Ships of the Captains of Industry
There's something to be said for old school capitalism, where one man single-handedly raises a corporate empire named after himself and passes his legacy on to his children. This Objectivist dream come true still happens, especially in developing countries. Samsung Group based in Korea, and Tata Group based in India, are both excellent examples that would make Ayn Rand hyperventilate with pride. The two conglomerates, or chaebol as they are called in Korea, have much in common. But Tata Group has been around for about 140 years, while Samsung Group is a relatively newer player in the global arena, only having existed for the past 70-odd years. Perhaps there are things that Samsung Group could learn from its older brother in order to assure its next 100 years of existence.
Both companies had humble origins. Samsung Group began in 1938 with Lee Byung-chul, a recent immigrant of Daegu city, who started Samsung Sanghoe. It had forty employees, bought and sold groceries in the area, and also produced noodles in-house. The Korean War interrupted the business, so Mr. Lee ended up in Busan, where he built a sugar refinery called Cheil Jedang. After the war, Mr. Lee founded a wool mill back in his home town of Daegu and called it Cheil Mojik. Mr. Lee kept establishing businesses in many areas such as Samsung Life Insurance, Samsung Securities, and retail stores.
The main idea behind these many businesses was industrialization, as South Korea was rebuilding during this time from the devastating war. Samsung entered the market in the 1960s, when Samsung Electronics Devices began in Suwon producing black-and-white televisions. Today Samsung Electronics makes some of the best computer memory and hard drives, and the company is known worldwide for its mobile phone handsets and flat-screen TVs. It is pioneering new advancements in flat panel displays with the superAMOLED screens that are showcased in its Galaxy line of smartphones.
Likewise, Tata Group began in 1868, when Jamsetji Tata started a cotton trading company in Bombay. The next year, Mr. Tata bought a bankrupt oil mill, changed it to a cotton mill, and sold it two years later for a large profit. He created more mills and branched out into hospitality with the opening of the Taj Mahal Hotel in 1903.
Unfortunately, he died the next year, but the business passed to his son, Dorab Tata. He further diversified the company into steel production as Tata Steel and hydroelectric power generation as Tata Power. Dorab Tata died in 1938, passing the company out of the Tata family to Nowriji Saklatwala. He was the only non-Tata chairman of the Tata group to this day. He was content to keep the company as it was, but his successor, Jehangir Tata, or JRD Tata, was not. He established Tata Chemicals, Tata Motors, and Tata Industries between 1939 and 1945. He continued to establish additional industries throughout his tenure such as Tata Tea in 1962, Tata Consultancy Services in 1968, and Titan Industries in 1984. In 1991 JRD Tata retired and was succeeded by Ratan Tata, who has been keeping the group pretty much as it was in 1991.
Today, Samsung Group and Tata Group both have very respectable, or one could say extremely impressive, holdings. The most significant parts of the Samsung Group are Samsung Electronics, Samsung Heavy Industries, Samsung Engineering, Samsung C&T, Samsung Life Insurance, Samsung Everland, Samsung Securities, Samsung SDS, Cheil Worldwide, and the Shilla Hotel.
Samsung is South Korea's largest conglomerate, and by revenue it is the second largest conglomerate worldwide with US$173.4 billion in revenue in 2008. The group alone accounts for 20 percent of South Korea's exports, which is very important in the export-driven country. It has a complete monopoly on many different domestic industries. In South Korea one can live in a Samsung apartment, dress in Samsung-based fashions, and drive a Renault-Samsung car to work. The office building could have been built by Samsung C&T, and air-conditioned with Samsung air conditioning systems. Your computer, phone, and every electronic device at your office can be made by Samsung, and even set up professionally by Samsung SDS. Your investments and your life can be taken care of by Samsung Securities and Samsung Life Insurance. You can get out of the city and take the family out to Samsung Everland. Your business contacts can stay at the Shilla Hotel while they visit the country. Samsung has an offering available to take care of any problem the modern life encounters.
Tata Group has a similar empire that it has grown in India. It is the largest private corporate group in India. Altogether, there are 114 companies and subsidiaries of the Tata Group. Twenty-seven of them are publicly listed companies. The most significant of those are Tata Steel, Tata Motors, Tata Consultancy Services, Tata Tea, Tata Chemicals, Titan Industries, Tata Power, Tata Communications, Tata Teleservices, and Taj Hotels. Similar to the Samsung Group, Tata can take care of every need that the modern life has. They are a one-stop shop for the 21st century.
Several Significant Differences
Aside from the fact that the Tata Group is approximately 75 years older than the Samsung Group, there are a few other significant differences between them. First of all, Tata is lacking in the high-tech consumer electronics sector, one in which Samsung has focused much of its resources since the 1960s. Tata Group does have heavy investment in land-line telecoms as Tata Communications, which would be more accurately termed water-line telecoms, because the company has the largest, most advanced submarine cable networks. But this is not quite the same sector as Samsung's mobile phones, flat-screen TVs, and other home electronics. One could think that Tata is missing out on the home electronics revolution, and that in this case Samsung has seen and invested in a sector that Tata never did.
The other significant difference between them is that Samsung does not engage in company acquisitions. Tata has expanded its empire several times, acquiring 22 different companies within the past ten years. This first started with the Tetley Tea Company in the year 2000. The second acquisition of Tata was in Samsung's back yard, when Tata acquired Daewoo Commercial Vehicles in 2004 during the Korean financial crisis. Tata-Daewoo is now a leading supplier of trucks, buses, and other commercial vehicles. The company acquired two other companies in 2004, NatSteel and the Tyco Global Network. The year 2005 saw them acquire Teleglobe International Holdings, the Good Earth Corporation, and Millennium Steel. They have acquired several companies each year since then, from coffee houses to hotels, and from coal plants to Chinese communications companies. Most notably are Jaguar Cars and Land Rover, both in 2008. In contrast, Samsung does not do acquisitions in order to grow its business.
At the International Telecommunication Union Telecom World 2006 conference and exhibition in Hong Kong, Senior Vice President of Samsung's telecommunication network business division Youngsoo Ryu said, "Certainly, I would like to expand and spend money to buy other technologies and companies, but that's not how we do things." Samsung has done a few acquisitions in the past, buying up parts or all of other Korean companies such as Korea Semiconductor in 1974, and Korea Telecommunications in 1980. But it seems to be very reluctant to buy up other companies, in sharp contrast with Tata Group. (Actually, as of January 20 Samsung announced its first international acquisition of Netherlands-based Liquavista, a company producing next-generation electrowetting display technology. This perhaps marks a change in Samsung's global strategy - Ed.)
A third significant difference between the Samsung Group and the Tata Group is philanthropy. Tata has long been known as a philanthropic corporation, even winning the Carnegie Medal of Philanthropy in 2007 in recognition for their many donations over the years. They have also started many different research institutes and arts centers, including the Tata Institute of Fundamental Research, the Tata Institute of Social Sciences, Indian Institute of Science, National Centre for Performing Arts, Tata Memorial Hospital, and Tata Football Academy. The Tata family has a tradition of donating much of their personal wealth to many trusts that they have set up. Which means that the several Tata trusts currently control 65.8 percent of the shares of the Tata Group. This sustained wealth is continuously given out to support a wide number of causes, institutions, and individuals. The Tata Group's web site calls attention to a quote from the founder, Jamsetji Tata, which is "There is one kind of charity common enough among us... It is that patchwork philanthropy which clothes the ragged, feeds the poor, and heals the sick. I am far from decrying the noble spirit which seeks to help a poor or suffering fellow being. [However] what advances a nation or a community is not so much to prop up its weakest and most helpless members, but to lift up the best and the most gifted, so as to make them of the greatest service to the country."
Now Samsung has also done some philanthropy. For instance, in 2008 Samsung and Best Buy awarded US$100,000 to the Milagro Foundation, which supports underprivileged children in arts, health, and education, according to Philanthropy Journal. Samsung also partnered with the International Youth Foundation in Africa to reduce unemployment of youth there in 2008. Samsung Hospital in Seoul is a state-of-the-art facility which advances medicine in South Korea. However, their efforts are simply not on the same level as the Carnegie Medal of Philanthropy winner Tata.
What One Can Learn
So both groups have been instrumental in building their respective countries and economies into what they are today. Both of them are led by a relatively-secretive family with historical ties to the company. Both of them are finding answers to every problem that modern life can experience, and expanding horizontally into many different industries. Samsung and Tata are two birds of a feather, sitting on huge nests and with a mountain of berries, seeds, and insects nearby. However, the Tata bird has made a habit of giving its mountain of things away, and spreads its seeds throughout the region. These seeds fall to the earth, catch hold, and grow into new forest lands which the bird of Tata can find even more of what it likes best. The bird of Samsung, in contrast, is only half as old, and is still in the stage of its life in which it collects the berries, seeds, insects, but does not yet do much with them.
The Tata bird is also the leader of an increasingly large flock of birds of all shapes and sizes. Birds from many different climates and with many different skills have joined the flock, and all of them working together makes for a stronger and more colorful flock. Just imagine the cacophony of bird calls and flitterings that would arise from having so many different types of birds together. It would be a veritable avian jungle. However, the Samsung bird only has its own family and a few other birds of very similar coloring in its flock. All the birds sit along a wire, the same colors, same posture, and similar mannerisms. The birds are not interested in increasing the flock with much diversity, and do not accept birds of other types into the fold. They fly near and far, but always come back to their pile of berries, seeds, and insects, which they guard carefully. The forest is neither hurt nor helped by them, because they keep to themselves.
The secret to Tata's success may very well lie in these two differences - philanthropy and acquisition. In order for Samsung to take the next step - to increase the size of their forest in which it flies - it may very well need to emulate its older brother Tata in these things. In order to grow stronger, one must learn to sacrifice. Perhaps that holds true for conglomerates as well as individuals.
