Global Production Network for Samsung Mobile - Case Study Example

Global Production Network for Samsung Mobile Name: Class: Unit: Contents Contents 2 Introduction 2 What is global production network? 3 About Samsung and mobile phones in the Galaxy Series 3 Samsung performance 4 Types of labor that go into creating different point in GPN and how the work is distributed globally 5 Research and development 5 Assembly 6 Sales and marketing 7 Logistics 7 Institutional arrangement that best explain the structure of this GPN 7 Distribution of capture of value throughout the GPN 9 Injecting capital in areas of operations 10 Stimulating local firms 10 Knowledge transfer 11 Job opportunities 12 Conclusion 13 References 14 Introduction Emergence of distributed systems and global productions that have brought together diverse economic actors has led to rise in conceptual models that explain the development of international political economy (IPE). In this note, the last two decades have seen global production become more organizational fragmented due to economic globalization (Ferdows, 2008). According to Yeung and Coe (2014), 80% of international trade is currently organized though global production networks (GPN). It has seen global production and international trade become more organized where transaction corporation split production process and start producing at global scale. GPNs have been very useful in understanding global market engagement of firms, regions and nations. It has been useful in explaining the geographical pattern in value creation, retention and capture in global economy. This essay aims at discussing the Global Production Network for Samsung Mobile. What is global production network? Global production network refers to organizational arrangement that comprises of interconnected economic and non-economic actors, which are coordinated by a global lead firm, and produces goods and services across different geographical locations. The goods and services produced are meant for the worldwide markets (Kogut & Kulatilaka, 1994). GPNs are connected to interactions of supply and demand. It works to ensure that consumers have the right product, of right quality, at the right place, at the right location and at the right time (Ernst, 2002). About Samsung and mobile phones in the Galaxy Series Since its inception in 1969, Samsung Group has grown to be a global informational technology leader. It enjoys over 200 subsidiaries around the world. It offers a wide range of products that are classified into three business lines i.e. mobile devices such as smart phones and tablets, consumer electronic such as televisions and electronic components such as semiconductors and display panels. Samsung group is dedicated to improve the global community through its groundbreaking innovations and value creation. Samsung is among the largest player in smartphone market in the world. Smartphones are Samsung best-known products and are accounted to over 50% of the company overall profits (Jung-a, 2017). Samsung offers phalbets and phones that suit all levels of its user target. Its phones run on android OS but it has recently developed smartphones that are running on Tizen OS which is an alternative of android. Samsung has many galaxy series phones such as Samsung Galaxy S8, Samsung GalaxyC7 Pro, Samsung Galaxy S8+, Samsung Galaxy J5 among many other brands. They have created an unmatched smartphone experience such that whenever you go, you will find one or two people with a Samsung Galaxy smart phone. It has developed smart phones that suit the requirements of almost everyone, which are affordable at a fair price (Jung-a, 2017). Samsung performance Despite competition and shaky global demand for smartphones, Samsung is increasingly ahead of its rivals. In 2016, flagship of its galaxy Phones enabled it to out space Apple Inc., its major competitor. Moreover, the end of year saw its stock close to a 4.7% higher at a record of 1,640,000 won. It has outshined its competitors not only in terms of market competition but also in terms of growth. It enjoyed a second-quarter profits that were higher than its projections. This was due to strong sales in Galaxy S7 and cost cuts in its production (Jung-a, 2017). Moreover, it benefited from the slow iPhone sales that promoted its Galaxy high-end customers. Initially, Apple dominated the smartphone market. However, 2013 saw Samsung introduce Samsung galaxy series that increased Apple competition. Through aggressive advertising that was coupled with unique smartphone features, Samsung was able to overtake its rival to become the most preferred smartphone in the world. By May 2016, Samsung accounted for 37% of smartphones sales in the world while its competitor had 29%. Moreover, its brand Samsung Galaxy S7/S7 edge accounted for 16% worldwide sales. This was more than its rivals’ iPhone 6s/6s Plus which accounted for 14.6% (Jung-a, 2017). Further, on January 2017, Samsung group posted its best quarter operating profits in more than two years. This was attributed to S7s’ robust sales. Its operating profit for the quarter rose to reach an approximately $8.7 dollars. This was its second most profitable quarter and it’s most profitable first quarter in history. The company was said to have sold over 15 million Galaxy S7 phones in its second quarter. This was up from its previous 10 million units in the first quarter. The strong performance has been because of increased efficiency rather than innovation. It aimed on simplifying its product line and cost reduction (Jung-a, 2017). Types of labor that go into creating different point in GPN and how the work is distributed globally Samsung Galaxy Series smartphone production network can be divided into several parts. These include research and design, assembly, marketing and logistics. The production is segmented into various regions. Samsung has globalized its operations to different segments. For instance its technology is mainly done in china while research is done Korea, japan, India and Russia. Assembly of different parts is done in Korea assembly plants where it is later distributed to all parts of the world (Jung-a, 2017). Research and development Being a high-tech company that provides different types of products, Samsung has identified that research and development are a major fundamental in creating value for its Samsung Galaxy Series smartphones (Jung-a, 2017). Due to frequent technological changes and fierce competition, rapid creation of design is necessary to enhance competition in the global market. Samsung research and design centers are located in Japan, China, Europe and United States. The Samsung Advanced Institute of Technology ensures that Samsung products are competitive. Moreover, all divisions in labor segmentation have their own research departments. In total, Samsung spends an approximately $10 billion per annum on research and development (Canadian Embassy in the Republic of Korea, 2012). Samsung has outsourced its research and design in Japan, China, Europe, Russia and United States. Research and development is the key to Samsung innovative products. This has led to its success in in its smartphone market. In these geographical segments, Samsung tap cheap scientific expertise. For instance, it has maintained a close relationship with Russian Academy of Science where it funds small business to develop projects that are aimed at exploit the inventions that the academy generates. Moreover, it has established research and development centers such as Beijing Samsung Telecommunication (BST), Samsung Electronica Research Institute (SERI), with over 50,000 employees across the world to facilitate its research and development (Canadian Embassy in the Republic of Korea, 2012). Assembly Assembly points for Samsung Galaxy Series are spread all around the world in different countries (Jung-a, 2017). Samsung has its major phone assembly locations in Korea, Vietnam, India and China. These different countries produce specific product for Samsung Galaxy Series. For instance, India research and design factory produces software application necessary for the smartphone (Canadian Embassy in the Republic of Korea, 2012). Sales and marketing In each of its market, Samsung has sourced a marketing and sales company. For instance, it has several sales companies in North America. Samsung America is responsible for coordinating all sales in America as well as creating marketing arrangements (Canadian Embassy in the Republic of Korea, 2012). The different marketing companies in its markets provide feedback concerning design and product design regarding various Samsung Galaxy Series smartphones (Jung-a, 2017). Logistics Samsung handles logistics in a unique way that covers many administrative processes. It has an in-house logistic segment which handles both inbound and outbound logistic. Moreover, it handles payments and processes with outsourced companies (Canadian Embassy in the Republic of Korea, 2012). Institutional arrangement that best explain the structure of this GPN According to Coe et al., matching assets and regional capabilities with GPN need is based on institutional structures. Institutional structures promote regional advantage as well as enhancing it delivery into the GPN (Coe & Hess, 2013). Multi-scalar institutions act together to unite Samsung GPN into a particular locality. In this case, the institutional dimensions depict the necessity of variability in coupling within this GPN. Samsung Galaxy series smartphone is manufactured in detailed governance which is associated with strategic coupling that is beyond national borders (Canadian Embassy in the Republic of Korea, 2012). The location and nature of GPN parts are located determine their performance in accordance with the existing power relationship in the system. For Samsung, different locations involved in this GPN have their own unique identities, manner of thinking and way of doing things. The idea that production of Samsung galaxy series takes place in different locations make it vital to confront and respond to regional particulars. However, despite this, Korea which is the country of origin is of important influence whereby it determines how Samsung operates in its network. Moreover, production network nature is of great influence on prospect of communities in areas where they are located (Coe & Hess, 2013). Strategic coupling enables Samsung to interact with the regional development. Further, Samsung Galaxy Series institutional arrangements are linked across its geographical scale. GPN is regulated within a given political structure established on the unit national state. It achieves this through international institutions such as WTO and preferential trading agreements that exist within the states in which GPN operates. This factor has enabled Samsung GPN to have different national spaces incorporated. The power is exercised through institutions and groups even though it’s not centered to them (Kogut & Kulatilaka, 1994). Additionally, the regulatory frameworks set by governments and states have aided in configuring GPN across the space. Moreover, there are social and institutional factors that have underlined the standards of setting for Samsung Galaxy Series Smartphone. Non-firms institutional impacts have been felt. This is especially in setting Samsung Galaxy Series Smartphone standards and the smartphones’ technological market standards. This has led to setting standards through regulatory framework that was based on product market. It involves setting environmental standards as well as certifications such as ISO 9001. These standards have a great impact on Samsung Galaxy Series Smartphone value in GPN and in value chain. NGOs, trade unions and consumer groups are example of institutional actors that have impact on production especially standards setting (Canadian Embassy in the Republic of Korea, 2012). Distribution of capture of value throughout the GPN GPN use by Samsung not only does it lead to blurring of national boundaries but it also integrate firms. Every node on Samsung GPN leads to value creation that is achieved through combination technologies, application labor and even the expertise requited in the complex production of Samsung Galaxy Series Smartphone as well as the logistical system used. In this GPN, value represents surplus which is above cost spent in developing the product (Neilson, Pritchard & Yeung, 2014). Production process aims at enhancing value creation, reduction in competition levels as well as to increase in profits. This is achieved through efficient logistical systems and enhanced production systems (Coe & Hess, 2013). Power configuration within the GNP is of major importance in determination of who gets the value. Samsung has an asymmetrical configuration of power that is subject to bargaining processes. In this note, the relationship between labor and capital is of much significance. The past few decades have seen capital on gain while labor has not. Additionally, there exists unevenness in the manner through which developed countries distribute their income (Yusuf, Altaf & Nabeshima, 2004). Further, existing relationship between Samsung and its multilayered suppliers is of concern. In order to determine who benefits most in value creation in GPN, its worth checking manner in which value captured benefits the areas in manufacturing of the product (Coe & Hess, 2013). Following this, the capture of value is not evenly distributed throughout Samsung GPN. The areas that benefit from the capture of value in Samsung GPN are elaborated hereafter. Injecting capital in areas of operations Foreign investment is a major source of the capital in an economy. This is especially in the countries which are having capital shortage such as most of the developing countries. Samsung has been able to inject capital to the host countries based on its GPN. The gain to the host countries is in this case based on the trade practices. This has enabled the countries where Samsung has sourced to gain a fair share of value (Coe, Dicken & Hess, 2008). Stimulating local firms Through GPN, the local firms are able to benefit. This is due to fact that the industrial sector is enhanced hence leading to more value creation (Henderson et al., 2002). Through investing in deferent countries on manufacture of the Samsung Galaxy, it has become possible to stimulate the local firms. this is attained through use of positive linkages in the various economies in which they are operating in. the local firms are able to act as suppliers and are given priority. They are able to gain skills which enable them to become more competent. It is important to note that inter firm linkages are very important for technology and skills transfer (Chen, 2002). This has enabled local firms working with Samsung to compete more competitively locally and globally. When a global firm such as Samsung fails in creating linkages, they risk becoming enclaves in their foreign operations. Despite this, the linkages are determined by the development level of the local firms (Rainnie, Herod & McGrath-Champ, 2011). Where the local firms are not well developed, there is low absorptive capacity. It is important to note the important role that time plays in the linkages. The local supply capabilities take time to develop. Also, the relationship between the suppliers and the global firms such as Samsung takes time to mature. Thus, it takes time for Samsung to adopt local firms even after they have established a plant in the foreign country. Despite the linkages, Samsung has low number of linkages which includes transfer of knowledge. This is through procuring only the low level inputs locally. Nevertheless, the involvement of Samsung in deferent economies as they manufacture Samsung galaxy has made it possible to enhance the local businesses (Dicken, 2011). Knowledge transfer Through locating operations outside the country, it has been possible for Samsung to transfer knowledge. When a foreign firm employs local labor, there is skills and knowledge transfer. The local population is able to benefit from training and development on the new firm (Henderson et al., 2002). The manufacture of Samsung galaxy in different countries has led to the local labor benefiting from knowledge transfer. The employed workers are trained by Samsung on their operations which give them new skills. This has led to spread of skills beyond Samsung boarders. Despite this, the terms of technology transfer are highly guarded and dictated by Samsung. The transfer is based on Samsung interests. In fact, Samsung in most cases transfers the results of their innovation instead of their innovative capabilities. In fact, Samsung have not created any research and development lab in their new countries of operations. This limits the level of skill transfer to the host countries (Chen, 2002). Thus, most of the skills transfer done by Samsung is at a basic level especially in the developing countries (Coe, Dicken & Hess, 2008). The available knowledge transfer has benefited the countries of operations by adding value to their labor force (Dicken, 2011). Job opportunities Creation of jobs is one of the most important results from the GPNs. Ideally GPNs are expected to create employment especially for developing nations (Dicken, 2011). Trough development of Samsung Galaxy Series Smartphones, Samsung has been able to create many jobs through its GPN. Samsung GPN has been able to create jobs that focus on quality and skills. Samsung has been able to create jobs directly and indirectly in areas of its operation However, despite creation of jobs through this GPN, Samsung has been accused of poor working conditions. For instance, in 2012, Samsung was criticized for long working hours in China. it continued to fine workers for being late despite its claim of stopping the practice. Moreover, there workers were subjected to long working hours, mishandling of contract agreements as well as fine to workers for being tardiness (Kan, 2012). Through Samsung global operations, it has become possible to have level of employment improved. This is especially for the skilled workers who are offered good working conditions and improved labor relations. The number of jobs created through Samsung investments in the foreign countries is based on the existing level of linkages and the profitability of the market. Being one of the best sellers, Samsung galaxy has created a lot of job opportunities for the locals. Despite this, most of the jobs in the developing countries have been based on the medium to low skills depending on the skills availability (Dicken, 2011). The company has been able to pay its employees competitively based on the market rates. This has ensured that manufacture of Samsung galaxy is based on ethical labor and according to the labor laws (Palpacuer & Parisotto, 2003). Despite this, Samsung has been forced to export some of its labor from the headquarters to the host countries. Conclusion Samsung galaxy is one of the Samsung Groups products which are manufactured through the GPN. The labor to manufacture Samsung galaxy takes places in different factories which are distributed in various countries globally. Samsung galaxy labor can be divided into research and design, assembly, marketing and logistics. This is carried out in different countries globally which includes Japan, China, Europe, Russia, United States, Korea, Vietnam and India. The capture of value is not evenly distributed within the GPN where Samsung maintains the highest value and the rest is distributed to the host countries. The value is distributed through stimulating local firms, diffusing knowledge and job creation. References Canadian Embassy in the Republic of Korea, (2012). Global Value Chain Analysis on Samsung Electronics, Korea Associates Business Consultancy Ltd. [online] Available at: https://www.albertacanada.com/korea/images/GlobalValueChainAnalysisSamsungElectr onics.pdf [Accessed 1 May 2017]. Chen, S. H. (2002). ‘Global production networks and information technology: the case of Taiwan’, Industry and Innovation, 9(3), 249-265. Coe, N. M., & Hess, M. (2013). ‘Global production networks, labour and development’, Geoforum, 44, 4-9. Coe, N. M., Dicken, P., & Hess, M. 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