“Samsung Rising”
A conversation with Geoffrey Cain on the history and future of the South Korean tech giant.
Hello! And welcome to the ScienceBorg Librarian. My name is Vasile Decu, I’m a science journalist, amateur astronomer and professional bookworm. And this is my book talk blog, where you’re invited to read (and soon listen to) interesting conversations with some of the best authors of nonfiction books, from media to tech, history and nature.
Geoffrey Cain is not only one of my favorite authors, he’s one of the best journalists out there — and his two books, Samsung Rising and especially The Perfect Police State, are must-reads if you want to understand the (tech) world. I know this term, ‘must-reads’, is painfully overused, but I mean it in its original, literal sense. We also had a great, hour long talk about the tragic and dystopian uses of technology documented in The Perfect Police State. Do check it out!
Samsung Rising: The Inside Story of the South Korean Giant That Set Out to Beat Apple and Conquer Tech (Bookshop.org / Amazon)
The Perfect Police State: An Undercover Odyssey Into China’s Terrifying Surveillance Dystopia of the Future (Bookshop.org / Amazon)
(I get a huge commission of 1 or 2 bucks if you buy them through these links, which I’ll use for more books and coffee — ok, a chapter and a sip)
The text is slightly edited, in order to try to adapt it to ‘print’, from a video call discussion between two quarantined cities at the time (September 2020), Bucharest and Istanbul, but still very much alive and extremely noisy. Any mistake or awkwardness of style comes solely from me — and my English as a fourth language.
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Vasile Decu: I really like the title. You mentioned in a podcast that you’ve tried several different versions, like ‘The Republic of Samsung’ or something like ‘Samsung vs Apple’. But it would have invoked just partial aspects of a much greater history of this Asian giant, now a global tech force. Can we say that it is still rising?
Geoffrey Cain: Samsung has been rising over many decades — and I think that it’s still rising. What sets Samsung apart from other technology giants is its longevity. It’s a firm that has been a success story since the 1980s. When Samsung Electronics entered the electronics market, pretty much everyone in Korea thought that they were going to fail. There was no sign of success coming out of this. But the fact that they have managed to steadily rise from the early 1980s to the present I think speaks a lot to the unique system that they’ve set up. It’s a system that’s far different from what we see in Silicon Valley. Look at the life of the average Silicon Valley company, or the average New York technology company. In Silicon Valley, firms come and go fast, they die quickly. If you were to look at the Fortune 500 list 20 or 30 years ago, the average company would have a lifespan on there of maybe 10 years at the most. But Samsung is just so unique because it has managed to stay at the top, being so profitable for so long.
And it’s still rising. I just want to clarify that Samsung has run into trouble in smartphone segments, but the brilliance of its model — and this is a very East Asian, Japanese and Korean business model — is that it can move between these different vertically integrated fields. So if smartphones start to fail, the semiconductor unit will start to become profitable. And then, when semiconductors start to decline, they can go to displays, and then when displays decline… there’s always another field that they’ve entered. Because they’re so sprawling, because they’re so big, they always have one cushion that they can rely on to get through downtimes.
The books starts with the explosive disaster of the Note 7 release. You then go into even bigger corruption scandals and corporate infighting, like a James Clavell novel, or the wonderful series Succession, with infernal internal bureaucracy and corporate blunders, some absolutely huge. I was reading and thinking ‘How the hell do they survive?’ They seem to be immune to disasters that would have destroyed any other company, even other tech giants, like Apple, in my opinion.
That’s one of the big questions I too had when I started writing and researching the book. I was flabbergasted, just like you, while studying the history of this company and looking at the key figures. And I was thinking to myself — in what other major multinational corporation on Earth, at this level, how many of them have leaders either charged or convicted of a major white collar crime? I mean, at Samsung, every person who’s led the company has been, at some point, a white collar criminal. And yet they still manage to keep coming back, they return to the post, and they keep building the company and they keep getting successful. It really comes down to a different system that South Korea has set up. This is a very unique system. I’ve looked across the world at OECD countries and industrialized countries to see if there’s something similar. The closest would have been Japan, which used to have a similar system before World War II, but it doesn’t have this anymore. Some of the Scandinavian countries have a similar system set up, but they have good corporate governance. I mean, they don’t have leaders going to prison. The other country that has a system of family run businesses is Israel, and they’ve had quite a few corruption scandals in these businesses. So Israel is a little bit similar. But I think that Korea is different from all of these. It is far more extreme when it comes to white collar corporate corruption. If you were to look at the ten wealthiest family leaders of businesses in Korea, about six or seven of them are convicted criminals. And out of those, most of them have spent time in prison, they’ve actually been sentenced by a court and spent maybe a year or two in prison — and then got a presidential pardon. Look at Korean companies, look at how much influence they have around the world. We all know the names Hyundai, and Samsung, and LG. SK is another one that’s lesser known. Look at the leaders of all these firms and you’ll see a bunch of criminal convicts, which is just so mind blowing to me. The reason the system works is because of the South Korean government. It’s this system of developmental dictatorship that the South Korean government set up. As Korea was growing from a poor to a wealthy nation, the government knew that these companies really wanted to push for greater wealth and it knew that they wanted to put their children into the leadership roles. And so they set up these impossible legal systems where you can’t even transfer the company to your kids, because it’s going to be illegal. But they’re going to do it anyway. Because, in Korean culture, they really want to have their kids running their companies. And so the Korean government used that to its advantage, to arrest corporate leaders — like a stick to punish them and to discipline them, to make an example of them. So the people would see that the government is fighting corruption. But then, after everyone forgets about it, they give them a pardon and the president comes in and says ‘All right, Samsung Chairman, you are allowed to leave and you don’t have to do this court trial anymore. And you can go back to running the company.’ It’s a different system. Not one that really exists in a lot of these OECD, big corporate countries.
We can’t really understand Samsung without knowing the South Korean culture.
Samsung and all these Korean companies have grown out of major, major government support. Because the companies were tied to the national interests, they got just huge government support. The government wanted to build Korea into a wealthy nation.
And it worked.
Yes, it worked. If these chaebol groups did not have the support of the government, I think it would be extremely unlikely that they would be as successful as they are today. I mean, I don’t think Samsung would even exist, if it weren’t for the enormous help of Korea’s dictators, in getting the semiconductor and other components industries off the ground from the 1960s to the 1980s. In the West, this is a view that’s starting to go out of fashion, but for the past 30–40 years we’ve really been in the age of Milton Friedman, the age of the unrestrained market — that the market is efficient and that the rational market will solve our problems. And now we’re living in this age of inequality and populism… The growing consensus around the world is that Milton Friedman is not the way to go, because we need to do more to repair inequalities and to help people. You could actually look at South Korea, Japan, and a few other countries — you could even look at China today and Vietnam. These countries followed a paradigm called the new institutional economics, which argues that state intervention, that government intervention in the economy, especially in the early stages of the economy, is a good thing. This flies in the face of what the World Bank, the IMF have been saying for the past 30–40 years. They call it ‘the Washington consensus’. I think that one of the reasons I chose Korea as a case study was because I wanted to show how different and, as you said, how strange the system could be. For me as an American Western guy going to Korea, especially at first, it felt really strange and unusual and exotic. I was just wondering how can this happen, how can this be a success. But it’s simply that Korea had set up a different system at the beginning to allow for this success to happen.
Reporting on tech giants is notoriously hard. But how much harder was it to research the ‘Republic of Samsung’?
I first moved to Korea in 2009. Before that, I was writing in Silicon Valley, where I covered Google, Apple, a lot of these companies for a few years. Covering these companies in America, in Silicon Valley, it’s hard enough. They all have a reputation for being secretive. They don’t like bad press, they want to maintain a good image. But I went to Korea and I just found it to be on another level. I think that the concept of corporate transparency does not exist there, and Korea does not have the laws in place to force companies to be really all that transparent. I mean, there would be things going on behind the scenes that I would just be, you know, awestruck at… Things going on behind the scenes that the company doesn’t even have to disclose to its shareholders.
Just to give you a comparison about how hard it is to cover Samsung versus, say, Apple. Imagine if we were in Silicon Valley, and Apple was everywhere, and the US were called the ‘United States of Apple’. And Steve Jobs or Tim Cook actually had a direct phone line to Obama or the Donald Trump White House. And they could just pick up the phone and call the White House and tell them what to do. Not only that — imagine Apple makes up 20% of all of America’s exports, and every American wants to work for Apple. Everybody is just Apple crazy, ‘Apple is America’ and ‘we have to protect Apple, or else the American economy will fail’. Apple is bigger. Samsung is not as big in terms of profits, not as profitable right now. But if you go to Korea, this is exactly the situation. Koreans call their country the ‘Republic of Samsung’. And you can live your entire life, from the cradle to the grave, using Samsung products; you can get your Samsung job; you could wake up in the morning and you can drive to work in your Samsung car; you’ll go to your office and it’s in the Samsung office building; your apartment was built by Samsung; you have your Samsung microwave oven, turn on your Samsung TV; you can use your Samsung credit card. Even when you like get old and die, you can be sent to the Samsung hospital and then you can be buried in a cemetery where Samsung consultants run the cemetery. I mean, it truly is just incredible how much of an imprint this company has. And that’s why it’s very hard to cover, because Koreans, as much as they admire the company, they also fear it. In Korea, nobody wants to go on the record, being candid about Samsung.
But you did it. You managed to speak to a lot of insiders. As I said, sometimes it felt like a James Clavell novel or a real life Succession script. But can a chaebol still function now?
It’s actually a very complicated answer. It’s a little bit of yes and a little bit of no. I think that, on the whole, the system, the model is going to have to change eventually. Because Samsung is run under an extremely complex governance system called cross shareholdings and these cross shareholdings…. Essentially, what it means is that there’s no such thing as the Samsung Group, there’s no such company, even though they call it the Samsung Group. It’s simply a big web of publicly traded and private companies that all own pieces of each other, and that create this giant circle of companies that can vote for each other’s boards, that can make decisions for each other. And the purpose of the system… it’s extremely inefficient. I mean, it’s just led to all kinds of corruption scandals in Korea, because it’s such a poor governance system. But the reason it exists is because that’s the only way that Samsung can continue to pass its company down through its own family, the Lee family of Korea. You know, that aspect of the chaebol system, I don’t think it can continue much longer. I think that Korea’s laws have already been closing in on it. That they patched up that system. But that governance problem aside, the thing about this chaebol model is that it is a strong vertically integrated model. Because Samsung is insulated from a lot of the market shocks that are going to be happening around the world in the coming decade with the trade wars, you know, the China versus the US. And Korea is a country that’s trapped right in the middle of that. Geopolitically and economically, Korea is in a very dangerous and hazardous position, when it comes to these two big powers clashing against each other. So because Samsung makes everything, I mean, it makes almost everything from the raw materials that make the glass in a partnership with Corning, and everything going from, say, the glass for the display to the, you know, the semiconductor and to the finished product, the hardware itself, Samsung is not going to suffer from a lot of these market shocks, because they just have such a strong, incredible system of vertical integration. One of the big debates around the world right now is the use of 5G networks. And, you know, there has been pushback among the European Union and the US against Chinese 5G networks. There are fears that Huawei and other companies will use them to spy on on people, basically. Samsung is one of the best candidates to make this kind of hardware, because they are vertically integrated, because you can always pick up the phone and call the Samsung hardware salesman, and they’ll have everything that you need. And they can make it quickly and efficiently. They make it at a good price. I mean, they are excellent engineers. And so that’s, I think, really where they’re gonna stand now, I think that we’re finding that Samsung is not very good at software, you know, they’re not good at making artificial intelligence and software based technologies that are emerging right now and over the next 10 years ‘till 2030. But they are good at making the hardware that will power this software. And so I think that they’re a hardware driven chaebol model. It’s not a software model. It’s a top down factory manufacturing system. It is going to be very good for them in the next 10 years, as long as they can supply the hardware for the software that’s being made.
You write that a lot of Samsung leaders tried to push Samsung away from hardware, away from the hardware centric system. Software seems to still be their biggest vulnerability.
Yes, this is the vulnerability of the chaebol model. The Korean chaebol groups are all geared towards the manufacture of hardware, but not the development of software. And aside from the messaging app called KakaoTalk, there’s really no example of a successful Korean software app. It’s just not something that is in the blood of Korean business culture. For a long time I covered this very in depth. Actually, this is one of the one of the longest parts of the book, I think. It really is a story that I think Samsung regrets not succeeding at. It’s a story where to beat Apple — Apple was the original enemy — Samsung executives in Silicon Valley realized that Samsung had to be a software firm in addition to a hardware firm. It made a lot of sense, the logic was that, you know, Samsung made all this hardware, but there was no software operating system to connect them. So what if Samsung could develop an ecosystem of software, of apps of the OS, and content, streaming videos, music, what if Samsung could control that, as opposed to Google, which does control it now. And then Samsung could link up all of its many, many devices onto the same ecosystem. The type of thing where you could turn on your dishwasher with your smartphone, and, you know, that you’d have all these smart devices in your home that would communicate with each other. So Samsung tried this during the middle of the decade, from about 2013 to 2016. And it was an endeavour that simply did not work out. Because, ultimately, the bottom line was that the software executives were placed underneath the hardware executives. The hardware executives were the ultimate people, the leaders who were making decisions over how software would work. But software and hardware are different cultures. It didn’t work out.
Samsung’s motto of ‘perpetual crisis’ is referencing the ‘Sony trap’, the danger of becoming drunk on your own success and not paying attention to the future. We now have a new China, with new rivals, like Huawei. In my mind, the future for Samsung is towards the Western market. That means it has to overcome its culture, to become more Western. Am I making any sense here?
Yes. Samsung has an interesting relationship with its corporate culture. Samsung knows that its military culture can be a problem. And, over the years, it has been trying to reform its culture to become more like a Silicon Valley software firm. This is a long term project and it’s something they’ve been working on since the early 2000s. Because, you know, Samsung executives know that this military culture was built for the 1980s and it’s not a culture that can last forever in their eyes. But the problem… whatever Samsung attempts to change its culture… it realizes that it’s losing control of the system that it once built. That, you know, when it starts to relax its culture, the executives feel that their employees are getting lazy, that they’re not dressed well, that they don’t follow the etiquette, that they’re not real Samsung executives, or, as they call them, ‘Samsung Men’ anymore. And most of them were, historically, men, even if it’s better now. So Samsung has been caught in this… it’s almost like a sort of schizophrenia. Samsung executives have deep disagreements over what Samsung should be right now. And they’re reaching a point where it’s unclear who exactly they are. Some of the executives are software people, some are hardware people, but they’re all doing things a bit differently from each other. I mean, they kind of do things their own way, without a unified Samsung culture behind it. And that’s important, culture is really important for companies, corporate cultures dictate a good deal of success. And it’s not just the corporate culture that you create. But it’s the consistency with that culture, you know, the consistency of ‘this is the way we do things. And this is how it’s going to happen around here. So, we’ll see what happens.’
When I say Samsung, I say innovation, that’s my honest opinion, because they are wonderful at hardware. They are wonderful at innovating and creating physical products. What are they working on now? Do you do have any gossip about new technologies or areas of development?
I agree that they are not copycats. They’re innovators in hardware. And I think that if you were to look at all the major technology giants worldwide, I think when it comes to hardware, Samsung would be the number one, or the number two, most innovative. I just say number one or number two, because, you know, sometimes other companies have been more innovative in the past, like HTC, Sony. But Samsung has quickly overtaken that number one spot. And occasionally it goes back and forth. I mean, there are some years where Samsung is no longer the most innovative, but it usually quickly recovers to that number one spot, in my opinion. And a lot of people would disagree with me and say that they do copy quite a bit. But I’m more… I’m more friendly towards Samsung’s innovation. And I do respect a lot of the engineers there because they put in long hours and they love their company so much. But, to get to your point about new products… I think that the age of the smartphone, as the centerpiece, is ending. I think smartphones are very useful devices, and they’ll always be around, but they’ve become commoditized. I’m speaking to you right now on a Google smartphone that cost $300 in the US, which is, you know, very, very cheap these days, for US, and the costs are going down. And most consumers don’t want to pay $1,000 for these new phones forever. So I think that the focus now is shifting towards the back end. And I mentioned this before, we are living through an age of unprecedented disruptions involving artificial intelligence, and artificial intelligence and cloud computing and facial recognition, voice recognition, big data. Basically, all these big software forces are coming together right now. And they’re creating an ecosystem that’s driven by AI. I think in 10 years everything we do is going to be envelopes in AI. It’s going to make recommendations to us, it’s going to tell us, you know, what to buy based on our personality, it’s going to drive our cars, it really will be everywhere, but the hardware world is far behind catching up the software world in this part, and this is why a lot of firms like Nvidia, Samsung and these firms, you know, they’re starting to develop the semiconductors that will power the hardware. These are called non memory semiconductors. We’ll see what exactly happens. It’s not totally clear who’s going to lead in this space. But I think Samsung is setting itself up to be the leader, I think that they have a leg ahead. Partly because of all the China sanctions. A lot of global companies are going to have trouble getting their semiconductors from China. So Samsung is in an excellent position, I think they have everything given to them. And they have to make use of this moment that they have right now.
Another thing they should change, in my opinion, is their acquisition strategy. I read in your book about a lot of missed opportunities, huge opportunities, for example to buy Android, to buy Waze. They really need to be more careful.
A lot of big companies have this problem. They’re big companies, they look at small firms, and they’re often quick to dismiss them, even though the startups are doing some of the most interesting work. I don’t think Samsung is alone in making these mistakes. But I think that Samsung is more prone to these mistakes, because they have such an insular culture. I mean, it’s a top down hierarchy. And when you’re in a hierarchy like this, it’s not common for you to stop and to look outside and, you know, look at who’s doing what and who matters and who the big startup is. It’s very easy to get into this psychological mindset where everybody seems like a small competitor, and you don’t have to take them seriously. I think that Samsung has improved some of its capabilities for acquisition since I wrote the book. And I’ve heard this from executives in Silicon Valley, who’ve done a lot of work acquiring companies. And I think that the most successful one since I wrote it is Harmon, a few years ago. And they’ve done a good job pairing up Harman to their products. But the only reason is that Harman is also a hardware maker. When Samsung acquires the more, you know, kind of the more cutting edge innovative software firms, AI firms, they tend not to do very well, because their culture is so disparate from the way software makers work.
People are wrongly focusing, I think, on the rivalry between Apple and Samsung, like a tech version of Coke versus Pepsi. I think that the relationship to watch is between Samsung and Google — and Android.
Yes, I think so. And I think that the Apple versus Samsung wars are finished for a number of reasons, I think that the history has been written. And one of my goals was to write that history. I might have been one of the first to actually write the full history of the Samsung versus Apple; it surprisingly had not been done as much in book format as I thought it had been. There was a closure. And smartphones are not the future. I think that everyone pretty much agrees on this by now, Apple has changed its strategy and they’re focusing more on content, they’re taking a more software driven route, whereas Samsung is trying to add some of these, you know, these unusual hardware additions to its existing hardware, like the foldable phone, or, you know, there was another one that they released, it was like a ball shaped smartphone that rolls around on the floor. It was like an AI assistant. They’re focused on these hardware innovations, whereas Apple is doing more in the direction of software. And because the Apple versus Samsung wars are finished, I do think that the future is going to be software. When I say software, I mean how Google and Samsung interact, because Samsung is the world’s biggest hardware maker. And Google is the world’s biggest software maker. So they have a natural synergy. But these two companies have always run into tensions. They’ve had cold wars tensions. It’s never blown up into a serious fight. But the tensions are over how much Samsung can alter Google software. Because Samsung wants to have its own software, different from other companies. They want to differentiate the products. I think that this is going to be a space to watch. I think that the evolving relationship between Google and Samsung might look really different in about five years from now, based on what both companies are doing, but we’ll see what happens.
I see Apple concentrating their marketing on privacy, as one of their main messages. Can Samsung understand this concept — privacy — both as a commercial strategy, and as a social need?
I don’t think that at the high levels of the company it’s something that they take seriously. This is just my own educated guess. And the reason I say this is because I have heard very little from Samsung executives in my own interviews about the importance of data privacy, data protection. Samsung has unrolled a security system called Knox… they had it for a while. There was an Israeli computer scientist at Kaspersky Labs, I think, one of the big cybersecurity firms, and he actually came out a few years ago and said that they had analysed Knox and Samsung’s security systems. They announced that it was the worst code they had ever seen, that everything they could do wrong they’ve done it wrong. I don’t think that Samsung is going to be a security leader, a data privacy leader, because I don’t think they have the software capabilities to accomplish that. I think Apple is in a better position for that. But because Samsung is a hardware firm, they’re naturally going to be weaker in cybersecurity, which is a software based area.
What was the feedback — or blowback — from the Samsung offices, after the book came out?
A few years ago, Samsung took me off their mailing list. They used to have a public relations mailing list and they would send out press releases. Samsung knew that I was writing the book and they removed me from their mailing list. They didn’t state to me that that was the reason, but I just assume that that’s the reason, that they didn’t like the work I was doing. I actually have no relation to Samsung at the moment. I think that as a journalist, and especially as an investigative journalist, that’s how it should be. I think that if I depended too much on my access it would have watered down the book, I think that I would have had to make concessions to be able to write a full book, to tell all these stories about these successes — but, in addition to that, the corruption cases and the crazy scandals. Because Korea is a country of scandals. Every year there’s another corruption scandal in the government or in its businesses. And to remove an area like that I think it would alter the very purpose of the book, which is to show… I think of it as an anthropological study. It’s anthropology, it’s culture, it’s society, it’s not just a business. But I want to show the role of this extremely influential business in the entire country. I don’t think that it would have been possible to write the book with too much access.
Geoffrey Cain: I read a lot of nonfiction, I have such a big list that I’m always going through. There’s a book that I’ve been reading recently. It’s about hurricane Katrina, that hit New Orleans, one of the worst disasters, in 2005. It’s called Katrina, a history, by Andy Horowitz. It tells the longterm story, going back 100 years, as to how a disaster like this could happen. How it disproportionally affected African-American populations, because they lived in areas that were more prone to disasters. He shows a lot of these social and political effects that go back further than only showing the disaster itself, which I find fascinating. I’m more of a big picture guy, I like to look at the context of things, and not just the event itself.
Another book I would recommend in the technology space is AI Superpowers, by Kai Fu Lee, about the race between China and the US to develop the newest artificial intelligence that would help either side. It’s quite an intensive, dramatic book.
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