Strategic Management of Samsung Explained - Essay Example

Samsung Name ID no Unit Name Unit Code Lecturer Name Date Executive Summary This report offers an analysis as well as an evaluation of both the internal and external environment of Samsung. The report have identified a number of challenges that Samsung is facing and there is also an evaluation of the future strategic options that Samsung can make use of prior to the recommendation of the strategic direction that Samsung needs to take, there is also an implementation plan for the proposed strategic option. A number of model shave been used so as to evaluate both the internal and external environment of Samsung and they include VRIN framework, porters’ five forces model, Pestle analysis, strategy clock and benchmarking. So as to arrive at the strategic direction the following analysis tools have been used the TOWS matrix, SWOT analysis, the SAFe criteria as well as the Ansoff matrix. The report also highlights sensitivity of consumers on products offered in the market and based on these Samsung need to develop new products with new OS to meet the consumer needs. The following 2 strategic options have been offered: Option1: acquisition of a company that majors on operating systems Option 2: come up with new and advanced products with the use of the new OS To evaluate the success or failure of the recommended strategy a balanced score card will be used. 1. Introduction to the company Samsung is a multinational company of South Korean origin with headquarters in Samsung town, Seoul. The company has a number of subsidies and other affiliated businesses and a great number of them have been united and operates under the Samsung brand. In terms of size Samsung is termed as the largest South Korean business conglomerate. Initially the company started as a trading company but over the decades it has diversified into numerous areas such as textiles, food processing, retails and securities and in the late 1960s, the company started to deal with electronic and shipbuilding and construction in the mid 1970s these areas drove the company into subsequent growth. Since the early 1990s, Samsung globalizes its activities and electronic and more precisely the semiconductors and phones and this areas seems to be the core sources of the company revenue. Some of the notable subsidiaries of Samsung are Samsung electronics, Samsung Heavy industries and Samsung engineering just to mention a few of them(Dhaka and Shibaloy 2012).As a company the operations Of Samsung have a noteworthy impact in the economic development, culture, media and politics. Companies affiliated to Samsung accounts for a fifth of the total exports. Over the years the company has made a number of acquisitions with the most recent one being the acquisition of YESCO Electronics which was acquired on 5th March 2015 (Lee 2015). 2. Internal environmental analysis 2.1 Resources and capabilities Resources Capabilities High brand recognition Offers Samsung with the ability to price their products at premium prices Justification of their high prices increases the loyalty of the customer since they believe in the brand Wide range of activities Serves a large customer base Have access to a great number of markets High revenue from the various activities This offers Samsung with the ability to Venture into new and available opportunities Helps them in acquiring companies such as the last company they have acquired which is YESCO Electronics. Experience in acquiring new and advantageous companies Gives Samsung access to new opportunities and easily acquire companies that may be of benefit to them and their future prospects. High quality products This attracts a large customer base for the company which enables them to attain high revenue and profits. Engagement in sponsorship activities. It plays an essential role in the enhancement of the brand in international markets. 2.2 VRIN framework Capabilities V R I N Premium prices X X Customer loyalty X X Access to markets X X Addition of activities and operations X X X High revenue X X Experience in acquisitions X The high number of acquisitions and engagement in a number of business operations is valuable since it is usefulness to the company and consumers in that it offers them with a number of things to assist them in fulfilling their daily needs. Through this large number of operations, Samsung can make use of the generated revenue to venture into other business areas that are in a way linked to their current operations. The experience in acquisitions and the great number of acquisition that Samsung has engaged in over the years seems to be a valuable resource since through it Samsung can take advantage of such opportunities and use it as a source of competitive advantage against its core competitors in the market (Freedman 2013). This will ensure that they are always ahead of their competitors in terms of the activities they are engaging in which means additional revenue and profits for the company. 2.3 Strengths and weaknesses The aspect of maintaining a competitive advantage in an industry is proving to be a challenging one over the years. This also seems to be the case for Samsung as it faces stiff competition from other close players in their product segments. Additionally, the extensive brand portfolio of Samsung is not beneficial to it since some of the segments tend to perform better than others. In relation to these other sectors which fail to generate enough revenue may be solely depending on other sectors such as electronics since it seems to be performing well (Ommani 2011). Despite being a leaders in the hardware Samsung have a high reliance on the operating systems from other parties. This is a major weakness and they should come up with a department to develop their own operating systems with the aim of reducing cost and making timely updates of the operating systems to enhance the experience of their consumers. By launching a number of smart phones Samsung encouraged cannibalization. This reduced the number of sales made for each of the phones in the market. Instead, it would have been adequate to launch the smart phones in different stages. Samsung also needs to develop other areas and stop relying greatly on the sales of consumer electronics in markets that are unlikely to experience numerous growths (Ommani 2011). 3. External Environmental Analysis 3.1 Pestle Analysis Political Factors Samsung experiences a favorable and stable poetical environment in a great number of countries in which it has based its operations. Despite these, there is usually tension between North Korea and South Korea and this makes Samsung to take note of the war threat and political instability as it trades in North Korea (King 2007). Additionally, political instability on some of the countries in Africa and also in Latin America has a major impact on the operations of Samsung. Economic factors By basing their operations in a number of developing countries all over the globe, Samsung has expanded its global footprint and reach. Despite these, the economic crisis in a way decreases the purchasing power of the consumers in most of the developing countries forcing Samsung to search for new markets (King 2007). Social factors Samsung is owned and operated by a family and operates in the global arena as a Korean company. With the ever changing social trends, Samsung have grown and adapted to the changes by tailoring it products so as to fit in a great number of cultures that are prevalent in the globe (King 2007). As a matter of fact, Samsung have been forced to change so as to fit in and meet the social and cultural needs of the various markets they operate in. Technological factors Samsung is a leader and also an innovative company in electronics products. This places the company ahead of its core competitors in the industry since it has a number of capabilities to harness the technological inventions. Through these Samsung have developed unique and topmost products that are superior to those from the competitors. Legal factors In regard to legal factors, a great number of electronic companies are not able to evade penalties related to copyright. In this regard the company must adhere to regulations of wireless communication. Environmental factors The modern day consumers require companies to source and make their products on a social and environmentally responsible way. Based on these Samsung ensures that it does not compromise on the working conditions of the workers and also in the wages paid to them. 3.2 Porters 5 forces Threat of entry Low Samsung benefits from the economies of scale and thus gain a competitive advantage over new entrants in the market. These benefits cannot be exploited by new entrants since they do not have it (Chan et al 2011). Additionally, operating in consumer electronics calls for massive investments in terms of capital and this represents a noteworthy barrier to new entrants in the industry. Threat of substitutes High This threat is very high since the consumer electronics market is flooded with a great number of substitutes and based on the fact that the products are long term purchases Samsung need to place a lot of emphasis when choosing the marketing strategy to adopt (Kiechel 2010). Bargaining power of buyers High Customers of Samsung can easily switch to other brands such as Nokia, Apple, and LG or to HTC without incurring an additional cost and these increases the bargaining power of the buyers considerably. Additional factors that increase the barraging power of the buyers is the buyer’s sensitivity to price and functionalities of the products. Bargaining power of suppliers Low In relation to Samsung, the suppliers have a low bargaining power since Samsung have a list of its own suppliers of most of the components that they need. Additionally, Samsung also have suppliers of the raw materials that they need. Despite these the barging power of suppliers tends to be high in the industry since the supplier’s goods are essential to success of the buyer’s marketplace (Huvard et al 2011). Rivalry among competitors High The consumer electronics industry has a great number of competitors which seems to be equally balanced thus making the rivalry between the competitors high. The Smartphone market growth has slowed over the years thus the increasing pressure to attract customer from the competitors’ seems to be high. Additionally, the aspect of differentiation which is common is the industry is short-lived (Huvard et al 2011). The great number of competitors in the industry poses a threat to Samsung in that it may lose their market shares to companies that may come up with unique capabilities and those that are likely to enhance and make use of their competitive advantages in the most effective and appropriate manner. 3.3 Competitor benchmarking Companies Benchmarking Samsung Apple LG HTC Company valuation US$ 305 billion US$233.715 billion (2015 US$ 143 Billion $3.651 billion USD Widely recognized brand yes Yes Yes Not really Net income $2.65 billion US$53.394 billion (2015) 249.1 million U.S. dollars $46.0 million USD Operations in countries global global global global 3.4 Strategy clock In relation to the strategic clock, Samsung strategic option is the low pricing strategy (Kiechel 2010). Samsung makes use of this pricing strategy to gain a greater market share and compete favorably. 4. Strategic challenges for the Samsung An analysis of the external and internal environment of Samsung shows that the company has a number of strategic challenges which includes: i. how to increase their customer base and add more value to the already existing ones ii. How to expand their business into new markets which they are not exploiting currently iii. Price sensitivity and rivalry (Lee 2015). iv. Lack of their own operating system and their competitors major in hardware and software’s (Lee 2015). 5. Evaluation of future strategic options 5.1 SWOT Analysis 5.2 TOWS Matrix Strengths Weaknesses Opportunities Make use of the marketing capability to market through online channel which is an emerging opportunity for a great number of businesses Make use of impressive and extensive research and design capabilities to cater for the growing middle class in developing countries Develop their own operating system to serve the growing market of smart phones (Lee 2015). Focus on few smart phones to curb cannibalization Threats Diversify their business and also major of the software industry so as to compete well with other competitors. Make use of their extensive research and over power Apple in markets where it has dominance. Curb cannibalization and focus of few phones so as to compete favorably with Apple Diversify their sales and focus on other aspects thus even though they may be affected by the decreasing consumer power the effect will be evenly distributed. 5.3 Ansoff Matrix Samsung always have a strategy in place for the new and already existing products to move forward in the current markets and also in striving to attain a new market. The resources and funds at Samsung are allocated based on the position of the product in the market. The strategies adopted by Samsung aims at achieving the following objectives (Sirmon, Hitt, & Ireland 2007). Creating a group of loyal customers Increasing their market share Enhancing the strength of the brand in the market Increasing sales and turnover and Increasing their market share in the markets they operate in. Samsung products can therefore be places in the various phases in the Ansoff matrix. The development of new product for new markets will play an essential role in creating value for Samsung and it will lead to an increase in capabilities of the firm (Sirmon, Hitt, & Ireland 2007). By developing new products Samsung will be adding on to their already existing products line and consumers by offering electronics that are more advanced. 5.4 Strategic Options Samsung can make use of a number of strategic options so as to solve the challenges that the company is experiencing Option 1: acquire a company that deals with operating systems such as openSUSE Option 2: come up with new and advanced products with the use of the new OS Option 3: have additional features on the new products These options have been selected since they are more likely to offer direct solution to the challenges being experienced by Samsung. 5.5 SAFe criteria Option 1 Option 2 Option 3 Suitability Acceptability X Feasibility X Option 1 seems to fit well with the SAFe criteria in that it will help Samsung in dealing with a major challenge using an old version of operating system (Lee 2015). The risk associated with the option 1 is very low given that in the past Samsung have engaged in a number of acquisitions thus they have a lot of skills and experience to engage in the acquisition. Option 1 is also likely to be accepted by the stakeholders since it will be aligned to the mission of the company. Option 2 is likely to face a lot of resistance from the stakeholders since they are likely to experience low returns over their investments. Option 3 would be rejected on the basis of feasibility. 6. Recommendations 6.1 Strategic direction Based on the discussion above, I would recommend that Samsung acquires openSUSE since it is the easiest way in which the company can deal with the operating system challenge and other challenges that it is currently facing (Lee 2015). Based on the fact that Samsung have a huge revenue base it will be easier to finance the acquisitions. 6.2 Contingency plan In instances when some the acquisition of the openSUSE proves to be problematic as a result of competition between various companies who may offer a higher price than Samsung, Samsung need to make the purchase and they should therefore focus on other companies which have the similar resources and capabilities as openSUSE. This will ensure that they do not incur huge costs in the purchase since this kind of competition may eventually place the value of the company at a higher price more than what is its real value (Sirmon, Hitt, & Ireland 2007). 7. implementation and control 7.1 implementation Plan In implementing the selected option there will be two stages that is the 1st year and 3rd year. In the 1st year the purchase of the company should be initiated and the OS will be tested to ensure that it is flawless and that it meets the needs of the purchaser. If the OS is flawless and adequately meets the needs of Samsung it will be integrated and used as the main operating system for consumer electronics that will be developed from that date. 7.2 Balanced scorecard Strategy perspective Example Key performance indicator Financial Growth of company and its profitability High returns on their investments 15% growth in revenue from the 1st years since implementation Customer Increase in number of customers and enhancing their satisfaction 89%customer retention 30 million new customers in each financial year Future To sell their products everywhere in the globe Increase in sales References Chan, J. et al 2006, Cell Phone Industry Analysis, viewed 21 April 2016, http://www.csus.edu/indiv/h/hattonl/industryanalysis.doc Dhaka and Shibaloy 2012, ‘The path through the fields’, The Economist (The Economist Newspaper Limited), 3 November, viewed 21 April 2016, http://www.economist.com/news/briefing/21565617-bangladesh-has-dysfunctional-politics-and-stunted-private-sector-yet-it-has-been-surprisingly Freedman, L 2013, Strategy, Oxford University Press, Oxford. 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Lee, Y 2015, ‘Samsung glamour days over as it fights to save mobile market share’, Reuters, August 4, viewed 21 April 2016, http://www.reuters.com/article/2015/08/04/us-samsung-elec-smartphones-idUSKCN0Q906L20150804 Lee, M 2015, ‘Samsung's Latest Acquisition: Utah-Based Yesco Electronics’, The Wall Street Journal, March 5, viewed 21 April 2016, http://blogs.wsj.com/digits/2015/03/05/samsungs-latest-acquisition-utah-based-yesco-electronics/ Ommani, A 2011, ‘SWOT analysis for business management’, African Journal of Business Management, vol. 5, no. 22, pp. 9448–9454. Sirmon, D, Hitt, M & Ireland, R 2007, ‘Managing Firm Resources in Dynamic Environments to Create Value: Looking Inside the Black Box’, The Academy of Management Review vol. 32, no. 1, pp. 273–292. Read More