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Submitted By Deepankar Boro (119278037)
This review is about the success of Samsung Electronics in the global market. It tells about how Samsung Electronics has been successful internationally while other Korean players haven’t been. What is that Samsung Electronics did different, how did it do are something which have been covered in this review.
Samsung Electronics Case Review
Case Review – Samsung Electronics
There are many reasons that define Samsung Electronics success over the years, while its SouthKorean counterparts are way left behind in the fight.
Brief about Samsung Electronics
Samsung Electronics Company - headquartered in Suwon, South Korea is a South Korean multinational electronics and information technology company. It is part of the Samsung Group and is the flagship subsidiary of Samsung Group. Samsung Group started operating since 1938, and Samsung Electronics was founded in 1969, primarily as a low-cost manufacturer of black and white televisions. In 1970s, Samsung acquired a semiconductor business which set the stage for its future growth in electronics. Samsung Electronics has been the world’s largest IT Company by revenues since 2009. Being present in 61 countries and employing around 222,000 people (2011 statistics), it is the world’s largest mobile phone manufacturer and 2nd largest semiconductor chip maker. It has been the world’s largest television manufacturer since 2006 and for eight consecutive years, it stood at being the world’s largest manufacturer of LCD panels. With the introduction of Samsung Galaxy S, it brought out a revolution in its mobile phone revenues. It is giving a tough competition to Apple in the tablet market with the launch of Android-powered Samsung Galaxy Tab.
Success behind Samsung Electronics’ Growth
Samsung followed a different strategy as compared to its competitors in South Korea. At a very early stage, Samsung learnt the importance of Research & Development (R&D). It wanted to be recognized globally as a brand. During the 1980s, Samsung Electronics emphasized on manufacturing quality and technical leadership, while most of its competitors focused on large-scale manufacturing and outsourcing to OEMs. Profits were reinvested in R&D and in state-of-the-art manufacturing and supply-chain activities. In 1993, Samsung Electronics’ Chairman Kun Hee Lee launched the “New Management Initiative” which set out to remake Samsung as a global business leader. It was this initiative which helped Samsung Electronics in subsidizing the losses during the Asian financial crisis and streamlined the company into a profitable enterprise. The “New Management Initiative” changed the development path of Samsung and has placed Samsung in its current position of being a global leader in consumer electronics. Samsung planned for a long-term commitment to investment in innovative, premium products and brand value, as compared to its competitors which were more focused in short-term goals of maximizing product output. Some of the steps which Samsung followed as part of the “New Management Initiative” are mentioned below. Focus on Long-Term Samsung Electronics changed its perception from being a short-term goal oriented company and focused more on long-term goals. In 1993, Samsung Electronics changed its logo and the name was written in English to acquire a global identity. It focused on being a world-class manufacturer and investing resources on Resource and Development (R&D) and maintaining world-class quality for its products. Shailesh J Mehta School of Management, IIT Bombay Page 1
Samsung Electronics Case Review
Sticking to Basics – Manufacturing Samsung Electronics emphasized manufacturing as a core competency in its own right. Yun Jong Yong who was appointed as vice-chairman in 1997, focused on internal manufacturing credibility than outsourcing production to external suppliers. Samsung’s main focus in the late 1990s was in inhouse chip development. Between 1998 and 2003, Samsung Electronics invested $19 billion in new chip factories. It made sure that it competes with every single outside companies, which delivers products for internal business, thereby making them competitive for the outside market. Flexibility When compared to other electronics manufacturers in South Korea which were rigid with plant locations being at South Korea just to avoid manufacturing overheads, Samsung Electronics was quite flexible. Samsung set up its plant locations in China & India to take advantage of the abundance of relatively low-cost human capital. Samsung also customized its production to avoid the commoditization trap. Over half of its memory chips were special orders from companies like Dell, Microsoft and Nokia. Samsung’s average prices were 17% above industry levels as a result of customization and reliable & timely supply of chips. Focus on Hardware Samsung decided not to develop proprietary software and content and save itself from the intricacies associated with protecting proprietary content from piracy. By focusing on hardware, it could develop newer technologies and higher efficiencies and saved on outsourcing. By keeping “open architecture” in Samsung products, customers were able to access more software & utilities than other products offered. This helped Samsung lure more customers because of the freedom of accessibility to software & utilities. Diverse Product Portfolio Compared to other competitors catering to a single product category, Samsung has a diverse product portfolio. It deals with the manufacturing of Televisions, Cell Phones, Flash Memories, DRAM Chips, MP3 players, DVD Players, Refrigerators, Microwave Ovens, etc. Samsung is both in the chip market as well as in the consumer electronics market. Samsung is the number one global manufacturer of DRAM (used in PCs). The NAND flash chips (used in digital cameras and MP3 players) store 3 times the information as NOR flash chips (manufactured by Intel) and are almost for the same price. This helped Samsung Electronics in competing Intel as more people started using NAND chips. Digital Product Innovation Samsung Electronics focused on the transition from analog to digital technology at a very early stage as compared to its competitors. The investment in digital technologies helped Samsung Electronics to launch premium products and new innovations. In 2003, Samsung Electronics launched a groundbreaking 57-inch LCD television, a first of its kind. Samsung set new standards for quality performance and award-winning design.
Shailesh J Mehta School of Management, IIT Bombay
Samsung Electronics Case Review
Samsung Electronics was able to launch new products twice as fast because of the shorter product life cycles, and the fast movement of product concept from inception to commercialization. Samsung Electronics was able to launch new products frequently, as a result of which prices quickly fell. Competitors were not able to catch up as Samsung was too fast for them. Samsung has fewer levels of organizational bureaucracy, and multiple technology capabilities which lead to faster decision-making process. Focus on Marketing Before the implementation of the “New Management Initiative”, Samsung Electronics didn’t have a proper marketing scene. Marketing budgets were controlled by product managers, allocated to “below-the-line” price promotions and was designed to meet short-term sales targets. To change Samsung from “a cheap OEM” to a “high value-added products provider”, Samsung had to develop a strong brand power for which they needed a lot of effective marketing. Vice-Chairman Yun led an effort to convert Samsung’s product line emphasis on low-end commodities to high-end premium goods fir which he recruited Eric Kim as Executive Vice-President of global marketing in 1999. Kim stressed the importance of viewing the brand as a core strategic asset and the objective was to create a global brand; the Korean origin of the brand was not emphasized. Samsung was able to gain world-wide recognition in 1998, when it sponsored the 1998 Seoul Olympics. This helped the company to increase its brand visibility and brand recall among its customers worldwide. In the late 1990s, Samsung entered into several marketing alliances with companies worldwide and sponsored events to enhance its brand awareness. Before 2001, Samsung Electronics was using more than 55 advertising agencies worldwide, and products were advertised using 20 different slogans. Samsung Electronics consolidated its advertising with a single global agency, Foote, Cone & Belding (FCB). This helped in developing a unique brand essence for Samsung Electronics and differentiates itself in the marketplace. It also helped Samsung to gradually strip-away sub-brands, which had diverted resources and distracted management. There were more funds allocated to advertising after the implementation of the “New Management Initiative”. The implementation of M-Net program helped Samsung Electronics to find out the overheads and allowed for proper budget reallocations. The M-Net program analyzed the results of past marketing plans to recommend where marketing funds should be spent by country and by category. Market-Driven Change (MDC) introduced by Kim helped Samsung managers view marketing as an important business function rather than as a series of one-off advertising campaigns and promotions. With the help of MDC, Samsung focused on customer insights and identify customer segments that are willing to pay higher prices for particular functional or aesthetic innovations. Open Work Culture Samsung has a very diverse company culture. There are people from different places working together. Samsung recruits employees from a global pool of talent bringing in talent from various countries, making these people work together at one table designing the best product. This helped in getting various ideas and insights about different cultural views, and made it useful to develop the best product acceptable worldwide. Shailesh J Mehta School of Management, IIT Bombay Page 3