- SWOT Analysis. 7
4) Competitive Strategy Analysis: Five Forces, Value Chain Strategy Clock. 9
A) Five Forces: 9
Threat of new entrants: 10
Threat of substitute products and services: 10
Bargaining power suppliers: 10
Bargaining power of buyers: 11
Rivalry among existing competitors: 11
B) Value Chain: 12
C) Strategic Clock: 12
5) The Further Suggestions. 13
Samsung: Strategic Management: Business Report.
1) Samsung: Introduction and Background of the Topic.
Samsung Group (in future SG) is the Korean global company - well known as a market leader in semiconductors electronics. The SG is ahead of the former #1 Hyundai Group accounts for around 20% of GDP of the South Korea (Fortune 2015). The Samsung Group consists of six main entities listed as independent companies with their strategies, mission, and vision. Samsung Electronics (in future SE) is the best known of them and flagship unit generating most of the revenues (Samsung: Facts & Figures 2011). Samsung Group refers the company Samsung Electronics to as Samsung (Samsung Group: Affiliated Companies 2015).
Samsung Group is the diversified group with interests in engineering, heavy and chemical industries, financial services, it makes semiconductors, pharmaceuticals, wearable, microwaves, dishwashers, vacuums, and the sky is the limit of the entire list. The SG has the production capacities all around the world. The company is the family-controlled conglomerate (Hoover's Company Profiles 2016) is promising to transform to the global market guided by the new leader Jay Y. Lee Vice Chairmen of Samsung Group called the Crown Prince of Samsung (Fortune 2015), the son of legendary K.H. Lee. Now he is taking over as Chairmen of Samsung Group.
Now the SE is in a critical transition, because of the fierce competition in the smartphone segment of the market from the top by iPhones and from the bottom by different Chinese smartphones. By now, Samsung Electronics is cornering the market in the Android segment of mobiles. According to the new director, the main Challenge of the company is to transform the business from the South Korean company to the Korean Global company based in South Korea (Fortune 2015).
This report will provide the strategic recommendations to the leadership of Samsung how to develop their business in the future.
2) Samsung: Identification and Evaluation of the Company’s Strategies.
According to the Samsung Annual Report (2014), the company’s total revenues were down from 217 billion USD to 195 billion in 2014. The operating profit of the company was 36,785.0 million in FY2013, and company recorded decrease in 2014 to 25,025.0 million. The earnings per share fell from 153 USD to 145 USD. The company explains this slowdown because of the intense industry competition in the Mobile Communications Business and slowing demand in the industry, and some industry deceleration. The company remains the flagship in the mobile and smartphone markets (Samsung: Fortune Global  2014).
Company reflected its long-term strategic plans through the Values and Philosophy (Samsung: Values and Philosophy 2016). The year 2016 company’s vision statement was “Samsung is dedicated to developing innovative technologies and efficient processes that create new markets, enrich people's lives and continue to make Samsung a digital leader” (2016). The creation of the new markets and investments into the talent pool is especially important for Samsung. The company committed to generating revenues, train people, run the environmental initiatives. In its 2020 vision statement Samsung " mapped out a specific plan of reaching $400 billion in revenue and becoming one of the world's top five brands by 2020 [through] creativity, partnership and talent” (Samsung: Values and Philosophy 2016).
Statement of Values
The company expressed the belief that living by the positive values is vital to the company. Therefore, the core value should be at the heart of every decision of Samsung and shall include People, Excellence, Change, Integrity and Co-prosperity (Samsung: Values and Philosophy 2016).
Although the company's strategy was clearly innovative and socially responsible, it was not clear how the company is going to meet the contradictory goals such as interests of the customers and costly advertisement backing the products of the similar or even lover quality as of the competitors’ (Bennet B 2013).
The other uncertainty is around the vision for the development of the talent pool vs. the concept of investing into and learning from the different cultures and approaches, as of Micromax in India (Swanson 2015). It might be too late collaborating these companies before 2020 or in a future 'by urgency.
3) Assessment of Organization Market Identification: PESTEL and SWOT.
As a part of the company, external environmental analysis PESTEL analysis can help tracking the environment primarily identifying the new products, services, markets or opportunities. PESTEL gives an opportunity to look at the big picture from the different perspectives.
Samsung diversified its presence having offices in 80 countries worldwide with headquarter in the most developed countries as US, Germany, UK, China, and others. It located the production capacities in 40 manufacturing plants worldwide (Hoover's Company Profiles 2016). Samsung also diversified its geographic markets in FY2013 distributed as follows America 28, 8%, Europe 23.7%, Asia 17.4%, Korea 16.1%, and China 14.0% (Samsung: Facts & Figures p. 51 2011). Diversification of the production and wide rich of the geographic markets can reduce the risks of the company due to the political instability that may arise in one particular country.
The company estimated that the market value growth have severely decelerated after 2014, but the volume growth will continue with the high speed until 2019. For example, in 2010, the market value displayed growth of 46% and in 2014 only 2.4%, at the same time market volume demonstrated the growth of 12.6% in 2010 and 3.8% in 2014. According to the forecasts, the progressive tendency should continue by 2019, reaching in value 2.0% and volume 6.5% (Global Mobile Phones Industry Profiles 2015).
Mobile market has the different preferences all around the world, for example, smartphones are the favorite devices in China accounting for 86.1% but in India only for 26.4% (Global Mobile Phones Industry Profiles 2015).
The market of mobile phones consists of two segments: feature phones 32.1% and smartphones 67.9%. The three top factors can drive the smartphone market innovations: network quality, the properties of the operating system, and the availability of apps for the device platform (Campbell-Kelly at all 2015).
Strict regulations to protect the employees’ health, safety, and the environment. As the market growth is gradually decreasing, the public will focus on the eco-friendly products, processes and technologies (Samsung: Eco-Management Framework 2016).
In 2012, the US Court fined Samsung to pay $1.05 billion in the case filed by Apple for patent infringement.
The information in the PESTEL analysis projected into the company’s SWOT analysis (Table 1).
According to Lev-Ram (2013), Samsung spend $8.7 billion on R&D in 2011, 25% of the company's staff 220,000 employees are working in Research and development.
Samsung is the leading producer of flat panel TV product lines, plasma panels and LCD displays and ultra-high definition TVs (Samsung Electronics Co., Ltd. SWOT Analysis 2015).
Nurture of people skills in authoritarian culture (Yun Jong-Yong 2009). Chaebol system includes "training programs, promotion system, wage structure, and even position class" (Chang 2012).
In 2012, the US government fined Samsung to pay $1.05 billion: the litigation process is in progress now (Samsung Newsroom | U.S. 2015).
Gaining control over the entire vertical production process can turn the weakness of Samsung into the Opportunity
Samsung is the leading global producer of smartphones with annual sales of US $196 billion in 2015 (Samsung Newsroom | U.S. 2015). The market has all the opportunities to grow until 2020 (Samsung: Values and Philosophy 2016).
The other opportunity is to penetrate to the new markets such as health and medical equipment markets; this process needs time and significant investments (Hoover's Company Profiles 2016).
Samsung is facing intense competition: some can forward integrate as Google; the others have high popularity on the Chinese mass market. Apple is pressing from the upside-down strongly cutting the revenue (Yoo p.74 2015). Huawei (YouTube 2015) is the major player in China, and Xiaomi (SpecOut 2015) is the new major competitor in China - maker of the low-cost models similar to Samsung. Sony, Sharp, and LG compete in offering the light-emitting diode (OLED) screens and TVs (Wiley 2015). HTC is competing for Samsung in emerging markets (Williams 2015). Lenovo has tight relations with the corporate world and is appealing to enterprise customers. Google can compete Samsung in emerging markets with its Nexus phones. BlackBerry offers safety and its suite of enterprise applications. Qualcomm competes Samsung on the chip market.
Because of the intense competition, Samsung's Galaxy S6 missed the company expectations, and the Samsung's operating income went down by four percent (Reisinger 2015).
4) Competitive Strategy Analysis: Five Forces, Value Chain Strategy Clock.
A) Five Forces:
As profitability falls, Samsung must develop the strategic response to the market competition to determine the place where the competition may be the weakest to invest and do direct further research and development. I will recommend scanning this competitive arena beyond the main competitors using Five Competitive Forces (Porter 2008). As the principal players are the producers of semiconductors electronics (mobiles, screens, chips, etc.), the key suppliers will be the producers of chips, software and of the other parts and the production equipment. The buyers will be the retailers, corporate customers, and the network operators.
Threat of new entrants:
The market has the moderate threat of new entrants for smartphones and high for screens. The specialized market of smartphones is open to all the mobile producers. However, only the leaders can dictate the prices, such as Apple and Samsung. These two competitors invest heavily in the R&D and promotion; also, they have owned stores of the smartphone applications (Samsung Galaxy Apps 2015). My recommendation is to maintain further differentiation of the product to the features hardly be imitable by the competitors.
Threat of substitute products and services:
The threat of substitutes is low because the landline phones and mobiles have a small potential to compete for the smartphones. There are no substitutes to the screens. Therefore, this direction can be strategic for Samsung. Since the competition in this direction is lowest, Samsung can research the possibilities to fit its substitutes for example for medical equipment (Daniel 2016) or smart-house equipment (Prospero 2015).
Bargaining power suppliers:
The suppliers have the moderate bargaining power and must observe the strict requirements (Samsung Electronics Supplier Code of Conduct 2015). As the quality is the cutting edge for Samsung, so the power of the supplier is high where the critical quality is necessary. I will recommend that Samsung should backward integrate for the selected supply categories.
Bargaining power of buyers:
In average, the buyers' power is moderate because the large customers such as Walmart and the smaller retail outlets and network operators depend on the presence of the full variety on display. In addition, the chief competitor Apple keeps its owned brand stores. Samsung has opened the Galaxy Studios to test Samsung phones. The recommendation is to spread the Galaxy Studios to the most cities ('Samsung GALAXY Studio' 2016). These initiatives can further decrease the buyers’ power.
Rivalry among existing competitors:
The degree of competition is high because the number of the large players that entered the market. Samsung will compete the large players because they have the production, research, and design facilities, talent pool. In addition, some of them like Xiaomi are offering the smartphones with the features comparable to Samsung under a slim margin. The producers can copy most of the innovation by Samsung. According to the Fortune magazine (Darrow 2015), "buying its way into mobile was faster and maybe cheaper than building that business organically." Therefore establishing the partnership projects or divestment, like an acquisition of Nokia by Microsoft for $7.2 billion (Darrow 2015), can be one of the sound alternatives for Samsung in the nearest years.
I will recommend Samsung to differentiate its products further, to generate its substitutes to medical products, smart home products, acquire the suppliers where the quality is the key and take into consideration an opportunity to divest.
B) Value Chain:
According to Porter & Krammer (p. 64 2011), creating shared value is not a goal of profit per se; the company has defined the vision 2020 (Samsung: Values and Philosophy 2016) as to be the number one. To be the number one means to be the winner and creator of the shared value. The company’s victory has a meaning in connection with the social progress.
The company's value chain is in the direct relation to:
1) Reimagining products and markets.
2) New approach to productivity and value chain.
3) Development of the local cluster (Porter and Krammer p.65 2011).
I will propose to maintain the further connections between the competitive advantage and social issues according to the Porter's and Krammer framework (p.68 2011):
-Implement the energy, water, and resource saving technologies.
-Support the environmental, social significant projects by the suppliers.
-Roll out the extracurricular programs, interns.
-Run the 360-degree feedback to study the safety concerns.
-Consider how to improve the employees' living conditions and to care about health.
-Work with the suppliers caring to decrease the environmental impact.
C) Strategic Clock:
I would recommend taking into consideration a concept of the Porter's generic strategies. There are two main strategies differentiation and cost-based leadership they can be focused and unfocused. The companies pursuing one of the directions outperform those who stuck in the middle (Porter, 2003). Samsung is following the differentiation strategy as compared to Xiaomi's low-cost strategy.
However, we should not stop on this, but have a look at our product for the customers, why Galaxy S6 model did not meet the customer expectations. According to Scholes (p.27 2001), Samsung is still taking the market leadership position; however the company did a clockwise move from the focused differentiation strategy towards the risk of high margin strategy. The customers may accept Samsung as the eroding brand relying on the advertising and knowledge instead of the real leadership, quality and innovation. The strategy clock depicts the lifecycle when the company started as the energized and unfocused and can move down the clock as a monopoly.
5) The Further Suggestions.
In the short term, I would recommend that Samsung should continue the organic growth. As the threat of substitutes is low, Samsung should build its substitutes in the new related markets creating the well-known devices by adding value as the TV screens (refrigerators, furniture, etc.) and the smartphone technologies for the smart homes and in the health and medical industry. An alternative is divestment or selling out can be timely and feasible.
In the long term, I would recommend Samsung to acquire not only the talent pool but also the new unfocused companies with the unique competitive edge, culture, and ideas to scale those ideas across the company. This recommendation can help Samsung be organic and to develop globally through the partnerships in the separate countries to innovate on the other new levels. The principle of Samsung ", Inspired by humans, creating the future” (Yoo 2015) should change into “Inspired by new local businesses, creating the energized future”.
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