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Case 31 Teaching Note Samsung’s Environmental Responsibility
662
Opposing viewpoints
Members of the Samsung Accountability Campaign countered that the company operated “with impunity”
and called it “one of the most corrupt operations on the planet.” Dr. Kong of the Korea Institute of Labor
3. Evaluate the key environmental strategy implementation efforts at Samsung since the
roll-out of its “Eco-Management Initiative 2013” in 2009. Has management allocated
suffcient resources to the sustainability effort? Exercised strong leadership? Instituted
polices and procedures that facilitate good execution of sustainability? Explain.
Students who have read Chapter 9 carefully will note that socially responsible business behavior can help
avoid or preempt legal and regulatory actions that could prove costly and otherwise burdensome. In some
Students are likely to debate hotly whether or not Samsung is a socially responsible corporation, or just
pays lip service to CSR — that is, complies with but does not go beyond regulatory requirements and legal
The corporation appears to be operating honorably and ethically, although no formal code of ethics is
mentioned in the case.
It is unquestionable that Samsung has at least been proactive on the CSR front. The company launched
(in 2009) an environmental sustainability initiative, implemented many policies since that launch, created
There is not sufficient information in the case, however, to evaluate Samsung’s commitment to workforce
diversity, enhancing employee well-being, or philanthropy.
The case states that, “Samsung displayed all the qualities expected of a leader. It was a leader in digital
technology, had ethical business practices, a wide range of companies and above all displayed global
citizenship.” Yet, compared to the global companies such as Microsoft Corporation, Intel, Apple Inc, AT&T,
and many other leading electronics companies that were focused on environmental issues in their corporate
Case 31 Teaching Note Samsung’s Environmental Responsibility
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TABLE 1. Samsung’s Sustainability vs. Leading Electronics Companies
Company Investment focus/$
committed
Environmental goals
attained
Known benefits
Apple Amounts unknown
R&D into lighter, thinner
products
Commute Alternatives
program
Fewer CO and Co2
emissions
Global recycling by 70%
Reduced use of single-
occupancy vehicles by
commuters
Avoided cost of new materials by
using recycled plastics, paper,
biopolymers, and soy-based inks
device 85%
Increased use of recycled
plastic by 2.26%
Based on data in case Exhibits 1 and 5 and case data.
According to case Exhibit 3, Samsung is ranked #7 in the November 2012 Greenpeace list of “greenest”
electronics companies with a score of 4.2/10 (and rising in the ranks), so even though Samsung does not rise
4. What grade would you give to Samsung for its efforts to become a socially responsible,
environmentally sustainable corporation?
Samsung’s Grade and Justification
Samsung has evidently had mixed success to date as a socially responsible corporation. While some students
might award it an “Incomplete” grade as there is no information on at least two of the five activities of
socially responsible corporations listed in Chapter 9, we would award Samsung a “B+” grade based on its
sustainability plan, achievements to date, rising ratings by outside organizations, and long-term aspirations.
Samsung has achieved some good results thus far in using sustainable management, at least for the three of the
Case 31 Teaching Note Samsung’s Environmental Responsibility
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Thus, we believe that Samsung deserves the B+ grade as it has taken special pains to protect the environment
(beyond what is required by law), is moderately active in community affairs, and is on the way to becoming
a generous supporter of charitable causes and projects that benefit society. It is more likely than most
5. What recommendations would you make to Samsung management to increase its triple
bottom-line performance? Provide a justification for these recommendations.
The triple bottom line refers to company performance in three realms: economic, social, and environmental,
as discussed at length in Chapter 9. Among the triple bottom line strategies that Samsung should consider in
the future, it should make it a priority to undertake the following:
Actions for protecting and sustaining the environment
Actions to enhance employee well-being and make the company a great place to work
Actions to ensure the company operates honorably and ethically
Case 31 Teaching Note Samsung’s Environmental Responsibility
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Actions to ensure the company operates profitably (in terms of the overall value that Samsung creates and
the over-all costs that it imposes on society)
Wrapping up the class: remind students that CSR and environmental sustainability strategies can provide
both valuable social benefits and fulfill customer needs in a superior fashion — and lead to competitive
advantage for a company.
Corporate social agendas that address only social issues may help boost a company’s reputation for corporate
citizenship — but are unlikely to improve its competitive strength in the marketplace. The goal of a triple
bottom line measurement is for a company to succeed simultaneously in all three dimensions. The Dow
Jones World Sustainability Index has been created to evaluate companies in these three performance areas,
Epilogue
Sustaining, Sliding by, or Slipping?
In a July 1, 2014 assessment of Samsung’s 2014 Sustainability Report in an on-line magazine The Verge, author
Vlad Savov noted that,
Samsung wants to be recognized as one of the world’s top 10 places to work. That’s a core goal of the Korean
company’s Vision 2020 plan for the future, but to get there it’ll have to do a lot to correct working practices at the
manufacturing plants where its goods are made. As part of its 2014 Sustainability Report, Samsung commissioned
independent inspections at 100 of its suppliers in China and the results make for grim reading.
According to Mr. Savov, the majority of suppliers had not complied with China’s legally permitted overtime
hours, half had workers under 18 handling potentially hazardous chemicals, and a third failed to provide proper
social insurance for their employees. Of the inspected sites, 59 lacked adequate safety equipment or appropriate
monitoring, three suppliers exceeded permissive environmental limits for dust or noise levels, and 33 failed to
properly manage sewage and waste disposal.
For its part, Samsung had consistently mandated and requested better operational practices from its suppliers
and also aided them directly with the provision of basic training and equipment like fire extinguishers and
evacuation maps. Furthermore, since July 2013 Samsung had rectified 1,934 work-hazard issues identified in
its production plants by the Korean Ministry of Labor and another nine that were pinpointed by the Ministry
of Environment. As of July 2014, Samsung had hired 2,000 inspectors that oversaw work operations, including
dangerous chemicals specialists and a dedicated leak-response unit.
Mr. Savov commented:
It’s also encouraging to see that none of the inspected suppliers were shown to be employing underage
workers, although Samsung’s typical response to improper practices leaves something to be desired.
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Even the company’s zero-tolerance policy against illegal working conditions is subject to giving
suppliers a chance to rectify their issues before enforcing the threat of ceasing business with them. Of
course, Samsung is hardly alone in having to overcome the conflict of producing goods cheaply without
sacrificing worker welfare, but with over $220 billion in sales during 2013, it has the size and influence
to bring about real change.
Company CEO Oh-Hyun Kwon introduced the Sustainability Report by saying that Samsung will use it as a
compass for guiding its future endeavors. The previous iterations of the report identified similar issues and the
expanded inspections and oversight from Samsung are at least a step in the right direction. This offers some
hope that solving the problems identified by the report, and also highlighted by labor issues in other regions like
Brazil, will be a priority for the otherwise thriving Korean chaebol.
On July 1, 2014, Ming-Jon Lee blogged in the on-line Wall Street Journal:
Samsung Electronics Co.’s latest sustainability report, published Monday, is a rare look inside the
operations of the company. Among the takeaways: Samsung is still struggling with poor labor conditions
at its Chinese suppliers.
A third-party audit of 100 of Samsung’s suppliers in China last year showed that 59 failed to provide
sufficient safety equipment, like earplugs and protective goggles, or did not monitor workers to ensure
they were using such equipment, according to the report.
The report lists a series of other problems found by the audit, including issues related to wages and
benefits and emergency preparedness. The audit also found that a majority of the suppliers do not
comply with China’s legally permitted overtime hours. Samsung said it has demanded its suppliers
address all the violations found by the report.
The results follow a vow made by Samsung in 2012 that it would address unfair labor practices at its
Chinese suppliers, including overwork and denial of basic labor rights. On multiple occasions, the
company has been accused by New York-based non-profit organization China Labor Watch of
malpractice at some factories that do work for Samsung.
In a separate statement on Tuesday, Samsung said: “We have adopted a multi-year, multifaceted supplier
management plan since 2012 to address the findings of internal and independent audits of Samsung
supplier companies in China.”
“If any suppliers are found to have not made progress, Samsung will constantly call for corrective
actions to ensure the issue is resolved in the shortest time possible,” it said.
Maintaining a safe and fair working environment for its staff and those of its suppliers around the globe
has been a growing challenge for the world’s largest maker of smartphones, TVs and memory-chips.
The company has come under scrutiny over related issues not only in China but also in Brazil and at
home in South Korea.
Analysts More Bullish Long-Term
In September 2014, industry analysts from Morgan Stanley forecasted: Samsung’s mobile Operating Profits
(OP) will fall 31% QoQ (Quarter over Quarter) in 3Q14. Smartphone shipments should rebound by 15% QoQ
to 85M units from 74M units, post previous quarter’s inventory correction for mid-range to low-end shipments.
However, margins continue to suffer in the quarter for three reasons: 1) ASP (Application-Specific Processors)
or semiconductor shipment declines are sharper and likely down 15-18% QoQ; 2) marketing costs are rising due
to competition; and 3) product mix is shifting lower with high-end smartphone mix falling near 30% of total
shipment in 3Q vs. 40% in 2Q. 4Q14 should improve on mix, as we expect Galaxy Note 4 and Alpha shipments
beginning October 2014 to reach 8M and 3M units, respectively. The company is focused on refreshing design
and specs to defend its mid-end markets but probably needs to wait another quarter to see if profits can improve
meaningfully along with market share.
Case 31 Teaching Note Samsung’s Environmental Responsibility
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The deployment of Galaxy Note 4 in October should provide upside to Samsung’s 4Q product mix. We expect
the Note 4 to ship around 8mn units in 4Q14, with a focus on new product refresh to defend its mid-end position
late in the quarter. Stronger TV seasonality and higher ASP shipments should drive a Consumer Electronics (CE)
recovery and double-digit growth in TV shipments for the year. Samsung is also improving its internal processes
by implementing various cost-cutting measures, while management changes are being made in the IM (IT and
Mobile) and System LSI (Large-Scale Integrated Circuit) divisions. These should lead to margin improvement
in the next few quarters.
Declining Profit, Increasing Competition
On October 6, 2014, The New York Times reported that Samsung had posted four consecutive quarters of decline
in operating profit.
Ascendant Chinese smartphone makers were putting pressure on the company by offering a range of cheap
smartphones in developing markets, the report said. At the same time, Apple’s new cooperation with carriers in
Japan and China helped spur sales. Analysts also said the new, larger iPhone 6 could lure away Samsung users
accustomed to larger screens.
Samsung it expected an operating profit of about 4.1 trillion won, or $3.8 billion, in the period from July through
September, down 60 percent from 10.2 trillion won a year earlier. Sales totaled about 47 trillion won, down 20
percent from 59.1 trillion a year earlier. The guidance comes ahead of final third-quarter results expected to be
released at the end of October 2014.
Lee Min-hee, an analyst at IM Investment and Securities, said he expected Samsung to give a makeover to its
lower-cost phones to address the competition, potentially introducing handsets with metal casings later this year.
“Samsung’s profits in the mobile division will continue to deteriorate during this period of changing their line of
smartphones,” he said. In China, the world’s largest smartphone market by number of phones sold,
Samsung slid to second in market share in the period from April through June 2014, behind the Chinese company
Xiaomi, according to the research firm Canalys.
“With the market in China becoming even more competitive, it will not be straightforward to re-establish
leadership” for Samsung, Canalys wrote in a report. The top eight Chinese smartphone vendors in the country
controlled 65 percent of the market, the report said.
Samsung moved up the release in China of its new Galaxy Note 4 to the end of September to get a head start on
Apple after a regulatory delay pushed back the release of the iPhone 6 to Oct. 17, according to analysts.
Still, the larger iPhone could pose a bigger challenge to Samsung than previous versions have because many
Chinese buyers prefer phones with large screens. Apple said it sold 10 million iPhones globally the first weekend
after it went on sale, higher than the nine million of the previous generation it sold last year.
In the period from April through June, Samsung had a global smartphone market share of 25 percent, a 7 percent
drop from the same period a year earlier, according to the research firm IDC.
“To maintain its position at the top, Samsung will need to focus on building momentum in markets dominated
by local brands,” IDC said in the report.
Top Brands: Moving Up
On October 8, 2014, The New York Times reported that Apple remained the most valuable consumer brand in
2014, according to Interbrand, while Samsung, Toyota and Mercedes-Benz moved up. The 2014 edition of what
is known as the Interbrand Best Global Brands report showed Apple in first place, as the world’s most valuable
brand, for a second straight year. Apple took the top spot last year from Coca-Cola, which fell to No. 3; Coca-
Cola remained in third place this year, and the No. 2 brand last year, the technology powerhouse Google, kept
that spot. Samsung rose from No. 8 to No. 7, behind GE, Microsoft, and IBM.
