Case Study of Samsung Electronics by Mahmudur Rahman

SYNOPSIS Samsung Group is one of the biggest group of companies in the world. This is beyond intriguing to inspect the strategies and business models it used in order to become one of the largest conglomerates. More specifically, however, this is an in depth analysis about Samsung Electronics, the principal subsidiary of Samsung Group which is also the largest smartphone manufacturer in the world.

Mahmudur Rahman Student of University of Central Lancashire E-Mail: [email protected]

Table of Contents Abstract ...................................................................................................................................... 2 Introduction................................................................................................................................ 2 Importance and relevance ......................................................................................................... 3 Business Analysis ........................................................................................................................ 4 Superior Customer Value ........................................................................................................... 8 Sustainability .............................................................................................................................. 9 Summary and Conclusion ......................................................................................................... 12 “Inspire the World, Create the Future!” .............................................................................. 12 Business, Economy and Strategy – Forecast ........................................................................ 12 References ................................................................................................................................ 13 Table of figures ......................................................................................................................... 15 Appendix................................................................................................................................... 16 5C Analysis ............................................................................................................................ 16 PEST Analysis ........................................................................................................................ 17 Business Model Canvas ........................................................................................................ 18 SWOT Analysis ...................................................................................................................... 19 TOWS Analysis ...................................................................................................................... 20 5 Forces Analysis .................................................................................................................. 21

Mahmudur Rahman [email protected]

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Abstract The unprecedented growth in the Information and Technology sector hasn't just changed the behaviours of human beings; it has also changed the methodology and business strategies of the companies. Despite the recent debacle in the global economy, there has been a steady growth in the market for / of higher class products and while it might seem like the biggest revenue generating sector, the bulk still comes from the mid-low range products. It is interesting to learn how the companies manage, operate and execute the daily business with effective objectives of a concern like Samsung Electronics. This paper is focused on the importance and relevance of the firm, what their customer values are and how they manage their goals (which business models and strategies they have).

Introduction Samsung Group is one of the biggest international conglomerate company of the world founded by Lee Byung-chul in 1938 in South Korea. The company started their development in the electronics business in the late 1960s. According to Forbes Media, Samsung Group is the 18th largest company of the world1 and 2nd largest tech company of the world2. The principle subsidiary of the company is Samsung Electronics, which is the world’s largest information technology company measured by revenues. With more than 326.000 employees in 84 countries around the world and a revenue of 167.42 billion euros, it has become the largest television and smartphone manufacturer in the world3. This is beyond exciting to appraise the company’s performance and how it has developed to an innovative and high quality brand, which is widely recognised, especially by the target group (private and business customers). Although Samsung has great competitors in the business market they extraordinarily utilise their strong business models and strategies.

Image 1 Samsung Timeline (Source: Samsung, 2015)

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Chen, L.C. (2015) The World's Largest Companies 2015, Available at: http://www.forbes.com/sites/liyanchen/2015/05/06/the-worldslargest-companies/ (Accessed: 24th October 2015). 2

Chen, L.C. (2015) The World's Largest Tech Companies: Apple Beats Samsung, Microsoft, Google, Available http://www.forbes.com/sites/liyanchen/2015/05/11/the-worlds-largest-tech-companies-apple-beats-samsung-microsoft-google/ (Accessed: 24th October 2015). 3

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Wikipedia (2015) Samsung Electronics, Available at: https://en.wikipedia.org/wiki/Samsung_Electronics (Accessed: 20th October 2015).


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Importance and relevance One of the most important task for the leadership of Samsung is to bring their company up to date with the newest technologies, product development and business strategies to hold their position in the market. However, their customers’ demands have a pivotal role for this development. Searching online, buying online, to be online with our mobile phones, laptops, TVs, this is the trend. Samsung focuses in these fields precisely, in this way they can reach their customers and win new target groups. Almost all product segments of the company is relevant to everyday life and customer needs. Smartphones, TVs with unique functionalities and customer oriented hardware devices makes Samsung indispensable. There are big competitors in the business market, but what makes Samsung so successful? The central key of to the success of Samsung Electronics is the investment of a lot of resources for innovations. Innovations in product development and designs in all divisions brought respected design awards annually. Samsung’s products are regarded as leading the quality, performance and value categories. As leading electronic components manufacturer Samsung makes great products with considerable price-performance ratio and Samsung doesn’t use their products for themselves only, even a lot of its competitors buy and use Samsung Electronics components for their business issues.

Image 2 Best of Innovations and Eco-Design Awards at International Consumer Electronics Show (CES) 2014


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Business Analysis As already mentioned in the introduction Samsung Electronics is the largest information technology company and number one LCD panel, TV and smartphone manufacturer of the world. Hence, it is rather difficult to defend the leading market position. However, Samsung is dealing with its challenges and pressure efficiently. The company’s main targeted group is younger generation and provides them with customer oriented and qualitative innovative products. The youth as a key customer is the best strategy in this business. According to Nielsen Company almost half of mobile users are younger than 254. Investment in innovations is the key of success and the localized product development makes Samsung more successful. With more than 2500 patents in EPO (European Patent Organization) Samsung is on the top of the list which justifies how important the innovations for the firm are. Almost everyone knows the brand Samsung mostly as a mobile and TV brand this gives them a true advantage to put new products on the market. Due to its good relationships with retailers, Samsung can sale their products and services very efficiently and quickly.

Image 3 Global smartphone market share based on shipments; Source: statista

The graphic shows clearly, that Samsung has a good market position, but the market share is not more increasing for the company because first the key consumers have less growth potential and secondly other Chinese competitors are getting in the smartphone market e.g. Huawei.

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Nielsen (2013) Smartphones Keep Users in India Plugged in, Available at: http://www.nielsen.com/us/en/insights/news/2013/smartphoneskeep-users-in-india-plugged-in.html (Accessed: 19th November 2015).


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One of the weak sides of the firm is the brand loyalty. As the market is big enough for consumers, therefore they can decide about brands and solutions easily. It makes the work for Samsung much harder. Furthermore, it confuses the customers about the brands in Samsung because there are too many brands in the firm. Although the company is a loner in production section regardless Samsung is highly dependent on Google. Samsung Electronics smartphones has Android as Operating System (OS) only therefore Google has a profound impact over Samsung. The chart below shows that there isn’t a Two-Horse race in the smartphone anymore. Other companies are growing faster and faster. The most important tasks for such a company must be to produce cost-efficient products and minimize the company internal costs. Samsung has a complex corporate structure which costs a lot for the business.

Image 4 Worldwide smartphone shipments; Source: statista

The market situation in the LCD televisions is a little different than the smartphone market. As the largest LCD TV manufacturer Samsung has a better position in the market than smartphone and the situation trend is rising with regard to global LCD TV market share (see below). Nevertheless, the fact must be remembered that likewise the major competitor LG Electronics is showing very strong growth. To have a competitive advantage Samsung should concentrate their business in two main areas, smartphones and LCD TVs comprehensively.


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Image 5 LCD TV global market share; Source: statista

The company can exploit both business areas to its own competitive advantage. Samsung has an exemplary design and innovation department, as well as sufficient capital to invest internally. Similarly, as the leader in the market, it is much easier to market of new technical solutions. According to statistic, India would become the third largest smartphone market by 2017. More business establishment in India would bring new challenges and will be able to open a new door towards success.

Image 6 India to Become the Third Largest Smartphone Market by 2017; Source: statista


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Everything goes online! Consumers are searching, comparing and buying online. Almost every competitive companies are already selling their products and services online. The statistic below shows how rapidly the ecommerce business is growing. There is no escape for companies like Samsung from the ecommerce sales.

Image 7 UK Retail Ecommerce Sales, 2014-2019; Source: eMarketer

Samsung Electronics has made good progress in aforementioned direction. Nearly all technical devices are available in the online shop from the company. Still there are more possibilities in this market, to get bigger and have unique position will require more resources and investments in the ecommerce development. One cannot deny that Samsung has the resources to strengthen the business. To become the leader is easier than to be the leader. There are big concerns like Apple which works hard for this position as well and it makes a big business threat for Samsung. Furthermore, the manufacturing costs are increasing this poses a major challenge for the company. Other threats that Samsung should think about are new or stricter laws relating to smartphones, data storage, TVs or laws against the company. To overcome all these effects it is more than important to research and develop business strategies but also think about political, economic, social and technological aspects beforehand. Some business tools were used to get understandable and useful information for the business analysis of Samsung Electronics in this report! See below: Appendix


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Superior Customer Value Creating value is of great significance in the world of business. From the customer’s perspective, they always want product that are useful to them. Product value lies on their usefulness and service they will provide to their consumers. Companies have to be a customer value maker in order to become or defending the leading market position. The most interesting question in this part of the report will be definitely what factors help Samsung Electronics create superior customer value. To create, offer and deliver superior customer value there are some other factors that have an important role. First of all companies need a product or a product segment which is innovative and qualitative as well as cost-effective. As already mentioned above all these characteristics are accurate to Samsung. Moreover, the value propositions of the company is very important and relevant. The Value Proposition Canvas analysis shows that Samsung Electronics fulfills almost everything of customer’s needs and shows how the company is creating value for their customers.

Image 8 The Value Proposition Canvas - Samsung Electronics

Another influence has the topic customer loyalty. In this case Samsung has potentiality to improve. As already mentioned, Apple, a major competitor, has better customer loyalty programmes. Especially the success factors of Samsung have a strong role in the customer value development. Samsung with their innovations, excellent designs and high-quality products in a cost-effective price segment brings them a competitive advantage, as well as a strong value propositions. Regardless time and whereabouts the company’s products are available all over the world whether in electronic stores, wholesales houses or online. The products they produce are easily accessible and applicable. Mahmudur Rahman [email protected]

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Sustainability “Inspire the World, Create the Future!” (Samsung Sustainability Report, 2015, p.2) with this slogan Samsung Electronics announced their project “Vision 2020” in 2009. The following key aims of this project was drafted to achieve some extraordinary goals for the company:       

To become an innovative company To be one of the top 10 World’s Best Workplaces To get creative leader in building new business markets To be worldwide concern that fascinate the world’s best talents To achieve 400 million USD in sales To become the leader in the global IT business To become a company under top 10 global company by 2020

To achieve all this goals Samsung has recognised their organisational structure. As the chart shows there are three key divisions for Samsung Electronics. With depth focusing on these business divisions they should be able to get some competitive advantages.

Image 9 Samsung: Organizational Chart

Image 10 Samsung: Products with No. 1 Market Share


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According to the aforementioned graph, it can be considered that Samsung’s product development progress in the global market share is in the right path. According to an analysis of Samsung Tomorrow, the company can achieve almost all of their goals by 2020 but the sales forecast vision was overvalued. Although Samsung has achieved a 38% increase in sales it is almost unfeasible to achieve around 400 million USD in sales. Nevertheless, Samsung Electronics has very good strategies for each goals. For executing their plans of sustainable growth and profitability, Samsung is specifically focusing in the following areas:      

R&D (Research and Development) Patens Marketing Human Resources M&A (Mergers and Acquisitions) Capital expenditure

Image 11 Samsung: R&D and Patens Analysis

Samsung is well known as one of the R&D investment and patents Holder Company of the world. The concern allocates great importance in innovative product development and its worldwide patent. The company has also reorganized the R&D investments and strategies. Samsung is focusing in software, overseas R&D centres (localized technologies) and B2B (Business to Business) areas.

Image 12 Samsung: New Focus of R&D

One of the most important thing for an electronics company is the green management responsibility. With the motto “PlanetFirst” and the vision “Providing Green Experience, Creating a Sustainable Future” which is a special part of “Vision 2020” Samsung takes this importance very passionately. The concern’s involvement with eco-friendly development and investment in Green Management was recognised by many international organisations, governments, NGOs through certifications and awards.


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Another important point is the social contribution of the firm. Samsung has been investing in numerous CSR (Corporate Social Responsibility) projects. It should be noted that Samsung has developed a Global Corporate Citizenships Program which has five programs in three different areas (see the graph below). The company is administering the program very well and the result is more than a success to show.

Image 13 Samsung: CSR Analysis

Every year Samsung published a detailed sustainability report (160 pages in the report from 2015) that shows how the company is growing and how they manage the business sustainable and a special report about the green management.


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Summary and Conclusion Summarising the above, undoubtedly Samsung Electronics is not only one of the biggest company and largest manufacturer of smartphones and TVs, they have the potential to be even larger, innovative and more successful. Nothing is easy, definitely not to deal with the challenges which Samsung has and will get in the future. Nevertheless, to handle all threats that may appear will be the main challenge for the concern and therefore the company has to be prepared beforehand. Samsung has very strong customer value but they have to work harder to get loyalty customers and find new markets to expand their company value.

“Inspire the World, Create the Future!” This is the perfect philosophy of the Samsung Electronics. The company is inspiring people by their innovative products and hardworking research and development for the future makes their value unique. The “Vision 2020” of Samsung shows how sustainable the company is. They are making plans and developing strategies for the future and developing the working culture in the company for the employees.

Business, Economy and Strategy – Forecast As already mentioned Samsung Electronics business strategies and economic situation is stable. Still they need to develop new business strategies in specific product segment to increase sales and make more profit out it. The analysis tools clearly shows that have been created and one can easily say that there are a lot to focus on many aspects relating to business strategies. If we take the example of Samsung’s opportunity to develop business in developing countries more precise India it will be very clear to understand that the company has all needed resources but they just need a good business strategy for this new business area. As aforementioned, it is not easy to be the best. Nevertheless, high-quality products and hardworking services are the key to success. BK Yoon (President and CEO, Consumer Electronics, Samsung) said: “The Internet of Things like all technology has to measure to people’s needs and expectations. It must be centered on humans and fit into their lifestyles.” Now one can say that Samsung is working or should work with their customers, they have to understand the need of them. Consumers are not only the Kings, they are the key of success as well.


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References Hwy-Chang, M.H. and Donghun, L.D. (2004) 'The Competitiveness of Multinational Firms: A Case Study of Samsung Electronics and Sony', Journal of International and Area Studies, 11(1), pp. 1-21. Tassabehji, RT, 2003. Applying E-Commerce in Business. 1st ed. London: SAGE. Chaffey, DC, 2011. E-Business and E-Commerce Management. 5th ed. Boston: Pearson Education. Laudon, K.L. and Traver, C.T. (2015) E-commerce 2015: business, technology, society, 11th edn., Boston: Pearson Education. Lawrence, E.L. (2003) Internet commerce: digital models for business, 3rd edn., Milton: WileyBlackwell. Jones, T.J. and Lee, D.L. (2006) 'Samsung, Others Adopting Value Innovation', ResearchTechnology Management, 49(5), pp. . Li, Feng. (2007) What is e-business?: how the internet transforms organisations, Malden, MA: Blackwell Pub.. Park, N.K., Lee, J.L., Suh, J.S. and Kim, H.K. (2012) 'Changes in the Global Mobile Market and New Challenges for Lg Mobile', Journal of the International Academy for Case Studies, 18(3), pp. . Seongjae, Y.S. (1998) 'The Growth Pattern of Samsung Electronics: A Strategy Perspective', International Studies of Management & Organization, 28(4), pp. 57-72. Shaw, M.S. (2002) E-Business Management : Integration of Web Technologies with Business Models. Ebrary [Online]. Available at: http://site.ebrary.com/lib/uclan/detail.action?adv.x=1&docID=10052677&f00=all&p00=ebusiness (Accessed: 7th November 2015). Wikipedia (2015) Samsung Electronics, Available at: https://en.wikipedia.org/wiki/Samsung_Electronics (Accessed: 20th October 2015). Chen, L.C. (2015) The World's Largest Companies 2015, Available http://www.forbes.com/sites/liyanchen/2015/05/06/the-worlds-largest-companies/ (Accessed: 24th October 2015).

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Chen, L.C. (2015) The World's Largest Tech Companies: Apple Beats Samsung, Microsoft, Google, Available at: http://www.forbes.com/sites/liyanchen/2015/05/11/the-worldslargest-tech-companies-apple-beats-samsung-microsoft-google/ (Accessed: 24th October 2015). Shaughnessy, H.S. (2013) What Makes Samsung Such An Innovative Company?, Available at: http://www.forbes.com/sites/haydnshaughnessy/2013/03/07/why-is-samsung-such-aninnovative-company/ (Accessed: 12th November 2015). Anders, R.A. (2015) Smartphones Are Important For Samsung, But Growth Is Elsewhere, Available at: http://seekingalpha.com/article/3564076-smartphones-are-important-forsamsung-but-growth-is-elsewhere (Accessed: 12th November 2015).


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Samsung (2015) Sustainability Reports, Available at: http://www.samsung.com/us/aboutsamsung/sustainability/sustainabilityreports/ (Accessed: 18th November 2015). Samsung Electronics | Growth Champions. 2015. Samsung Electronics | Growth Champions. [ONLINE] Available at: http://growthchampions.org/growth-champions/samsung/. [Accessed 18 November 2015]. Samsung (2015) Samsung History Timeline, Available at: http://www.samsung.com/us/aboutsamsung/our_company/history/timeline/index.html (Accessed: 16th November 2015). Samsung (2015) Awards and recognition, Available at: http://www.samsung.com/us/aboutsamsung/sustainability/environment/communications/a wardsandrecognition_2014.html (Accessed: 19th November 2015). Wikipedia (2015) Customer value proposition, Available at: https://en.wikipedia.org/wiki/Customer_value_proposition (Accessed: 26th November 2015). Samsung (2015) Sustainability Report 2015, Available at: http://www.samsung.com/us/aboutsamsung/sustainability/sustainabilityreports/download/ 2015/SAMSUNG_SUSTAINABILITY_REPORT_2015_ENG.pdf (Accessed: 27th November 2015).


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Table of Figures Image 1 Samsung Timeline (Source: Samsung, 2015)................................................................ 2 Image 2 Best of Innovations and Eco-Design Awards at International Consumer Electronics Show (CES) 2014 ......................................................................................................................... 3 Image 3 Global smartphone market share based on shipments; Source: statista .................... 4 Image 4 Worldwide smartphone shipments; Source: statista ................................................... 5 Image 5 LCD TV global market share; Source: statista............................................................... 6 Image 6 India to Become the Third Largest Smartphone Market by 2017; Source: statista ..... 6 Image 7 UK Retail Ecommerce Sales, 2014-2019; Source: eMarketer ...................................... 7 Image 8 The Value Proposition Canvas - Samsung Electronics .................................................. 8 Image 9 Samsung: Organizational Chart .................................................................................... 9 Image 10 Samsung: Products with No. 1 Market Share............................................................. 9 Image 11 Samsung: R&D and Patens Analysis ......................................................................... 10 Image 12 Samsung: New Focus of R&D ................................................................................... 10 Image 13 Samsung: CSR Analysis ............................................................................................. 11


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Appendix In this part of the report there are all relevant business relevant analysis of Samsung Electronics to justify the arguments.

5C Analysis COMPANY •Samsung Electronics is the major subsidiary of Samsung Group. •It is the world's largest information technology company measured by revenues •Samsung is the largest LCD panels, TVs and smartphone manufacturer in the world •For more company information please see the SWOT Analysis

COMPETITORS •Samsung has a lot of competitors in the business market as it manufactures and sells a lot of electronics solutions / devices. •The main competitor is Apple Inc. with its electronic devices e.g. iPhone, iPad •Strenghts of Apple are: •Customer loyality •Innovation •Design & quality •Other competitors are: Nokia, LG, Intel, Sony, HP, Toshiba, Huawei, HTC, Motorolla

CUSTOMERS •The main target group of Samsung Electronics is the youth. They are constantly tryign to develop products that address the youth. •Other target groups are tech lovers and business people and all people from 14 to 50 years old. •Most of the sales occur in America and Europe. •Samsung has a big growth potential in Asia particularly in India, Bangladesh and all developing countries around the world.

COLLABORATORS •Samsung has a lot of distributors all around the world therefore it is easy to get their products almost everywhere, shopping mall, tech shops, etc. •Not only that Samsung has a lot of Samsung shops, mostly in demanded locations. •Other suppliers and support services are internal resources from the group. •There are some potential collaborators they can work with to improve the services: •Shipping companies for e-commerce business •Companies as partner for new markets like in India

CLIMATE •In the technologie industrie there are a lot of companies that manufactures almost the same solution with less quality and value but trying to sell their products much cheaper than others in the market. •At the time like the present the technical improvements happen much faster and new technologies are introduced everyday. •But the current economic situation is not getting better therefore it is hard to offer solutions in a moderate price. •One of the threat for the company could be new laws that go against the company. •More about the climate please see the PEST Analysis


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PEST Analysis

POLITICAL

ECONOMIC

SOCIAL

TECHNOLOGICAL


•In recent years Samsung confronted a few patent lawsuits affairs in the smartphone market. •Samsung is the top merchant of Google Android smartphones •The company protects their intellectual properties by patenting as much as possible therefore it is easier to claim other competitors ideas or solutions. •New laws against the company •Goverment involvement in agreements

•Growth, inflation and interest rates •Job crisis •Material, employment cost •Private credit possibilities •New trent in the stock market •Global economic crisis

•Target group's lifestyle and buying habits •Population growth rate •Average income rates •Point of view on product qualitly, value and customer service •Social structures in the sales regions •Renewable energy perspectives •Immigration system

•Investment on R&D •Technological enviroment (infrastructure, internet connection, communication systems, etc.) •Laws relating to technology •Customer support level

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Business Model Canvas


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SWOT Analysis STRENGHTS

WEAKNESSSES

•World's largest manufacturer (LCD panels, TVs, mobile phones) •World's number one vendor of mobile phones (21,4% market share, Apple: 13,9%) •Investment in R&D •Strong marketing capabilities •Good relationships with retailers •Key target group: youth •Manufactures everything by itself •Investments in innovations •Supports CSR (Corporate Social Responsibility) projects •Localized product development

•Consumers in markets with less growth potential •Chinese competitors are getting in the smartphone market (e.g. Huawei, Xiaomi) •All smartphones use Google Android as operating system •Brand loyality •Marketing strategies •Poor customer services •Complex corporate structure •Too many brands in the firm •Level of debt is very high (approx. $3 billion)

SWOT OPPORTUNITIES

THREATS

•Concentration in developing countries like India to grow up the smartphone market •More focus on smartphone based solutions •New technologies like AI (Artificial Intelligence) applications, wearable devices •More resources for e-commerce development •Change customer habbits and behaviour •Create own mobile network (world-wide) •Spreading demand for renewable energy

•Big cooncerns as seroius competitors e.g. Apple •Not very popular in the USA •Cost of production is increasing •New or stricter laws relating to smartphones, data storage or environment pollution •New or stricter laws agains the company •Employee turnover


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TOWS Analysis


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5 Forces Analysis Competitive Rivalry

Threat of New Entry As a well-established company Samsung benefits a lot from their market position, economic situation and loyal customers. For new entrants it is much difficult to replace such a company and the major barrier is the requirement of a big capital investment

Supplier Power: low

Threat of New Entry: medium

Competitive Rivalry: high

There are fierce competitors in the business market. The major business rival Apple makes the competition harder to have the best position in the market constantly.

Buyer Power: high

Supplier Power

Buyer Power

As Samsung is the market leader suppliers have less space of negotiation. Nevertheless Samsung has a weak point, Google exercises a bargaining power because of solely supply of Android.

As the technology market is big enough for customers they can decide about brands and services. Samsung customers can switch to other competitors very easily. There are some critical factors like product development, price, design, functionalities and customer service that boost the power of buyer.

Threat of Substitution

Threat of Substitution: high

There are many other similar products in the market and customers are getting motivated to buy from companies that are social responsible and manufactures products in an ecofriendly way.


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Case Study of Samsung Electronics by Mahmudur Rahman

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