Samsung Global Market

Entry Strategy

Galaxy Note

International Market

April 5, 2020
Market Entry Strategy

Samsung already has established a market presence in Brazil since 2004 when it created
an IT outsourcing service acting as a subsidiary of Samsung SDS. It actively markets its latest
smartphone model, the Galaxy S5. After describing the core concepts found in chapter 8 and 9, I
will evaluate the options available for the different modes of entry strategy. Brazil implements
the SISCOMEX system to monitor imports and operates under the Mercosul Common External
Tariff act of 1995 (Kerlikowske, 2014, p. 82). There are three divisions of duty fees with import
duty (10%-35%), Industrialized Product Tax (0%-15), and Merchandise and Service Circulation
Tax (varies by state; 7%-18% in São Paolo) (Kerlikowske, 2014, p. 83). Tariffs favor local
products, set at 0%-35% while duties remain high; no product specific regulations relating to
smartphones were found (Kerlikowske, 2014, p. 13-14, 54). Trade financing is declining in
Brazil having dropped 30% since the early 2000s (Clark, 2014, p. 18). This may come in
response to a 200-300 point rise in basis points in order to obtain letters of credit (Clark, 2014, p.
18). National Brazilian banks provide 70% of the countries trade financing (Clark, 2014, p. 12).
These loans are given in the Brazilian real yet funded through mostly in USD$ and repaid in
foreign currencies, a contrast to more developed countries that deal exclusively in local
currencies (Clark, 2014, p. 14). With these factors in consideration, I will compare the five main
entry strategy possibilities for Samsung.

Market Entry Method Advantages Disadvantages

Full accountability for

No intermediaries, direct
Export Marketing result, weak trade
communication
financing system

No local setup cost, Less potential profit,

Licensing
instant market access complex negotiations

Flexibility for high- Bypasses Samsung

Contract Manufacturing
volume low-cost builds manufacturing

Shared risk, greater Miscommunication

Joint Venture resources and potential, imbalance of
expertise resources

Potential to raise
Dilution of ownership,
Equity Stake billions, professional
loss of complete control
collaboration
 The first strategy of export marketing actually represents the path Samsung originally
took when entering the Brazilian market. After establishing business relationships with US-
provider Sprint in 1996 and Hong Kong in 1997, Samsung chose to export to Brazil in 1998. By
entering the market and choosing to pay the associated tariff fees, Samsung took a risk-averse
approach in a fledgling market that had only 8.3 million telephone lines in 1988 for a population
of 141 million (Martins, 2013, p. 7). Today, with the aformentioned trade finance options,
Samsung could find more lucrative ways to enter the market that bypass the process of exporting
to a local distributor.
Licensing also presents an option that Samsung already explores, especially in the areas
of patents. In early 2014, Samsung came to terms of agreement with Google for an exchange of
patents described by some as reminiscent of a NAFTA treaty—essentially, the two companies
agreed to share each other's product features (Yoshida, 2014). In terms of distribution, licensing
makes little sense for a company aiming for $400 billion in annual revenue by 2020. Samsung is
a global leader in telecommunications and has expended the necessary investment in Brazil to
bypass any product licensors that would potentially limit the ceiling of profitability with
headquarters in São Paolo and 15 local branches established in all Brazilian states (Duran, 2014).
Contract manufacturing is, perhaps, the least appealing of the five possible options.
Samsung enjoys a sustainable competitive advantage through its possession of a complete
manufacturing infrastructure that does not rely on other companies to manufacture its parts
(Worstalla, 2013). This allows it to mitigate manufacturing costs as the company largely pays
different divisions of itself to create new products (Epstein, 2013). Through this structure,
Samsung already reaps the benefits of contract manufacturing without the traditional downfalls
associated with this market entry tactic such as loss of quality control and scheduling flexibility.
In the case of Samsung, an equity stake would provide the company with an opportunity
to directly invest in a national telecommunications company like Oi. With a national electronics
market that has grown 60% since 2010 to $83.6 billion, it could make sense for Samsung to buy
a large share of competitor stock in its own industry—such a union could provide grounds for a
partnership (Pearson, 2012). With this kind of influence in the company, Samsung could sell its
Galaxy Note smartphone exclusively to create a corner in the market and distinguish Oi from
other competitors. The opportunity recently came in the merger of Oi with Portuguese Telecom;
based on this merger, telecom analyst Robin Bienenstock stated that Oi would be transformed
into a company with strong corporate governance and management team with a respectable
balance sheet (Horch, 2014). With these kinds of attributes and a recent share offering of about
$3.7 billion, it could have made sense for Samsung to enter the market through purchase of an
equity stake in Oi. However, the complications of tying the company to a single provider are too
limiting in a rapidly expanding market with a crowded field of four main competitors (Vivo,
Claro, TIM, Oi) (Nes, 2013).
After extensive research, it appears that joint venture collaboration with a local company
would give Samsung the greatest competitive advantage in a crowded market. Brazilian business
leaders often prefer to establish personal relationships with their partners before engaging in
formal negotiations and do not trust foreigners unquestioningly (Kerlikowske, 2014, p. 4). By
approaching a market entry through the joint venture strategy, could also integrate into a
complex tax structure and perhaps even take advantage of transfer pricing, trading down to the
lower tax rate reserved for Brazilian companies (Soto, 2014). With a government increasingly
focused on improving it social system, any efforts directed to engage national companies and
empower local workers could create stronger relations with political leaders.
Marketing Strategy
Brand and Product Strategy
Branding plays an essential role for the success of any company. Samsung, in the past,
has struggled with a reputation as cheap alternative to better-known consumer brands such as
Motorola, Nokia, and Ericsson. Today, Samsung represents a smartphone brand largely
benefitting from the success of Google. The Galaxy Note features strong collaborative
components with Google allowing voice-activated searches and streamlined multitasking
through optimized processing and memory capabilities (Android, 2014). Software products
provide the latest in a series of updates seeking to outperform competitors in the field. Samsung
targets young millennials and business professionals seeking to better organize themselves while
living an active lifestyle (Android, 2014). Although Android itself is not made by Samsung, the
correspondence is evidenced as 95% of Android smartphone profits go to the company for a
strong brand attachment between Google and Samsung (Grobart, 2013).
Samsung works to build a competitive advantage in its smartphone products with
efficient packaging in everything from the boxes the phones are sold in to the casing that holds
the sensitive electronic components. With its own package research R&D department in Austin,
TX, Samsung focuses on mobile devices that are small, thin, and light, data performance that
implements stacking technology, and "Less Energy, More Performance" initiatives that bring
battery longevity to its products (Samsung US, 2014). With a wide range of options in graphic
DRAM and CIS and a database to choose packaging options with proven reliability for specific
needs, Samsung invests substantial energy in setting itself apart from competitors. In the
smartphone industry, service quality often is delegated to service providers. Samsung provides
support via email, live chat, product manuals, and service requests via its Brazil website. The
company should focus on branding itself as the preferred smartphone of choice for the rapidly
expanding 4G market in Brazil (Kerlikowske, 2014, p. 71). By focusing on this target, Samsung
maintains high-quality standards for cutting edge products.

Price Strategy
The price strategy for selling Samsung smartphones in Brazil focuses on beating rivals
for market share. The company employs a cost-based strategy that focuses on competing with the
myriad of competitors in the market, especially main challenger Apple. This has been flanked by
a government initiative lowering taxes for smartphones for sale under $750, which may not
necessarily affect the highest priced Samsung offerings—the policymakers for this initiative
wish to encourage the production of smartphones within Brazil itself (Xinhua, 2013). With an
inflation rate currently at 6.2% and trending up over the past few years, Samsung should pay
careful attention to cash reserves of the real to avoid disappearing revenues (Brennan, 2014).
Transfer pricing regulations in Brazil place Samsung in a state where risk aversion carries much
importance: "Brazil’s transfer pricing regulations provide the use of statutory fixed margins to
derive a benchmark ceiling price for inter-company import and minimum gross income floors for
inter-company export transactions"—this has resulted in more frequent audits (PwC, 2011).
Brazil also seeks to negotiate countertrade strategies that impose a product on the exporting
nation (often surplus or secondary quality) in exchange for the imported good, thereby
eliminating the need for an exchange of currency (McVey, 1981, p. 198). The Samsung Galaxy
Gran Duo GTI9082 sells for R$890.10 ($397.45) and the Galaxy S5 sells at R$2,339.10
($1,044.10). I would recommend a market-oriented price strategy that seeks to establish a
majority market share. With inconsistent taxation strategies and unappealing trade scenarios, the
leader of the Brazilian smartphone market will probably be the international company that builds
in Brazil.

Distribution Strategy
Indeed, Samsung does seek to build its smartphone products in Brazil. Its supply chain,
rather than collaborate with Oi, is managed by Penske Logistics, which verifies import receipts,
shipments from the Manaus and Campinas factory, and transportation for retail distribution
(Supply Chain Brain, 2006). However, Samsung has run into issues with the Brazilian
government for allegations of worker abuse with labor shifts surpassing 15-hour days and over
2,000 workers at the Manaus plant with work-related back issues; similar reports of abuse
occured in 2011 concerning poor work conditions (CBSNews, 2014). With 60% of phones sold
in Brazil coming through third-party retail stores, Samsung has developed strong inroads with
Brazilian business people through a solid commitment to developing within the nation over the
past 15 years (Bevins & O'Brien, 2013, p. 2).
The channel strategy of working with local retailers provides a huge advantage Samsung
should continue. In spite of its labor issues with the government, Samsung officials express an
ongoing commitment to its workers, even though it comes under accusations of hiring children in
China and health hazards against workers in South Korea: "we will conduct a thorough review
and fully cooperate with the Brazilian authorities. We take great care to provide a workplace
environment that assures the highest industry standards of health, safety, and welfare for our
employees across the world" (CBSNews, 2014). With this commitment to retail distribution
within the country through established factories, Samsung avoids a substantial level of tariffs that
currently make market penetration difficult for competitors such as Apple (Bevins & O'Brien,
2013, p. 2).

Promotion Strategy
Advertising, a pre-planned promotion of brand and product, focuses on caring about
Brazilians in their lives where they are in an act of corporate responsibility. This is demonstrated
in profiling Brazilian students who live in the Amazon and use Samsung products to learn about
the world around them (Youtube, 2012). In this case, Samsung uses the power of social media to
spread its message, although the company's use of media expands into nearly every advertising
sector with a global advertising budget of $14 billion (Kim, 2013). With this public relations
strategy, the company seeks to empower consumers by going wherever there is need (Youtube,
2012) The effect is somewhat emotional for a public relations imprint that strikes at core needs
of the Brazilian consumer by compensating for a "dignity deficit" (empowerment) and a sense of
caring humanitarian connection (Barki & Parente, 2010, p. 11; (Branco & Williams, 2008). Sales
promotions to raise product awareness correlate with Samsung's sponsoring of the Olympics; in
this case, 11 of the world's best soccer (football) players join forces to battle attacking aliens with
 the help of Galaxy devices (Kim, 2013). Personal selling via sales representatives and mall
retailers could provide high-value for a low-income consumer profile that values face-to-face
contact (Barki & Parente, 2010, p. 18). With literacy rates of 90.4%, the appeal of Internet
purchases may come secondary to dealing directly with salesmen (Brennan, 2014; Barki &
Parente, 2010, p. 11). Brazilian promotion strategies should focus on entertaining and
communicating a deep sense of care for the consumer. By minimizing price, emphasizing
communicative functions like camera features, and distributing through third-party retailers,
Samsung can position its smartphone products as empowerment devices for the public good.
Stakeholder Analysis
Stakeholders on top row

Strategies at Partners Government Manufacturer Consumer

left column

Joint Venture Join Foreign Trust

global Integrate corpora-
brand Market tion
No stake
World Leader
Clear Benefits Serves Superior
selling consumer company option
Market- point interests
oriented
Ensures Cheaper
market prices
position
Onshore, 3rd-
party retailers Less tax Smaller
Local Brazil
revenue Samsung
margins
jobs Produces abuses No stake
growth labor

Corporate
responsibility Humans
Human Connect
image

No stake No stake
 Although my market entry strategy recommends an approach focused on partnership with
a Brazilian company, Samsung appears to be relying on its own resources while hiring local
labor to work in its factories. If Samsung could find an appropriate partner (I recommended Oi),
it would advance Samsung's positioning as a foreign company heavily invested in acting for the
benefit of Brazilian culture. Samsung must continue branding strategy and promotional efforts to
act as an entertaining world brand that cares deeply about its customers. With its issues in onshor
manufacturing lawsuits, the bad press generated by such a report could damage beyond the scope
of a relatively meager government fine of $108 million (CBSNews, 2014). Also, heavy
competition ensures that customers will receive the best price the market can offer to the benefit
of consumers. This may continue for as long as the government maintains its distance from
excise taxation.

Recommendations
Samsung smartphones are priced quite high, even by competitive standards. The
company's marketing strategy in Brazil should focus on the growth of consumer credit, which
had expanded to 49% of GDP in 2011 (International Monetary Fund, 2013, p. 3). In doing so, the
company can focus on attracting the consumer to come to their level. The company, by focusing
on connecting with people and empowering them to learn and enjoy their lives, will achieve
success through emotional appeal. However, this strategy must transfer to responsible
manufacturing practices if Samsung expects to maintain its promoted image. By opting for a
joint venture, I believe the company could increase its market share among consumers by
appealing to a service provider. These recommendations will position Samsung for success.
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