Introduction
Samsung is a multinational Electronics company that has existed in the market for the last 70 years. It is headquartered in Seoul, South Korea with regional conglomerates across the world. This company is involved in diverse business operations spanning from the manufacture and supply of semiconductors, digital media, mobile products, consumer electronics, wireless wearable, home appliances and industrial appliances. In 2009, Samsung Electronics Inc. was touted as the world’s largest corporation based on revenues and a market leader in the electronics industry. On top of being the world’s largest semiconductor chip producer, it is also, the world’s leader in vending smartphones. However, the successes of Samsung in the regional and global markets are partly due to the ability of the company to integrate its operation with macro and micro environments of the host countries. This research paper discusses in depth the external and internal environments that influence the operations of Samsung Electronics Inc.
Impact of general environment segments
The general environment in which Samsung Electronics Inc. operates is shaped by various dimensions in the market. These general environment concerns include economic factors, demographic, socio-cultural factors, technological, legal/political and technological influences. Important to note is that the corporation cannot influence the general environment; however, the environment has a robust influence in the telecommunication industry and in particular Samsung Electronics Inc.
For Samsung Electronics Inc. there are two main general environment segments that have a strong impact on the corporation’s business strategy and operations. The segments include socio-cultural and technological segments. Based on socio-cultural segments, it has to be noted that Samsung is a conglomerate with roots from South Korea. Therefore, despite the fact that it has global footprints, its operations are primarily from the core as a South Korean company. Nonetheless, its success in the global markets is largely depended on its ability to adapt to socio-cultural values of the local communities in the host countries. Besides, Samsung has to design its products to meet the dynamic consumer preferences for the various emerging markets in the world. Important to note is that Samsung operates in telecommunication market niche highly influenced by lifestyle preferences and cultural values of the host countries. As such, it has to reorient itself from the Korean cultural values and adopt values and cultural orientations of the host countries to buttress its presence in the global markets. Its market success is based on its ability to integrate customer values in the manufacturing process and promotional strategies that fulfill aesthetic values of its consumers.
The second important segment is technology. Ideally, technology has the greatest influence on Samsung products because of the effects of innovations, technological obsoleteness, and new discoveries. New discoveries change production processes and may also transform products. The advantage of adopting new technologies is that it economizes production costs and improves the quality of products. For this reason, Samsung has to ensure that it is current with new technologies and continue investing in research and development to improve its capacity to innovate and invent new technological solutions. The driving force for company’s success in global markets is partly ingrained in the capacity to innovate, create and stay ahead of technology to avoid been overtaken by competitors (Calantone et al., 2006).
Forces of Competition
Porter’s five forces of competition form part of the external environment forces that influence competition in the telecommunication industry. These forces include the threat of market entry, consumer bargaining power, competition in the industry, bargaining power of suppliers and the threat of product substitutability. The two most important forces of competition for Samsung Electronics Inc. are the bargaining power of the consumers and the substitutability of Samsung products. Firstly, regarding the bargaining power of the consumers, it is apparent that consumers have a wide array of choices to make for electronic products. Consumers of Samsung products can interact with ease switch to LG, Apple, Blackberry, HTC and Windows products without incurring additional costs. The ability to switch from one product to the other gives consumers a higher bargaining power. For this reason, Samsung’s pricing mechanisms have to pay attention to the prices of the competitor products. Besides, the functional features of its products must rise above those of competitors to reduce the bargaining power of consumers. Consumers for electronic products have power over the manufacturers; however, the reverse is not true, because, in most emerging markets, consumers are finicky when shopping for products and often explores many other options before making a decision to buy. In this regard, it may be argued that the manufacturers unilaterally need the buyers. The second important force of competition is the substitutability of Samsung products. It is general knowledge that the market for electronic products is flooded with close substitutes. Besides, Samsung manufactures consumer durables such as fringes, smartphones, semiconductors, and televisions, which are mainly long term purchases. As such, Samsung needs to re-evaluate its marketing strategy and adopt differential pricing to attract consumers from all walks of life. The threat of close substitutes is high because of competitor products; however, Samsung appears to recognize this threat and is keen on diversification of its products (Daft & Marcic, 2016).
Samsung strategy for improving forces of competition
The two greatest threats of competition facing Samsung are the substitutability of its products and buyers bargaining power. For Samsung to improve its capacity in solving these forces of competition is through diversification. In diversification efforts, Samsung needs to venture in producing unrelated and new products lines to penetrate into new markets such as securities, textiles, insurance, solar cells, hybrid cars, biopharmaceuticals, construction and medical products. The success of diversification has to originate from the company’s core competencies and findings of research and development efforts. Important to note is that the electronics market is promising; however, huge risks are involved. The huge risk involved is mainly because of fierce competition from short life products especially from rival firms such as Apple, LG, Sony, Panasonic, and Nokia.
External Threats and opportunities affecting Samsung Electronics Inc.
Rapid changes in mobile telephony technologies, which may easily be set aside by unique inventions from competitors such as Apple
Unpredictable tax regimes in emerging markets. For instance, the 2013 increase in taxes regime in the United States significantly affected Samsung’s profitability
Fluctuation of the dollar and uncertain financial markets may affect profit predictability. For example, appreciation of the dollar against other foreign currencies have the effect of reducing profits due to expensive imports
Breach of patents especially when competing firms copy Samsung patents or use the reverse engineering strategy to imitate features of Samsung products
Increasing labor costs in the China and the expansive Asian continent has a significant influence on Samsung’s products. This has been informed by protests by Foxconn workers clamoring for better pay and improved working conditions.
Substitutability of Samsung’s products is the greatest external threat because competitors are producing homogenous products and supply them to the market at lower prices
Price pressure imposed by consumers due to availability of homogeneous products
Opportunities for Samsung Electronics Inc.
There is an increasing demand for mobile gadgets such as Smartphone and laptop in emerging markets. The growth in demand for portable devices is likely to increase the company’s profitability especially in Asian and African markets
Research and development capacity gives Samsung an edge to innovate and create new software and hardware devices to continue competing globally
Samsung can use the acquisition to innovate new technologies. Through acquisition, Samsung may acquire new promising patents and technologies and integrate them into their mainstream systems for superior products
The company can protect its intellectual property by patenting its unique features and secure its property rights against eminent cloning engineered by competitors
The launch of Smart TV gives Samsung a competitive edge to build its ecosystem and offer consumers advanced internet and TV experiences
Currently, there is a growing use of mobile advertising; therefore, Samsung may invest in mobile app advertising to buttress and grow its revenues through advertising
Finally, there is a growing consumption of cloud services, which creates an opportunity for Samsung to grow its icloud platform and increase its revenues
The greatest presage facing Samsung is the dynamic nature of technologies and the fact that they are rapidly changing. In the event that strong competitors such as LG and Apple create new cutting edge technologies, Samsung competitive advantage may be affected negatively. To maintain its competitive advantage, Samsung needs to invest heavily in research and development to continue inventing new technologies, innovate and keep track on technological advancements. Further, the greatest opportunity for Samsung is the investment in icloud because organizations and data handlers are shifting focus towards big data and cloud storage. Icloud is an opportunity for Samsung to markets this future technology and lobby organizations to adopt cloud storage (Daft & Daft, 2007).
Samsung’s internal strengths and weaknesses
Strengths
Samsung has a strong brand reputation for both high-end and low-end consumers of electronics products
The company enjoys substantial customer loyalty
It has a wide range of product portfolio including mobile phones, portable computers, home appliances, printers, refrigerators, and cameras among other products
It has the largest markets share of 21% in 2016 ahead of its closest competitors Apple and LG
Samsung is a leading innovator in mobile telephony software, design features, and technology. In fact, it boasts of being the first mobile phone manufacturer to introduce dual screen mobiles, LCD color phones, first mobile phones with polyphonic ringtones, smartphones with ability to rotate lens and thin notepads
It enjoys the first mover’s comparative advantage regarding introducing advanced features in refrigerators, LCD technology, and air conditioners.
Samsung has a strong financial performance with an operating profit margin of 17% in 2016 and growing revenues from $37.85B in 2004 to $305B in 2014.
It has chain stores across the world, which create a close user experience to its customers, ease distribution of products and buttress the producer-customer interactions
Currently, the company employs a robust marketing strategy using both traditional and modern promotional strategies to create product awareness and inform users about technical usability of their products
It has the capacity to integrate open source operating system and other software. Android operating system is the greatest open source technology that puts Samsung’s products at a cutting edge because it offers users many options, features, and software. By using the Android operating system, Samsung captured a significant competitive advantage over other competitors such as Nokia, and Windows.
Samsung has a growing market share especially in emerging markets in India, Africa, and Bangladesh
It has a large pool of skilled employees estimated at 489,000 across the world, which offers the company an opportunity to tap into their creativity and innovativeness (Thomson, 2009).
Weaknesses
Intellectual property rights infringement and imitations especially from Chinese products remains one of the greatest challenges facing Samsung products
Samsung has a wide variety of products. The diversification into broad category products denies the company the capacity to focus on one product and continuous innovation into that particular line of product
Samsung lacks its own operating system and instead depends on open source integrated system unlike their competitor Apple, which uses iphone operating system.
Fluctuations in operating and net profits
Potential strategies for ameliorating its weaknesses
As a matter of strategy, it is critical for Samsung Electronics Inc. to utilize its strengths to address its key weakness. The company being one of the leading innovators in product designs and features, it can reinforce its ability to innovate by investing more in research and development to reinforce its market ecosystem and attract more consumers. Further, the dwindling profits margins and increasing operational costs call for Samsung to begin venturing in new market niches especially in Africa where it has little investments. Further, Samsung needs to needs to develop its own operating system to move away from depending on integrated open source systems. Developing its own operating systems will enable it to customize its products, grow its patent value and increase customer user-experience because the online services are expanding. Also, it has to ensure that it addresses the challenge of high prices and limit focus on high-end consumers. In particular, high prices may prevent low-end users from purchasing its products though it has ramifications on brand value and profitability. As such, Samsung needs to strike a balance between continued focus on brand value markets or expansion to low-end markets and increase profitability. It is also recommended that Samsung reviews its marketing strategy by communicating and introducing discounted prices, loyalty programs, and referrals to dampen its foothold in the market share. The use of this strategy will ensure that Samsung rewards loyal customers, addresses the challenges in market share and maintains customer loyalty.
Samsung core competencies, capabilities, and resources
Iterative strategic analysis for Samsung is necessary to comprehend the company’s comparative and competitive advantages. In order to understand the company’s comparative and competitive advantages, it is critical to review the company’s resources, capabilities and core competencies. Ideally, resources are classified into observable and quantifiable resources (tangible resources) and the non-observable and non-quantifiable resources (intangible resources). When it comes to capabilities, this research paper shall use an operational definition so that capabilities are defined as the ability to organize resources to create customer value. Finally, core competencies are organizational capabilities that become a source of comparative and competitive advantage.
Samsung’s organizational resources include:
Financial resources such as growing revenues, high-profit margins, liquidity and market share
Innovation and technological resources: Samsung is a leading innovator characterized by the many outsourcing agreements, manufacturing centers, and patented intellectual property rights
The company has intensive research and development resources including ownership of cutting edge technologies and research and development laboratories
Highly skilled human resource capacity
Network of chain stores, promotional power and marketing resources
Robust brand reputation and customer loyalty (Daft & Marcic, 2016).
Samsung’s capabilities and combination of organizational resources
Samsung has a proven research and development capability drawing from the breakthroughs it has made in introducing unique products in the market
Entrepreneurial insight and opportunity recognition by the top management
Ability to catch up in technology learning and acquisition
Product line diversification and leveraging of existing opportunities
Ability to restructure during tough financial times
Samsung core competencies
Creative and innovative workforce
Leadership in technological innovation
Entrenched innovation culture
Customer value creation
Research and development capacity (Thomson, 2009).
Samsung’s value chain analysis
Value chain assessment is a tool that helps organizations to identify business functions that create customer value and comparative advantage for an organization. The primary activities that drive value chain analysis include outbound logistics, inbound logistics, marketing and sales, operations and services. Regarding inbound logistics, Samsung suppliers are in Asian countries standing at 79.4% meaning that its supply chain expenses are incurred in Asia, some 14.8% in the American market and 4.4% in the European market. For Samsung to control inbound logistics, it currently owns logistics firms to assist in logistics management. When it comes to operations, the company as at 2014 maintained 213 global operation centers including sales subsidiaries, research and design centers to help in general manufacturing, system manufacturing and device assembly and packaging. It has to be noted that Samsung relies on Six Sigma technique in its business operations. Further, despite Apple being the pioneer of outbound logistics, Samsung has taken over and proven capability to launch its unique products that can compete with Apple. In essence, effective use of outbound logistics helps Samsung deliver updates of its novel products to its consumers promptly. Notably, outbound logistics include retail store networks, relationship with suppliers and distributors, retailers and logistics. The other aspect of the value chain is marketing and sales; Samsung utilizes the power of its skilled employees to create products that impress their customers. Finally, at the service level, Samsung works towards providing their customers with high-quality services and products (Australia, 2015).
Conclusion
Samsung Electronics Inc. is the leading world manufacturer of a wide range of electronics. Besides, it controls the largest market share in the production of smartphones. However, its success is driven by its capacity to innovate continuously, robust marketing strategies, patented intellectual rights and value chain creation.
References
Australia, C. L. (2015). Organization Theory and Design. Cincinnati OH: Cengage Learning US.
Calantone, R. J., Kim, D., Schmidt, J. B., & Cavusgil, S. T. (2006). The influence of internal and external firm factors on international product adaptation strategy and export performance: a three-country comparison. Journal of Business Research, 59(2), 176-185.
Daft, R. L., & Daft, R. L. (2007). A new era of management. Mason, Ohio: Thomson South-Western.
Daft, R. L., & Marcic, D. (2016). Understanding management. Mason, Ohio: Thomson/South-Western.
Thomson, N. (2009). Strategy in Context. Oxford: Wiley-Blackwell.
