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Hwy-Chang Moon
Dean and Professor of International Business Strategy
Graduate School of International Studies
Seoul National University
The ABCD Framework of K-Strategy
The Secret to Korea’s Success
Contents
2
1. The Janus Face of Korea’s Success
2. Review of Existing Studies on Korea’s Development
3. The Framework and Theoretical Background
- The ABCD Framework
- Existing Studies on Competitive Advantage
4. Application to the Success Cases
- Country Level: Korea’s Economy
- Firm Level: POSCO, Samsung Electronics, Hyundai Motor Company
5. Implications for Economic Development
National vs. Firm Competitiveness
3
Note: Firm Competitiveness: Average
ranking of Fortune Global 500, FT
Global 500, and Forbes Global 2000
(All are based on 2013 data);
National Competitiveness: Average
ranking of IMD, WEF, and IPS-EE
2013 reports
Fir
m C
om
peti
tiven
ess
National Competitiveness
Korea
Firm Competitiveness >
National Competitiveness
• UK
• Korea
• Italy
• Spain
National Competitiveness >
Firm Competitiveness
• Singapore
• Qatar
• Israel
Small and Medium-Sized Countries
Different Performance: Economy vs. Society and Politics
4
Three Major National Competitiveness Reports Korea’s Rankings
IMD World Competitiveness
Yearbook 2013
WEF Global Competitiveness Report
2013-2014
Sub-factors Rank
Domestic Economy 19
International Trade 14
Tech. Infrastructure 11
Scientific Infrastructure 7
Business Legislation 39
Social Framework* 42
Health and Environment 28
Management Practices* 50
Overall Ranking 20
Sub-factors Rank
Macroeconomic Environment 9
Infrastructure 11
Business Sophistication 24
Innovation 17
Institutions* 74
Goods Market Efficiency 33
Labor Market Efficiency 78
Financial Market Development 81
Overall Ranking 25
Economy
&
Business
Society
& Politics
IPS-EE National Competitiveness
Research 2013
Sub-factors Rank
Demand Size 13
Demand Quality 11
Firm Structure 14
Firm Strategy* 11
Politicians 50
Bureaucrats 22
Quality of Labor Force 26
Social Context (Entrepreneurs) 38
Overall Ranking 18
Note: 1) * represents the sub-factors including criteria related to “safety.” The figure in the parenthesis below represents Korea’s ranking.
Social Framework: personal security and private property rights (42)
Management Practices: health, safety, and environmental concerns (46)
Institutions: security such as business costs of terrorism (106), crime and violence (60), organized crime (73), reliability of police service (47)
Firm Strategy: health, safety, and environmental concerns (29)
2) The number of countries evaluated in IMD, WEF, and IPS-EE reports is 60, 148, and 62, respectively.
The Ferry Accident (April 16th, 2014): Social and Political Problem
5
Many Problems
Agility
Benchmarking
Convergence
Dedication
• Late and inefficient reaction
• No manual
• No training
• Violation of the “global standard” safety rule
• Mixed reports, mixed rescue teams
• No control tower
• Captain stayed in his cabin at the critical moment of accident
• Mission: the safety of passengers?
Human Error or System Failure?
• Speed
• Precision
• Imitation (learning)
• Global-standard
• Mixing
• Synergy-creation
• Diligence
• Goal-orientation
Economic Growth: Korea and Some Other Countries
6
1961 1971 1981 1991 2001 2011 2012 2013
Korea 91 300 1846 7,118 10,655 22,388 22,590 25,973
Kenya 95 153 406 336 404 800 943 1,073
Malaysia 287 404 1,796 2,626 3,878 10,058 10,432 10,946
Saudi Arabia - 1,122 17,544 7,846 8,760 24,116 25,136 25,163
0
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2
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3
GDP per capita (US$)
Kenya Korea Malaysia Saudi Arabia
Source: Data (1960-2012): World Bank World Development Indicators; Korea’s data for 2013: Korean Statistical Information Service; Kenya, Malaysia, and
Saudi Arabia’s data for 2013: IMF World Economic Outlook (estimation).
Korea’s Economic Growth and Industrial Upgrade
7
Imp. Substitution
Exp. Promotion
Source: Data (1960-2012): World Bank World Development Indicators; Data (2013): Korean Statistical Information Service.
OECD (1996)
WTO (1995)
Capital Market
Open
(1992)
GDP per capita (US$)
91
(1961)
1,042
(1977)
21,590
(2007)
11,468
(1995)
25,973
(2013)
Foreign Perspectives: Korean Companies Cannot Succeed?
8
• POSCO: IBRD Report
- In 1968, Korea should first develop labor-intensive industries before steel. - Korea used a part of Korea’s claims against Japan for agriculture
- In 1986, Dr. Jaffe in the general meeting of International Iron and Steel Institute (IISI) - Koreans were beyond common sense
• Samsung Electronics: Mitsubishi Report
- Five reasons to be failed - Korea’s market size, related industries, social overhead capital, company size & technology
- A few Japanese companies helped
- Semi-conductor VLSI tech from Sharp Corporation
• Hyundai Motor Company: U.S. Consumer Report
- The lowest rankings evaluated by U.S. consumers in the early 1990s - Worst! Never buy again!
- Frequently cited at comedy shows - Junk! Toy!
Contents
9
1. The Janus Face of Korea’s Success
2. Review of Existing Studies on Korea’s Development
3. The Framework and Theoretical Background
- The ABCD Framework
- Existing Studies on Competitive Advantage
4. Application to the Success Cases
- Country Level: Korea’s Economy
- Firm Level: POSCO, Samsung Electronics, Hyundai Motor Company
5. Implications for Economic Development
Existing Studies on Korea’s Development
10
Study Argument
1. Amsden (1989) • Learning existing Western technologies rather than innovation
• Efficient government intervention policy in the optimal allocation of resources
2. Song (1997)
• Outward, Industry, and Growth (OIG) strategy
• Confucian ethic as an underlying basis for development
• Land use, a family-planning program, savings and consumption behaviors
3. World Bank (1993) • Rapid physical and human capital accumulation
• Government’s market-friendly policy
4. Cho (1994)
• Abundance of good workers of high standard of literacy, discipline, and desire to grow
• Vigorous entrepreneurship
• Export-led growth strategy along with effective government development strategy
5. Toussain (2006)
• (1) government intervention, (2) US technical and financial support, (3) land reform, (4)
transition from import substitution to export promotion, (5) authoritarian planning, (6) state
control over banking sector, currency exchange, capital flows and product prices, (7) US
protection, (8) education, (9) scarcity of natural resources
6. Mason (1997) • Slower rates of population growth favored investment in education and incentives for
saving, which accelerated the economic development
7. Chang (2003)
• The internal operations of Korean business groups and their role in the Korean economy
• Financial crisis due to the failed adaptation to changing external environments by the
business groups and Korean government
8. Eichengreen, Perkins,
and Shin (2012)
• Learning and government policies for promoting economic growth
• Adaptation to the global economic environment
• Rapid shift of export structure to focus on high-growth products
• Export diversification
Th
e M
ira
cle
of
Han
Riv
er
befo
re
19
97
Fin
an
cia
l C
ris
is
Most of them focus on the economic success of Korea at the developing stage.
Conflicting Arguments between Studies
11
Export-oriented Trade Policy
Song (1997), Toussaint (2006)
Korea’s economic success was due to its
export-oriented trade polices
Amsden (1989)
The content of institutional frameworks
and the capacity to implement policies are
more important.
vs.
Industrial Policy and Structure
vs.
World Bank (1993)
The industrial policy of promoting several
targeted sectors (e.g., chemical and heavy
industries) had little apparent impact on
industrial structure.
Eichengreen, Perkins, and Shin (2012)
The industrial policy played an important
role for the transition from light to heavy
industry in the early stages of Korea’s
growth.
Previous Studies and Porter’s Diamond Model
12
Factor Conditions Demand Conditions
Related and Supporting
Industries
Firm Strategy, Structure,
and Rivalry
• Fertility: 2, 6
• Human capital: 2, 3, 4
• Savings: 2
• Land reform: 2, 5
• Scarcity of natural resources: 5
• Entrepreneurship: 4
• Growth-orientation: 2
• Openness-orientation: 2, 5, 4, 8
• Institutions: 1, 8
• Education: 5
• US technical and financial support: 5
• Protection by the US: 5
• Learning: 1
• Nurture of chaebol: 1, 7
• industry-orientation: 2
• New Confucian ethic: 2
Government
• Intervention: 1, 2, 3, 5, 8
• 5-year plan: 4, 5
1: Amsden (1989)
2: Song (1997)
3: World Bank (1993)
4: Cho (1994)
5: Toussaint (2006)
6: Mason (1997)
7: Chang (2003)
8: Eichengreen et al. (2012)
Previous studies explain subsets of the determinants of the diamond model.
“What” vs. “How” Approach
13
“What” Approach “How” Approach
Existing Studies New Study
• Superior resources
- Cheaper labor
- Higher technology
• Focus on “input” factors
• Static view
• Ex post
• Similar resources
- Similar labor cost, but HOW?
- Similar technology, but HOW?
• Focus on “process” factors
• Dynamic view
• Ex ante
Y = β0 + β1X1 + β2X2 + β3X3 + β4X4 …
• “What” Approach: X1, X2, X3, X4 …
• “How” Approach: β1, β2, β3, β4 …
As the gap in “What” factors has been narrowing, the “How” approach becomes
more important.
Contents
14
1. The Janus Face of Korea’s Success
2. Review of Existing Studies on Korea’s Development
3. The Framework and Theoretical Background
- The ABCD Framework
- Existing Studies on Competitive Advantage
4. Application to the Success Cases
- Country Level: Korea’s Economy
- Firm Level: POSCO, Samsung Electronics, Hyundai Motor Company
5. Implications for Economic Development
Agility
Benchmarking
Convergence
Dedication
The ABCD Framework
15
Speed
Precision
Imitation (Learning)
Global-standard (+α)
Mixing
Synergy-creation
Diligence
Goal-orientation
A
B
C
D
4 Factors 8 Sub-factors
The ABCD Framework: An Integration of Established and Emerging Theories
Agility
• Speed Early mover advantage Fast follower advantage
(Economies of speed)
• Precision Automation (from L-int to K-int) Process techniques with human touch
e.g., JIT, TQM, 6 sigma
Benchmarking
• Imitation [Resource-based view of the firm] Absorptive capacity
(Economies of learning)
• Global-standard Destructive innovation Incremental innovation
e.g., Kaizan, creative imitation
Convergence
• Mixing [Specialization capability]
[(Economies of scale)]
Combinative capability
(Economies of diversity)
• Synergy-creation Related diversification
(Economies of scope)
Related & Unrelated diversification
e.g., Chaebol, smartphone (platform strategy)
Dedication
• Diligence [Inspiration] Perspiration
(Economies of hard-working)
• Goal-orientation Unique positioning Continued growth after catch-up
e.g., constructed crisis, extra commitment
16
Established Theories Emerging Theories
The ABCD Framework: Theories and Cases
Agility
• Speed Early mover advantage Fast follower advantage
(Economies of speed) Automobile Industry (Ford, Toyota, Hyundai)
• Precision Automation Process techniques
e.g., JIT, TQM, 6 sigma
Benchmarking
• Imitation [Resource-based view of
the firm]
Absorptive capacity
(Economies of learning) Steel Industry (US steel, Nippon steel, POSCO)
• Global-standard Destructive innovation Incremental innovation
e.g., Kaizan, creative imitation
Convergence
• Mixing [Specialization capability]
[(Economies of scale)]
Combinative capability
(Economies of diversity) Electronics Industry (NOKIA, Apple, Samsung)
• Synergy-creation Related diversification
(Economies of scope)
Related & Unrelated diversification
e.g., Chaebol, smartphone
Dedication
• Diligence [Inspiration (West)] Perspiration (East)
(Economies of hard-working) Economic Development (WEST: US, Europe)
(EAST: Japan, Korea) • Goal-orientation Unique positioning
Continued growth after catch-up
e.g., constructed crisis, extra
commitment
17
Established Theories Emerging Theories Cases
Agility = Speed + Precision
18
Agility Established Theories Emerging Theories Cases
• Speed Early mover advantage Fast follower advantage
(Economies of speed) Automobile Industry
(Ford, Toyota, Hyundai) • Precision Automation
Process techniques
e.g., JIT, TQM, 6 sigma
• Mass production
• Not flexible in responding to the
market diversity
• Higher productivity and quality
• Appropriate in the stable market,
but not in the emerging market
• Faster catch-up with increased
precision
• Better response to foreign markets
• US: 10-year, 100,000-mile warranty
• BRICs: Locally customized
Fordism Toyotaism Hyundaism
A B C D
Benchmarking = Imitation + Global-standard
19
Benchmarking Established Theories Emerging Theories Cases
• Imitation [Resource-based view of the
firm]
Absorptive capacity
(Economies of learning) Steel Industry
(US steel, Nippon steel, POSCO)
• Global-standard Destructive innovation Incremental innovation
e.g., Kaizan, creative imitation
US Steel Nippon Steel POSCO
Dominated the world steel industry until
the 1950s
Dominated the world steel industry in
the 1980s
Became the world top company in the
1990s
• Learned from Europe
• Created hot strip mill system
• Produced a smoother sheet with
more uniform thickness
• Learned from US and Europe
• Created combined blown converter
• Increased efficiency and reduced
unit consumption of raw materials
• Learned from Japan and the West
• Created FINEX
• Increased cost efficiency and eco-
friendliness
A B C D
• Japan: The best student of the West
• Korea: The best student of Japan and the West
• Imitate, Improve, Innovate!
Convergence = Mixing + Synergy-creation
20
Convergence Established Theories Emerging Theories Cases
• Mixing [Specialization capability]
[(Economies of scale)]
Combinative capability
(Economies of diversity) Electronics Industry (NOKIA, Apple, Samsung)
• Synergy-creation Related diversification
(Economies of scope)
Unrelated diversification
e.g., Chaebol, platform strategy
Apple iPhone Samsung Galaxy Nokia Phone
• 1987: Mobira Cityman 900
• The first mobile phone
• Maintained as the largest phone
maker for 14 years (1996-2009)
• 2007: iPhone (2G)
• The first iPhone
• Phone + Internet + camera
• 2008: iPhone (3G)
• iPhone (2G) + 3G wireless
• 2010: Galaxy S
• The largest market share since 2012
• Three biggest advantages: longer
battery life, water-resistance, and
larger display
1987 2007 2010
• The first smartphone in 1996
• Research efforts fragmented and
disconnected among departments
• Designed by Apple in California,
Assembled (Made) in China
• Outsourcing (e.g., Foxconn)
• Good mix of components and
finished products
• Insourcing
A B C D
Dedication = Diligence + Goal-orientation
21
Dedication Established Theories Emerging Theories Cases
• Diligence [Inspiration (West)] Perspiration (East)
(Economies of hard-working) Economic Development
(WEST: US, Europe)
(EAST: Japan, Korea)
• Goal-orientation Unique positioning
Continued growth after catch-up
e.g., constructed crisis, extra
commitment
Krugman (1994), The Myth of Asia’s Miracle
West East
Inspiration Perspiration
Japan Korea
• Lost decade
• “Kangaroo” generation1
• 35-44 years old: 16.1%2
• Continued growth
• Still inspired for future growth
• GDP per capita of $40,000
and growth rate of 4%3
Source: Korea Daily, May 2nd, 2012; The Business Insider, January, 5th, 2010; The
Economist, November 12th, 2011
Note: 1. the adults that are economically and psychologically dependent on their
parents; 2. the percent of Kangaroo generation to the total population aged 35-44
years old in 2010; 3. President Park’s 3-year plan for Economic innovation
Source: Asian Productivity Organization (APO) Productivity Databook 2013
• USA
• Europe
• Japan
• NICs
A B C D
Per capita GDP relative to that in the USA
(GDP at constant prices per capita, using 2005 PPP)
Contents
22
1. The Janus Face of Korea’s Success
2. Review of Existing Studies on Korea’s Development
3. The Framework and Theoretical Background
- The ABCD Framework
- Existing Studies on Competitive Advantage
4. Application to the Success Cases
- Country Level: Korea’s Economy
- Firm Level: POSCO, Samsung Electronics, Hyundai Motor Company
5. Implications for Economic Development
Korea’s Economic Success: Agility
23
Korea’s Top 3 = World’s Top 3
50% of Global Market Share in Value
Speed and Precision
1970s and 1980s
• Source of competitiveness in the Middle East • Cheaper?
• Faster and harder!
• Construction export: Increase by 528 times (1973-1981)
Since 2000s
• The time needed for constructing a small new city
• Korean firms: 5-7 years
• UK, Japan and other established firms: 20-30 years
Comparative Advantage of China, Japan, and Korea
• Japan: high technology
• China: cheap labor
• Korea: efficient management (speed and precision)
Source: Kim (1988), Chosun Newspaper, 03/23/2010
Source: Daily Yomiuri Online,
http://www.yomiuri.co.jp/dy/business/T121003002935.htm
Korea’s Overseas Construction Industry Korea’s Shipbuilding Industry
Koreans learn quickly from the crisis
1997 Asian Financial Crisis
• One of the countries worst hit by the crisis
• Recovered faster than anyone expected (Park and Lee, 2002, ABDI Research paper)
2008 World Financial Crisis
• One of the countries least hit by the crisis
• Make quick economic recovery without prolonged
stagnation
(New York Times, January 6th, 2011)
A B C D
Korea’s Economic Success: Benchmarking
24
Korea’s Entertainment Industry
Industry Export Import
Value % Value %
Electric &
Electronics 2,029.3 38.2 6,496.2 58.8
Machinery 1,029.5 19.4 1,249.9 11.3
Information &
Communication 957.5 18.0 1,180.7 10.7
Construction 947.2 17.8 366.8 3.3
Chemistry 104.7 2.0 485.8 4.4
Materials 12.9 0.2 227.4 2.1
Forestry & Fishery 111.1 2.1 117.3 1.1
Textile 4.9 0.1 93.1 0.8
Others 113.7 2.1 834.8 7.6
Total 5,310.8 100.0 11,052.0 100.0
Korea’s Technology Export and Import by Industry (2013)
• Import: Imitation and learning
• Export: Technological advantage
• Import > Export
• Total value (2 times)
• Import, improve and export!
• Most industries except for construction
Source: The Ministry on Future Creation and Science (2013)
Korea’s Technology Trade
A B C D
Imitation and Global-standard
Unit: million US$
25
Korea’s Economic Success: Convergence
Korean Chaebol’s Strategy
From unrelated mixing
• Entering new businesses for profits
• Expanding the size for government help
Example: Changing Business Structure of Samsung Group
Source: Data for 1987 and 1998: Chang (2003), Data for 2012: http://www.ceoscoredaily.com/news/ article.html?no=3129
To unrelated & related synergy-creation
• Sharing resources: finance, brand, technology,
management
• Developing core areas of business
1965 1976 1987 1998 2012
Food 48.0 Textiles 28.0 Wholesale & Retail Trade 35.0 Wholesale & Retail Trade 35.0 Electronics 58.1
Textiles 40.0 Food 25.0 Finance (Insurance) 30.2 Finance (Insurance) 24.4 Finance 15.4
Insurance 12.0 Home Appliance 24.0 Home Appliance 18.3 Home Appliance 19.9 Wholesale & Trade 5.8
Insurance 18.0 Food & Leisure 4.4 Vehicles 6.3 Chemical products 5.5
Paper 3.0 Textile 3.7 Semiconductor 6.0 Transportation equipment 4.7
Construction 1.0 Vehicles 3.3 Textile 3.5 Construction and science
technology service 2.9
Construction 2.4 Other Services 1.6 System integration and
management 1.5
Semiconductor 0.8 Food & Leisure 1.1 Retails 1.3
Paper 0.5 Telecommunications 1.0
Machinery, Iron, & Steel 0.1 Minerals 1.0
Nonmetallic Minerals 0.1 Machinery, Iron, & Steel 0.4
Telecommunications 0.1 Paper 0.3
Other Services 0.1
A B C D
Mixing and Synergy-creation
Unite: %
Korea’s Economic Success: Dedication
26
Government Overcoming
Disadvantages
Creating
Advantages
Park (1963-71) • Foreign borrowing
• Low interest rates
• Growth of chaebols
• Learning from MNCs
Park (1972-79) • Long-term financing
• Saemaeul movement
• Vocational schools
• Government-run research
facilities
… … …
Kim (1993-98) • Joined WTO & OECD
• Financial reform
• Liberalizing capital market
• Developing high-technology
… … …
Lee (2008-13) • Flexible labor market
• Market-friendly polices
• Promotion of FTAs
• New engine of growth
Park (2013-18) • Reforming public sector
• Restoring principles
• Convergence of industries
• Enhancing ICT industries
The Changing Goals of Government Policies Hard Working
• Koreans work average 44.6 hours a week, the
longest working hours of the 34 OECD nations
Source: OECD website
• Korea had the most diligently implemented
economic and reformation procedures since
1997 economic crisis
Source: Economist
• Three spirits of New Village Movement (1970s):
Diligence, self-help and cooperation
Source: NVM website
The Changing Goals of Korean Companies
(Continuing Momentum)
• POSCO
“Turn Right” Spirit: Failure is not an option
• Samsung
Changing Target of Rivals: Continuing Challenges
• Hyundai
Constructed Crisis: Grow or Die Source: Institute of International Education website
Number of
Students % of Total
Per million
population
China 194,029 25.4 144
India 100,270 13.1 81
Korea 72,295 9.5 1446
Hard Learning
Studying in America: Top 3 Countries, 2011-2012
Diligence and Goal-orientation
A B C D
27
The ABCD Framework at Work: POSCO
Six Sigma for Precision and Quality Conventional 6 Sigma
• Defect-free rate: 99.99966% of the products
• A set of techniques and tools for process improvement
and quality management
POSCO New 6 Sigma
• “Total Solution” by engaging all employees and solving all
problems with precision
The Success of POSCO: Agility
28
Performance of Process Innovation (PI)
Source: POSCO ICT (Engineering and IT Company)
Items Before PI After PI
Delivery time 30 days 14 days
Establishing sales/
production plans 60 days 25 days
Monthly closing time 6 days 1 day
Budgeting 110 days 30 days
Standard costing
accounting period 15 days 3 days
Corporate Systems for Speed (1998-2001)
• Enterprise Resource Planning (ERP)
• Supply Channel Planner (SCP)
Speed of Construction Process (Pohang Works)
• Completed the plants much ahead of schedule
• 23 out of 26 facilities completed earlier than the
plan by more than 12 months
Source: POSCO Company Website
Speed and Precision
A B C D
Precision of Construction Quality When the primary construction of the steel plant was well
underway, CEO Park discovered a problem; immediately
stopped the construction; exploded the concreted structure;
and ordered to redo it.
The Success of POSCO: Benchmarking
29
Source: World Steel Association, www.worldsteel.org
0
10
20
30
40
500
10
20
30
40
POSCO 조강생산량 신일본제철 조강생산량 POSCO 순위 신일본제철 순위
Rank Mil. Metric Tons
Nippon Steel Production POSCO Production POSCO Ranking Nippon Steel Ranking
• 1970s: Acquired standardized technologies mainly
through cooperation with Japan
• 1980s: Conducted own R&D activities to catch up
advanced technologies
From Blast Furnace Learned from Japan to FINEX Technology
• FINEX technology: Next generation iron making technology
• Reduced operating costs, preliminary process, and environmental harm
• Exported to other countries (e.g., China)
- Imitate, Improve, Innovate, Export
Steel Industry
Imitation and Global-standard
A B C D
Mix for convenience
• Located everything near the port to minimize the
logistics costs
• Placed the entire production process in one building to
efficiently connect different functions
• Entered other industries, including new energy and new
materials (so, weaker financial performance)
The Success of POSCO: Convergence
30
Synergy with POSCO family companies • Steel, E&C, Trade, ICT, Energy, Material-Chemistry,
and so on
• Synergy creation among the family companies in
building the steel works in Indonesia
Integration across company • Mega-Y: Coordination between large scale plants
(e.g., Pohang Works and Gwangyang works)
• Big-Y: Coordination between divisions in the same
plant
• Small-Y: Coordination within a single process or
department
Mega-Y (Plant)
Big-Y (Division)
Big-Y (Division)
Small-Y (Team)
Small-Y (Team)
Small-Y (Team)
Small-Y (Team)
Small-Y (Team)
Small-Y (Team)
Mixing and Synergy-creation
A B C D
Mix with foreign experience
• Sent workers for overseas training
• Held seminars to share their experience and
knowledge with other workers
Mix with the market
• Established “The Steel Solution Center (2014)” to
integrate marketing strategy into POSCO’s latest
technology
The Success of POSCO: Dedication
31
• The strong goal-orientation motivated CEO Park
and his employees to be committed to the work
and sacrifice personal time.
• “Turn right and jump into the East Sea, if we fail in
the construction of the steel mill.”
The Soul of POSCO: “Right Turn Spirit”
(Failure is not an option)
Executives
Top Management
Team (TMT)
General
Employees
Saturday Study Weekly
Leadership School
Monthly + Semiannual
Learning Sessions
Lifelong Study Rotational
• The company was built with the fund from the war
compensation paid by Japan.
• CEO Park spent most of his time with the workers
on site. He immediately stopped all leisure
activities and hobbies to focus on his work in the
steel plant.
Diligence and Goal-orientation
A B C D
Learning inside POSCO for different needs
32
The ABCD Framework at Work: Samsung Electronics
The Success of Samsung Electronics: Agility
33
New Management (1993)
• Frankfurt Declaration in 1993
“Change everything except your wife and children!”
• At the gathering of about 200 executives in Frankfurt
after two months of traveling around the U.S.,
Europe and Japan to experience the top quality
products Mach Management (2014)
• In 1995, CEO Lee and 2,000 employees watched a
pile of 150,000 phones and fax machines being
destructed to signify the change for “good quality.”
• 90% of Samsung products are produced within
Samsung’s own production facilities to ensure
quality.
Characteristics of Samsung's Management
• Speed management
• Timing management
• Talent management
• Mach Speed
Speed faster than the speed of sound
• Mach Management
• Relentless efforts and changes to break one
barrier after another
• Speed beyond that of early Samsung: Change
in every specific unit of business
(i.e., engine, design, parts, materials)
Speed and Precision
A B C D
The Success of Samsung Electronics: Benchmarking
34
0
2
4
6
8
10
12
14
16
18
삼성전자 Intel Corp. Texas Instruments Toshiba SemiconductorSamsung
Electronics
Rank Semiconductor Industry
Imitation Global-standard
Source: Gartner Dataquest Corp. (1987~1999), iSuppli Corp. (2000~2011)
• Samsung semiconductor: Japan, US + α
• Samsung TV: Sony + α
• Samsung Mobile: Motorola, Nokia, Apple + α
Samsung has started off and grown by learning and
imitating Japanese firms… This year, it should make
more money than the top 15 Japanese electronics
groups combined
- Financial Times, 2010/2/25
Accumulated Technologies
Imitation and Global-standard
A B C D
(Improve & Innovate)
The Success of Samsung Electronics: Convergence
(Early Stage of Development)
Sugar
Apparel
Electronic &
Semiconductor
Industries
(Mature Stage of Development)
Electronic &
Semiconductor
Industries
Electronics, IT and Mobile,
Semiconductors,
Display Panels
• Richer product
line-up
• Vertically
integrated
supply structure
Mixing and Synergy-creation
A B C D
The Success of Samsung Electronics: Dedication
36
Working Hard
• Samsung employees are actually working
themselves to the bone in the race to beat Apple ...
• Samsung designers worked 22 hours a day while
working on Galaxy S smartphone.
Source: The Huffington Post, 2012, The Verge 2012
Source: The New York Times, 2012, “After Verdict, Assessing the Samsung
Strategy in South Korea,” September 2nd.
Rivals in the Competition
1st Stage Sony
2nd Stage Nokia
3rd Stage Apple
“We need heightened sense of crisis”
– Lee Kun Hee (1997)
• Notices and responds to market change fast, before
crisis turns into disaster
• Continues its investment despite some heavy losses
during the first several years
Results?
• Over 1600 patents each year, the industry’s lowest
costs, highest profits, and weekly announcements of
“world’s first” or “world’s best”
Diligence and Goal-orientation
A B C D
Learning More
• Maximized personal/organizational competitiveness
through training the best specialists in different
sectors
• Established an in-company educational system to
customize different needs for different positions of
workers, managers, executives and overseas
employees.
Samsung’s Crisis Culture
37
The ABCD Framework at Work: Hyundai Motor Company
The Success of Hyundai Motor Company: Agility
38
• Rapid and hands-on decision making by CEO
• 10 year, 100,000-mile warranty: Snap decision by
CEO Jung within a day
• On-site visibility of management team for speedier
decision making
• Record of producing 1 million cars in the shortest
time in Beijing, China
Source: Hyundai Motor Company Website
• Quality Management
“Lose Quality, Lose Everything”
• New quality division to intervene in any stage of
design, engineering or production
• Qualativity: quality + productivity
• 10-year, 100,000-mile warranty to ensure quality
• Internationally renowned designers
• Global Command and Control Center (Ulsan)
• Monitoring every global plant for 24 hours
• Preventing accidents and mistakes for quality
Toyota Consistency
Honda Innovation
Hyundai Speed
Philosophy
Source: CNN News (2010). Hyundai smokes the competition
J.D. Power Awards for Quality (2004)
Command and Control Center
Book written by Don Southerton (2014)
Speed and Precision
A B C D
• Hyundai learned quickly from its mistakes
• Did not waste a crisis, wasted no time in finger-
pointing and kept its vow to do better
Source: The Washington Post, 2012
The Success of Hyundai Motor Company: Benchmarking
39
• Japan: engine block design, transmissions,
rear axles
• UK: factory construction, layout, internal
combustion engines
• Italy: car designs
Reverse Engineering
• Dissembled all parts from cars of the industry leaders
• Learned and adopted the best practices of the leaders
Ford
Production
Models
Mitsubishi
Operation
Engines
Learning Different Things (1968 – 1980s) Import, Improve and Export
• 1990: Used Mitsubishi engine
• 1991: First Korean-developed engine (Alpha)
• 1997: First independently developed engine (Epsilon)
• 1998: First world-class engine (V6 Delta)
• 2000: First diesel and large commercial engine
• 2006: First world-class diesel V6 S-engine
Becoming World’s Best Engine
• 2008-2010: Ward’s Auto 10 Best Engine (Tau)
• 2011: Ward’s Auto 10 Best Engine (Gamma)
New Leader in Engine
Imitation and Global Standard
A B C D
The Success of Hyundai Motor Company: Convergence
40
Hybrid Production System (HPS)
Combination of Fordism and Toyotaism
Fordism
(Mass Production)
Toyotaism
(Lean Production)
Models Selected models and
mass production
Many models and small
production
System Push Pull
Inventory Asset (Just-in-case) Debt (Just-in-Time)
Space Large lot Small lot
Process Specialization Flexibility
Worker Automation (Mechanic) Automation with human
touch
Source: Kim et al. (2009)
Hyundai Group
Mixing and Synergy-creation
A B C D
When building an embankment at Sosan in 1984, the current
was too strong to be blocked. CEO Chung then solved this
problem by sinking an old ship down the sea to suspend the
fast current from obstructing the construction.
Hyundai Construction
& Civil Engineering
Company (1947)
Hyundai Motor
Company
(1968)
Hyundai Heavy
Industries
(1974)
The Success of Hyundai Motor Company: Dedication
41
• In the beginning, Hyundai was less skilled and
experienced compared to Japanese workers.
• So, they worked harder than their Japanese
counterparts to improve quality and productivity.
Hard Working
• Mabuk Campus was established in 2012 to provide
a variety of educational programs with a university
concept but with more focused and customized.
Hard Learning
Constructed Crisis at Hyundai Motor Company
Goal 1
Develop
“Korean” cars
Goal 2
Go global
Goal 3
Become
Top 10
Mabuk Campus:
Hyundai Motor Group
University, the headquarters
of training Hyundai people in
the group
Diligence and Goal-orientation
A B C D
Result 1
Hyundai’s own
technology and
model
Result 2
Global standard
and global
expansion
Result 3
Global Top 5
since 2010
Hyundai’s Goal-setting and Results
Contents
42
1. Korea’s Success Story
2. Review of Existing Studies on Korea’s Development
3. The Framework and Theoretical Background
- The ABCD Framework
- Existing Studies on Competitive Advantage
4. Application to the Success Cases
- Country Level: Korea’s Economy
- Firm Level: POSCO, Samsung Electronics, Hyundai Motor Company
5. Implications for Economic Development
Implications for Economic Development
43
Dedication
Speed
Imitation (Learning)
Mixing
Agility
Benchmarking
Convergence
Less Developed Stage
Precision
Global-standard
Synergy-creation
More Developed Stage
Diligence Goal-orientation
• The ABCD framework is not exclusive for Korea, and can be applied to other countries.
• The usefulness of ABCD Framework
1) To suggest Korea for further development
2) To help other countries for efficient and sustainable development
3) To apply at various units of analysis: country, industry, firm and individual level
4) To apply at various areas: economy, society and politics
• Different stages of economic development need different development strategies.
References
44
Amsden, A.H. (1989). Asia’s Next Giant: South Korea and Late Industrialization. New York and Oxford: Oxford University Press.
Chang, S. J. (2003). Financial Crisis and Transformation of Korean Business Groups: The Rise and Fall of Chaebols. Cambridge:
Cambridge University Press.
Cho, S. (1994). The Dynamics of Korean Economic Development. Washington, D.C.: Institute for International Economics.
Cho, D.S. and Moon, H.C. (2013A). From Adam Smith to Michael Porter (Extended Edition). Singapore: World Scientific Publishing
Co.
Cho, D.S. and Moon, H.C. (2013B). International Review of National Competitiveness. Cheltenham and Northampton: Edward Elgar
Publishing Ltd.
Eichengreen, B., Perkins, D.H., and Shin, K. (2012). From Miracle to Maturity: The Growth of the Korean Economy. Cambridge, MA:
Harvard University Asia Center.
Kim, H.C. et al. (2009). Toyota DNA (in Korean). Seoul: Jongang Books.
Kim, S. (1988). The Korean Construction Industry as an Explorer of Services. The World Bank Economic Review, 2(2): 225-238.
Lee, O.F., Tan, J. A., and Javalgi, R. (2010). Goal Orientation and Organizational Commitment: Individual Difference Predictors of
Job Performance. International Journal of Organizational Analysis, 18(1): 129-150.
Moon, H.C. (2010). Global Business Strategy: Asian Perspective. Singapore: World Scientific Publishing Co.
Moon, H.C. (2012). K-Strategy: Korea’s Growth Strategy Model (in Korean). Seoul: Mirae Chang Publishing Co.
Moon, H.C., Parc, J., Yim, S.H., and Park, N. (2011). An Extension of Porter and Kramer’s Creating Shared Value (CSV):
Reorienting Strategies and Seeking International Cooperation. Journal of International and Area Studies, 18(2):49-64.
Moon, H.C., Parc, J., and Yin, W.Y. (2012). Types of Nation’s Operating System and a New Economic Development Model: A Case
Study of Korea’s Economic Development. Review of International Area Studies, 21(2): 1-30. (in Korean)
Moon, H.C., Rugman, A.M., and Verbeke, A. (1998). A Generalized Double Diamond Approach to the Global Competitiveness of
Korea and Singapore. International Business Review, 7(2):135-150.
Park, Y.C. and Lee, J.W. (2002). Financial Crisis and Recovery Pattern of Adjustment in East Asia, 1996-1999. Asian Development
Bank Institute Research Paper Series, No. 45.
Song, B.N. (1997). The Rise of the Korean Economy (2nd ed.). Hong Kong: Oxford University Press.-to-order. MIT Press, Cambridge
Toussaint, E. (2006). South Korea: The Miracle Unmasked. Economic and Political Weekly, 41(39): 4211-4219.
World Bank. (1993). The East Asian Miracle: Economic Growth and Public Policy, Policy Research Report. Washington D. C.: The
World Bank.
45
Appendix
Firm vs. National Competitiveness
46
Fir
m C
om
pe
titi
ve
nes
s
National Competitiveness Fir
m C
om
pe
titi
ve
nes
s
National Competitiveness
Small and Medium-
Sized Countries
Large Countries
Note: Firm Competitiveness: Average ranking of Fortune Global 500,
FT 500, and Forbes Global 2000; National Competitiveness: Average
ranking of IMD, WEF, and IPS-EE 2013 Reports
Group A Firm Competitiveness >
National Competitiveness
Group B National Competitiveness >
Firm Competitiveness
Group A
Group A
Group B
R&D Expenditure
47 Source: Wall Street Journal, July 18, 2012, http://online.wsj.com/news/articles/SB10001424052702304388004577531002591315494
• Nokia is losing ground despite spending $40 billion on research and development over the past decade—
nearly four times what Apple spent in the same period
• And Nokia clearly saw where the industry it dominated was heading. But its research effort was
fragmented by internal rivalries and disconnected from the operations that actually brought phones to
market.
Apple iPhone 5s vs. Samsung Galaxy S5
48
iPhone 5s Galaxy S5 Winner
SIZE AND WEIGHT
- Dimension 112g 145g Apple
- Materials anodised aluminum dimpled soft-touch plastic Apple
SCREEN
- Screen size 4in display 5.1in screen Samsung
- Resolution 1,136x640 1,920x1,080 Samsung
- Screen technology LCD technology AMOLED Samsung
PERFORMANCE
- Processor dual-core processor Snapdragon 801 processor Apple
- Graphics Power VR G6430 GPU Adreno 330 GPU Samsung
- Memory 1GB of RAM 2GB of RAM Samsung
- Storage 16GB, 32GB and 64GB 16GB and 32GB, micro SD card
(128GB) Samsung ?
- Battery 14h 31m 17 hours 30 minutes
CAMERA 8-megapixel, back side illuminated
(BSI) rear camera sensor 1/2.6in sensor Samsung
FEATURES Touch ID sensor fingerprint sensor, heart rate sensor,
water- and dust-resistant Samsung
SOFTWARE iOS operating system Android ?
4G and Wi-Fi all major 2G, 3G and 4G LTE
frequency bands
+ LTE Category 4 and LTE-Advanced
modes Samsung
http://www.expertreviews.co.uk/smartphones/1306720/samsung-galaxy-s5-vs-apple-iphone-5s