Strategic Management BM045-3-3-SMGT

Individual assignment

Assignment Submission for Final Fulfilment

For
Strategic Management
By
Mohammed Naufal Al – Masri
ID: TP026055.
Lecture Name: ROHANI BINTI MOHAMAD.
Intake Code: UC3F1310IBM.
Model Code: BM045-3-3-SMGT.
Word: 2500.
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9 JAN 2013

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Contents
1.0 Introduction ....................................................................................................................................... 3
2.0 SWOT Analysis ................................................................................................................................ 5
2.1 Internal analysis ................................................................................................................................ 5
Strengths ............................................................................................................................................. 5
Weaknesses ........................................................................................................................................ 5
2.2 Ansoff Matrix.................................................................................................................................... 6
2.3 External analysis ............................................................................................................................... 7
Opportunities ...................................................................................................................................... 7
Threats ................................................................................................................................................ 8
3.0 PEST analysis ................................................................................................................................... 8
4.0 Porter five forces ............................................................................................................................. 10
5.0 Recommendations ........................................................................................................................... 13
6.0 References ....................................................................................................................................... 15

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1.0 Introduction
Samsung was found in 1938, by Lee Byung-chull as a trading
company based in Su-dong. The small company started as a grocery,
trading goods produced in and around the city as well as its own noodles.
The company grew and soon expanded to Seoul in 1947 but left once the
Korean War broke out. After the war, Lee expanded in to textiles and
built the largest woollen mill in Korea.

Samsung entered the electronics industry in the 1960's with the arrangement of several
electronics focused divisions. The primary electronics divisions included Samsung
Electronics Devices, Samsung Electro-Mechanics, Samsung Corning, and Samsung
Semiconductor & Telecommunications. Samsung built their original facilities in Suwon,
South Korea, where they started producing black and white television sets.

In 1980, Samsung entered the telecommunications hardware industry with the purchase
of Hanguk Jenja Tongsin. Initially building telephone switchboards, Samsung expanded in to
telephone and fax systems which eventually shifted to mobile phone manufacturing. The
mobile phone business was grouped together with Samsung Electronics which began to
invest heavily in research and development throughout the 1980's. During this time Samsung
Electronics expanded in to Portugal, New York, Tokyo, England and Austin, Texas.

In 1987 with the death of Lee Byung-chull, the Samsung group was separated in to four
business groups leaving the Samsung Group with electronics, engineering, construction, and
most high-tech products. Retail, food, chemicals, logistics, entertainment, paper, and telecom
were spun out among the Shinsegae Group, CJ Group, and Hansol Group.

In 1993, Samsung reorganized to focus on three industries, electronics, engineering, and

chemicals. The reorganization included selling off ten subsidiaries and downsizing. With
renewed focus in electronics, Samsung invested in LCD technology, becoming the largest
manufacturer of LCD panels in the world by 2005. Sony partnered with Samsung in 2006 to
develop a stable supply of LCD panels for both companies, which had been an increasing
problem for Sony which had not invested in large LCD panels. While the partnership was
nearly a 50-50 split, Samsung owned one share more than Sony, giving them control over the
manufacturing. At the end of 2011, Samsung bought Sony's stake in the partnership and took
full control.

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Samsung's focus in the future is centred on five core businesses including mobile, and
electronics. As part of it bio-pharma investment, Samsung formed a joint venture with
Biogen, investing $255 million to provide technical development and biopharmaceutical
manufacturing capacity in South Korea. Samsung has budgeted nearly $2 billion in additional
investment to pursue their bio-pharma growth strategy and leverage the advantages of their
joint venture.

Samsung has also continued to increase in the mobile phone market, becoming the
largest manufacturer of mobile phones in 2012. To remain a overlook manufacturer, Samsung
has earmarked $3-4 billion to upgrade their Austin Texas semiconductor manufacturing
facility.

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2.0 SWOT Analysis

2.1 Internal analysis

Strengths
Samsung has a large market for selling televisions which have modern features such
as internet based applications and recommendations on programmes based on user views.
The firm has been able to make great steps over the years, and the products for the television
division have a wide range of price points to accommodate different consumer groups.

Samsung is one of the largest and the most main Smartphone manufacturer globally.
The company has sold more phones globally compared to its closest competitor, Apple which
is the second largest manufacturer. The Samsung Galaxy S series phones are the main reason
for gaining a large market share over a 4 year time period, Michell (2010). The latest handset
had sold millions of units within one quarter of release which shows that the company can
move millions of units through innovation, Michell (2010).

The camera division of Samsung is also making impressive changes to the overall
market. The company has produced a camera which has the Android operating system by
Google which is a first in the industry. The camera allows the user to manipulate images and
be able to share their photos instantly to popular social networking sites through its built in
4G and Wi-Fi functionality, Michell (2010).

Weaknesses
The laptop division and the tablet division of Samsung is somewhat lacking compared
to the overall market and its competitors such as Apple company. The company is trying to
discover new products within this area but global sales of laptops have declined for a few
years now and tablet sales have increased. The firm has yet to monopolise on this change in
technology as the tablets they have discover are not that attractive to consumers.

The fact that the company is selling millions of units of mobile phones is a great
achievement, however the biggest problem with this is that the company is not making a good
scope on the those sales. The manufacturing of their products is highly fragmented as well,
where Samsung has made dozens of different types of handsets to put up different price

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points. These maybe creating mixed messages to investors who may find that a sampled
product offering would better in the long term, (Ferrell & Hartline, 2010).

2.2 Ansoff Matrix

To describe alternative corporate growth strategies, Igor Ansoff presented a matrix

that focused on the firm's such as Samsung present and potential products and markets
(customers). By considering ways to grow via existing products and new products, and in
existing markets and new markets, there are four possible product-market combinations.

Figure 3: Show different growth strategy.

Source: http://businesscasestudies.co.uk/portakabin/achieving-growth-through-product-
development/ansoffs-matrix.html#axzz2r8x8tSIk

Market penetration

Samsung seeks to achieve growth with existing products in their modern market
segments, aiming to increase its market share. The market penetration strategy is the least
risky since it leverages many of Samsung existing resources and capabilities. In a growing
market, simply maintaining market share will result in growth, and there may exist
opportunities to increase market share if competitors reach capacity limits. However, market
penetration has limits, and once the market approaches saturation another strategy must be
pursued if Samsung is to continue to grow.

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Market Development

Samsung seeks growth by targeting its existing products to new market segments.
Market development options include the pursuit of additional market segments or
geographical regions. The development of new markets for the product may be a good
strategy if Samsung core competencies are related more to the specific product than to its
experience with a specific market segment. Because Samsung is expanding into a new
market, a market development strategy typically has more risk than a market penetration
strategy.

Product Development

Samsung develops new products targeted to its existing market segments. A product
development strategy may be appropriate if Samsung strengths are related to its specific
customers rather than to the specific product itself. In this situation, it can leverage its
strengths by developing a new product targeted to its existing customers. Similar to the case
of new market development, new product development carries more risk than simply
attempting to increase market share.

Diversification

Samsung grows by diversifying into new businesses by developing new products for
new markets. Diversification is the most risky of the four growth strategies since it requires
both product and market development and may be outside the core competencies of the
Samsung. However, diversification may be a reasonable choice if the high risk is
compensated by the chance of a high rate of return. Other advantages of diversification
include the potential to gain a foothold in an attractive industry and the reduction of overall
business portfolio risk.

2.3 External analysis

Opportunities
Samsung is said to announce a smart watch in the month of September 2013, but this
is not confirmed. IF Samsung were to release a smart watch, then they would the first
company to discover a product like this to the market. Although there are other smaller turn

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on companies planning to discover their own smart watches, Samsung would be the first
large company to produce them on a global market.

Another aspect Samsung could look into is having a health application and product,
much like the Nike Fuelband. Samsung could attempt and partner with Adidas to create a
same product which would allow both companies to enter a market which they do not drive in
at the moment. Creating a product which would be bundled with a similar health wristband
with a compatible Smartphone would allow the companies to attract a different consumer
base. Adidas could use celebrities such as Andy Murray to promote the product in
advertisements as well as be endorsed by Samsung.

Threats
Apple releasing new mobile devices is the biggest threat to Samsung at the moment,
especially the release of a budget iPhone product. The fact that a plan iPhone would allow
Apple to sell to developing markets such as India would cut Samsung’s market share. The
popularity of the iPhone is evident as customers are loyal to the company they buy from and
can make it hard to transfer to another phone.

Other areas which can be threats to Samsung are the fact that the manufacturing
factories of the company can be hit by natural disasters. The supply chain would be disrupted
which can cause major problems especially if a new product were to be released soon. The
company would need to act quickly in making sure that the supply can meet the demand of
consumers, as well as ensure that the factories are maintained properly during and after the
natural disaster, Dahlén et al. (2009).

3.0 PEST analysis

3.1 Political factors

Samsung electronics is subjected to important levels of political risks in its countries’

of function. The levels of political risks vary from one country, in which it is conducive in
some and uncomfortable in some. South Korea’s political nature has presented an exciting
reason for Samsung electronics that now faces political instability at home country. The home
country’s situation is dissimilar and not powerful when measured against other countries.

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Some of the countries where Samsung electronics is experiencing an inconvenient business

environment include Africa and south East Asia (Institute of Marketing, 2009). The business
environment in these places is unfriendly which has a negative impact on the company.
Countries such as china and India offer an advantageous business environment enabling it to
focus on the markets in an appropriate way, Muralidaran (2007).

3.2 Economic factors

Economic factors comprises of interest rates, taxation dynamics, economic

development and growth, inflation and foreign exchange rates. These factors can have a
remarkable impact on the business operation of Samsung electronics (Pahl & Richter, 2009).
Higher interest rates have a leaning of reducing borrowing capability since it is costs more to
borrow. On the other hand, inflation aggravates higher salaries by employees, which
increases the cost of function. This economic situation influences the decisions of Samsung
electronics in any particular country of operation. The company has fixed suitable policies in
the markets of operation basing on the economic strength and size of the targeted consumers.

3.3 Social-cultural factors

The social environment consists of customs, practices and traditions that vary from
one social group to another. Variations in the social status affect order for a product and the
readiness of people to work. Ageing as a social factor has the tendency of increasing the
income payments by firms since people are living longer, this is expensive to Samsung. The
ageing population also affects demand. It also increases the demand for products for the aged.
Samsung electronics has succeeded to overcome the social challenges by incorporating itself
in new markets. The approach of think global and act local has efficiently connected the
social and cultural space between its local country and foreign country (Dahlén et al., 2009).

3.4 Technological factors

Samsung inventions change products and their production processes. An instance of

innovation is the online market, bar coding, and computer aided designs, which are regarded
as advancements (Ferrell & Hartline, 2010). The major benefit of technology is its ability to
cut down production costs and improving quality. Samsung electronics is proud of its creative
advance to technology and improving it for manufacturing products that deploys design

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technology and features. It is universally recognized that Samsung electronics is strong on

technology. The driving force behind the company’s vast ability and pride is its fixed culture
of innovativeness.

4.0 Porter five forces

Figure 2: show porter five forces.

Source: http://www.ftsmodules.com/public/texts/valuationtutor/VTChp0/topic4/topic4.htm

4.1 The threat of potential new entrants (Low)

High capital is required to enter into the mobile industry such as Samsung. It is
difficult to start up in an industry where the existing Samsung already operate on cost and
differentiation strategies (Chan et al, 2011, p.12). However, with the commoditization of
parts, finding solutions for a simple alternative product might be possible. New entrants such
as Samsung electronics would have issues with overcoming obvious issues if they didn’t plan
on investing in their own R&D to create a unique product such as galaxy IIII. 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

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infrastructure to remain competitive. The costs of accomplishing these things make a very
strong barrier to entry.

4.2 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 Samsung Company, however, is low.

Although there is an increased popularity of Tablets such as Galaxy tablet 2.1 , they are
generally too large to be considered as straight substitutes. They don’t offer a traditional
mobile phone capability, which makes them not enough. Laptops have the same problem. 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.

4.3 The bargaining power of buyers (High)

Buyers have good power when it comes to bargaining because of their access to
information and how competitive the mobile phone industry such as Samsung. 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.

Usually a phone such as Galaxy II will come at a lower cost to a buyer if it is

purchased with a 2 or 3 year contract via a service provider such as Samsung. Should this
agreement be ended before the contract is up, really 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.

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4.3 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).

4.4 The intensity of competitive rivalry (High)

The smart phone industry such as Galaxy IIII has many competitors that are equally
balanced, and thus competition is high. The market for smart phones has slowed in growth
since its report, 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 short-lived due to the extreme level of competition.

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5.0 Recommendations

 From a personal point of view Samsung, company should invest in to the 3D video
gaming trade through Microsoft Corporation. This will enable the company to
develop and get the available market. This will enable Samsung to use the XBOX
360gaming console from Microsoft. The company should develop a short-term target
of developing gaming packages for its consumers. Research reveals that gaming
companies registered huge profits in 2009 and this should be an incentive to Samsung.

 Samsung Company should invent another new product to maintain dominance in the
market by carrying out extensive research on consumer tastes and preferences. It is
not easy for a company to increase within a short span of time, the way Samsung did.
It has proved to the world that it is possible to better the greatest United States and
Japan multinational corporations. According to Glowik & Smyczek (2011),
technology was the driving force behind Samsung’s success. Samsung went further
adopting its own technology separately from adapting to the already existing
technologies. Samsung’s case provides a moral and an inspiration to company
executives of other business firms. The remarkable success characterized by the
advancement from plain monochrome television manufacturers to high-tech
semiconductors offers a recommendation to new ultra-modern companies (Viardot,
2004).

 Samsung’s electronic scenario is an allegation of a situation experienced by the

company between 1970s and 1980s, which brought forth the performance of reverse
order policy. However, the current business environment had changed due to the
World Trade Order establishment that had advocated for latest economic and trading
policies. As a result, Samsung had to jump the group again to suit in the current
competitive market conditions. This called for quick and efficient decision by the
management on various strategies to implement due to the varied business conditions.

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 It is recommended that Samsung electronics should develop global strategies. In-

power analysis of the company’s business activity and technological advancement
will supporter that Samsung should generate global strategies in formation and local
in effecting within the markets of services. It is advisable for Samsung to be more
aggressive and acquire the BOP electronics, as this would demand restructuring of
strategies and implementation of extreme end pricing mechanism, which beneficial in
the old times.

 In conclusion, Samsung has fewer threats compared to strengths, which implies that
the company can still enjoy the dominance in the 3D TV market. To do away with
risk the Samsung need to alliance with Microsoft to play a role in the gaming market.
Samsung has enough and efficient resources in terms of labour, which facilitates the
development of semiconductors, utilized in the 3D TV manufacture. The greatest
threat faced by Samsung is the slow rate of diffusion of 3D TVs, which slows goal
attainment. The best opportunity that Samsung has to increase its profitability is
investing in gaming consoles.

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6.0 References

Michell, T., 2010. Samsung Electronics: And the Struggle For Leadership of the
Electronics Industry. London: John Wiley and Sons.

Ferrell, O. & Hartline, M., 2010. Marketing Strategy. 5th ed. London: Cengage Learning.

Dahlén, M., Lange, F. & Smith, T., 2009. Marketing Communications: A Brand Narrative
Approach. London: John Wiley and Sons.

Muralidaran, S., 2007. Business environment analysis: an introduction. London: Icfai

University Press.

Pahl, N. & Richter, A., 2009. SWOT Analysis – Idea, Methodology And A Practical
Approach. London: GRIN Verlag.

Ferrell, O. & Hartline, M., 2010. Marketing Strategy. 5th ed. London: Cengage Learning.

Huvard, Sky, Rodrigo Salcedo, Lateshia Tuppince, Matt Wentz, and Lindsay Zolad.
Vodafone Air Touch: The Acquisition of Mannesmann. Rep. May 2006. Web. 5 Oct. 2011.
<http://www.cybozone.com/vcu/Vodafone_Air_Touch__The_Acquisition_of_Mannesmann.
pdf

Chan, Joshua, Zhisui Chen, Irene Cormane, Nou Her, and Renie Thomas. Cell Phone
Industry Analysis. Rep. 12 May 2006. Web. 5 Oct. 2011.
<http://www.csus.edu/indiv/h/hattonl/industryanalysis.doc

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Glowik, M. & Smyczek, S., 2011. International Marketing Management: Strategies, Concepts
and Cases in Europe. London: Oldenbourg Wissenschaftsverlag.

Viardot, E., 2004. Successful marketing strategy for high-tech firms, Volume 5. London:
Artech House.

Websites:

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