Strategic Management and Yips Drivers for Internationalisation - Essay Example

Strategic Analysis of Samsung Introduction Samsung is one of the leading firms in the telecommunications industry. The firm offers a range of products including mobile devices, computers, cameras, camcorders, tablets and printers. Samsung, based in Seoul, South Korea, has been facing a stiff competition in the industry particularly from the competitors. Due to this intense competition, the firm is under pressure to revise its future profitability estimates besides reducing the production of some of its brands. In the following parts of this paper, three strategic models (Yip’s drivers for globalisation, Michael Porter’s generic strategies and McKinsey’s 7-S model) have been elaborated and applied to Samsung. First, yip’s model has been explained in which four drivers, such as cost drivers, government drivers, competitive drivers and market drivers, have been included. Each driver has its own influence on the performance of Samsung. However, a particular attention has been given to those factors that are highly relevant and represent the actual performance of Samsung. After introducing Yip’s drivers, critical analysis on Samsung has been provided. After this segment, a general introduction to Porter’s generic strategies has been mentioned. It is followed by a part representing a critical analysis on Samsung. Before the conclusion part, McKinsey’s 7-S model along with the application of this model on Samsung has been provided. Yip’s Drivers’ for Internationalisation Internationalisation is a comprehensive process and strategic way to enter into and explore new international markets. For understanding and evaluating the dynamism inbuilt to the internationalisation process, Yip has identified four drivers: Market drivers, government drivers, cost drivers and competitive drivers (Campbell, 2002). And each driver is further segmented into different parts. For example, market drivers encompass various threads, such as global customers, common customer needs, international distribution channel, physical existence in strategically important countries and available and movable marketing techniques and so on ( Evans et al., 2011). In this regard, it is important to highlight that market drivers cannot be enumerated because each industry has its own factors that directly support or create competition for the industry. As a result, market drivers vary from one country to another; from one market to another; and from industry to another. Government drivers are mainly related to the regulatory aspect. In this context, all those factors are relevant that are related to the compliance with law of the land and other obligations essential for carrying out routine business operations. For example, barriers and concessions relating to entry or exist from a country, tariff and non-tariff barriers, sales tax, trading partners, economic systems, such as market economy, command economy or mixed economy (which is a combination of both market economy and command economy), trade and commerce policies, regulations and so on (Blythe et al., 2000). Cost drivers are also significant and put strategic effect on the process of internationalisation. In this regard, it is important to highlight that cost drivers are primarily related to the extent to which global expansion can facilitate a potential international firm to control and reduce its different types of costs (Ennew and Waite, 2013). And the specific examples encompass economies of scale, increasing technological innovation, decreasing labour and factory costs, and appropriately controlling cost of production, cost of research and development and so on (Blythe et al., 2000). In this regard, Yip (1992) contends that it is not important that a company or industry is identified as ‘global’ or ‘multinational’ instead it is more relevant and appropriate to suggest that , from some perspectives, a company is global and from other aspect, it is not. Based on the premise, the whole theory relies on this crux by highlighting that which part of the company is global and which one is not global (Campbell et al., 2002). Competitive drivers are industry specific drivers that mainly affect operational and strategic polices and business operations of a firm. For example, imports and exports, interdependence of countries, international competitors. Campbell et al. (2002) argue that the greater the power of the international competitive drivers, the higher will be inclination of an industry for becoming globalised. Application of the Model on Samsung Samsung is a part of market-driven industry (telecommunication) in which consumer tastes and demand always attract companies (Goeltz, n.d). Currently, telecommunication is one of those industries which are booming globally as demand for such telecommunication products are increasing throughout the world. However, this demand is not stable and keeps changing. Currently each market, whether it is Europe or Asia, has its own consumer tastes and choices. Consequently, it will be very hard for Samsung to develop a uniform global marketing strategy for obtaining its long term objectives. Under this condition, it will be very challenging for Samsung to meet the ever changing demand and expectations of customers as the volatility is high in this industry. For example, each year latest versions of many electronics products are introduced by competitors, having new features attracting customers and changing their demands as well. As a result, it will be very challenging for Samsung to keep providing all those products along with features which are in demand. At the same time, government drivers also pose a severe challenge to Samsung. Apple, Sony and new emerging Chinese firms create competition in the industry. For example, many countries, including United States and United Kingdom, always endeavour to protect their home-based industries. For this purpose, they impose high tariff and trade barriers for decreasing competition in the local market against the foreign products. Consequently, Samsung’s products will be directly affected by such government measures and steps which do not provide a level playing field to fair competition. At the same time, World Trade Organisation (WTO) has been attempting to reduce such barriers and provide ground for fair trade in the global market by making efforts to reduce national, regional and international barriers which discourage competition in the global market. However, till this point of time, many countries are not willing to support this notion in their practice instead they silently resist by making such legislation that only protects the local industry. Critical Evaluation of Yip’s Model This model is too broad to highlight and enumerate all factors involved in the internationalization process. This model takes into account all strategic factors which will directly or indirectly affect the strategic objectives of a company pursuing the internationalization. For example, the term “market drivers” does not distinguish between local and international customers. Under this situation, it will be very difficult for a company to effectively devise a strategy to attain its strategic objectives in a local market. And this has been clearly validated by the fact that, in the theoretical literature part, it is clearly mentioned that market drivers encompass both global customers and common customers’ needs (Evans et al., 2011). However, the author has not provided any clear-cut difference between two different types of customers; consequently, the firm wishing to satisfy both types of customers will not be able to devise a constructive and practical marketing strategy. And the same is applicable to Samsung as it will not be use this model for developing its strategic marketing and management strategy for carrying out its international business operations. Porter’s Generic Strategies Porter identified three generic strategies for attaining and retaining competitive advantage; and they include: Cost strategy, differentiation strategy and focus or segmentation strategy (Sehgal, 2011; Mclvor, 2005; Sengupta et al., 2006). In the first strategy, which is cost based strategy, focus is on the gaining the ability to decrease cost of production and increase profitability of the firm (Sehgal, 2011). In this regard, it is important to highlight that cost strategy has not been developed from the perspective of firm but it also emphasizes on the other end as well (i.e. consumer side) in which consumer should also receive value or utility after buying the product of brand of the firm (Sehgal, 2011). In other words, in this cost strategy, which is also known as cost leadership, a firm always strives to attain and maintain the possible lowest cost in the whole industry; this position requires strong strategic capabilities which are highly essential for retaining this level in the industry (Mclvor, 2005). Differentiation strategy refers to offering a product having diverse or unique features which are highly valued by customers by comparing them with the similar products offered by the competitors in the same industry (Sengupta, 2006). And for obtaining this level, internal strengths are prerequisite and they include scientific research, highly competent and creative team, stable and well recognised reputation within industry are some of those strategic capabilities that directly and indirectly affect the differentiation strategy (Sengupta, 2006). Focus or segmentation strategy is a customised approach to providing product or service in which a firm takes into account requirements or expectations of customers and develop and provide the same product to customers. For example, special design for a particular segment of customers can be developed and it can be sold fastly as the customers have strong tendency to buy such products which are made by keeping in view the expectations of the customers. Application of the Model on Samsung Samsung’s dream of cost leadership has yet to be materialised. Recently, Lee (2014) reports that Samsung Electronics is about to experience a profit reduction as the results of third quarter are below the expected level; and this reduction will also be reflected in the annual profit figure as well. Additionally, Samsung plans to reduce producing models as its profit in third quarter has fallen 60 per cent to $3.8 billion (Woollaston, 2014). These both examples clearly demonstrate that Samsung has not been able to reduce its cost for obtaining the level of cost leadership. This also signifies that the firm has no effective strategy for increasing sales volume over the mentioned period. At the same time, it is also reflected that the company has failed to effectively compete in the industry as the current competitors are making considerable progress when their performance is compared with the one posted by Samsung. Under this condition, it is difficult for Samsung to avail and use the differentiation strategy as, currently, the firm is under severe pressure from the financial side. Similarly, the report provided by Woollaston clearly highlights that the firm has revised its strategy relating to produce the latest models and this change is manifested as it plans to decrease its current production of latest models. At the same time, the reports mentioned above also point out that the existing generic strategies are not working for Samsung as they are not providing the required results besides failing to meet the long term objectives of the firm. However, it is important to mention that the firm has made reasonable progress when it comes to talk about the focus strategy. For example, the firm has specifically focused on providing new models of iphones and tablets for catering the growing needs of the latest features in the telecommunications industry. Similarly, a closer analysis of Samsung’s differentiation strategy indicates that the firm has been able to offer diverse and differentiated products to consumers. For example, Samsung offers mobile devices, television audio video, camcorder, camera, printer and multifunction, computers and peripherals; in the mobile devices, the firm has further differentiated by offering GALAXY Note, Tables, Feature Phones and Smartphones; and in the television audio and video differentiation, the firm offers television, DVD, MP3 player, audio, home theatre, Blu- ray and so on (About Samsung, 2014). Based on this, it can be highlighted that Samsung has been appropriately successful for offering diverse product line to the current and potential customers. However, it has yet to compete in the industry by providing effective cost leadership, focus strategy mechanisms sufficient enough to generate the expected results. Critical Evaluation of Porter’s Generic Strategy Model Porter’s generic strategy is also filled with certain flaws. For example, Sehgal (2011) highlights that cost strategy should be developed by keeping in view the firm perspective and customer perspective as both should avail the benefit of cost reduction. However, this model does not further explain about the type of customers which will be able to avail the benefit from the cost strategy. At the same time, it is very difficult to find a cost which brings benefit to both customer and firm as well. Additionally, in this strategy more focus is on cost reduction which is less feasible as cost of doing business is rising globally. This is also proven by the fact that Samsung’s profit is dropping and the firm is forced to reduce its cost in order to survive competition in the industry. McKinsey’s 7-S Framework McKinsey’s framework is a complex interplay between strategy, structure, skills, staff and style and collective values (Sekhar, 2010). This framework is composed of seven constituent parts: Strategy, structure, systems, shared vision, style, skills and staff (Smith and Siguaw, 2010). And each element has its own individual application and collective role and effect on a firm’s overall performance. Strategy is a way to achieve firm’s goal. Specifically speaking, strategy is a process in which certain sequenced steps are taken. In this process, first it is highly essential that a firm should develop certain objectives and goals. In this objectives development process, firm is required to take into account all those factors, challenge, limitations that will directly affect the firm’s process. After developing goals, the firm determines strategy to achieve these goals in the short term, medium term and long term. In each period, the firm is required to separate its strategy into different parts or periods so as to make the entire process achievable and compatible with the short term, medium term and long term periods. Structure can be represented through an organisational chart reflecting hierarchy and levels of internal organisational chart (Fleisher and Bensoussan, 2008). In the structural chart, careful hierarchy is developed in which communication strategy, role, responsibilities, immediate authority, and all those levels are provided in which all employees work within a structure and carry out their routine job descriptions. System represents processes, procedures which are performed by employees in various departments such as human resource, finance, manufacturing, and marketing and in research and development department (Bhandri, 2013). Each department has its own unique hierarchy in which all employees are required to follow procedures mentioned in the departmental system. For example, in a finance department, finance manager is required to seek approval from finance department head before going to meet with the representatives of a financial institution. Without the department head approval, the finance manager will not be allowed to progress further on this issue. Skills are also significant part of organisation. They encompass human capabilities to carry out routine work for obtaining job description objectives and collectively they represent the organisation’s human capital (Plant, 2000). On the other hand, style is a combination of both leadership philosophy and executive management along with organisational orientation and corporate culture which is internally and externally reflected by the organisation (Plant, 2000). Staff represents all those employees who work for an organisation and represent it externally. Similarly, shared values represent common concepts that are inbuilt to the organisation’s philosophy and they also highlight common goals and objectives which are collectively pursued by the organisation (Plant, 2000). Within this backdrop, it is important to emphasise that McKinsey’s model can be further classified into two broad classifications: hard and soft elements; strategy, structure and systems represent hard side whereas skills, style, shared values, staff can be classified as soft elements (Weiss, 2012). Application of the McKinsey Model on Samsung Samsung’s shared values, strategy and skills have considerably failed to satisfy the overall strategic goals and objectives of the firm. Every firm always develop certain short term and long term objectives. After developing them, the firm endeavours to achieve them through shared values, strategy and effective and efficient utilisation of organisational resources. However, Samsung has not been able to use them effectively for obtaining its long term objectives. On the face of it, Samsung has attractive and fascinating shared values inbuilt to its vision: “ Samsung is dedicated to developing innovative technologies and efficient processes that create new markets, enrich people’s lives and continue to make Samsung a digital leader” (Samsung Values and Philosophy, 2014). However, in the practical world, it has failed to retain the crux of its philosophy and vision. For example, as mentioned in the report of Woollaston that Samsung is planning to decrease its annual production of models that it produces every year. This statement clearly negates with the shared values of the company especially with the notion given in the shape of vision. However, it is significant to recognise the fact that firm has been successful for entering into markets such as the United States, European countries, China, India and other developing and emerging countries. Keeping in view the global profile of the firm, it is desperately struggling to retain its current position in the telecommunications industry. For example, its current strategy for obtaining its long term objective is not bearing fruit instead it is failing even to retain its previous year market position; moreover, the situation demands that the company should withdraw some of its estimates which were developed in the previous years. As a result, it can be deduced that Samsung’s current strategy is not working to generate the required results. At the same time, this strategy has become unable to face the stiff competition in the telecommunication industry which makes it further hard for the company to stay competitive in the industry. Additionally, Samsung has failed to effectively employ its organisational skills. Innovation and technological advancements are some of those factors that are directly linked to the effective and efficient utilisation of skills. If these skills are properly channelized and used, there would be chances that the firm would be able to achieve its targeted short term and long term objectives. Within this context, it is important to mention that Samsung has been able to effectively use its organisational skills when it comes to highlight its diverse range of products in the telecommunications industry. At the same time, it has also been able to enter into newly developing and emerging markets as well. However, Samsung has failed to use its organisational skills for improving its financial performance which is a benchmark reflecting whether a strategy has met its pre-determined short term and long term objectives. Critical Evaluation of Model This model has various inherent limitations. For example, it is very general in its very nature and does not provide any concrete relationship between the constituent parts inbuilt to the model. Without having any relationship between the features of McKinsey’s Model, it is very difficult to avail benefit from the model. The model has only individually highlighted these features and has not mentioned any effective use of all these features. Moreover, theoretically, the model is understandable but in the real business world, ground realities are totally different and work independently. Conclusion Samsung’s strategy is failing to meet its strategic objectives. The application of Yip’s model signifies that Samsung is a part of critical industry in which consumer tastes do not remain the same but they keep changing. Consequently, Samsung struggles to meet the ever changing demand and expectations of consumers. Additionally, many governments protect their industries from foreign competition. For this objective, they put heavy trade barriers or trade restrictions in which it becomes very challenging for external companies to effectively compete in the local market. Similarly, cost of research and development is considerably higher in the telecommunications industry as innovation and advanced features always remain in high demand in the industry. Keeping this view in mind, Samsung, who is already struggling financially, requires substantial expenditure on this business segment and that further creates challenging situation for the firm. Strategic management highlights business issues from a bird’s eye view in which business strategies are seen from the sky. The bird’s eye view enables strategic leadership to know future opportunities, strategic and competitive advantages that could be availed, if certain strategic policy is adopted. References About Samsung, (2014). Samsung: Making a Better World. Available: http://www.samsung.com/pk/aboutsamsung/#none Accessed: 25 November, 2014 Bhandari, (2013). Strategic Management: A Conceptual Framework. New Delhi: McGraw hill. Blythe, J. (2000). Marketing 1. 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Samsung set to cut the number of phones it makes by a THIRD: Firm is looking for ways to save money after its profits dropped. Mail Online. Available: http://www.dailymail.co.uk/sciencetech/article-2839444/Samsung-set-cut-number-phones-makes-Firm-looking-ways-save-money-profits-dropped.html Accessed: 25 November, 2014 Read More