Samsung Electronics and the Global Market. The History and the Competitive Advantage

Table of Contents

I. List of Figures

II. List of Appendices

1. Introduction
1.1. Preliminary Remark and Problem Description
1.2. History of Samsung
1.3. Competitive Advantage of Samsung

2. Global Marketing Environment
2.1. Economic System in South Korea and Influence on Samsung
2.2. Cultural Dimensions in South Korea

3. Global Marketing Strategy
3.1. Approaching Global Markets – Targeting and Segmenting
3.2. Global Market Entry Strategies
3.3. Global Marketing Mix
3.3.1. Product Decisions
3.3.2. Pricing Strategies
3.3.3. Communication Strategies
3.3.4. Distribution System and Channels

4. Conclusion

III. Bibliography

Appendix

I. List of Figures

Figure 1: Market shares of leading smartphone manufacturers worldwide from 4. quarter 2009 until 1. quarter 2016

Figure 2: Detailed market shares in percent of leading smartphone manufacturers worldwide in 1. quarter 2016

Figure 3: Timeline of Samsung Galaxy

Figure 4: The evolution of Apple iPhone

Figure 5: Sales volume of smartphones per manufacturer worldwide until 2015 in Mio.

Figure 6: Samsung's distributing system

II. List of Appendices

Appendix 1: Market Shares of Smartphone Manufacturers

Appendix 2: Timeline of Samsung Galaxy vs. Apple iPhone

Appendix 3: Sales Volume of Smartphones worldwide until 2015

Appendix 4: Samsung’s Distributing System

1. Introduction

1.1. Preliminary Remark and Problem Description

International trade is anything but a novelty, it has begun before Christ, but the importance of trade has sharply increased since then. Nowadays we talk about global markets and it is necessary to be aware of the importance of global marketing, otherwise companies risk losing domestic customers to competitors with cheaper or better products.ⁱ

The Fortune Magazine scrutinizes the revenues of large global players every year and publishes a list of the “Global 500” that ranks the global companies by their sales strength. Samsung Electronics was number thirteen in that list in the year 2015.ⁱⁱ Thus it is worth looking at this great company and the corresponding environment more closely. The purpose of this study is to find out how Samsung shapes its global marketing strategy.

As Samsung is a gigantic conglomerate with lots of subsidiaries I will restrict this thesis to Samsung Electronics which operates in the electronics industry. As Samsung Electronics is still a huge company acting in many business areas with plenty of products on several markets I will limit this research again to the business sector of smartphones.

1.2. History of Samsung

Samsung Electronics Industry Co Ltd. was founded in 1969 by Byung-chull Lee. In the beginning the company produced black-and-white televisions, dish washers and refrigerators. In this time Samsung just run domestic marketing in South Korea, but it started with mass production and exporting color televisions in 1977. Little by little Samsung expanded its markets. The first foreign branch was founded in the United States. Most of all the company owes its first tremendous growth to an ever-increasing electronics business.

In the following years Samsung started producing microwaves, air conditioners, etc. The firm opened a research and development center in Suwon, South Korea in 1980 and two years later Samsung continued with foreign investments: a sales subsidiary was established in Germany as well as a production subsidiary in Portugal. In that time also many other products were added to the production range. In the 1990s Samsung developed the mobile phone handset and the mobile phone system. The firm began producing in China and also developed flat-screen televisions, Blu-ray-players and cordless internet phones.

Since the beginning of the millennium lots of agreements on cooperation’s were signed, e. g. between Samsung and IBM. In 2008 Samsung took first place in U.S. cellphone market and with the introduction of the smartphone-series Galaxy in 2010, Samsung managed it to get number one concerning turnover among global electronics industries.ⁱⁱⁱ

Samsung is nowadays a global enterprise operating in 213 locations worldwide. It employs 320,000 people in 84 countries in which 70 percent of the employees are working outside of Korea.^iv However, Samsung is rather focusing on business divisions than on countries or regions. Since 2013 the company has three key divisions comprising Consumer Electronics, Device Solutions and IT & Mobile Communications which are split up another time into nine business divisions.^v It can clearly be said that Samsung has a geocentric orientation as it is a global company known all over the world and the organization uses global supply chains.^vi Moreover, Samsung provides homogenous products worldwide, e. g., a customer can buy the latest Samsung Galaxy S7 in Asia, in America, in Europe, etc. and the product features as the functioning or the design are everywhere the same - only the language of the operating system is different.

After this summary of Samsung’s history, we will now look at the firm’s competitive advantage.

1.3. Competitive Advantage of Samsung

The theoretical background of this section is the claim that a company has a competitive advantage when it is doing well in creating more value than their rivals.^vii Consequently, it is necessary to define the rivals of Samsung. There are a lot of rivals as Sony, Huawei, Xiaomi or unknown firms as Oppo, but it is indisputable that Apple is the biggest rival.

Secondly, is Samsung doing well in creating more value than its rivals? On the one hand its brand value has risen from number 25 in 2003 to number seven in Interbrand’s ‘Best Global Brands 2014’.^viii On the other hand, Apple is occupying number one spot when it comes to brand value and Apple’s value quoted in Dollar is almost fourfold of Samsung’s brand value.^ix However, the market perspective for Samsung is pretty good. In the first quarter of 2016 the organizations market share was 24.5 %, so almost every forth smartphone sold was a Samsung. Thus the company crowded out Apple which had a market share of only 15.3 %. The last time Apple’s market share was above Samsung’s was in 2011 (see Appendix 1).^x

Thirdly, what are the reasons for this? A strength of Samsung is spending a lot of money a year on research and development and thus being able to release a new phone annually and what’s more: Samsung is faster in launching new products than Apple (see Appendix 2)^xi. One fourth of the global workforce is employed in research and development and the organization is number two of Fast Company’s “Most Innovative Companies” 2015.^xii

Another reason is that Samsung combines Japanese and American strategies. While Japanese companies like to offer multiple products, Americans are more driven by selection and focusing on a small product range. Combining these contrasts Samsung uses horizontal diversification and vertical integration. This means that Samsung is diversified with a wide product range, but also specialized in manufacturing. Latter is achieved by preemptive investment on in-house manufacturing such as line sharing. With the vertical integration Samsung manages it to achieve economies of scale, to draw costs down and the most important thing: to be competitive. With in-house manufacturing the product quality can be ensured and with line sharing the production quantity for one product can quickly be adjusted.^xiii Ensuring the products quality causes a good reputation among customers. Samsung ranks tenth in Forbes “World’s 100 Most Reputable Companies” 2014.^xiv

As a comparative advantage and disadvantage at the same time could be addressed that Samsung uses in most of its products the operating system Android. Many other smartphone manufacturers use Android as well and with that the firm has no unique position feature, but on the other hand it is easier for customers to switch from a competitor’s phone to a Samsung smartphone. Seeing that Android is addressed as “the world’s most popular OS which is customizable, easy to use and works perfectly with all your favorite apps”^xv, it should not be a disadvantage to use Android. But of course as Apple makes hardware as well as an own operating system they can use the slogan “Hardware and software made for each other”.^xvi

However, Samsung not only uses the Google based operating system Android. Some years ago the company already created an own operating system named Bada, but this failed as to few applications were available. Recently, Samsung uses a Linus based operating system called Tizen for smartphones distributed on the Indian market. Using another system than Android means more independence and flexibility for Samsung. Thus the firm can offer the Samsung Z1 with an incredible low price of 77 Euro, what is currently less than 90 Dollar. Samsung also uses Tizen for its Smartwatch Gear S, but for making Tizen more popluar and establishing it as a real alternative for Android it would be necessary to use the operating system in much more devices.^xvii

Having discussed the comparative advantage, it makes sense to scrutinize the global marketing environment in which Samsung operates. The following analysis consists of two sub-chapters in which we will first pay attention to the economic system in South Korea and its influence on Samsung.

2. Global Marketing Environment

2.1. Economic System in South Korea and Influence on Samsung

Samsung started its business in 1969 and at that time the Third Republic existed in South Korea as former ones failed caused by the Korean War and problems with corruption. Korea did not strive for contacts with other countries in the centuries before its opening, but the attitude towards foreign nations has sharply changed.^xviii Thus South Korea could experience spectacular economic growth of more than 6 percent from 1960 to 1990 as it pursued outward-oriented policies. As the whole Korean economy performed that well in this time it was easy for Samsung to grow likewise.^xix

Owing to the Asian crisis, an economic crisis in 1997/1998, Samsung was heavily indebted and threatened by bankruptcy. But restructuring and changing the marketing strategy helped Samsung to overcome its liquidity crisis and starting its triumph. At present Samsung combines almost one fourth of all Korean exports.^xx

A theory concerning economic systems is that trading nations are gaining access to more goods and services and can profit from lower prices. If consumers save money by buying cheaper imported goods, they can spend more money on other products which in turn causes a higher standard of living. South Korea and the United States could reach a trade agreement in 2007. Amongst other things the United States agreed for its part to reduce tariffs on electronics imports which was a real blessing for Samsung. In 2011 another trade agreement between South Korea and the European Union was signed.^xxi Schneidewind is of the opinion that “the Korean economic miracle could not have happened without a narrow interrelationship with the global economy.”^xxii

South Korea is ranked 27th in the 2016 index of economic freedom.^xxiii This involves a high market orientation and resources are allocated through markets. It encourages democracy as well as private ownership and brings a country prosperity. What’s more, companies are allowed to produce what they want and consumers can consume or invest in any way they please. Due to this short evaluation the economic system in South Korea seems to be market capitalism.^xxiv Not only the economic system of the country in which a firm is located is important, but also the culture of a country is of great significance.

2.2. Cultural Dimensions in South Korea

As people all over the world think, feel and behave variously, misunderstandings are pre-programmed and inevitable. Knowing and understanding cultural differences is the best way to avoid severe misunderstandings. Geert Hofstede has investigated in the differences between cultures and developed five dimensions of culture^xxv which will be described in the following in general and with respect to South Korea.

The first dimension is the power distance referring to the degree of inequality that exists within a country. A high power distance score indicates that society accepts an unequal distribution of power. As South Koreas score of power distance is 60 there are strong hierarchies in the companies.^xxvi This thinking in hierarchies is caused by Confucianism which strongly imprints all Korean moral concepts and structures.^xxvii

The second dimension is individualism which deals with the strength of ties people have to others within the community. A high individualism score would indicate a loose connection with people. In South Korea people have a strong group cohesion, they take responsibility for each other’s well-being and harmony is more important than honesty.^xxviii

The next dimension is masculinity which pays attention to how much a society sticks with traditional gender roles. A high masculinity says that men are expected to be strong and tough while a low masculinity or femininity shows that women and men are working together equally and men are allowed to be sensitive. South Korea has a score of 39. That resonates with the claim that there is a change from a male-oriented to a female-centered society.^xxix

The penultimate index is the uncertainty avoidance index. It is the extent of anxiety society members feel when in unknown situations. A high score says that the nation avoids ambiguous situations whenever possible. South Koreas index is 85 and consequently Koreans do not like novel situations.^xxx Despite the general risk avoidance of Koreans Samsung invests a lot of money in research and development.

The last cultural dimension is long term orientation which refers to how much a society values long-standing traditions. Saccone illustrates: “If losing your life is your personal death, then losing your reputation is social death”.^xxxi Thus it is not surprising that Korea takes first place – their index is 100. A high long term orientation also encompasses a strong work ethic and a high value placed on education.^xxxii The strong work ethic could be proven by the statement that leaving the working place at an early hour does not mean leisure time for Koreans. It involves the opportunity to further educate oneself.^xxxiii Last but not least Asians are well-known for using a meaningful language and talking around something.^xxxiv Since having light thrown on the global marketing environment the next chapter is concerned with the global marketing strategy of Samsung.

3. Global Marketing Strategy

3.1. Approaching Global Markets – Targeting and Segmenting

To decide whether to enter a market or not a company has to look at various aspects. The market potential should be the most important criteria for a firm. Without a demand for smartphones it is no use to launch a phone on a market. If the consumer behavior is not in accord with a company’s needs, the market launch is also doomed to fail. Other aspects concerning market barriers are laws, political environment, etc. The market attractiveness is amongst other things determined by the number of competitors already active in this market. This analysis helps a firm to define the types of global target markets. Samsung’s core markets are developed countries which are highly attractive despite the great number of competitors and due to trade agreements the barriers are acceptable. Emerging countries are occasional markets as the attractiveness is currently not that high, but this aspect is steadily improving and the market potential is high.^xxxv

For a long time, market shares have been important in the eyes of conglomerates and bigger companies, but this changed. These days, market shares and profits are regarded as equal targets. As a result, formerly, diversification in all market directions was desired, while presently market strategies are aimed at stimulating the most profitable segments.^xxxvi With regard to this, a company needs to identify segments. Global segmentation has the goal to build country or consumer groups of potential customers with similar attributes. The segmentation refers to demographics (e. g. age, gender, income), psychographics (e. g. attitudes, lifestyle, values) and behavioral characteristics.

Looking at demographics shows that electronical devices are rather sold to juveniles and young adults in their 20s or 30s than to people older than 50 years as latter pay less attention to electronics. As of today, the average age of the Korean population is quite low and thus South Korea itself is recently a good market for Samsung. However, South Korea will be a shrinking market in future years as the birthrate has dropped dramatically. Currently, every woman only gives birth to 1.2 children and as a consequence from 2030 on the Korean population will start shrinking.^xxxvii Thus India should be an interesting market for Samsung. The reason is that India has quite a young demographic profile. Some years ago more than half of India’s population was under the age of 25. The number of Indians below 14 years was higher than the whole population of the United States. Samsung seems to be aware of India as a great potential future market as it has introduced the pretty cheap Samsung Z1 some months ago (see Competitive Advantage).^xxxviii

The point that the trendy young generation is into electronical devices is also a psychographic dealing with interests and lifestyles. But in general Samsung is not limiting its target to this generation, it offers different products to address a wide range of potential consumers (see Product Decisions). As Samsung is aware of their different segments and target groups it uses differentiated global marketing to address the potential customers as good as possible, e. g. with different pricing (see Pricing Strategies).^xxxix

Having discussed approaching global markets briefly, we will look at global market entry strategies in general and for Samsung in the next section.

3.2. Global Market Entry Strategies

There are many possible strategies a company can conduct for entering a global market. First of all, I want do describe the sprinkler strategy. Here are various markets in a relatively short time entered which can result in a quick increase of sales volume. But the strategy bears a high need for financial and personnel resources in a short time as well. The contrasting possibility is the waterfall strategy. With regard to this strategy international markets are entered step by step thus the business spreads slower, but there are also great advantages, e. g., a company can learn from earlier market entries. Samsung is in favor of establishing a product identity in one new market and then utilizes the learning from that to expand into another new market.^xl So the firm prefers the waterfall strategy.^xli

When entering a market not only the time frame is relevant, but also the levels of cost and involvement. Lowest cost and involvement causes exporting which Samsung has conducted in its first years. The highest costs and degree of involvement bears equity stake and acquisition which Samsung also has used for many years. Samsung has sales and production subsidiaries in various countries all over the world.^xlii

A problem to note when establishing foreign plants is the work ethos which is not the same worldwide and thus can involve conflicts. The atmosphere in Korean companies is described as extremely stressful and Koreans are hard-working. Another problem when a Korean company wants to go abroad is that Koreans do not enjoy working overseas for many years, but high positions should be filled by compatriots. Koreans go abroad reluctantly as they dislike uncertainty in general.^xliii

The last global market entry strategy I like to look at briefly is the chaebol. It is the name of a cooperative strategy in South Korea and chaebols are corporate alliance groups composed of dozens of companies ruled by a founding family. Samsung is one of these chaebols in South Korea consisting of various companies operating in different sectors.^xliv

After having entered a global market a company needs a persistent marketing mix. Yet in 1993 Samsung has recognized that it has to markedly improve marketing and design.^xlv The marketing strategy has meanwhile helped Samsung to build trust on every product they manufacture. The global marketing mix encompasses the four parts product, price, communication and distribution which will be highlighted in the following sections.

3.3. Global Marketing Mix

3.3.1. Product Decisions

It can be said that the most powerful aspect of Samsung’s marketing mix is its vast product portfolio (see Competitive Advantage). Offering a wide product range pays off to the company: since 2011 they have clearly dominated the market concerning sales volume (see Appendix 3). With its diverse product line Samsung is able to provide different smartphone models for different people. For example the firm offers the Galaxy S-line for young adults. This most popular line encompasses fast-reacting high-tech smartphones. The Samsung Galaxy Note is created for business people as it has a bigger screen and business-friendly functions. The Samsung Galaxy Neo or the Y-line, on the other hand, are envisaged for children and seniors. They have simple functions and thus are easy to handle. They are also comperable cheap.^xlvi Samsung is with its cell phones not just satisfying the needs of customers. With its constant innovations it is said to be one step further and even creates a society’s needs.^xlvii

The next element of the global marketing mix to be highlighted are pricing strategies.

[...]

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ⁱ Cf. (Keegan & Green, 2012, p. 4)

ⁱⁱ Cf. (Fortune Magazine, 2015)

ⁱⁱⁱ Cf. (Samsung) and (Samsung), Retrieved May 15, 2016

^iv Cf. (Samsung, 2015, pp. 12, 25 and 44)

^v Cf. (Samsung, 2015, pp. 7 ff., 94)

^vi Cf. (Samsung, 2015, p. 16) and (Keegan & Green, 2012, pp. 16 f., 291 ff.)

^vii Cf. (Keegan & Green, 2012, p. 6)

^viii Cf. (Samsung) and (Samsung), Retrieved May 15, 2016

^ix Cf. (Interbrand, 2015)

^x Cf. (Statista, 2016a)

^xi Cf. (Sepherteladze, 2015), Retrieved May 15, 2016

^xii Cf. (Samsung, 2015, p. 11)

^xiii Cf. (Song & Lee, 2014)

^xiv Cf. (Samsung, 2015, pp. 11, 77)

^xv (Android, 2016)

^xvi (Apple, 2016)

^xvii Cf. (mak, 2015) and (Computerbild, 2013), Retrieved May 15, 2016

^xviii Cf. (Schneidewind, 2016, pp. 48, 64, 266)

^xix Cf. (Mankiw, 2015, pp. 246, 251)

^xx Cf. (BörseGo AG, 2005) and (Schneidewind, 2016, pp. 38 f., 49 f., 158)

^xxi Cf. (Keegan & Green, 2012, p. 97 ff.)

^xxii (Schneidewind, 2016, p. 103)

^xxiii Cf. (Heritage Foundation, 2016), Retrieved May 15, 2016

^xxiv Cf. (Keegan & Green, 2012, p. 38 ff.)

^xxv Cf. (Hofstede, Hofstede, & Minkov, 2010, S. 19)

^xxvi Cf. (Hofstede, Hofstede, & Minkov, 2010, S. 53 ff., 58)

^xxvii Cf. (Schneidewind, 2016, p. 187)

^xxviii Cf. (Hofstede, Hofstede, & Minkov, 2010, S. 89 ff., 97) and (Schneidewind, 2016, p. 73 ff.)

^xxix Cf. (Hofstede, Hofstede, & Minkov, 2010, S. 135 ff., 143) and (Schneidewind, 2016, p. 243)

^xxx Cf. (Hofstede, Hofstede, & Minkov, 2010, S. 187 ff., 192)

^xxxi (Saccone, 2001, p. 128)

^xxxii Cf. (Hofstede, Hofstede, & Minkov, 2010, S. 235 ff., 255)

^xxxiii Cf. (Schneidewind, 2016, pp. 84, 187, 241)

^xxxiv Cf. (Hofstede, Hofstede, & Minkov, 2010, S. 277 ff., 284)

^xxxv Cf. (Keegan & Green, 2012, p. 169)

^xxxvi Cf. (Schneidewind, 2016, p. 226)

^xxxvii Cf. (Schneidewind, 2016, pp. 69 f., 242)

^xxxviii Cf. (Keegan & Green, 2012, p. 195)

^xxxix Cf. (Keegan & Green, 2012, p. 193 ff.)

^xl Cf. (Kotabe & Helsen, 2010, p. 348 ff.)

^xli Cf. (Samsung) and (Samsung), Retrieved May 15, 2016

^xlii Cf. (Keegan & Green, 2012, p. 254)

^xliii Cf. (Schneidewind, 2016, pp. 64, 159)

^xliv Cf. (Keegan & Green, 2012, p. 278)

^xlv Cf. (Khanna, Song, & Lee, 2011)

^xlvi Cf. (Samsung, 2016b), Retrieved May 15, 2016

^xlvii Cf. (Schneidewind, 2016, p. 186)