Strategic Management of Samsung
For more than 70 years, Samsung Electronics Company (SEC) Limited has been focused on making a better world by diverse business operations, which today extend to advanced technology, skyscraper, semiconductors, plant construction, fashion, petrochemicals, medicine, hotels, and finance. The company leads the international market in digital media and high-tech electronics manufacturing. Through reliable and innovative products and services, talented personnel, collaboration with customers and partners, and a responsible approach to global and business citizenship, SEC is taking the globe in inventive new directions. SEC Limited is the largest technology firm in terms of revenues in the world. In addition, it is the largest television manufacturer and mobile phone maker and second largest semiconductor chip manufacturer. SEC, however, just like any other company faces a number of problems in its operations. The first major challenge is the stiff competition in its areas of operation. Some of the major competitors include Apple Inc., LG Display and LG Electronics, Intel Corporation, Nokia OYJ, among others. Another problem is that SEC has too many patents, which have negative implications on the company.
The paper recommends some of the possible solutions to the problems facing the company including diversification and expansion through mergers and acquisitions. Each of the possible solutions to the problems has its advantages and disadvantages that have been highlighted. For the company to continue being successful and to maintain its image and position in the industry, the suggested recommendations need to be effectively implemented with all the key stakeholders involved. The company needs to invest more in Research and Development just as it has always done because this gives it a competitive advantage against its rivals in the industry.
The Samsung Group was established in 1938 by Byung-Chull Lee in Taegu, Korea (Roll, 2005). It was founded as an exporter of fruits, vegetables, and dried fish. Later, Lee formed flour mills under the Samsung name whose meaning is three stars in the Korean language. In addition, he introduced confectionery machines during this time (Lee, 2006). In 1951, a holding company with the name Samsung Moolsan was founded that later became Samsung Corporation. Cheil Sugar Manufacturing Company was established, in 1953, and it later became an independent firm. Samsung acquired Ankuk Fire and Marine Insurance that was later renamed Samsung Fire and Marine Insurance. In addition, in 1963, it acquired DongBang Life Insurance that was later renamed Samsung Life Insurance. The Group established an entertainment theme parks and services company known as Joong-Ang Development that was later known as Samsung Everland (Chang, 2010).
Samsung Electronics Manufacturing Co. (SEMC) was incorporated in 1969. During the 1970s, the Group ventured into the chemical, petrochemical, and shipbuilding industries. The Company began to manufacture black and white television sets for Original Equipment Manufacturer (OEM) and domestic markets in its factory located in Seoul, in 1972. The Group acquired a 50 percent venture in Korea Semiconductor Co. that was a venture between two companies namely Integrated Circuit International and Korean Engineering and Manufacturing Company, in 1974 (Lee, 2006). It was in the 1970s that Samsung Electronics Manufacturing Company began exporting its products. The Group’s electronics exports cross reached over the billion won mark in 1978. The company was renamed Samsung Electronics Company Limited, in February 1984. The company had acquired Telecommunications and joined it with Korea Semiconductor, and this formed Samsung Semiconductor and Telecommunications that then joined with Samsung Electronics Company in 1988. During the mid 80s, the small design was separated into three major product areas that include telecommunications, domestic appliances, and computers that served an engineering directed culture in Suwon (Mitchell, 2010). SEC Limited served industries such as Consumer Electronics, Semiconductors, Telecoms Equipment and Home Appliances. The company has served the entire world with its products, although its Headquarters are based in Korea.
Main Problems and Causes
The market of smart phones in the developed world is flooded, and the sales may not be growing at a high rate. This is a threat for the company. The critical threat that SEC, as well as, other tech companies are facing is swift technological change. Firms are facing the pressure of releasing the new products quickly (Steers and Nardon, 2012). Companies that are not able to keep up with the level of competition fail. This is particularly hard when the company wants to bring in something innovative, new, and innovative. SEC is the second largest producer of semiconductors where the profit margins are thin, and this weakens the entire firm’s figures.
The company has a variety of patents that are frequently used by its various competitors. This state makes it difficult to establish the companies that gain benefits from the firm’s technology, but do not pay for the rights of using it. Samsung’s TV sales may be hurt by the Apple’s iTV launch, which is the next big thing from Apple (Payne and Frow, 2013). SEC has an extremely low gross margin on many of its products. The company is already selling a number of them with significant price cuts. In this case, rivals could follow the strategy of cutting prices as well and provoke price wars that would erode the profit margin of Samsung to 0 percent (Harrison et al., 2008).
SEC Limited is the largest technology firm in terms of revenues in the world. In addition, it is the largest television manufacturer and mobile phone maker and second largest semiconductor chip manufacturer. According to Payne and Frow (2013), the main competitors of Samsung include Apple Inc., LG Display and LG Electronics, Intel Corporation, Nokia OYJ, Texas Instruments Inc., SK Hynix Inc., Toshiba Corporation, Sony Corporation, Lenovo Group Limited, Sanyo Electric Company Limited, Western Digital Corporation, and Hewlett-Packard Company.
Advantages of Possible Solutions to the problems
SEC is concerned with producing devices that can be incorporated with most of the software, as well as, the OS. This may provide the company’s products an edge over its main competitor, Apple Inc’s devices such as Android and other OS that are gaining market share when OSX and iOS are losing it. The company is leading in market share, in mobile phone and televisions sales, as well as, some of some of the hardware parts such as memory chips and processors. This was highly attained because of excellence in engineering and effective and efficient production (Steers and Nardon, 2012).
In 2011, the company was ranked second on the US list of the top patent assignees. Additional patents may reinforce the position of the company among its rivals in the industry. The company also won awards for its products’ design, and this proved the added benefit over its competitors. The company also focuses on manufacturing products that are environmentally friendly and which are free from BFRs and PVC. It creates several programs of recycling that are awarded for their accomplishment. Therefore, the firm’s focus on the environment will offer it a competitive advantage over its competitors. SEC has established its manufacturing products in low cost nations (Lee, 2006). This allows and will continue to allow for the production of goods with low cost of production and benefits the company as it is able to provide lower price and make higher margins. The company has attained large market share in a majority of products that they sell, particularly in mobile phones, semiconductors, television sets, and smart phones. Large market share for the company may create an advantage of bargaining power that the company can use in reducing costs and demanding for better conditions of contract. As strength, SEC is named as top rising brand by Interbrand. In addition, it is the 9th most valuable brand. This has been achieved mainly because of the ability of the company to market the brand in social contributions and sporting events (Chang, 2010).
The company may also consider collaborating actively with a Chinese partner. The advantage that this presents is that there is access to Chinese markets that witness an unprecedented expansion, as well as, access to investment made by Chinese companies that are obtainable at low cost debt. In addition, partnering with Chinese competitor would save a threat of price wars that may be presented by the SEC’s competitors in the market. Partnering with a Chinese partner also allows for access to incentives that are offered by the government of Chinese to joint ventures. If the company does not partner with China, it will maintain its research knowledge and expertise over the process of production. It will also protect its distinct culture and will focus on high value niche products. In this case, there would be a better use of Research and Development that creates a competitive advantage (Hill and Jones, 2012).
Disadvantages of Possible Solutions to the problems
SEC is infringing the patents of Apple and those of other companies, therefore, destroying its reputation and paying a large amount of money in damages. The company is the largest technology firm in the world as mentioned particularly in relation to revenues. However, it has low net profit margins and low gross profit. Having too many patents may therefore destroy its image and position in the market. Although its business on smart phones is quite productive, the profit margin of the company is low because of the aggressive price cuts and semiconductors sales. Apple, Dell, Sony, HP are the main customers of SEC’s products and the company’s main competitors, as well. However, the company cannot use its bargaining power over rivals because it can easily lose its sales and customers. OS and Software production has a high profit margin and can increase incorporation of the firm’s brand loyalty and products (Mitchell, 2010). The company will, therefore, be at a disadvantage over its rivals as it lacks strong OS and software. The company serves four distinct industries with a variety of products in them. It may be at a disadvantage over its rivals as it loses a focus when competing in various industries and products.
Partnering with a Chinese partner may also present a number of disadvantages to SEC Limited. For instance, a threat to the company’s culture may be experienced. In addition, the rights of intellectual property that have not been safeguarded as required may present a significant challenge to the company. Another disadvantage is that there would be sharing of expertise and blueprints, which could be dangerous. On the other hand, if SEC does not partner with a Chinese firm, some of the disadvantages that it will face would be threats to the company’s market share and threat of price wars after the Chinese competitors’ entry (Hitt et al., 2013).
The smart phone market in India is among the least penetrated in Asia/Pacific nations. SEC has a powerful presence in the Indian market and could utilize the opportunity to expand its sales in the region. The company could also establish advertising base for its mobile products and essentially benefit from the productive market. The company is among the key producers of application processors for tablets and smart phones. The increasing demand for these products necessitates processors of the best quality that only SEC can offer. The market of tablets is anticipated to expand in double digits in the next years. SEC has a powerful position in the market and could enlarge it through the introduction of newer and better quality tablet models including its present galaxy line (Hitt et al., 2013).
The key to the company’s competitive benefit is the huge portfolio of patents. Patents may be realized by engaging in costly Research and Development or by acquisitions of other companies. In the short run, there is no immediate necessity for collaboration and the company should not engage in predatory pricing or price wars as this is likely to affect the productivity and profitability of the company. Instead, the company should consider engaging in strategic alliances with Elpida and Infineon to hinder their partnership with Chinese companies. In addition, the company should enter into high value position markets in the short term and utilize the competitive benefit in Research and Development. However, the recommendations for the long run may differ. For instance, with the current financials, it might appear less than possible for the offerings from Chinese firms to be sustainable. Considering the advancement that the Chinese companies are receiving from the government, it is possible that they would venture into the memory chip industry or market. It is, therefore, recommended that SEC should horizontally integrate with Chinese companies only in the regions that cannot attain an essential cost leadership or areas that are not on a level playing field. A great focus should be on maintaining expertise in research and production (Hill and Jones, 2012).
Implementation of Recommendations
The success of a strategy depends on the success of its implementation. The implementation of recommendations is not a one-step process as it involves a number of steps that need to be effectively followed. In addition, all the organizational members need to be involved from the top management to the employees since they are all part of the organization’s operations. The first step should be the communication of recommendations to all members. After this is done, meetings should be held to debate on the recommendations. If a majority of people support it, then the decision on the resources required both financial and non-financial resources are identified. Monitoring and evaluation should be done to establish whether the implementation is successful (Hill and Jones, 2012). Lack of commitment and cooperation are some of the factors that might hinder the successful implementation of recommendations.
Despite the major challenges that the SEC Limited faces in the industry, the company is focused on maintaining its strategy to ensure its continued success. The company takes all the major steps that are deemed necessary to maintain its position and image in the market. For this matter, the company has gone beyond what its competitors have done to stay at the top. For instance, there is no substitute for Dynamic Random Access Memory (DRAM), and this has enabled the company to distinguish itself from its rivals (Hill and Jones, 2012). In addition, SEC creates a threat to substitutes of its products because of its technological advancement. The company also applies the price sensitivity strategy for its customers and applies a decreasing life cycle because of the changing preferences of its customers in the market. SEC has strong or powerful suppliers because of smaller numbers and has only about two or three major players dominated major segments. It creates barriers to entry through its economies of scale. This is because a huge capital outlay is required, and this scares potential entrants into the market or industry. The research and development segment is given priority by the company, and this gives the company a significant competitive advantage over its rivals. The company has also acquired a competitive benefit because of being a cost leader, which is a strategy desired by a majority of customers in the market (Murray et al., 2008). Strategies that SEC uses are what enable the company to prosper. The recommendations, however, would also be of benefit to the company if effectively implemented.
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Hill, C. W. L., & Jones, G. R. (2012). Strategic Management. Cengage Learning.
Hitt, M. A., Hoskisson, R. E., & Ireland, R. D. (2013). Strategic management: Competitiveness & globalization : cases. Mason, OH: South-Western, Cengage Learning.
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Murray, J. A., Markides, C., & Galavan, R. (2008). Strategy, innovation, and change: Challenges for management. Oxford: Oxford University Press
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Steers, R. M., & Nardon, L. (2012). Managing in the global economy. Armonk, N.Y: M.E. Sharpe.
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