Investigation of the Management and Finance of Samsung - Case Study Example

University: A Report of an investigation into the management and finance of Samsung Electronics Student name: Student number: Tutor: Date: Table of Contents University: 1 Acknowledgements and declaration of collaboration 2 Summary 3 Introduction, background 3 1.1 Management 3 1.2 A brief background: Samsung 4 1.3 Finance 5 1.3.1 Cash flow 6 2. Aims and objectives, planning, scheduling and management of the investigation 8 2.1 Aim 8 2.2 objectives 8 2.3 The outline plan 8 2.4 The schedule 8 3. Critical literature reviews 9 3.1 Finances and market share 9 3.2 Corporate culture 10 4.The case study – Samsung Electronics 11 Conclusion 12 5.Reference: 14 Acknowledgements and declaration of collaboration This work entails an individual assignment. The content of the report were done entirely by me following survey of online literature. Throughout the report, references are made to peer-reviewed journals, news articles and Samsung’s financial reports and news statements. Summary This report aims at exploring management and finance of engineering companies. For this particular report, Samsung Electronics is selected given its management and financial trajectories that have ensured it becomes the world’s leading electronics manufacturer (specifically mobile phones) (Samsung 2004). Through extensive literature, concepts and theories of management and finance are examined with reference to Samsung Electronics. Conclusion and recommendations on the company’s management and finance are further discussed based on the company’s situation. Samsung Group comprises 27 independent affiliate firms. Headquartered in Korea, the group has an estimated 200,000 people working across 285 operations in 67 countries across the globe (Samsung 2004). The group’s core businesses include electronics, finance and trade and services. This report examines Samsung Electronics, one of the group’s affiliates. Introduction, background 1.1 Management Management is a broad term referring to the organization and coordination of processes or activities within an organization to achieve some identified objectives. Management of businesses and organizations therefore describes the process of coordinating people’s efforts to effectively and efficiently to achieve some defined goals and objectives through available resources. Generally, the process of management comprises organizing, planning, directing, leading, controlling and staffing an organization or an entity with the view of accomplishing certain objectives (Weinzimmer 1998; Munns & Bjeirmi 1996). 1.2 A brief background: Samsung Founded in 1938, Samsung Group is a South Korean electronics company with multinational operations. During the course of its inception, Samsung had a completely different project management and finance compared to what it has today. From the outset, the company’s primary revenue source included vegetable, fish and fruit (Samsung 2004). In 1948, the company grew to have its own operation and production lines. In the early 1970s, the company started investing in heavy industries and soon afterwards, Samsung divisions sprung up such as Samsung Heavy Industries, Samsung Electronics and Samsung Precision Company (Samsung 2013). In the late 1970s, the company had become a major manufacturer of electronics in South Korea. As of June 2013, the company has become the largest electronics manufacturer globally (Samsung 2013). One of the company’s greatest strengths lies on its financial health. The company’s financial statements indicate incremental revenue growth. With over 200,000 employees across the globe, Samsung earns average annual revenue of US$120 billion (Samsung 2004). A major weakness is that the company has been criticized for its comparatively high-cost products in the competitive electronics industry. Its major opportunity is that the company has the potential to increase investment in its engineering facilities. Today, it has more than half of the Korean engineering market. A major threat is that the company faces stiff competition from such firms as LG Electronics, Sony Corp on the international market. Samsung Electronics manufactures a range of industrial and consumer electronic products and equipment such as phones, personal computers, internet access network systems, semiconductors, televisions, monitors, home appliances, microwaves and air conditioners. 1.3 Finance Finance refers to the discipline of managing funds or allocating assets and liabilities over a period of time under conditions of risks and certainties. Indeed, finance can be classified into corporate finance, personal finance and public finance. For the purpose of this report, corporate finance is the most relevant. Corporate finance involves all capital investment decisions faced by a company. Indeed, it alludes to the notion of financial management (Pollitt 2001). Financial management refers to the competent and effective management of funds with the view of achieving corporate objectives (Pollitt 2001). Taking a commercial business such as Samsung’s organizational structure, the aim of the management of finances would be to create wealth for the company, generate cash and guarantee sufficient return on investment in view of risks and resources investment. Within this regard, there are three primary aspects to the process of managing company finances. The three include financial planning, financial control and financial decision making. Concerning financial planning, Samsung has integrated processes that ensure sufficient funds are available at the right time to meet the company needs (Samsung 2004). For instance, the funds may be needed for short-term objectives such as investing in stocks or equipment, pay wages and salaries as well as fund sales. Short term objectives may include funding significant additions to the company’s productive capacity. Financial control on the other hand is a significant important activity aimed at helping the company to achieve its objectives by ensuring hat assets are used efficiently or the assets are secure. Financial decision-making implies making decisions on financing, investment and dividends (Shaughnessy 2012). 1.3.1 Cash flow Table 1: Consolidate Statements of Cash Flows for the year ended Dec 31. Source: Samsung http://www.samsung.com/us/aboutsamsung/investor_relations/financial_information/downloads/2013/SECAR2012_Eng_Final.pdf 2. Aims and objectives, planning, scheduling and management of the investigation 2.1 Aim The aim of the report is to explore the management of finance of an engineering industry with particular focus on Samsung Electronics. 2.2 objectives 1. Management and corporate finance 2. Compare the results with a theoretical model 3. Investigate an engineering company (in this case Samsung). 2.3 The outline plan Task description Expected hours Actual hours 1 Research topics management, finance, cash flow, scheduling 2 2.5 2 Literature Search 3 3 3 Produce a report 8 8 4 Produce a model cash flow 1 1 5 Case study analysis 3 3.5 6 Concluding remarks 4 4 Total = 21 22 2.4 The schedule A table of deliverables and deadlines: - Deliverables Deadline Delivered Finished the background and the main research point Finished the conclusion Finished the coursework 2 Hind in it 3. Critical literature reviews 3.1 Finances and market share Samsung Electronics is tipped as the world’s biggest television- and mobile phone-maker. Over the recent years, the company’s sales have been boosted by the sales and shipments of its Samsung Galaxy S III and S IV. In July this year, the company is reported to have shipped over 20 million units over a six-month period. Samsung’s second quarter earnings for 2013 are estimated at $8.3 million, representing an increasing over the same quarter in 2012 (Samsung 2012). The success of the company’s electronics business has seen the company displace major brands such as Apple, Nokia and HTC to become the world’s number one phone-maker. Additionally, its market share has witnesses a sharp rise (Worstall 2012). As of June 2013, the company accounted for nearly 95 percent of the Android smartphone sector profits (Samsung 2013). Table 2: Income statement for Samsung Source: Bloomberg http://www.bloomberg.com/quote/005930:KS 3.2 Corporate culture Samsung’s organizational culture is evidently a major contributor to the company’s competiveness. All its major operations are anchored in extensive field experiences. Additionally, the company has a rapid decision making capability based on strong teamwork and collaborative management across its senior management (Samsung 2004). The company always prides itself in broad cultural competence attributed to various projects and operations overseas. The company also provides various customer-centered services that are seen to reflect customer requirements (Samsung SNS 2013). A good example is its innovative design of mobile phones such as Samsung Galaxy S III and Galaxy S IV. Its extensive leadership capabilities such as rich experience of the upper level management and judgment based on experience are both critical factors attributed to the company’s successes. These aspects are incorporated in the company’s vision and strategy called “New Management,” which was initiated in 1993 by Kun-Hee Lee, the then Chairman. “New Management” covers organizational creativity, intellectual capital, employee empowerment and technological innovation. Indeed, these have been seen as the key strategies to the company’s profitable growth over the years. According to the company, “Samsung’s ultimate goal is to attain quality of life improvements worldwide by succeeding as a top-tier enterprise in 21st century” (Samsung SNS 2013). From this perspective, innovation has been a major motivator for the company’s successes by helping the group to be at the forefront of technological breakthroughs. For instance, the company is among the world’s top 10 US patents for four successive years. Samsung has also streamlined its structures to ensure globalization. With over 285 operations globally in 67 countries, the company’s strategy is two-pronged. First, it aims to expand outside its global market and secondly, it aims to help the neighboring communities as well as contribute to local economies (Samsung 2013). 4. The case study – Samsung Electronics Founded in 1938, Samsung Group is a South Korean electronics company with multinational operations. During the course of its inception, Samsung had a completely different project management and finance compared to what it has today. From the outset, the company’s primary revenue source included vegetable, fish and fruit. In 1948, the company grew to have its own operation and production lines. In the early 1970s, the company started investing in heavy industries and soon afterwards, Samsung divisions sprung up such as Samsung Heavy Industries, Samsung Electronics and Samsung Precision Company. Today, the company is rated as one of the top ten US patents. In addition, it has become the world’s largest electronic maker boasting of over 20 million units of mobile phones over a six-month period. The company’s incremental growth is attributed to its corporate culture, goals and values. The company is committed to fulfilling the needs of its customers and being at the forefront of making breakthroughs in technologies. A SWOT analysis of the company reveals that the company’s key strength lies in its financial might with over US$120 billion in annual revenue (Samsung 2012). Its other strength lies is venturing in a variety of fields including environment, industrial and chemical projects. On the other hand, its weaknesses are the competitive electronic market that the company operates (Oliver & Christian 2010). Samsung has not been able to impose competitive prices on its products leading to fluctuation of sales. For instance, the competitive market has wavered between Samsung, Nokia and Apple in the last 5 years, while the other two have focused on reviewing their prices, Samsung has not. There are however still a lot of opportunities for the company’s growth by cutting on the cost of its products. Among the threats include a specter of factors such as global financial crisis that may result to it not meeting its objectives (Samsung 2004). The company’s management under the CEO Kun-Hee Lee is very close to the corporate structure. The CEO has shown support for management theory by valuing the workforce and treating them as partners (Hambrick 2007). The company has also stimulated teamwork by creating an environment of partnership with the employees. The company’s marketing strategy is aggressive, and has marketed the products in Africa, North America, Western Europe, Asia, Australia and Eastern Europe. Today, the company has over 200,000 employees and reports annual sales of over $120 billion and profits of about $11 billion. Conclusion Samsung has become one of the largest electronics manufacturers in the world attributed to its competences in corporate management and finance. Although it was started in 1938, the company first gained global eminence in 1993 when Chairman Kun-Hee Lee initiated the philosophy “New Management,” which covers organizational creativity, intellectual capital, employee empowerment and technological innovation. Indeed, these have been seen as the key strategies to the company’s profitable growth over the years (Samsung 2004). The close relationship between the management and the employees can be identified as formal structures, which although has led to some level of increased hierarchy and bureaucracy, has ensured collaborative management and teamwork. The company has used horizontal culture to empower its engineers and designers. This has increased its capability for innovativeness and staying ahead in making technological breakthroughs. Through collaborations and teamwork, the employee attitudes towards the company can be identified as centralized management. This means that planning and decision-making is concentrated within particular groups in the management hierarchy. Additionally, each employee is encouraged to understand his position and job description during the work time. However, the company should restructure its prices to make their products more competitive in the market, as the company has been criticized for setting high prices. The company should also have a reward system, good work life balance and welfare programs to motivate the workers further as the company’s hierarchy and bureaucracy has been criticized to de-motivating the workforce (Leonard, Beauvais & Scholl 1999). Based on this condition, the employees will get the work done in a way that moves towards achieving the corporate objectives (Glaser, Zamanou & Hacker 1987). Overall, this report recommends that Samsung should allow the employees to have some level of authority as well as restructure its organizational structure. In the long run, it will enable the company to cultivate some ingenuity and establish a dynamic work environment. 5. Reference: Glaser, S Zamanou, S & Hacker, K 1987, ‘Measuring and Interpreting Organizational Culture,’ Management Communication Quarterly,’ Vol.1; 173 Leonard, N, Beauvais, L & Scholl, R 1999, ‘Work Motivation: The Incorporation of Self-Concept-based Process,’ Human Relations, Vol. 52, pp969 Hambrick, D 2007, 'The Field of Management’s Devotion to Theory: Too Much Of A Good Thing?,' Academy of Management Journal, Vol. 50, No. 6, 1346–1352. Munns, A & Bjeirmi 1996, 'The role of project management in achieving project success,' International Journal of Project Management Vol. 14, No. 2, pp.81-87 Pollitt, C 2001, 'Integrating Financial Management and Performance Management,' OECD Journal on Budgeting, pp7-36 Samsung 2004, Samsung Press Information, viewed 31 July 2013, http://www.planetpdf.com/planetpdf/pdfs/samsung_presskit2_duffj.pdf Samsung 2013, 2012 Samsung Electronics Annual Report, Viewed 31 July 2013, http://www.samsung.com/us/aboutsamsung/investor_relations/financial_information/downloads/2013/SECAR2012_Eng_Final.pdf Samsung 2012, 2011 Samsung Electronics Annual Report, Viewed 31 July 2013, http://www.samsung.com/us/aboutsamsung/ir/financialinformation/annualreport/downloads/2011/SECAR2011_Eng_Final.pdf Samsung SNS 2013, Core Competence, viewed 31 July 2013, http://www.samsungsns.com/?p=en_telecom03_2 Shaughnessy, H 2012, 'What Makes Samsung Such An Innovative Company?,' Forbes, Viewed, 31 July 2013, http://www.forbes.com/sites/haydnshaughnessy/2013/03/07/why-is-samsung-such-an-innovative-company/ Spaulding, H 1958, 'Personnel Management Principles and Practice,' The American Journal of Psychiatry, Vol. 114, No. 12 Oliver J & Christian S 2010, Samsung’s Corporate culture in focus, FT.com, viewed 31 July 2013, http://www.ft.com/intl/cms/s/0/1f35cd3e-3782-11df-88c6-00144feabdc0.html#axzz2MtpIjP7u Weinzimmer, L 1998, 'Measuring Organizational Growth: Issues, Consequences and Guidelines,' Journal of Management, Vol. 24, No. 2, pp235-262 Worstall, T 2012, Apple v Samsung: Corporate Cultures and Design, Forbes.com, viewed 31 July 2013 http://www.forbes.com/sites/timworstall/2012/09/03/apple-v-samsung-corporate-cultures-and-design/ Read More