Investments of Samsung - Case Study Example

Samsung Investment Report College: Name: Students ID: Date: Course Name: Unit Code: Time: Instructor: Introduction This report analyses Samsung Electronics Company. The report is divided in various sections. In the first section, I outline the company’s background. Section two addresses the company’s business environment analysis which includes both the micro- and macro-environment analysis. Section three delves into the impact of globalization of the company’s activities. Finally I address the company’s corporate social responsibility (CSR) issues, in particular, the moral and ethical issues in international business, the link between CSR and the company’s corporate strategy along with the applicable CSR legislation. Company Background Samsung Electronics is among the leading electronic companies in the world. The company’s headquarters are in South Korea. The Middle and East Asia offer the largest market for Samsung Electronics’ product. The company principally engages in the manufacture of consumer electronic products. Its business operations are divided into three categories: (1) consumer electronics (CE) that covers visual displays (T.V), digital appliances (fridges), printing solutions (printers) and health and medical equipment; (2) information technology & mobile communications (IM) that covers mobile communications, networks and digital imaging (cameras), and; (3) device solutions (DS) that covers memory business, system large scale integrated circuits (LSI) and liquid electronic display (LED) business (Samsung, 2014a). This report analyses the company’s various financial aspects. Environment Analysis An environment captures the setting in which an organization conducts its operations. These environments are not constant; they change from time to time as a rejoinder to changes in the external environment (macro-environment) along with the inner pressures of the organization (micro-environment) (Ghemawat, 2001). Figure 1: Approach to Organizational Environment Analysis Source: Author (2014) Micro-Environment Analysis Gillespie (2007) defines the micro-environment as a composition of “stakeholder groups that a firm has regular dealings with.” The main stakeholders Gillespie (2007) refers to include: suppliers, distributors, customers and competitors as depicted in Figure 1 above. Suppliers Companies are usually concerned whether their supplies on matters such as their capability to tender the required quality at a good price, capacity to fiddle with variations in the supply quantity, as well as power issues linking the company and their suppliers. However, big multinational companies are all the time more disturbed on the ethical issues of their suppliers’ dealings. In the consumer electronics industry, suppliers along with supply chain management are vital for the company. These electronics take in various vastly specified parts and components that are by and large obtained from suppliers along with subcontractors (Ghemawat, 2001). Samsung Electronics produces majority of its required components internally. This enables the company to cut down on the number of its suppliers. It also makes smoothes the progress of their incorporation into the core manufacturing process. Although, in recent times, the emergency of consultancy has advised lots of companies to outsource their non-core functions and pay attention on a few mainstay activities, Samsung has demonstrated that companies may well be very much money-spinning even as they hold on to their non-core parts production. In light of this, Samsung has focused on synergies from producing both parts and end products (Sheenan, 2005). Distributors Distribution is an important consideration for any business. Distributors can powerfully power the final selling price of each product and in so doing directly influence the sales quantity. They also matter when it comes to presenting the product to the customer and, to a degree, influence the product’s positioning alongside competing products. Distributors also impinge on the manner in which customers recognize the brand (Ghemawat, 2001). Samsung depends on many individual distributors and retailers as well as the company’s network and virtual operators. In some regions, the company has permitted distributors to bring in supplementary requirements such as tailoring and branding of products. Customers Customers are the reason behind a company’s business thrives. Generally, there are two key separate divisions of customers based on the need and quantity of purchases; individual customers and organizational/industrial) customers. Traditionally, individual customers are considered not as much of rational and are spontaneous in their decision making process whereas organizations are thought to be professional and follow a tight budget, cost and profit considerations. However, today it is recognized that buyers bring in their emotions in making purchase decisions (Kotler & Armstrong, 2006). In consumer electronics industry, buyers embody a vast multiplicity of tastes, preferences and material comfort. Samsung Electronics provides goods that cater for nearly all customers considerations in the modern day. For instance, the company produces low-end mobile phones (often under $50) for the market in developing countries, while in the developed world (mainly the United States and Europe); they mainly produce more sophisticated products such as mobile phones incorporating cameras, GPS navigation, and Internet browsing, among other features. Furthermore, the company offers value added features, such as android operating system in mobile phones, and after-sale services that inform most individual buyer purchase decisions (Ghemawat, 2001). On the contrary, industrial customers have a preference for value services that relate to their business and the manufacturer’s capacity to provide a communications solution. Samsung Electronics offers all these products that include LED business solutions, computers, and printing solutions, among others. Macro-Environment Analysis The macro-environment entails all factors that are out of the direct control of a company. These factors include: government legislation, state of the economy, social changes, and environmental concerns, among others. Any of these factors may well have a severe or good impact on a company’s business; hence they can shape business activities. These factors can also fundamentally transform the environment of an organization but the association is usually unidirectional (Gillespie, 2007). There are two key techniques used to analyze the macro-environment; (1) PESTLE analysis; and (2) SWOT analysis. PESTEL Analysis PESTEL is an acronym for “Political, Economic, Social, Technological, Environmental and Legal” factors. This technique is generally used to analyze an organization’s macro-environment that entails factors that can radically affect any business regardless of its size (Sheenan, 2005). Analogous acronyms such as ETPS, STEP, PEST, and STEEPLE are also repeatedly used, in each case including (or excluding) a few factors and emphasizing a few factors in comparison to others. However, they capture the fundamental macro-environment that facilitates the consideration and management of each factor within the business and to make out the key drivers of change (Ghemawat, 2001). Figure 2: Samsung Electronics PESTEL Analysis Political Factors Recent political tensions between North Korea and South Korea Unstable political environment in many countries in Africa and Latin America Economic Factors Likelihood of financial crises occurring due to uncertainty and volatility Decreased consumer spending Exchange rate fluctuations Social Factors Samsung is a family business, that hinders its global expansion Fast changing consumer (lifestyle) preferences Rising information age Technological Factors Poor cellular network infrastructure in rural areas Incredibly high levels of innovation Rapid technological changes Environmental Factors Rise of ethical consumers who are environment sensitive Consideration of worker safety Legal Factors Legal wars with Apple Intellectual property rights and patents Consideration of labor laws Source: Author (2014) SWOT Analysis SWOT is an acronym for “Strengths, Weaknesses, Opportunities and Threats.” Strengths and weaknesses are internal to the organization whereas opportunities and threats are external. This analysis is used to derive an effective corporate strategy by striking the right balance between a company’s internal resources and the external environment. This is where a company gets the most out of its strengths and opportunities as it minimizes on its weaknesses and threats. SWOT is therefore a powerful instrument in strategy formulation. In fact, it is the most common tool used in strategy formulation (Sheenan, 2005). Below in the SWOT analysis for Samsung Electronics; Figure 3: Samsung Electronics SWOT Analysis Environment Internal Strengths Strong position in the global market Diversified business portfolio Engineering excellence Production of hardware parts used in manufacturing Best innovations and design Weaknesses The company does not have its own software The company does not have its own operating systems for mobile devices Fluctuating business profitability External Opportunities Growing markets in India and China Increase in mobile phone sales and advertising openings Global presence Growing demand for tablets and semiconductors Threats Saturated Smartphone markets Rapid technological changes Price wars Patents and copyright issues Increasing material prices Source: Author (2014) Impact of Globalization At present, doing business is more global in scale as humanity is becoming progressively more inter-reliant for its trade and industry advancement. Globalization is helpful and it could benefit Samsung Electronics through enabling it to spread its competitiveness and obtain larger market shares at home and overseas. The new markets will boost the company’s sales revenue along with the profits generated. In fact, Samsung Electronics is the leading consumer electronics company globally in terms of sales revenue. The company also commands a huge market share globally, especially in the Asia-Pacific Region (ASEAN). The company can as well expand its operations and open up new business divisions targeting potential clients. Moreover, globalization will enable the company to ease its reliance on geographical boundaries and widen its portfolio. More importantly, international trade is the best possible way in which the company is able to carry on its business dealings on the occasion that the domestic market is drenched. International trade also facilitates transfer of knowledge and technology that is crucial in enhancing the company’s activities (Campayne, 2008). History of the Consumer Electronics Industry It is quite tricky to narrate the emergence of electronics. However, most developments in the industry were experienced in the 21st century. These developments have been a product of a long struggle involving hard work and great minds. Today, the consumer electronics industry is characterized by imperfect competition with numerous players such as Samsung, Sony, and Life’s Good (LG), among many others. The attractiveness of the industry can be analyzed using Porter’s five forces. Generally, the industry is influenced by buyer power given that they can switch between different brands. Suppliers in the industry also have some power. Although some companies such as Nokia have been able to influence their suppliers, Samsung has strongly come up as a strong component supplier in the industry. Entering the market could be hindered seeing as it requires vast resources and technological capacity. However, with new and emerging markets, especially in Asia, there is room for new players. The industry has a very high degree of rivalry as companies such as Samsung continue to grow and expand. Finally, the industry’s products do not have automatic substitutes (Campayne, 2008). Extent of Globalization Samsung Electronics was founded in Suwon, Korea in 1969. Since then, Samsung has expanded in leaps and bounds in other countries; each month various manufacturing, sales, Research and Development, and other activities regularly taking place outside of Korea is ever-increasing. Today Samsung Electronics has grown into a worldwide information technology leader, running over 200 subsidiaries in all regions of the world. Samsung’s business dealings include 217 locations in all regions of the world, together with centers of production, sales, design, and research (figure 4) (Samsung, 2014a). So as to efficiently run its diversified overall business portfolio, Samsung Electronics maintains 15 regional headquarters in all regions of the world; counting its group headquarters in Korea. Each regional business division is equipped with substantial resources and independence. This obligation to each region in which the company operates offers the prospect to build up distinctive localization strategies and inventive overall implementation. These regions include: Headquarters (Korea), Europe (Surrey), The CIS (Moscow), China (Beijing), Japan (Japan), Southeast Asia (Singapore), Southwest Asia (New Delhi), The Middle East (Dubai), Africa (Johannesburg), North America (New Jersey), and Latin America (Sao Paulo). The company is also listed in two foreign stock markets; the London Stock Market and the Luxemburg Stock Exchange (Samsung, 2014a). Figure 4: Samsung Electronics Global Bases Source: Samsung (2014c) Table 1: Samsung Electronics Selected 2012 Data Region Number of Employees (Percentage) 2012 Revenue in Trillion KRW (Percentage) Korea 90,702 (38.5%) 29.2 (14%) Asia 57,330 (24.3%) 36.1 (18%) China 45,660 (19.4%) 28.2(14%) Europe 15,318 (6.5%) 49.5 (25%) Americas 24,694 (10.5%) 58.2 (29%) Source: Samsung (2014c) Internal Issues In this section, we analyze the company’s structure and culture. Company Structure In 2012, Samsung Electronics initiated a comprehensive program reforming its organizational structure. The company polished management structures in each business area to optimize capabilities right through the whole company. Samsung divided its operations into four key areas: three business divisions; Consumer Electronics (CE), Information Technology and Mobile Communications (IM), and Device Solutions (DS) and one managerial division; Corporate Management that address the shifting international information technology setting. Under each of these macro groupings are several individual product divisions. Samsung’s fresh organizational structure characterizes the company’s refocused emphasis. These reforms will help out Samsung advance upon its record of operational distinction, allowing for greater growth prospects than before and sustained industry-leading innovation (Samsung, 2014a). Figure 5: Samsung Electronics Management Structure Source: Samsung (2014c) Company Culture In management literature, organizational culture has attracted many definitions. However, the definition that is mainly used is that it is “the way we do things around here.” A company manifests its culture through various aspects which it regards as the correct way to do things or understand its problems. Generally, organizational culture entails the totally rooted values along with beliefs that join people within the organization (Martins & Terblanche, 2003). Samsung Electronics is a family business; therefore, the family plays a big role in the company’s decision making process. It adopts what people have called a “top-down approach to decision making” (Oliver, 2010). Other aspects of the company are, in general, formal. The figure below illustrates a general culture of Samsung Electronics; Figure 5: Samsung Electronics Company Culture Source: Samsung (2014b) Corporate Social Responsibility (CSR) Today organizations are not just concerned with the production, marketing and selling of products. Other aspects such as environment issues and social implications on the stakeholders also matter. These aspects inform what is referred to as corporate social responsibility (CSR). CSR has attracted a lot of definitions. In this paper, I adopt the definition by the European Commission (2001), where they define CSR as ‘a concept whereby companies integrate social and environmental concerns in their business operations and in their interaction with their stakeholders on a voluntary basis’. Moral and Ethical Issues in International Business As companies expand into the international markets through globalization, they face confrontations that impede their growth and potential profits, such as, government regulations, tariffs, environmental restrictions and varying labor standards. In this situation, one key feature that emerges is the call to perform global business ethically seeing as companies carry the responsibility over societal expectations that go beyond the law, which entail conducting business in a fair and just way. Ethics is a set of rules defining “what is right or wrong”, or “what is good or evil.” It entails moral values such as integrity, honesty, respect, and fairness, among others. Business ethics entails recognized principles of what is right or wrong in conducting business (MacGillivray & Zadek, 2007). Ethics in international business are mainly based on political systems, economic development, government regulations, and culture, which vary from jurisdiction to jurisdiction. As a consequence, what may be considered right in one area may be seen as ethical in another area. In international business many ethical considerations rotate around employment practices, environmental issues, human rights, corruption along with other overall moral obligations (MacGillivray & Zadek, 2007). CSR and Corporate Strategy CSR has grown to be a more and more imperative activity to global companies. With the intensification of globalization, large corporations, among them Samsung Electronics, have with time been acquainted with the benefits of adopting CSR programs in their diverse locations. Samsung could use CSR as a strategic approach to get public support for their global operations. CSR can as well enhance the value of a firm. This will help them to keep on a competitive advantage by means of social contributions to afford an intuitive level of advertising. However, some authors criticize this approach. Henderson (2001) argues that, even though CSR is safe, it puts pressure on the prosperity of countries. It may well ease competition and economic freedom; hence, weaken the market economy. Also, Husted & Salazar (2008) argue that it is ‘wiser for firms to act strategically than to be coerced into making investments in corporate social responsibility’. CSR Regulation The concept of CSR has been a voluntary practice. There is no law that necessitates any organisation to adopt CSR. Therefore, Samsung Electronics carries out CSR voluntarily. However, some jurisdictions require an organisation to undertake CSR. India recently introduced a CSR law, albeit for companies incorporated locally. Also, the European Commission recently introduced some laws requiring any company registered in any European stock exchange to follow. These laws will definitely influence Samsung’s CSR reporting seeing as it is registered in the London Stock Market and the Luxemburg Stock Exchange (MacGillivray & Zadek, 2007). Conclusion Samsung Electronics is a global company with diversified operations worldwide. The company mainly operates in the consumer electronics industry. The industry is quite competitive but is not as much of attractive. Various environmental aspects, both micro and macro impinge on its operations. The company revised its structure in 2012 to suit the changing IT environment. Its culture considers all aspects of the business along with the people involved. The company also reports on CSR, which could improve on its strategy as it expands to the international markets. This means it accounts for ethical considerations and considers the necessary compliance laws and regulations plus other business aspects. References Campayne, P. (2008). The Business Case for Diversity - Good Practice in the Workplace. European Commission, (2001). Promoting a European Framework for Corporate Social Responsibility. Green paper. Luxembourg: Office for Official Publications of the European Commission. Ghemawat, P. (2001). Strategy and the business landscape. Upper Saddle, NJ: Prentice Hall. Gillespie, A. (2007), Foundations of Economics - Additional chapter on Business Strategy, Retrieved: May 2, 2014, from:  . Henderson, D. (2001). Misguided Virtue: False Notions of Corporate Social Responsibility. London: Institute of Economic Affairs. Husted B.W. and Jose de Jesus Salazar, (2006). Taking Friedman Seriously: Maximizing Profits and Social Performance. Journal of Management Studies, 43(1): 75-91. Kotler, P. and Armstrong, G. (2006). Principles of marketing. 11th edn, Pearson education, New Jersey, United States. MacGillivray, A., P. Begley and S. Zadek, (eds) (2007). The State of Responsible Competitiveness 2007. AccountAbility, London. Martins, E.C. and Terblanche, F. (2003). Building organizational culture that stimulates creativity and innovation. European Journal of Innovation Management, 6(1) 64-74. Oliver Jung-a and Christian Song. (2010). Samsung’s Corporate culture in focus. Retrieved: May 6, 2014， from: FT.com:  . Rugman A., Collinson S. (2009). International Business. 5th edn, Pearson Education Limited, McGraw-Hill Inc., England. Samsung, 2014, About us, viewed 3 March 2014, Samsung, (2014b). Our Culture. Retrieved: May 2,2013, from: . Samsung, (2014c). Sustainability Reports. Retrieved: May 1,2013, from: http://www.samsung.com/us/aboutsamsung/sustainability/sustainabilityreports/download/2013/2013_Sustainability_Report.pdf>. Sheenan, N. (2005). Why old tools won’t work in the “new” economy. Journal of Business Strategy, 26(4): 53-60, Emerald Group Publishing Limited, ISSN 0275-6668, 2005. Read More