Gotta Turn Chinese; To profit in China, companies have to go native from design to sales, says a top CEO who has done it.(Yun Jong Yong)(Interview)(Cover Story)

Byline: B.J. Lee

Since Yun Jong Yong became its CEO in 1996, Samsung Electronics has emerged as the most profitable consumer-electronics giant in the world, with 2003 profits of $5 billion on sales of $36 billion. Its success is particularly striking in China, which foils so many others. Samsung has expanded from manufacturing to a soup-to-nuts, research-to-sales operation on the mainland, with sales up 400 percent since 1998 to $6.7 billion last year. The company does not break out earnings results in China, but says it is profitable there. NEWSWEEK reporter B. J. Lee talked with Yun in his Seoul office last week. Excerpts:

LEE: Why do so many multinationals struggle to make money in China?

YUN: You cannot survive in China without becoming a Chinese company. That includes local technology development, product design, procurement, manufacturing and sales. If we try to sell products developed in Korea, we might fail because the same products can be developed in China much more cheaply. Our profitability in China varies according to the product. Semiconductor profitability is higher in other countries, but in other areas our productivity in China is OK.

How is Samsung's strategy changing?

Until recently we did almost all product development and design at home and used China only for manufacturing, bringing our parts suppliers there. Gradually we are transferring development and design functions to China up to a certain level. We now also use Chinese parts. This is particularly true for some telecommunications and digital products, and is possible because of ...