[Opinion] Growth Engines of Samsung Electronics

The capital productivity of the Korean semiconductor industry is half that of the U.S. because memory chips, which have short life cycles as they are easy to manufacture, account for 80 percent of its industry, according to the McKinsey Global Institute

The institute, the think tank of McKinsey, a management consulting firm, identified the productivity loss of the Korean semiconductor industry in the book, “The Power of Productivity,” published in 2004 and based on years of research on the economies of 13 nations. Recognizing the limitations of memory chips, Intel withdrew from the memory chip business long ago. Intel has been generating unrivaled added-value by developing new microprocessors, the brains of computers, one after another.

The first quarter performance of Samsung Electronics’ semiconductor division was shocking. The operating profit ratio of the division plummeted to 12 percent, the lowest in four years. There are even rumors of a major restructuring in Samsung Electronics as the semiconductor sector, the company’s key business, failed to sustain its growth momentum. Samsung Group yesterday announced the “Measures to Boost Competitiveness,” instructing its affiliates to find new growth engines that will enable the Group to increase its profits in the next five to ten years. Improving memory capacities is not the ultimate solution, either. It must produce innovative products that will shake the world such as the Sony Walkman and Apple iPod.

Samsung Chairman Lee Kun-hee recently expressed the importance of crisis awareness, saying, “Our educational system has problems. We must produce more geniuses.” Korean companies are discontent with the performance of universities’ engineering education, according to a survey conducted by the Department of Engineering at Yonsei University. Businesses gave failing marks on 13 out of 14 categories with regard to the performance of tertiary engineering education, saying engineering graduates not only lack knowledge in their major, but are also deficient of creativity, a can-do attitude, and communication skills. Some even say that the quality of human resources is worse than that of ten years ago, despite the presence of the Accreditation Board for Engineering Education of Korea, introduced eight years ago.

However, there is a ray of hope for Samsung Electronics, which has virtually placed itself on emergency footing in fear of a potential crisis. Engineering professors, who have graded themselves 97 out of 100 after producing graduates who receive failing marks by businesses, or the President Roh Moo-hyun, who one-sidedly emphasizes the equality of education rather than its competitiveness, do not seem to be aware of how serious the situation is. We must thank the companies which are struggling to maintain their competitive edge in the midst of educational and political turmoil, which goes against the current of the times.

Kim Sun-deok, Editorial Writer, yuri@donga.com