1. SAMSUNG MANAGEMENT DECISION MAKING
INTERNATIONAL MANAGEMENT DECISION MAKING
STUDENT ID: 1246209
MOD001098
WORD COUNT: 4000
2. Contents
Introduction:............................................................................................................................................3
1.1: Market Development .......................................................................................................................4
1.2: Market Share of Samsung................................................................................................................6
1.3: Market Competitiveness: .................................................................................................................7
2.0: Identify and Assess Price/non-price strategies.................................................................................9
3.1: Performance Analysis of Samsung in Past five years:...................................................................11
4: Entry Strategy of Samsung in International Market .........................................................................15
Intermediary entry modes.....................................................................................16
Joint ventures........................................................................................................17
Management contracts..........................................................................................18
Conclusion: ...........................................................................................................................................18
References: ...........................................................................................................................................21
3. Introduction
Samsung, the Korean company whose name means “three stars” in local language,
was founded in 1938 by Chairman ByungChull Lee, in Taegu, Korea, as a small
trade ex- port business company for dealing mainly with fish, vegetables and fruits.
For approximately thirty years, Samsung’s focus was in the export and insurance
businesses when, in 1969, the company established Samsung-Sanyo Electronics
which was renamed six years later as Samsung Electro-Mechanics. In March 1977,
the company merged with Samsung Electronics (Samsung’s History. Samsung) and
a new focus added to the Sam- sung group. Samsung is a very large corporation
acting through many companies in a number of different industries as well as
business areas, which, in turn, develop many different products. The so far
successful smartphone business is part of one of the seven business units of
Samsung Electronics Co., Ltd., the Mobile Communications business unit (Samsung,
2013). Employing approximately 164,600 people in 179 offices across 61 countries,
Samsung Electronics has a vision to become a top five global brand (Data Monitor,
2013)
The study will analyse Samsung management decision making on international
competition and presence of especially in Smartphone Market. The report will
examine the domestic and international competitive position of Samsung, its Market
share, its competitive position and market development by Samsung in the global
market. The performance of Samsung in last five years and the final part of the
report will analyse the strategies employed by the organization to develop in the
international market.
4. 1.1: Market Development
Some years back, the mobile phone industry was led by Nokia and Motorola. They
had been in this position for quite some time. But things drastically changed, the
story of Samsung mobile in the mobile phone industry was one almost low profile
company with distinct products and low cost product portfolio.
High-tech gadgets (e.g. Mobile phones, computers, navigation systems) have
become a huge and growing market. The mobile-phone market still continues to
grow with an introduction of smart phones from three billion in 2007, 4.6 billion in
2009, and more than five billion in 2011 (Eadicicco, 2013). Based on Apple’s 2009
annual report, it sold approximately 7.9 billion dollars of iPods and 6.5 billion dollars
of iPhones out of total sales of 36 billion dollars, (Cusumano, 2010). Likewise, the
use of smart-phones has increased across all demographics and annual sales of
smart-phones exceeded 40 million units worldwide in 2009 (Eadicicco, 2013). Many
gadgets have become an important part of consumers’ self-definition as they help
consumers communicate (PC and Phone), navigate (GPS), experience (cameras),
and express themselves (web-based applications).
In this industry, of fierce competition, the management has been forced to come up
with very creative technological innovation and winning marketing strategies. When
iPhone was launched by Apple Inc. in 2007, they created the Smartphone market for
the average consumers, before that the product was targeting only business users.
From then Apples' iPhone and Android phones, which are offered by Samsung, HTC
and Nokia have tried their best in competing in this ever changing high-tech market
5. and so far have qualified to be the big players in the Smartphone industry. In a fast
growing industry, time is everything and every company wants to possess most
innovative technology and products before its competitors.
During the last decade, Samsung was constantly innovating and responding to
market demands with technologically advanced products. Thirteen of the company’s
product lines were global leaders in market share, including CDMA mobile phones.
In 2002, Samsung launched the colour mobile phone and by 2004 it has sold more
than twenty million mobile phones in the US, market that, by 2008, was already
dominated by the company. Moreover, it was also in 2008 that Samsung launched
the famous OMNIA phone and named Yoon-Woo Lee as vice chairman and CEO of
Samsung Electronics. In the year that follows – 2009, Samsung announced that the
company would be developing its future smartphones based on its own software
open platform called Bada which turned into reality in 2010 when WAVE, the first
Bada smartphone was released to the market. Between 2009 and 2010, Samsung
launched various new models such as the STAR phone, the „Giorgio Armani’
smartphone, Corby full touch phone and the OMNIA II, to name a few. It was also in
2010 that Samsung launched the OMNIA 7, a smartphone based on Microsoft’s
Windows 7 platform. (Samsung’s History.Samsung, 2013).
Samsung’s flagship smartphone, the Google-Android based Galaxy S, was launched
in June 2010 and ever since its product line has been very successful in praising
consumers and, consequentially, in boosting sales. The phone, which is considered
a blockbuster globally, has sold more than five million units in a three to four month’s
timeframe (Why Was the Samsung… Daily 2News, 2010; Samsung: 1 million
Galaxy… CNN Money 2010), bringing Samsung to a wave of success. It was the
Galaxy S the main contributor to Samsung’s success during 3Q2011 which led the
6. company to the number one position of the smartphones’ rank list. The Galaxy S II
was released to the market in August 2011 and was expected to sell very well and
thus significantly contribute to the company’s 4Q2011 performance results.
1.2: Market Share of Samsung
Samsung is currently the top Smartphone manufacturer in Europe. At the end of
2012 Samsung had 32.3% share of the market according to the figures from
Comscore (n.d). Samsung overtook Nokia in April 2012 to claim the top spot, a
position it had maintained for long. Apple came second with 20.5% market share,
followed by Nokia at 16.3% market share (Samsung dominates European
Smartphone market, 2013). Being the top selling Smartphone brand in Europe,
Samsung has captured 45% share of the European Smartphone market according to
data from Kantar World panel Comtech (n.d). As the worldwide Smartphone sales
increased by 46.9% in 2012 and accounted for 39.6% of total mobile sales,
according to Gartner research (n.d), Samsung and iPhone dominated the
Smartphone market. Samsung mobile phone led with 98 million units in Q3,
commanding 32.5% of the global Smartphone market (Apple and Samsung lead
global Smartphone race, 2012) Samsung Galaxy Smartphone's use Google's
operating system Android. They introduced its first Windows phone in 2012. They
offer great variety of products that target a wide range of customer segments in the
market. Example is the, Galaxy Music, which are for music lovers. It includes
features like easy access to music and surrounds sound. For the people who value
innovative technology, they are offered Galaxy S3, which has also a mini version for
those who find it too big. (Samsung, Mobile devices, 2013).
7. 1.3: Market Competitiveness:
As a consequence of the mobile telecommunications industry revolution we have
witnessed a shift of its focus from hardware to a more software driven industry. Yet
there is still huge demand for simple mobile phones; however the increasing
demand for more sophisticated products and services is notable. There is greater
competition in the smartphone market as Samsung has number of competitors in
the market affecting the competitive position and market share of Samsung.
This phenomenon is attributed to the introduction of smartphones into the
marketplace which started in 1993, with IBM
Simon,thefirstattemptfromajointventurebetweenIBMandBell-
SouthtointroduceacommerciallyviablesmartphoneinUSmarket(Themobilephone:ahist
ory…PCWorld, 2009; cf. PCMagazine).
AlthoughNokiahaslauncheditsfirstsmartphonein1996,theNokia9000communicator,it
was onlyin2000thatthefirstdevicein factmarketedas
a„smartphone’cametothemarket,thetouchscreenEricssonR380.Inthefollowingyears,
manyothermanufacturersalso started to develop and commercialize
theirsmartphones.
Withoutanydoubt,Nokiawasconsideredthemostinfluentialandlargestmobilephones’ma
nufacturerintheworld(Agar2003,113;Yoffie–
Kim2011).Forapproximately14years,Nokiahasreignedatthetopastheworld’slargestsm
artphonemaker,havinglostitsleaderpositiontobothAppleandSamsungduringthesecon
d,thirdandfourthquartersof2011,accordingtopublishedresults(Appleisnowtheworld’s…
RedmondPie,2011),whichareillustratedinfigure1belowforthe2Q2011whenApple took
the crown from Nokia,followedbySamsung,forthe firsttime.
10. After manufacturing innovative and cost effective phones worldwide for a long time,
Samsung has been able to learn what is required to stay on top of its industry. It has
not allowed Apple Inc. to grow in markets like Asia and developing countries like India
due to its price policy. This is the results of manufacturing wide range of products with
different price range.
Smartphone's use Google's operating system Android. They introduced its first
Windows phone in 2012. They offer great variety of products that target a wide range
of customer segments in the market. Example is the, Galaxy Music, which are for
music lovers. It includes features like easy access to music and surrounds sound.
For the people who value innovative technology, they are offered Galaxy S3, which
has also a mini version for those who find it too big. (Samsung, Mobile devices,
2013) The prices for these Smartphones vary greatly to meet different consumers’
needs. Some time back, Samsung was struggling to catch up with big players like
iPhone in the Smartphone market.
Samsung is believed to provide products at reasonable prices to its consumers.
Samsung is focused in cost-cutting measures to maintain its price low. This helps in
combating the discount schemes of other brands. It might seem difficult to achieve
this ambitious target keeping in mind the pricing strategy of Samsung, But, Samsung
believes that it takes time to ensure the supremacy in the market share. Samsung
managed to get its brand perception right in its consumers mind as a brand that
offers best technology and gives its consumer value for their money, this resulted to
its market share going up. Samsung is aggressive in launching its new smartphone
devices with the latest technology at an economic cost globally. This is also evident
with the data collected on consumer perception to Samsung pricing strategy. The
11. price was rated good compared to its competitors. The review from the respondents
shows how effective the pricing strategy has been in the success of Samsung
smartphone in the smartphone market Samsung success can also be connected
with its aggressive marketing and advertising of its products to develop the attitude,
transmit information so that it gain response from the target market and create
awareness.
3.1: Performance Analysis of Samsung in Past five years:
Samsung's increasing focus on technology led to the creation of the company's two
research and development (R&D) institutes that helped expand its reach even further
into electronics, semiconductors, high polymer chemicals, genetic engineering,
optical telecommunications, aerospace, and new fields of technology innovation from
nanotechnology to advanced network architectures (Samsung history, 2013).” In
1996 Samsung established and funded the Samsung Art and Design Institute in
collaboration with Parsons the New School for Design in New York. Following that
lead, SEC has established design research institutes in the United States, the United
Kingdom, Italy, Japan, China, and India. Each year SEC sends 15 designers abroad
to prominent design schools for one to three years to learn cutting-edge trends. As a
result, SEC has won a panoply of design awards. Combining this design excellence
with its traditional technological competence has allowed the once low-cost imitator
to sustain a high-price strategy for its TVs and cell phones (Khanna, Song & Lee,
2011, p 147).
12. Figure 4.3. Average Spending per R&D personnel at Nokia, Samsung over time
(data for
Apple is not available), in Millions of dollar
Samsung a similar trend can be observed up to 2008 were Samsung also took a hit
in revenue (See Table A-4, Appendix) and then a corresponding decrease in R&D
spending occurred with two main differences. First, Samsung was already increasing
their R&D spending and surpassing Nokia before the introduction of the iPhone in
2007. Second, within 2 years they pushed the R&D spending up as the revenue
went up, to a record high R&D budget outspending for both Nokia and Apple by a
factor of 2 and steadily increasing their manpower. Although, on a separate pictures
for R&D spending and R&D personnel the difference between Samsung and Nokia
looks substantial, the R&D budget spend per R&D employee is fairly equal, Figure 3.
13. Figure 4. Marketing Expenses (Gartner, 2013)
Figure 5: Global Brand Value 2010-2013 Ref: (BRANDIRECTORY, 2013)
Samsung has established as an Electronics manufacturer and a Mobile phone
manufacturer. Samsung has instigated a huge marketing effort combined with the
14. release of new high-end models in order to establish itself as one of the top brands,
with the result of being the second highest value brand after Apple in 2012 (Gartner,
2013).
Figure 4.7. ROA 2002-2012
As compared to other competitors Samsung as can be seen by the previous figures,
never dropped out of the race and used its position and investments to slowly
counter iPhone and Apples benefits, releasing ever better models to come finally in
2012 to a minimum par if better in terms of technology.
Table 2 Financial, R&D, Marketing Numbers Samsung 2002-2012
Ref: (Nokia, 2013)(Apple, 2013)(Samsung, 2013)(Gartner, 2013)(Oanda, 2013)
15. Samsung is relying on the fact of having great support system within the Samsung
group and the ability creating internal logistical lines for components that the others
are similarly dependent on. If one looks at Table 2 they are adequately position as
doing production in house as wells as technological development.
4: Entry Strategy of Samsung in International Market
Samsung has adopted many different ways to enter foreign markets. There are two
different entries modes, foreign direct investment or so called equity mode and entry
without direct investment or non-equity mode (Rodriguez, Uhlenbruck, & Eden,
2005). Direct foreign investment is the type of foreign market entry where company
that is registered in one country invests in assets in other country. In that case
investor owns at least 10% of the asset or more and it has control over his foreign
assets. If company chooses to invest directly in one country than it has two options,
to invest in wholly own subsidiary or to invest in joint venture in cooperation with one
or more partners (Rodriguez, Uhlenbruck, & Eden, 2005). In the case of non-equity
mode where company choose to enter foreign market without direct foreign
investment, company has options to enter foreign market by exporting or licensing
16. where foreign employees are acquired as intermediates in the business operations
and transactions (Rodriguez, Uhlenbruck, & Eden, 2005). Direct and indirect foreign
market entries can be further classified into three groups, export mode, intermediate
mode and hierarchical mode. Export mode is the foreign market entry that provides
high flexibility, low risk and low control. An intermediate mode is the foreign market
entry that provides shared control and risk and split ownership. Hierarchical mode or
so called investment mode is the foreign market entry that provides high control, high
risk and low flexibility. Hierarchical mode represents direct foreign market entry and it
is identified as the foreign market entry with biggest risk where company as a foreign
investor have full ownership and control over its foreign investment (Hollensen,
2011).
Intermediary entry modes
Sometimes companies are unable to serve foreign markets from their domestic
market and therefore they start their operations in foreign markets with cooperation
with local partners. In that case company don’t have full ownership and control over
its foreign operations instead, ownership and control are shared between partners.
There are number of different arrangements or intermediate entry modes such as
licensing, franchising, management contracts, joint ventures, turnkey contracts,
technical know-how and contract manufacturing. These intermediary modes are
mostly used in the case when one company poses certain competitive advantage
and is not able to use that advantage because of some restraints, but is able to
transfer or sell that advantage to third party. Company usually makes long term
agreement with foreign partner, which results in transferring the knowledge and
know-how between companies in different countries (Hollensen, 2011). The most
encouraging motives for companies to start their production in foreign countries are,
17. low production cost because of the low labour cost. Production in foreign countries
can lower the transportation cost and companies that have established production in
foreign country have advantage of being close to their foreign customers.
Furthermore, some foreign customers prefer products that are produced in their
home country rather than products imported from other countries (Hollensen, 2011).
Joint ventures
Joint venture is partnership between two or more business partners (Buckley
&Casson, 1998). Prescott and Swartz (2010), describe joint venture as joint
undertaking established by two companies in which they share risk, responsibility,
profitability, control and management and where joint companies keep their
independence. According to them it is mostly common that joint ventures are
established when one partner buys 50 percent of the shares in existing company
(Prescott & Swartz, 2010). They also concluded that in some cases only one of the
partners is responsible for management of joint venture. In international business
joint ventures can be located in many different countries which only complicate this
cooperation. One of the main reasons for companies to take part in this partnership
is to gain certain knowledge that can be acquired only through cooperation with local
companies’ from foreign markets. Establishing the partnership with domestic
companies in their home markets can increase the speed of entry into these
markets. Local partners possess knowledge and experience in dealing with their
local governments, which reduce the political risk of the foreign market entry.
Furthermore, local partners possess knowledge of the local business environment,
have access to the specific market information and have developed local business
18. network. Partnership can speed up research and development and product
promotion in new markets and overall it can lower the costs of companies in new
market entries and reduce business restrictions and risks. Furthermore, joint venture
can be a good solution for entering those countries that have restriction of foreign
ownership (Chang &Rosenzweig, 2001).
Management contracts
A management contract is type of intermediary mode that ÍslenskaGámafélagið can
use in its internationalization process. It represents the collaboration arrangement
where one company transfers its administrative know-how and personnel to assist
another company for a certain payment (Daniels, Radebaugh, & Sullivan, 2011).
These management contracts are usually arranged between three to five years and
are based on fixed payments or payments based on volume. One company can pay
for management assistance if it believes that another company can perform its
operation better. Foreign management contracts are used when foreign company
can perform better than the domestic company (Daniels, Radebaugh, & Sullivan,
2011). Main advantage of these contracts is that local company get the needed
assistance without foreign companies taking the control of the operations. In return
for the assistance company pays the certain payment. Samsung has adopted
strategy of Acquisition to aquire greater market share and competitive advantage in
different regions of the world.
Conclusion
For the conclusion of this research, Samsung is already seen as the current leader in
the smartphone market. This was due to its innovative products such as its flagship
19. Galaxy S4 and Note II, which was launched with a massive marketing spend of more
than $4 billion USD in 2012. This is four times Apple’s budget. As it focuses on being
an aspirational brand to its target market of young consumers, they are seeking for
this generation Y, marketing using very high-profile partnerships with celebrities like
Giorgio Armani and LeBron James. Samsung is actually having great response from
this target market as noted earlier in the response of the data analysis, the highest
number of respondents owning Samsung smartphones are between the ages of 26
years to 40 years who are known to be the generation Y. The Galaxy S4 is marketed
as a “life companion; that includes features like navigating without touching the
screen and the built in health monitoring. Samsung is literally evolving its brand, to
not just innovate but by making it live up to its mission on enhancing lives of its
consumers.
To finish up with the strategy analysis section, I have come to my conclusion that the
marketing strategy choices Samsung makes affects its positive outcome in the
smartphone market. As we have seen earlier in my research on Samsung’s
marketing mix, the company has chosen to use well the differentiation strategy
targeting a broad market segment. The product as a component mix is differentiated
well as it offers different innovative features and design quality compared to its
competitors. This can be also seen on the research findings as respondents mention
many times the availability of applications. This proves that Samsung customers feel
that they are offered innovative solutions. The S4 device being their flagship
smartphone possesses very innovative technology that cannot be found in their
rivals’ Apples iPhone 5. The price is quite high that differentiate it from the rest of
other smartphone products and positioning it in the high end costly smartphone like
iPhone. They also have a cheaper version to cater for middle class consumers.
20. According to the analysis and considering the marketing situation this strategy
choice of Samsung indeed boost its positive performance in the smartphone market.
Samsung use of segmentation strategy by targeting different market segments is
working well for them too. To back up this statement is how I analyzed their products
in the marketing mix and found out how they realize every need in the market and
offers products for different customer segments. They have positioned their products
well, and they have let their customers know they are offering something for
everyone. Samsung has mastered the idea of creating products that are suitable for
their chosen market segments, and positioning itself clearly so that customers are
aware they recognize their needs. We can see this by how they advertise their
products effectively in the market, by clearly communicating how ordinary people can
take advantage of the technology they are offering. Most smartphone companies do
not communicate the benefits clearly and in a way an ordinary person can
understand. Samsung communication strategy in its promotion component of
marketing mix shows exactly who they are targeting and what they are offering to the
targeted market.
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