George B.

Marasigan
BSA-4

Samsung Electronics - A Case Study

I. EXECUTIVE SUMMARY

For over 70 years, Samsung has been dedicated to making a better world through diverse
businesses that today span advanced technology, semiconductors, skyscraper and plant
construction, petrochemicals, fashion, medicine, finance, hotels, and more. Our flagship company,
Samsung Electronics, leads the global market in high-tech electronics manufacturing and digital
media. Through innovative, reliable products and services; talented people; a responsible approach
to business and global citizenship; and collaboration with our partners and customers, Samsung is
taking the world in imaginative new directions.

Back in the first quarter of 2007, Samsung Electronics reported a 15% drop in profits. Jong
Yong Yun, Samsung Electronics' chief executive officer since December 1996, has restructured
Samsung by defying traditional Korean corporate culture of hierarchy and lifetime employment. Yun
instilled a sense of ‘perpetual crisis’ among his employees and encouraged them to come up with
innovative products that according to him, were necessary for Samsung's survival. His emphasis was
on quality products with unique designs and effective brand promotions. In 2004, Samsung
surpassed Sony to earn profits of $9.4 billion over revenues of $72 billion. Still, Yun felt that to
compete in the global market, Samsung's products needed to be transformed into brands like that
of Apple's iPod or Sony's Walkman. Yun runs the most profitable technology company in the world.
But he still has many worries. Yet Yun is not only confident that he can meet those challenges, he is
getting ready for new ones in "digital convergence."

Jong Yong Yun’s strategy to focus on higher end products has clearly enhanced the firm’s
brand image and lead to a sharp increase in its revenues and profits. But accordingly, they have
failed to address serious questions about Samsung’s ability to rely exclusively on its hardware to
continue to generate high margins. More so, the life cycle of most electronic products are short with
prices tending to drop sharply over time.

Considering these facts and conducting the SWOT analysis, there comes up the suggested
courses of action Samsung Electronics will going to take to address the problem stated above. The
courses of action includes: 1) undertaking forward and horizontal integration; 2) product
proliferation; 3) cost minimization and 4) increasing sales through market penetration and market
development.

With this Samsung can surpass and survive and live with its vision "Inspire the World, Create
the Future” through “New Technology,” “Innovative Products,” and “Creative Solutions.
II. STATEMENT OF THE PROBLEM

Jong Yong Yun’s strategy to focus on higher end products has clearly enhanced the firm’s
brand image and lead to a sharp increase in its revenues and profits. But accordingly, they have
failed to address serious questions about Samsung’s ability to rely exclusively on its hardware to
continue to generate high margins. More so, the life cycle of most electronic products are short with
prices tending to drop sharply over time. With this matter and considerations, this study will answer
the following questions:

1. What are Samsung’s competitive advantages over its competitors?

2. What are the ways to reduced Samsung’s cost in order to be competitive with lower margin
products?
3. How will Samsung deal with the recovery of research and development costs in incurred in
producing electronic products with short life cycle and prices that drop sharply over time?

III. STATEMENT OF OBJECTIVES

This study aims:
1. to determine what are the competitive advantage of Samsung over electronic industry and
other industry it competes;
2. to identify the ways to reduced Samsung’s cost in order to be competitive with lower margin
products;
3. to know the ways on how will Samsung deal with the recovery of research and development
costs in incurred in producing electronic products with short life cycle and prices that drop
sharply over time

IV. AREAS OF CONSIDERATION

As part of assessing Samsung’s competitive advantage among its competitors and

determining its future course of action to take as part of its strategic management process, we will
take into consideration its internal strength and weaknesses as well as the external opportunities
and threats.

The internal strengths include but are not limited to:

1. continue growing of market share

2. well diversified and differentiated products
3. team product designers and engineers that continues to develop designs of Samsung’s new
products
4. Samsung’s rigid seniority-based system replaced with a merit-based system
5. advertising on 55 different advertising agencies around the world and placed them in one
firm
 The internal weaknesses include but are not limited to:

1. increasing competition as it develops innovative products

2. high investment on research and development
3. focus on mass market instead of niche market

The external opportunities include but are not limited to:

1. high and strong consumer demand for innovative products

2. increasing on electronics consumer markets
3. Young population as a means of expansion of market in present and future

The external threats include but are not limited to:

1. bureaucratic obstacles
2. low-cost Chinese producers
3. sustainability of products in technology industry

V. ALTERNATIVE COURSES OF ACTION

After thoroughly considering and analyzing the internal strength and weaknesses and
external opportunities and threats, the possible courses of action that Samsung can undertake are
as follows:

1. Undertake forward and horizontal integration.

2. Product Proliferation
3. Cost minimization
4. Increase sales through market penetration and market development

VI. ANALYSIS OF ALTERNATIVE COURSES OF ACTION

Forward and Horizontal Integration

Forward integration is a business model whereby a company takes direct control of how its
products are distributed. For example, a company may market its products directly to consumers
rather than selling them to a retailer. Alternatively, forward integration may involve the company
simply acquiring the retailer. This is an effective tool when present distributors are expensive,
unreliable, or incapable of meeting firm’s needs; availability of quality distributors is limited; when
firm competes in an industry that is expected to grow markedly; advantages of stable production
are high and present distributor have high profit margins.
 On the other hand, horizontal integration is the acquisition of additional business activities
at the same level of the value. Horizontal growth can be achieved by internal expansion or by
external expansion through mergers and acquisitions of firms offering similar products and services.
A firm may diversify by growing horizontally into unrelated businesses. This will be a good sort of
action when firm can gain monopolistic characteristics without being challenged by federal
government; competes in growing industry and increased economies of scale provide major
competitive advantages.

Product Proliferation

Product proliferation occurs when organizations market many variations of the same
products. This can be done through different color combinations, product sizes and different
product uses. This produces diversity for the firm as it is able to capture its sizable portion of the
market. However, it can also be considered that marketing so many new products leads to economic
resources being wasted; the consumer becomes confused and mistakes are made in the purchase of
products.

Cost Minimization

The process or goal of incurring the least possible opportunity cost in the pursuit of a given
activity. Cost minimization is comparable to other objectives, including utility maximization and
profit maximization. This goal, however, is generally used when circumstances constrain a decision.
In the case of Samsung, to maintain its high profit, and recover its investment of research and
development it must incur less expenses but maintain those cost that are really beneficial on the
pursuit of quality and competitive products they offer.

Market Penetration and Market Development

Market penetration is a strategy which focuses on seeking increased market share for
present products or services in present markets through greater marketing efforts. This is a good
idea if current markets not saturated; usage rate of present customers can be increased
significantly; market shares of competitors declining while total industry sales increasing; increased
economies of scale provide major competitive advantages. For example, if there are 300 million
people in a country and 65 million of those people have cell phones then the market penetration of
cell phones would be approximately 22%. This would mean in theory there are still 235 million more
potential customers for cell phones, which may be a good sign of growth for cell phone makers.

Market development is the introduction of present products or services into new

geographic area. This will be an effective strategy when new channels of distribution that are
reliable, inexpensive, and good quality; firm is very successful at what it does; untapped or
unsaturated markets; capital and human resources necessary to manage expanded operations;
excess production capacity; basic industry rapidly becoming global
VII. CONCLUSION

After the analysis of the case and from the external data gathered, the competitive
advantage of Samsung over its competitors includes but are not limited to: 1) technologically driven
niche products; 2) high investment in research and development; 3) wide range of products and high
brand value; 4) higher economies of scale and economic scope; 5) untraditional Human Resource
practices based on meritocracy not on seniority and 6) financially strong and large resources.

There are plenty of ways to reduced Samsung’s cost in order to be competitive with lower
margin products. But then again, the most appropriate will be the cost minimization which will focus
on reducing cost incurred while maximizing revenue. This will be done through 1) improving
meeting management; 2) recruitment appraisal; 3) bonus systems and 4) standardization review

The ways on how will Samsung deal with the recovery of research and development costs in
incurred in producing electronic products with short life cycle and prices that drop sharply over time
will be managed through increasing sales by means of Forward and Horizontal Integration. In
Samsung’s case, forward integration will be an effective tool because here, it may market its
products directly to consumers rather than selling them to a retailer thus increasing the profit
margin. Alternatively, forward integration may involve the company simply acquiring the retailer to
increase market involvement and as well as controlling the selling price on the general public. On
the other hand horizontal integration will also be helpful to maintain its high earnings because it will
acquire or seek ownership or increased control over competitors, through this, the external threats
are then converted into an opportunity, an opportunity to sell more products and increase in market
share.

Aside from what are mentioned above, Samsung may continue pursuing market penetration
which is a strategy that mainly focuses on seeking increased market share for present products or
services in present markets through greater marketing efforts. With this Samsung will exert extra
effort to dramatically increase its sales by advertising and informing and educating the target
market of its new product offers and its edge over the others. Moreover Samsung can pursue
market development and continue to introduce its present products or services into new geographic
area as Mr. Eric Kim said that its target is to become the first Korean company to create a true global
brand.

To sum it up Samsung can surpass and survive and live with its vision "Inspire the World,
Create the Future” through “New Technology,” “Innovative Products,” and “Creative Solutions.” It
will defy threats in the competitive world of high-tech gadgets and electronic devices driven by
great advancement in technology industry and deal with the low-cost producers as long as they
continue to gain market share, sustain its multiple products and continue to have a high brand
value. With its power in controlling the industry and economy, Samsung’s competitiveness will be
unimaginable. Through these efforts, Samsung hopes to contribute to a better world and a richer
experience for all.