Samsung Electronics Business - Case Study Example

Samsung Case Analysis Introduction The story of Samsung Electronics is without doubt one of the most remarkable one ever, not just for a technological company but any firm at all. It was founded in 1969 when South Korea was one of the world’s poorest countries in the world; they had little or no access to the advanced markets and operated in an environment of limited technology (Shin & Jang, 2005). On the onset, they could not produce even simple products competently and as a result, several barriers in entering the electronic market encumbered them. However fast forward 4 decades later, in 2005, Samsung was the market leader in flash memory, by 2008, it was a market leader in the LCD market and in April 2011, it became the market leader in smartphones and even surpassed Apple and Nokia, which had been industry legends. In 2012, it registered 215 million smartphone sales almost doubling Apples 135 million (Jose, 2014). Samsung had a reputation for being a fast follower, they tended to look for companies with good innovations and then model its own products after it. However, unlike other firms that made imitative products, Samsung took care to make good quality electronics and in some cases better than the original. This however resulted in conflict between Samsung and other firms such as Apple over patent suits (Duhigg & Lohr, 2012). However, in view of the fact that they are now the market leader, they can no longer follow so they have taken to introducing innovations. They have ultimately succeeded in revolutionize the smartphone and tablet market having developed new models and flagships such as the galaxy. In addition to their smartphones, Samsung has a vast array of other goods such as microwaves, TV’s Fridges air conditioners laptops, cameras and others. Given the firm’s reputation for quality and effective goods, people tend to trust most of them; in addition, with its smartphones competing with Apple, Samsung has become a status symbol for many customers. Porter 5 analysis The porter five forces framework is used to determine and analyse the level of competition in an industry and direct business strategy development it drawing upon industrial organizational economics where it derives the forces. From the alignment of these forces, the attractiveness or lack of which of the institution is determined in the context of the given industry. According to Michael porter who is behind this theory, an unattractive industry is one that is approaching pure competition where all the profits for the firm are normal. These forces constitute the microenvironment of the Organisation, a change in any of them usually forces the business to re-asses the attractiveness of the marketplace taking to account the projected effect of said changes. However, it is worth noting that the overall attractiveness of an industry does not necessarily mean that all the firms will turn in a profit. Different firm’s Apple their core competencies and chosen business models based on their strategic positioning and competitive advantage to achieve a profit beyond the market average. In view of the cutthroat competition in the smartphone market, which is developing at an exponential rate, the Porter five frameworks emerges as the most appropriate model under which Samsung’s market position can be examined. The first force is threat of new entrants In the smartphone industry, it is noticeably difficult to make a start an industry where the existing firms operate on a cost and differentiation strategy; a new firm will have to have enough resources to compete with Apple, Samsung, Huawei, Nokia and other industry giants. Nonetheless, this does not necessarily lower the threat of entrants, while it may be low in terms of the actual numbers of people wishing to enter the industry, the few able ones may have distinct advantage (Worstall, 2014). Any firm with the resources to enter the market will easily use the technology the current firms have been using and possibly develop them to give themselves a competitive edge. This is the same technique that was used by Samsung in the past and several other new entrants have applied it. For example, companies like Huawei and HTC were almost unheard of 5 years ago and today they are competing with industry giants (Karippacheril et al. 2013). Therefore while the threat of entrants as mentioned may not be very high, it can at best be rated moderate since the few firms that manage to enter the market do so while prepared to compete with the market leaders head on. When it comes to overcoming the barrier of customer loyalty in the industry, one may imagine that the market is very difficult to penetrate, as customers are already loyal to Samsung. However, it is important to differentiate between being loyal to the hardware manufacture and the Operating system. Since Google gives away android free to developers, it has become increasingly easy for customers to shift from one company to the other. Threat of substitutes For Samsung and any other company in the smartphone market any device that performed the same function is a potential substitute. Furthermore, considering the aforementioned point that android makes it easy for a customer to shift, it is apparent that the threat of substitute cannot be ignored. However, in Samsung’s case, they have focused on marketing their brand and special features such as the quality of their screens, bigger smartphones and more integrated functions. They are already aware that the operating system is almost neutral ground so they capitalize on building customer loyalty through creating a brand following. In addition, they have adapted a lower pricing strategy by ensuring that their products are lower enough than Apple to attract budget conscious customers but not so low that they will appear cheap quality. Bargaining power of suppliers In Samsung’s case, the bargaining power of suppliers is very low because the firm is almost fully vertically integrated (Lee & He, 2009); they design and manufacture most of their devices and parts in house and as a result, they never have to worry about the demands of their suppliers. By being vertically integrated, it also means they can custom anything they want since they have specialized in their own products. Intensity of competitions Competition in the smartphone market is quite high and although Samsung is currently the leader, this position is not a guarantee of dominance in the field. In the end, there are hundreds of other firms producing similar products and Samsung has to constantly upgrade its designs and bring new devices into the market. It has to ensure it keeps ahead of the competition more so in regard to technology since all the companies are working to come up with the most dynamic and attractive technologies to attract customers. Key drivers in the smartphone market Some of the Key drivers in the Smartphone industry include; Industry regulation; the smartphone field is founded on a technological platform with each of the firms bringing new technology to the table and some copying from others. In some cases, this has brought about legal challenges, which are exemplified by the Apple vs. Samsung suit in 2013 where the former was accusing Samsung of having stolen its intellectual property right in some of its designs (Olivares, 2014). The multinational litigation by Apple became known as the smartphone patent war characterized by numerous suits against Samsung and other smartphone firms. In return, Samsung also sued Apple for the same and by July 2012, both firms were embroiled in patent disputes in 10 countries around the world. Although Samsung has lost to Apple in several of the cases, some scholars speculate that the suites may actually have worked in favour of the brand (Cusumano, 2013). This is because Apple was retrospectively assumed the better quality manufacturer and when they sued Samsung, users began to think they may be in the same class after all and found it easier to shift to Samsung’s products. According to Ramon Llamas a research manager at IDC mobile phone, the key driver behind smartphones global penetration is the projected decrease in prices. This is particularly so in developing markets where price sensitivity and elasticity are vital consideration for consumers. Given the attraction of numbers, every vendor and manufacturer is trying to determine how low they can price their devices and still turn a reasonable profit. Thanks to android, many hardware manufacturers can work on the same footing with industry giants and this has put pressure on market leaders to lower their price. To leverage on price competition Samsung has applied the skimming price strategy; it involved realizing high quality and high-end phones that are designed for the wealthy market. However as soon as the models are old or have been copied by competitors it drops the price allowing the low-end market to enjoy the devices while at the same time working on new products. In addition, it exercises a lot of price flexibility and differentiation and as a result has products for various market segments. The S4 for example retails for as much as $600 while some low end phones such as the Star plus go for as little as $120. Another key driver in the smartphone market is technology; it is the deciding factor on whether a company will retain relevance in the global market or not (Worstall, 2014). For example Nokia, after being on top of the mobile market for the better part of the last decade of the 20th century was edged off the Top spot by Apple which only 5 years previously had not sold a single smartphone. Technology and innovation determine the fates of companies in the smartphone arena and those that expend the most efforts and finances in their development strategies reap the biggest rewards. At present, Samsung and Apple have the best technology at their disposal and as result; they are sitting atop the smartphone food chain. While Apple introduced fingerprint scanning and longer battery life, Samsung have recently introduced the Galaxy S4, which allows the user to scroll down content using their eyes. This and other technologies from Samsung have enabled it to distinguish itself from being a follower to a leader and trendsetter in innovation. Samsung’s biggest competitive advantage is the fact that they have affordable innovative technology since they custom make most of their devices from their own factories (Flannery & Nasiri, 2007). In addition, their customer friendly prices have made it such that they can enjoy monopoly over Apple in the low-end market and at the same time compete with it in the upper levels. Samsung Electronics is also a highly diverse company given that in addition to the smartphones its net profits also come from devices such as fridges and microwaves. In this respect only a few firms such as its home rival LG can compete with it, Apple and Microsoft are limited to communication devices, which places them at a disadvantage in terms of sustainability. In 2013, Apple.inc released the iPhone 5 with a bigger screen than most models in the market at the time. However, according to analysts, this was not enough to give it the edge over Samsung given that the phone cost $650. Samsung responded with a range of smartphones including the Galaxy S4, which retailed for nearly $100 less in China and Europe despite having similar if not better specifications. Consequently, although the units they sell have been rising gradually over the years, Apple’s share or worldwide sales fell to 14% in the second quarter from a previous 30%, in the same period, Samsung’s’ share rose form 30% to 32%. Samsung’s strategy in this context accentuates competitive advantage since it can bring its devices to the market much more rapidly than the competition. It does not have to wait of orders to grow through to supplies since it is vertically integrated and until recently used to sign manufacture and sell semiconductors for Apple. The integration gives it an edge over most of its rivals, as they have to depend on the timelines, conditions and pricing of their rivals. Fig 1. Apple vs. Samsung Market Share Recommendations and conclusion A few years ago, Blackberry and Apple were the leadings smartphone vendor, today Apple is number two while Blackberry is struggling to keep itself from oblivion (Olivares, 2014). Therefore, while Samsung may hold an enviable position, it would be naïve to imagine that its success and dominance are guaranteed. These are some of the recommendation that it can put to consideration before if it intends to maintain its market leadership in posterity. Full Vertical integration- One of the reasons Samsung is so successful is because it has distinguished itself as a component manufacture and designer both for itself and other companies. In making the S4, the cost of production was $236 per unit, however out of this $149 was for parts manufactured by Samsung. In the future, Samsung should work to ensure that it produces at least 90% of the materials needed to make their devices. This way, they can have control over the technology and pricing which are two of the key drivers in the smartphone market today. Without a doubt, Android is one of the reasons Samsung has been so successful so far and the same can be said of other smartphone manufactures with the exception of blackberry and Apple (Arthur, 2012). However, Samsung need to take cognizance of the fact that Google may also decide to get into the smartphone market and use the popularity of android to make inroads into Samsung’s market share. Therefore, Samsung needs to have more device-centred modifications for their brand so they can own their version of android. Furthermore, given that they already have a majority market share, they can start providing some services exclusively for Samsung users to discourage them from going to other brands the way Apple has. While it would be unwise to introduce a new platform, Samsung will benefit in the end from making its products slightly more exclusive so that they shield themselves from losing customers overnight because of unprecedented disruptive technologies. New Markets- Samsung may be balancing between the high and low-end market but it is gradually becoming victim to its own success. Today, although their devices are considerably cheaper than Apples on both ends of the continuum they are notably pricier than other smartphone brands such as Xiomi and Huawei. While this may be a testament to the earning value of the Samsung name, it may compromise its foray into the low-end markets. In the next 10 to 20 years, the economies of emerging markets such as Africa and Asian will be significantly better and their buying power improved. Therefore, Samsung should ensure it is the first company that they can afford today since in posterity they might prefer to stick with it when they can afford better devices. A the present, Samsung in in danger of ending up in the middle ground given the high competition from Apple at the high end market and the entry of new cheaper brands such as HTC, Infinix and Huawei into the lower end market. References Arthur, C., 2012. Battle of the smartphones. The Guardian. [Online] 24 January . Available at: Cusumano, M.A., 2013. The Apple-Samsung lawsuits. Communications of the ACM, 56 1 , 28-31. Duhigg, C., & Lohr, S., 2012. The patent, used as a sword. The New York Times, 7. Flannery, A. F., & Nasiri, S. S. 2007. U.S. Patent No. 7,247,246. Washington, DC: U.S. Patent and Trademark Office. Jose, K., 2014. Samsung ́s Marketing Story: How an exporter of dried fish became one of the top ten international brands. Munich: GRIN Verlag. Karippacheril, T.G., Nikayin, F., De Reuver, M., & Bouwman, H., 2013. Serving the poor: Multisided mobile service platforms, openness, competition, collaboration and the struggle for leadership. Telecommunications Policy, 37(1), 24-34. Lee, K., & He, X., 2009. The capability of the Samsung group in project execution and vertical integration: Created in Korea, replicated in China. Asian Business & Management, 8 (3), 277-299. Olivares. P. 2014. What Apple Versus Samsung Means For The Future Of Innovation. Forbes Magazine. [Online] 1 September. Available at: Shin, J. S., & Jang, S. W., 2005. Creating first-mover advantages: the case of Samsung Electronics. Unpublished Manuscript, Department of Economics, National University of Singapore. Worstall, T. 2013. Why Samsung Beats Apple Or Perhaps Vice Versa. Forbes. [Online] 9 September. Available at: Read More