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China’s fall from grace and the Samsung scandal

By Dominique Numakura

In an earlier piece, I wrote about turmoil at the executive-level for the Samsung Group. The chairperson and his son announced their resignations effective April 22nd (the day before the 2008 KPCA Show in Seoul) shouldering the blame for political and financial scandals within the company.

There were many conversations amid speculation about the scandal during the show; however, representatives from the Samsung Group remained reticent.

Many people within the industry were not so reluctant or restrained to comment on the situation, and felt this latest bulletin was just the tip of the iceberg. Most of us expect a restructuring within the Samsung Group in the near future, and possibly more heads will roll as more facts about the scandal come to light.

Following the exhibition, the Japanese and Korean media provided more details. The public prosecutor’s office reported that more than four billion U.S. dollars were illegally funneled for personal and political gain.

More than fifty people from Samsung’s management team were indicted without arrests. One newspaper reported several attorneys; citizens, and members from Catholic churches condemned this, viewing it as a political deal between the government and the economic giant in Korea.

Unfortunately, dirty dealings inside Far East countries including Japan, Korea, Taiwan and China are commonplace. Many view bribes and ‘entertainment’ as the cost of doing business with some governments or public organizations.

This was especially true many years ago in Japan. The business climate has improved over the last twenty years relative to ‘greasing one’s palms’, especially within the consumer or electronics industries where margins are so tight, and international competition is so abundant there is not enough profitability to create a slush fund earmarked for politicians or government officials on the take. Many Japanese citizens remain skeptical about things being transparent, or not, and still believe bribes are paid at construction or government projects; especially when the tax consequences from these projects reach lucrative levels.

Personally, the Samsung scandal caught me off guard. I perceived their management team as having the highest standards in the industry.

Several years ago, I had a face to face meeting with a technical auditor for vendors from Samsung. Once the audit meeting concluded, I invited him to have a dinner but he refused, explaining it was Samsung’s policy that employees cannot accept any thing of value from their business associates, including golf outings, dinner engagements, or other goods that could compromise their business ethics.

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He was proud of Samsung and compared the Company’s character qualities to other Korean companies who were not so highly respected. I was impressed and believed Samsung did maintain high standards. Unfortunately, many employees as well as I feel victimized from the unscrupulous behavior of Samsung’s executives.

The Korean electronics industry has evolved over the last twenty years, and is now a significant player in the global electronics market. In my opinion, Korean companies must maintain a high level of integrity to continue their climb and become global business leaders.

I have had some bad experiences with other Korean companies, and Samsung remains one of the better companies for which to have a business association with.

I have consulted to various Chinese companies, and have advised them to learn from the mistakes of companies from Japan and Korea and not let history repeat it’s self. Many Chinese companies agree with my logic, but do not really listen to what I say. Unfortunately, many of these Chinese companies are headed down the same rocky road as their Korean and Japanese peers did many years ago, but, the situation looks far worse in China.

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