Lessons from Samsung's exploding batteries

The stars have been shining bright on Samsung for years now.

The Korean conglomerate has evolved from a low-end electronics company into one that charges a significant premium on its products. Few companies are able to pull off such a feat.

Competition is stiff on the smartphone front, especially with the rise of Chinese players such as Huawei, Xiaomi and ZTE (Samsung and Huawei in particular have been suing each other over patent infringements in recent months). In addition, Apple occupies the exact same position as Samsung within the market.

But Samsung is doing well, and preliminary second quarter numbers for 2016 suggest that the quarter will be the most profitable since early 2014. Its global market share has also been rising.

Samsung was valued at US$210 billion on 18 August 2016, ranking it third among Asian technology firms, behind only Tencent and Alibaba.

This rosy picture lasted a mere two weeks.

Exploding batteries

On September 1, reports of exploding batteries surfaced.

Unfortunately, they were related to Samsung's latest Galaxy Note 7 smartphones, putting a serious dent on the new flagship product.

The effect has been amplified because of the hype around this new product and its release before the Apple 7 series. Some customers would have felt 'betrayed'.

Several people posted images and videos of charred Galaxy Note 7s online saying that their phones had caught on fire.

In fact, Samsung suspended domestic sales from August 29. More than 400,000 units had been sold in the ten days following the launch on August 19.

When the recall was first considered, a total of 2.5 million units had already been purchased worldwide, of which 1.4 million had been delivered to end customers.

Exchange and recall programmes are now in place in the 10 countries in which the smartphones have been sold.

Lessons

While it is clear that the defective batteries can be traced back to one particular supplier, this information was not revealed (though the blame has begun to shift to Samsung's subsidiary who supplies 70 per cent of the batteries).

In some ways, Samsung would have been expected to shoulder the blame anyway.

It does remind us of when OSI supplied expired meat to MacDonald's, in a case where the latter was badly hit.

The lesson here is about picking the right supplier, and also ensuring that even trusted suppliers are put through some quality control mechanisms.

A total recall of all the smartphones could cost a few billion dollars. But the damage of not recalling them is far greater than that. In particular, the image of the Galaxy Note 7 is now irreparably damaged.

It is better off to start afresh.

Product safety

Different countries have differing product safety acts.

These usually allow the government to recommend or order a business to carry out recalls of products that cause or are likely to cause danger or harm to consumers' lives, bodies or property due to serious defect. A smartphone with a battery that can potentially explode undoubtedly falls into this category.

The US government is already asking consumers not to use 'fire-prone' Samsung phones. Bans and guidelines have also been issued on the use of such phones on airplanes.

To this end, airlines such as Emirates, Singapore Airlines and Qantas have banned the Samsung Galaxy Note 7 on their planes.

Samsung followed up with similar advice to South Koreans who own the smartphone.

Countries like Myanmar are being less restrictive, saying that the launch will be delayed until the batteries are tested.

Chinese media reported that the country is not part of Samsung's recall plan.

Samsung claimed that the smartphones shipped to China had batteries that were not supplied by the problematic battery supplier.

In this, Samsung needs to be reminded of the lesson that IKEA learnt recently in China when it declined to recall its defective dressers.

Further, Samsung shifted some of the blame onto one of its Chinese suppliers. The Chinese media then worked out that this supplier is in fact wholly owned by Korean companies.

The parties do have to straighten this out to avoid misunderstandings.

For now, the prospect of Samsung challenging Tencent and Alibaba has to be shelved. Its market value dropped by a whopping US$ 22 billion from its August 18 high.

Despite respectable remedies being in place, the damage caused by this case of defective smartphones has been substantial. When the hype is high, the fall is more painful.

For a while at least, Samsung's competitors can reap the benefits of the mistakes that Samsung has made.

After all, your competitors' mistakes can aid in your success.

Published on stuff.co.nz