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Samsung Five Forces Analysis

        Samsung Five Forces Analysis

Samsung has remained in the headlines during the recent years for several reasons. Apart from the increased sales of the smart-phones, the brand is also known or technological innovation. Samsung is an electronics brand that has retained its constant focus on innovation and discovery. It has brought several innovative products to the market.  It is known for constantly driving innovation across several product categories including TVs, smart-phones, wearable devices, tablets, cameras, digital appliances, medical equipment, network systems, and semiconductor and LED solutions.

Year 2016 was a year of great results for the Samsung brand.  The mobile business has continued to gain profits year on year driven by solid sales of Samsung mobile’s flagship products like Galaxy S6 and S7 Edge. As per forecasts the demand growth for smart-phones where Ai can be the most important differentiating factor. This is a five forces analysis that evaluates how the brand affects and is affected by competition. The five forces model was developed by Michael E Porter, in 1980. At its core are five important five forces that are a part of every industry and market and affect competitive intensity.

                                      Bargaining power of suppliers:

The sources from which firms obtain raw materials for the purpose of production are called as suppliers. The suppliers are an important group and their bargaining power and important force affecting the firm. The higher the bargaining power of the suppliers, the lower is the competitive strength of the firm.  In case of Samsung, the bargaining power of the suppliers is very low. The low bargaining power of the suppliers is due to several factors and one of them is their small size and low financial strength. Moreover, Samsung can easily switch from one supplier to a new one.  In case of the suppliers, losing business from Samsung can mean a big loss of financial support for a supplier. Samsung frames the rules that the suppliers are required to follow and conducts regular investigations to check if the suppliers are following the rules. There are rules related to labor welfare, child labor as well as sustainability.  All these rules are important and Samsung can eliminate the suppliers that do not follow the rules.

                                          Bargaining power of customers:

Samsung makes a large range of products including mobile products, TV and Home theatres, computing related products and home appliances. The bargaining power of individual customers may be low, but that of the corporate buyers and the customers as a group is significant. In the 21st century there are many factors that have led to rise in the bargaining power of the customers. The customers are well informed and they have several options for most products. They can easily select a brand of their choice and shop from several sources. There are no switching costs and the result is that the bargaining power of customers .is high. There is a high level of competition between the brands and most of them are competing for customers. Overall bargaining power of the buyers is low to moderate because there are also several factors that moderate the buyers’ bargaining power. Samsung is an established brand name and its continuous focus on technological innovation is also an important factor that leads to higher bargaining power of the brand compared to the customers.

 

Threat of new entrants:

The threat of new entrants for brands like Samsung is low. The reason is that while there is a major investment in building such brands, there is also enough investment in attracting talent and building a brand through marketing. The regulatory pressure has increased which has also become a barrier for the new entrants. Any new brand trying to enter the market, can start business on a smaller scale but to grow into a large and global brand it will need to invest in so many things including marketing, human capital and operations. So, overall the barriers are quite large for new brands trying to enter the market.

 Threat of substitutes:

The threat of substitutes for Samsung is moderately high. There are several competitors like LG, Sony and more international and local brands that offer competing products and services. The switching costs for the customers are low. The factors that moderate the threat from the substitutes are a great brand image, technological innovation and similar more factors like customer convenience.

Competitive rivalry between the existing players:

Competitive rivalry between the existing players in the electronics industry is intense. The main reason is that there are several large brands like LG, Apple, Microsoft, Philips, Toshiba and more. The level of rivalry is very high and it is why the new brands too find it difficult to enter the market.  The largest players are well known brands and there are several factors that have led to higher competition in the market space. These brands have to depend on technological innovation for growth and deeper market penetration.

Sources:

https://www.samsung.com/us/aboutsamsung/sustainability/suppliers/download/Samsung_sr_2012_Supplier_CSR_FINAL.pdf

https://www.samsung.com/us/aboutsamsung/sustainability/suppliers/

 

Written by Abhijeet Pratap

Abhijeet has been blogging on educational topics and business research since 2016. He graduated with a Hons. in English literature from BRABU and an MBA from the Asia-Pacific Institute of Management, New Delhi. He likes to blog and share his knowledge and research in business management, marketing, literature and other areas with his readers.

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