An Introduction to Samsung’s Business
Samsung Electronics Co Ltd (KRX: 005930), apart from being one of the biggest smartphone brands in the world, also makes and sells computer chips and displays as well as home appliances and televisions. It is based in Seoul, South Korea. The company has enjoyed enormous growth in recent years driven by its market-leading position, strong innovative capabilities as well as product quality. It has brought a vast range of smartphones in various price segments. The Galaxy smartphone range by Samsung enjoys a leading position in the category of premium smartphones. Galaxy is also among the leading competitors of Apple’s iPhone.
The growth of the company has been driven by several factors including a superior brand image, marketing, product quality as well as its focus on research and development. The technology industry is experiencing intense competition. From Apple to Huawei, Xiaomi, and several more, there are many strong competitors of Samsung in the global markets. However, despite the intense competition, Samsung enjoys a strong position in the US market. Years of consistent focus on product quality, as well as research and development, have helped the brand grow its popularity faster. According to its annual report for 2019, the company generated net revenue of 230.4 Trillion Korean Won or 197.7 Billion USD (Samsung Annual Report, 2019).
The South Korean company claimed the top spot in the TV market in 2006 and since then it has retained its position for fourteen straight years. It has divided its business operations into four segments that include the consumer electronics division, mobile communication division, displays, and semiconductors division as well as Harman. Apart from its 28 unlisted domestic subsidiaries, the company also has 212 overseas subsidiaries located in the US, Africa, Asia, and Europe. These subsidiaries are dedicated to manufacturing, sales, and research & development.
Learn more about Samsung Electronics and its business in this strategic analysis.
External Analysis of the smartphone industry:
The image below shows the market share of smartphone brands in the second quarter of 2020 based on the number of global shipments.
Smartphones, mobile phones, and wearables constitute a significant part of the Technical consumer goods industry, which was worth $1.2 Trillion in 2018. The global sales of smartphones in 2018 remained strong despite the decline in global shipments compared to the previous year. Globally, the revenue generated from the sales of smartphones in 2018 was equal to $522 trillion. The smartphone industry is experiencing intense competition where the top six brands together enjoy more than 80% of the market share. Samsung and Huawei are the two largest brands in the smartphone industry based on the number of total shipments worldwide, followed by Apple. These three companies together rule the global smartphone market. Smartphone demand has declined globally due to the pandemic in 2020. The leading brands, including Samsung, have experienced a sharp decline in profits following the spread of Covid-19. The impact of Covid-19 is clear from the reduction in total global shipments during the first two quarters of 2020 compared to the same period during the previous year. Samsung shipped around 25% fewer smartphone units in Q1 2020, compared to the same period last year.
While Samsung has consistently remained the largest brand in the smartphone industry, Huawei took over as the number one brand with the highest number of shipments, in the second quarter of 2020. According to counterpoint research, the total number of shipments worldwide by Samsung equaled 54.2 million units, whereas Huawei’s shipments totaled 54.8 million units. However, Samsung was ahead of Huawei during the first quarter of 2020 when the number of total global shipments by Samsung equaled 58.6 million, whereas Huawei shipped only 49 million units of smartphones. China is currently the largest smartphone market in the world, followed by India and the US. It is also the one to have revived the earliest from the threat of Coronavirus.
Apple was the third-largest brand in the smartphone industry during the second quarter of 2020, with a market share of 13.6% and shipments numbering 37.5 million units. Apple is also one of the top three influential brands in the smartphone industry. It is among the leading competitors of Samsung. The company has continued to retain its market position at the third rank based on its number of shipments. However, in 2020 demand for smartphones is following a downward trend affected by the economic changes brought about by the COVID-19 pandemic.
The chart below shows the number of shipments globally (in million units) during the first two quarters of 2020 compared to the same period last year.
The graph below compares the number of global shipments of smartphones by each brand during the first quarter of 2020 with the number of shipments during the same period the previous year. The total number of shipments worldwide by each brand is in millions.
The graph below compares the number of worldwide shipments by each smartphone brand during Q2 2020 with the shipments during the same period the previous year. The number of global shipments is in millions.
The above two graphs show the massive reduction in the total number of shipments globally by smartphone brands during the first two quarters of 2020 compared to the same period during the previous year. While most brands have experienced a decline in smartphone shipments during the second quarter of 2020 compared to the first, some smartphone brands experienced a rise in total shipments in the second quarter of this year compared to the first quarter. Huawei, Oppo, Vivo, and Lenovo experienced a growth in their number of smartphone shipments in Q2 2020, compared to the previous quarter of the same year. On the other hand, Samsung, Apple, and Xiaomi experienced a decline in their total number of shipments during Q2 2020 compared to the previous quarter of the same year. The total number of shipments and the market share of the other brands declined considerably in the second quarter of 2020 compared to the previous quarter of the same year.
India is the second largest smartphone market where Samsung has experienced faster growth in its market share. During the second quarter of 2020, the market share of Samsung in India jumped to 26% from 16% in the first quarter. However, while Samsung’s popularity continues to surge in India, the economic contraction will have a negative effect on the revenue of smartphone brands selling in the Indian market.
The situation is expected to improve in the second-half of the year as economies worldwide reopen and once a vaccine is released in the US, smartphone sales can grow faster. Samsung expects its profits will be stronger during the second half of 2020. Despite the release of 5G phones, sales have not been as strong due to the economic impact of COVID-19 worldwide. However, if the number of Huawei shipments was higher than that of Samsung during the second quarter of the year, it can be attributed directly to the impact of COVID-19.
SWOT analysis of Samsung Electronics
Primary Strengths of Samsung:
Brand image is a significant strength for the players in the smartphones and consumer electronics industry. Samsung has managed to build a strong image in the global market. It is among the largest smartphone brands in the world. However, its popularity and market position are a result of the company’s intense focus on product quality and technological innovation. Apart from the great performance, Samsung products including smartphones and other electronics products are known for their great design and overall quality. To grow its customer base and attract more and more new users, the company invests in marketing as well as research and development. Product quality is at the core of demand in this highly competitive industry scenario. The company has always strived to provide its customers with the best in class products. It is why Samsung is counted among the most reliable brands of electronics and smartphones. Samsung has also leveraged the strength of marketing to grow its sales and popularity level in the global market.
Brand image has become an important factor affecting the demand and sales of products in this era. It is mainly because customers like to shop from the brands that they know and like. It is why companies have to maintain a heavy focus on their image among the public. Samsung has also grown its focus on sustainability and CSR to maintain a clean social image. While there are several factors that are key to maintaining a strong reputation for the company, some of them are management, product quality, innovation, and customer experience. Samsung has maintained the image of an innovative brand that delivers superior quality products. However, it is essential that Samsung maintains its image if it wants to retain its growth momentum.
Samsung is mainly a brand of smartphones and consumer electronics. It has maintained its lead as the market of smartphones as well as TV appliances. The company gained the top spot in the global market for televisions in 2006 and since then it has continued to retain its position at the top. The credit of its leadership status as a television brand goes mainly to its focus on innovation. The company is ahead of the other brands in this segment and has brought a large range of innovations to the world of televisions including ‘The Wall’ which has brought large screen viewing to homes and offices. However, that was about televisions. Samsung continues to remain the largest brand of smartphones globally with the highest number of shipments worldwide.
Samsung was the largest vendor of smartphones in 2019 with Huawei following in the second position. The South Korean company held a market share of around 22% in the smartphone industry in 2019. Throughout the year, it sold more than 290 million smartphone units worldwide. However, Samsung’s dominance is not limited just to the smartphone or television market but instead, the company also holds a strong position in the tablet as well as semiconductors and displays industry. The Galaxy Tab made by Samsung competes against the Apple iPad. In 2019, with around 7 million shipments alone in the fourth quarter, Samsung was the second-largest tablet vendor in the world. Apart from that, the company is also the largest seller of NAND flash memory where it held a market share of more than 31% during the second quarter of 2020. Samsung is also enjoying a strong position in the global semiconductor market.
Research and Development:
The smartphone and consumer electronics industries are marked by heavy competition. To survive and maintain its position in a highly competitive scenario, every player has to make a huge investment in research and development. Innovation is the key to winning in the technology market and Samsung has brought a large range of products including smartphones, tablets, televisions as well as semiconductors and memory products. However, whether the smartphone, tablet, or television industry, in each of these, innovation is the key to survival. Otherwise, players like Apple that have a huge cash reserve, strong technological capabilities as well as knowhow and an excellent marketing strategy can easily outwit their competitors. In 2019, Samsung spent more than 20 Trillion KRW (around 16.8 billion USD) on research and innovation.
While the company is one of the top spenders on research and development in the entire industry, its focus on innovation also proves its dedication to quality. If the Galaxy range of smartphones and tablets is ruling the market, it is mainly because Samsung is a highly innovative brand. Technological innovation is not just a part of Samsung’s business strategy but also a part of its organizational culture. There is an intense rivalry for market share in the smartphone industry. Not just Samsung, but the other players in the global market including Apple, Huawei, Xiaomi, and several more that include both big and small players are also focusing heavily on innovation. These players can snatch market share away from Samsung unless the brand maintains its focus on innovation. Samsung’s position against the Chinese brands would have been difficult in India if the brand was not dedicated to fast-paced innovation.
Moreover, the companies that cannot invest as much in innovation cannot withstand the competitive pressure. It is pretty much evident in the shrinking market share of the smaller brands. Compared to the market share held by the top ten brands, the smaller players have continued to lose market share and experienced a decline of as much as 55% during the second quarter of 2020. The pandemic has put the innovative capabilities of the smartphone companies to test. However, apart from product innovation, these companies also need to focus upon process innovation so that they can keep their supply chains and distribution networks from failing and falling apart.
Strong position in the US Market:
While Samsung is a global leader in smartphones, its most critical leverage is its position in the United States market. In the US smartphone market, Samsung is behind Apple and holds the position of the second-largest smartphone brand. Based on the stats released by counterpoint research for the first two quarters of 2020, the market share of Samsung smartphones was 32% and 25% respectively during the two quarters. Apple’s market share remained 46% for the first quarters of 2020 in the smartphone segment.
However, according to sources, the company holds the lion’s share in the 5G smartphone market in the United States and globally. Its market share in the global 5G smartphone market was 34.4% in the first quarter. On the other hand, during the same period, it held a market share of nearly 94% in the United States 5G smartphone market. Across its other product categories too including televisions, the company holds a leadership position in the United States market.
Global Leader in televisions and LCD Displays:
In March 2020, Samsung shared an infographic looking back at how the company has come a long way in terms of TV innovations. From 2006 to 2020, it has continued to retain its position and kept bringing new products that customers can fall in love with. Even if the market share of the company in the television industry has declined in recent years, it still holds the dominant position. In 2019, the market share of Samsung in the LCD television market was down to 17% from 20% in 2008. However, Samsung continues to retain the top position. It is also the world’s largest producer of LCD panels. Overall, Samsung rules in the television market and its continuous investment in research and innovation will help it retain its market position in the longer run.
Large product portfolio:
One of the leading strengths of Smasung is its large product portfolio. The company has brought a large range of smartphones and tablets. While the smartphone is the core product of Samsung Its galaxy range of smartphones has gained immense popularity globally. It is Samsung’s range of premium phones. The company targets the higher-end segment of consumers through its Galaxy range. The Galaxy smartphones compete with Apple’s iPhone and the Galaxy Tablets compete with the iPad made by Apple. However, the product portfolio of Samsung is not limited to just these products but instead the company makes other products too including televisions semiconductors, LCD displays, NAND Flash memory units, as well as 5G equipment. While this reduces its dependence on its core products, the diverse product portfolio is also a critical leverage in terms of competition and faster business expansion.
Primary Weaknesses of Samsung:
Weak position in China:
China has grown into the world’s largest market for smartphones followed by India. The United States is now the third largest market for smartphones. However, while Samsung has managed to retain a strong position in both India and the US, in the Chinese smartphone market, it is in a considerably weaker position. China is the largest and the most profitable market for smartphone brands because of the large customer base it offers. However, it is the local brands mainly that rule the Chinese market. Apple’s market share in the Chinese market is much larger compared to Samsung.
Huawei leads the Chinese market with the largest market share followed by Vivo, Oppo and Xiaomi. Samsung has a small and almost negligible share in the Chinese market. Its market share in China has kept fluctuating between 0 and 1%. According to counterpoint research, the market share of Samsung based on the number of shipments in the first quarter of 2020 was only 1% and again fell to 0% in the second quarter. China could have been a highly profitable market for Samsung, if it managed to grow its market share there. Even a growth of a few percentage points can make a remarkable difference for Samsung.
Declining revenue and profits:
Since 2019, the net revenue and profits of Samsung have been declining steadily. Its revenue and operating profit declined in 2019 compared to the previous year mainly because of weaker performance across its memory business units and LCD display panel units. Despite a growth in the number of shipments in 2019, the prices of DRAM kept declining leading to lower profits for the memory business unit of Samsung. Apart from that, the demand for LCD panels continued to weaken causing the LCD panel business of Samsung also to suffer a decline in profits. The net revenue of the company fell in 2019 to 230 trillion KRW from 243 Trillion KRW in 2018. The operating profit of the company saw a steeper decline in 2019 compared to the previous year. The operating profit of the company was down to 27.8 trillion KRW from 58.9 Trillion KRW. While the demand for smartphones is down in 2020 due to Coronavirus, it is expected to fall across the other product categories as well, causing Samsung’s profit to be through a more severe decline.
High dependence on the US market:
A large part of Samsung’s revenue comes from the United States market. The company has also maintained a strong position in some more markets. However, financially speaking, the US market matters a lot for Samsung. Compared to the United States, Samsung enjoys a much smaller market share in the first major market for smartphones – China. So, it leaves Samsung dependent on the United States mainly for its revenue. While Samsung has maintained a strong position in India, the growing clout of Chinese brands that offer smartphone sets at competitive prices affects Samsung’s revenue there also. In India, Samsung is still the second most selling brand.
Primary Opportunities before Samsung:
Samsung is already reaping the benefits of being a leader in the 5G smartphones segment. It has acquired a strong market share in the US market in the 5G smartphone segment. During the first quarter of 2020, around 3.4 million 5G smartphone sets were sold in the United States, which was around 12 percent of all the smartphones sold in the market during the period. Samsung has currently a headstart in the 5G segment and compared to its leading rivals like LG, One Plus, Motorola, and TCL, the South Korean company is in a much stronger position in the United States. Samsung’s Galaxy S20+ 5G has gained fast popularity among affluent consumers in the leading metropolitan cities in the United States. However, the real test is going to begin when Apple launches 5G enabled iPhones later this year. As in the case of Samsung, 5G phones can be highly profitable since users are willing to spend more on these sets due to the faster internet experience they offer.
Moreover, the arrival of 5G has brought additional opportunities for Samsung which is also a maker of 5G equipment. Samsung is off to a strong head start in this area as well. In September 2019, Samsung scored a big win with Verizon wireless communication selecting it as the provider of 5G networking equipment. It is a five-year deal that involved around $6.6 billion worth of networking hardware and related services. Apart from being a mega-deal, it could become the gateway for bigger wins for Samsung outside the US as well. For example, this will give the payers in Europe the necessary confidence to consider Samsung’s networking equipment. The good news is that the company has beaten established leaders like Nokia and Ericsson this time. The deal with Verizon will help the company strengthen its footing as a provider of 5G networking equipment.
Growing demand for digital services:
The demand for digital services have kept growing over the past several years. However, the demand for these services was boosted further due to the coronavirus since a large number of people were leading lives locked up inside their own houses and had to depend on digital services for several things ranging from ordering essential products to entertainment. Most of the people around the globe use their smartphones to avail of online services whether it is e-commerce or entertainment.
The demand for smartphones declined in the first quarter of 2020, mainly because of the economic decline that followed the spread of Covid-19. On the other hand, Covid-19 has pushed the demand for digital services higher around the world which was evident from the sharp surge in the audiences of Netflix and Facebook following the spread of the pandemic and amid lockdowns in various parts of the world. As the situation returns to normal and employment level rises, it could lead to faster growth in sales of smartphones including 5G sets which would be highly profitable for a smartphone brand such as Samsung.
Acquisitions and diversification:
Samsung has a diversified product portfolio that caters to a broad group of customers including individual customers from various segments as well as corporate customers like Verizon. However, there are emerging opportunities in several areas including the latest technologies like AI, IoT, self-driving cars, and other technologies. Samsung has made several acquisitions in its history. These acquisitions have helped the company cement its position in the electronics and smartphone industries. Acquisitions can be a great source of growth by providing opportunities to hack into new user segments as well as access to new markets.
For example, the acquisition of Harman in 2017 has helped the company cement its position in the electronics industry. The unique capabilities of iconic audio brands created by Harman combined with Samsung’s industry leading display technologies will help the company deliver enhanced audio and video experiences to consumers and professional end markets.
Primary Threats before Samsung:
The Covid-19 pandemic has emerged as the biggest threat before businesses globally. Its impact will be felt even into 2021. According to several senior scientists, it is a threat that society needs to learn to live with. While it began abruptly in January 2020, before businesses could sense the scale of devastation the pandemic could cause, it had jeopardized supply chains and made it difficult for physical businesses to operate on a full scale. While the impact on the digital and cloud industries was relatively lower, the effect of the pandemic on the global supply chains brought a large number of businesses to an abrupt halt, including those in the automobile, aviation, and manufacturing industries. At the other end, the pandemic has caught economies by the tail sending them into a tailspin. Its impact has been severe on the primary, secondary and tertiary sectors in the global economy.
The largest economies and markets like the US and China have also felt a severe impact as unemployment levels ran very high as the pandemic broke out. With the pandemic, consumer behavior around the world has also changed profoundly. People are spending on essentials mainly and shopping more using digital channels. While China has been the first nation to have recovered from the pandemic and the US has also reopened, the impact has been deep in specific areas of the two leading economies and it might take some time even after a vaccine is released to fully recover from the losses caused by Coronavirus.
Overall, in such an environment, the sales of Samsung products were bound to fall and they did. If the brand was able to mitigate the threat from Coronavirus to a large extent, then it was primarily because of its strong position in the global markets. Despite that, its sales and revenue declined considerably. The impact of Coronavirus will take time to go away even after a vaccine has been found. Right now, the best thing for Samsung is to follow a strategy that helps its business and supply chain survive the blow. The pandemic has led to some major changes in the industry environment. Its economic impact is severe and would last longer than 2020. However, some other challenges have also emerged since despite the reopening of major economies the changes in consumer behavior are going to last. The dependence of businesses on digital technology has also suddenly grown. Companies like Samsung are also depending on e-commerce channels for a major part of their sales during the pandemic. After the pandemic has been brought under control, these trends will remain and the shift towards digitalization of supply chains and distribution channels will continue to grow. The situation has stabilized a bit in the US economy since the outbreak. According to a forecast, the global demand for smartphones and consumer electronics can grow in the second half of the year and that is going to result in superior results for Samsung.
Despite being the global leader in the smartphone industry, Samsung is facing a lot of competition from China and the US based smartphone manufacturers. Its leading competitor is Apple. Apple’s iPhone range is globally famous and it is the main rival of Samsung’s Galaxy range of smartphones. In the US market, there are more smartphone brands competing with Samsung including LG and Lenovo as well as One Plus. In the other leading smartphone markets too such as India and China, there is a lot of competition from the Chinese brands as well as Apple.
Samsung has a very small or just about a less than one percent market share in the China smartphone market which is mainly because of the tough competition from the local Chinese brands. The Chinese brands that rule the China smartphone market include Huawei, Vivo, Oppo and Xiaomi.
These are also among the leading competitors of Samsung in India. Samsung is the second biggest brand of smartphones based on shipments and market share in India. During the second quarter of 2020, its market share was 26% trailing Xiaomi’s 29%. Overall, there is intense competition in the smartphone industry. Apart from it, Samsung also faces tough competition in the other product segments including televisions and consumer electronics from brands like LG, Panasonic, SONY and others. Intel is its main rival in the semiconductor market. While Samsung had managed to reach the top in the global semiconductor market a few years ago, Intel captured the top spot again in 2019. Overall, Samsung operates in a highly competitive industry environment which is one of the leading challenges before the company driving higher expenses on research and development as well as marketing. Higher competition also means higher pressure related to growth and market expansion.
Compliance related issues:
Legal pressures related to business have continued to rise in recent years. It is mainly because the technology industry has expanded rapidly giving rise to the need for an evolved legal framework to deal with several new concerns. Almost all of the leading technology brands are dealing with one or another legal issue. These issues can prove costly if the business is caught being noncompliant with any of the relevant laws in any region where it operates.
From data security to consumer privacy and labor laws among others, there are several legal concerns that constantly bother the technology brands. Samsung has been rattled by many legal concerns over the previous few years. Its legal tussle with Apple regarding a design patent came to an end in 2018 after having continued for around seven years. At last, the two companies settled the issue outside the court when Samsung paid Apple around $540 million according to an article published by The Verge.
Samsung has also been battling with many more legal issues including those related to the company chairman. The company chairman Lee Sang-hoon has already spent a substantial amount of time behind the bars in a bribery case. His imprisonment in the case ended in February, 2018. Again, Samsung chairman has been convicted in another case related to labor laws. He was charged by a court with disruption of union activities at Samsung. Around 24 more current or formal Samsung officials have also been found guilty with similar charges.
So, the legal woes of Samsung are far from coming to an end. It has led to higher legal scrutiny and uncertainty for Samsung. The shadow of the case is also looming large on the company’s financial performance during the second quarter of 2020. Apart from that, noncompliance and legal troubles will hurt the company’s social image and reputation in the industry and world market. At the end, it can have a noticeable impact on sales and revenue. For a large business like Samsung, it is of utmost importance to mind ethics and compliance since apart from substantial sums in the form of fines like it paid in the Apple case, it also keeps losing reputation internationally.
Economic fluctuations also have a sizable impact on the business of conglomerates like Samsung. The company is feeling the pinch of economic uncertainty caused by Coronavirus. While the domestic economy of South Korea has fared relatively a lot well compared to several major economies, other leading markets of Samsung like the US and India have not been able to manage the pandemic with the same efficiency. So, the impact apart from being on the personal lives of the people and consumer behavior has also been felt on economic activity in these regions. Coronavirus has directly impacted economic growth globally from the US to India, UK and many other major economies. With declining economic activity, the level of employment and people’s spending on consumer electronics and smartphones has also reduced. In turn, it affected Samsung’s performance during the first two quarters of the year. While Samsung expects performance to improve in the second half of the year, the impact of the pandemic will remain on the world economy for longer.
The US economy has experienced a severe decline in the second quarter of 2020. According to the data released by the Bureau of Economic Analysis, the Real GDP of the US decreased at an annual rate of 32.9%. During the first quarter of 2020, the real GDP of the US had declined by 5 percent. It has also had a significant impact on the sales of Samsung products. On the other hand, the Indian economy also contracted significantly during the second quarter of 2020. India is also a major market for Samsung products. The Indian economy contracted by 23.9% during the second quarter of 2020. However, the Indian estimates of real GDP must not be compared with that of the US since the Bureau of Economic Analysis compares the real GDP for one quarter with the preceding quarter whereas the case is different from the estimate of India’s real GDP. Goldman and Fitch ratings have also estimated a deep economic recession in case of the Indian economy.
Since growth is hampered in two leading economic markets, the impact can be negative on the sales of Samsung products in both regions. While the US market will recover faster, the Indian market may take some time due to the growing cases of Coronavirus as well as a lack of strong financial measures that could support rapid recovery.
PESTEL Analysis of Samsung Electronics:
Samsung has found a lot of growth internationally. It’s a global brand with a strong presence in the US as well as emerging markets. The international growth and expansion of the company are driven by multiple factors including technological innovation. However, there are several major factors that affect a firm’s performance in the global market. They play a critical role in the international business environment. Analyzing these factors helps understand the extent to which each one can affect the performance of a specific business and industry.
The role of political factors is crucial in terms of successful operations of international businesses like Samsung. It is because the government’s oversight of large businesses has continued to grow over the past several years. However, the political environment of a country or region also has a definite impact on the business environment there. It is because economic stability or the condition of trade in a particular area depends on the kind of government in the region. The government’s policies related to businesses as well as its trade relationships with other governments and more related factors affect the operations of firms.
In many regions of the world, you will come across governments that have formed more business friendly policies and also entered into international partnerships with other nations to help their domestic companies flourish. On the other hand, in some regions the government exercises tighter control over the businesses in the area and its policies are also not so business friendly. Moreover, as governments change these policies can change leading to direct impact on the domestic businesses as well as the international businesses operating in the region. It is why businesses like Samsung have to create strategies and policies with an understanding of the political environment of each market.
For example, in China where international brands like Apple and Samsung enjoy smaller market shares compared to the local brands, it is mainly because the government’s policies favor the local brands more than the international brands.
South Korea, which is the domestic market of Samsung, is considered a business friendly market. Its economic freedom score is 74 which makes it the 25th most free market in the 2020 index. Its relatively higher degree of business openness offers potentially big benefits for large businesses like Samsung and other international businesses operating in the region. Apart from Samsung, South Korea is also home to some more world famous brands like LG and Hyundai.
Trade relationships of the domestic economy of a brand with other major market nations also have a direct impact on the firm’s business. Suppose two nations have formed very good economic relationships, then it allows a business from one nation to operate more freely in the other and vice versa. The United States is strategically the most important market for Samsung. Apart from its smartphone products, the US is also a crucial market for televisions, displays, semiconductor and 5G equipment made by Samsung. The political and economic relationships between the two nations have remained strong for a long time. South Korea is among the most important strategic partners of the United States in the Asian region. Apart from forming military agreements, the two nations have also entered into economic alliances. The US goods and services exports of South Korea grew to $81 billion in 2019 compared to around $91 billion of imports. From 2012 to 2018, the stock of South Korean Foreign Direct Investment in South Korea has trebled to $58.13 billion. During the same period, US FDI to South Korea has increased by 47% to $41.5 billion.
In this way, the strong economic relationships between the two nations have continued to help South orean brands operating in United States. Samsung continues to benefit from their friendly relationships. Considering the strategic importance of the US market for the brand, trade relationships between the two nations play a crucial role in ensuring the success of brands such as Samsung.
The role of economic forces in the context of international business and the growth of international trade is immensely important. The condition of the world economy as well as the local economies where a particular brand operates has a major role in determining the financial growth and success of international brands. With higher economic activity and a higher level of employment, people spend more on consumer electronics products. Economic fluctuations in key markets can have a positive or negative impact on the revenue and profits of a firm operating in those areas. There is a strong relationship between the condition of the world economy and the performance of major international firms like Samsung. The growth of the world economy has continued to support faster growth of Samsung over the past several years. However, the condition of the global economy following the spread of the coronavirus pandemic has worsened and it has led to declining sales for companies like Samsung.
Since the pandemic grew, a large number of people around the world have lost their jobs. Continuously falling level of employment in key economies like the United States and India has led to lower spending on items like smartphones and consumer electronics. As a result, the revenue and profits of Samsung have been affected in the first and second quarters of 2020. The company expects its revenue to grow again in the second half of the year as economies reopen and employment grows. Coronavirus brought several economies including the US, UK, Italy and India to a sudden halt.
Due to the extended shutdowns, several economies experienced a swift decline in economic activity that led to stunted economic growth. During the second quarter of 2020, both the US and India have experienced a considerable decline in economic performance. The United States has been able to recover faster as compared to India, which is clearly showing in the form of falling unemployment levels that had risen very high since the pandemic spread. In February 2020, the unemployment rate in the United States was only 3.5 percent and the number of unemployed persons stood at only 5.8 millions. Since then the unemployment rate and the number of unemployed persons had grown a lot but started declining in May. The unemployment rate in the US jumped to the highest during April 2020 to 14.7% and then started declining. Having fallen to 13.3% in May 2020, it further declined to 8.4% in August 2020 and the number of unemployed persons in August 2020 has fallen down to 13.6 million. With the unemployment rate declining consistently since it peaked in April, the situation is expected to be considerably better in the second half of the year than the first. It can lead to increased spending on smartphones and consumer electronics. Due to the pandemic and the resulting conundrum, the sales of 5G smartphones were much lower than expected. However, Samsung has managed to retain 94% market share in the US in the 5G smartphone market. As the economic situation continues to improve in the US, the sales of Samsung products including 5G and other smartphones as well as consumer electronics is expected to grow thereby improving revenue and profits of the South Korean firm.
Sociocultural factors have gained importance in the field of international business as their strong influence on business performance has come to be recognized now. Sociocultural factors are not divorced from business even if their impact may be less direct or less evident in the terms of international business. However, with time a lot of research and evidence has accumulated that shows that the effect of these factors on business is significant. Otherwise businesses would nto need to create different business and marketing strategies for different regions. Societies and cultures differ from region to region. You can find vast cultural differences between two regions. Something that works in the West might fail badly in terms of producing results in the East. While a lot of things have changed with the advancement of technology and the rise of social media, still, these sociocultural differences need to be kept in mind while formulating strategies for various regions.
For example, for a business operating internationally in several leading markets, it is important to mind how social and cultural differences affect its business in each region. If you are operating in China having some understanding of the local preferences and taste will definitely help you build a better strategy. The difference between the US and China is not just of language and culture, but people’s tastes also vary often in various regards. Many of these differences do not matter much because of growing digitalization and use of technologies like social media around the world, still marketing strategies need to be crafted carefully in order to avoid any kind of complexity. Whether the Asian region or North America, Erope or MIddle east, the marketing and business strategies of the same business can differ from one to another region.
Samsung is a South Korean conglomerate. It has acquired an excellent footing in the United States market but in China, it does not enjoy the same status. Apart from political and other factors, the sociocultural factors are also responsible to some extent for it. Many businesses have found it difficult to crack the Chinese market because of the complex culture and local laws. However, the firms that have acquired a good understanding of the local culture have advanced there without difficulties and through the help of local partnerships. They find it easier to market their products locally and penetrate the market deeper.
The advancement of digital technology has brought a sea change in the way businesses operate internationally. Many technological companies have experienced massive growth in their market capitalization, including Samsung’s leading rival Apple whose market cap grew above $2 Trillion before falling back to $1.95 trillions. Samsung has also seen its market capitalization grow to $330 billion. Most of this growth is driven by technological factors globally. With technological growth happening at an exponential rate and with the arrival of technologies like IoT, AI and 5G, the world of technology has acquired a higher acceleration rate. While the world of technology is evolving at a fast speed, the technology related needs of people around the world are also growing. A larger number of people are shopping online and digital technology has become an integral part of people’s lives. From Alexa to Google and other voice assistants, people are living a highly digitalized life. Netflix, facebook and the other social media channels are keeping people engaged throughout the day. Most of the marketing throughout the world is taking place online using digital channels. Smartphones are like digital partners that people use during the entire day to accomplish personal and professional tasks. While people;’s lifestyles have changed fast with the advancement of digital technology, the number of smartphone users around the world has grown at a very fast rate during the previous few years. According to Statista, the number of smartphone users around the world is 3.5 billion in 2020 and it is expected that this number will grow in 2021 to 3.8 billion users. Their number stood at 2.5 billion in 2016. This number proves that the top five smartphone brands have grown many times richer within the last five years.
The smartphone industry is experiencing intense competition. Some of the leading competitors of Samsung are Apple, LG, Huawei, Xiaomi, Oppo and OnePlus. Despite the intense competition, the company has maintained excellent growth momentum. The main factor driving the growth and competitive advantage of Samsung is technology. Its focus on innovation is the leading factor that has helped it become the largest smartphone brand in the world market. It is among the leading R&D spenders in the entire industry. In 2019, the company spent around 20 Trillion KRW or around $17 billion on research and development. Over the last few years, its research and development expenditure has grown a lot driven by the intense competition in the smartphone industry. So, at the core it is the technological factors that are driving most of the growth for international smartphone brands like Samsung. Whether in terms of production or marketing, technology is the real game changer in the industry. Apart from managing its supply chain using modern technologies like AI, IoT and Blockchain, the company has also focused on digitizing its business operations as well as investing more in digital marketing to grow its market influence.
Digital transformation is happening around the world at a faster rate. To provide a superior customer experience, Samsung will need to maintain its focus on research and innovation. It is also the key to surviving in a highly competitive industry environment.
Environmental concerns and sustainability are also among some important concerns for international businesses. Especially, the companies that make physical hardware and have a significant environmental footprint will need to focus on making their products and processes more and more sustainable. Apart from governments and environmental watchdog agencies, the public itself is now concerned about the environmental impact of businesses. Customers like to buy products from the brands that are the most sustainable and care for their environmental impact. Following the spread of the pandemic, the environmental impact of large and international businesses has also become a grave concern for governments and the public. The spread of Covid-19 pandemic has reignited discussions related to the environmental impact of businesses and if companies are really managing it with full focus. It will inevitably lead to more stringent laws in the favor of the environment. At this critical time, companies need to take sustainability even more seriously.
For a business like Samsung, it is now impossible to operate without having sustainable operations. Sustainability is also related to ethics and companies that do not focus on it can lose their reputation. Samsung has created a detailed sustainability strategy that focuses on making products as well as its business processes and the entire system more sustainable. Even if there are some costs associated with managing sustainable business operations, it can be highly profitable for Samsung in the long run. The company publishes an annual sustainability report for its stakeholders that summarizes its policies and actions related to sustainability as well as the key milestones it has achieved in this area. Some of the key focus areas highlighted in the 2020 annual sustainability report of Samsung include better resource management, recycling, circular economy, minimization of Greenhouse Gas Emissions and expansion of the energy management plans already at work. The company is also making use of the latest technologies to facilitate the success of its sustainability strategy and energy management plans. The company has also been successful at minimizing the use of non renewable energy as well as environmental resources. Overall, Samsung has taken several significant steps that apart from helping it minimize its dependence on natural resources as well as its environmental impact will also help it manage the impact of climate change with higher efficiency.
Considering the impact of law on every business and especially the international businesses, it would not be an exaggeration to say that distraction will inevitably cause accidents. In the case of large businesses like Samsung it is even essential to consider the compliance related requirements very minutely. Noncompliance can easily lead to hefty fines and even imprisonment for company officials. Samsung itself is a great example. Its current chairman has spent a substantial amount of time behind the bars. However, the legal framework differs from region to region. That does not, however, reduce the risks for international businesses. Instead, the international firms need to consider each and every big and small applicable law that can affect its business in any of the regions where it operates. Most of the largest firms consider the impact of law on their businesses at least once each year during their annual meeting, However, it is also an area that requires considerable and continuous scrutiny on the part of the businesses themselves. They cannot put everything at risk including their reputation or take risks related to compliance. If a business decides to act illegally or unethically or even take advantage of the loopholes in the local legal framework, it will yield negative results in the long run.
The Samsung chairman was behind the bars in a case of bribery from which he was released in 2018. However, again he is facing fresh indictment in a labor case. While the company has maintained a strong reputation as an innovative firm that makes and sells innovative and excellent products, its legal woes seem to have become a permanent problem. Samsung definitely needs to act more carefully since the most recent case has aso put a question mark on its performance in the latest quarter. While growth is necessary for an enterprise, it must not come at the cost of ethics and compliance. Samsung needs to definitely grow its focus on this area since if it emerges as a grey area then the impact will the most on its reputation globally and in turn on the sales of Samsung products worldwide. Being compliant and ethical will help the brand strengthen its roots and establish itself as a respectable and responsible brand of smartphones and consumer electronics.
Five Forces analysis of Samsung Electronics
There are several forces in the industry that affect the market position of businesses and their competitive strength. One of the simplest tools used industry wide and in academic circles to analyze the competitive position of firms and the level of competition in any particular industry is the Porter’s five forces analysis. It was named after Michael E Porter.
“Michael Porter is the founder of the modern strategy field and one of the world’s most influential thinkers on management and competitiveness. The author of 19 books and over 130 articles, he is the Bishop William Lawrence University Professor at Harvard Business School and the director of the school’s Institute for Strategy and Competitiveness, which was founded in 2001 to further his work and research.”Harvard Business School.
In a 1979 article titled How Competitive Forces Shape Strategy, published in the Harvard Business Review, Michael E Porter noted regarding his five forces model that it is the collective strength of these forces that ultimately determines the profit potential of any industry and it can range from intense to mild. The profit potential grows with the weakening of these forces. In each and every industry, a different force may be more prominent than the others. Porter offers three examples in his article. In the ocean-going tankers industry, it is the buyers who are the most important force whereas, in the tires industry, it is the powerful OEM buyers coupled with tough competitors. On the other hand, in the steel industry, foreign competitors and substitutes are the most prominent forces.
In Porter’s words,
“Every industry has an underlying structure, or a set of fundamental economic and technical characteristics, that gives rise to these competitive forces. The strategist, wanting to position his or her company to cope best with its industry environment or to influence that environment in the company’s favor, must learn what makes the environment tick.”Michael E Porter in his HBR article, How Competitive Forces Shape Strategy.
Let us take a look at how these forces work in the smartphone industry and how Samsung can cope best with the current industry environment.
Bargaining power of buyers: Intensity – (Moderate)
The bargaining power of buyers can be high in some specific cases. When there are fewer buyers compared to the suppliers, the bargaining power of the buyers will be higher. If the switching costs for the buyer is low or if the buyer buys the product in volume then the bargaining power of the buyer will be higher compared to the seller. In another case if the availability of substitutes is high in the market or if the buyer can obtain similar products from other suppliers, then the bargaining power of the buyer will be higher. If the product is not sufficiently differentiated, then also the bargaining power of the buyer will be higher.
In the case of Samsung, the bargaining power of individual buyers is moderate. It is because despite the high availability of substitutes, the total number of reliable sellers is limited to five or six. There are only five or six leading brands that the customers trust for the quality of their products. A large part of the buyers are from the middle class and the switching costs can be high since a nice smartphone generally comes for more than $300 and customers will mainly buy from the brand they trust.
Moreover, Samsung products are well differentiated. While the scope of differentiation has reduced a lot in the smartphone industry, there are several brands like LG, Huawei, Apple and One Plus that can offer products that match or offer better performance. The smartphone market is expanding every year and not completely saturated. Samsung products are excellent in terms of performance and design. The customer experience also differentiates Samsung from the rivals.
Compared to Apple, its phones are more affordable and since a large part of the smartphone using population worldwide is from the middle class, affordability can grow the demand for a particular brand. However, the higher end products made by Samsung also enjoy strong popularity and sales. Overall, the bargaining power of buyers is moderate. The level of competition in the smartphone industry also gives the buyers some bargaining power.
Bargaining power of suppliers: Intensity – (Mild)
The bargaining power of suppliers in the smartphone industry is mild or low which is mainly because the number of brands that buy from these suppliers is low compared to the number of suppliers. Each of the leading brands that manufacture smartphones sources the raw material from thousands of suppliers in the world and mainly in Asian countries including China, Taiwan and other Asian countries.
The bargaining power of suppliers can be high only in cases when the number of suppliers is low and the threat of forward integration by suppliers is high. In other cases when the supplier does not have to depend on a particular buyer, then too the bargaining power of suppliers is high. When the product sold by a particular supplier is highly differentiated or if the switching costs for the buyer would be high even in that case the bargaining power of the supplier will be high. However, the situation in the smartphone industry favors the manufacturers who assemble the final product more than the suppliers.
As in the case of Samsung, it obtains the raw material for the various products it makes from more than 2500 suppliers (mainly first tier) located in various corners of the globe and mainly Asia. The number of suppliers in the industry ( smartphone & consumer electronics) is evidently much larger than the number of buyers. Most of these supplier firms are a lot smaller in size compared to Samsung or other smartphone and consumer electronics manufacturers.
While these supplier firms supply to the competitors as well, the threat of forward integration is mostly low or negligible. This also reduces the bargaining power of the supplier firms. Apart from that, the availability of substitutes is also high in most cases. As a result, the bargaining power of the supplier firms is low or mild.
Availability of substitutes: Intensity – (Moderate)
The availability of substitutes in the smartphone industry is moderate. It is because the number of firms that rule the smartphone market from the US to China is limited to just around half a dozen. The threat related to substitute products comes mainly from competing brands. However, from Apple to Huawei, Xiaomi, Oppo, and OnePlus, there are a handful of brands that rule 80% or more of the smartphone market globally. Several factors help Samsung mitigate the threat from substitute products.
One of the leading factors that help Samsung mitigate the threat from the substitute products is its wide range of smartphones. The company has brought a broad range of smartphones to the market from lower end to higher end. Its Galaxy smartphone range is made for the higher end market. However, some more factors act as a defense against the substitute products and brands. One of them is Samsung’s brand equity. It is a highly popular and trusted brand of smartphones. Due to the consistently good performance of Samsung smartphones the company has successfully acquired a large and loyal customer base in various regions around the world including leading markets like the US and India.
The company also uses marketing to grow its influence in the smartphone market. Its consistent focus on innovation is also a key reason that the company is winning in the global markets and has successfully maintained its position as the largest smartphone brand. Despite there being good quality substitutes for its products that offer matching performance and customer experience, Samsung’s position in the smartphone market and the demand for its products is quite strong.
Overall, the threat from substitute products in the case of Samsung is moderate. The challenge still remains because competing brands like Apple and Huawei are also quite aggressive about maintaining their market positions and market share. Apple is the leading smartphone brand when it comes to product quality, marketing, and customer experience. However, since Samsung has employed a more competitive pricing strategy, it has successfully mitigated some of the threats from substitute products including those made by Apple.
Threat of new entrants: Intensity – (Mild)
The threat of new entrants in the smartphone industry is shallow. The established players have acquired substantial market shares in the industry and invest aggressively to retain their customer base and market share. Several factors make the entry of new players demanding, including the requirement for capital, knowhow, and legal barriers. The incumbent players compete aggressively for market share and invest heavily in marketing as well as research and development to protect their turf.
Before a new brand starts generating substantial profits, it will need to establish itself on a solid footing, and to gain a solid foundation; it will need to invest in manufacturing distribution, supply chain management, marketing as well as human resources. Any company trying to enter the smartphone industry will need to make a massive financial investment. Apart from that, gaining sufficient recognition will also be time-consuming. The high level of competition in the smartphone industry is already a significant threat to any new player. While Google has introduced a smartphone, it has not been successful at gaining a substantial market share.
Even if it continues to invest in its smartphone, the company might find it challenging to achieve as large a market share as either Samsung or Apple. It also shows how difficult it is for a new player to enter the market and gain a solid customer base. Based on these factors, the overall threat from new players is shallow.
Intensity of competitive rivalry: (Intense or High)
The intensity of competitive rivalry in the smartphone industry is very high. While there are only a few brands ruling the entire smartphone market ( leading names include Apple, Samsung, Huawei, OnePlus, LG, Xiaomi, and Oppo), there is intense competitive rivalry among these players. The leading smartphone brands invest heavily in research and development as well as marketing and control a substantial part of the global smartphone market. Samsung is among the largest spenders in research and development, It is mainly because of the heavy competition that brands have to focus heavily on innovation. Otherwise, the chances of customers switching to other brands grow.
The scope of differentiation in the smartphone industry has reduced to each company innovating its products to offer the best in class features and customer experience. Due to that, every small innovation matters. For example, Apple has introduced faster A12 bionic chips in its iPhones apart from superior cameras. iPhone 11 offers both excellent gaming and photography experiences. Other competitors of Samsung, like Huawei and Xiaomi, have also introduced several features in their smartphones that have grown the attractiveness of their products. Another operational area where competition has grown is marketing. Smartphone markets are also investing a lot in digital marketing and promotions to increase their influence as well as sales and revenue. Overall, the intensity of competitive rivalry in the smartphone industry is very high.
Value Chain of Samsung
Michael E Porter introduced the concept of the value chain in 1985, and since then, the idea of the value chain has been in use around the world. For more than 30 years, this model has helped business managers with strategy formulation and methods to strengthen their competitive advantage.
“The value chain is a powerful tool for disaggregating a company into its strategically relevant activities in order to focus on the sources of competitive advantage, that is, the specific activities that result in higher prices or lower costs.”Institute for Strategy & Competitiveness. HBS.edu
According to Porter, the value chain of a firm is typically the part of a more extensive value system, including companies either upstream (suppliers) or downstream (distributors), or both. This perspective of value creation forces the managers to consider each of the steps involved in the value chain not as a cost, but as a step that adds an increment of value to the final product or service.
The key concepts involved in the value chain include activities, competitive advantage, and set of choices. The value chain is a set of activities involved in delivering value to customers. The activities, including the overall value chain in which they are embedded, are the basic units of competitive advantage. The strategy is reflected in the set of choices about how the activities in the value chain are configured and interlinked.
The value chain includes both primary and support activities. The primary activities are the set of activities that are directly related to value creation. In contrast, the support activities are secondary activities that support the primary activities in the value chain.
Now let’s discuss the value chain of Samsung.
Primary Activities in the Value Chain of Samsung Electronics
Inbound logistics refers to the inflow of goods and services into business operations. Every large business works with thousands of suppliers and has to source material from various corners of the world. Samsung Electronics is a multinational conglomerate working with more than 2500 supply chain partners. For such a large company, it is essential to manage logistics strategically, since it is the backbone of their supply chain. A large part of Samsung’s supply chain is located in Asia. Apart from that, some of its suppliers are located in the US and the UK.
Samsung’s inbound as well as outbound logistics are managed by its integrated logistics subsidiaries like Samsung SDS and Samsung Electronics Logitech (SELC). Samsung SDS was founded as the ICT arm of the Samsung group in 1985, whereas SELC is an integrated logistics management agent that separated from the logistics arm of Samsung Electronics in 1998.
Samsung sources raw materials from its suppliers located in Asia and other regions. Its logistics subsidiaries bring the raw material to its manufacturing and R&D locations. Both firms use their strong logistics and digital capabilities to manage inbound logistics for Samsung.
Samsung started its business in 1938 as a trading company and then kept diversifying throughout its history to grow its business. It entered the television industry in 1970 when it introduced its first black and white television, and then in 1980, it entered the telecommunications hardware industry.
It is a South Korean conglomerate with its headquarters in Seoul, South Korea. The company has expanded its operations to various parts of the globe, from its home market to the US and several more regions.
Samsung runs seven manufacturing centers that are located at:
Apart from these, the company has R&D centers at following locations:
Samsung also runs seven regional offices in countries including Korea, China, the USA, Germany, Japan, and Singapore. It has two regional offices in Korea alone.
Samsung’s business operations are divided into four main business divisions that operate independently: CE (Consumer Electronics), IM (Information Technology & Mobile Communications), DS (Device Solutions); and Harman (Harman International Industries, Inc. and its subsidiaries). Harman produces automotive electronics components.
Outbound logistics refers to the outward flow of goods and services from the company. Samsung is South Korea’s largest company that makes and sells a wide range of products from smartphones to consumer electronics, semiconductors, NAND flash memory and television as well as displays.
It has established seven manufacturing centers in various corners of the globe where it manufactures the products it sells. Since Samsung is a global brand, it sends products from these manufacturing and assembly locations to different markets throughout the world.
Samsung has integrated subsidiaries that take care of the entire logistics function including inbound and outbound logistics. Apart from bringing raw materials from the suppliers, these subsidiaries also take care of the outbound logistics to transporting finished goods to distributors and resellers throughout the world.
The two leading logistics subsidiaries of Samsung are Samsung Electronics Logitech (SELC) and Samsung SDC both of which were initially a part of the core Samsung group. Samsung Electronics logitech alone transports products made by Samsung Electronics to around 120 countries throughout the world. Apart from that it also provides distribution and sales support to Samsung Electronics.
Marketing and Sales:
Marketing is a vital driver of demand in the smartphone and consumer electronics industries. There is a lot of competition in these industries and Samsung is competing against some of the leading smartphone brands like Apple and Huawei. As a result, a focus on marketing is crucial to maintain demand and sales worldwide. Moreover, brand image matters more than anything now. Customers care for things like brand image and sustainability. Companies want to build a stronger relationship with their customers. They want their customers to trust them. However, it is not possible without creating a great brand image and maintaining your focus on the firm’s reputation among the public.
Samsung has maintained a strong brand image as a technology industry and based on revenue it is among the largest technology brands. However, its brand image is mainly driven by its product quality and focus on technological innovation. Its devices are popular mainly because of their solid design and performance. The role of marketing is limited compared to research and development in the case of Samsung. Still, the company has managed to strengthen its market positions dn brand image through continuous deciatin to product quality and innovation.
In terms of marketing, Apple is a lot ahead of Samsung or any other brand in the smartphone industry. However, Samsung is also investing in marketing to grow its influence. It mainly uses digital marketing channels for the promotion of its products. Apart from paid online promotions, the company uses social media to run marketing campaigns and to promote its smartphones before the public. The company also invests in CSR and sustainability to maintain a strong social image.
The company has also established a strong global distribution network. It utilizes both online and offline channels for the sales of its smartphones and other electronics products. With time as e-commerce has continued to catch momentum and more and more people are buying through online channels, the company has grown its reliance on e-commerce channels for sales and distribution.
Samsung has established a global network of distributors and resellers that apart from sales and marketing also provides after-sales support to the customers. After-sales support is now also a crucial part of marketing for the most physical hardware and consumer electronics brands. It is because the quality of customer service also has a direct effect on the brand image. Apart from that, if a company wants to create a superior image, it must focus on providing superior customer service. Customer service impacts customer satisfaction and is crucial for maximizing sales and revenue.
Samsung has maintained an excellent focus on customer service in all the markets where it operates. Apart from its large network of service centers, the company is also using online channels to provide after-sales support to its customers. The company has established a large number of service centers in each of its major markets. For example, India alone boasts of more than 3000 Samsung service centers. Apart from personally visiting these service centers, customers can use toll-free numbers to reach out to customer service representatives from Samsung electronics. There are now several channels to schedule a service. The company is also using chat tools to offer round the clock support.
Support Activities in the Value Chain of Samsung Electronics
A continuous supply of good quality raw materials is essential to maintaining a continuous supply of products. Samsung has managed a global supply chain but most of it is in the Asian region. However, the company has managed strong relationships with its suppliers to ensure a continuous supply of raw material.
Samsung Electronics maintains 216 global bases in 74 countries. These offices employ the services of 2,389 suppliers. The company has established an International Procurement center (IPC) that acts as the central hub for managing supplier relationships. The IPC together with the Global Supplier Relationship Management System accepts submissions from the companies that want to become a part of Samsung’s supplier management program.
Apart from the main International Procurement Center of Samsung, its IPCs are also present globally in various strategic locations from where they monitor the latest technology trends and also identify potential suppliers. While on the one hand, it ensures that the supply chain of Samsung is competitive, on the other it also ensures a continuous and uninterrupted supply of good quality raw material. Samsung also maintains an integrated procurement system to manage procurement operations.
For every large technology brand, it is essential to maintain a strategic focus on human resource management. It is because running a global technology brand requires talented engineers and managers. People are a core source of competitive advantage for any technology brand, and apart from attracting talented people, the company needs to invest in them for their career growth and job satisfaction.
The company, apart from offering training and other critical resources that are necessary to help the employees find faster career growth and higher job satisfaction, also offers competitive salaries as well as other benefits for its employees. Samsung notes in its 2020 Sustainability Report,
“The human resources team at our headquarters and the diversity and inclusion managers at each division have implemented a variety of initiatives, including those with a focus on women, people with disabilities, generational gap, culture, education, and more.”Samsung Sustainability Report 2020.
The company has focussed heavily on bringing higher equity and encouraging women in its organization to find faster growth through training and empowerment.
Technology is the most critical driver of business growth in the smartphone and consumer electronics industry. Every leading smartphone business invests heavily in research and development to find faster growth and drive its sales higher. Samsung has also made technological innovation a key focus since most of its growth in recent years was driven by technology-based differentiation.
Apart from establishing modern and best in class R&D centers, the company invests a large sum in research and development. During 2019, the company invested more than 20 Trillion KRW in research and development.
The company has divided its business operations into four main divisions that operate independently of each other. Ki Nam Kim, who is the Vice President and CEO of Samsung, also heads the Device Solutions, Semiconductor, and Memory businesses of Samsung. Hyun Suk Kim is the President and CEO of Samsung and also directs the consumer electronics business of Samsung. Apart from that, he is the head of the visual display business as well as the product strategy team. Dong Jin Koh, who is the president and head of the IT & Mobile Communications business, is also the head of Mobile research and development as well as the technology strategy team.
VRIO Analysis of Samsung Electronics
The resources and capabilities of a company are its drivers of competitive advantage. Nearly all that a business owns can be classified as a resource or capability. By understanding the resources and capabilities of different enterprises, one can understand why overall performance differs from one business to another. To achieve a competitive advantage, the resource or capability that a company owns needs to be valuable, rare, inimitable, and organized.
The VRIO framework comes to the help of managers when analyzing the company’s resources and capabilities. VRIO is an acronym that stands for Valuable, Rare, Inimitable, and Organized. These four bricks of VRIO represent the four properties of the resources and capabilities that lead to sustainable competitive advantage. When the resource or capability satisfies all the four requirements, the competitive advantage it generates will be sustainable, whereas, when it meets fewer standards, the competitive advantage will be temporary.
Moreover, a sustainable competitive advantage comes from core competencies that arise from resources and capabilities.
Core Competencies of Samsung:
In the smartphone industry, brand image can be a significant source of sustainable competitive advantage. While product quality is a leading factor that affects the consumers’ perception of a brand, there are several more factors that affect brand image. However, brand image is a decisive factor that affects consumers’ choice of products. This is also something that makes the entry of new players in the industry difficult.
Samsung has maintained the image of an innovative technology brand. The company’s image is mainly linked to the product quality and the customer service it offers. These two factors have played an important role in helping the company achieve a strong brand image.
Moreover, brand image is one of the main differentiating factors for technology brands. It is the brand image that differentiates Samsung from Huawei or Apple. Despite being from the same industry, these three companies have very different brand images. However, Samsung continues to remain dedicated to strengthening its brand image as a smartphone and consumer electronics brand. Brand image is something that cannot be imitated. It is also something that cannot be built or changed overnight. It is one of the most valuable resources for a company and, apart from that, rare. So, overall, Samsung’s strong brand image is a crucial source of sustainable competitive advantage for the brand.
The focus on customer experience has continued to grow in the 21st century. Companies now focus more than ever on customer experience since it is one of the primary factors driving sales and profits as well as customer loyalty. Apart from product quality, the other factors that affect customer experience include marketing, innovation, customer service as well as brand image. Product quality is one major factor in the smartphone industry affecting customer experience.
The stronger the quality of products, the better is the customer experience. Customers’ needs have evolved and they are using their smartphones for many things including mobile gaming, online shopping, as well as other things like streaming videos and for professional use. As a result, they want high-performance devices.
Samsung has remained strongly devoted to providing its customers a superior customer experience. Apart from spending a huge sum on research and development each year, which is meant to grow the attractiveness of its products and their performance, the company also invests in customer service as well as marketing. Through these things, the company has been able to improve the customer experience a lot over the past several years. The result is that now it is the largest smartphone brand in the world. However, while this critical core competency is valuable, rare as well as organized, it is not inimitable. The other brands also strive to provide superior customer experience and Apple is already ahead of the other smartphone brands in this area. Overall, customer experience is a source of temporary advantage for Samsung and requires continuous focus and improvement.
Research & Development:
The smartphone industry is marked by intense competition. There are around half a dozen smartphone brands ruling the market. However, due to the intense competition between them, each one employs aggressive marketing and sales tactics to gain market share. The most crucial factor that drives success in the smartphone industry is technological innovation. It is because apart from driving higher sales, technological innovation is also the key to customer satisfaction.
Apart from being one of the largest technology brands based on revenue, Samsung is also one of the leading spenders on research and development. The company spent more than 20 trillion KRW on research and development in 2019. The huge investment that goes every year into research and development at Samsung is focused to drive faster growth. Every year it brings new innovations across all product categories driving higher demand and better sales. Moreover, research and development is a fundamental source of differentiation in the smartphone industry. Due to the high level of competition in this industry, every small innovation can drive sales higher. Overall, apart from being valuable, rare, and to a large extent inimitable, it is also an organized core competency and therefore, a source of sustainable competitive advantage for Samsung.
In the smartphone and consumer electronics industries, companies need to have a continuous supply of good quality raw material to maintain their production level and achieve continuous sales. Having a strong supplier network helps produce good quality products and bring them to the market before the competitors do. A strong supplier network serves as the backbone of manufacturing.
Samsung has focused on developing a strong supplier network and maintaining strong relationships with its supply chain partners. It has established a central International Procurement Center (IPC) that overlooks the entire procurement. However, the IPC is also present in various locations from where it continuously keeps an eye on changing trends and potential suppliers.
Apart from onboarding the suppliers using digital tools, the company also uses digital tools to manage supplier relationships. Its supplier network is one of its kind and strong support for the company’s manufacturing. Most of its supply chain is located in Asia. Its supplier network is a core competency that is valuable and somewhat rare but not completely inimitable. It is also a source of temporary advantage for the brand.
Samsung is a highly diversified brand. While Smartphones are the core product of Samsung and also its largest source of revenue, the company is not dependent solely on smartphones for sales and revenue. Apart from that, it deals with consumer electronics, semiconductors, NAND flash memory, and several more products.
Across several product categories, the company is also a leader in the global markets. Smartphone sales have been driving most of the growth for Samsung but the company has continued to acquire new businesses to expand its product range and create more growth. Its diversification strategy has also helped the company establish itself as one of the largest technology brands in the world. There is hardly one other company that deals with such a vast product range.
Samsung has divided its business into four independently operating divisions. These divisions are Mobile communications, consumer electronics, displays, and Harman. The South Korean firm has remained a leader in the television market for around 14 years. Still, the company keeps looking for new growth opportunities across emerging areas, including AI and IoT. The acquisition of Harman was a step in the direction of expanding the company’s presence into automobile products. Overall, the vast product range of Samsung is a source of sustainable competitive advantage for the brand.
With ever-intensifying competition in the smartphone industry, smartphone firms need to invest more and more in marketing to stay competitive and drive sales higher. Marketing is also a critical source of competitive advantage in the smartphone and consumer electronics industries. All of the leading brands in these industries, like Apple, Samsung, LG, Huawei, and SONY, invest heavily in marketing their products. Apart from driving sales, marketing also helps these brands grow their influence in the market.
Samsung has also grown its focus on marketing to extend its reach and customer base. The company is using digital channels mainly to advertise its products. Apart from paid online advertising and email marketing, the company also uses e-commerce channels for sales and promotion of its products, including smartphones and consumer electronics. Another leading channel that the company utilizes for the promotion of its products is social media.
The company uses Facebook and Twitter as well as YouTube for promotions and to post educational content online. In this way, the company uses social media for promotions as well as customer engagement. Marketing is a critical source of competitive advantage for any smartphone and consumer electronics brand. However, due to the intense competition in these industries as well as growing expenditure by brands on advertising and promotions, it is only a source of temporary advantage and requires continuous improvement.
As the reliability of Samsung as a smartphone and consumer electronics brand has continued to grow, its customer base has also continued to expand. A large and loyal consumer base is a critical source of competitive advantage for any technology brand. Marketers employ a variety of techniques to turn new customers into loyal customers. Apart from advertising and promotions, companies also use customer engagement techniques as well as loyalty programs to drive higher customer loyalty.
Samsung also uses various techniques to gain customer loyalty. Apart from continuously investing in product quality, the company also invests in technological innovation to bring new updates that keep consumers interested and engaged. Marketing and loyalty programs also play a crucial role in driving customer loyalty higher.
The number one position of the company in the smartphone industry also shows its broad customer base. Through product quality and innovation, as well as its focus on customer service, the company has been able to retain its customer base very well. A large customer base is a crucial source of competitive advantage. Apart from being valuable and rare, it is exploitable. However, it is not inimitable since Huawei also has a sizable customer base, which compares with that of Samsung.
Business Strategy of Samsung Electronics
Samsung has seen a lot of growth since the company was founded. It started as a small business with just a few employees but found exponential growth that very few other businesses have been able to acquire. Now, it is among the largest tech businesses in the world based on revenue apart from being the largest South Korean company. The firm has kept expanding its business worldwide into new markets seeking faster growth. There are two core pillars of its business growth and expansion strategy that include a focus on product quality, and research and development. By maintaining its focus on these two main factors, the company has acquired enormous growth in the past decade. However, apart from these two pillars, there are more pillars of its business growth strategy that we will discuss here.
Samsung is an aggressive brand when it comes to business growth and global expansion. However, for any technology brand, growth is not possible without maintaining its focus steadily on product quality. The enormous growth that Samsung has acquired over the past decade is a result of its focus on product quality and customer experience. If its products are among the best selling products around the world, the reason is that the company has steadily maintained its focus on quality. Superior customer experience requires a consistent focus on product quality. Customers want quality and lack of quality makes the chances of customers switching to other brands grow. They would quickly switch to another brand if the products made by a firm are not according to their expectations.
It is true not only about smartphones or consumer electronics but all the products and services. Samsung maintains an acute focus on quality not only in its smartphone business but also across its other business segments. The company is the undisputed world leader in televisions and holds a large chunk of the displays market as well. At the root of the company’s success across all these product segments including semiconductors is its focus on product quality. Product quality is the main differentiator or the primary trait that differentiates Samsung products from other brands. The South Korean firm is aggressively pushing the line when it comes to quality since the company has to maintain its market share. Briefly, the company was at the top in the semiconductor industry before it lost the position again to Intel.
However, quality is still the main decisive factor in both smartphones and consumer electronics industries. Samsung is competing against brands like Apple and SONY, known for their aggressive focus on product quality. Apart from other things, Samsung is also aggressively investing in making its products and business processes more and more sustainable. The lower the environmental impact of the products it makes, the higher will be their popularity. A low environmental impact is also a sign of quality. Overall, quality is among the most critical factors affecting consumer experience and product sales, and brand image. Samsung’s continued focus on quality will drive the growth of its consumer base in the future.
Research and development:
Even if the smartphone industry has not fully saturated yet, the level of competition in the industry is intense. The number of smartphone users has continued to grow very fast over the past few years. While the number of smartphone users surpassed 3 billion in 2019, it is expected to grow by several hundred million in the next few years. The top three markets of smartphones globally are China, India, and the US, respectively. The brands that are ruling the global smartphone market and enjoying the highest market share include Samsung, Huawei, Apple, Oppo, Xiaomi, and Vivo. Together these brands enjoy more than 80 percent share in the global smartphone market.
The leading brands in the smartphone industry invest aggressively in research and development. Samsung has also brought a series of industry-leading innovations, particularly in the smartphone and consumer electronics segments. Continuous focus on research and design is essential to growing the company’s market share and beat the competitive pressure. Samsung, Apple, and Huawei are particularly the most aggressive ones in research and development. Pitted against two very aggressive rival brands, Huawei and Apple, Samsung’s reliance on R&D for growth has continued to grow. It is among the top spenders on research and development in the entire industry.
While research and development is essential for maintaining the attractiveness of its product portfolio, it is also a major differentiator. For example, the Samsung Galaxy Fold is a first of its kind foldable smartphone brand. Most of the premium smartphones on the shelves look similar and apart from minor differentiating traits, they are nearly similar in most areas. Apple has introduced an A12 Bionic chip for superior and faster performance in its smartphones. Samsung introduced its Galaxy Fold that works as both a smartphone and a tablet. These innovations are critical for smartphone brands since nearly all the smartphones in the market are just so similar that it grows the chances of consumers switching to other brands. Samsung was also the first to have introduced a 5G phone into the US market. Apple is planning to launch its 5G smartphone in the fall of 2020.
It is true about most of the South Korean technology, consumer electronics, and automobile firms that they maintain a heavy focus on research and development. Despite the fluctuations in the global economy caused by the spread of the pandemic, South Korean firms have continued to maintain their investment in research and development. In fiscal 2019, Samsung spent more than 20 Trillion KRW on research and development. It does not enjoy a significant market share in the Chinese smartphone market, dominated by Huawei, Apple, and other Chinese brands. However, it dominates the US market and has a significant market share in India, which is the second-largest smartphone market in the world. If Samsung were not investing as aggressively in research and development, it would not have survived the challenge from Apple, Huawei, and other Chinese smartphone brands. In the Indian market, most of the competition comes from the rival Chinese smartphone brands that have launched smartphones with extraordinary cameras and other features. Apart from pricing, Chinese brands also offer products comparable in terms of technology, design, and overall product quality. So, investing in research and development becomes all the more important for Samsung to keep its customers excited about its products and upcoming models and maintain sales worldwide.
Having a resilient supply chain:
A resilient supply chain is critical to the growth and success of a smartphone and consumer electronics brands. The coronavirus pandemic has put the resilience of supply chains worldwide to test. Samsung and most other smartphone brands have a large part of their supply chains located in Asia and manly China. How they manage their supply chains will have a direct impact on their product quality and sales worldwide. A strong supply chain ensures a continuous supply of raw material as well as production without constraints. To maintain competitive pressure in the industry, smartphone brands have to focus on managing supply chains that are ready for the worst situations.
Samsung has managed its supply chain very well. Its supply chain resilience was evident during the pandemic. Apart from digital technology, the company also uses other latest technologies like AI, blockchain and IoT to manage its supply chain. The company has established a central procurement hub which is its main channel for connecting with prospective suppliers. However, the procurement center also operates through several branches present worldwide. Apart from keeping an eye on the latest technological changes, it also looks out for prospective suppliers that can help it strengthen its supply chain.
Growth through acquisitions and diversification:
Samsung’s growth has come through diversification as well as a series of acquisitions. Most of these acquisitions were targeted at strengthening Samsung’s existing competitive advantage. Harman was Samsung’s largest acquisition until now. Samsung acquired it in 2017. The company is headquartered in Connecticut and was founded in 1980. The company is involved in the design and engineering of connected products and solutions for individual consumers, automakers, and other businesses. The products made by Harman include audio and visual products, connected car systems, as well as business automation solutions and services that support IoT. Harman markets its products under leading brand names, including Harman Kardon, Infinity, JBL, and Mark Levinson. Apart from creating significant new growth opportunities for Samsung, the acquisition of Harman has also allowed Samsung to deliver enhanced benefits to its customers worldwide.
Samsung saw transformative opportunities awaiting its business in the connected cars business. In the future, people would like their lifestyles to be seamlessly connected from their homes to their offices and inside their automobiles. Therefore, it decided to acquire Harman. Merging Harman’s iconic audio brands and capabilities with Samsung’s industry-leading display technologies had the potential to deliver enhanced audio and video experiences to customers and professional end markets worldwide. Some of the other significant acquisitions by Samsung include Loopay and Teleworlds. Loopay is a digital payment platform and the acquisition of Teleworlds has helped Samsung strengthen its position in 5G technology. Teleworlds is a Chantilly, Virginia based network services provider that Samsung acquired in January 2020.
Samsung has had a history of diversifying into new business areas. The business has grown in its history since its humble beginnings through diversification. Initially, it was a small trading business that entered telecommunications and consumer electronics businesses later. Over the years, its business has diversified a lot, and as of today, apart from being the largest South Korean firm, it is also perhaps the most diversified.
Samsung financial performance 2019 and 2020:
During fiscal 2019, Samsung announced annual revenue of KRW 230.4 Trillion and an operating profit of KRW 27.8 Trillion. The company’s revenue declined in 2019 compared to 2018 when it generated KRW 243.8 Trillion. During the fourth quarter of 2019, the operating profit of the company declined mainly due to the falling mem0ry chip prices as well as weakness in display panels. To some extent, the overall decline in revenue and profits was eased by the growing demand for memory chips used in servers and mobile products as well as reliable sales of its flagship smartphones. While the consumer business and mobile communications division of Samsung enjoyed growth in overall revenue during fiscal 2019 compared to the previous fiscal, sales declined across the other product categories.
The revenue of the company from the IT & Mobile communications division was KRW 107.3 trillion compared to KRW 100.7 Trillion in FY 2018. On the other hand, the consumer electronics division of Samsung generated KRW 44.8 Trillion in FY 2019 compared to KRW 42.1 Trillion in FY 2018.
Despite weaker smartphone sales in the first two quarters of FY 2020, Samsung has continued to retain a lot of its growth momentum. Its total revenue during the first quarter of 2020 was 7.6% lower than the last quarter of 2019, mainly due to the weak seasonality of its displays and consumer electronics businesses and the effects of COVID-19. Despite weakening sales at the end of the first quarter, the mobile communications division of Samsung saw its profits compared to the previous quarter as well as the first quarter of 2019 increase because of the launch of flagship Galaxy S 20 devices as well as lower marketing expenses.
The quarterly operating profits of the company rose during the second quarter compared to the first quarter of 2020 as well as the second quarter of the previous year. While the demand for chips and appliances remained firm in the second quarter of 2020, the Display panels business of Samsung also enjoyed strong sales. It led to s growth in operating profits of 26% compared to the previous quarter whereas an increase of 23% compared to the same period last year.
Moreover, as demand started surging globally in May since the reopening of critical economies, it helped offset some of the effects of COVID-19. The result was that Samsung’s earnings grew more than expected. While the quarterly operating profit of the company during the second quarter of 2020 remained KRW 8.15 Trillion, net sales were KRW 53 Trillion.