I. Executive summary
For over 70 years, Samsung has been dedicated to making a better world through diverse businesses that today span advanced technology, semiconductors, skyscraper and plant construction, petrochemicals, fashion, medicine, finance, hotels, and more.
Our flagship company, Samsung Electronics, leads the global market in high-tech electronics manufacturing and digital media. Through innovative, reliable products and services; talented people; a responsible approach to business and global citizenship; and collaboration with our partners and customers, Samsung is taking the world in imaginative new directions. Back in the first quarter of 2007, Samsung Electronics reported a 15% drop in profits. Jong Yong Yun, Samsung Electronics’ chief executive officer since December 1996, has restructured Samsung by defying traditional Korean corporate culture of hierarchy and lifetime employment.
Yun instilled a sense of ‘perpetual crisis’ among his employees and encouraged them to come up with innovative products that according to him, were necessary for Samsung’s survival. His emphasis was on quality products with unique designs and effective brand promotions. In 2004, Samsung surpassed Sony to earn profits of $9.4 billion over revenues of $72 billion. Still, Yun felt that to compete in the global market, Samsung’s products needed to be transformed into brands like that of Apple’s iPod or Sony’s Walkman. Yun runs the most profitable technology company in the world.
But he still has many worries. Yet Yun is not only confident that he can meet those challenges, he is getting ready for new ones in “digital convergence.” Jong Yong Yun’s strategy to focus on higher end products has clearly enhanced the firm’s brand image and lead to a sharp increase in its revenues and profits. But accordingly, they have failed to address serious questions about Samsung’s ability to rely exclusively on its hardware to continue to generate high margins. More so, the life cycle of most electronic products are short with prices tending to drop sharply over time. Considering these facts and conducting the SWOT analysis, there comes up the suggested courses of action Samsung Electronics will going to take to address the problem stated above.
The courses of action includes: 1) undertaking forward and horizontal integration; 2) product proliferation; 3)cost minimization and 4) increasing sales through market penetration and market development. With this Samsung can surpass and survive and live with its vision “Inspire the World, Create the Future” through “New Technology,” “Innovative Products,” and “Creative Solutions.
II. STATEMENT OF THE PROBLEM
Jong Yong Yun’s strategy to focus on higher end products has clearly enhanced the firm’s brand image and lead to a sharp increase in its revenues and profits. But accordingly, they have failed to address serious questions about Samsung’s ability to rely exclusively on its hardware to continue to generate high margins. More so, the life cycle of most electronic products are short with prices tending to drop sharply over time.
With this matter and considerations, this study will answer the following questions: 1. What are Samsung’s competitive advantages over its competitors? 2. What are the ways to reduced Samsung’s cost in order to be competitive with lower margin products? 3. How will Samsung deal with the recovery of research and development costs in incurred in producing electronic products with short life cycle and prices that drop sharply over time?
III. STATEMENT OF OBJECTIVES
This study aims: 1. to determine what are the competitive advantage of Samsung over electronic industry and other industry it competes; 2. to identify the ways to reduced Samsung’s cost in order to be competitive with lower margin products; 3. to know the ways on how will Samsung deal with the recovery of research and development costs in incurred in producing electronic products with short life cycle and prices that drop sharply over time
IV. AREAS OF CONSIDERATION
As part of assessing Samsung’s competitive advantage among its competitors and determining its future course of action to take as part of its strategic management process, we will take into consideration its internal strength and weaknesses as well as the external opportunities and threats. The internal strengths include but are not limited to:
1. continue growing of market share 2. well diversified and differentiated products 3. team product designers and engineers that continues to develop designs of Samsung’s new products 4. Samsung’s rigid seniority-based system replaced with a merit-based system 5. advertising on 55 different advertising agencies around the world and placed them in one firm The internal weaknesses include but are not limited to:
1. increasing competition as it develops innovative products 2. high investment on research and development 3. focus on mass market instead of niche market The external opportunities include but are not limited to: 1. high and strong consumer demand for innovative products 2. increasing on electronics consumer markets 3. Young population as a means of expansion of market in present and future The external threats include but are not limited to: 1. bureaucratic obstacles 2. low-cost Chinese producers 3. sustainability of products in technology industry
V. ALTERNATIVE COURSES OF ACTION
After thoroughly considering and analyzing the internal strength and weaknesses, the possible courses of action that Samsung can undertake are as follows: 1. Undertake forward and horizontal integration.
2. Product Proliferation 3. Cost minimization 4. Increase sales through market penetration and market development
VI. ANALYSIS OF ALTERNATIVE COURSES OF ACTION
Forward and Horizontal Integration Forward integration is a business model whereby a company takes direct control of how its products are distributed. For example, a company may market its products directly to consumers rather than selling them to a retailer. Alternatively, forward integration may involve the company simply acquiring the retailer.
This is an effective tool when present distributors are expensive, unreliable, or incapable of meeting firm’s needs; availability of quality distributors is limited; when firm competes in an industry that is expected to grow markedly; advantages of stable production are high and present distributor have high profit margins. On the other hand, horizontal integration is the acquisition of additional business activities at the same level of the value.
Horizontal growth can be achieved by internal expansion or by external expansion through mergers and acquisitions of firms offering similar products and services. A firm may diversify by growing horizontally into unrelated businesses. This will be a good sort of action when firm can gain monopolistic characteristics without being challenged by federal government; competes in growing industry and increased economies of scale provide major competitive advantages. Product Proliferation
Product proliferation occurs when organizations market many variations of the same products. This can be done through different color combinations, product sizes and different product uses. This produces diversity for the firm as it is able to capture its sizable portion of the market. However, it can also be considered that marketing so many new products leads to economic resources being wasted; the consumer becomes confused and mistakes are made in the purchase of products. Cost Minimization
The process or goal of incurring the least possible opportunity cost in the pursuit of a given activity. Cost minimization is comparable to other objectives, including utility maximization and profit maximization. This goal, however, is generally used when circumstances constrain a decision. In the case of Samsung, to maintain its high profit, and recover its investment of research and development it must incur less expenses but maintain those cost that are really beneficial on the pursuit of quality and competitive products they offer.
Market Penetration and Market Development Market penetration is a strategy which focuses on seeking increased market share for present products or services in present markets through greater marketing efforts. This is a good idea if current markets not saturated; usage rate of present customers can be increased significantly; market shares of competitors declining while total industry sales increasing; increased economies of scale provide major competitive advantages.
For example, if there are 300 million people in a country and 65 million of those people have cell phones then the market penetration of cell phones would be approximately 22%. This would mean in theory there are still 235 million more potential customers for cell phones, which may be a good sign of growth for cell phone makers. Market development is the introduction of present products or services into new geographic area.
This will be an effective strategy when new channels of distribution that are reliable, inexpensive, and good quality; firm is very successful at what it does; untapped or unsaturated markets; capital and human resources necessary to manage expanded operations; excess production capacity; basic industry rapidly becoming global.
After the analysis of the case and from the external data gathered, the competitive advantage of Samsung over its competitors includes but are not limited to: 1) technologically driven niche products; 2) high investment in research and development; 3) wide range of products and high brand value; 4) higher economies of scale and economic scope; 5) untraditional Human Resource practices based on meritocracy not on seniority and 6) financially strong and large resources. There are plenty of ways to reduced Samsung’s cost in order to be competitive with lower margin products. But then again, the most appropriate will be the cost minimization which will focus on reducing cost incurred while maximizing revenue.
This will be done through 1) improving meeting management; 2) recruitment appraisal; 3) bonus systems and 4) standardization review The ways on how will Samsung deal with the recovery of research and development costs in incurred in producing electronic products with short life cycle and prices that drop sharply over time will be managed through increasing sales by means of Forward and Horizontal Integration.
In Samsung’s case, forward integration will be an effective tool because here, it may market its products directly to consumers rather than selling them to a retailer thus increasing the profit margin. Alternatively, forward integration may involve the company simply acquiring the retailer to increase market involvement and as well as controlling the selling price on the general public.
On the other hand horizontal integration will also be helpful to maintain its high earnings because it will acquire or seek ownership or increased control over competitors, through this, the external threats are then converted into an opportunity, an opportunity to sell more products and increase in market share.
Aside from what are mentioned above, Samsung may continue pursuing market penetration which is a strategy that mainly focuses on seeking increased market share for present products or services in present markets through greater marketing efforts. With this Samsung will exert extra effort to dramatically increase its sales by advertising and informing and educating the target market of its new product offers and its edge over the others.
Moreover Samsung can pursue market development and continue to introduce its present products or services into new geographic area as Mr. Eric Kim said that its target is to become the first Korean company to create a true global brand. To sum it up Samsung can surpass and survive and live with its vision “Inspire the World, Create the Future” through “New Technology,” “Innovative Products,” and “Creative Solutions.”
It will defy threats in the competitive world of high-tech gadgets and electronic devices driven by great advancement in technology industry and deal with the low-cost producers as long as they continue to gain market share, sustain its multiple products and continue to have a high brand value. With its power in controlling the industry and economy, Samsung’s competitiveness will be unimaginable. Through these efforts, Samsung hopes to contribute to a better world and a richer experience for all.