Strategic Management On

Samsung Electronics
Samsung electronics Industry Corporation was created in 1969 as a
division of Samsung group, and the name of corporation was changed to
the current name which Samsung electronics in 1984. Mainly it
manufacture and exported electronics products, which include color TV,
electronic calculator, electronic watch, electronic cash registers, as well as
electronic home appliances such as refrigerators, air conditioners, washing
machines, an also telecommunication devices. Especially, it recorded the
outstanding number of manufacturing black and white TVs which was going
up above 10 million and took top of the world in terms of export of black
and white TVs. It succeeded to develop super mini VTR (8mm) in 1983,
started to export VTR in 1985, and merged Samsung semiconductors and
telecommunication cooperation in 1988.
Since then Samsung electronics has dramatically grown as one of the
world’s leading electronic giant with branches all over the world. Now
millions of Samsung electronic products are being manufactured and sold
every day and its product is seen in almost every house around the world.
Samsung electronics has one of the best inventory management systems,
supply and distribution chain in the world and its products are unique and
durable with dedicated, efficient work force. Also, its research and
development department is second to none in the electronic industry hence
we decided to carry out this in-depth analysis to access the various
strategies they have being applying since their existence and to advise
them on the possible strategic options available to them now and in the

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Michael Porter stated that for any business entity there are 5 forces in
action, these forces can have a great influence on the current affairs and
strategy of the business. These forces consist of the following factors.

Buyers power
Buyers are the driving force of any industry including the automotive sector.
Buyer behaviour is an essential part of marketing strategy and in-depth
studies and research have been conducted to try to understand buyer
behaviour. Typical question to ask when considering buyer behaviour are,
who are our buyers? How do they buy? When do they buy? Where do they
buy? Why do they buy?
For Samsung electronics the brand strength allows them to make radical
changes as they have a large base of loyal customers (due to an long

history of building quality electronics), this has been evident with the radical
exterior design changes to the Samsung product line up. Thus Samsung
can be considered as a trend setter in their respective markets. This is a
powerful position as it allows for some control of the direction of the future
markets and trends. But strong competition from their rivals ensures that
the changes aren’t too radical as they may lose customers to their
Suppliers’ power
Suppliers are the foundations of any industry they can supply raw
materials, labour components and other supplies. Therefore it is important
that a business has a good healthy relationship with its suppliers to ensure
that it can operate smoothly and efficiently in cohesion with its suppliers.
The power of suppliers varies depending on certain factors, for example if
the product is standardised then the supplier will be weak, an example of
this in the electronics industry would be silicon manufacturers. There are
many to choose from and product diversity is relatively low thus suppliers
are weak in this market. Suppliers are more powerful when they provide a
more specialised product. Samsung has a technologically advanced
component with existing patents, so in this case the supplier has more
power in the relationship then in the case with silicon.
Threat of Substitute products
A substitute product is a product in another market which poses a threat
because it is potentially a substitute to your product. A substitute (product)
can negatively affect the ‘price elasticity’ of your product since more
substitutes become available the demand becomes more elastic as
customers have more alternatives a close substitute product constrains the
ability of firms in an industry to raise prices.
In the electronics industry substitute products will include other similar
products from other manufactures. The threat of substitutes in the

electronics sector is increasing since the consumer are being motivated by
both social responsibility and legislation to find alternative manufacture that
meets their criteria to reduce the affect of global warming energy
consumption . Legislation in the UK such as high charging for energy bill
also promotes substitutes in to electronic industry so it is a growing threat
in this sector.
Degree of rivalry
Perhaps this is one of the most important of Porters 5 forces, since
competition is what tends drives innovation changes in the market since
firms strive for a competitive advantage. The intensity of rivalry amongst
firms varies across markets. In a market that is saturated rivalry can
become fierce as firms compete for the same customers, but in a growing
market firms don’t need to compete as fiercely as there may have their own
growing customer base to which they can cater their product.
When considering direct rivals to Samsung such as Motorola and Dell they
are all long established in the industry so it is likely that they have coexisted
by having disciplined competition and also having a ‘code of conduct’
between themselves. This is evidence of ‘friendly’ competition within the
automotive sector.
Barriers to entry
This relates to how easy it is to enter the market place, this force has only
negative implications on current market competitors since the easier entry
into a market is the more competitors there potentially is. But usually there
are legal requirements that must be overcome before the market place can
be entered for example a product must pass minimum quality and safety
standards and licences are usually required for trading.

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student's work

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When considering the electronics industrial sector entry into the market is
extremely difficult, since a large initial investment is required, and
competition is fierce. In the current economic climate entry in this sector will
be almost impossible unless an innovative unique selling point is achieved.
Currently the easiest entry into the electronics sector is through excellent
design reliability, durability and cost effectiveness of electronics being the
most obvious.
Electronics Industry Life Cycle Stage
According the theory of industry life cycle, Samsung Electronics already got
the Maturity stage. Because growth is no longer the main focus, market
share and cash flow become the primary goals of the companies left in the
space. Samsung’s products like TV, audio, video, mobile phones, camera,
camcorder, PC, peripherals, Printers, home appliances and memory cards
all have good reputation and occupy important place in market.
life cycle.bmp
Picture: Samsung Electronics industry life cycle.

Porter five forces - finished! Just needs a proofread

The threat of potential new entrants (Low)
High capital is required to enter into the mobile industry. It is
difficult to start up in an industry where the existing firms already
operate on cost and differentiation strategies (Chan et al, 2011,
p.12). However, with the commoditization of parts, finding vanilla
solutions for a simple alternative product might be possible.
Differentiation, however, is another story. New entrants would
have issues with overcoming patent issues if they didn’t plan on
investing in their own R&D to create a unique product. These
things together would require a new entrant to establish a
competitive brand name while achieving economies of scale via
investments in a supply chain process and developing a
distribution infrastructure to remain competitive. The costs of
accomplishing these things make a very strong barrier to entry.
Even then, overcoming issues such as customer loyalty and
switching costs would be another large barrier to entry.
The threat of substitutes (High)
For Samsung, almost any phone that performs the same
functions as a Samsung phone could be considered a substitute.
This includes other devices running the Android OS and not made
by Samsung, (Motorola Droid comes to mind) as well as other
devices like the Apple iPhone or Blackberry. All of these are in
high abundance with similar cost and highly competitive.

The threat of substitute products within the industry, however, is
Although there is an increased popularity of Tablets, they are
generally too bulky to be considered as straight substitutes. They
don’t offer traditional mobile phone capabilities, which makes
them inadequate. Laptops have the same problem. PDAs are no
longer a viable substitute in 2011. For some time they had
productivity features that the average mobile phone didn’t have,
but now mobile phones have all those capabilities and more. With
that said, the buyers’ propensity to substitute is low.
As for things like relative price performance, perceived level of
product differentiation and the number of substitute products
available in the market, most of these issues become irrelevant as
neither laptops, tablets or PDAs offer enough of the same
services to be able to replace Samsung smart phones.
The only other viable substitute would be “dumb phones” which,
due to the lack of features and capabilities, come as a very cheap
or even free substitute to the average smart phone. They are a
substandard product. Buyer switching costs are noticeably lower,
but product differentiation only comes in the lack of features.
Today, even lower-end smart phones can be purchased at very
cheap prices, and sometimes come free with certain contracts.
The bargaining power of buyers (High)
Buyers have good leverage when it comes to bargaining because
of their access to information and how competitive the mobile
phone industry is. With so many similar products from other
carriers, buyers have several points on which they can bargain.

Whether it is by OS, price, tech specs such as camera quality or
screen resolution, carrier availability, or something more.
Buyers easily switch cost with the increased of choices of mobile
companies and furthermore their products are quite similar to one
another; they will switch to those who have better features or
price points.
Switching costs, however, can be very high in some cases.
Usually a phone will come at a lower cost to a buyer if it is
purchased with a 2 or 3 year contract via a service provider.
Should this agreement be terminated before the contract is up,
extremely large fees can be incurred by the customer. Should the
customer want a new phone before the end of the contract, they
will need to pay full price for it, assuming their carrier even allows
a non-contract purchase (which is not the case for high-end smart
phones in Canada).
The bargaining power of suppliers (Low)
In Samsung’s case, the bargaining power of suppliers is low
because Samsung is its own supplier of most components.
Samsung also happens to be its own supplier for raw materials.
In the industry, however, the bargaining power of suppliers is high
because suppliers’ goods are critical to the buyers’ marketplace
success (Huvard et al, 2011, p.8). This means they are more
important to the consumers than the mobile carriers themselves.
A mobile phone manufacturer could always integrate forward into
the industry without the middlemen such as Rogers, Bell or Telus.
(In fact, Samsung has already done this within Korea---source).

Presence of substitute inputs: none
The intensity of competitive rivalry (High)
The smart phone industry has many competitors that are equally
balanced, and thus rivalry is high. The market for smart phones
has slowed in growth since its boom, so pressure to take
customers from competitors is also high. Differentiation in the
smart phone industry is also at a point where it is very short-lived
(Huvard et al, 2011, p.9).
Sustainable competitive advantage through innovation is an
unknown. While Samsung has been doing great keeping up with
the industry and even leading in some areas, everything is shortlived due to the extreme level of competition.

PESTEL analysis

Political/Legal Environment
Over the past several years, there has seen a plethora of patent lawsuits within
the smartphone industry. In the highly competitive environment, manufacturers of
handsets have been aggressive in protecting their intellectual properties by suing
competitors by claiming infringements on patents. For example, in March 2010,
Apple sued HTC for allegedly infringing on 20 Apple patents (Weil, 2010). Apple
also sued Nokia in 2010 for similar patent infringements("Patent wars", 2011).
However, in April 2011 the International Trade Commission recommended that
neither HTC or Nokia should be found liable for any infringements. Further
Microsoft reached a licensing agreement in April 2010 with HTC to pay royalties

on Android based handsets ("Patent wars", 2011). More recently, Apple launched
a lawsuit against Samsung in April 2011 claiming Samsung copied design
features of the iPhone in its Galaxy line of Android phones (Quigley, 2011). These
are just a few examples of legal challenges faced by smartphone manufacturers.
Mentioning all lawsuits in the past several years is beyond the scope of this
analysis, but it is important to recognize that manufacturers are using their patent
portfolio's to make it more difficult for their competitors to gain larger market
shares. Even if the majority of cases are found to be 'dubious', the costs
associated with legal battles can hamper or slow down the release of new
handsets and hence making it more difficult for the manufacturer to stay

Economic Environment
The North American economy is still recovering from the financial crisis of 2008.
Major factors to consider are the unemployment rates, consumer spending. In
September 2011 the unemployment rate in the US was 9.1% which is well above
the national average of 5.7% between 1948 and 2010 ("United States
Unemployment"). The current high unemployment rate in the US is likely having
an impact on reducing smartphone sales. A 9.1% unemployment rate represents
approximately 28 million Americans out of work. In Canada, the unemployment
rate in September 2011 was 7.1% which represents its lowest point since
December 2008 ("Canada Unemployment"). Since January 2010, Canada has
been experiencing a downward trend in unemployment ("Canada
The high unemployment rate in the US has been negatively impacting consumer
confidence and has resulted in a decrease in consumer spending. Bloomberg
reports consumer spending dropped 0.2% in June 2011 which provides evidence
the decrease in hiring and wage increases below the inflation rate are affecting
consumer spending (Chandra, 2011). Consumer spending accounts for 70% of
the US economy (Chandra, 2011); any fluctuation in this area will have a
significant impact on the overall economy. In Canada, the opposite is true.
Consumer spending increased by 3.8% from 1st quarter 2010 to the end of 1st
quarter 2011 ("Canadian Consumer Spending"). Consumer confidence is
Canada seems to be higher than the US likely resulting from lower

unemployment rates and Canada's faster paced recovery from the global
financial crisis.
Ref 1:
Ref 2:
Ref 3:

Social-cultural Environment
The rise of the information age has made telecommunication more important for
both business and pleasure. It is important to determine how receptive a society
is to new advancements in technology, particularly smartphone adoption in this
case. By measuring smartphone adoption by age demographics, a better
understanding of who the primary target groups can be gained. Insights into how
different groups of smartphone users use their devices can provide insights into
new features or improvements in established features.
At the end of 2010, there were 63.2 million smartphone subscribers in the US
(comScore Inc, 2011). The adoption rate has been increasing annually; in
December 2009, 16.8% of Americans owned a smartphone, while in December
2010 the adoption rate increased to 27% (comScore Inc, 2011). By March 2011,
32.2% of Americans adopted a smartphone (ref 2). The increase of just over
10% over a one year period along with over a 5% increase from Dec. 2010 and
March 2011 shows that the US population is very receptive to new smartphone
technologies resulting in rapid market expansion. Breaking adoption down into
demographic groups, 12.6% over the age of 55, 16.7% aged 18 to 24, and 27.2%
aged 25-34 owned a smartphone in December 2010 (comScore Inc, 2011).
According to comScore, the fastest growing age segments in smartphone
adoption are 13 to 17 year old and those aged 55 and up (comScore Inc, 2011).

ref1: The comScore 2010 Mobile Year in Review

Technological Environment
The most important aspect of the technological environment in this case is the
cellular network infrastructure. Both the US and Canada have infrastructure in
place which supports both voice and data transfers. However, rural regions may
have poorer quality of service, and do not always support data transfer. However,
most of the population is concentrated in urban and sub-urban regions of both
countries; these regions have the wireless infrastructure in place to support all
uses of smartphones. The infrastructure in both Canada and the US is privatized,
which means the network carriers maintain and upgrade it since it is in their best
interest to retain and keep cellular subscribers happy.

Natural Environment
Since Samsung does not manufacture its handsets in North America, the natural
environment is insignificant in terms of strategy formulation. Typically, a
manufacturer needs to be aware of extreme weather patterns and availability of
local natural resources within the region they have manufacturing facilities.
However certain regions, particularly along the Gulf Coast are prone to
hurricanes. These massive storms can damage the cellular network
infrastructure which would render smartphones into paper weights.

Political/Legal Environment

Just random ideas right now for this section


wireless communication regulations


electronic device safety regulations?



deregulation of the telephone industry
Trademark and Patent Laws
Currently there is a large number of patent and intellectual property
litigations/lawsuits in the US, particularly in the smartphone industry, including a
dispute between Apple and Samsung. Apple claims Samsung copied iPhones
design features, packaging, and user interface components.



Patent 'trolling' has become a big issue in the US.
FCC Regulations
Part B of the FCC rules sets rules for radio frequency strengths for
850,900, 1800, and 1900mhz bands in order to prevent interference with other
communication devices and infrastructure

Economic Environment

US Census Bureau - 2010 Census


Median household income $49,445 in 2010


Median for family household $61,544


Median for single female householder $25,456


Median for single male householder $35,627

US International Trade Commission - Harmonized Tariff Schedule


There is no import duty or tariffs for telephones, including telephones
for cellular or wireless networks

Social-cultural Environment

comScore 2010 Mobile Year in


(I`m not sure, but this might belong to economic environment)


63.2 million smartphone subscribers in the US


according to comScore, in December 2009 16.8% of Americans
owned a smartphone. By December 2010 the adoption rate increased to 27% in
the US market. In March 2011 Smartphone penetration grew to 32.3%)
12.6% of individuals aged 55 and up owned a smartphone at the

end of 2010

16.7% of individuals aged 18-24 owned a smartphone at end of


27.2% of individuals aged 25-34 owned a smartphone at end of


"fastest growing age segments in US smartphone market are 13-17
year olds, and individuals aged 55 and up"

CIA Factbook -



population: 313,232,044

population: 34,030,589

The rise of the Information age has made telecommunication more
important for both business and leisure

The North American market is very receptive to new advances in

Technological Environment

Wireless networks which enable high speed data transfers (3G & 4G) are
well established in urban and sub-urban regions in both the US and Canada

Many rural regions in both the US and Canada are lacking wireless data
networks which enable Internet access

Natural Environment

Not very relevant since Samsung does not manufacture its handsets in
North America

Maybe I'll think of something here....