Overview of Samsung
Development of Samsung
Samsung mobile external environment analysis
Porter’s five forces analysis
Bargaining power of Suppliers
Bargaining power of Customers
Rivalry among existing firms
Threats of new entrants
Threats of substitute products of services
Key drivers of the mobile industry to influence Samsung international performance
Evaluation and recommendation
Samsung Group is a giant multinational enterprise composed of more than thirty affiliated corporations in various industries. Samsung Group is acting a significant of roles including supplier, designer, engineer and producer etc. As a global conglomerate, Samsung has achieved a great success in both domestic and foreign markets. Samsung mobile business has contributed enormously to the whole company, providing mobile phones that satisfy consumers’ needs. Samsung maintain the first position with innovated products, such as the Galaxy S5, Galaxy Note 4 and Galaxy Note edge across the whole mobile and smartphone markets in the world in 2014 (Samsung annual report, 2014). A closer look will be taken on Samsung’s mobile communications business. As Samsung intends to expand global footprint, international business strategy would be adopted inevitably by the company. The purpose of this paper is to exam a case of Samsung Mobile and explores how the environment impacts on Samsung’s international strategy by using appropriate strategic tools.
Samsung Mobile is positioned as one of the best mobile phone manufacturers successfully. It is developing quickly and wins a great amount of market share in mobile industry. The business philosophy Samsung follows is to devote all the talents and technologies to create superior products and services that make the society better in a global range (Samsung n.d. Values&Philosophy). This report will firstly take a brief look at Samsung by viewing the company’s development history, corporate structure and what international strategy it is now undertaken. Then strategic tools are going to be used to deeply analyzing both the company’s internal and external environment. Key drivers of the mobile industry will be identified and how they interact to Samsung’s international strategy will also be explained in this report. Finally, historical examples will be provided to support the findings above.
Samsung Electronics was founded as affiliated corporation in Korea in 1969 for the purpose of promoting growth for the Samsung Group (Samsung n.d. History).When Samsung decided to start mobile phone business, this move was considered thoughtless by industry observers. However, entering mobile phone business helps Samsung own a lot of profit and obtain high reputation, and finally achieve a great success in global market. About 320 million people are hired by the corporation in 84 countries (Samsung annual report 2014). The corporation has acquired KRW 206 trillion sales and KRW 25 trillion profits in 2014 (Samsung annual report 2014). Samsung Mobile is one of the three segments of Samsung Electronics.
As the figure1 shows below, the company is divided into three departments, including component department, consumer electronics department and IT/mobile department (Chun 2015). IT/mobile department has three divisions including wireless divisions, network divisions and media solution division (Chun 2015).
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Figure1-Organizational structure chart of Samsung Electroincs (Chun 2015)
When formulating an international business strategy, Samsung should take external environmental factors into consideration. There are various theoretical tools that help analyzing the external environment, such as PEST analysis, five forces analysis and external factor evaluation matrix. Due to the lack of internal resources, external factor evaluation matrix cannot be applied to exam the company.
None of the enterprises can prevent itself from the impact of the macro environment, thus knowing how the environment will change seems to be vital. There are a great number of factors that can influence the company; therefore, it would be impossible to identify all the factors and the extent they affect. Finding the key factors and clarify how they interact would be more practical. PEST analysis is used to explore external macro environment independent of the firm’s size, including political environment, economic environment, social-cultural environment and technological environment; however they are also composed of different aspects respectively as the graph shows below (CIPD 2011).
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Political stability should be taken into consideration if the company wants to sustain long-term development. Recently, the strained relationships between North and South Korea may result in war breaking out in the Korean Peninsula. The future of China seems to be uncertain from political and economic perspective. Moreover, there are rising tensions in Russia, Middle East and Brazil. Instabilities in African and Latin American countries which lead to frequent changing governing structures also put pressure on Samsung. In addition, political laws and regulations established by governments should be taken into concern as companies must follow those rules. A higher tax rate, an increase in minimum wage, and stricter environmental standard and would lead to an adverse impact on the company, increasing its cost and decreasing profitability. Anti-unfair competition law helps protect domestic corporations from competing with foreign firms. On the other hand, a preferential trading rule encourages investment from abroad. Since laws and regulations are different in different nations, which makes international trade more complex. It is found that Samsung is involved in political a scandal which damages its brand image (Ji-Young, 2010). Overall the political risk of Samsung is quite low because of geographical diversification, administrative representation only in main capital cities and indirect sale through retail dealers (Simonin 2014).
Economic factors are critical in formulating business strategy since growth of economy, inflation rate, standard of consumption, and undergoing economic cycle significantly affect the company’s profitability. Appreciation in Won reduced profits by 25% in the second quarter (NewEconomy 2014). Financial crisis in 2007 affect the company’s profit significantly from 2.07 to 1.02 trillion won (Dudovskiy 2015). The global economic rescission is still ongoing, which will have an adverse impact on consumer purchasing power as consumers are reluctant to buy products. British exit from European Union leads to a quick depreciation in Great Britain Pound. The uncertainties of currency values arise which increase the price of gold. Because of the dramatic decrease in the crude oil prices, there will be an increase in US interest rates which leads to a higher investment cost. Additionally, financial risks in developing countries and economic depression in Eurozone may occur. In the unpredictable and instable economic environment would lead to higher risks in business and make the competition even fiercer. Thus expanding into the emerging and developing markets may help the company increase profitability and retrieve a loss from the mature and developed markets.
Social-cultural factors are mainly demographic and cultural aspects of the external environment, including beliefs, habits, life-style, and status that may changing customer needs. Finding these factors implies size of potential market is predictable. Nowadays, almost everyone has a mobile phone, using it to communicate, find information, and have fun. Also, trend of sharing via social applications boosts the consumption of mobile phone produced by Samsung. The company should identify ways to adapts itself to various markets where it launches branches by tailoring products that can fulfill customers’ fast changing preferences. Samsung should behave in a local way to get itself used to the emerging market.
Technological factors can be regarded as the key force in mobile industry (Kim 2002). It is composed of manufacture and infrastructure (FreeManagementBooks n.d.). Technological advances include automation, quality improvements, incentives, cost saving and outsourcing (FreeManagementBooks n.d.). A mobile manufacturer has to keep up with the technical advances otherwise it will be soon left behind and leave opportunities for other competitors. Nokia would be a good example that is too slow to embrace smartphone technologies (FreeManagementBooks n.d.). In order to maintain the market share, companies need to follow and monitor the latest technology, seizing any opportunities available. To support the technical development, investment should be made to buy the equipment and hire top-talents. Using patents and licensing is a vital strategy to protect the company’s achievement as well.
Five forces framework emphasized five individual forces can determine the degree of competition in a particular industry (Porter 1979). The five forces are showed in the figure below.
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Figure3-Porter’s five forces
There are hardware and software suppliers in mobile industry as mobile hardware and software can be separated (Savov 2012). The hardware suppliers seem to have weak bargaining power since there are a large number of equipment makers. Samsung Mobile’s success in early years is contributed mainly by the releasing profit margin friendly products, since Samsung Mobile can buy cheaper manufacture components than almost other competitors (Covert 2014). Samsung has the right to choose the partner they want to corporate with. Nevertheless, software suppliers may have a strong bargaining power as there are only a few, such as Microsoft. Firm would be placed in a weaker position when negotiating with monopolies. Overall, the company can have a high power if it can develop software by its own, like the case of Apple which develops iOS system.
As customers have a plenty of purchasing choices in mobile industry, the bargaining power of customers is strong (Katkyama 2010). The highly aggressive pricing strategy is taken by Samsung and it spends a huge amount of money in marketing to target all segments (CCS 2014). Customers are price-sensitive and respond quickly by switching to another choice when product price increase as the competition is fierce in mobile industry. However, bargaining power of the firm can be strengthened if customer loyalty is built. In that situation, customers may be unwilling to change purchasing decisions if the mobile phone can show high social status and good taste.
The competition in mobile industry is fierce (Mustonen 2010). The smartphone market is estimated as a duopoly with Apple and Samsung capturing most of the market share (CCS 2014). A great amount of investment should be made in R&D to keep up with the latest technological development (Brostoff etc. 2014). Only innovated products and creative technologies can differentiate products from others. It is reported that Samsung surpassed Apple and ranks first as largest smartphone manufacturer world-wide in the first quarter of 2015 (Rossignol 2015). However, iPhone is more advanced and dependable from customers’ view. It is noted that Samsung cannot match Apple’s marketing capability as data shows Samsung’s market share declined by 2.3% while Apple’s increased by 34.9% from 2014 to 2015 (PESTLEanalysis 2015). Samsung’s android system is considered inferior to Apple’s iOS. Moreover, Huawer’s share increased by 48.1% and Xiami’s share increased by 29.4% (PESTLEanalysis 2015).
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Figure4-rank of global Smartphone (Rossignol 2015)
The entry barrier is low in mobile industry. An open-source solution is provided by Google known as the advent of Android (CCS 2014). Completed packaged solutions are provided by chipset companies such as Qualcomm known as the advent of turnkey reference designs (CCS 2014). All these trends benefit new manufacturers, especially China-based firms (CCS 2014). On the other hand, it would be difficult for firms to differentiate from other competitors and gain market share because of intense competition. Heavy investment in R&D is needed which lead to high cost that new entrants can rarely afford.
Traditionally, the main function of a mobile phone is to make phone calls and send messages. These functions can be achieved through internet with multiple applications. A laptop and a pad would be a substitute for a mobile phone; however, it would be inconvenient to carry them around. It is predicted that there may be possibility that laptop being replaced by smartphone (Greenbot 2015). The threat of substitute is low, but new substitutes may be created in the future as technology develops quickly.
Being viewed as the world’s leading innovative company; Samsung acquires advanced technology that enables the company creating latest innovative smartphones. Multiple layouts of functions besides browsing websites, listening to music, drawing pictures, taking photos and playing games are required. Product quality, reliability, and software compatibility also matters as rational customers would take these factors into consideration. Samsung Mobile as the largest Samsung community around holds the concept of providing “fashion-leading technology”. Since the early 1970s, Samsung was devoted to catching up with foreign technologies. After nearly twenties years, the new product development gap behind leading firms is reduced to less than a year (Verbeke 2009). Effects has been made by Samsung in enhancing R&D and in investing high-tech firms such as AST Research and LUX (Verbeke 2009).Samsung’s technological position is improved by building an R&D lab in Silicon Valley and employing experienced engineers from leading companies such as Intel and IBM (Wilkins &Schroter 1998). A large amount of investment is made by Samsung in expanding R&D and hiring top talents, which ultimately create innovative products and achieve remarkable performance, including the smartphone with curved display. Samsung’s strategy of heavy investment in technology leads it the way to future success.
Lessons should be learnt from Apple of which design and technology has been imitated by other competitors, bringing legal and regulatory troubles and scrutiny (Buckler 2012). Samsung is facing with lawsuits related with patents and copyrights and has to spend billions on them (Simonin 2014). Therefore, application for patent on creative designs and innovative technologies should not be made immediately. It is not only how fast the product presented to customers that matters, but also how difficult the techniques can be copied and utilized.
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