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Samsung seeks to enhance corporate image through recall

September 2, 2016

SEOUL, Sept. 2 (Yonhap) — Samsung Electronics Co.’s “swift and costly” decision to replace all Galaxy Note 7 smartphones sold to customers and retailers worldwide with new ones after the discovery of defective batteries appears to be aimed at maintaining its corporate reputation, market watchers said on Friday.

The mass recall and global replacement program for the Galaxy Note 7 came after several of the phablets caught fire while being charged.

Though the battery defect rate was estimated at 0.0024 percent, Samsung’s top management has decided on the unprecedented global recall of all Galaxy Note 7 devices sold or in inventory, signaling its determination to retain its image as the world’s smartphone industry leader, said the watchers.

Koh Dong-jin, head of Samsung’s mobile business division, bows deeply to apologize for the global recall of Galaxy Note 7 in a news conference in Seoul on Sept. 2, 2016.

“The market had expected a simple battery exchange, but Samsung’s decision to carry out a global recall far exceeded the expectations,” said Kwon Sung-ryul, an analyst at Dongbu Securities in Seoul.

Daishin Securities analyst Park Kang-ho also said that Samsung’s swift recall decision is a positive one and unlikely to have a negative effect on its future share prices.

Green Consumer Network in Korea, a civic activist group, issued a welcoming statement regarding the recall.

“Samsung’s global recall is unprecedented and revolutionary. We hope compensation and swap policies will be more routinized in order to maximize consumer benefits and rights. The replacement process should be carefully conducted in order to not disadvantage any consumers and retailers considering the complicated nature of domestic mobile phone distribution process,” the statement said.

Galaxy Note 7

Consumers also reacted positively. A netizen named “jypl” said the recall is an example of ethical management that will help restore corporate credibility, while another netizen, identified only as “zznu,” expressed confidence in Samsung as many other companies pretend not to notice product defects.

Most netizens also said Samsung’s decision, as a global corporate giant, is desirable and that even a loss of 1 trillion won will later turn out to be a boon to its corporate image.

Koh Dong-jin, head of Samsung’s handset business division, apologized for the recall in a news conference in Seoul, saying that its investigation has found that the fire was caused by faulty battery cells.

“Samsung is committed to producing the highest quality products and we take every incident report from our valued customers very seriously,” Samsung Electronics said in a statement released in English.

“In response to recently reported cases of the new Galaxy Note 7, we conducted a thorough investigation and found a battery cell issue,” it said.

As of Thursday, Samsung said, “There have been 35 cases that have been reported globally and we are currently conducting a thorough inspection with our suppliers to identify possible affected batteries in the market.”

Koh Dong-jin, head of Samsung’s mobile business division, announces a global recall of Galaxy Note 7 in a news conference in Seoul on Sept. 2, 2016.

“However, because our customers’ safety is an absolute priority at Samsung, we have stopped sales of the Galaxy Note 7,” it said.

“For customers who already have Galaxy Note 7 devices, we will voluntarily replace their current device with a new one over the coming weeks,” the statement said.

South Korea’s mobile service carriers have also pledged to fully cooperate with Samsung over the recall.

“We’ll cooperate with Samsung and do our best for our customers’ benefit,” SK Telecom said, while other carriers KT and LG Uplus also expressed similar standpoints.

Koh, while commenting on the cause of the battery defect, said that it was just a matter of manufacturing process management, without disclosing the name of the battery maker involved.

“I don’t reveal the name of the battery maker because I myself am responsible for the problem,” said the executive, while noting the total expense of the recall is a “heart-breakingly” huge sum.

“It is difficult to reveal the exact expense of the recall. But it’s a heart-breakingly huge sum. Nevertheless we have reached the recall decision to ensure the safety of customers. There have not been human injury by the fire, but we decided that a simple battery exchange is not sufficient. There were ample in-house discussions and the conclusion was that customer safety and satisfaction and product quality should be prioritized regardless of the monetary (loss),” said Koh.

Samsung Electronics building in Seoul

About 1.5 million Galaxy Note 7 handsets have been sold globally so far and another 1 million units have been delivered to retailers, according to Samsung officials.

During the press conference, Koh said it could take about two weeks for Samsung to begin the replacement program.

Samsung began selling the Galaxy Note 7 in China on Friday, but company officials said the smartphones sold in China use different batteries. So, the battery issue does not affect the Galaxy Note 7 model in China.

The Note 7 smartphone is the latest version of Samsung’s Note series that began selling in some 10 countries from Aug. 19.

Samsung unveiled the new phablet in a bid to keep up the momentum of its smartphone sales.

The Note 7 features an iris scanner and an S-Pen that allows users to translate words. Adding an extra security feature, the iris scanner enables only the owner of the device to use the smartphone.