Samsung's management challenge in Mexico

Samsung Electronics, part of Korea's largest conglomerate (chaebol), has aggressively pursued North American and other consumer markets in various electronic fields including televisions kitchen appliances, and smartphones. To support its North American efforts, it currently operates three major maquiladora plants in Mexico. A maquiladora is a foreign-owned manufacturing facility operating in free trade zone (FTZ), where factories import material and equipment on a duty-free and tariff-free basis for assembly, processing, or manufacturing, and then export the assembled products to other countries within the FTZ. Numerous countries from Asia to Europe make use of such manufacturing opportunities.

Samsung opened its first Mexican maquiladora in the 1980s, manufacturing kitchen appliances. Based on this success, it inaugurated Samsung Tijuana Park (later called Samsung Mexicana, or simply SAMEX), a vertically integrated production site that today represents a total investment of almost US$600 million. As part of this effort, Samsung Electronics, Samsung Display Devices, and Samsung Electron Mechanics began simultaneously producing color televisions and DVDs, color displays, and tuners among other products. Initial production was set at 1.5 million TV sets a year, positioning Samsung as a strong competitor in the North American and Latin American markets. Building from an initial 2, 300 employees, Samsung Tijuana Park quickly grew to more than 3, 000 workers, representing US$3 billion worth of annual sales. The Park, that encompasses 660,000 square meters, lies in the E1 Florido Industrial Estate, 19 kilometers south of San Diego, California

Unlike many traditional maquiladora assembly plants south of the Mexico-US border Samsung sources almost 90% of its materials locally within Mexico, mostly from subcontracted Korean suppliers that established operations nearby.

The grand opening of the Samsung Tijuana Park was accompanied by a ceremony dedicating the Samsung Leadership Tower, a tubular steel monument specially designed tosymbolize Tijuana ambitions. Samsung management said the tower represented power and progress spiraling upward to lift the company and its employees into the 21st century and beyond. The tower was to be a reminder of Samsung's goal to be corporate leader-first inquality, first in excellence, and first in the eyes of the world. The tower was constructed form more than 20 tons of structural tubular steel and stands 23 meters in height. It is crowned with an illuminated 6.5 meters wide Samsung logo.

Samsung has been the world's biggest TV maker for the past five years, and Samsung Tijuana Park is responsible for 20 percent of its TV sales. The plant is the largest among Samsung's 14 overseas plants. Perfection is quality beyond your imagination, reads a large sign in Spanish at the entrance of the plant, alongside the blue Samsung logo. The 25 production units inside run nonstop. The plant uses cellular production, where workers are specialized in different tasks including assembling parts, moving panels, and checking monitors (see photo). There are no assembly lines per se, but instead workstations are grouped together, reducing inefficiencies. Out of the plant's total production, 83 percent of the TVs go to North America, 10 percent to Latin America and 7 percent to Mexico. The company currently has 46% of the U.S. market for flat-screen televisions.

Samsung acknowledges risk factors operating in Mexico. About eighty to one hundred containers carrying finished products cross the border ten times a day. For the last two years, the company has been seeking help from the Mexican police to guard container transport after one of its containers with $500. 000 worth of products was hijacked.

Samsung claims to be an exemplary maquiladora facility. According to its management, the management structure empowers local managers, comparing it to Japanese rival companies like Hitachi and Sanyo where Japanese managers play a bigger role. Still, as with many other foreign-run facilities, Samsung has had its share of labor problems. To understand this, let's look inside the factory.

Cultural anthropologists describe the Mexican culture as being collectivistic, hierarchical, polychronic, paternalistic, group-centered security-oriented, somewhat formal, and at times fatalistic. This certainly does not apply to all Mexicans; indeed, it doesn't even recognize that Mexico is multicultural society with both European, Asian, and native influences. Even so, foreign visitors frequently observe that Mexicans will at times go to great lengths to protect their dignity, uphold their honor, and maintain their good name. The uniqueness of the individual is honored in Mexico, and people are judged on their individual achievements, demeanor, trustworthiness, and character. Personal respect is a very important element in any relationship. Even a relatively insignificant comment or action can be interpreted in negative or deprecating manner and can destroy the trust between two people.

Foreign observers also suggest that management in Mexico tends to be autocratic. However, while a manager in Mexico must be respected by his or her subordinates for being tough and decisive, he or she must also be seen as simpatico, or understanding. Managers in Mexico tend to exhibit a strong sense of paternalism, a caring for the personal side of their employees that is often absent and at times even resented north of the border. They must act like a patron and treat their subordinates like an extended family. Along with this, managers must also treat their employees with a strong sense of respect; personal slights frequently bring strong resentment Mexican workers often need more communication, relationship building, and reassurance than their counterparts in some "Western" countries.

Inside the Samsung facility, the Mexican assembly workers are supervised by South Korean managers. Value conflicts, often not discussed with outsiders, began almost as soon as the plant opened and grew more intense over time. According to outside observers, Korean managers tended to believe that Mexicans viewed work not as a sacred duty, as in South Korea, but as a means to an end, or even a necessary evil. In their view, their Mexican subordinates routinely made commitments they had little intention of keeping. They also failed to distinguish between work and play. They played loud music and talked excessively during work, wasting time. The Korean managers were dumbfounded by such a lack of commitment. Differences in views of the psychological contract were evident( see chapter 4).

Needless to say, the Mexican workers had a different point of view. To many of them, the South Korean managers evaluated all people and work situations using their own Confucian values and standards. The workers often felt that the managers should not use Korean cultural values as a criterion when comparing work ethics between countries. To the Mexicans, their managers established unrealistic goals and then blamed the workers for being lazy when these goals were not achieved. Moreover, although the Korean managers might have been willing to work fifteen hours a day, this was Mexico, not South Korea. Finally, first-line Mexican supervisors in these plants suggested that the reason for poor plant performance had less to do with work ethics and more to do to with unwillingness on the part of the Korean managers to allow Mexican participation in the production-planning process. Who is right in this conflict may depend more on where you live than what you believe.

As this conflict played out, the Mexican work environment was changing. In 2019 Mexican labor organizers, backed by a new populist national government and pressure from the US to increase wages on the Mexican side of the border, launched a series of labor strikes at maquiladora plants along the US-Mexican border demanding higher wages. The initiative was called / 32 movement: "a demand for an immediate 20 percent wage increase combined with a one-time bonus of 32,000 pesos ($1,655). At least companies quickly complied and more are expected to follow. Company efforts to block this movement in courts failed, and many firms are suggesting that they may have to move their operations to Southeast Asia to remain competitive, although this would distance them considerably from the lucrative North American market. The question for Samsung is how they will respond to these changes.

Case questions:

Introductory note: Cases by their very nature are static at a particular point in time. As you prepare for the questions below, it might be helpful to update yourself about recent developments regarding Mexico's maquiladora program in the light of new trade agreements and labor laws, as well as Samsung's global production initiatives.

1. Briefly summarise the Korean managers' view of the conflict in this case. What they want to happen? Briefly summarise the Mexican workers' views of this conflict. What did they want to happen?

2. What are the motivational bases of each group? That is, what factors motivate each side to perform well or poorly?

3. If you were an outside consultant, what would you recommend to resolve, or at least reduce, this conflict? Why do you think your recommendation might work?