How could the economic boom of Asian businesses be explained? Is there a special mantra which makes profitability on their side, no matter what? And could their rocking success be prescribed so that it would be adopted by their non-Asian counterparts? What puzzles business experts about Asian companies is their innovation. As part of the Willard W. Brown Talk Series, the AUC School of Business hosted Sung Joo Park, emeritus professor at the KAIST Business School in Seoul, and its former dean and vice president, as well as former advisor to the Korean government, who discussed the key pillars of Asian companies’ innovation taking the examples of three global companies: Samsung, Toyota, and TSMC.
The so-called Asian innovation
“Innovation is not invention,” contended Professor Sung, but rather “a new way of doing things which create value,” he added. Then, innovation is not creating something from scratch, but rather reintroducing pre-existent items anew. When it comes to global market share, Asian companies had 33.8 percent of global business in 2015. However, in 2021, the total share increased by almost 10 percent, reaching 43.2 percent, with China alone having 25percent.
But again, are there common features of Asian innovation? Definitely. According to Professor Sung, most Asian companies embrace collectivism, believing in the power of “we”, not the individual “I”. In addition, the Asian culture in general and Asian institutions—whether corporate or governmental—in particular follow the key values of the Chinese philosopher Confucius, namely education, diligence, and obedience.
Nevertheless, there must be differences which distinguish each company from another. So, what sets Samsung, for example, apart from Toyota, TSMC, or even Apple?
Founded in 1938, Samsung started as a small trading company that was specialized in food products in Daegu, Japanese Korea at that time. Developing from a food manufacturer into a conglomerate, Samsung today has more than 50+ corporations, and became a giant Interactive Device Manufacturer (IDM). Samsung’s main innovation, which explains its survival, could be traced by the development of DRAM, a less costly, single-transistor semiconductor that stores massive data.
Valuing the know-how, Samsung pours huge investments, estimated by $10 billion. The company invests heavily in human capital, funding about 5,000 PhDs on annual basis, according to Professor Sung.
When it comes to Samsung’s management style, it is marked by speed and fierce competition with concurrent companies. Intrinsic to the Korean culture, pali-pali—literally translated as ‘make it fast’—in making big decisions is crucial to Samsung, insofar that it maximizes profit. This is what Professor Sung coined as the “Grass-Cutter Strategy” holding that “the longer grass you cut, the higher revenue you will get.”
The company adopts vertical integration (a group-level innovation), a leadership model that operates by ownership management. That is to say that Samsung directly controls the various stages of production. The drawback for this approach is that “if one fails, the loss will be collective,” noted Professor Sung.
‘Jidoka’ and the Achilles’ heel
Apart from the technology-oriented strategy of Samsung, Toyota is another giant company whose expertise derives from ‘Jidoka’, or a synthesis of automation with human touch. In 1937, Toyota started as a vehicles’ manufacturer. The company made a breakthrough in 1966 by developing the Toyota Corolla, which has become the largest, best-selling automobile worldwide. Adopting the empty-shelf approach, Toyota optimizes its production chain with zero wastes.
Toyota’s production meticulously operates through Material Requirements Planning (MRP) through which the pre-production, production, and post-production phases are amply planned. Using sophisticated algorithm, notably Kanban (sign card) and Andou (alerting signboard), Toyota’s software is praised for its extreme accuracy, rigidity, and speed. This is how there is no room for its system to be replicated by other corporations.
Despite that, Professor Sung pinpointed what could be hindering the company’s further advancement. Skeptical about fully incorporating technology in its vehicles, Toyota’s reluctance is the “Achilles’ heel” that prevents it from becoming more creative, and hence boosting its competitive edge, as he implied.
The one-step-at-a-time strategy
Another model worth investigating is TSMC, which has predominated chip making since its foundation in 1987. According to Professor Sung, TSMC took a leap when it introduced for the very first time the 7-nano and 5-nano chips. TSMC, and any other chipmaker, owes Mohamed Atalla (1924-2009), an Egyptian-American engineer, a lot, insisted Professor Sung. In 1959, Atalla developed with his research team the first generation of semiconductors, revolutionizing industries henceforth.
Is TSMC a pali-pali business as Samsung? Not at all, commented Professor Sung, for it takes them 2-3 years of co-development to create each edition of chips. A fair-game believer, TSMC’s gradual strategy allowed them to gain trust among competitors. In 2022, the Company has become the largest chip producer in the world, with 55 percent of global foundry market share.
“Innovation is the key to success”
Beyond the specific approach of each of the three companies, what they have in common is the core belief in innovation. Each of these companies “has innovation embedded in its own culture,” said Professor Sung, hence demystifying the presumption that there would be a standard business model which could be emulated.
When speculating about how Egyptian corporations can profit from Asian companies, especially that Egypt and Asia are collectivist cultures, Professor Sung affirmed that only “innovation is the key to success”. He added that leadership is also an attribute for business flourishing, whether on the micro (business-level) or macro (country-level). Professor Sung concluded that when companies are in their early phases, they need guidance, but as they grow, they gradually become their own counselors.