Operations of Samsung and Sony in East Asia and the United States - Case Study Example

Operations of Samsung and Sony in East Asia and the United States Name: Course: Tutor: Date: Introduction The purpose of this essay is to analyse how Samsung and Sony have adapted their strategies and products to markets in East Asia (especially Korea and Japan) and North America (particularly the United States). The paper begins with an overview of the two companies which are rivals in the digital age of electronics. The next section discusses the products and strategies of the two companies, followed by linkage of the same to the OLI theory. While Sony has a history of superb performance since its inception, Samsung has had to shake a poor brand reputation to become a kingpin brand in electronics. Samsung has diversified its manufacturing in different countries and hence fulfils the OLI framework, whereas Sony has largely focused on manufacturing in Japan and the United States, hence meeting the OLI requirements differently. Overview of Samsung and Sony In the past, Sony was perceived as a synonym for “smart and unique products, good performance, and outstanding design.” As a global brand, Sony is ranked as highly as Nike or Coca-Cola. In contrast, Samsung was a completely generic brand until the mid-1990, and its products were always unnoticeable and consumers perceived them as cheap, especially in the United States market. This is because Samsung ventured into North America when its products were of poor quality (Chang, 2008). In recent years however, the gap in perceptions has lessened considerably. In an assessment of brand value, which was conducted by Interbrand by 2000, the brand values of Samsung and Sony were rated 43rd and 18th, in that order. However, by 2006 the position of Samsung had improved to 20th, whereas Sony had dropped to 26th (see the figure in Appendix 1). This shift occurred because Samsung had fully taken advantage of the opportunities made possible by the digital revolution in marketing and technology. And since there are no noticeable differences in quality among digital equipment that have similar features, it is easier for latecomers to catch up with market leaders. For this reason, Samsung was able to catch up with Sony. Nevertheless, advances in technology imply that other latecomers, such as Chinese manufacturers, may catch up with Samsung Electronics. Hence, in the digital age, brand marketing strategies are becoming even more significant than they were in the analogue age (Chang, 2008). To enhance its brand value, Samsung Electronics has channelled many of its resources in the mobile phone business, which is its flagship area, and strategically promoted specialised distribution channels for consumer electronics. On the contrary, Sony’s marketing strategy, whose focus has been new product development, stopped being effective when Sony was no longer in a position to produce new, unique products. In addition, Sony is under immense pressure from distributors, which have gained negotiating power over manufacturers, particularly since digital products have become mainstream. Samsung Electronics’ products and strategies Samsung is a rare example of a company from a developing country that has grown to capture the largest global market share for sales of SRAM and DRAM semiconductors, flash memories, monitors, television sets, and LCD panels. The company is also accounts for the second or third largest market shares for mobile phones and DVD players (Hu & Brahmbhatt, 2007, p.11). Samsung’s growth is noteworthy as the company’s initial strategy was nothing more (or less) than the imitation of its Japanese rivals. In fact, its objective was to become a vertically integrated firm. Given that the company lacked previous experience in electronics, it had no choice but to be simultaneously engaged in learning a number of different technologies. To achieve this, it ventured in foreign sources of technology in management, production and marketing. It thus created joint venture companies with foreign technology suppliers such as Sanyo, Nec, and Corning Glass Work Works (Kim, 1997, p.11). To change how it was perceived both at home and abroad, Samsung used different strategies. While it worked on developing its global positioning, the company also experimented with a different kind of branding. It had limited options in some areas; for instance in white goods where LG had dominated. Thus, Samsung wanted to see whether rebranding would work. Essentially, Samsung’s consumer marketing in Korea was headed to one direction, while globally it was taking a different track. The company also decided to build a separate brand of white goods in Korea, hence showing what a variety of goods could do for Samsung (see market share for various Samsung products in Appendix 2). But the home campaign had no impact on the global campaign, and was simply an experiment to test one particular market (Michell, 2010, p. 108-109). In the United States, Samsung’s marketing objective was to significantly increase its market share, especially sales of products under the company’s own brand name rather than private labels. The company aspired to be the Korean equivalent of another extremely successful Japanese company, Panasonic. It had to accomplish two communication functions in order to realise its overall marketing objective. It had to increase consumer awareness of the Samsung brand name and persuade the North American consumers that Samsung manufactures quality products and not just low-price items (Koekemoer & Bird, 2004, p. 192). Although Samsung has a wide product range in East Asia, one of its key focal points in North America has been mobile phones and other modern digital devices. But this has been a source of unrest for the company, as has been witnessed in recent times with one of its competitors, Apple. In April 2011, Apple, an American company, went to court claiming that Samsung electronics’ Galaxy line of tablet computers and smartphones copy its iPhone and iPad. But Samsung responded by filing lawsuits in its home country, South Korea alleging that apple had violated patent rights. Samsung Electronics therefore sought to have the United States prohibit Apple from purchasing key iPad and iPhone components from other countries such as China, where most of these components are made (Olsen, 2011). The relationship between Samsung Electronics and Apple is quite is interesting. While the two firms are rivals, they rely on each other for success. Samsung is the world’s largest manufacturers of chips for phones and computers, and Apple, driven by the success of the iPad and the iPhone, became the world’s biggest buyer of the came implements. Though both firms do not disclose the volume of business they do together, it is obvious that Samsung has been able to influence the United States market not only as a seller to consumers but also as a supplier to other manufacturers. Samsung’s strategy and Dunning’s OLI framework The issue of ownership advantage is evident in Samsung’s case, both at home (as well as in East Asia) and in the United States. According to Korner (2011, p. 22), a firm that has possession over products and processes is able to succeed in foreign markets. This is because other firms have no access to this product or process, for instance a trade secret, patent, blueprint or something intangible as a reputation for quality or trademark. This has been the reason for the bad blood between Samsung and Apple although the latter had a market advantage when it introduced the iPhone and iPod and also because of the home advantage it enjoyed over the former (location advantage). But apple has not been able to enjoy the internalisation advantage due to the fact that it has been importing most components from abroad, which gives Samsung an opportunity to recapture the market. The OLI framework in relation to Samsung electronics can be explained in the context of the company’s activities in different areas. For relevance to this paper, it is worth looking at three areas of Samsung’s operations: Korea, the larger Southeast Asia and the United States. Korea acts as the global control headquarters of Samsung. It is here that key activities such as research and development are done. This also involves developing and producing value-added products and developing international management resources. The larger Southeast Asia region is used by Samsung as the production site for multiple purposes. Here, the company is mainly involved in production for roundabout export. The parts made in this region are exported to countries such as the United States (to companies such as Apple) and Europe. The region is also used for manufacturing parts that are later re-imported to Korea. In addition, the Southeast Asia region is used as a base for procurement and acts as the regional headquarters of Samsung. Similarly, the United States market is used by Samsung as a centre for local marketing and introduction of new technologies and information (Chul, 2003). The United States is thus a local marketing centre (to firms such as Apple) and a research and development centre (for product development and design) (see figure in Appendix 3). Both the Southeast Asia and North America region embody the three factors that determine the international activities of international enterprises: ownership advantages, location advantages and internalisation advantages – which are the features of the Dunning eclectic paradigm (Rugman, 2010, p. 1). Under the OLI framework, horizontal FDI would occur where all these conditions are met. Samsung has achieved this because of the ownership advantages in terms of patents and know-how. In the United States, the company is able to produce device parts locally and sell them to other manufacturers, hence location advantages. The company also enjoys internalisation advantages in the United States because it is able to manufacture components and use them in the United States, unlike other competitors who have to import a host of technologies. Along this line, FDI rather than licensing may safeguard information and hence protect the value of knowledge capital (OECD, 2007, p. 27). Sony’s products and strategies Since its inception, Sony has earned a reputation for being one of the most innovative and creative firms in the world. It globally launched new and superior quality products such as the camcorder, walkman, and the playstation. The company’s strength derives from its worldwide presence and the intent to continuously build up its brand through innovation of new products (Stadtler, 2011, p. 8). According to Chang (2008), the essence of Sony’s marketing strategy was to release products that consumers craved. The company focused on new product development because its bigger competitors were a clear threat, imitating its products. If it failed to come up with new products, these competitors would overtake it. To maintain its position, the company carried out most of its production at home in Japan. In fact, in 2007 50 percent of the company’s products were produced in Japan, while the rest were produced in China (10 percent), the United States and Europe (Stadtler, 2011, p. 8). Sony was even cautious not to produce in other countries of East Asia such as China, claiming that China had widespread piracy problems (Gaspar, 2005, p. 283). Despite the perceived strength of Sony, its influence has plummeted over the years due to the nature of the current market. Today’s digital appliance market has a number of features that where not previously encountered by Japanese manufacturers. First is that there is fierce competition as new competitors can now easily enter the market. Second, the price of devices fluctuates from competitive change and technological innovation and creates shifts in supply and demand. Third, products quickly become obsolete and product life cycles continually become short (Fujitsu, 2004). The details above highlight the reason why Sony’s grip in the market has waned. Sony’s brand has grown weaker because the company has not introduced any unique products since it brought out PlayStation in the mid-1990s. Since the value of Sony has faded, consumers have become less willing to pay a premium for the brand. In addition, because the brand resulted from a constant release of new products rather than of intentional promotion, Sony lacked clear marketing strategies to enhance brand value, a situation that has further affected its performance (Chang, 2008). The situation is much similar in the United States. The MP3 player, which was one of the most significant digital devices in recent years, has remained largely a preserve of Apple, one of the biggest players in the United States. While apple enjoyed the release of its iPods since 2003, Sony overslept this fast development in the digital segment. Sony held stubbornly onto its own ATTRAC 3 music format while the rest of the world was going with the MP3. Sony launched its first MP3 walkman in 2004, much later after Apple had gained the top selling position in the market. In fact, by 2006 Apple had gained a substantial share of 77 percent of the United States market, whereas Sony had only a moderate share of 10 percent (an equivalent of 13 percent share compared with Apple). Further, Sony confirmed in its annual report of 2007 that sales of hard drive digital audio players and flash memory declined due to changes in model mix and the shipments of 4.5 million units were flat compared to the 2006 financial year (Pham-Gia, 2009, p. 11). Sony’s strategy and Dunning’s OLI framework Generally speaking, companies achieve international competitiveness in two ways: supplying products internationally and executing global operations. The approach taken by Sony embodies the former, given that the company provides a continuous supply of innovative products to the global market (Kikkawa, no dated). It can thus be said that Sony has not enjoyed the location advantages of the OLI framework to a large extent, as it has not been keen on concentrate on procurement, production and marketing in the most appropriate locations of the world, as most other companies (including Samsung) have done. But Sony seems to depict the OLI framework by having foreign operations outside Japan mainly in the United States where the company’s products are popular. Sony’s frequent locations for recruiting activities include Tokyo and Atsugi in Japan, and New York, San Diego, San Jose, and Culver City in the United States (Sony). These areas are used for different production functions (see Appendix 4). Nature of Samsung and Sony as MNCs By nature of organisational design parameters, there are four types of MNCs: international, global, multinational and transnational. Global and transnational MNCs have concentrated power at the headquarters and have low differentiation, with subsidiaries that at dependent upon the parent (Molz, Ratiu & Taleb, 2010, p. 62). Sony falls in this category because of the nature of its operations, which are largely based in Japan. The category “global” also refers to those companies which have at least 20 percent sales in Europe, North America and Asia, but with less than 50 percent in any one region. Sony falls in this category with eight other companies that regarded to be truly “global” (Peng, 2010, p. 342). Multinational firms are decentralised, independent from headquarters and highly differentiated; whereas transnational MNCs lie in the middle of multinationals and global/international MNCs, with moderate differentiation and equal distribution of power throughout the firm (Molz, Ratiu & Taleb, 2010, p. 62). This can be said of Samsung. Conclusion Samsung has diversified its production strategy and improved its brand image to become one of the leading MNCs in electronics. On the other had, Sony, with a key focus on innovation, has largely been left behind as it has not released new products in recent years. Since it is not easy to differentiate digital electronics, consumers are not willing to pay a premium for Sony’ products. On the other hand, Samsung has diversified and has manufacturing operations in many countries, especially in the United States where it also supplier to companies such as Apple. Going sales volume however, Sony is a global company while Samsung’ operations qualify it as a transnational MNC. References Chang, S. 2008, Sony vs. Samsung: the inside story of the electronics giants' battle for global supremacy, John Wiley and Sons, New York. Chul, L. S. 2003 “The Management Strategy of Samsung in East Asia,” November 26, 2003, accessed from http://www.jetro.go.jp/en/reports/survey/epa/sympo0311/s1-3p.pdf (3 July 2011). Fujitsu, 2004, “Sony marketing (Japan) Inc.” accessed from http://www.fujitsu.com/downloads/PRMPWR/casestudy/casestudy-20051207.pdf (4 July 2011). Gaspar, J.E. 2005, Introduction to Business, Cengage Learning, New yolk. Hu, A. & Brahmbhatt, M. 2007, Ideas and Innovation in East Asia, World Bank Publications, Washington. Kikkawa, T. not dated, “Strategies of Japanese Corporations Facing Global Competition: The Cases of Sony and Toray,” accessed from http://project.iss.u-tokyo.ac.jp/kikkawa/iss-6.pdf (5 July 2011). Kim, Y. 1997, “Technological Capabilities and Samsung Electronics’ International Production Network in Asia,” Working Paper 106 November 1997, accessed from http://brie.berkeley.edu/publications/WP106.pdf (3 July 2011). Koekemoer, L. & Bird, S. 2004, Marketing Communications, Juta and Company Ltd, New Jersey. Korner, J. 2011, International Trade - Multinational Corporations and Technology Transfer, GRIN Verlag, Munich. Michell, T. 2010, Samsung Electronics: And the Struggle for Leadership of the Electronics Industry, John Wiley and Sons, New York. Molz, R., Ratiu, C.& Taleb, A. 2010, The Multinational Enterprise in Developing Countries: Local Versus Global Logic, Taylor & Francis, New York. OECD, 2007, Tax effects on foreign direct investment: recent evidence and policy analysis, OECD Publishing, London. Olsen, K. 2011, “Samsung seeks US import ban against Apple products,” accessed from http://www.usatoday.com/tech/products/2011-06-30-Samsung-patent-dispute_n.htm (3 July 2011). Peng, M. W. 2010, Global Business (2nd edition), Cengage Learning, New York. Pham-Gia, K. 2009, Marketing Strategy of Sony for Portable Audio Device Business, GRIN Verlag, Munich. Rugman, A. M. 2010, “Reconciling Internalization Theory and the Eclectic Paradigm,” Multinational Business Review, Vol.18, No. 2, pp. 1-12. Sony, “Locations,” accessed from http://www.sony.net/SonyInfo/Careers/paths/locations.html (5 July 2011). Stadtler, R. 2011, Strategy Coursework – Sony Corporation, GRIN Verlag, Munich. Appendix 1 Figure 1: Brand values, rankings, and adverstising expenses of Samsung Electronics and Sony Source: Chang (2008) Appendix 2 Table 1: Samsung domestic market share 2006-2008 Source: Michell (2010, p. 109) Appendix 3 Figure 2: Samsung’s management strategy by market Source: Chul (2003) Appendix 4 Figure 3: Sony Group organisation chart summary Source: http://www.sony.net/SonyInfo/CorporateInfo/Data/organization.html Read More