Samsung Service Workers Protest Performance (PSSP)
By Jiwon Han, Wol-san Liem and Yoomi Lee | July 11, 2014 [Originally published by the Asia Monitor Resource Centre, September 6, 2013]
In light of the recent tentative agreement achieved by Samsung Electronics Service Workers after a 41 day strike and two recent films that depict the devastating impact of Samsung’s factory conditions, KPI is re-publishing this report on the Samsung Electronics industry and its treatment of workers, written by members of the Research Institute for Alternative Workers’ Movements in South Korea. Please note that the workers who were on strike this May and June were subcontracted after this article was written; the workers described in this article remain unorganized.
Samsung Electronics: An Introduction
Samsung Electronics. Consumers know it well, yearning to purchase its products, which they experience as a single brand. In fact, Samsung Electronics is not that simple and it is incorrect to see it as a single company/brand.
Samsung Electronics is the flagship company of Samsung Group, which is composed of 516 companies worldwide. Of these companies 195 are full-fledged Samsung Electronics subsidiaries, meaning they are incorporated entities of which Samsung Electronics owns more than a 50 percent share. In addition, Samsung Electronics controls a further 63 companies which make components for the subsidiaries, although it does not own a majority share in them. The mobile phones, televisions and all 264 products under the Samsung Electronics brand are produced and sold through Samsung Group’s network.
The ownership structure of these 500 plus companies is formed through a complex web of circular investments. This structure, which makes it possible for an investor to control an entire company without directly owning as much as a 10 percent share, characterizes Korean chaebols (conglomerates), including Samsung. The group is in fact a representative case, in which the owner is able to control the entire group, despite not having a majority share in many of the companies.
Lee Kun-hee, chairman of Samsung Group, and his family own only a 2 percent share in Samsung Electronics directly. They are nonetheless able to control Samsung Electronics because of the circular equity structure of Samsung Everland,
Samsung Life, Samsung C& T and Samsung Card. The total shares in these companies held by Lee and his family are worth roughly KRW 11 trillion (roughly US$11 billion) and as such amounted to only 2 percent of Samsung Group’s total market value KRW 338 trillion (USD 289 billion) at the end of 2012. Nonetheless, Lee and his family exercise absolute management authority over the Samsung Group. This circular investment structure found in South Korean chaebols, which allows this sort of control, is currently a hotly debated economic issue.
Revenue, profit, main products
In 2012, Samsung Electronics and its 195 direct subsidiaries recorded revenue of KRW 201 trillion and operating profit of KRW 29 trillion. This represents an increase in revenue of 66 percent and in operating profit of 383 percent over the past five years. Samsung Electronics has been one of the fasting growing companies in the world since the onset of the global financial crisis in 2008-2009. In the midst of the crisis, the group was able to push Japanese companies out of the display market. It also pushed Nokia out of the mobile phone market, and now shares market dominance with Apple. The fact that after 2008, more than half of Samsung Electronics’ operating profit has been made from smart phone sales demonstrates the sudden growth in this segment.
Samsung Electronics and its subsidiaries account for roughly 85 percent of Samsung Group’s total operating profit. This is because firstly, Samsung Electronics’ transactions with other electronics subsidiaries, including Samsung Display, Samsung SDI and Samsung Electric, are conducted in a manner that is favorable to the former, and secondly, Samsung Group’s finance subsidiaries, such as Samsung Life and Samsung Card, have been unable to considerably increase their profits due to domestic economic stagnation.
Samsung Electronics’ four principle divisions use self-supporting accounting systems, meaning that they independently calculate revenue and profit. These four divisions are Consumer Electronics (CE), IT & Mobile Communications (IM), Semiconductors, and Display Panels (DP). Until as late as 2000, semiconductors and LCD panels accounted for more than half of both revenue and profit. After 2008, however, mobile product sales have grown by more than 50 percent each year, such that the mobile telephone division now accounts for almost 60 percent of Samsung Electronics’ profit.
Location of production sites
Samsung Electronics’ headquarters are located in South Korea. Like other transnational electronics corporations, however, most of its factories are located abroad. The vast majority of products produced in South Korea are not consumer products but semiconductors, LCD panels and other central electronic components. Consumer durables (i.e., home
appliances), such as refrigerators, air conditioners and washing machines, are produced in South Korea only to the extent necessary to satisfy domestic demand. Almost all TVs, printers and computers are produced abroad. The majority of mobile phones, which could be said to be Samsung Electronics’ driving product, are produced in Vietnam and China.
Until 2012, semiconductors and LCD panels were produced almost entirely in South Korea. However Samsung Electronics plans to have roughly half of the semiconductor and LCD panel production located in China by 2014~2015.
Samsung Electronics’ domestic and overseas subsidiaries together employed some 221,000 workers at of the end of 2011. This is a 53 percent increase from five years ago. With roughly 100,000 workers employed in South Korea and 120,000 employed abroad, the number of overseas employees surpassed domestic employees for the first time in 2011.
Roughly 41,000 workers— the largest number of employees working in any single country outside of Korea—are employed in China. In the rest of the Asia region, Samsung Electronics employees number roughly 43,000. Next comes South America with roughly 21,000 employees and Europe with 13,000.
Samsung Electronics’ Domestic Supply Chain
Samsung Electronics’ revenue equals roughly 20 percent of the value of South Korea’s GDP. In addition, to say that Samsung Electronics and its subcontractors are South Korea’s electronics industry would not be an exaggeration. Roughly only 30 percent of all electronics companies in South Korea are independent of Samsung Electronics. The majority of these are LG Electronics’ subcontractors.
The system of component production and supply for Samsung Electronics is made up of five layers. The first layer is composed of Samsung Group subsidiaries and accounts for roughly 11 percent of the value of components purchased by Samsung Electronics. The second layer is made up of transnational electronics component suppliers who have independent technical capability. The American companies Qualcomm, which has a CDMA patent, and 3Com, which has a wireless patent, are examples of companies in this layer.
The third layer comprises suppliers to which Samsung Electronics outsources production of parts that it could produce itself, but chooses not to for cost or production capacity reasons. These companies principally supply small-scale LCD panels. Samsung Electronics gets these low-price LCD panels from companies such as the Taiwan-owned AU Optronics Corp (AUO) and Chunghwa Picture Tubes Ltd (CPT). The fourth layer is composed of domestic subcontractors that supply parts that Samsung Electronics could not produce itself. The main companies in this layer include Intops LED Company Ltd, which handles both the production of mobile phone cases and the assembly of mobile phones, and Interflex Company Ltd, which produces printed circuit boards (PCBs).
The final layer in the supply chain is composed of small and medium-size parts suppliers located in industrial parks. As these companies supply low-cost parts, Samsung Electronics frequently switches among them, exacerbating price competition. It also imports some parts from China. These are the companies most exploited by Samsung Electronics.
Samsung Electronics’ Workers
No Union Policy
Samsung Electronics is known in South Korea for its faithful adherence to a no union policy. From the time of Samsung’s founder, Lee Byung-chull, to the current leadership of Lee Kun-hee, Samsung has used any and all means to stop employees from forming unions. This policy has affected not only Samsung Electronics, but the entire electronics industry. This is because Samsung Electronics intervenes actively to prevent the formation of unions at its suppliers.
The effectiveness of Samsung Electronics’ no union policy is evident in the fact that union participation in the South Korean electronics industry is only about 3 %. This figure includes the members of the LG Electronics union, which is affiliated with the Federation of Korean Trade Unions (KFTU) and is a true-blooded company union. Excluding the LG union, less than one percent of all workers in the electronics industry are union members; there are only 300 union members in all the electronics companies that make up Samsung Electronics’ supply chain.
At the center of Samsung Electronics’ no union strategy are careful workplace control and a thorough system of selective inclusion and exclusion. At Samsung Electronics, the labour management department monitors each individual worker closely. For example, when a few Samsung SDI workers started to form a union in 2000, the management issued orders for all of them to be dispatched overseas. Those who refused the order were dismissed for disciplinary reasons. At the same time, Samsung SDI tapped workers’ phones, followed them, approached their families with threats and appeasements, and even put location tracking devices in the mobile phones that the workers themselves made. Similar cases have occurred several times over the last ten years, for example, at Samsung Aceone and Samsung Electronics’ Suwon factory in 2004, at Samsung SDI in 2005 and at Samsung Everland in 2011.
The strength of Samsung Electronics’ labour management system makes it possible to prevent the formation of unions almost from the word go. Samsung Electronics uses a point person system to monitor movements towards union formation on a day-to-day basis. Staff in the labour management department appoint and communicate with point people stationed in each company department. Similarly, the labor management department supervisor communicates with a point person in each company division. The head of the department appoints and communicates with one point person for every two divisions. These point people continuously monitor employees’ attitudes and actions, taking stock of informal gatherings on a regular basis (Don-mun Jo, “Samsung Group’s Labor Control and Panpticon,” 2007).
If this form of control is one side of union repression, the other side is the use of appeasement and rewards for loyalty. In exchange for not forming unions, Samsung Electronics provides its workers with the highest wages in the industry. The average monthly wage of workers directly employed by Samsung Electronics was 5.77 million won (USD 5121) as of April 2012. This was 68 percent more than the average wage of the entire electronics industry during the same period. Even when compared to the average for all workers at companies with 300 or more workers, the Samsung Electronics average wage was considerably higher. If the yearend bonus, based on the year’s results – which is more than 10 million won (USD 8,875) — is included, the difference is even greater.
Samsung Electronics is able to provide its employees such high wages because of its ruthless exploitation of its subcontractors, a practice enabled by its no union policy. By applying its no union policy to the entire electronics industry, which it effectively controls, Samsung Electronics is able to keep the wages of the majority of electronics workers down to the legal minimum. At KRW 3.44 million (USD 3042), the industry average appears fairly high. (See Table 5 above.) The average is high, however, because large companies, like Samsung Electronics and LG Electronics, are included in the calculation. At KRW 2.67 million (USD 2361), the average monthly wage at small and medium-sized companies, which make up 90 percent of all Korean electronics companies, does not even equal half of the Samsung Electronics average. It should also be noted that managers’ salaries are included in the calculation of the average wage for these companies. If managers are excluded, it can be seen that the majority of production workers make less than KRW 2 million (USD 1769) per month. Samsung production workers, who have roughly the same skill level as other electronics workers, make an average monthly wage of KRW 4.46 million. (The figure of KRW 5.77 million in the table above includes Samsung managers.)
If the electronics industry is compared with the automobile industry, where union membership is high, it is easy to see the effectiveness of Samsung’s no union policy in keeping wages down. The majority of workers in 1st tier vendors in the auto industry are organized. The result is that, while there is a small difference in wages as one goes down the supply chain, a relatively high wage level is maintained throughout the industry. In comparison, all workers in the electronics supply chain, except those employed directly by Samsung Electronics (or LG Electronics) receive the minimum wage.
Workers employed at first tier vendors in the automobile industry, who supply Hyundai Motor, make about 80 percent of what Hyundai employees earn. In the case of Samsung Electronics, employees of 1st tier vendors make only about 50 percent as much as Samsung Electronics’ employees. The lack of unions among 1st tier vendors keeps wages down in these companies and throughout the industry. As such, Samsung Electronics is able to offer its direct employees wages that are well above the industry average, dissipating inclinations towards union organizing. Of course, while Samsung Electronics employees gain materially from this strategy, the majority of workers in the industry are excluded from these benefits.
In addition to controlling wages, Samsung Electronics is also able to maintain a high level of production flexibility due to its no union policy. Samsung Electronics freely increases and decreases the volume of orders placed with suppliers, depending on its business needs. In the case of the auto industries, workers have been able to secure a certain wage level irrespective of production volume through collective bargaining agreements. In the electronics industry, however, where the basic wage is at the legal minimum, if Samsung Electronics does not place orders, workers’ very livelihoods are put at risk.
At 1st tier Samsung Electronics vendor that manufactures mobile phone cases, during months when orders were down and workers worked only 150 hours they made a minimum wage of KRW 900,000. In months when they worked 330 hours, however, their wages rose to KRW 2.3 million – that is KRW 920,000 in basic wages and KRW 1.4 million in bonuses. With wages fluctuating this greatly, workers at subcontractors must do whatever Samsung Electronics demands to ensure that the orders keep coming in. They cannot even dream of forming a union. This is the result of Samsung Electronics’ production strategy, in combination with its no union policy, which makes it possible to maintain low wages and at the same time secure great production flexibility.
The dual wage structure of the electronics industry means that there is also a dual employment structure. In order to prevent union formation, Samsung Electronics makes it a point of employing young female workers in production jobs. Rather than carry out open recruitment, Samsung Electronics does most of its recruiting for new employees through girls’ high schools. According to interviews conducted by Support for Health and Rights of People in Semiconductor Industry (SHARPs), a coalition working to improve occupational safety and health in the electronics industry, young women join the company in their late teens and early twenties, work for roughly seven years and then quit when they get married. While the wages these women earn are relatively high, the fact that they are young and female makes them easy to control, and Samsung Electronics uses this to force long hours and high work intensity. It then pressures them to quit once they are older. Of course this is not a formal rule, but rather an unstated company practice.
In contrast to direct Samsung Electronics employees, the majority of workers at subcontracting factories are women in their forties or older. It is believed that the women workers are better suited to electronics component production than men, and subcontractors prefer older women to whom they can pay lower wages, either because they are only supplementing a family income or they live alone. It is common for such workers to work two or three years for one company before trying to move to a larger one. Because there is no wage increase based on work experience, there is no reason to stay in one place for long. In addition, because the skill level required for work in these companies is not high, it is easy for employers to find new hires.
In addition, Samsung Electronics uses a large number of in-house subcontracted workers within its own factories in order to maintain labor flexibility. This is despite the fact, that the use of in-house subcontracted workers in the electronics industry can be seen as illegal. Under South Korean law, the use of temporary agency workers in the manufacturing sector is not permitted. Legal cases have found, moreover, that in-house subcontractors are often actually no more than employment agencies, dispatching temporary workers who are managed directly by the parent company’s supervisors. Despite several court rulings confirming the illegality of these practices, Hyundai Motor and other manufacturing chaebols continue to employ in-house subcontracted workers. The same is true for Samsung Electronics. According to a Ministry of Employment and Labor survey conducted in 2010, roughly 12 percent of the workers at Samsung Electronics factories, some 8,000 workers, were employed through in-house subcontractors.
Conclusion: The Struggle for workers’ health rights and freedom of association
Activism by Samsung Electronics workers has taken two tracks in South Korea: firstly, the struggle for workers’ health rights and secondly, the struggle for the right to freedom of association.
Occupational health and safety
In the last several years, dozens of cases of occupational illnesses have been discovered among workers employed by Samsung Electronics and its subsidiaries. Several civil society organizations have taken up these workers’ cause, advocating industrial accident insurance coverage and supporting the families of victims. The work of these groups has made the health rights of Samsung Electronics workers a national issue.
In recent months, 145 cases of serious occupational illness have been reported at Samsung Electronics and its subsidiaries. In 56 cases, the individuals involved (mostly young workers in their 20s and 30s) have died. However, the number of Samsung Electronics workers who have passed away or are currently suffering from such illnesses is thought to be much higher. Because of the system of labor control discussed above, even reporting illness is difficult.
Of all the illnesses reported, cancers involving the lymphatic system (e.g. leukemia, lymphoma) are the most common. There are many cases, as well, of brain tumors and breast, skin and lung cancer. Illnesses related to the nervous and immune systems, such as multiple sclerosis, multiple neuritis and Lou Gehrig’s disease, have also been discovered, as have been psychological disorders such as depression, panic disorder and schizophrenia. These and other mental illnesses result from the fast-paced rigidly controlled working environment at Samsung Electronics worksites (SHARPs, “Conditions of Samsung Workers as Demonstrated through a Chain of Deaths and the Struggle against Occupational Illnesses,” 2011).
In November 2007, a coalition called ’Support for Health and Rights of People in Semi Conductor Industry’ (SHARPs) was formed to advocate on behalf of victims of occupational illness at Samsung Electronics. SHARPs has now been active for more than five years and has succeeded in bringing the issue into the public arena. In January 2013, Samsung Electronics notified SHARPs of its “intention to meet the leukemia victims and bereaved families and find a solution to the problem through dialogue.” The company promised to form an “appropriate delegation” for the meeting and “engage in honest discussion.” For the first time in five years, discussions between SHARPs and Samsung Electronics have begun.
Efforts at union establishment
Recently, efforts to form unions within the Samsung Group have gained public attention. This is due to the fact that the Samsung Labor Union, formed by workers at Samsung Everland in 2011, recently joined the Korean Confederation of Trade Unions-affiliated Korean Metal Workers’ Union (KMWU) on January 14. The Samsung union’s affiliation to the KMWU marks the first time in history that workers employed by Samsung Group have joined a Korean Confederation of Trade Unions-affiliated union in significant numbers.
Everland workers first established a union on July 12, 2011. At the time, however, they did not affiliate to an industry level union. Recently, however, workers who had been openly active in the Samsung union joined the KMWU. More workers are expected to join in the near future.
Samsung Group has responded to the formation of the Samsung union by meeting out disciplinary measures against its officers. These actions, part of Samsung are no union strategy, have frightened workers, making union activities difficult even for those with complaints against the company. The union’s officers chose to affiliate to the powerful KMWU in reaction to workers’ desire for a stronger defense against Samsung.
Now that Samsung Group must deal directly with KCTU’s main industrial union, much interest has turned on the fate of Samsung’s no union policy. As an industrial union, the KMWU has overall bargaining authority of its organized worksites. Thus, it is not the enterprise-level union but the KMWU, which is the Samsung Groups’ bargaining partner.
Given the many voices within the labour movement and civil society calling for an end to Samsung’s union repression, and recent interest in ‘economic democratization’, a keyword for both the liberal and conservative candidates in the 2012 presidential election, the pressure on Samsung to adopt a more just policy is mounting.
It is now more important than ever that union and social organizations engage in media and education campaigns to create the environment in which Samsung workers can publicly demand their labour rights. The KMWU is currently making plans for a national, long-term and direct organizing campaign that will start with registering more Samsung workers. It is also planning to form a network of activists, professionals and scholars who can put public pressure on Samsung to take a more socially responsible position. The time is right for a real effort to organize for occupational health and safety protection and labour rights of Samsung workers.
*Jiwon Han is the Research Director and Yoomi Lee is a Researcher at the Research Institute for Alternative Workers’ Movements in South Korea. Wol-san Liem is the former International Director at the Research Institute and is now the Director of International Affairs for the Korean Federation of Public Services and Transportation Workers’ Unions and a KPI fellow.
Samsung Electronics Sources
Annual Reports, 2008, 2009, 2010, 2011, 2012 Earning Releases, 2012-4Q Quarterly Report, 2012-3Q Sustainability Report, 2012
Other Annual Reports
Everland. 2009, 2010, 2011, 2012 Samsung Card. 2009, 2010, 2011, 2012 Samsung C&T. 2009, 2010, 2011, 2012 Samsung Life. 2009, 2010, 2011, 2012
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