International Strategy of Samsung Corporation - Assignment Example

International Strategy of Samsung Corporation According to Mejri & Umimoto (2010), firms go through different internationalization stages, and each stage is a higher degree of commitment to the internationalization process. Internationalization of a firm occurs when firms decide to go into different markets, and, in each successive market, there are incremental steps that the firm must take. When going into a new market, firms generally begin with step one, which means that there are no export activities. The second stage in the internationalization process is stage two, where are exportation done by independent representatives and agents. In the third stage, the firm establishes a subsidiary in the country that is the target of the internationalization process. In the fourth stage, the firm actually proceeds to move into the country with physical units for production and manufacturing. Therefore, as Samsung is preparing to enter the country of Iceland, a country where it currently does not have a physical presence, it has the choice to either not export to Iceland, or export to Iceland through an independent representative or an agent of Samsung. If this goes well, then it may consider establishing a subsidiary in the country, which means that Samsung can have a presence in the country through the use of a “child” company, and Samsung would be the parent company in this scenario. If this goes well, then Samsung itself, as the parent, may go ahead and develop a physical presence, by establishing physical sites for production and manufacturing. That said, before it enters Iceland, it should first do a PEST analysis for the country. What this means is that the country should be evaluated for how conducive it would be for Samsung, in terms of politics, economics, social and technology (Qasemi, 2009). What this means is that the external macro environment for the country, Iceland, needs to be known, at least on a reasonable basis, by Samsung, so that it knows what problems it might encounter once it enters into the country. A PEST analysis has to do with the country itself, as opposed to providing information regarding other issues which Samsung might face, such as competitors. The PEST model will be explained further below. As noted, PEST takes into account the country itself and the challenges that the country itself might face. There are other analyses that Samsung should also take, which take into account the competition that is in the country. One of these analyses, and is the one that will be focused upon for this paper, is the Porter’s Five Forces. This will also be explained below, but the gist of the Porter’s Five Forces is that a country needs to look at the threat that competitors may pose in a country, especially if the country has more of a buyer’s market then a seller’s market, which could be the case if the country is saturated with competition, or if the country is experiencing an economic downturn, where the purchasing power of the consumer is in question. This is the case for many countries, including Germany, which is another country that is the subject of this overall analysis. However, Iceland might not be experiencing the same degree of recession as other countries are. This will be analyzed below, in the analyses of Germany and Iceland (Qasemi, 2009). As noted above, Samsung should do a PEST analysis before it decides to enter into a country, and should also do an on-going PEST analysis after it has already entered into a country, so that it can project the challenges which might be on the horizon. The P in the PEST analysis is political. This encompasses all different legal entanglements which might snare a company who is entering into a country or is in a country. Included in this are the regulations of the country, the laws of the country, and the political risk that the country poses. For instance, in a country which has a dictatorship or is war-torn, there might be political risks associated with that country, in that the country might be unstable. In other countries which do not have these problems, there might be excessive regulations and laws with which the company must comply. The E in PEST means economics. This would mean that Samsung should examine currency exchange rates, and how much capital and production will cost. The S is social, and this would mean that the culture of the country, how much the country is changing, socially, and how much they are converging towards global norms. For instance, in the Middle East, in countries where women have few rights, this country might not be converging towards to global norms regarding women. The T in the analysis is technology. This would encompass whether the country has the infrastructure in place for the internet, or, in Samsung’s case, for the wireless technology upon which it relies. Technology may also refer to how widespread Internet viruses are in the country, and how much of a problem cybercrime might be in that country (Qasemi, 2009). Another analysis is a value chain analysis. In this analysis, one must examine what the range of activities that must be done to get the goods into the market. This goes from conception, to the intermediary phases, to delivery, to disposal after use (Fitter, 2009). The other analysis that Samsung must conduct would be an analysis of the countries vis a vis Porter’s Five Forces. Porter’s Five Forces deals with rivalry and competition, and how much of a threat these rival and competitors might pose to the company. If the rivalry is intense, then firms might have a problem breaking into a new company, as this means that the consumers in that country already have many options, so it would be more difficult to break in. On the other hand, in certain countries, it might be more difficult for other rivals to break in, which means that the firms who are in these countries have the upper hand, as new rivals are not likely to emerge. That said, the competitors and rivals might supply substitute products, which can threaten the position of the firm in question, and this represents Porter’s Force number 3. The last two forces focus upon who has the upper hand in a given country – the consumer or the seller? If the consumer has the upper hand, which is true when there are rivals and also when there is a recession, then this country is made less attractive (Pringle & Huisman, 2011). As noted above, the PEST analysis encompasses social, which includes the culture of the country. Moreover, according to Dimitratos et al. (2011), cultural issues are key to successfully navigating a country. This is because cultural challenges are among the most intractable challenges a company might face, and these cultural issues may pose a challenge to Samsung with regards to entering a country, and may also pose challenges to Samsung with regards to expanding their presence in a country. These challenges refer to the differences in cultural understanding between the firm and the local clientele (Dimitratos et al., 2011). Samsung’s business practices will ultimately reflect in their degree of cultural sensitivity, and this, in turn, will enable Samsung to either expand its business or gain entry into a marketplace. The way that cultural issues impact business practices can be categorized in different ways. (Steele et al., 2010). Furthermore, if Samsung hopes to gain a competitive edge in any of the countries were it hopes to enter, or any of the countries in which they want to expand their presence, it must have a sense of cultural competency (Fang, 2010). Strategic issues are some of the issues which are impacted by culture, and how the firm responds to these strategic issues are determined by the culture as well (Becker, 2000, p. 90). There are six different cultural dimensions, and they are 1) how society sees the nature of its people; 2) how society sees the relationship between its people and nature; 3) how society sees the relationship between people; 4) do the people accept the status quo in society, or do they concentrate on making things better?; 5) how does the society conceptualize space, such as personal space and whether meetings are held in public or private? And 6) how does the society conceptualize time, and is it oriented towards the past, the present or the future (Hofstede, 2011). These factors describe general cultural issues, but a business must not only look to these general cultural issues, but some specific ones as well. Among the specific cultural issues is the issue of the distance, culturally, that the firm has to the targeted country. What this means is that Samsung, which is an Eastern country, will have more cultural distance between itself and Western countries, then it would between itself and other Eastern countries. It will also have more cultural distance between itself and Middle Eastern countries than it would between itself and other Eastern countries (Hofstede, 2011). This is a matter of concern for Samsung with Iceland and Germany, as these are both Western countries, therefore there is the potential for great cultural distance to exist between itself and these two countries. There, are four dimensions to cultural distance, and these are 1) power distance, which refers to how different statuses of people are treated, in terms of equality, and how much the power hierarchy is valued; 2) uncertainty avoidance – to what degree are the people of the culture threatened by uncertain or unknown situations; 3) individualism, which looks at how loose or tight the relationships are between the individuals in the populace, and whether the society is collective or individualistic; and 4) masculinity, which looks at the distinction of gender roles. Cultural distance is determined by calculating the square root of all the dimensions for each country, then comparing the results (Hofstede, 2011). Germany will be the first country which be examined through the use of Porter’s Five Forces and through a PEST analysis. The first factor which will be examined will be the economic situation of the country. Miller (2009) states that Germany is doing very well, compared to other countries who have been hit harder by the global recession. Their labor market is strong, as is their rate of monetary exchange. Furthermore, according to Miller (2009), while Germany has had a 5% contraction of their GDP since the recession, they have only had a very mild unemployment increase, which means that they have a strong labor market. This is important to Samsung, as it shows that the country continues to have the money to buy their products. Germany also enjoys strong foreign direct investment, and is among the most attractive targets for FDI in all of Europe, and the country itself has a tremendous degree of purchasing power (“The Consumer Good Market in Germany”). Another economic concern is currency, and this shows another of Germany’s strengths, according to Norris (2011). In fact, Norris (2011) states that Germany currency is so strong that depositors are moving their deposits to the national German bank. As a result, Germany has borrowing costs which are low, relative to other European nations, and foreign competitors in Europe have higher borrowing costs, relative to Germany. Moreover, because Germany’s unemployment is low, this makes Germany monetary unit even stronger, because it has enabled the country to keep its labor costs down. This, in turn, makes its competitive position stronger with comparison to other European countries. Germany’s exports are also strong and competitive with comparison to other European countries. For instance, France is also a country which has Samsung products, but it has a higher unemployment rate than Germany, and its position in the European Union is much less secure. Other European countries, such as Greece, Spain and Ireland, are in similar straits. This makes Germany a more attractive target for expansion than other European countries who are not doing as well (Norris, 2011). Another factor, which was mentioned before, is that Germany must consider that the two countries, Korea and Germany, have different culture. Germany is Western, Samsung is Eastern, and each country therefore has underlying cultural issues which might be at odds with one another. For instance, Daimler is a German company, and the culture of this company is different than how an Asian company might be. Daimler had lax morality rules, and also had lax rules regarding drinking and smoking in the workplace. The CEO of this company was having an affair with his personal assistant, but this was a fact which was known, but not really considered to be a large issue in this company. This is an example of German ethics and rules, which means that there would be cultural distance between Samsung and Germany. How this would affect Samsung is that its executives would have a presumably more difficult time managing the workforce in Germany than it would in Korea, which might affect its expansion efforts if the cultural distance was so great that it stifled growth (Golitsinski, 2000, p. 12). This is just one example of the cultural distance that Samsung would have to face in Germany, and one issue that they would have to worry about with regards to expansion in that country (Ardchivilli, et al., 2006). One other factor which might come into play is the concentration of markets, and this would be a part of the social factors as well. Germany has a large concentration of people, in that its land mass is Concentration of markets is the next factor, and the fact is that there are some 82 million people in Germany, and the country is not that large, geographically speaking (“The Consumer Goods Market in Germany”). This is a plus for Samsung, in that it will not have to locate strategically in different points around the country, which might be necessary in a country which is not as geographically compact, such as China or India. While this is the macro-environment, the environment for retail is very bright in Germany. According to “The Consumer Goods Market in Germany,” the retail market in Germany is 398 billion Euro, in 2009, which makes it one of the top three retail markets in the Europe, along with France and the UK. The populace spent around 24 percent of their available private spending on non-food consumer goods, and fashion and shoes is one of the top three non-food segments of consumer spending. The retail sector was 10 percent of the total German GDP in 2009 (“The Consumer Goods Market in Germany”). Moreover, Germany consumers have excellent purchasing power. This is because they have low personal debt levels and less of a threat of unemployment than other European countries. Their per capita private income has remained stable at 18,904 Euro (“The Consumer Goods Market in Germany”). Therefore, Germany would be an excellent target country for Samsung to expand their operations. The market there is strong, its currency is also strong, and the per capita income in Germany is higher than other European countries. What this means, in a nutshell, is that the people in Germany can afford to buy Samsung products much more than other European countries. This would mean, in turn, if Samsung is going to expand its presence in any European country, Germany would be the country that it should expand. Moreover, Germany also has the advantage for Samsung’s expansion, because it presents another solution to a challenge that Samsung has had in the international marketplace as of late, and that is that Apple has been suing Samsung in a variety of courts for patent infringement. For instance, in the United States, according to Bosker & Grandoni (2012), Samsung lost a lawsuit for patent infringement to Apple in August of this year. This is potentially a hurdle for Samsung products in the countries where they are selling their product, as Apple has made a point of suing Samsung for patent infringements in the countries where both Apple and Samsung are selling their products. In the United States case, the trial court decided that Samsung had violated 7 of the 8 patents upon which Apple based its claim for patent infringement, and these design patents encompassed everything from the curved, rectangular shape of the Samsung smart phones, to the pinch and zoom feature (Bosker & Grandoni, 2012). However, in Germany, this is less of an issue as there was a recent case, in September of this year, in which the German Mannheim court ruled against Apple in a patent infringement case there. This court stated that the touch screen features of the Samsung smartphones do not infringe upon the patents that Apple holds (“Apple Loses German Patent Cases Verses Motorola and Samsung”). What this means in terms of strategy is that, at least in Germany, a manager has less reason to worry that there will be issues regarding whether or not the products will continue to be sold in Germany, as there is always the possibility that Apple would be able to obtain an injunction against Samsung, which would mean, in turn, that Samsung’s products might be restricted. Read More