Home > Between bids and sponsoring, Samsung’s peculiar business practices

Between bids and sponsoring, Samsung’s peculiar business practices

by Hannah Howard - Open-Publishing - Friday 11 March 2016

Samsung has seized the opportunity, amidst the FIFA corruption scandal, to place a bid as an official sponsor, in replacement of those which have cut their ties to the federation (Castrol, Continental, J&J), in the hope of brushing up its image after too many controversies and deep suspicions of blatant disregard of the most elementary business ethics. But the choice of Qatar as a marketing partner may prove delicate for both sides.

Qatar was chosen as the anchoring point of Samsung’s new marketing strategy, for several reasons. The first is the dramatic development frenzy underway in the entire area. Over the past years, many countries have launched large-scale industrial project. Those range from oil-related facilities, to glorifying buildings. Saudi Arabia has just decided to indulge in one-upmanship with the construction of the Jeddih tower, which aims at debunking Dubai’s Burj Khalifa as the holder of the tallest building in the world. Other projects aim directly at extracting and processing the region’s gigantic natural resources, such as BP’s Khazzan project in Oman which covers all peripheral fields from oil spills to water production.

The second reason is the delicate relationship between Samsung and the market, which requires intervention according to the board. Samsung’s image has taken several hits, recently, which have damaged its image. In 2013, Samsung was fined half a million dollars for having hired teams of students to slander HTC products online. While the fine was negligible for a company which makes 90 billion dollars in profit every year, the main sanction came from the public. Many bloggers considered that the law, which authorizes anti-competition ad campaigns, was generous enough, and that Samsung was both brutal and foolish is pummeling HTC, a much small and struggling competitor. In addition, in the wake of the Volkswagengate, European Union secret lab testing has detected discrepancies between technical indications provided by Samsung and the power consumption observed in the lab. Much like the German car-maker, suspicions are that Samsung engineers simply configured the television sets so that they cut power down, whenever the tests start (the built-in software is able to recognize the standard video which is used during tests). These revelations have strained the relationship between the market and the Korean giant. A new market is therefore necessary, for time to lay low and let enough water pass under bridges.

The third is that Europe and North America are marketplaces with very high competition, and therefore with low margins, and Samsung’s business reputation is tarnished in Asia: while everyone recognizes the quality of their products, many consider that the Korean conglomerate has just become too big. The 2012 Washington post article by Chico Harlan, the Republic of Samsung stated that “Economists, owners of small- and medium-size businesses, and some politicians say Samsung no longer merely powers the country but overpowers it, wielding influence that nearly matches that of the government.” That leaves the Middle-East as a cash-juicy and fresh market.

The fourth is opportunity: there are only a few hundred companies in the world which have the financial capacity to sign sponsorship deals with FIFA, and even they have to wait for a spot to free up. The corruption scandal which hit the federation was a dreamt opportunity for Samsung, as the 3 sponsors which chose to break their ties had been keeping their sponsorship slots since.

And the fifth is strategy. Samsung needs to go in two opposite directions, strangely: it needs to move its electronics department (which markets smartphones, semi-conductors, and all other types of electronic equipment) even further into the marketing spotlight, so as to support sales in one of its most performing sectors. On the other hand, it needs to move its engineering department out of the spotlight, so as not to further damage its international image. Over the past few years, suspicions, followed by allegation, and finally evidence came out, according to which Samsung was resorting to slave labor in its factories, forcing employees to place their health at risk with breakneck production paces, with one extreme case of physical beating of employees. Samsung defended itself by pointing out that the factories in which these cases were reported were often not Samsung (most high-tech producers design their products but then subcontract production – as Apple does, for instance) plants, but the market didn’t buy that, as being almost the only client of a contractor basically amounts to owning the business, and therefore having responsibility over it. In the case of construction sites (the engineering department’s area of business), accidents are relatively frequent, especially in non-Western countries and give the contractor very bad press. By moving business towards countries like Qatar, which are notorious for their poor working regulations, Samsung hopes to get below radar cover. It is now common knowledge that a vast majority of the workers developing the giant projects in Qatar are foreigners – with few or no Qataris at worker level. Many articles have been published regarding working conditions in Qatar which amount to modern-day slavery. The current deal Samsung Engineering is after is the Idris, a project which aims at expanding the sewage system in the South part of the capital. Hundreds of workers will be sent underground for months, with no risk of independent and external audit of working conditions – something Samsung (and other such companies) simply can no longer do above ground in the Western world.

Samsung will clearly keep a foot in North America and Europe – it is one of its best performing markets for its electronics department. But regarding the construction business, things might be a little different. The market may be wealthy but it is also saturated (which the Middle-East is not), and more and more incompatibilities are coming to light between modern-day Western labor standards and Samsung’s business practices. Investors will therefore probably be keeping a close eye on Samsung’s cranes, expecting them to shift towards the Persian Gulf.