Samsung’s Management Challenge in Mexico

Samsung’s Management Challenge in Mexico
Key concepts: cellular production, chaebol, foreign trade zone, managerial role expectations,
maquiladora, patron, psychological contract, simpatico, situational contingencies, work values
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 smart phones. 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 a 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 El 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 to
symbolize Samsung’s 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 a corporate leader—first in
quality, 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 itsTV sales. The plant isthe 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 flatscreen 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 a 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 a 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 assimpatico, 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 patrón 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.
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 the “20/32 movement:” a demand for an immediate 20 percent wage increase combined
with a one-time bonus of 32,000 pesos ($1,655). At least 115 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 developmentsregarding
Mexico’s maquiladora program in the light of new trade agreements and labor laws, as well as
Samsung’s global production initiatives.
How would you describe the differences between the two national cultures? What about the
What are the characteristics of a maquiladora? What is important about them for global trade?
What conclusions can you draw about possible differences in the nature of work values?
From what you have learned, how do Koreans and Mexicans differ in their expectations for
managerial behavior? Does the concept of psychological contract help in understanding this
Briefly summarize both the Korean managers’ and Mexican workers’ views of the conflict at
Samsung. What does each side want to happen?
What are the motivational bases of each group? That is, what factors motivate each side to
perform well or poorly?
Do you agree or disagree with the following statement: “Samsung would be well advised to
hire more Mexican supervisors and managers and return their Korean managers back to Seoul.”
If you were an outside consultant, what would you recommend to resolve, or at least reduce,
this conflict? What would be your challenges in selling your proposed solution to each side?
Would or should a significant increase in wages (and plant operating costs) in any way affect
Samsung’s approach to local plant management?

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