Strategic Business Unit: Samsung Electronics and Samsung TV - Essay Example

3.2 SBU Samsung Electronics and Samsung TV (Australia) Smart TV has recently arrived to match the “Smart” revolution in consumer electronic products. While markets are raving over their smartphones, TV manufacturers have stepped up their games by offering “Smart” televisions. These televisions are “smart,” because they can be connected to the Internet and perform several applications, such as turning into a “digital health centre” that can monitor people’s vital signs while exercising, a portal for internet browsing, and they can also access media content and services like cellular phones (Sinclair 2011a, 3). In essence, a smart TV is more like a smartphone and a great deal superior to the “idiot box” it used to be called (Sinclair 2011a, 3; Sinclair 2011c, 3). This strategic marketing plan is prepared for Samsung TV, which is particularly geared toward the Australian market. Before this report proceeds to Samsung TV, it will discuss the SBU in general first. Samsung (2011) aims to position itself as a leader in “innovative technology, distinctive designs, and a dual focus on convenience and value.” From 2007 to 2010, Samsung Electronics experienced continued revenue growth (Businessweek, 2011). The company posted 2007 revenues of $84.49 billion, which increased by $48.14 billion by 2010. In 2010, Samsung made $132.626 billion in revenues (Businessweek, 2011). Gross profit also jumped from $23.695 billion in 2007 to $44.569 billion in 2010 (Businessweek, 2011). Samsung also enjoyed profitability ratios that are part of the top ones in the industry. Return on Assets is 6.83%, Return on Capital is 9.11%, and Return on Equity is 16.07% (Businessweek, 2011). Gross margin is 31.86% and EBITDA Margin is 16.81% (Businessweek, 2011). Samsung Electronics Australia was created in1987 as a sales and marketing auxiliary of Samsung Electronics (AO3 2011). Samsung Electronics Australia is composed of three divisions: “Consumer Electronics, Information Technology, and Telecommunications” (AO3 2011). Furthermore, Samsung Australia’s TV business unit is considered as a “key driver in the Samsung Set Business portfolio, along with the Mobile phone business” (Samsung 2011). The TV business has held a strong top position in the market share (Samsung 2011). LED TVs have led the growth in the TV business, while Samsung’s LCD and Plasma TVs are also industry leaders (Samsung 2011). This indicates that for Samsung Australia, Samsung TV is a strategic fit within the corporate structure, because it sustains the marketing of innovation and distinctiveness. Samsung has focused on innovation to pursue continuous digital convergence and Samsung TV embodies digital convergences too (AO3 2011). Samsung TV also affects the financial performance of Samsung, although competition has intensified with the developments of the 3D digital TV genre. Samsung TV is sold all over Australia in different distribution channels, including the usual department stores and electronic-specialty shops. Samsung TV offers Internet-connection with “Samsung Applications”, “Web Browser,” “Search all”, “Your Video,” “Social TV,” “Skype,” and “Allshare” (Samsung 2011). It also offers 3D viewing capacity. Web Browser enables web users to surf the net through the big screen (Samsung 2011). “Social TV” allows users to share comments with friends and families, as well as chat with them, while they are watching their TV shows (Samsung 2011). Samsung Apps or Applications permit users to access different apps, such as “Sports, News, Entertainment, Social,” and “Big Pond Movies on demand,” as well as, “NRL Game Analyser” (Samsung 2011). “Search All” functions as the search button, where when people enter an “event,” for instance, this search button will search all media streams and the Internet and put results in one area (Samsung 2011). “Your Video” makes recommendations based on past viewed movies; it presents an automatic listing of all-time movie favorites (Samsung 2011). Based on the website of Samsung Australia, it offers “Smart TVs” that can be categorized into several kinds: 1) LED TV, 2) Plasma TV, and 3) LCD TV. Among the three, LCD TV is the first developed, followed by Plasma and LED. LED TV addresses the shortcomings of both LCD and Plasma televisions, by offering better color levels and contrast ratio, and so pictures are clearer and crisper from different angles (Technically Easy 2011). In addition, LED TVs have lower power consumption, are shock resistant, and longer lasting than its precursors (Technically Easy 2011). The recent Series 6, 7, 8 of these kinds of TV are already Smart TVs. See Table 1 for the Smart TV ranges offered by Samsung. The table includes model, features, screen sizes and suggested retail prices. It can be seen that Series 6 D6600, Series 7 D7000, and Series 8 D8000 are the ones who can be fully categorized as Smart TV in Samsung’s definition of that term. Table 1: Samsung Smart TV Classification List Source: Samsung (2011) 4.2 SBU Customers For the past ten years, the main trend in electronics is convergence. There have been major changes in electronic products, where the “traditional” and analog are replaced by the “digital” and “Internet-connected” (Dudley-Nicholson 2011). In the TV segment, after 3D films were launched, TV makers are hurrying toward the next 3D TV or the next Internet, Smart TV. Many consumers are astounded with 3D films and how they can improve the viewing experience, and TV manufacturers believe that the same experience can be extended to TV viewing. An article noted that “everyone from developers and manufacturers to broadcasters and consumers will be watching to see how far and how fast smart TV moves on that path from promise to delivery” (Winslow 2011, 14). Different stakeholders are expecting to see new TV products that can impact their business and social and individual lives (Winslow 2011, 14). Furthermore, downloading content online has affected diverse businesses, such as movie, book, and other content producers. Intellectual property rights (IPR) have taken a forefront in the media, although companies have found ways to respect IPR and still make money out of easy downloads online. For instance, Apple popularized the “video-capable iPod and $1.99 downloads of a few programs” (McCracken 2006, 15). As a result of this technological and business innovation, the term "legal TV downloads" has ceased to be an “oxymoron” (McCracken 2006, 15). Some of the relevant changes in the macroenvironment that have happened in the SBU industry will also be discussed in this report. Politically, the Australian government has great impact on smart TV development, because companies need a good internet connection for these virtually-connected TVs (Winslow 2011, 15). At present, Australia is still working on developing Internet speed and content quality by improving its telecommunications and Internet infrastructures. The SBU is also affected by regulations that impact business revenues and employment. The economic factors that will impact the SBU are economic growth, interest rates, exchange rates, and inflation rates. LED TVs and other smart TVs are quite expensive and not all materials are taken from australia. LED TVs need high economic growth, so that it can be assured that the markets can afford them. In addition, interest rates and exchange rates impact consumers and the business through the import of raw materials and products. The inflation rate also directly impacts consumers and their purchasing power and behaviors. Social factors have significant impact on the SBU, because people have to be open to the idea of buying a new expensive Smart TV, when they also have computers or tablets (Winslow 2011,14). Although Generation X and Y are keen to new technology, the Baby Boomers might find Smart TV as not so smart choices, when the “old” way needs no fixing. Technological improvements have driven the demand and supply for Internet TV. Powerful processors and capabilities in combining different functions in one media tool can increase interest in Smart TVs. Environmental factors, nevertheless, also matter, because consumers, environmental organizations, and the government are becoming more and more concerned of e-waste from electronic devices. Every time a company makes a new product or model, the previous ones easily pile up as e-waste. Legal factors also impact Smart TV, especially in terms of intellectual property rights with respect to downloaded content. There are also issues of copyright infringement among companies as their products seem like clones of each other. According to the 2010 Samsung Electronics Annual Report, Samsung Electronics has attained the “world’s No. 1 market” in TV market share from 2006 onwards (7). Its LED TVs, launched in 2008, created a “competitive lead” of 45.11 million units (Samsung 2010, 7). In 2011, Samsung introduced its Smart TVs that offer “Full HD picture quality, immersive viewing experience and Smart Hub options” that render access to digital content (Samsung 2010, 7). See Figure 1 for TV Sales, TV sales revenues, and global market share. It can be seen that from 2009 to 2010, sales increased from 37,819 million to 45,115,000 million (Samsung 2010, 7). TV sales revenues also jumped from $23.561 million to $25.969 million (Samsung 2010, 7). Furthermore, global TV market share is 22.1%, based on DisplaySearch survey results (Samsung 2010, 7). The high market share and increase in revenues and units can be attributed to the marketing strategy of Samsung. Samsung has strong marketing campaigns for its TVs and other products, where the benefits of innovation and performance are merged. This market position may have been well-entrenched in the minds of consumers, thereby making Samsung TV a trusted choice, and which helped Samsung increase market share from 2009 to 2010. Figure 1: Sales, TV sales revenues, and global market share Source: Samsung (2010, 7) 4.3 SBU Competition Samsung’s Smart TVs have a number of international competitors, particularly, Sony, Panasonic, and LG. This report will review the market share and financial performance of these competitors compared to Samsung TV. Between Sony and Samsung, the latter is gaining in market share, which showed increases from 2006 to 2009 (Ihlwan 2010). See Figure 2. It shows that from 15.3 LCD market share, Samsung worked up to 22.7 in 2007. Sony, on the other hand, slipped from 17.1 market share in 2001 to 14.4 share in 2009. Figure 2: Samsung versus Sony, LCD TV market share Source: Ihlwan (2010) As for LCD market share, Samsung leads the category, followed by Sony, LG, and Panasonic. See Figure 3. Even in the LCD TV shelf share, Samsung leads in the industry. See Figure 4. Samsung has 12.35% share, followed by Sony at 10.99%, and LG by 3.49 %. Figure 3: LCD TV Market Share Source: TWICE (2010, 10) Figure 4: LCD TV Shelf Share Source: Tarr (2007, 36) For Plasma TV, Panasonic leads the market share, closely followed by Samsung. See Figure 5. LG is fifth in place. For Plasma TV self share, Panasonic also leads it at 23.09%, followed by Samsung at 15.72%, and LG at 13.80%. See Figure 6. Figure 5: Plasma TV Market Share Source: TWICE (2010, 10) Figure 6: Plasma TV Shelf Share Source: Tarr (2007, 36) This report proceeds to review the performance of each competitor. See Table 2 for financial performances of Samsung, Sony, Panasonic, and LG. The year for these financial data is 2010. It can be seen that Samsung had greater revenues and profits compared to the rest of its competitors. The lowest revenues and gross profit come from LG. Return on assets is also highest for Samsung at 6.83%, followed by Sony at 1.80% and Panasonic at 1.77% (Businessweek 2011). Samsung also has highest return on capital with 9.11%, followed by Sony at 5.50%, Panasonic at 3.02%, and LG at -0.80% (Businessweek 2011). Samsung enjoyed high return on equity at 16.07%, followed by Panasonic at 0.16%, LG at -1.20%, and Sony at -8.47% (Businessweek 2011). For gross margin, Samsung leads the industry with 31.86%, followed by Panasonic at 25.85%, Sony at 25.44%, and LG at 21.06%. From these financial performances, Samsung clearly has a lead Table 2: Financial Performances of Panasonic, Samsung, Sony, and LG Company Revenues Gross Profit Return on Assets Return on Capital Return on Equity Gross Margin Samsung $132.626 billion $44.569 billion 6.83% 9.11% 16.07% 31.86% Sony $94.214 billion $21.815 billion 1.80% 5.50% -8.47% 25.44% Panasonic $113.526 billion $30.083 billion 1.77% 3.02% 0.16% 25.85% LG $47.820 billion $10.318 billion No data available -0.80% -1.20% 21.06% Source: Businessweek (2011) This report also reviews the resources and sustainable competitive advantages of Samsung and its competitors. See Table 3. Table 3 shows that Sony, Panasonic, and Samsung have more financial resources than LG. In terms of marketing of their TVs, Samsung, Sony, Panasonic, and LG have their own market positions, although all focus in performance. Sony, nevertheless, has the Bravia brand that is more expensive than its competitors. R&D is considered as a crucial resource for all these firms, especially with the trend of digital convergence in the TV industry (The Australian 2011, Ihlwan 2010, and Yasu and Nakajima 2011). Marketing is also critical, because of intense competition in the Smart TV sector. The key competitive advantages of Samsung are its financial management, since it has the strongest financial performance among these four competitors, as well as branding and marketing, which its market share proves (See Figure 1). For Sony, it is slipping in its TV market share and revenues in general. Nevertheless, it is still a well-known international brand, with strong Playstation brand sales that can have a halo effect on its TV brand. It is also more focused on marketing of whole-entertainment digital convergence with its Blu-ray entertainment system integrated with its PS3. Panasonic remains a leader in Plasma TV, with strong marketing and R&D in its electronic SBU. LG lags behind Samsung, Sony, and Panasonic, but it does aim for greater marketing aggressiveness in Australia (The Australian 2011). The sustainable competitive advantages of Samsung are its R&D and marketing strategy. It has high revenues and strong brand equity, which shows in market share and sales. Sony has a strong product portfolio, where risks are more evenly distributed. The same goes for Panasonic, with its strong portfolio, R&D, and marketing strategy. It remains no.1 in the Plasma TV sector. LG aims to use its supply chain management strategy to enhance its revenues. It will also promote greater marketing in Australia to increase its market share in the continent (The Australian 2011). Table 3: Resources and Competitive Advantages Company Relative resources Key competitive advantages Sustainable competitive advantages Samsung Financial, marketing and R&D Financial management, branding and marketing R&D, Marketing Strategy Sony Financial, marketing and R&D Financial resources, branding, Halo effect of PS2, marketing of whole-entertainment digital convergence Product portfolio mix, Marketing Strategy Panasonic Financial, marketing and R&D Leadership in Plasma TV, R&D, and marketing Product portfolio mix, R&D, Marketing Strategy LG Marketing and R&D Marketing and intention to expand further in Australias consumer electronics Supply Chain Management, Marketing Strategy Sources: The Australian (2011), Ihlwan (2010), and Yasu and Nakajima (2011) 4.4 Key Findings 4.2 SBU Customers 4.2.1 For the past ten years, the main trend in electronics is convergence. Furthermore, intellectual property rights (IPR) affect legal access to content online. 4.2.2 PESTLE analysis shows that political support is needed in improving Internet access and infrastructure that will be conducive to Smart TV. The economic factors that will impact the SBU are economic growth, interest rates, exchange rates, and inflation rates. Social factors have significant impact on the SBU, because people have to be motivated to spend on more expensive TV sets that act as computers too. Technological improvements have driven the demand and supply for Internet TV. Environmental factors also matter, because consumers, environmental organizations, and the government are becoming more and more alarmed of e-waste from electronic devices. 4.4.3 Samsung Electronics has attained the “world’s No. 1 market” in TV market share from 2006 onwards, specifically in the LED TV sector. 4.3 SBU Competition 4.3.1 The foremost competition in the Plasma TV sector is Panasonic. 4.3.2 Samsung had greater revenues and profits compared to the rest of its competitors. The lowest revenues and gross profit come from LG. 4.3.3 The sustainable competitive advantages of Samsung are its R&D and marketing strategy. It has high revenues and strong brand equity, which shows in market share and sales. Sony and Panasonic have strong product portfolios, where risks are more evenly distributed. Sony is slipping in its TV market share lead, though it is a threat in terms of its brand equity and recent Blu-ray-3D technological convergence strategy. LG seeks to use its supply chain management strategy to enhance its revenues. It will also advance marketing efforts in Australia to increase market share. Reference List AO3 Independent Computer Search. 2011. Samsung Australia Company Profile. Accessed Sept 23. Businessweek. 2011. “Samsung Electronics-Regs GDR.” Accessed Sept 19. http://investing.businessweek.com/businessweek/research/stocks/financials/financials.asp?ticker=SSUN:GR&dataset=incomeStatement&period=A¤cy=US%20Dollar Dudley-Nicholson, Jennifer. 2011. “New Box of Tricks.” The Courier Mail, May 4, 6. Ihlwan, Moon. 2010. “Sony and Samsungs Strategic Split.” Businessweek, January 7. Accessed Sept 19. http://www.businessweek.com/magazine/content/10_03/b4163052960824.htm McCracken, Harry. 2006. “TV on the Net: Ready for Prime Time?” PC World, April, 24 (4), 15. Sinclair, Lara. 2011a. “Farewell to the Idiot Box in the Corner as Televisions Get Smart.” The Australian, January 8, 3. Sinclair, Lara. 2011b. “LG Determined To Dominate Consumer Electronics Industry. “The Australian, January 13, 20. Sinclair, Lara. 2011c. “Internet TV Proving a Hit.” The Australian, March 21, 30. Samsung. 2011. Samsung Smart TV. Accessed Sept 19. http://www.samsung.com/au/consumer/tv-audio-video/television/index.idx?pagetype=type_p2& Samsung. 2010. 2010 Samsung Electronics Annual Report. Accessed Sept 19. http://www.samsung.com/us/aboutsamsung/ir/financialinformation/annualreport/downloads/2010/SECAR2010_Eng_Final.pdf Tarr, Greg. 2007. “Samsung Holds LCD Lead, Sony Takes Back RPTV.” TWICE: This Week in Consumer Electronics, September 24, 26 (6), 36. Technically Easy. 2011. Differences between LCD, Plasma and LED televisions. Accessed Sept 19. http://technicallyeasy.net/2011/04/differences-between-lcd-plasma-and-led-televisions/ The Australian. 2011. “LG Determined To Dominate Consumer Electronics Industry.” The Australian, January 13. TWICE: This Week in Consumer Electronics. 2010. “Market Share Reports by Category. TWICE, July 5, 25 (14), 10-16. Winslow, George. 2011. “Tablets and Smart TVs: What You Need To Know.” Broadcasting & Cable, January 17,141 (3), 14-15. Yasu, Mariko and Mikako Nakajima. 2011. “Panasonic Profit Misses Estimates as TV Sales Drop.” Businessweek, February 2. Accessed Sept 19. http://www.businessweek.com/news/2011-02-02/panasonic-profit-misses-estimates-as-tv-sales-drop.html Read More