Samsung C&T, the construction and trading arm of Samsung Group, is experiencing a decline in its prestige among the Group’s affiliates due to rapid changes in the global business environment and steadily becoming a burden to the conglomerate.
According to industry sources, the group’s top management, in the long run, is seeking to redefine the role and function of Samsung C&T headed by CEO Jung Yeon-joo.
To this end, it recently decided to transfer a significant number of the firm’s experienced personnel to better performing affiliates, as the company weakens in its function.
They believe many of the company’s businesses overlap with those of sister companies. At the same time, others are becoming big enough to make their own distribution, investment and trading decisions.
Samsung C&T is the original company of the group, formed by the conglomerate’s founder and first chairman Lee Byung-chull in 1938, and is viewed among Samsung insiders as the embodiment of the conglomerate’s business spirit.
It chalked up several successes for its sister firms in the areas of distribution and supplying them with raw materials during the heyday of Korean industrial growth from the pre-war era until the late twentieth century.
However, other affiliates have grown in size, especially Samsung Electronics, and globalization gave them alternative traders to seek as suppliers besides Samsung C&T.
“Other affiliates used to rely on Samsung C&T for distribution, investment and supply,” said a company official, declining to be named due to the sensitivity of the issue. “But the world’s business environment has changed. The rapid globalization of the past 20 years means that other affiliates have more options, more bidders to choose from and easier access to a variety of markets without help.”
Though ultimately under the supervision of the group, each affiliate now has greater autonomy, thereby inevitably choosing the best options for business moves, added the official, saying sometimes that the most return and profit doesn’t come from choosing Samsung C&T.
“Samsung Group is structured in a way that other affiliates contribute to each other as a guaranteed buyer or supplier, and everyone sees the black,” said an executive of a local parts supplier to Samsung Techwin, the weapons technology affiliate of the group. Sometimes they sacrifice profits for the sake of the group, he said, which is becoming more burdensome by the day.
The trading arm, mired by difficulties, merged with Samsung Construction in 1995, as part of the group’s plan to diversify the company’s portfolio amid the changing business environment and make it the de facto leader of its backbone businesses.
The construction arm, renamed Engineering and Construction, has been going global and winning orders abroad in the Middle East in recent years. However, it has been unfavorably compared to its affiliate within the group, Samsung Engineering, also an engineering and construction firm.
According to Engineering News-Record, a U.S. construction magazine, Samsung Engineering ranked 15th in its top international contractors segment last year, while Samsung C&T was way below at 63.
Both are heavy players in plant making, though Engineering focuses more on thermal energy while C&T invests in environmental and clean energies.
Nonetheless, Engineering is a late- comer to the Samsung outfit; it was acquired in 1978. “It’s somewhat embarrassing for Samsung C&T to be compared unfavorably with its affiliate, having played an imperative role for the group throughout its history,” said a local contractor.
Officials say due to the circumstances, the group will reshuffle some workers from Samsung C&T to other affiliates to give adequate support to those with tangible growth drive.
In the long-term, Samsung’s best plan is to create synergy among Samsung C&T, Samsung Engineering and other core businesses - Samsung Techwin, Samsung Heavy Industries, and to some degree, Samsung SDS, an information technology service provider. “These firms working together will create a new growth engine that the group is desperately looking for - clean energy plants will be a key result of their cooperation,” said the contractor.
There have been rumors of a merger between Samsung Engineering and Samsung C&T for faster decision making and efficiency, though market watchers believe this is unlikely anytime soon.