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Samsung Project Final
Samsung Project Final
Final Report
Submitted to Sir Imran Quraishi
December 2009
Ashfaq Hussain Muhammad Safder Ali 3394 MBA 19 A 3401 MBA 19 A Graduate School of Management IIUI Islamabad, Pakistan
Table of content
Executive Summary.........................................................................................................................2
Executive Summary
Samsung has made itself noticeable as one of the most innovative and quality brands in the electronics industry. Samsung strives to be sustainable and achieve competitive advantage by remaining at the forefront of the digital market. Samsung policy is "We will devote out human resources and technologies to create superior products and services thereby contributing to a better global society. In todays digital era, speed is the essential competitive as new technologies constantly introduced to the market. Thus, Samsung spend lots of effort in expanding their R&D center. Samsung Corporation has become one of the world's leading memory producers in all types of PCs, digital cameras, game players, and other electronics products. Since Samsung bought DRAM technology from other company, they have developed and come up with better technology. Samsung has introduced many products with low price and high technology. Although Samsung has been very successful, they have a few issues that need to be looked at in order for them to stay up to date and maintain long term profits. Problems that have been identified with Samsung are; increased competition means decrease in Samsung's profits and market share because it generates oversupply and decrease in sales. Competition affects Samsung's market share because new entrants will segregate the market by offering lower cost products with a variety of functions. Furthermore, Samsung is also facing a Chinese DRAM company because of limitability of their resource. There are many competitors that produce similar products as Samsung; Samsung has to deal with competitors in five different industries. They are doing this by differentiating their products and adding different features into their products. The two possible solutions for the stated problems are 1) If Samsung wants to be the leading company within electronic industry, they need to differentiate their products enough from their competitors and introducing a new cell phone with touch screen and new features to stay current in the market. 2) Samsung is currently is one of the leading businesses in the electronic industry. In order for the company to stay competitive, they need to go to the different global markets and try to introduce their products to new demographics. In order for Samsung to be successful they need to go Global. This solution offers a physical presence and greater opportunity for talent buildup, and brand name establishment in foreign markets. The Global solution has many advantages in developing growth, pressure on competition, and international development.
South Korea
Korea regained its independence following Japan's surrender to the United States in 1945. After World War II, a Republic of Korea (ROK) was set up in the southern half of the Korean Peninsula while a Communist-style government was installed in the north. During the Korean War (1950-53), U.S troops and UN forces fought alongside soldiers from the ROK to defend South Korea from DPRK attacks supported by China and the Soviet Union. An armistice was signed in 1953, splitting the peninsula along a demilitarized zone at about the 38th parallel. Thereafter, South Korea achieved rapid economic growth with per capita income rising to roughly 14 times the level of North Korea. South Korea today is a fully functioning modern democracy. Korea is home to a set of large firms, so called chaebols, which can be classified as multinational enterprises (MNEs) In the list of the worlds largest 500 companies, ranked by sales for2001 found 12 Korean firms. In 2004, there were 11 Korean firms in the list of the worlds largest 500. These large firms are analyzed here as the basic set which will determine the success of Korea in
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developing MNEs. The literature in international business analyzes the growth and foreign expansion phase of MNEs. The starting point of this theory of the MNE is the proposition that an MNE goes abroad to further expand on its firm-specific advantage (FSA).These can be technology based, knowledge based, or they can reflect managerial and/or marketing skills. The FSAs need to be distinguished from Koreas country-specific advantages (CSAs) where the latter are available to all firms located in Korea; in contrast FSAs are the capabilities of each specific firm.. The presence of Korean firms is at least as stable as the other large 500 companies. Two Korean firms among Koreas 12 largest firms in 2001, that is 17%, were unlisted in 2004, while 94 firms among the worlds largest 500 firms were unlisted in 2004, that is, 19%. It is important to note that four Korean trading firms, Samsung Corporation, Hyundai, LG International and SK Global, were listed in the worlds largest 500 companies. These firms make up 34% of the Koreas largest 12 firms revenue in 2001. In 2004, only two trading companies, Samsung Corporation and SK Global (Networks), were listed in the worlds largest 500 companies. Moreover, most of the revenue of Samsung Corporation and SK Global came from outside the trading segment in 2004. Over the same time period, Koreas international trade had increased more than 60%: from US $292 billion to US $478 billion. Rising from obscurity 25 years ago, Korean electronics companies have come to own a significant share of the world electronics market today. They are now the major DRAM suppliers in the world. They conduct state-of-the-art R&D projects, establish foreign ventures, and support world-class university science and technology (S&T) programs. Due to technologies, manufacturing procedures, capabilities, and infrastructure have made them so successful. This information, coupled with understanding of the future direction of the Korean electronics industry, is vital to U.S. competitiveness, to help U.S. businesses determine in which market sectors to compete and in which areas subcontracting, outsourcing, and partnership agreements would be beneficial. Natural resource Coal, tungsten, graphite, molybdenum, lead, hydropower potential GDP growth rate 2.2% (2008 est.) 5.1% (2007 est.) 5.2% (2006 est.) GDP - per capita (PPP) $27,700 (2008 est.) $27,100 (2007 est.) $25,900 (2006 est.) Industries Electronics, telecommunications, automobile production, chemicals shipbuilding, steel Export Semiconductors, wireless telecommunications equipment, motor vehicles, computers, steel, ships, petrochemicals Import Machinery, electronics and electronic equipment, oil, steel, transport equipment, organic chemicals, plastics
Role of chaebols
Koreas economy, including its electronics industry, is dominated by the relatively small number of single-family-dominated industrial chaebols that often enjoy vertical monopolies. Chaebols also extend horizontally across diverse industries, similar to the Japanese keiretsu. In the immediate post-Korean War years, the chaebols took advantage of subsidized loans and tax breaks provided by the Korean government that allowed them to grow very quickly. By the early 1980s, the four most prominent chaebols, Samsung, LG, Hyundai, and Daewoo, were immense and were thriving. In essence, the story of the remarkable growth of Korea's economy is the story of the growth of its chaebols. Their success and the success of Korea's industrialization and modernization are inseparable. The chaebols have based much of their success on foreign trade, and exports continue to be essential to the stability and growth of the Korean economy. Electronics goods have been among the chaebols' most profitable exports. Korea expects to have steady export growth of 12.3% in industrial electronics, 11.7% in electronic parts, and 4.7% in consumer electronics. Semiconductors have been especially important to Korea's export earnings. A total of $10 billion worth of semiconductors was exported in 1994, of which $4 billion was attributable to Samsung alone. Korean semiconductor companies have made significant strides in capturing global semiconductor market share in the past ten years. At the time this report was written, Samsung had become the world's highest-volume DRAM supplier, and Hyundai and LG were in second and sixth places, respectively. Together they made up almost 30% of the revenues earned by the top 10 DRAM producers in the world. A major factor in this considerable success is that Korean manufacturers successfully implemented more efficient mass production techniques, allowing more competitive unit
Samsung
Samsung Electronics Company was established in Taegu, Korea in 1969 by Byung-Chull Lee. During that time the company only manufactured black-and-white TV sets. Since 1969, the company has enjoyed steady growth. At the end of 2004, Samsung had around $80 billion in net sales, $60 billion in assets and had 113 thousand employees worldwide. Also, in 2004 Samsung stood up ahead of many their competitors such as Phillips, Kodak, and Panasonic. By that time the company produced TVs, AV equipment, and computers; the Telecommunication Business, which manufactured mobile phones and networking equipment; the LCD Business, which made
LCD panels for notebook computers, desktop monitors, and HDTV; and the Digital Appliances Business, which produced and sold refrigerators, air conditioners, and washing machines . Samsung believes that the success of their contributions to society and to the mutual prosperity of people across national boundaries truly depends on how they manage their company. Kun Hee Lee, current chairman of the Samsung Group always teaches his employees: always demand superiority in product design and process efficiency. Under Lees leadership, Samsung Corporation has become one of the worlds leading memory producers in all types of PCs, digital cameras, game players, and other electronics products
External Analysis
The Industry type for Samsung is consumer electronics and entertainment. The market type is monopolistic competition because there are many producers and many consumers in the given market. Furthermore, when it comes to monopolistic competition, it involves a great deal of nonprice competition which is based on product differentiation. Also, the producers have a certain degree of control over price. The electronics industry is a very wide category and it contains many types of products. Samsung competes with other companies in providing customers with a wide array of products that are good quality and affordable price. What they don't do is specialize in a certain product and thus they can't make an expensive superior product. With intense rivalry and competition in the industry, Samsung is satisfying consumers who want modern reliable products ranging from cell phones to home electronics.
storage is not limited by physical shelf space and server costs are declining. For product distribution, the growing number of distribution channels and the internet provides global distribution. Furthermore, bandwidth costs are declining. This makes it more attractable for new companies to enter the electronics and entertainment industry market. According to Airborn electronics, a realistic development path for a startup company will usually involve designing a low volume high price version of their product first, and then moving to high volume designs as the market matures. This is only possible where the economic demand for the product is "elastic" - in other words there is some demand even when the price is high. Fortunately, high technology products usually exhibit elastic demand. The consumer product market on the other hand can be a little bit less elastic - This means that the demand goes down drastically when price is more than the consumer is willing to pay for. This means that it may be very difficult for a startup company to produce a new consumer product. Thus, the barriers to entry may be high in the industry depending on the economy. If the economy is good and people have more money to spend on electronics, it is better for the company, if not, there is a high barrier. In terms of product differentiation, there is a lot of specialization and increased value by companies to make their products stand out and gain competitive advantage. According to Chaffin, Apple has around 82% of the market share for mp3 players because they differentiate and specialize their mp3 products. A way for a new company to compete right now in the mp3 market is by price and lower quality alternative products or try to come up with new technology and features. For new companies to compete with Samsung they have to differentiate and specialize their products which can be very costly.
to supply and what price to take. If they create a good that is very new and trendy, they can chose to supply to companies that will provide them with easier SCM and better price. Suppliers also want companies who they know will buy a lot in the long term, they want to create partnerships with companies to earn profits in the long run. Although because of price wars, suppliers are more and more forced to cut their prices as their customers can go to other suppliers who may offer better components at a lower cost. Suppliers are also starting to lose power because more and more firms are starting to produce their own products and components in-house.
Issue: Competition is the causes of Samsung profits and market share declines. Increased competition means decrease in Samsungs profits and market share because it generates oversupply and decrease in sales. Oversupply is due to increase in supply while sales are decreasing. This happens because more than one company is offering the same product, therefore more selection to consumer in which creates demand in lower prices. Competition affects Samsung market share because new entrants will segregate the market by offering lower cost products with variety functions. SOLUTION: Samsung needs to go globally into new and different DRAM markets. Samsung is currently one of the leading businesses in the electronic industry. In order for the company to stay competitive, they need to go to the different global markets and try to introduce their products to new demographics. When entering into a new market and they would go as transactional and establish joint ventures in the country. Samsung should take advantage of local skills and try to produce their products in that country. That way, it would cost them less and would bring a new market at the same time. In order to go globally we are going to analyze different regions to select the required.
Country attractiveness
PEST analysis
Political risk: there is low political risk in china and is a socialistic country.
General stability there is no external aggression or internal revolution. There is no expropriation risk and contract revocation. Local rules and tax system encourage foreign firms to do the business. China has stable exchange rate as well Environment research: Product is according to the requirements of people and meets their cultural values and norms. Physical environment: the demand for the product is high due to huge consumer market in china. Socio-cultural environment has no big difference and is receptiveness of new entrant. There are some cultural differences in India. Both countries china and India have stable economy.
Screening
For centuries China stood as a leading civilization, outpacing the rest of the world in the arts and sciences, but in the 19th and early 20th centuries, the country was beset by civil unrest, major famines, military defeats, and foreign occupation. After World War II, the Communists under MAO Zedong established an autocratic socialist system that, while ensuring China's sovereignty,
imposed strict controls over everyday life and cost the lives of tens of millions of people
Natural resources
coal, iron ore, petroleum, natural gas, mercury, tin, tungsten, antimony, manganese, molybdenum, vanadium, magnetite, aluminum, lead, zinc, uranium, hydropower potential (world's largest) GDP growth rate 9% (2008) Industries mining and ore processing, iron, steel, aluminum, and other metals, coal; machine building; armaments; textiles and apparel; petroleum; cement; chemicals; fertilizers; consumer products, including footwear, toys, and electronics; food processing; transportation equipment, including automobiles, rail cars and locomotives, ships, and aircraft; telecommunications equipment, commercial space launch vehicles, satellites Exports - commodities electrical and other machinery, including data processing equipment, apparel, textiles, iron and steel, optical and medical equipment Imports - commodities Electrical and other machinery, oil and mineral fuels, optical and medical equipment, metal ores, plastics, organic chemicals
Market size
The size of the market is very big because is china is going to be the heart of multinational corporations of computer industry. We can export our product from china as well
Final selection
So we have decided to enter Chinese market by considering above all
Marketing plan
Purpose
To provide value for shareholders and customer by producing high-tech product
Mission
To gain maximum market share in DRAM market by providing high technology based DRAM for consumer market in a suitable price
Situation analysis
In order to make situational analysis I have used following two tools in order to analyze the market and product SWOT PEST
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PEST analysis
Political: Unstable political condition Strict govt. policies Social: awareness of the people Fewer tendencies to take innovative products. Economical: low cost of production low tax rates low interest rates other incentives Technological Change in technology is coming day by day. This has reduced the life cycle of the products.
SWOT ANALYSIS
Strengths sophisticated technology Strong brand name Country of origin effect Suitable price Economically sound company Weakness knew market Opportunities centralization of Chinese market growing demand Chinese Govt. incentives Threats Knew Chinese entrants in DRAM market. Low Cost advantage of Chinese firm. s Technology proliferation
Product
High-tech DRAM in 1200 different variations 64Mbit, 128Mbit, 256Mbit, 512Mbit
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There are many companies operating world wide and in Chinese market as well. These are as Elpida Memory, Inc Hynix Semiconductor, Inc Infineon technologies AG Micron Technology SMIC
Financial analysis
Marketing objectives:
Strategy used in the sale of DRAM is un-differentiated as company is trying to target computer producers there for the same product will be used by all producers
Financial objectives:
Financial of the company is to increase sales by 15% within the period of 1 year and thats why company is coming with new idea and then minimum 12% increase in future.
Marketing objectives:
Marketing objective of the company for this product is to promote the DRAM in Chinese market. And this objective is achieved by price, distribution, promotion and marketing strategies. This is an old product which the company will sell in knew market with some innovations.
Promotional tactics:
Advertising: Promotion of the product is made through advertising on web and also through media. Sales promotion will be made by giving warranty to the customers of 1 year.
Distribution tactics
Online order on website Visit our website and then you can give us the order which is best suitable to you discussed in the pricing tactics. When you will give an order then payment will be made through credit card. Different pricing criteria are given which are included shipment charges.
Pricing tactics:
The price of the product will be the same for all customers.
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