Samsung: Business Strategy - Research Paper Example

 Samsung: Business Strategy This paper discusses the business profile of Samsung- the South Korea based multinational corporation- by analyzing the company features and examining the industry in which it operates. For this study, strategic analysis frameworks such as Porter’s Five Force Model, PEST analysis, SWOT analysis, and BCG analysis have been applied. The analysis of the company indicates that Samsung is well-positioned in the consumer electronics industry even though this business sector raises a set of potential threats to the company. In addition, technological innovativeness is identified to be the most important strength of Samsung that assisted the company to survive into the 21st century without losing its market share. The development of Android mobile phone series offers extensive areas of exposure to the company as they have been greatly accepted and recognized in the market. Since the company is still at its growth stage, it is advisable for Samsung management to invest more in R&D activities so as to establish a strong foundation for future business expansion. Introduction The Samsung Group, informally Samsung, is a South Korea based multinational conglomerate corporation that comprises numerous business subsidiaries and affiliated groups. The company was founded by Lee Byung-chull in 1938 and it commenced its operation with forty employees. During the initial stages, the firm dealt with groceries and noodles. After the end of Korean War in 1954, Lee expanded his business into many areas including retail, securities, and insurance sectors. Lee gave specific focus on industrialization and he could effectively prevent foreign competitors from operating in South Korea (Samsung history, n.d). Although Lee had jointly invested with Hyosung group in a new venture called Samsung Trading Corporation in 1948, it parted after several years due to some management issues. Samsung Group entered the electronics industry during the late 1960s and formed a number of business divisions such as Samsung Electro-Mechanics Co., Samsung Telecommunication Co., Samsung Electronics Devices Co., and Samsung Corning Co. Samsung entered telecommunications industry in 1980 by acquiring the Gumi-based Hanguk Jeonja Tongsin. Firstly, the company dealt with switchboards and subsequently it spread the business to telephone and fax manufacturing systems. During the same time, the company brought its all subsidiaries under Samsung Electronics Co. Ltd. However, the Samsung group was parted into four distinct business divisions namely Samsung Group, CJ Group, Shinsegae Group, and Hansol Group after the founder Lee’s death in 1987 (Sams, 2012). In order to meet the increasing market competition and thereby place the company at the top of the global electronics industry, Samsung Electronics began to give great emphasis on research and development in the 1980s. Throughout the 1990s, the company continued to build television assembly plants in overseas countries like Portugal, United States, Japan, and England. Samsung became the world’s largest producer of memory chips in 1992 and the company built its liquid-crystal display screen in 1995 for the first time. In the 1990s, the company was gradually changing to an international corporation. During this period, the company won many big construction contracts including Burj Khalifa in UAE, one of the two Petronas Towers in Malaysia, and the Taipei 101 in Taiwan (Samsungsituationanalysis, 2012). The Samsung Group downsized the company in 1993 by selling off ten of its subsidiaries in order to concentrate more on three sectors such as electronics, chemicals, and engineering. While analyzing the financial statements of Samsung, it is evident that the 1997 Asian financial crisis did not hurt the company as much compared to other multinational corporations. However, the company was forced to sell Samsung Motor to Renault at a huge loss. Samsung’s business deal with Rolls Royce in 2001 became a milestone in the corporate history of the organization. During the period 2004-05, Samsung overtook Sony- one of the most leading consumer electronics brands (Brand Finance, 2011). In 2011, the company overtook Apple and became the largest Smartphone maker in the world. In the same year, the company sold its hard disk drive business division to Seagate. Samsung Electronics was ranked as world’s largest information technology company in 2010 in terms of revenues while Samsung Heavy Industries became world’s second largest shipbuilder by revenues in the same year. Currently, Samsung’s business represents nearly a fifth of the total exports of South Korea. The corporation plays a pivotal role in the rapid economic development of South Korea and it has a strong influence on the country’s political landscape, media, and culture. Detailed Company Analysis As we discussed earlier, the Samsung Group is a multinational conglomerate corporation, which dominates several sectors of the industrial world. In order to comprehend the operational efficiency as well as the long term sustainability of Samsung Group, it is necessary to analyze the corporation using relevant strategic frameworks. Porter’s five forces in the consumer electronics industry Since Samsung mainly deals with electronic products, it would be better to discuss about consumer electronics industry. Globalization and associated technological revolution contributed to the explosive growth of electronics industry over the last few decades. Degree of competitive rivalry: While analyzing the industry rivalry, it is obvious that industry players like Nokia, LG, and Motorola raise potential challenges to Samsung. It is identified that competition is more intense in emerging markets like India. For instance, Saxena (2009) indicates that companies like LG and Samsung invest huge amounts of money on sports event sponsorships in India (p.226). Threat of new entrants: Electronics industry is growing day by day, and therefore, the number of competitors is also increasing. However, it would be difficult for new entrants to sustain their operations into next phase of growth because of the fact that a new entrant without proper industry knowledge cannot survive for a long time. Threat of substitutes: Obviously, threat of substitutes is high in consumer electronics industry since majority of the consumer electronic products are almost identical to each other (PWC, 2012). As a result, it is very difficult for the country to diversify its product offerings from those of competitors, and therefore, this situation greatly threatens the sustainability of Samsung. Buyer power: It is precise that the consumer electronics industry offers a range of product choices to customers and hence buyers enjoy certain levels of bargaining power over sellers. In addition, switching cost is also low in this industry. Hence, the situation raises a series of challenges to the company. Supplier power: There are numerous potential suppliers in electronics industry and hence companies like Samsung have the option to choose vendors who offer materials at the cheapest cost. Moreover, Samsung is one of the leading players in the world’s consumer electronics industry. Hence, the company is able to influence its suppliers to a large extent. Samsung Generic Strategies In the words of Hill and Jones (2007), it is obvious that Samsung obtains competitive advantages from its combined low cost/differentiation strategy (p.185). This approach greatly assists the organization to effectively meet the needs and requirements of various market segments. The corporation has the potential to customize its product offerings around a core design. The company has a range of well established quality product designs and features, which are capable of meeting frequently changing trends in modern consumer electronics industry. The superior product designs together with effective application of artificial intelligence characteristics assist the company to gain competitive advantages over its competitors. The talent pool strategy is also beneficial for the company to get access to local talents and to develop them. Furthermore, the company’s capital generation capacity greatly aids it to easily survive even severe contingencies. According to Chang, Makatsoris, and Richards (2004); the company adopts a bottom-up approach by which it initially tries to capture lower end of the market and thereafter reach upper classes (p.127). In contrast, majority of the Samsung’s rivals practice a price competition strategy in order to dominate the highly competitive consumer electronics and home appliances industry. PESTLE Analysis for Samsung Political factors: Although majority of the countries in which the company operates offers favorable political landscapes for Samsung, some countries pose political risks to the organization. The company needs to deal with hostile business environments in African countries as well as South-East Asian countries. In contrast, emerging markets like India and China have conducive political environments that offer a prosperous future for the organization. Economical factors: Samsung Group deploys different operational strategies in different countries based on the size of the market and financial stability of consumers. In order to make its products affordable to customers, Samsung follows a targeted marketing strategy by which the corporation specifically focuses on middle class people. Hence, economic fluctuations do not pose a serious threat for the company’s sustainable development. Socio-cultural factors: Since Samsung is a global company; it needs to operate under different cultures. However, despite being a South Korea based corporate giant, Samsung manages to effectively integrate itself with different cultures. It seems that the company pays specific attention to cultural values of different market segments and various consumer classes. Technological factors: In the words of Park, Ali, and Chevalier (2011), technological innovativeness is one of the fascinating features of Samsung that placed the company at the top of consumer electronics industry. The company’s innovativeness is well reflected in its product designs and features. Legal factors: Countries like China impose a set of operational regulations on foreign marketers in order to protect their traditional and domestic industries from the threat of winding up. Such business restrictions in certain countries pose some difficulties to Samsung. Environmental factors: Although the company caused many ecological issues in the past, nowadays, it has identified the significance of environmentally sustainable business operations and formulated effective approaches to CSR and green policies. In addition, the company has developed facilities to ensure the scientific processing of e-waste. Company Strategies and Corporate Strategies Samsung’s growth can be described from the perspective of four distinct elements including product life cycle (PLC), product price level, diversification, and product characteristics. While scrutinizing the market strategies of Samsung, it is precise that the company follows the PLC in the reverse order. To illustrate, the firm began manufacture and distribution of monochrome television sets in early 1971 even though the product was in the declining phase of PLC in economically developed countries. Similarly, the organization enters a market with low-priced product offerings and gradually launches costly products. In addition, Samsung has been vehemently working to diversify its product characteristics since early 1980s. According to BCG analysis, Samsung Group can be placed under the category “stars”. The organization has high market growth rate and relative market share. In other words, the company has the potential to generate high cash inflows although it uses large amounts of money. Hence, the current internal business condition offers a range of growth potentials to the organization. Samsung’s corporate history tells that the firm considers merger as potential business expansion strategy. The company believes that the merger strategy would provide it with competitive advantages over its rivals in terms of economies of operation and market knowledge. The Samsung-Seagate merger in the hard disk drive (HDD) sector is one of the major mergers in the history of Samsung Group. In addition, the company is planning a huge merger between Samsung Electronics and Tizen operating system. Samsung SWOT Analysis Strengths: The Company has a strong technological background and the firm is well known for its technologically improved product lines. To illustrate, the Samsung Android phone series has greatly aided the company to perk up its electronics market share. Strong market position assists the firm to confront with stiff market competition and thereby generate improved revenues. In addition, diversified business portfolio is another internal strength of Samsung. Weaknesses: Although Samsung gives great emphasis on innovation, it seems that the company is not much proactive in introducing new products and it waits for the competitors. Likewise, the company cannot efficiently differentiate its products from those of competitors. Since the corporation targets niche markets and sets low product prices, consumers perceive that Samsung products are of low quality. Fluctuating net profits also adversely affect the corporate image of the company. Opportunities: It seems that positive outlook for semiconductors raises far reaching opportunities for Samsung. In addition, statistical data shows that mobile phone sales are still growing and this situation provides the company with further potential to grow (see Table 1). Furthermore, the company has strong roots in rapidly developing economies like India and China. Increasing popularity of Android operating system also offers a promising future to the company. Threats: It is obvious that Samsung’s competitors are more dominant in the market. To illustrate, players like LG, Panasonic, and Sony are dominating home appliances industry whereas companies such as Nokia and Blackberry have been placed at the top of the mobile phone market. In addition, increasing government regulations and tariffs raise potential threats to the Samsung. Conclusion, future outlook, and recommendations From the above discussion, it is clear that Samsung Group is a business chain that has strong roots in several industries. Although the company operates in several business sectors, its operations are mainly centered on consumer electronics industry and home appliances industry. The company considers mergers as its major global expansion strategy. The industry analysis indicates that the consumer electronics industry poses some potential challenges to this multinational corporation because degree of competitive rivalry, threat of substitutes, and buyer power are relatively high in this sector. In contrast, the PESTLE analysis reflects that the macro environment of Samsung provides the company with a set of competitive advantages. Similarly, the BCG analysis points out that the organization has further growth potential despite its growing operating expenses. Technological innovativeness is one of the most notable strengths of Samsung while increased competitive forces threaten the long term sustainability of the company. Despite some of the identified limitations and weaknesses, prevailing market conditions promise the company a potential future. As we discussed earlier, the current trends show that Android operating system would dominate the telecommunication sector over the coming years. Since Samsung has a range of best selling Android products, this strength may play a pivotal role in determining the company’s growth rate in future. The low pricing pattern would provide the company with core competencies since market analysts predict that price would be of utmost importance in the future setting. The rapidly growing economies like India and China would greatly influence the growth rate of the company in future. Furthermore, the electronics industry is dramatically developing nowadays and this explosive growth may position the company at the top of the industrial world in the near future. From the BCG analysis, it is precise that Samsung operates as stars. In this phase, it is strongly recommendable for the company to make more investments in order to retain current profits and promote further growth. In addition, the company must be proactive while operating under highly competitive market segments like consumer electronics and home appliances; otherwise, the firm may lose its competencies over the rivals. It is also advisable for the company to integrate with its potentials suppliers as this strategy would be helpful for the company to take advantage of the synergies of combined operation and thereby increase its market share. Moreover, I strongly suggest the company to concentrate more on its online sales because statistical information points out that future selling activities may be centered on e-commerce. References Brand Finance. (2011). The annual report on the world’s most valuable brands. Brand Finance Global 500, 1-86. Chang, Y. S., Makatsoris., H. C & Richards, H. D. (2004). Evolution of Supply Chain Management: Symbiosis of Adaptive Value Networks and ICT. New York: Kluwer Academic Publishers. Dallas C Sams. (2012). World News Inc. Retrieved from http://wn.com/Dallas_C_Sams Hill, C. W & Jones, G. R. (2007). Strategic Management: An Integrated Approach. USA: Cengage Learning. Park, K., Ali, M & Chevalier, F. (2011). A spiral process model of technological innovation in a developing country: The case of Samsung. African Journal of Business Management, 5(3), 5162-5178. PWC. (2012). 15th annual global CEO survey: Retail and consumer industry insights. Retrieved from http://cfodirect.pwc.com/CFODirectWeb/Controller.jpf?ContentCode=KOCL-8RRR3S&rss=true Samsung history. (n.d). Samsung-Mobiles.net. Retrieved from http://www.samsung-mobiles.net/history-of-samsung.html Samsungsituationanalysis. (2012). Retrieved from http://samsungsituationanalysis.wordpress.com/2012/01/07/samsung-situation-analysis/ Saxena, R. (2009). Marketing Management. New Delhi: Tata McGraw-Hill Education. Worldwide sales and forecast. Slideshare. Retrieved from http://www.slideshare.net/StevenDuque/mobile-phones-sales-projections-us-euromonitor-july-201077 Appendix Table 1 Sales of mobile phones in US (in US$ million) (Source: Worldwide sales and forecast). Read More