Samsung's Prospects to Enter New Markets - Coursework Example

Strategic International Management Table of Contents Introduction 3 Samsung 4 Industry Environment 5 Porter’s Five Forces 5 Role of Stakeholders 9 Stakeholders and Corporate Social Responsibility 10 Entry into a foreign market 10 Steps are needed before entry 11 Reasons behind entry 13 Challenges 13 Conclusion 14 References 16 17 Introduction Expansion in the international market is one of the most widely adopted strategies in the recent past. Organisations decide to go global primarily with the objective of achieving its business growth related targets. It is true that expansion in the foreign markets is one of the most common strategy, but at the same time it is one of the most risky and difficult strategy to be implemented properly. There are several factors that need to be properly analyzed before entering a foreign market. Expanding into global market is a strategic decision, hence it is crucial to make proper strategic planning prior to making any final decision. Strategic management in the context of international business basically deals with making strategies for going global and implementing them successfully. This report deals with strategic international management in the context of Samsung. It includes a brief overview of the Samsung Company. For analyzing a company from the perspective of strategic management it is very important to understand the industry environment and this can be done by using strategic tools like Porter’s five forces and PESTEL. Both these strategic tools are used in this report in the context of Samsung. Stakeholders are considered as an important aspect of business. Organisations, before making any strategic decision, need to think about the possible effects of their decisions on the stakeholders of the company. The role of stakeholders in the business operation of Samsung is properly described in this report. There must be some reasons behind any decision regarding global expansion. All such possible reasons in the context of Samsung are discussed in this report. It also includes the challenges that the company might face during its inception process in a foreign market. The report ends with a proper conclusion. Samsung is involved in several businesses, but the report focuses mainly on the electronics division of the company Samsung South Korea based Samsung group started its journey in the year 1938. It is one of the most diversified groups in the world. Samsung is involved in various businesses that include consumer electronics, life insurance, petro-chemicals, constructions etc. Samsung electronics started its journey in 1969. Initially it only manufactured black & white televisions. At present the company is involved in the manufacturing and selling of LCD, semiconductors, digital appliances, digital media products and telecommunication products. The company’s semiconductor products include flash, DRAM, SRAM, fusion memory, mobile SoC etc. Its LCD products include notebook PCs, desktop, panel for TVs, digital information displays etc. (Business Week, 2010). Its telecommunication products are business telephone systems, telecommunication systems. The digital appliance products include refrigerators, washing machines and air conditioners. The company has its operation in America, Asia and Europe. It maintains strategic partnerships with Giorgio Armani, DreamWorks Animation and Time Warner Cable. Moreover the company has Strategic Cooperation Agreements with Suning Appliance Company Limited and Chinacomm Communications Co Ltd. Researches have revealed that in 2004 the company’s total sales were $78.5 billion. The total value of the company’s assets was found to be $66 billion. In that year almost 113,000 were working in the company. In 2000 the brand value of Samsung was $5.2 billion which increased to $12.6 billion in 2004 (SiegeL, & Chang, 2006). According to the recent financial report of the company, the total value of its assets is more than $73 billion. Its total sales, according to this report are almost $77 billion. Samsung electronics is found to be the flagship company of the Samsung group. Industry Environment Samsung operates in an intensively complex industry which is huge in size. Since Samsung electronics is present in almost all the electronics business it has to deal with large number of customers, suppliers and competitors. The industry can be better analyzed with the help of Porter’s five forces model. Porter’s Five Forces According Michael Porter each and every industry is influenced by five forces. These are buyers’ bargaining power, suppliers’ bargaining power, threat of new entrants, threat of substituent and rivalry among the competitors. Each of these forces is analyzed in this report in the context of Samsung electronics. Buyers’ bargaining power Customers are likely to have strong bargaining power in the electronics industry. This is mainly because several alternative products and brands are available in the market. Customers can easily change their present choice of brand and select another one. There are large numbers of companies that produce and sell same products. The company that can offer the best product in terms of technology and price will be chosen by the customers. Cost of switching brands is very low for the customers due to the presence of large numbers of good brands. Such situation is mainly applicable for individual customers and on products like televisions, mobile sets, refrigerators, air conditioners etc. that are purchased by individuals. However apart from these products Samsung electronics also deals with semiconductor products that are mainly for institutional customers. Such customers are mainly large or medium size organizations. For instance in January news it came out that Samsung would supply multi-chip package (MCP) to Sony for manufacturing digital cameras and advanced gaming system (Physorg, 2005). Now, organizations like Sony are almost as big as Samsung. As a result it is quite likely that the company will apply all its power at the time of negotiation regarding price and quality. Quite naturally Samsung will always try to retain such a customer. So overall it can be said that customers have significant bargaining power. Suppliers’ Bargaining Power Suppliers play an important role in the electronic products industry. It is very important to have high quality raw materials at a both-party agreed price. Moreover these inputs must be supplied within the given time. As a result it can be expected that suppliers have significant bargaining power regarding various issues of price, delivery time, quality and quantity. However it is observed that if the manufacturer is a big player in the industry then it has a greater bargaining power over its suppliers. As far as Samsung is concerned, it is one of the largest electronics companies in the world. As a result it can be expected that the suppliers are also keen to maintain their relationship with the company. In other words Samsung also has significant power over its suppliers. There is large number of suppliers of Samsung. It is found that almost 240 suppliers supply raw materials to the company’s Suzhou factory in China. In this factory mainly household appliances are manufactured. These suppliers are evaluated on the basis of five criteria which are quality, throughput, technology, ability to response and price. The company has excellent supplier management system in place. According to the company’s policy a supplier must be able to supply raw materials within 3 hours of receiving the order. Suppliers who fail to attain the desired performance level are eliminated. However the company keeps the elimination rate within 5% (Sun, J. Sun, X. Xu, T. n.d.). Such data shows the power that Samsung has over its suppliers and Samsung can exert such power only because it is the largest player in the market. In case of other small and medium manufacturers, suppliers have enough power to influence their decisions. Overall it can be said that in the electronic goods industry, suppliers have moderate to low bargaining power. Threat of new entrants Threat of new entrants is found to be quite low in the electronic industry. This is mainly because of the existence of strong barriers which impedes their entry. In order to enter the consumer electronic industry a firm must have enough capital, access to high end technology, excellent infrastructure, high level of expertise etc. Huge amount of money is required to set up the required infrastructural facilities. Furthermore this is such an industry where technology aspect is one of the most important aspects that need to be considered. Any company that wants to survive in the long run must have competitive advantages in terms of technology and innovation. Today each and every electronics company tries to come up with new technologies on a continuous basis to cater to the changing nature of customers’ demand. It is an open secret that a technology that is very popular today would be obsolete tomorrow. Established companies have the capacity to cope up with such changing nature of demand and technology but for a new firm it becomes extremely difficult to adapt such nature. Moreover it is expected that a new company will not have enough capital back to come up with new products powered by new technologies on a constant basis. People aspect is also very important as they are the key to innovate new technologies. However it is very likely that most of the talented human brains will be associated with the big players in the industry. As a result for a new entrant it will be difficult to have skilled employees. So, overall it can be said that threat of new entrants is low in the industry where Samsung operates. Threat of Substitutes Threat of substituent is found to be low in case of electronics industry. This is mainly because there are no such products that can be considered as replacement of electronics goods. All the research and development works are going on in order to innovate advanced electronic products, not any such products that will replace the electronics products. Rivalry among competitors The industry is highly competitive in nature as there is large number of big and medium size players. Samsung mainly competes with different players from semiconductor, telecom and digital appliances market. For example Hynix semiconductor is the main competitor of Samsung. Nokia, LG, Motorola are the main competitors in case of the company’s mobile phone and digital appliances products. Sony is perhaps its biggest competitors in the context of consumer electronics products. Each of these players is very renowned and respected organizations in their own field. They are always trying to enhance their effectiveness and efficiency. They spend huge amount of resources to improve their product offerings and increase their respective market share. Such continuous effort from all the organizations has made the industry extremely competitive. As far as semiconductor market is concerned Samsung is found to be the market leader and in other in case of other products also the company is either largest or second largest company. However in order to retain such dominating position Samsung must always be conscious about the competitive nature of this industry. Role of Stakeholders In simple words stakeholders of a company are those parties that have interest or share in the company. Generally stakeholders of an organization include employees, owners, shareholders, customers, suppliers, government and community. Employees and owners are the internal stakeholders of the company, whereas rests are external stakeholders of the company. Each of them has interest in the organization in the sense that any decision taken by the organization is likely to have impact (direct or indirect) over these stakeholders. Stakeholders play important role in the decision making process of the company. Actually stakeholders and organization are interrelated. Any strategy is made focusing on the interests of the stakeholders. In that sense stakeholders always influence business decisions. Like any other companies Samsung also give enough importance to its stakeholders while making any decision. Samsung’s main objective is to offer more value added products to the customers and make sure that shareholders get the best possible return investment. Employees are important stakeholders for any company. Realizing such importance Samsung provides several benefits to its employees. It provides an environment where the employees can give their best possible performance. However there are instances where it is found that the working conditions in some of the Samsung factories are not as satisfactory as it should be. In fact recently some workers in the Samsung’s semiconductor factory are found to be having leukemia. Former employees of such a factory claimed that the company did not take necessary steps despite of being aware of the fact (The Hankyoreh, n.d.). Such incidents show that the company needs to be more conscious regarding various factors that are directly related to the stakeholders. Stakeholders and Corporate Social Responsibility Samsung has always given required importance to its corporate social responsibilities. According to the information provided in the company’s website the main objective of Corporate Social Responsibility management is promoting mutual growth with the stakeholders. According to the company such objective can be achieved through its CSR vision which is “Global Harmony with People, Society and Environment” and its corporate vision which is “Leading Digital Convergence Innovation”. In January, 2009 a CSR Liaison Office was established under the supervision of the CEO of the company. With the help of such office a specific CSR strategy was adopted. It was a mid term company-wide strategy. In addition to that CSR communication channels were centralized and CSR meeting programs were established as a part of internal CSR infrastructure. CSR initiatives of Samsung Electronics are classified into Integrity Management, Social Contribution, Green Management, Partner Collaboration and Products & Services. The company ensures that various business activities are strongly connected with its CSR activities order to meet stakeholder needs and other major issues. Under the leadership of CEO, CSR meetings are held twice in a year. In these meetings CSR policies are checked by the executive management teams that look after the five CSR initiatives. They evaluate the performance of each of the divisions. Samsung Electronics is likely to continue sharing and implementing its CSR initiatives at the same time maintain proper communications with the stakeholders in order to collect and implement their opinions in future CSR activities of the company (Samsung, n.d.). Entry into a foreign market Entering into foreign market is one of the most widely used business expansion strategies in the world in the recent past. It is a big strategic decision. There is huge risk as well as opportunity associated with such decisions. There are several steps that should be followed before entering into a new market. Furthermore there can be several reasons as well as challenges behind such decisions. All these steps, reasons and challenges are discussed below. Steps are needed before entry Any foreign market entry strategy should be backed up by proper planning. This process of planning includes seven different steps that are needed to be performed in order to succeed. Identify the objective of the company Firstly management must have a clear idea regarding the reasons and objectives that will be achieved through foreign market entry. Objectives can range from exploitation of a new market to securing raw materials and gaining competitive advantages. Whatever might be the objective, it should be clearly defined before getting into a new foreign market. It is very important to identify the objectives because the countries that seem to meet these objectives will be included in the list of potential countries to expand in. Markets of these countries will be further analyzed. Screening of preliminary country Once the countries selected they need to be properly analyzed to identify few of them as probable destination. There will be certain criteria based on which selection of country will be done. Opportunities and challenges in the target country Each of the country will be having some unique opportunities and threats which are needed to be identified. This is mainly because different countries have different political, economic, technological, cultural, legal and environmental climate. It is very important to identify these factors so that the strategy making process get facilitated. Capabilities and resources Once the constraints and opportunities are identified, capabilities and resources that will be required in the selected country need to be identified. The concept of key success factors will come into play in this stop. Core competencies The company needs to identify its core competencies in order to capitalize more on the key success factors of a particular market. Entry Strategies Once all the previous steps are over, the company should spend time to decide which entry strategy to choose which one to not. Various foreign market entry strategies include exporting, direct investment, strategic partnerships etc. Comparison of targeted countries The above steps should be performed in case of all the selected countries. Then each of the countries should be compared and ranked. The country that scores high should be finally selected to enter (Phatak, 2006). Reasons behind entry There could be several reasons behind entering into a foreign market. One of the most important of them is to increase the sales volume by selling existing or new products to the new customers who are situated in other geographical locations. Achieving growth objectives is another common reason behind the adoption of ‘going global’ strategy. In order to have sustainable competitive advantage organizations need to have sustainable growth which is difficult to achieve from the existing market after a certain period. Avoiding changing conditions of domestic market is found to be another reason behind entering into the foreign market. Sometimes it is found that product is at the maturity level in the domestic market or it is technologically outdated for the domestic customers. In these cases also companies decide to sell their products in some foreign markets where the product is expected to be considered as contemporary or ahead of current trend. Accessing hidden resources can be another reason behind expanding internationally. Organizations often invest in those markets where skilled workforce is available at a lower cost as compared to domestic market. Availability of valuable resources can be another reason behind global expansion. All such reasons are true in case Samsung also. The company can invest into a new foreign market in order to achieve increase its sales volume and growth rate. Challenges Organizations face several challenges while they make their entry into the foreign market. These challenges can be political, economic, legal, cultural, social and technological in nature. Political challenges can come from the government, the political environment of the country, unions etc. There are countries where government does not welcome foreign organizations to come. In some countries political situation is not stable (e.g. Pakistan). Unstable political situation makes the country an unattractive market to the companies. Unions can also be considered as barriers to entry. They can create extreme pressure on the management in case of various decisions regarding recruitment, wages, working conditions, job cuts etc. Challenges can be from the legal environment as well as economic environment of the country. It is very much possible that exchange rate or interest rate is not helpful for the company. Cultural barrier is perhaps the most common barrier to the entry into a foreign market. Every country has different culture. People in different country speak in different languages. People from different countries have different attitude, different behavior, different leadership style and different motivating skills. Companies often face problem in order to cope up with such differences. All these challenges are applicable in case of Samsung. If the company decides to get into a new foreign country, it must be aware of all these challenges. Conclusion Samsung is one of the largest global electronics companies in the world. It is a South Korea based organization. It operates in such an industry which is highly competitive in nature. This industry is analyzed with the help of Porter’s five forces model. It is found from such analysis that in this industry buyers have strong bargaining power and suppliers have moderate to low bargaining power. Both threat for new entrants and threat of substituent is found to be low, whereas rivalry among competitors is found to be very high. Like any other big company, Samsung also give importance to its stakeholders. Before making any decision, its effects on the stakeholders are always considered in the company. Samsung truly is a global company as it has its operation throughout the world. Entering into a foreign market involves several steps starting from identifying the objective of the company to comparing and ranking the countries. There are several reasons behind global expansion of a company. Increasing sales volume, achieving growth target are two main reasons. As far as challenges are concerned, political and cultural environment are found to be most prominent challenges face by the companies while going global. References Business Week, 2010, Samsung Electronics Co. Ltd., [Online] Available at: http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=91868 [Accessed on April 16, 2010]. Phatak, 2006, International Management, Tata McGraw-Hill Physorg, 2005, Samsung Supplies Multi-chip Packages to Sony for PlayStation Portable, [pdf] Available at: http://www.physorg.com/pdf2716.pdf [Accessed on April 16, 2010]. Samsung, No Date, Vision & Organization, Corporate Profile, [Online] Available at: http://www.samsung.com/us/aboutsamsung/sustainability/sustainablemanagement/csrvisionorganization/csrvisionorganization.html [Accessed on April 16, 2010]. Sun, J. Sun, X. Xu, T. No Date, Competitive Advantage Based on Innovation, [Online] Available at: http://faculty.washington.edu/karyiu/confer/beijing03/papers/sun&sun&xu.pdf [Accessed on April 16, 2010]. SiegeL, J. I. & Chang, J. J. 2006, Samsung Electronics, Harvard Business School, [Online] Available at: http://userwww.sfsu.edu/~fadi/Samsung%20Electronics.pdf [Accessed on April 16, 2010]. The Hankyoreh, No Date, Former employee says “Samsung is lying” about factory conditions, [Online] Available at: http://english.hani.co.kr/arti/english_edition/e_national/416380.html [Accessed on April 16, 2010]. Read More