Samsung as One of the World's Most Popular Consumer Electronics Companies - Research Paper Example

? Business Analysis of Samsung Electronics of Introduction Samsung is one of the world’s most popular consumer electronics companies. Samsung is a Korean company and it operates its major outlets in the United States and its central market is in the United States. However, Samsung has outlets all over the world and its presence continues to grow into emerging economies around the world. Samsung is involved in the manufacture, distribution and sale of consumer electronic products and devices all over the world (Bloomberg, 2012). Samsung specializes in mobile phones, tablets, televisions, DVD players, home theaters, digital cameras and other household appliances like washing machines, dishwashers and the like. Samsung focuses on innovation and it promotes its services through various global ventures and entities that are formed for such purposes. Samsung Electronics is a subsidiary of Samsung Group. According to the Financial times, Samsung Group was the world’s largest technological company in terms of revenue between 2009 and 2012 (Jung-a and Oliver, 2012). As of today, December 13, the stock value of Samsung Group on the Seoul Stock Exchange is KRW: 1,533,000 which is approximately $1,423 (Reuters, 2012). This is an appreciation over the previous trading periods which are shown in the chart below: Figure 1: Samsung Stock Levels between July 2012 and December 2012 [Source, Samsung Website] From the stocks levels identified above, Samsung is doing well in the field of business and it has commendable efforts and results from its operations. The company is a leading firm in the consumer electronics industry and it continues to improve its services and offerings to consumers in different parts of the world. Samsung is represented in 61 countries around the world and it employs 221,000 people (Samsung Values and Conduct, 2012). The company is popular all over the world and it continues to invest in highly innovative technology and systems. This paper involves a critical analysis of Samsung’s systems and business processes and structure. It undertakes an in-depth analysis of the various components of the company and the industry and economy within which it operates her US wing. Industrial Structure The consumer electronics industry is estimated to be worth $260.7 billion in 2012 according to projections and estimates made (Elnadi, 2010 p4). This means that it is one of the world's largest and most lucrative sectors of business. The consumer electronics industry has an annual turnover that is much more than the turnover of several small and middle-sized economies around the world. The industry's revenue base has increased by 30.6 since the 2007 business year (Elnadi, 2010 p4). This means that it continues to add up to its already consolidated financial worth and this shows that the industry is very progressive and it increases systematically with time. The main features of the consumer electronics industry is that it is highly competitive and customers in the industry are moved by brand loyalty (Elnadi, 2010 p4). The industry is moved by three main things: fashionability, innovation and it is research based (Kapur, 2009: p6). Consumers will always flock to buy a product that they deem to be latest and up market. Due to this, the companies in the industry like Samsung has to find ways of bringing new products onto the market to outdo their competitors. This therefore causes the industry to be steeped in research and innovation. In terms of strategy, the consumer electronics industry is ran through division of labor, a high degree of integration of different units often scattered around the world and it is affected by rapid obsolescence which sparks up the need for innovation to ensure survival (Mourdounloutas, 2011 p2). Due to this, the spate of competition in the industry is extremely high. The consumer electronics industry can best be described as an oligopoly. This is because there is the presence of a few, but highly capitalized large entities that are involved in the industry. Without high capitalization and a heavy investment into research and development and a global presence, it is not easy to succeed in the industry. The main competitors to Samsung are divided in terms of industry. Samsung is a major global and American player in three main fields: Flat TV, Cell Phones and Smart Phones. This is the market share the Samsung controls, as per Electronics Takeback Coalition (2012): Global TV Sales (by Revenue) North America TV Sales (by Units Sold) Rank Company Market Share by Units Sold (Q1’11) Rank Company Market Share by Units Sold (Q4’08) 1 Samsung 22.2% 1 Samsung 20.4% 2 LGE 14.5% 2 Sony 14.2% 3 Sony 11.4% 3 Vizio 12.3% 4 Sharp 7.4% 4 LG 8.1% 5 Panasonic 6.6% 5 Toshiba 7.9% Others 37.9% Others 37.2% Total 100% Total 100% Figure 2: Flat Screen TV Market Share Global Printer Sales (by units sold) U.S. Printer Sales (by units sold) Rank Company Market Share by Units Sold Q3 2011 Rank Company Market Share by Units Sold Q3 2011 1 HP 42.9% 1 HP 56.2% 2 Canon 18.1% 2 Canon 12.6% 3 Epson 12.6% 3 Epson 6.4% 4 Samsung 5.7% 4 Brother 5.5% 5 Brother 5.5% 5 Lexmark 5.0% Others 15.1% Others 14.3% Total 100.00% Total 100.00% Figure 3: Global & US Printer Sales Market Share Global Cell Phone Sales (by units sold) Rank Company Units Sold 2011 Global Market Share 2011 1 Nokia 417.1 million 27.0% 2 Samsung 329.4 million 21.3% 3 Apple 93.2 million 6.0% 4 LGE 88.1 million 5.7% 5 ZTE 66.1 million 4.3% Others 552.1 million 5.7% Total 1,546,0600,000 100.00% Figure 4: Cell Phone Sales and Market Shares Rank Company Units Sold 2011 Globally Market Share 1 Samsung 94.0 million phones 19.1% 2 Apple 93.2 million phones 19.0% 3 Nokia 77.3 million phones 15.7% 4 RIM 51.1 million phones 10.4% 5 HTC 43.5 million phones 8.9 % Others 132.3 million phones 26.9 % Total 491.4 million phones 100% Figure 5: Market Share of Smart Phones Samsung is a global market leader in four major areas that it produces for consumers. This include the production of: Flat Screen TVs, Printers, Cell Phones and Smart Phones. They have worked hard to maintain market share and they continue to improve through a high investment in research. External Environment The year 2012 marked a change in global economic patterns and the United States in particular, which is the largest sales point of Samsung made significant economic gains. In terms of Corporate Bond Yields, there was an increase of 3.68% for AAA companies and an increase of 4.66% for BAA companies (US Treasury, 2012). This shows that productivity is growing and the economy is having a turnaround. Employment also increased by 0.11% which represented about 133,000 people in America, entering the labor force. Consumption in the United States is said to be the cause of the country's economic growth. This is because it increased significantly in 2012 and this means that companies like Samsung could stand to sell more of their products and this would increase their returns significantly. Gross Domestic Product in the United States continued to increase through out 2011. This was an increase beyond 2007 levels where the credit crunch caused a serious slowdown in the American economy. GDP in the United States is amongst the highest in the world and it is much higher than that of other close competitors like the United Kingdom and Japan (US Treasury, 2012). Household wealth collectively rose to about $58 trillion and is now growing (US Treasury, 2012). Since Samsung is a major manufacturer of household appliances and consumer electronics, this is a very positive view of the economic terrain. This is because Samsung stands to gain significantly from the growth in the household purchasing power and this is going to add up to the potential demand for Samsung products. Also, the Real GDP and GDP per capita in the United States increased (US Treasury, 2012). What this means is that Samsung can focus on personal products for different classes of Americans and this is likely to receive a positive response. This is because on the individual level, the American people have money to afford the various product offerings that Samsung will put before American customers. Another element of the US economy relates to the political changes that occurred in the United States in 2012. The year saw a general elections in America where the Democratic Party won. The Democratic Party made so many promises that are going to come into effect in 2013. And this is likely to have a significant impact on the economy as a whole and the consumer industry in particular. The payroll tax break that was instituted by the Bush Administration in 2001 – 2003 is scheduled to end on January 1, 2013 (Ferretti, 2012). This means that there is going to be higher taxes that would be borne by entities like Samsung. The higher taxes are meant to raise $700 billion to back public spending which would raised due to a number of populist policies of the Obama administration (Ferretti, 2012). Additionally, the Democratic party promised to increase taxes for households earning $250,000 per year (Ferretti, 2012). This is part of the party's attempt to redistribute wealth and promote some welfare oriented policies. This new plan will cause a decrease in the wealth of high and upmarket households. This will lead to a fall in demand for premium high end brands that Samsung presents to consumers. On the other hand, a new middle class is likely to emerge who might have tastes that are significantly different from the previous middle class. This would mean that Samsung would be better off if they produce for the middle class since that group is likely to widen throughout America. Also, Samsung could consider producing for minorities since they are likely to benefit significantly from these changes. Corporate Philosophy The vision of Samsung is “to devote our talent and technology to create superior products and to creating super products and services to contribute to a better global society” (Samsung Philosophy, 2012). The company seeks to become an environment where the talented people can come together to work extra hard to produce products of a high standard which would be accepted and appreciated by people in the society all over the world. The mission statement of Samsung is “Inspire the World, Create the Future” (Samsung Philosophy, 2012). Samsung seeks to innovate and manufacture products that would have both qualitative and quantitative impacts on consumers who use them. There are five key values that are espoused by Samsung Electronics. These values shape and define their way of doing things and their focus and strengths (Samsung Philosophy, 2012): 1. People: They focus on recruiting the best and developing them to be responsible and productive in their capacity. 2. Excellence: Samsung seeks to produce at a level that is high and appreciated by all customers in order to attain the best and most optimal results and performance. 3. Change: Innovation and promotion of high quality products and services lies at the heart of Samsung. They seek to invest in research and development and continue to improve in order to impact positively on the world. 4. Integrity: This involves working according to high ethical standards and views to attain the best interests in both absolute and relative terms. 5. Co-Prosperity: Samsung aims at discharging its duties to all stakeholders, big and small in order to attain the best results for all. The management philosophy is summed up as “creativity, collaboration and excellence” (Samsung Management, 2012). Samsung's philosophy aims at attracting the world's most talented managers and evolving the cultures, growing innovation and advancing technology to improve the everyday lives of customers and all stakeholders (Samsung Management, 2012). Corporate Governance in Samsung is carried out by two components: the management and the board of directors who have separate oversight responsibilities. The management are involved in the day-to-day running of the company. It is headed by a Chief Executive Officer who is also the Vice Chairman of the Board of Directors. There is a separate Board of Directors who oversee the activities of the management. The board has the obligation to control risks and check that the rightful structures for trading and stakeholder responsiveness exists in Samsung. There are also local executives who handle the board functions in the different regions that Samsung has a presence in. This include the different countries and regions that Samsung operates in. The objective is to use these local executives to control and seek unique opportunities that exist in specific regions around the world. Technology and Innovation Technology is at the heart of Samsung's operations and activities. Samsung's Vision 2020 is to attain three main and important things: 1. Creative Solutions 2. Innovative Products and 3. New Technology Samsung has these three crucial pointers at the heart of its strategy. Due to this, the company uses these three pointers as the reference points for decision making and for acting to attain its strategic pointers and this translates to measures and other yardsticks for their operations between now and the target year of 2020. Technological advancement and improvement is meant to affect employees. Since employees are at the heart of the organization, they are being prepared at all times through training and retraining to be able to give more in an atmosphere of significant opportunities. Also, Samsung seeks to attain this end through the attainment of different partnerships in order to cut down costs and also bring on board rare skills from other entities. These strategic partnerships have culminated in the running of major research entities which have become significantly productive and innovative. Samsung continues to maintain research partnerships with some competitive rivals like Sony, IBM, Sany, Dell, Toshiba, HP and Disney (Plunkett, 2008). All this enables the company to improve its offerings, cut down costs of research and also get to share with competitors in a non-adversarial manner. Samsung seeks to become an industry leader through research and innovation. Due to this, the company spent cumulatively, an amount of $400 billion on research and this represents an average of 9% of their revenue (Plunkett, 2008). This means that Samsung is really committed to research and they continue to deepen their roots in the field. Samsung maintains an average of 88,000 staff members whose primary focus is research and development (Mitchell, 2011). This is amongst the largest in the world and most of these people are highly qualified post-doctorate level engineers and scientists. With this level of investment, they hold a major stake in the innovation sector of the electronics industry and this is likely to continue to increase into the future. Market Analysis According to Koekomoer and Bord, Samsung targets two segments in the market (2011). These are: 1. Affordability Oriented Customers. 2. High Quality Product Oriented Customers. The first group are influenced by prices. Due to this, Samsung has to produce affordable and less expensive products for such customers. The main end of Samsung is to increase awareness of these customers and retain them through various strategies. The second group of customers, seek high quality products and are willing to pay more for such products. This group need to be appeased with durable and good products that would meet their specifications and enable them to remain satisfied. To this end, “Samsung blends Price Consumers and Sensitive Consumers” (Romley and Park, 2011). Samsung concentrates on using technology to produce for these different classes of consumers. For those consumers interested in high quality, there is the opportunity for customization and other inputs. This allows Samsung to meet specific to near-specific needs and expectations of consumers. On the other hand, Samsung uses various techniques like mass production to produce for price conscious consumers who need to be given products that they can pay for and remain comfortable. According to Mitchell, the idea of Samsung's marketing strategy is to stimulate emotions and bring a wide range of consumers in different backgrounds and locations (2011). This means that Samsung seeks to improve its qualitative as well as quantitative offerings to consumers. Samsung manufactures products that will create some kind of connection and leave a lasting effect on consumers. This would build brand equity and help consumers to become more loyal to Samsung and also have memories that they would always cherish when they relate to Samsung. On the other hand, Samsung is involved in mass production in order to meet the numbers and the demands in poor nations as well as rich nations. This allows Samsung to sell more at a lower profit margin in order to attain higher recorded profits in the long run. In terms of the marketing elements, the following defines the 4Ps of Samsung: 1. Price: Samsung is involved in a rigorous process of segmenting its prices in order to capture different peoples with different backgrounds. This allows them to meet the needs of all customers and also give opportunities to penetrate deeper sections of the society. 2. Place: Samsung sells through its showrooms around the world. This enables Samsung to maintain its global standards in all parts of the world. The place is often very ideal and it helps the company to penetrate into different parts of the world and society. Also, Samsung has contracts with supermarkets and malls which allows them to sell in their locations. The standard aspect of this is that Samsung sells in nice and clean atmospheres where they can get customer confidence and increase the shopping experiences of clients. 3. Products: Designed with high technology and according to high testing standards and features but with some degree of flexibility. The flexibility allows Samsung to produce different kinds of products for different markets. The products however need to meet some basic standards before they are sold to the markets. 4. Promotion: Samsung is involved in various kinds of events sponsorship in global events to create global awareness of their brands. Samsung was a major sponsor of the largest event to ever occur in 2010, the FIFA Soccer World Cup held in South Africa. This produces a transnational system through which the electronic giant promotes its activities. On the regional and national levels, Samsung is involved in various adverts and different activities that allows them to increase their customer base. SWOT Analysis of Samsung This section considers the inherent strengths and core weaknesses that are affecting Samsung on the markets. It will look a the strengths to derive opportunities and view the weaknesses to derive the threats that Samsung faces. This section is significant in defining the recommendations segment, which is the last section of this paper. Strengths of Samsung 1. Samsung has a wide product range. This include various consumer products like mobile phones, televisions, computers, printers and many other things which they have specialized in. This gives them a wide diversity and helps them to spread risks. This is because failure of one product or brand would not mean the end of the company. Rather, they can focus on some other product and get it to bring in cash. This balance allows Samsung to remain robust and formidable in the financial sense. 2. Samsung controls a significant market share. In almost all the products in the consumer electronics industry that Samsung is into, the company has a significant share of the market. This means that they have built the right brand and this is a form of intangible asset which they can continue to explore into the future. 3. Customer loyalty: Samsung has a large scale of loyal customers who are always willing to buy their products at all times. This helps them to get a ready market for their products and improve their brand equity throughout the world and in some primary markets like the United States 4. Quality Trends: Samsung has a good quality standard and this has been accepted and conceded by many consumers in the world (Mitchell, 2011). The company has major quality control standards which they adhere to at all times. This is integrated into the production system and it is used to replicate new products at a very low cost. 5. Strong research and development structures. Samsung has invested heavily in quality control and similar structures. This has been complemented with a strong investment in human resources and other research structures throughout their operations around the world. 6. Effective and efficient production systems: Samsung has production lines and systems that undertake mass production in different parts of the world. These systems are easy to run and very effective in their operations. The cost of running them are minimal and they help the company to meet very high standards at incredibly low cost margins. 7. Affordability of Samsung products. Samsung's products are fairly priced and this can be varied throughout the markets they sell in. This is because they have full control over affordable market systems and structures and this allows them to have control over fixing prices. This means that they can fix prices just to penetrate and control the markets since this industry is ran by various oligopolies, of which Samsung is a major contender. Opportunities 1. There is room for the expansion of Samsung's market share this can be done through investment and entry into new markets in emerging economy through various international partnership agreements and other licensing systems. 2. Samsung has the opportunity to launch sub-brands which would involve sales in other electronic ventures which would help the company to get more access to the markets and new consumers to open up a different line of activities. 3. Samsung can go into corporate social responsibility in order to gain more recognition and attachment from their consumers. This will provide long-term benefits in areas like the perception of the public and other things. 4. There is also the chance for diversification into other areas and projects like financial services. This will further consolidate Samsung's financial and economic position. Weaknesses 1. Samsung is often not the first to bring a product onto the market. The focus on improving existing products on the market. This makes them late entrants in innovative drives. 2. Samsung maintains extremely low prices which are not always profitable. Their competitors use other strategies to sell at higher prices and outwit them. 3. Samsung is involved in mass collective global and regional marketing. They lose niche markets to local and smaller consumer electronic companies. 4. There is a growing trend in competitor firms in the consumer electronics industry. These companies are fast merging and becoming formidable competitors. 5. Samsung has high operational costs and has major issues with debt financing. Threats 1. The competition puts them at a grave risk of losing market share to competitors 2. There is the presence of cheaper Chinese made consumer electronics that are posing a major threat to Samsung particularly in the developing world. 3. The competitors use the niche marketing to get more customers than Samsung. They use localization strategies which is superior in some enclaves than Samsung's global strategy. 4. Constant threat of obsolescence and the lack of firsthand innovations continues to cost Samsung significantly by paying royalties to brand owners. Finance and Marketing Budget Financially, the following data represents the ratio of Samsung matched against the industrial average in 2011. Item Samsung Industrial Average Return on Equity 19.34% 4.45% Return on Assets 9.39% 5.35% Profit Margins 10.50% 0.12% Revenue $173.11 billion $7.8 billion Total Debt 13.81 5.04 Debt to Equity 0.13 times 0.40 times Current Ratio 1.72 times 2.4 times Earnings Per Share 122.13 times 1.41 times Figure 6: Source: MacroAxis (2012) This indicates that financially, Samsung is far ahead of its competitors in the major elements of operations. The revenue of Samsung is over 20 times that of their competitors and the profit margins are high even though that of their competitors is marginal. The only areas that Samsung seem to be struggling relates to the area of total debt which is 13.81% of cost of production and ahead of the industrial average. Also, the current ratio, which is current assets divided by current liability seem to show that Samsung has more liabilities than its competitors in the industry. In the area of enterprise value, Samsung is much ahead of its closest competitors. The table below illustrates it: Company Enterprise Value Samsung $180.004 billion Toshiba 31.55 billion Panasonic 26.22 billion LG Electronics 15.89 billion Sony 11.385 billion Texas Instrument 37.469 billion Figure 7: Enterprise Value (Source: InFinancials, 2012) The following figure below shows the year-on-year comparison of the various components of Samsung between 2006 and 2010 Figure 8: Samsung Corporate Profile This shows that in 2006, almost all aspects of Samsung suffered some difficulties. However, in 2009 and 2010, the company began to pick up. This indicates that the effect of the global financial crises hit Samsung. However, the company is picking up. Conclusion This paper indicates that Samsung is a major corporate giant in the consumer electronics industry. The country is growing at very fast rates and its strength is in its strong financial position, global reach, diverse product base, economies of scale and its strong research and development unit. In order to consolidate its position, the following recommendations are made for Samsung: 1. Diversification into profitable areas outside the consumer electronics industry. 2. An increase in the focus on growing and expanding on the global level. 3. Further focus on the research and development team and more improvement in that area. 4. Growth in corporate social responsibility in order to create an impression on consumers 5. Localization of their activities in new niches that they expand into. References Bloomberg Newsweek (2012) Samsung Electronics [Online] Available at: http://investing.businessweek.com/research/stocks/snapshot/snapshot.asp?ticker=005930:KS Accessed: December 13, 2012. Electronics Takeback Coalition (2012) About the Industry [Online] Available at: http://www.electronicstakeback.com/hold-manufacturers-accountable/about-the-industry/ Accessed: December 13, 2012. Elnadi, M. (2010) Global Strategic Management – Outsourcing in Domestic Electronics Industry Berlin: GRIN Verlag Ferretti, G. M. M. (2012) US Fiscal Policy: Avoiding Self Inflicted Wounds [Online] Available at: http://www.huffingtonpost.com/gian-maria-milesiferretti/us-economy-budget-cuts-fiscal-cliff_b_1756290.html Accessed: December 13, 2012. InFinancials (2012) Samsung Electronics Market Multiple Valuation [Online] Available at: http://www.infinancialsanalytics.com/en/market%20valuation,Samsung%20Electronics,30005FK.html Accessed: December 13, 2012. Jung-a, S. and Oliver, C. (2012) Samsung Beats HP to Pole Position [Online] Available at: http://www.ft.com/cms/s/2/c48d477a-0c3b-11df-8b81-00144feabdc0.html Accessed: December 13, 2012. Kapur, P. (2009) Consumer Electronics Industry of China Berlin: GRIN Verlag. Koekomoer, L. and Bord, S. (2011) Marketing Communication Cape Town: Juta and Co Publishing. Macroaxis (2012) Samsung Financial Ratios [Online] Available at: http://www.macroaxis.com/invest/market/SSU.SG--fundamentals--Samsung_Electronics_Ltd Accessed: December 13, 2012. Mitchell, A. (2011) Samsung Electronics and the Strategy for Leadership of the Electronics Industry Hoboken, NJ: John Wiley & Sons Mourdouloutas, P. (2011) Business Strategy in a Semi-Global economy Boston: ME Sharpe Reuters (2012) Samsung Electronics Co Ltd [Online] Available at: http://www.reuters.com/finance/stocks/overview?symbol=005930.KS Accessed: December 13, 2012. Plunkett, J. W. (2008) Plunkett's Nanotechnology & Mem's Industry Almanac 2008 New York: Plunkett Research. Romley, C. and Park, K. (2011) The Changing Face of South Korean Management New York: Taylor and Francis Group Samsung Management (2012) Samsung Management Philosophy [Online] Available at: http://www.samsung.com/africa_en/aboutsamsung/management/index.html Accessed: December 13, 2012. Samsung Philosophy (2012) Our Values and Codes [Online] Available at: http://www.samsung.com/africa_en/aboutsamsung/corporateprofile/valuesphilosophy.html Accessed: December 13, 2012. US Treasury (2012) US Economic Trends, 2012 [Online] Available at: http://www.treasury.gov/resource-center/data-chart-center/Documents/20120502_EconomicGrowth.pdf Accessed:December 13, 2012. Read More