Samsung Electronics Co Ltd Future Prospects - Essay Example

? Case study: Samsung Electronics Co Ltd MSc Accounting and Financial Management Module: Corporate Strategy ID: 12019368 Xin Chen Company Analysis: Samsung I. Introduction If there is any industry that is experiencing robust growth right now, it would be the consumer electronics industry. The consumer electronics industry involves the manufacture, distribution and sale of communications and entertainment devices such as digital and video cameras, telephones, stereos MP3 players, DVDs, VCRs, calculators and televisions (Reportlinker 2013). The industry is constantly evolving and changing at a dizzying pace that products can easily get obsolete with new products constantly being introduced in the market churning out easily the old ones. The market is expected to grow at 7% annually globally between 2012 and 2015 with the 3D TV product category as the fastest growing segment in the industry. Sales in consumer electronics recorded a 10% growth in 2011 (almost $965 billion) from a 13% sales growth in 2010 ($875 billion) (Reportlinker 2013). One of the leading consumer electronic brands in the industry is Samsung Electronics, part of the Samsung Group which is headquartered in Seoul Korea. The company registered revenue of KRW 145,044,766 (USD 129,666,338) in the 3rd quarter of 2012 (latest figure available) and had been experiencing an average increase of net profit of 50 % since 2009 (Data Monitor 2011). The company occupies the top position in the television and monitor product category and the world’s largest producer of DRAM, SRAM, and flash memory. It is also involved in the manufacture of other consumer electronics product such as smartphone, computer tablet and home appliance. According to its CEO, Samsung prides as the “fastest in commercializing original technologies” where innovation is encouraged by holding “competition between four main divisions--semiconductors, telecommunications, digital media and flat-screen panels” on who could best deliver the most innovative product that made the company a market leader in color TVs, VCRs, liquid-crystal displays and digital memory devices (Foroohar 2004). II. Environmental/back ground Analysis The external environment of Samsung is highly competitive (see appendices). Industry players are always looking for ways to innovate their products and ways to cut on their prices to make their product more attractive to the consumers. In addition to it, they are also looking for ways to develop new products that would debunk existing products such as the case of Sony Walkman that became obsolete with Apple’s iPod. Suppliers are also used as strategic weapon to leverage companies against competitors. In sum, the consumer electronics industry is one of the most competitive industries because many players wanted to cash in on its phenomenal growth. III. The Company – Internal Analysis Samsung has undoubtedly strong brand recall. This is substantiated by Fortune’s ranking of Samsung Electronics as the second most admired company in global electronics which bids well for Samsung in its position in the market. A strong brand recall provides a company a strong competitive edge because consumers tend to patronize brands that they trust. Research and development is one of the strongest if not the strongest component of Samsung Electronics as a company. This constant focus on research and development enabled the company to become one of the leading brands today from being a nuisance brand in the 1990s. This penchant for research and development has been the company’s practice since 1990s particularly during the Asian Crisis where it was the only activity in the company that Samsung did not cut on cost. It continued its focus on R&D that in 2010, it spent as much as 5.9% of its total revenue in research. This focus in R&D did not only help Samsung to dominate certain product categories but also helped the company to launch new products recently and contributed to its success signfiicantly. Its effort and allocation of its resources towards research and development enabled the company to launch the new SH100, a compact Wi-Fi enabled camera. Later in the same month, Samsung Electronics developed the industry’s first DDR4 DRAMmodule, using 30 nanometer (nm) class process technology. The company launched two latest point-and-share camcorders, The Full HD HMX-P300 and HMX-P100. Samsung Electronics also launched a line of TV accessories including, Lightweight, Prescription 3D Active Glasses, Touch Control, Wireless Charger for 3D Active Glasses and High-Definition TV Camera. In February 2011, the company along with MetroPCS Communications introduced the first commercially available 4GLTE enabled Android smartphone, the Samsung Galaxy Indulge. Also, it announced two new compact cameras, the PL20 and ES80, stylish point-and-shoot cameras. The company launched GALAXY S WiFi 4.0 and a fresh addition to its smart player portfolio, the GALAXY S WiFi 5.0., in May 2011. In the following month, Samsung Telecommunications America and T-Mobile USA announced two new feature-rich Android-powered handsets, the Samsung Exhibit 4G and Samsung Gravity (Data Monitor 2011). Research also enabled Samsung to diversify its products in various categories thereby extending its profit centers and spreading the risk. Today, Samsung is also engaged in the manufacture of products that is not traditionally associated with the company but came about as result of its R&D. It now manufactures semiconductors, consumer home appliances like refrigerators, airconditioners, cleaners, telecommunication products such as digital TVs; monitors; audio-visual devices; printers; mobile phones; network systems; MP3 players; digital set top boxes; computers and storage solutions which was a recent offshoot of its partnership with other companies such as Toshiba (Data Monitor 2011). Despite its focus on innovation and improving its products, Samsung still has instances of product recalls recently. These instances of product recall includes the market pull out of of its 160,000 Jitterbug phones. The company recalled these phones when it failed to connect to Emergency 911 in a no-service area. It was followed by the recall of its 1000 watt over-the-range microwave ovens in the US market followed shortly by the recall of Jiperu refrigerators in the South Korean and Chinese market (Data Monitor 2011). The volatility of the financial market of which Samsung has placed its administered pension funds made its post retirement fund short of its pension obligations. In 2010, Samsung’s planned assets of KRW1,797,706 million ($1,617.9 million) was short of KRW495,762 million ($446.2 million) when compared to its pension benefit obligation of KRW2,293,468 million ($2,064.1 million). The gap of KRW495,762 million ($446.2 million) pension assets and liabilities will have to be bridged by Samsung that will put pressure on its liquidity thus making the financial position of the company vulnerable (Data Monitor 2010). Samsung’s strategic alliances with some of the established manufacturer in the technology sector have provided the company with invaluable opportunity to expand its technological horizon. Product categories which were not known to be its strong area were supplemented by the expertise of other companies. For example, Samsung entered into strategic agreement with Seagate Technology, known to be the world's largest manufacturers of hard disk drives, to co-develop enterprise storage solutions. In the process Seagate will supply the hard drives of Samsung Electronic’s PCs and notebooks thereby benefiting from such partnership (Data Monitor 2011). Samsung’s launch of Galaxy Tab in the emerging tablet PC market proved to be success that made Samsung’s tablet a viable and a cheaper alternative to Apple’s i-Pad. Samsung is also quick to realize the robust growth of smartphone market. Already, it has cornered 20.6% of the market in 2010 with the sale of market share. In FY2010, the company achieved sales of 280 million mobile phones worldwide which is a 23% increase from its 2009 sales providing a double-digit increase in operating profits for the company (Data Monitor 2011). IV. Future prospects The previous and present strategy of Samsung is forward looking that made it an industry leader. It is also highly perceptive that industry experts concluded Samsung have anticipated the digital age in consumer electronics. This could be surmised with Samsung’s decision during the Asian crisis where it maintained its research and development activity despite businesses resorting to cut cutting measures and downsizing to survive the crisis. This forward looking attitude of Samsung through its research produced the development of various products that contributed to the company’s success today (Foroohar 2004). Stability and profitability wise as a company, Samsung has also positioned itself to grow revenue and profits in many areas. It did not merely focus on a single or few sector in consumer electronics that will make the company vulnerable during any uneventful development in the market but has rather diversified itself to distribute the risk and revenue centers. In short, Samsung has placed its eggs in many baskets to shield itself from market risk. Samsung has also demonstration its quickness to adapt to trends in consumer electronics. As a company, Samsung was not a pioneering in any product categories that it is into now but rather, its ability to quickly adapt to market realities enabled it to dominate such product categories. For example, Samsung is now dominating (together with Apple that the market is already considered a duopoly) the smartphone industry through it did not create the market and was only a distant third to Nokia and Motorola in 2005. This attribute of Samsung as a company did not only happen in smartphones but extended to other product categories as well. With regard to leadership, Samsung puts premium on the continuity of management due to the fast moving and fast changing nature of consumer electronics industry. As early as now, it is alread preparing for the leadership transition by preparing the son of Chairman Lee, Jay Lee to perform more strategic role in the firm for his eventual assumption of CEOship. As of now, he is already occupying the position of COO to prepare him for the eventual assumption of leadership at Samsung when the time will come that Chairman Lee retires. This is on top of the two decades of experience he already has as part of the senior management of Samsung where he has been trained to make strategic decisions. This leadership set up at Samsung may have been criticised by many for the concentration of power to a single family but it is also acknowledged that thsi structure worked well for Samsung as its strong leadership removed the impediment of bureaucracy that prevents swift decisions to be made which is necessary in a fast changing industry of consumer electronics (Newman & Kim 2011) . Samsung however should not rest on its laurels particularly on the high end LCD product sector which it considered to be one of its “cash cows” today due to the profitability of this segment in the consumer electronics industry. There are also other smaller players who realize the profitability of this product category thus selling their HDTV cheaper that could threaten Samsung’s market position and puts a downward pressure on its price making the business less profitable due to its shrinking margin. At present, Samsung also lagged behind Apple Inc. in using suppliers as a strategic advantage. Apple has already locked in suppliers for long term to assure the company availability of its components at a favourable price that has an inadvertent effect of making components scarcer thereby driving its prices up to the detriment of its competitors (which includes Samsung) because it will increase their overhead cost. Samsung must quickly address this shortcoming to cover any vulnerability it may have today as well as in the future providing the company the greatest probability for success by removing factors that could contribute to its weakness and capitalize on factors that enhances its strength. V. Appendices Threat of rivalry Rivalry is the most potent threat to Samsung Electronics. Competition is very tight in the consumer electronics industry that an industry leader can easily be debunked by the next new product. Experience of Blackberry’s RIM and Nokia who were once market leaders in mobile phones were easily out-marketed by Android, Apple and Samsung Electronics. The same experience holds true for Sony who was once a leader in TV but is now out replaced by Samsung Electronics. Samsung Electronics therefore cannot afford to be complacent because of the cut throat competition in the industry. One of the evidence of the intense rivalry in the consumer electronics industry was the lawsuit filed by Apple Inc. against Samsung Electronics in the US whereby the court ordered Samsung to pay US 1bn dollars in damages. Threat of substitute products The threat of substitute products goes along with the threat of rivalry due to the innovative nature of the industry. Players are looking for ways to outperform their competitors either by making their products better or by making the products of the competitors obsolete. The classic example for this is the experience of Sony Walkman where it was virtually made irrelevant by Apple’s iPod. Samsung may be ahead in this area due to its foresight in investing heavily in research and development to look into viable products in the future but it still does not mean that Samsung is not vulnerable to the threat of substitute products. Threat of new competitors The threat that new competitors posed to Samsung Electronics is real. Albeit it is remote that new competitors could replace Samsung Electronics in product categories that it dominate, new competitors however put a downward pressure on the price of its product as they tend to sell their products at a lower price to gain market share. This is evident with the entry of less known products such as TCL, American Home who may not have a strong brand presence in consumer electronics but positioned themselves as a cheaper alternative to gain market share. Bargaining power of suppliers Samsung’s closest competitor, Apple Inc. realized the bargaining power f suppliers early. Apple made suppliers as a strategic tool and used its deep cash reserve to lock in suppliers for a long period of time. This works strategically for Apple Inc. to the detriment of its competitors such as Samsung because Apple is virtually assured of the components to make its product at a favorable price. Also, locking in suppliers in quantity for a long period makes supplies scarce in the market that left its competitors scampering for sources thus driving its price up (Wingfield 2011). Samsung should also shield itself from the bargaining power of suppliers by assuring itself of a reliable supply of its components at an equally favorable price. Bargaining power of buyers The buyers are the ultimate arbiter of what the players in the consumer electronics industry make. The success or failure of a product launch is dependent upon the bargaining power of buyers by exercising its purchasing prerogative. Those who earn consumer’s preferences gains market share while others who do not appeal to consumer’s taste will simply flop, become obsolete or bankrupt. Samsung geared in a favorable position in this aspect because it always bears the consumers in mind every time it makes or develops its products. Its mantra of commercializing technology the soonest time possible and at the cheapest price possible where its engineers and researches are always on the lookout on how to make their products as consumer friendly possible keeps the company in touch with the taste of its consumers that keeps the company viable, competitive and profitable in the industry. Bibliography 'DATAMONITOR: Samsung Electronics Co., Ltd' 2011, Samsung Electronics Co., Ltd. SWOT Analysis, pp. 1-10, Business Source Complete, EBSCOhost, viewed 2 January 2013. Foroohar, R, & Lee, B 2004, 'Masters Of the Digital Age', Newsweek, 144, 16, pp. E10-E14, Academic Search Complete, EBSCOhost, viewed 2 January 2013. Newman, M, & Kim, J 2011, 'Samsung Electronics: The Jewel of the Samsung Empire -- Secrets of Success and Future Growth Engines', Bernstein Black Book - The Best Of Bernstein: European & Emerging Markets Edition (Fourth-Quarter 2011), pp. 151-156, Business Source Complete, EBSCOhost, viewed 2 January 2013. Reportlinker)(2013). Consumer Electronics Industry: Market Research Reports, Statistics and Analysis. Retrieved from http://www.reportlinker.com/ci02060/Consumer-Electronics.html. viewed 2 January 2013 TOP 10 electronics. (cover story)' 2012, Consumer Reports, 77, 12, p. 20, MasterFILE Premier, EBSCOhost, viewed 2 January 2013. Wingfield, Nick (2011). Apple’s Lower Prices Are All Part of the Plan. New York Times online. Available at http://www.nytimes.com/2011/10/24/technology/apples-lower-prices-are-all-part-of-the-plan.html?pagewanted=1&_r=2 [Retrieved on January 3 2013] Read More