in Japan faced financial trouble which triggered the cultural change in Japan.

Before the Economic crisis, employee and the company have a particularly close relationship. The company is involved in the live of the employee. For example, a lot of companies require their employee’s manager to sign before they can rent an apartment. On the other hand employees are also very loyal and obliged to their company. With the company’s guaranteed lifetime employment policy, few employees will fancy changing jobs. Moreover they work hard in response to the generous benefit by the company.

However after the economic crisis, companies cannot afford to pay that many benefits to the employees so they finally had to lay them off, which they never did. This cultural change propagates to traditional value change eventually when employees see that loyalty does not guarantee anything. Since then, younger employees started to think more about individual as opposed to group.

Japan is moving towards more individualism than collectivism after the economic bubble. Nonetheless, this is a good opportunity for Japan to adapt to the globalization world and be more competitive. The cultural change will lead to greater mobility of employees, which means people will move around jobs more than before. As a consequence, company loses loyal employees but what they get by recruiting other people is the experiences. When people have mobility, they tend to gain experiences among a lot of companies and build social network among various groups of people. When this happens, new ideas emerge and startups will be built around the new ideas. Hence by moving towards individualism, Japan would create more new business than the past.

Matsushita, a giant Japanese electronics company, was founded in 1918. After the World War II, they mainly supply radios and other appliances to the Japanese. Between the 1950s and 1980s when Japanese culture was still in the traditional way following Confucian’s value, Matsushita has the advantage over other companies due to it’s high technology nature. Since their products are top of the line in terms of technological advancement, research is carried out and training has to be provided. Once they recruited a young employee, Matsushita trained them for specific jobs, and he will carry out the work for years to come. Loyalty and obligation here means better division of labor and lack of professionals’ lost.

After the 1990s, company’s performance was not as good as before. However they still did not abandon the traditional values immediately. I think this is not because of the liability about the traditional values they are bearing, but due to the fact that the employees are all trained professionals. If in any case, the company wants a turnaround, R&D is the most important assets of the company and at least half of the company’s employees are R&D related. Hence, it still kept it’s traditional practice until 1998, and did not have layoffs until 2001.

In the late 1990s and early 2000s, Matsushita made several human resources announcements. For example, changing management, bonuses scheme and most of all, options in signing contract. With these changes, Matsushita was trying to get the best of both worlds by offering traditional long term contracts and at the same time, provide options to younger employees for a more challenging career. The reason that Matsushita has to move slowly is because there are still a lot of experienced and elder worker in the company, so they had to take care of them. Also, Matsushita is known for it’s traditional values, so if they moved too quickly into the modern ways of managing, the value and image of the company will be lost.

I think that societal cultures can affect business in a very significant way. When societal culture changes, which is happening everywhere, company’s high management has to figure out ways to cope with the change and at the same time, maintaining gains to it’s core business, which is very challenging.