Introduction
Brief overview
Samsung Electronics, headquartered in Suwon South Korea and established in 1969, is a global front-runner in semiconductors, telecommunication and digital media technologies. According to Samsung (np), the company employs more than 300 thousand people on a global note and expends close to $15 billion on research and development initiatives annually. The company is the leader in the smartphone vending category globally. Some of its closest rivals include Apple, Huawei, OPPO and Vivo, in the smartphone category.
It is worth highlighting that the company also holds a significant market share in the tablet market. Fast facts (np) noted that it is a forerunner in the phablet market owing to its Galaxy Note family. In 2017, it held the second position in the tablet vending category. Apart from excelling in the smartphone and tablet markets, the company is also very successful in the television, semiconductor and display industry. Since 2008, the company been the largest television manufacturer worldwide. In 2008, it garnered a 20 percent market share globally. The figure has nonetheless been varying between 19 percent and 21 percent in the last few years. The company also holds top position in the LCD panel production division and the semiconductor market on a global note.
Company’s mission, vision and value
The company’s mission entails building its brand and becoming a creative leader in the new markets. This can be seen in its aforementioned huge financial resources dedicated towards research and development. On the other hand, its vision includes inspiring the world and creating the future. The company clearly takes advantage of its core strengths including huge financial reserves to change the game which contributes to a better world and enhanced experiences for its customers (Čirjevskis 2). The company leaders believe that the best strategy to realize the vision of becoming a true forerunner in the global markets is to reinforce its business competiveness and follow strategic collaborations, alliances and joint venture through win-win partnerships (Samsung np).
Business model
On value proposition, the company is presently the industry leader for novel ecofriendly design features and manufacturing processes. The company also values innovation and the development of cutting edge technology products (Čirjevskis 14). As mentioned before, the company recognizes the need of developing positive associations and business opportunities with customers. Accordingly, the company has partnered with some of the industry’s key players. Some of its key resources including intellectual, human and financial resources have facilitated the latter. Evidently the company as aforementioned has continually excelled.
Objectives
Financial analysts, while comparing Samsung to its close competitor Apple, claim that the company has a totally different approach that seems to be working (IDC np). Even though the company has heavily invested in research and development activities, it prides itself as an excellent market reader. Before engaging in the manufacture of any product, the company attunes to what the competitors are doing and whether or not they are successful in doing it. After careful considerations, the company then engages in production. Some of its strategic objectives include investing heavily in manufacturing plants and research and development centers among others. Basically, to put the moralities of open innovation into their business model, the company embraces a multi-pronged tactic which includes participation in global associations, establishing links between the industry and top universities, collaboration with dealers and operation of effective research and development centers (Čirjevskis 13)
- EXTERNAL ANALYSIS
- Macro Environment: (PESTEL)
Political
Even though South Korea, its home base country, is politically stable, there have been issues of corruption in the government some of which have directly affected huge companies including Samsung. In 2016, the company was caught up in a bribe scandal, an aspect which affected both its financials and operation. Presently, the company is struggling to set base in the US, however with significant obstruction (Reuters np).
Economic
Electronic products are known to have shorter life-cycles, thus in order for companies to breakeven, they have to sell them at higher prices. Nonetheless, the higher prices can only sell in developed countries (Torresen and Lovland 3).
Socio-economic
The company functions mainly in an environment that is strongly influenced by changing consumer habits. Most developed countries are characterized with impulse buyers- an aspect which works well for the company (Park, Jun and Lee 4).
Technological
The company herein is constantly challenged to come up with newer and advanced technologies due to the competition and also due to the growth of technological savvy consumers (Wang and Ahmed 67). Thus, the heavy investment in research and development.
Environmental
As previously mentioned, the company is one of the industry leaders in the eco-friendly products. With the growing global awareness of pertinent environmental issues such as global warming, the company, in order to remain viable, has to engage in such (Yuksel 22).
Legal
Like most companies, the company has been faced with several lawsuits especially after the fall out of the Galaxy Note phone in 2016 and the 3m faulty washing machines (Chen and Sang-Hun np).
- Five Forces
Bargaining power of suppliers
High- due to short lead times and the high levels of technical competencies required.
Bargaining power of buyers
Low- since the products are of a very high quality. They are also affordable
Threat of substitutes
Low- the short life cycle of the products herein do not provide competitors with adequate time to emulate.
Threat of new entrants
Very low- the development of new products requires huge amounts of investment. Also, the higher niches are already occupied thus difficult for potential investors to penetrate especially in the smartphone and gadget division.
Rivalry
Very high- the industry is close to maturity.
- Competitive Analysis
One core strength of the company herein is that it is largely segmented- having different businesses each characterized with its own key strengths. In its 4 divisions including the consumer electronic division, the smartphone division, the semiconductor division and the display panel division, it has consistently hold the market leader position expect for the display panel, where it holds the 4rth position with a 10 percent market share. Some of its key competitors for instance in the smartphone category include Apple, Lenovo and Huawei. Herein this division, the company has consistently hold a 20 to 30 percent market share (Statista np). On consumer electronics on the other hand, the company, in 2017, the company held a 20.2 percent market share which was however a 1.4 percent decline from the previous year even though it came first. On semi-conductors, in 2017, the company replaced Intel as the market leader.
- Industry Driving Forces
Herein, the business division that has been largely affected includes the smartphone and tablet division and the consumer electronic division. On the smartphone and tablet division an increase in globalization, the changing lifestyles and attitudes of consumers and also the growth of technological savvy consumers has not only pushed for the manufacture of more products but also products that are of a high quality. This is partly the reason why the company has been constantly releasing 2 newer and more advanced smartphones every year. The same is also true for consumer electronics since customers are also there to buy sleeker and more advanced products.
- Industry Key Success Factors
Some of the key success factors include product dependability and reliability. Most consumers go for brands that lack histories of disappointments. On the other hand, others go for products, especially technological savvy ones, which are highly innovative and have good looks and design and therefore the product feature and quality form other key success factors. Thus, the company’s success in both the consumer electronics and smartphone and tablet divisions can be attributed to its innovative designs, dependability and reliability. It is worth noting that some of its close competitor’s success’ herein including Apple have been attributed to innovativeness and good design (Lynch 33).
- Strategic Group Mapping
The strategic mapping herein will include price/quality vs geographic coverage. As evident, the prices of the company’s commodities are slightly high and so is the quality. The geographic coverage is also very large as compared to that of its close competitors.
- INTERNAL ANALYSIS
Financial analysis
As previously mentioned, in all its 4 divisions, prior to 2014, the company had been performing consistently well expect for a minor glitch in 2008, due to the global financial crisis that lead to a decline in performance (Appendix B). According to the financial statement, the company in 2014 lost a significant amount of share- the smartphone division- to its close competitors including Nokia. Its revenue decreased by a 9.93 percent (Appendix B). The downward trend continued till the third year of 2016 (FT, 2017; Samsung, np). According to the financials, the upward trend continues to grow both in the operating income and revenue. One important thing to highlight is that the device solution sector that includes semiconductors was able to survive the downward trend, this can be attributed to the strong demand of semiconductors worldwide.
Resource and Capability analysis and VRIN
A resource based view of the capabilities of any company provides a very stable way of coming up with the company’s strategy (David 5).
| Samsung Electronics | ||||||
| The company’s resources | VRIN characteristics (5-high, 1-low) | Competitive edge | ||||
| Valuable | Rare | Inimitable | Non-substitutable | |||
| Design | Skilled workers | 5 | 5 | 4 | 5 | Yes |
| Product design centers | 5 | 2 | 2 | 2 | No | |
| Research and development centers | 5 | 3 | 3 | 5 | Yes | |
| Manufacturing | Supplier network | 2.5 | 3 | 2 | 3 | No |
| Production bases | 4 | 2 | 3 | 2 | No | |
| Sales and service | Retail network | 3 | 1 | 2 | 2 | No |
| Distribution | 4 | 1 | 2 | 2 | No | |
| After sales services | 1 | 1 | 1 | 2 | No | |
| Corporate | management | 4 | 1 | 22 | No | |
| Brand value | 5 | 3 | 5 | 5 | Yes | |
Table 1
Value Chain analysis
- Inbound logistics
The company has more than 570 suppliers worldwide. Its supply chain on the other hand has more than 2700 suppliers in different businesses worldwide. Of the 570 plus, 79.4 percent of them come from Asia (Samsung np). It is important to highlight that for the company to control its inbound logistic aspect, it retains a considerable sum of logistic companies at its holding including Samsung Electronics Logitec among others. The company creates good relationship with its suppliers- a strategic aspect since as mentioned before they have a higher bargaining power.
- Operation
It was established by JEITA (np) that both manufacturing and producing form the ultimate value adding venture in the present industry since it accounts for 50 percent this companies should perform the latter in order to control both quality and costs. The company produces 90 percent of its products within its base.
- Outbound logistics
The Apple smartphone operating system is higher than that of Samsung smartphones-android. Nonetheless, the company continues to release its own sleek products to compete with the iOS products (JEITA np). The outbound logistic ensures that updates are delivered on time.
- Sales and marketing
Herein, the company largely focusses on the consumers and their perceived competitive advantages. It tries to produce high quality products having advanced functionalities to match the expectations of consumers (Samsung np).
- Services
The services offered have been labelled as high quality. The company also uses customer satisfaction reviews to design their services according to the wants of the consumers.
Benchmarking
Even though the company is a market leader in most of its business divisions, some of its products are not as sleek as those of its close competitors including Apple. For instance, following the release of Samsung S9, most fans claimed that its opposite counterpart, iPhone X beat it (iPhone wiki np). On consumer electronics on the other hand, some LG products have been denoted to have more advanced features than Samsung’s product of the same category.
Strong or weak competitor
The business model of the company clearly shows that at its disposal there are adequate human, intellectual, financial and physical resources which are scarce to most of its competitors. Also, its research and development, design and innovation and production activities are unmatched by most of its competitors. Also to reduce competition, the company partners with some of its strong rivals. It has established major strategic alliances with companies including Nokia and Microsoft. It has made several simultaneous collaborations with large firms including Apple. Generally, its strategy and size make it a very strong competitor.
- SWOT ANALYSIS/TOWS MATRIX
Strength
- Very large product diversity
- Superior brand
- Skilled employees
- Access to financial resources
- Largest market share in mobile phones
- Excellent sales and distribution network in both Europe and Asia
Weaknesses
- Lawsuits due to product failures-the suits damage its image
- Lack of adequate sale bases in the USA
- Low quality products when compared to those of Apple
Opportunities
- The global demand for mobile phones continues to increase
- Most consumers are tech savvy
- Consumers in developed countries are impulse buyers
- The eco-friendly products venture
- Acquisition of smaller entities
Threats
- The bargaining powers of suppliers is constantly increasing
- Strong competition in other sectors including the display panel sector
TOWS MATRIX
| Internal factors
External factors |
Strength
1.Large product diversity 2.Access to financial resources 3.Superior brand 4.Skilled workforce 5.Excellent sales and distribution network |
Weaknesses
1.Damage to image due to law suits 2.Inadequate sale bases in the USA 3.Apple has superior products |
| Opportunities
1.Demand for consumer electronics and mobile phones is increasing 2.tech savvy consumers 3. Impulse buyers 4. Eco-friendly venture |
The company can use its financial resources to counter the demand. It can also use its resources in research and development to satisfy the needs of the tech savvy consumers and also to create more needs. | The company should continue with the eco-friendly venture to try and create a positive image to consumers. |
| Threats
1.Increasing supplier bargaining powers 2. strong competition in other divisions |
The large product diversity will enable the company to concentrate on divisions with minimal competition.
In order to breakeven-the high cost of suppliers-the company should take advantage of its position and resources to manufacture more products. |
The company should strive to open many sale bases in the USA in order to counter the strong competition in the semiconductor division since the US markets are characterized by impulse smartphone buyers. |
- ORGANIZATIONAL STRATEGY
According to Foskett (np), low cost and differentiation are the key drivers of competitive advantage to any company. The author mentions that the company has been very fruitful in various unconnected business an aspect that mirrors strength in predicting prospect market potential. Also, the company’s investment in large scale modern manufacturing plants for semiconductor and display panels highlights that high volumes in the production sector are needed to realize economies of scale. Possessing enormous plants provide the company with the lead of regulating quality and plummeting outlays for its electronic produces. The table below highlights the company’s strategy.
| Samsung | ||||
| Value Chain element | Business division | Competitive edge
factor Key driver |
In-sync with the company’s mission | |
| Design
Sales Retail Distribution Manufacturing |
Mobile division and consumer electronics | Skilled workers
R&D centers |
Differentiation | Strategic fit |
| Production | Device solution and display panels | Low cost production | Cost leadership | Not a strategic fit |
As per the table, the strategy of the company includes both cost leadership and differentiation. For instance, the company in 2014 increased its focus on manufacturing an aspect that was driven by a sharp reduction in proceeds in China (Reuters np). It also selected Vietnam as its worldwide production site for display panels. The shift in strategy enabled the company to compensate for the downward trend in performance in its mobile and consumer electronic division. The strategy of the company can be noted as emergent.
Even though this type of strategy may be effective in the short term, it should be in sync with the mission of the company in order to become a long-term strategy (Table 1). Herein, Samsung decided to opt for contract manufacturing in its device solution division- a move that is not in sync with its mission. The strategic move has however paid off thus the company will be faced with a tough decision of whether to continue with the latter move or not.
Generally, as per the financials the company’s strategy are working even though some as evident are not in sync with its mission. According to the tests of a winning strategy, not all the strategies have worked to the advantage of the company. For instance, even though the company lost a significant amount of its markets share in the consumer electronics and mobile division in 2014 through to 2016, it didn’t alter its strategy, and as an alternative continued its focus on manufacturing and at the same time increasing new product development in consumer appliances targeted towards the USA (Appendix C). Even though it launched a number of stores to counter the downhill trend, the results could not be seen. Therefore while in some cases the strategies boost the performance of the company, in other case they don’t.
The company in most cases pursues an offensive strategy through direct attacks. While taking into consideration the moves of its close competitor including Apple, the company continues to introduce new features to products, slashes the prices and goes after markets where the competitor serves poorly especially third world countries. It also continues to establish secure relationships with suppliers and targets and builds good relationship with the best customers. As previously mentioned, the company is a fast follower in most instances, it looks into the competition and what the competitors are doing before launching its products.
Lastly, the company is pursuing both mergers, acquisitions, joint ventures and outsourcing. For instance it bought companies such as Viv Labs and LoopPay both of which boosted its performance in mobile payments. It also acquired Harman International Industries. On joint ventures, the company has developed such with companies such as Sony Cooperation. Basically as the competition becomes fiercer especially in the consumer electronics and mobile division, such moves aid in developing creating successful relationships with strategic partners.
- ALTERNATIVES IDENTIFICATION/RECOMMENDATION
As mentioned the company pursues both cost leadership and product differentiation. While the former is not a strategic fit, the latter is. It was mentioned that the contract manufacturing under the device solution division may only be effective on a short term basis. Also the strategy is not in sync with the company’s mission of quality and synergies. Furthermore, the strategy is not as profitable since it did not aid the company during the 2014-2016 financial crisis (Appendix D). Thus the need for change.
It is worth noting that more than half of the company’s production in the display panels and semiconductor divisions are shipped to external companies that include some of the company’s fierce competitors. This according to affect the company’s competitive edge in both cost leadership and differentiation. The company herein can decided to make the device solution division into a separate company. It may attract a high valuation, in case of a buyout, the shareholders’ value would increase considerably.
Another factor worth mentioning is that the company has only 2 research and development centers in the USA, out of the 34 centers that it has globally (Appendix A). The main issue is that the US contributes close to 35 percent of its global sales revenue. It is important to establish such centers in order to have a better input from consumers during the product development stage. Also it helps the company in exploring options for co-design with other technology innovators. Thus, the company should open more R&D centers in the US.
Lastly, the company is not as aggressive as it should be in developed countries for instance the US. As mentioned, the consumers therein are technologically savvy and have a higher purchasing power owing to the high per capita income. Therein those countries however, the competition is very fierce. In order to counter the latter, the company uses sales promotion which are effective only on a short term basis. The company should introduce customer loyalty programs in developed countries.
Decision
Any strategic option has to be sustainable. In order to check for sustainability, its profitability, measurability and controllability aspects should be assessed (David 34). The strategy should also fit with both the mission and the vision of the company. The company’s mission is characterized by three pillars including quality, synergies and internationalization. In separating the device solution business, the impacts on the profits will be high, it will be difficult to valuate, and the company will nonetheless remain a major shareholder. In opening more research and development centers, there will be additional costs, it is quite difficult to measure the outcomes and it will be easy to budget and control. Lastly introducing customer loyalty products will have minimal impacts on the profit, it is easy to measure and to control.
Identification of solution and recommendation
According to the above, the best strategy will be to introduce customer loyalty programs in developed countries in the US. This move is both profitable, measurable and controllable. The company will be able to take advantage of the impulse buyers and tech savvy consumers and therefore boost its sales. For the purpose of costs nonetheless, participation in a multi-party loyalty program is suitable.
Work cited
FT (2017) Samsung Electronics profit hits multi-year high as component sales surge [online]. Available at: <https://www.ft.com/topics/organisations/Samsung> [Accessed: 22nd April 2017]
David, Fred R. Strategic management: Concepts and cases. Peaeson/Prentice Hall, 2011.
Freeman, R. Edward. Strategic management: A stakeholder approach. Cambridge university press, 2010.
Palepu, Krishna G., et al. Business analysis and valuation: text and cases. Cengage Learning EMEA, 2007.
Penman, Stephen H., and Stephen H. Penman. Financial statement analysis and security valuation. New York: McGraw-Hill, 2007.
Chen, B.X. & Sang-Hun, C. (2016) “Galaxy Note 7 Is Not Samsung’s Only Problematic Product” The New York Times, Available at: https://www.nytimes.com/2016/10/13/business/international/samsung-galaxy-note7-profit-battery-fires.html?mcubz=0
The World’s Most Valuable Brands (2017) Forbes, Available at: https://www.forbes.com/powerful-brands/list/#tab:rank
Suk-yee, J. (2017) “Samsung’s Brand Value Ranks 6th in the World” Business Korea, Available at: http://www.businesskorea.co.kr/english/news/industry/17184-brand-value-samsung%E2%80%99s-brand-value-ranks-6th-world
About Us (2017) Samsung Electronics, Available at: http://displaysolutions.samsung.com/about-us/our-vision
Čirjevskis, Andrejs. “Designing dynamically “signature business model” that support durable competitive advantage.” Journal of Open Innovation: Technology, Market, and Complexity 2.1 (2016): 15.
Torresen, J., Lovland, T.A. Parts Obsolescence Challenges for the Electronics Industry. Institute of Electrical and Electronics Engineers.
Foskett, N. Global markets, national challenges, local strategies: The strategic challenge of internationalization. Globalization and internationalization in higher education: Theoretical, strategic and management perspectives, pp.36-50.
Bloomberg. Company Overview of Samsung Display Co., Ltd [online]. Available at: <https://www.bloomberg.com/research/stocks/private/snapshot.asp?privcapId=22399354>
IDC. Smartphone Vendor Market Share, 2016 Q3 [online]. Available at:
<http://www.idc.com/promo/smartphone-market-share/vendor>
JEITA. 2017 Production forecasts for the global electronics and information technology industries (pdf). Available at: <http://www.jeita.or.jp/japanese/topics/2016/1222/Jpfget_en.pdf> [Accessed: 25th April 2018]
Morningstar. Samsung Electronics Co Ltd [online]. Available at: <http://financials.morningstar.com/income-statement/is.html?t=SSNLF>
Reisinnger. Apple Trails Samsung in Smartphone Market—And Won’t Catch Up in 2018.:< http://fortune.com/2018/02/13/apple-iphone-samsung-market-share/>
Samsung. Consolidated Financial Statements of Samsung Electronics Co. Ltd and Subsidiaries (pdf). at:<http://images.samsung.com/is/content/samsung/p5/sg/ir/docs/2016_con_quarter04_all.pdf