Technology

Samsung: Smartphone fires only part of Korean company's woes

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Media captionSamsung Galaxy Note 7: What went wrong?

You know your product's got problems when it becomes the subject of jokes on late-night television.

In the US, the comedian Stephen Colbert leant into the camera on the Late Show recently and said: "I have a special message for anyone watching tonight's show on their Samsung Galaxy Note 7. 'Run for your lives!'"

Other comics had similar riffs of their own. Twitter is swirling with Galaxy Note 7 jokes.

This was not meant to happen. The Note 7 was intended as Samsung's answer to Apple's iPhone 7. If the smartphone industry is really a branch of the fashion business, Apple is king of the catwalk. Its iPhone has an iconic image as an object of desire.

But Samsung thought it was finally dispersing that almost mystical aura around the iPhone by producing phones of similar elegance. The Galaxy Note 7 was meant to be the elegant, cool rival, launched a full month before the iPhone 7 to gain an advantage over Apple.

When the Samsung's Galaxy S7 and S7 Edge were unveiled, they got rave reviews for their sleek elegance and the sales followed. The Galaxy Note 7 was meant to consolidate that success and, sure enough, when it was unveiled it too got really good reviews.

In May this year, new figures showed that Samsung had outsold Apple in the United States, Apple's back-yard.

But a nice phone is nothing if it catches fire.

Image copyright AFP
Image caption Samsung has permanently ceased production of its high-end Galaxy Note 7 smartphones

Samsung, in its drive to extend battery life, overextended itself on the technology.

There is a trade-off between the size and power of batteries on the one hand, and their capacity to catch fire on the other - bigger batteries with shorter-battery lives are less prone to fires than smaller ones. Obviously, Samsung didn't get the balance right.

Samsung is part of the fabric of Korean society. Indeed, the country is sometimes called the Republic of Samsung. You can be born in a Samsung hospital, play in a Samsung amusement park, live in Samsung apartments and finish your days in a Samsung funeral parlour.

The company's activities go from shipbuilding to insurance to electronics. It is the country's biggest company and its revenue accounts for a fifth of the South Korean economy.

Image copyright AFP
Image caption The extent of the damage to Samsung's brand is still unknown

People are proud of it. Boys - or at least their parents - grow up with the dream of becoming a salaryman at Samsung.

So a monumental mess-up (as two recalls and a cancellation of a product must surely be) might hurt national pride.

And it will hurt Samsung's profits. Some 2.5 million Galaxy Note 7s were sold at the price of about $800 (£655). That total figure alone adds up to more than $2bn (£1.6bn) - not enough to bring the company down, but enough to hurt.

And that's before they take account of the unquantifiable cost to the image of the brand.

Image copyright AFP
Image caption Picture shows a Samsung Galaxy Note7 that caught fire in Gwangju, South Korea

The monumental mess might also make people question whether Samsung is all its cracked up to be. It is the biggest chaebol (as these very Korean, family-owned-and-run conglomerates are called). Some politicians argue that they are sclerotic and ill-suited to nimble footwork in fast-changing markets.

It may also make Samsung look again at its ways of production.

It takes great pride in the fact that it makes its components itself. Unlike Apple, it doesn't outsource to factories in China and the rest of South-East Asia. The exploding batteries issue may make it review that policy - though it could be argued that making components in-house increases control over quality.

And the monumental mess may prompt the question of who is in charge.

Image copyright AP
Image caption Lee Kun-hee, Samsung's chairman, is in poor health and is not expected to return to work (File photo)

Samsung's chairman, Lee Kun-hee, is a very sick man and nobody expects him to return to work. His son, Lee Jae-yong (often known as Jay Y Lee) will take over formally at some stage (of that there is no doubt - the son will rise). Critics of the Korean way of business say that the son is inexperienced and may not be the best person for a job he got by virtue of heredity.

And there will no doubt be a resurrection of an ongoing debate about chaebols and whether they are too cosy with government and too contemptuous of the law.

In 2008, Mr Lee senior was found guilty of tax evasion and financial wrongdoing. Police raided his home to investigate allegations that Samsung was bribing influential prosecutors, judges and politicians. He was given a suspended sentence and the country's president pardoned him a few months later.

All these questions may come to the fore. This row is not just about a smartphone.

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