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1
MASTER OF BUSINESS ADMINISTRATION- MBA
Strategic Management
LECTURER–Trish Ganly
INDIVIDUAL ASSIGNMENT
Lecturer:Trish Ganlay
Bilal Ahmed - Nº 2159403
Full time Student
Dublin- 30/08/2016
2
Executive Summary:
Since 2008 smart phone industry has experienced an unprecedented growth and
number of new trends smart devices has become the key entry points and main
innovative platforms for internet businesses, As devices become intelligent
consumers are expecting more from their digital lives, china is a global leader in
smart phone uptake, recent trend sees a rising demand of Feature-rich 3G phones.
The rising demand for cheaper phones has hardly hit the high-End market Leaders
in favour of Medium/Low End features rich competitors. Threatens the stylish ,trendy
and expensive mobile phones.by 2014 share of Chinese local companies in market
is reach to approximately 50%,The position of domestic brands getting stronger is
commensurate with the growing demand of mobile phones in rural and sub-urban
areas. This Apple Inc. and Samsung electronics two of the largest technology firms
provide a new paradigm on how vertically integrated firm operate today. Both
witnessing fall in market share since the emergence of low-cost features rich smart
phones. Samsung is diversified manufacturer establish itself in consumer electronics
and home appliances and later enter in to mobile phone business is 3C
integration(computer, communication and consumer electronics).Samsung has been
trying to expand business in other mid-sized cities which was previously neglected
and operation was confined to major 100 cities through the partnership with national
distributor “China Mobile”. As a large conglomerate having a geographically
distributed and collocated network Samsung plc. enjoys above average return ”the
cost driver has benefitted most to Samsung in seeking cost advantage is vertical
integration with its production facilities”(Reauters,2013),This business model allow
Samsung to build on their proficiencies and to minimize transaction cost. Having
facilities in Asia –Pacific and Taiwan make it easier to significantly obtain economy of
scales.
Samsung plc. Higher management Raise concern about recent fall of revenue in its
china business, Samsung electronics (SE) are required more immediate and
stringent actions as the importance of china business is too high. There are many
possible reasons of recent fall in revenue but the most important are SE distribution
channel strategy ,its marketing strategy and perhaps the use of open-source
operating system in its devices.in fact the success of Samsung over second half of
2000 was mainly fostered by growing popularity of its android based smart phones.
3
Conversely Samsung over reliance on Google Android operating system is making it
more vulnerable to competitive retaliation .developing own software would be a
major step in competitive landscape in china. Although android is highly popular OS
in china number of user increase to 75% from last three years, but Samsung brand
image and innovative capacity could come up with user-friendly interface.one
example is apple’s which is also our largest competitor in global market ,executing
successful lock-in strategy by developing its own iOS ,Apples smart phones, tablets
and computers operating system are combined in usage, apple .Inc. is far above the
competition. Present report is being framed which is emphasizing on strategic
analysis based on rational planning model and structuralist strategy that is bound to
be devise by operating environment, planning process goes through each element in
sequence;
In this report corporate strategy of Samsung plc. would be assessed, strategic
position and nature of competition in china will be analysed, evaluation and
identification of alternate strategies and if necessary re-stating the business
objective.The objective of this report is to carve out a viable competitive position
4
provide with the recommendation for sustaining competitive advantage on long term
basis.
Contents 1.0 Introduction: .................................................................................................................................... 7
1.1 Back Ground: ............................................................................................................................. 7
1.2 Large Conglomerate: ............................................................................................................ 7
1.2.1 Core Value: ......................................................................................................................... 7
1.2.2 Ethical Stance: .................................................................................................................... 7
1.2.3 Corporate Structure: .......................................................................................................... 8
1.2.4 History in china: .................................................................................................................. 8
1.2.5 Market Segmentation:........................................................................................................ 9
2.0 Significance of Mobile Division (IM): ........................................................................................ 10
3.0 External Environment: ................................................................................................................. 11
3.1 Pestle Analysis: ........................................................................................................................ 11
3.1.1Political Factors: ................................................................................................................ 11
3.1.2 Samsung Political Relationship and Influences: .......................................................... 12
3.1.3 Corporation Tax ................................................................................................................ 12
3.1.4 Government support to Mobile industry ........................................................................ 12
3.1.5 Drawbacks: ........................................................................................................................ 13
3.2 Economic Factors: ................................................................................................................... 13
3.3 Social factors: ........................................................................................................................... 15
3.3.1 Socio Economic Factors: ................................................................................................ 16
3.4 Technological Factors: ............................................................................................................ 17
3.5 Ecological Factors: .................................................................................................................. 19
3.5.1 Measures to Overcome: .................................................................................................. 19
3.5.2 Implications for manufacturing industries: .................................................................... 19
4.0 SWOT Analysis: ........................................................................................................................... 19
4.1 Resource Audit: ....................................................................................................................... 20
4.1.1 Financial Resource: ......................................................................................................... 20
4.1.2 Physical Resources: ........................................................................................................ 20
4.1.3 Value Chain ....................................................................................................................... 20
5
4.1.4 Research & Development: .............................................................................................. 22
4.1.5 Human Resource: ............................................................................................................ 23
4.1.6 Intellectual Capital: ........................................................................................................... 23
4.1.7 Brand Equity ...................................................................................................................... 24
4.1.8 Consumer Loyalty: ........................................................................................................... 25
4.2 Weakness: ................................................................................................................................ 26
4.2.1 Management Competency: ............................................................................................. 26
4.2.3 Lack Of Nationwide Distribution network: ..................................................................... 27
4.2.5 Open source operating system: ..................................................................................... 27
4.2.6 Vast Product Line: ............................................................................................................ 28
4.2.7 One Size fits to all: ........................................................................................................... 28
4.3 Evaluation of Resources: ....................................................................................................... 28
Samsung VRIO Analysis ........................................................................................................... 29
4.4 Opportunities: ........................................................................................................................... 30
4.4.1Samsung Brand Image in china: ..................................................................................... 30
4.4.2 Emerging Market: ............................................................................................................. 30
4.4.3 Economic Expansion: ...................................................................................................... 31
4.4.4 Technological Advances: ................................................................................................ 31
4.4.5 Product Life Cycle: ........................................................................................................... 32
4.5 Threats: ..................................................................................................................................... 32
4.5.1Patent Infringement: .......................................................................................................... 32
4.5.2 Tough Competition: .......................................................................................................... 33
4.6 SWOT Summary ...................................................................................................................... 34
5.0 Strategic options: ......................................................................................................................... 34
5.1 BCG Matrix ................................................................................................................................ 35
5.2 Head-on Attack ........................................................................................................................ 35
5.3 Collaboration ............................................................................................................................ 36
5.5 Multi-channel Structure ........................................................................................................... 37
5.5.1 Marketing Strategies: ....................................................................................................... 38
6.0 Managing strategic change .................................................................................................... 39
6.1 McKinsey 7S Framework ....................................................................................................... 39
6.1.1 Change in in staff: ............................................................................................................ 40
6.1.2 Change in skills: ............................................................................................................... 40
6.1.3 Change in values: ............................................................................................................. 40
6
6.1.4 Change in system: ........................................................................................................... 40
6.1.5 Change in system/Processes ......................................................................................... 40
6.1.5 Change in structure: ......................................................................................................... 40
7.0 Conclusion .................................................................................................................................... 41
8.0 Recommendation ......................................................................................................................... 42
References .......................................................................................................................................... 44
Appendix 1 ............................................................................................................................................ 46
Appendix 2 ............................................................................................................................................ 47
Appendix 3 ............................................................................................................................................ 48
7
1.0 Introduction: Mobile phones are become increasingly intelligent, previously they were only
designed to provide telephony service but now it involves in to smart phones which
has capability as essentially as mini computer that can store and process
information. Many regular mobile are phase-out from market during this transition
period, such as Nokia which was leader in industry was not able to manage the
transition from regular phones to smart phones. Thus the introduction of smart
operating system in the mobile phone industry and their rapid diffusion marked a
strong technological discontinuity; the sudden redundancy of regular devices and the
rise of smart phones(Funk;2008)
1.1 Back Ground:
1.2 Large Conglomerate: Samsung employs merger & acquisition as main
business strategies,a spokes man from a samsung electronic said “acquiring a
samsung electronic is also and effective means of developing technological
competence and patent capacity”(WSJ) ,(Greiner 1970)”Suggest that every entity
grow in size in goes through a changes as it gets bigger. Each change occur in
response to a crises “he further define that early years of successful business entity
are period of creativity and innovation”.Having a very diverse range of business and
comprehensive range of products under each business,(SE)account for 37.5% of
total business. Samsung electronics is committed to bringing the best user
experience to its customers through its innovative hardware and service. The SE
business strategy leverages its unique ability to design its hardware with seamless
integration.
Electronics:37.5%
Chemical industry:2.5%
Heavy industry:3%
Financial service:33.5%
Other activities:23.8%
1.2.1 Core Value:
“inspire the world create the future“the main purpose of the Samsung Inc. is to
devote the resources in research and development to produce innovative technology
that can contribute to a better global society.as part of Samsung electronics vision
,the objective is to grow significantly bring new and innovative technology in market
1.2.2 Ethical Stance:
Division has strong faith in ethical standards. And continuously judge every individual
and collection action in compass of fairness and respect for all stakeholders the
Samsung electronics vision to enhance the global turnover, explore new markets
8
and bring peoples closer and connected through advancement in modern
technology.
https://news.samsung.com/global/fast-facts
1.2.3 Corporate Structure:
The corporate parent Approach: In Samsung Plc. enterprenueal structure is prevalent.it organised centrally and run
autocratically by its owner manager Lee-Kun hee.Head office in south Korea is
responsible for the group Business, major decision mainly taken in head office about
strategic direction of the organization. Samsung globally pursuing “parental
developer “approach, it delivering benefit to its china Mobile Division(IM) by providing
well establish brand image, centralised pool of resources, experience and skills.
1.2.4 History in china:
Samsung Plc. First activity export of dried fish, fruits and vegetables to china. In year
2000 first technology research centre establish in Beijing. Which later followed by the
china Unicom and first Samsung and Unicom CDMA mobile equipment. Set up
various research and development facilities in china on mobile and communication
the head of Samsung china “ho moon kang” recently declared “we want to create
business models and product design to serve Chinese market first and eventually
export them to the rest of world”(George haour :2015), Samsung plc.china CEO is
regarded as one of the SE top three executives worldwide. Currently SE has 60%
share of total turnover of Samsung group ,In china SE is a group of 28 production
facilities,3 distribution companies and four research and development centres and
was elected most respected enterprise in china. Since mainland china start offering
mobile phone service in 1987 the number of smart phone users has risen in 2002
surpassed the number of users in United States. Becoming the largest market in
world. Samsung electronics china turnover of 21.1 billion US dollars as a 16% share
of total of Samsung plc. Entry of SE in to china market is the representative example
of emerging market expansion of Korean electronics firm, Since Finnish develop
expensive High-end handset based on 3G technology ,its greatest strength
particularly in the countries where demand for low cost phones are rising such as
china, India and brazil. Local players in china came to increase their production and
marketing abilities offering Well-designed Low and mid-end handset at very
competitive prices.
9
1.2.5 Market Segmentation:
According to Kotler “customer needs are diverse and the diversity requires manager
identifies group of customers with similar characteristics”. He further argues that
divided the basis of segmentation in to geographic variables, demographic variables,
psychographic variables and behaviour variables.
By position Chinese mobile market can be divided in to low/Middle end, middle/high
end, and all segments.Samung strategic positioning is in middle andhigh end
market.
1.2.6 Xiaomi as a Major Threat:
Strategic space induce entrants to untapped neglected market.National distribution
system of mobile phone in china had long term relationship with early foreign
manufacturers, however these distributors were not very interested to sell many
phone models for domestic manufacturer when they came to emerge first, as a result
domestic manufacturers have to find the different approach they choose to target 3rd
and 4th tier cities that was not covered by foreign manufacturers and establish
representative office in each region. The position of Xiaomi grew stronger with the
growing demand for mobile phones in rural areas, while Samsung’s efforts are
concentrated on urban localities. Mainly in the 100 largest cities of the country.
Xiaomi together with other local brands gained popularity through targeting “power
users” or audio visual trend setters the age group of (14-49) who are technology
savvy. Concentrate on youth market to cater for ever changing needs they comprise
of 16% of total digital population in china, these consumers are constantly looking for
new features and experiences who uses smart devices mainly for Entertainment,
music and games,Xiaomi customized their product for particular group of peoples.
At corporate strategy level in Samsung Plc. Strategic gap can be expressed a
reduction in total market share from 2013 level. The purpose of the strategy
development is to implement strategies that will fill this strategic gap.
(See Figure 1 For comparative market share trend)
10
Source (Statista.com)
Smart phone shipment market by share in china
Date Xiaomi Samsung
2013 Q4 6.50% 18.80%
2014 Q1 11.00% 18.00%
2014 Q2 14.00% 12.00%
2014 Q3 14.80% 11.00%
2014 Q4 13.70% 7.90%
2.0 Significance of Mobile Division (IM):
Samsung Revenue from Communication and Mobile division (IM) is substantial;
account for nearly account for half of the group revenue. See Figure 3 For
comparative Revenue by (IM) division and from other divisions.
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
20.00%
2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4
XIAOMI
SAMSUNG
11
Source (Samsung plc.com)
3.0 External Environment:
According to peter Drucker”this as a pattern of activities that seek to achieve the
objectives of the organization and adapt its scope, resources and operation to
environmental changes in long term”. Organization does not operate in vacuum;
external environment has great implication on every aspect of business.
(drucker;1982)
3.1 Pestle Analysis:
The structure approach to identify significant factors in environment of an entity and
to identify current influence and future potential influence it is very useful framework
for environmental analysis. Our aim is to ascertain the causes and factors which lead
to drop in market share, Moreover to identify potential opportunities in the
environment.
3.1.1Political Factors:
Political environment consist of political factors that have strong influence on
business entities. We discuss the legal and political component together because the
interplay between these forces makes it difficult to disentangle their individual
impact. Political system in china is take place in the framework of socialist republic
0
50
100
150
200
250
2014 2015
Other
Mobile(IM)
12
run by communist party in china is more attractive and business conducive state.
After more than a quarter century of reform and opening to the outside world,
Chinese government had the goal of quadrupling the GDP, By 2020 private
ownership of people assets is now legal although some key industries are still in
state hand. Restriction on foreign trade was relaxed when china join world trade
organization in 2001. it is the attractive place for foreign corporation because of its
large market size and socio economic distribution.in the early 2000,china overtook
the USA as the world largest recipient of foreign capital.
3.1.2 Samsung Political Relationship and Influences:
Samsung in more than three decades has built relationship “guanxi” with major
Chinese government officials and perhaps more importantly with three major telecom
national distributors, china telecom, china Unicom and china mobile. Through their
persistent focus on social contribution help SE to achieve reliability and trust.
Executive committee of foreign investment companies issued a document title
Beijing declaration on corporate social responsibility(CSR),where they proclaimed
their commitment to harmonious development of business and society through
involving businesses by focusing on four areas; protection of intellectual property
rights, environmental protection, public social welfare and technological innovation.
In China Samsung ranked first among foreign companies for CSR responsibities
initiatives in china. The technological side, making contribution to vocational
education in china while enhancing the social recognition of blue collar workers. “in
2002 Samsung has setup university scholarship programmes and partnership with
26 key Chinese universities and offered more than 26000 scholarship in
2013(Guangzhou,2013)
3.1.3 Corporation Tax
Adverse variation in tax can adversely affect companies, in china it is stable at 25%
since 2012, providing a stable business environment for planning and decision
making.
3.1.4 Government support to Mobile industry
Supporting investment in high tech industries to reduce china dependence in modern
technology. Foreign investment in china guided by catalogue of industry for guiding
foreign investment, divided in to three parts namely. “Encourage”. “Restricted” and
13
“Prohibited “sectors. Encourage sector are those which involve in high tech,modern
industries. Our entity fall in the Encourage sector which enjoy several benefits. China
attractiveness for investment largely due to the availability of cheap labour, greater
supply of skilled work force and perhaps most importantly, state build infrastructure
for high tech industries which is rare in Asia. Furthermore emphasize of Chinese
government and public on corporate social responsibility(CSR) also provide
opportunities for companies to capitalise strategy on CSR.in 2010 Chinese
government explicitly states that companies in china should take on social
responsibilities.
3.1.5 Drawbacks:
Red Tapism in china many administrative and bureaucratic task which can be
simplified in other countries are quite time consuming. The weak monitoring
system and the prevalence of personal relation “Guanxi ”tend to create
bureaucratic inefficiencies .
Freedom of Press: Media has greater role for organization success, product
can gain popularity overnight with impressive advertisement.
Unfair competition:Due to protectionism impose by of Chinese government
foreign countries are often held to different regulation and standard than their
domestic counterparts.
Intellectual Property Rights: China has introduced legislation covering every
aspect of protection of intellectual property. But there is a difference between
having adequate law and its effective enforcement.
3.2 Economic Factors:
Since the open door policy in early 1970 china adopt the capitalist mode of economy.
The year 1978 mark the beginning of china transformation from a rigid centrally
14
planned economy toward an increasingly open and market oriented economy. Which
characterized by liberalisation of trade, fair competition and transition from
agricultural economy to service oriented economy. China socialist economy is the
world second largest economy by nominal GDP and world largest economy by
purchasing power parity. Its GDP has grown over 9% on average over the last two
decades and still maintain the strong momentum estimated to 17.62 trillion in 2014,
account for 15% of total global output. The absolute poor population has dropped
tremendously from 250m to 25m, average income per person has risen to 7808 in
2015 from 5000yuan.in 2011 representing the expanding GDP and prosperous
population. Inflation on the basis of consumer price index has dropped significantly
from 2011 level which was 4.1% in 2011 ,now has diminish to 1.6%.interest rates in
4.35%,which also drop as a result of liberalisation policy and the objective to
enhance business activities. According to recent survey of BRIC countries “usage of
smart phones” china has 66% smart phone users followed by Russia which has 37%
users of smart phone. Have a glance; Figure 4 Depicting Emerging Market in
china
15
Source (Statista.com)
3.3 Social factors:
Social indicators enable Decision makers to predetermined possible trends in future,
Help to forecast demand of particular product and market, make plans
accordingly.3Gsmart phone are A choice of young, literate and technologically savvy
generation, relative size of young age group is small this is partially due to the china
one child policy introduced in late 1970’s.growth in population between the age of 15
to 64 which highly comprised of 50+aged peoples. This account for 75% of total
population. According to recent estimates published by (countrymeters.info).china
will see same kind of problems as aging developed markets like japan. Aftermath of
one child policy has adversely impact the availability skilled workforce average.
Population growth is 0.57% per annum,declining fertility reduced the level of young
population, AS a result grey market 60+ is growing at much quicker pace which
increase the burden of retirement pension on Chinese government, recently ban on
this policy has just been lifted to fuel the supply of young workers. (See figure 3 for
Age Distribution in china)
16
Source(Mckinsey.co.uk)
3.3.1 Socio Economic Factors:
Lower middle and poor class projected to be overtaken by middle class by
2022.samsung own 5000+ income group which is predicted to be surge very rapidly
by 2020.
Age Group
under 15
15 to 65
65+
0
10
20
30
40
50
60
2012 2022
poor class
middle class
high middle
affluent
17
3.4 Technological Factors:
According to the forecast by 2020 china’s E-commerce market could surpass 1trillion
USD.there is very high proportion of total sales carry out online According to the
report 72% of consumer electronics were made online in 2015,china as more
internet user than any other country account for 22% of internet user globally, Almost
94% Chinese population using 3G phones, Rise in E-commerce would reshape
distribution structure in china , coverage would be improved, china’s domestic rivals
heavily targeting rural and sub-urban areas through E-commerce and has already
penetrated 60% of the rural market(Ning,2007),in 2014 rural subscribe accounted for
more than half of china mobile 53 million new subscribers,(chandler,2014).Above all
government Effort to boost technological infrastructure Enhance literacy and to
revitalising the country with science and education provide great scope for
Technological landscape.
Source (Statista Forecast)
18
.According to the UNESCO report Asia represent 30% R&D expenditure and much
of the credit belongs to china.
Highlights of 13th Five year Plan (2015 -2020)
Cyber economy to be further expanded and .network speed to be increased
and fees lowered
Increased autonomy for universities and research institutions.
Increase the link between universities and public/private sector.
Online culture building to be enhanced and collective development of
traditional media and new media to be promoted.
Innovative teaching abilities to be raised to endure universities meet the
international standards.
transform status of manufacturing giant in to world tech power by focusing on
innovation.( news.xinhuanet.com)
0
50
100
150
200
250
US China UK Japan
E-commerce sales by country
E-commerce sales by country
19
3.5 Ecological Factors:
People republic of china paying staggering price for its increase industrialisation and
economic growth. Since the level of air and water pollution is immense. Major
polluting fuel factor responsible for green house emission is the increase usage of
coal, china is responsible for 30% of coal usage world largest emmitor.in 2014, it
emit about as much C02 as USA and India combined. Coal is responsible of 64% of
china total energy. Product manufacturing industries are ranked number 8 in major
polluting contribution industries.
3.5.1 Measures to Overcome: country has recently taken various step toward to
formulate more rigid regulation for manufacturing industries;
3.5.2 Implications for manufacturing industries:
Manufacturing companies will periodically publish information about
environmental impacts. Mandatory disclosure to institute of public and
environmental affairs and the natural resources defence council.
Manufactures are subject to rigid public scrutiny and obliged to provide
remedy for environmental violations.
Enforcement and penalties of environmental violation become severe,
reported widely by national media.
4.0 SWOT Analysis:
Swot analysis is the technique to identify key factors that have influence business
.we proceed to analyse current capability of our entity in order to draw meaningful
conclusion. Base on the analysis Decision about resource allocation and
configurations of resources with environment would be taken. it will include
assessment of internal resources, competencies and capabilities of entity moreover
each resource will be evaluated on basis of competitive edge such as the
uniqueness of the resources and the shield of resource that it provide to retain
advantages in long -term, for this purpose VRIO tool would be employed.
20
4.1 Resource Audit:
4.1.1 Financial Resource:
Samsung as being a conglomerate has Large cash pile which reduce dependence of
external funds.71.49 trillion cash reserve enable Samsung electronics to invest
heavily on new R & D Increase innovative capacity without resort to financial
institutions, tremendous amount of cash helps Samsung plc. to manage its working
capital effectively, we currently have 2.5$ Assets in every 1$ liability.
4.1.2 Physical Resources:
Samsung has advantage over its rival that for major smart phone components it
does not depend on supplier. Samsung has its own component making division for
the production of major mobile phone components, it has their own fabrication unit
use to build a silicon wafers such as processors, ram,DRAM and flash storage.
Which ensure smooth delivery of parts and guaranteed market for its disposal.it also
sold DRAM and flash storage to its biggest rival Apple.Inc.”SE is also one of the
world largest supplier of electronic components, and a top supplier of Apple, dell and
Hp(Yoo-chull ;2010)it is interesting to note that about a third of Samsung revenue
comes from companies that compete with it in electronics(Ramstad;2009).
4.1.3 Value Chain
SE operates using a vertical integration model which leverage all aspect of the
manufacturing process from raw material to electronic components to fully
assembled products”eisenburger and xu;2003)below table make it clear how much
Samsung produce on its own.
21
(Source JP Morgan)
For fierce competition and rapidly changing market demand ,key to success lie not
only in improvement but how to manage and organize production network. Electronic
industry is one in which production is conducted at global level. Components and
parts are produced in some country and assembled in different country in to finished
products .Samsung focuses to establish low cost manufacturing plant in china, which
is Samsung important sub production network with in two central nodes aim to utilise
low cost resources and to pursue the major customers for its products. Total of 34
production sites around the world 21 factories are in asia.SE has establish ties with
22
local partners which is pre requisite for market entry, while having own establish
distribution network. Locally oriented operation has achieved local and regional
linkages between production and marketing activities.
Brain conclude that “Most of smart phones produced in Asian production network,
the production is facilitated by existing production network”(Brain
chiristiansen:2015)
4.1.4 Research & Development:
Innovation is crucial to become successful in technological sector.R&D is the biggest
strength of Samsung plc,invest 9% of sales revenue every year in R&Dactivities,we
have 70000+ total engineers, owned 36 R&D centres globally. Which enable
company to become global leader in market. Samsung plc. Research and
development activities are a great source of innovative products. “Samsung has
been place on second position in terms of R&D spending. It has many R&D centres
from silicon valley to Beijing to Bangalore” (fortune.com)
Figure 5 below depicting the level of R&D expenditure made by Samsung plc.
(Source Mckinsey&co)
0
2
4
6
8
10
12
14
16
2011 2012 2013 2014
Samsung R&D expenditure in US$ Billion.
samsung R&D expenditure us $Billion.
23
4.1.5 Human Resource:
“Samsung declare open HR to prepare for an open Era, the SE abolish
discrimination based on academic background and gender for HR which increase
potential capabilities of their employees”(Serc Organization)Samsung has 319000
employees working in 84 countries, more employee than any other rival Samsung
Plc. software engineers twice as many software engineers in Google. Its advance
technology training institute offer a wide range of training opportunities to nourishes
all employees expert in to their respective fields by running systematic education in
advance technology institute, Samsung art design institute(SADI),HR development
group(Leadership training).it focus on sharpening the expertise of future oriented
employees in every area of organization.(Samsung.com 2016)
(Source Developer.com)
4.1.6 Intellectual Capital:
Patents
Patent is one of the several key barometers of innovation and an important ways
companies protect themselves. Innovation is the key for long term survival and
provide shield to protect innovation from competitors, SE patent portfolio is one of
the strongest portfolio in tech industry. Ranked number one in EU on the scale of
patent registration, and by having 7976 patent registration give rank number 2 in
USA.
0
50000
100000
150000
200000
250000
300000
Apple Google Microsoft Samsung
Comparison of Software Engineers
Comparison of SoftwareEngineers
24
Utility patent granted in US
Organization 2013 2014 2015 Total
SAMSUNG 4652 4936 5059 14647
Apple 1775 2003 1937 5715
Microsoft 2659 2829 2408 7896
Intel 1454 1573 2046 5073
Amazon.com 530 741 1136 2407
LG electronics 1945 2119 2241 6305
4.1.7 Brand Equity
Samsung brand is globally recognized and respected, consistently recognized as
global market leader by industry authorities.it has been publish in many well-known
magazines and journals as a most admirable brand. in fortune report 2010 Samsung
ranked 2nd in world most admired brand in electronic industry and ranked 16th in the
business week. Its brand value alone makeup 450M billion in assets on financial
statement. Increased enormously from previous periods by 134%.(Statista.com)
See Figure 4 for comparative brand value and brand rating
25
(Source statista.com)
4.1.8 Consumer Loyalty:
Samsung plc. Earned a global reputation for being an Ultra-Cool Brand offering
stylish, trendy and expensive mobile phones. Measurement of customer loyalty is all
about measuring the strength of this relationship between the customer and the
business. According to recent survey Samsung scored 35 for customer loyalty, which
is above the industry average.SE is investing heavily in its brand image and
consumer loyalty programmes which standout it product form competitors and give a
competitive edge. This is exacerbate by increasing CSR activities in china, Samsung
has ranked first among foreign companies for CSR initiatives in china in
2014(Samsung,2014b) in 2015 SE was among ten companies named” the most
respected enterprise in china,(Economic Observer;2015),Chinese senior leader
expressed their gratitude to SE on high level of CSR activities. A brand dependence
index reveal that most people are dependent on Samsung brand rather than any
other brand.(Brand chid of UTA brand studio)..
26
4.2 Weakness:
4.2.1 Management Competency:
Despite its past success by having a visionary, creative and ambitious managers,
Samsung unusual management structure is becoming obsolete, it is headed by three
CEO’S,”Oh Hyun Kyun” who is performing the role of CEO and vice chairman
together from 2012 to present seems the violation of corporate governance best
practice code, Samsung quality of management has been deteriorated from previous
year. Wall street journal publish that type of structure prevail in Samsung is unusual
management structure. It’s also laid out a possible scenario of changes that comes
across in Samsung telecommunication and electronic division, states that “JK SHIN”
who is overseeing mobile division could be moved out, another CEO “B.K YOON”
could potentially oversee the mobile division on top of his current duties running
Samsung home appliances and TV business.
27
4.2.3 Lack Of Nationwide Distribution network:
In china mobile manufacturer can be divided by origin in to western manufacturer
(nokia,motoroal,alcatel and Siemens),Asian manufacturers(Samsung,LG,Panasonic
and Mitsubishi) and domestic(Bird,ZTE,Oppo,Xiamoi).Domestic manufacturer are
good at local distribution and catering product to local taste. Distribution channels
are one of the major difficulty in front of Samsung their early entry in china gave
them some preferential advantage of having alliance with national level distributors
“national china mobile” which is state owned and focus on 100 major high End cities,
Despite early growth major markets are now become saturated and the growth in
low-tier cities is very high, having alliance with one major national distributor confine
SE reach to low Tier/High growth market.to successfully combat local players.
4.2.5 Open source operating system:
There are three big computing platforms globally, Android claim over 65% markets of
smart phones. In china 90%market captured by Android OS.In fact the success of
Samsung was mainly fostered by the growth of Android-Based Smartphones.
Despite having user friendly interface and content rich features and access of
applications,SE overreliance on complementors such as Google For using “android
“Operating system in its products make it more vulnerable to competitive
rivalry.eventhough Android Surpass Every single software platform and has great
number of users but it is common source of software for example Xiaomi plc. also
using Android OS in its devices which make it easier for customers to switch due to
the familiarity of software. And there is a growing view that android is inferior than
Apple IOS.Customer buy Samsung phones for their strong hardware and allure of its
galaxy line, but there is no differentiation for customers to buy complementary
Samsung software.
28
(Source Business Insider)
4.2.6 Vast Product Line:
Company popular in flood the market with so many product, it is successful strategy
in highly volatile and fast moving industry which ensure balance return from a wide
portfolio in long term, but also distract attention from core product which account for
60% revenue of organization.
4.2.7 One Size fits to all:
The needs of mobile phones functionality and requirement of application,
entertainment and multimedia vary between customers. Some customers may need
high computing capability but for other entertainment, multimedia and ringtones are
important. Low tier cities highly consist of defined segments and have different
needs, by ignoring such information ,Samsung not only losing market share, but also
losing potential segment to competitor.
4.3 Evaluation of Resources:
Having identified key resources of organization, Proper consideration is required to
asses’ firm capability in using these resources efficiently and effectively to create
29
value. VRIO is model to asses firms resources capability to create sustainable
competitive advantages.(See Appendix 2 for descriptive VRIO analysis)
Samsung Inc. VRIO Analysis
Samsung VRIO Analysis
Resources/Capability Valuable Rare Difficult
to imitate
Exploited
by the firm
Physical Resources Yes No Yes Yes Competitive parity
Value chain network Yes Yes Yes Yes Sustainable
Comp.Advantage
Human Resource Yes No No Yes Temporary
Comp.Advantage
Management Capability Yes No No Yes Temporary
Comp.Advantage
R&D Yes Yes Yes Yes Sustainable Comp
Advantage
Brand Value Yes Yes Yes Yes Sustainable Comp
Advantage
Customer Loyalty Yes No Yes Yes Competitive Parity
Tacit Knowledge
Yes
Yes Yes Yes Sustainable Comp
Advantage
30
4.4 Opportunities:
To sum up, this disruptive change in technology and market environment brought
Samsung many opportunities to extend it market share significantly.
4.4.1Samsung Brand Image in china:
Open itself to an array of cross border economic activities.in china stable political
environment ensure consistent planning and stability for business environment the
formal diplomatic relationship between china and Korea was agreed in 1992. Which
has broadened the scope and help to overcome inherent barriers. Relationship
between china and Korea is plausible bolster bilateral trade. Samsung is in china
more than three decades and has established relationship “guanxi” with major
Chinese government officials, strongly highlighted social contribution in annual
corporate sustainability reports. Samsung has achieved greater influence through
their social contribution in china help to enhance its reputation as it is rose to second
position upgraded from seventh in the list of fortune CSR ranking. With the motto of
an organization loved by Chinese peoples, “gain in employment and economic
prosperities lead to public trust which essential for political actors to keep their
political legitimacy”(hadjikhani et al;2008)SE has put their efforts in to gaining trust
through high tech and high quality products high financial performance and social
contribution to china through their CSR activities(seo ,2011).Samsung activities for
helping education, vocational course and scholarship programmes are recognised
and fully supported by Chinese government.SE learned the importance of building
relationship with socio political actors such as government officials, business
retailers and sales, advertising corporations. This relationship helps to proliferate
Samsung presence from 1 subsidiary in 2003 to 25 autonomous subsidiaries in
china.
4.4.2 Emerging Market:
World second largest economy by nominal GDP and largest economy by purchasing
power parity. China demographic is constantly changing; population growth and age
distribution fluctuate. Level of education is getting increase literacy rate has reached
90% as government emphasis on education through its major long term plans. The
availability of skilled labour in local market is quite easier as the technological
awareness for R&D centres and products is locally available on low cost. For every
31
dollar required in us to manufacture it cost 80 cent to manufacture in china. Ministry
of information industry so far has given out 30 GSM phone license and 30 CDMA
phone license.
4.4.3 Economic Expansion:
GDP is increasing by 11% since 2010.emergence of upper middle class is unveiling
many opportunities, Attitudes are changing over time and it is probable that the
usage of smart phones will completely eliminate regular phones and market will
expand further. There are 94% of smartphone users in china, this is promising and
showed a plausible trend for future. Samsung target high end market, the rise in
upper middle class and affluent household will increase the size of target market.
Research conducted by BCG and Ali baba research arm, found that 81% of
consumption income by 2020 come from household who annual income above from
24000$.
4.4.4 Technological Advances:
According to UNESCO report, Asia Represent 30% R&D and much of them belong
to china. In 2004 there were some 700 R&D,by 2010 number had more than
32
doubled. China is going digital very quickly, by 2016 country will have more than 730
million internet users and 380 million online shoppers, it has 359 million online
payment users in mid2015. This advancement not only help to foothold mass market
for smartphones but also standardized the market according to global standards. As
we know the technological obsolescence rate in Korea is high compare to world
average, that gives Samsung some advantage (Demand Condition on porter
Diamond) to bring innovative products at shorter intervals in global market, this
demand condition in home market is converging with technological rise in china, it
will assimilate the demand condition in both market, such as the introduction of
mobile payment service or introduction of new operating system would be easily
adopted as more and more business and government in china are beginning to
eliminate obstacles to the adoption of information and communication technologies.
According to one study, Chinese performance can be explained to a surprisingly
large extent by the suggested technology-adoption framework.it can account for
roughly 80% of china productivity gains. “growth of E-commerce is very high in low
tier cities ,digital consumer in small and medium size citites make purchase on their
mobile devices more frequently than their higher income counterparts in large
cities”.(Accentuare.com)
4.4.5 Product Life Cycle:
Despite have low growth in Q42015, smart phone market is growing very rapidly.in
china alone during the fourth quarter of 2015 smartphone made up 78% of total cell
phone sales volume, According to forecast update from (international data
corporation) smartphone market are expected to grow by 3.1% in 2016, while device
powered by Google operating system android are expected to grow 6.2% in 2016.
It can be deduce from above analysis that industry is in Growth stage of life cycle.
Demand for affordable smart phones predicted to be increase substaintially.which
can also be evident from intensifying competition as new competitors found it
lucrative market.
4.5 Threats:
4.5.1Patent Infringement:
As economy expands vigorously and the most common repercussion of developing
economies is illegal activities like counterfeiting and IP infringmenet.In 2008 about 20
33
% of 750 million handset produced whether counterfeited or off branded phones in
china. Xiaomi is also accused of copycat Samsung products designs. Patent
infringement is commonplace new commercial invention can be copied, legislation is
in place but there is a difference between having a particular regulation and its
successful implementation. Some blames government for the unprecedented scale
of its failure to protect intellectual rights, only china has opened entirely fake
Apple.inc store with employees who think they work for US Enterprise.
4.5.2 Tough Competition:
The increase in competition as a result of globalization has made markets high risk
and more volatile.(caiden 1980osborne and gaebler 1992,robins and coulter
,2005;robbins and judge,2005)Today the most important factor which laid the
foundation of globalisation is communication. Remarkable progress in
telecommunication technology has had enormous impact on telecommunication
manufacturing and service industries. Growing use of telecommunication devices
lead to the birth of many new organization. The industry is continuously undergoing
transformational change. The smart phone market is thriving very rapidly, as per
current statistics 1.5 billion of smart phone users in 2014 has jumped to 1.8 billion
20% and projected to 2.65 billion by 2020. This required continuous improvement in
product ,timely strategic action and tactics to remain competitive in market. “recent
year increasing information intensity and the globalization of capital flows has
resulted in improved and less costly communication and information
system”(welllenius and stern ,1994).
34
4.6 SWOT Summary
Strength
Extensive research knowledge
Highly-skilled scientist in workforce
High investment in advance equipment
Patent on products
High brand value
Consumer loyalty
Weakness
Organizational Structure
Using android operating system
Very Diversified Business
Distribution channel structure
Wrong marketing tools applied.
Opportunities
Strong growth in market demand.
Product market is in growth stage.
Emerging market, large segment which
is still unexploited
Ideal Relation with political
Actors(lobbying power)
Threats
Hostile regulation by government in
favour of competitor.
Emerging low cost competitors using
“Android”.
Unpredictable market less loyalty.
Rapid technological change
Tough competition lead to declining
margin
Patent infringement
5.0 Strategic options:
Portfolio Management
Samsung plc. is diversified manufacturer, entering mobile business is 3C integration
(Computer, communication and consumer electronics)we have wide product
portfolio, each product are in different stage of life cycle, Boston consulting group
35
model will help us to identify product life cycle and will help to design appropriate
strategy for product portfolio. High growth market is emerging market where market
size is expanding and profit potential is high, while high share is the proportion of our
organization in total market.See Appendix 4 For BCG detailed Analysis and
appropriate strategies for portfoilio management..
5.1 BCG Matrix
Stars(High growth/high share)
Television
Cell phones
Tablets
Green printers
Smart home
Question marks(high growth/low share)
Wearable gadgets
Laptops
Digital cameras
Cash cow(low growth /high share)
Microwave
Monitors
Refrigerators
Washers
Dogs(low growth/low share)
Handy camera
Mp3
5.2 Head-on Attack
.SE has greater scope to gain synergies through internal and external integration of
processes.in 2013 partial integration between IM and camera imaging division was a
fruitful strategy it should be progressed further to complete integrated division to get
further benefits of synergies and cost reductions., wide array of product which range
from home appliances to mobile and communication products, this give us an
opportunity to cut profit margin and receive average lower margin on portfolio of
products, without cutting the differentiated benefits of smart phones.Target
36
marketing to highlight differentiated benefits makes product superior i.e. quality of
components, source of hardware etc.
Management can also consider the use of discriminatory prices in low-end market to
directly attack on low cost competitors it has greater scope to beat on price level
than any other player.
5.3 Collaboration
To successfully compete with local manufacturers, changes in distribution networks
is mandatory, strengthen the links with local and provincial distributors via tri-lateral
agreements is highly recommended. Samsung success in smartphone market along
with Apple give them extra advantage over new comers in the market in terms of
brand recognition, we are the major supplier of DRAM memory chips to Apple icon
possible rationale to follow this strategy is that Apple and Samsung are pursuing
product differentiation strategy, their product is better than low cost rivals and offer
premium advantages ,they can establish collaboration to avoid their traditional rivalry
in tough competition face from low-frills companies and put their attention jointly to
reduce their power.
5.4 Lock-in Strategy
A lock-in strategy is another approach to keeping a competitive advantage, when
customer has made initial decision to purchase a SE product it is committed to make
more purchases in future. this strategy usually complements differentiation strategy,
it is quite common in high tech markets, our rival apple has not lose market share
due to its successful lock-in strategy, it has gained advantage through running their
own operating systems(ios) in mobile phone which is designed to play nice with its
own devices, which make it difficult for customer to switch to completely different OS
because it takes time to get familiar with functionality and features and would be
cumbersome to use utterly new software.it created the reinforcing cycle across the
two platform. On the other hand Samsung phone run on open-source android
operating system. A headline in recent business journal states that “Xiaomi possess
a big threat to Samsung in china, apple does not have to worry as much because of
two advantages it has a unique level of brand cachet and its own operating system.
(fool.com) we have already launch mobile phone z1 possess our own operating
37
system in India, we should implement this in or new mobile phones market is in
growing stage and it will take time for individual to get familiar with newer OS.
5.5 Multi-channel Structure
Manufacturers, wholesalers and retailers as well as other channel members exist in
channel arrangement to perform one or more of the following generic functions;
carrying of inventory, demand generation, or selling; after sales service or physical
distribution to customers(Coughlan et al1998) China distribution structure can be
distinguish in to national distributors, provincial distributors and local distributors.
National distributors are state-owned and have covering to 1 and 2 tier cities. On the
other hand provincial/fulfilment distributors are private companies they are strong in
their territory. They can better reach 3rd and 4th tier cities Samsung basically rely on
national distributors for channel structure which is not adequate to cater all
segments.Tri-lateral Agreements would be helpful bring the benefits of national
distributors risk sharing and local distributors reach to market. A combination of each
could make their network coverage complement each other as national distributors
losing their dominance to provincial and local distributors. Operators are having more
and more dominance in mobile phone distribution
Rise of E-commerce:
Our Major problem is that we are focusing too much on in major urban areas like
Guangdong and Shanghai in which we have most retail outlets, but neglecting low
tier cities which are predicted to be transform to high middle class by 2022,as Xiaomi
mainly target on low tier cities and have little presence there give Xiaomi to capture
this segment,”Xiaomi product has been widely successful and popular in china
because of its fan base and online approach for selling low-end phone”(Michael
Ahitt :2016)
Perhaps the most import way to challenge low-end competitor is to establish online
retail channels by new refined online retail channels, in china there is very high
proportion of total sales carry out online, digital consumer in low tier cities are rising
very rapidly.it has more internet user than any other country account for 22% of
internet user globally. Moreover Labour in china is cheap so it is possible to hire as
many sales peoples as needed. Moreover there is a need to segment market not
only on the basis of demographic and life style but also psychographic segmentation
38
is required. Demographic as descriptive variables and unable to characterized
customer needs at psychological level.
5.5.1 Marketing Strategies:
Bucklin(1966) define marketing functions “a distinct type of task found in the product
and/or flows and whose component activities are so interrelated that they are
generally performed or closely controlled by a single institution”.SE spend millions on
marketing budget each year put emphasize on direct form of marketing throughs
Ads and print media,On the other hand Xiaomi buzz spreads organically through
Word of mouth and social media, consumers in china tend to be influenced by word
of mouth(WOM)marketing especially in buying decision about mobile phones,
according to recent research conducted by Accenture & co reveal that 60% Chinese
learned about mobile phone products through family members ,colleagues and
friends. A source of information about mobile phone products.as well as internet and
social media now have greater influence than traditional media.(See figure below )
Source(Accenture china consumer survey)
What actually means the word of mouth marketing is the phenomenon of three E’s.
Engagement: is to listen to what they are telling, and be a presence in fans
live.@nikesupport is the prime example of customer service.
Equip: Give them reason to talk, will greatly reveal consumer choices and needs.
Sources of Information For mobile Phone
Recommendation fromFamily/work Network
Mobile Phones Sales counter
online Search
Official Websites
Tv Advertising
Shopping Websites
39
Empower: Let them know that they are important for us and sharing their opinion is
valuable.
For this customer centric approach we need to unleash the power of word of mouth.
6.0 Managing strategic change
According to (Beer & Eisenstat;2004)”Most powerful way for leaders to realign their
organization is to publicly confront the unvarnished truth about the barriers blocking
strategy implementation”. Successful strategic implementation required the effective
conversation in every part of the organization, because these are the peoples in
organization which make change successful, effective communication with everyone
who going to be affected by new strategy should be a part of two way
communications with superiors. Management should carefully and meticulously
listen employees concern and communicate them why change is necessary. From
the Samsung plc. past analysis it seems that our management will proceed with
Vertical integration and cross channel network. These two options are more align
with the acceptance criteria in our organization. According to David Aaker,”strategic
choices should be accepted as they meet following criteria” they are responsive to
external environment, they involve a sustainable competitive advantage(feasible)
and are consistent with other strategies in organization(strategic
fit)”(Cpaireland.com)
These strategic would have been impact on other areas of the organization, which
need to be managing thoroughly. To implement these options we need to identify
other areas of organization that would be affected.in order to simplify his
analysis(McKinsey :1981) publish 7S model to better analyse diverse affected areas
in to single framework.
6.1 McKinsey 7S Framework
Change in any element has knock on effect on other elements of this model, and
failure to take in to consideration could have serious implications for other six factors.
vertical forward integration and Implementation of E-commerce online retail
networks programme to capture low-end market is change in strategy which has
wider implication in every area, change will occur in following areas;
40
Hard Factors: Soft Factors
Strategy Staff
System
Style
Structure Skills
Share values
6.1.1 Change in in staff: New retail stores will required more staff.especially sales
peoples.marketing staff etc and to organize them properly.
6.1.2 Change in skills: Build up E-commerce facilitates require IT staff to operate
online stores.
6.1.3 Change in values: senior managers will need to promote the importance of
low-end market ,customer centric approach strategies would be spread throughout
organization.
6.1.4 Change in system: new procedures and policies need to be developed to
guide employees how to target different market through different strategic
direction.psychographic segementation help to visible entirely new segment and
product development process will incorporate these segment.
6.1.5 Change in system/Processes: strategy required to delegate responsibility
downward and minimal supervision of employees, empower local managers to take
decision swiftly and adapt market changes they have greater operational knowledge.
6.1.5 Change in structure:
The most appropriate structure for our entity to help achieve strategic objectives is
matrix form of structure, horizontal relationship across different functions needed to
41
work closely together, it will encourage communication and place emphasis on
“getting job done”.
7.0 Conclusion
As devices become intelligent, consumer are expecting more from their digital lives,
the traditional boundaries of the communication media and internet industry are
broken down and stated to converge. China is the large market for mobile phone
manufacturers, it is expected to grow at an annual rate of 39.8% by 2020.Samsung
plc. is the global leader in the industry and well-known for its premium products.it is
losing market share by 10% in previous in mobile phones which is the major
contributor of its revenue nearly contribute 60% in total group revenue New
emerging competitors which mainly segmented Low-end market now thriving very
rapidly. Xiaomi” is forerunner has become number three largest mobile phone
company by shipment. Its flamboyant entrepreneur “junlie logo” today known as
“Chinese Steve job “Rely primarily on social media ,dynamic supply chain,E-
marketing to sell their products, emphasis on global expansion(Hbr.com)
Samsung has competitive value chain and virtual capabilities existence on every
important location has very good brand loyalty ,wide range of recognized products
which are highly demanded by peoples.xiaomi current success is mainly achieve
through cost advantage and by targeting low-tier cities which was neglected by
foreign organization, this current trend may be temporary if Samsung take strategic
initiatives by expanding its distribution channels to local area in country side and
cater the market on distinct needs, for high end market Samsung could build their
own OS which enhances consumer loyalty and ensure future purchase by consumer
because widely used application such as tunes and games could not be run on other
devices. Furthermore xiaomi major reliance on mobile phone make it more
vulnerable to strategic price war, on the other hand SE has a wide array of products
it has greater scope for price competition on both the product basis and on portfolio
average basis,SE can reduce price of products in the response to competition. .in
2011 the list of fortune ranked second position to Samsung in CSR investment.
Technological adoption and the rise of E-commerce has greatly benefitted local
organizations which they are using for competitive advantage and producing low cost
phones imitate design and style of market giants, through various adjustment in
42
value chain, targeting low-end market which is characterized to be a price
conscious.xaiomi use of android operating system in its product which makes
product more standardised in every aspect to other devices which also running
Android OS except the quality of hardware and enduring parts.
government regulation are in favour of domestic supplier but china growing concern
toward CSR has greatly benefitted SE in building relationship with government
officials and business partners, these relationships can greatly enhance the potential
of Samsung in multiple areas where improvements are required, it can help to
transcends in to local and provincial level ,utilize strong marketing platform to
manifest the distinctive value proposition of its products which of course its
innovative design.
8.0 Recommendation
Transcend in rural areas by and countryside. Establish tri-lateral agreements
with local retailor and provincial distributor is highly recommended. Gaining
insight in to customer habits establishing multiple channels to connect with
them.
Samsung one size fit to all policy should be abandoned ,china as mainland
population size is over one billion ,customer can be distinguish by variety of
needs and requirments,R&D and production should be focus toward particular
segment. Such as psychographic segmentation is necessary to become all-
segment brand by aligning the business and marketing strategy.
Establishment of data centres to track market and consumer trends which
help to reinforce forecasting capabilities, these findings should be incorporate
in to product development process.
Initiatives required to develop own operating system, which should be capable
of unique functionality and easy to use. This can be done in phases as it
would be cumbersome for users to immediately switch to new software, Trial
should be done in small scale ,benefits derived from test transfers should be
highlighted and elucidate to mass market.SE should diversified product line
from premium smartphone to the mass market models.
Authorizes local managers to take decision in response to local changes
without recourse to senior manager in head office. Expand their span of
43
responsibility and enrich them with the resources required to identify key
trends and patterns in the market.Autonomus managers should have freedom
to take action and go extra mile.
Develop cross distribution channels to cater the isolated segment, building E-
commerce platform, online payments and home delivery options will be highly
regarded. Surge in the use of internet and E-commerce provide various
opportunities in virtual business environment.
Partial Structure re-alignment carried out in 2013 between (IM) and camera
Imaging division, massively reduce the manufacturing cost and help to
differentiated products by combining capabilities of these two division, but it is
still partially integrated, in order to realised further benefits ,wholly integration
of these two division would be beneficial.
Marketing budget should be diverted to Word of mouth (WOMMA) and
internet social media marketing, for the effective success of (wom) marketing
,we need to focus on three E’s,engage,equip,empower.in short better
customer service and listen to them is most effective way to increase sales in
china.
Report Abbreviations:
SE: Samsung Electronics
IM: Samsung Mobile and communication
OS: Mobile operating system
Ceo: Chief executive officers
R&D:Research and development
Guanxi:Term use in china for “clout”
44
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46
Appendix 1
Strategic Groups:
When all companies in industry are put in to strategic group and analysed strategic
space become apparent.. Strategic clock was suggested by bowman(1996) as a way
of looking combination of prices and perceived benefits. 2.1 Strategic PositioningIn
the strategic clock Xiaomi can be placed No.2 Low price/medium quality
product.xiaomi business model stand on the principles of cost/quality balance, ease
of delivery, moreover ever increasing E-commerce growth has risen online
sale.xiaomi realized this and gain competitive advantage over other rivals in same
segment of market and surpass other local brands such as Lenovo,Oppo,gionne on
the other hand threatening the existence of market leaders apple and Samsung.
(See figure for strategic positioning).
Source (Tutor2U.com)
47
Appendix 2
VRIO (Uniqueness of Resources)
Value chain
SE able to achieve economies of scale in production and distribution by leveraging
its ability to produce components parts and assemble its products on large scale, its
ability to produce effectively is a source of both differentiation and cost effectiveness,
unlike Apple and Xiaomi which trust on relationship ,alliances and supliers,As a
result ,Samsung is able to get cost advantage from its internally generated
components, that is borne by some integral parts of smartphones such as DRAM
,flash drive and memory chips ,SE overall cost is 24% lower than other players in the
market, two most significant elements of the cost structures are Raw material and
labour, by 2016 overall superiority in cost over its competitors exceeded 51%.cost
advantage also stem from the SE geographically collocated network which Help to
reduce distribution and shipping cost, other factors include more efficient larger
silicon wafers. According to Hooley “The strategy that matches best with Samsung is
cost leadership, which is mainly a low cost competitive strategy pursuing cost
reduction from experience, capacity utilisation ,linkages ,degree of integration and
many other cost drivers”(hooley,piercy and nicouland;2013).
Research and development:
Appropriate R&D expenditure resulting in one of the strongest portfolios among
technology companies. Innovative culture begins with accepting that world really has
changed and being open to more changes to come.Research conducted by strategy
and places Samsung as the second largest R&D spender in the world and the
largest in consumer electronic industry and now employs a total of 63628 staff
members in the department no other smart phone manufacturer even break in to the
top 20.samsung hopes to develop more technical talent in china to meet industrial
needs.
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Samsung R&D centres are the key to innovation, In Samsung innovation is two
types, innovation in utilizing capital and innovation in reducing transaction for SE the
activities of basic research, product development and design are primary activities,
unlike porter original value chain model that classified these as support activities in
value chain the recognition of R&D explicitly in primary activities enhance the
commitment for continuous innovation, Audit report for 2014 shows that it spend
just under 14 billion on R&D.SE currently uses 5.7% of its revenue toward research.
As a result Samsung has culture of innovation based on extensive training,
methodology and creative elite formation backed by highest level of management
competency.SE possess extensive R&D facilities with state of the art technologies,
talented team of engineers and scientist where ideas are regarded, collaboration and
creative thinking is encouraged and rewarded. from three decades Samsung
scientist have been working in collaboration with American companies in silicon
valley which gave Samsung a higher level of tacit knowledge, silicon valley is
strategic location for collecting cutting edge information. Giving rise to Samsung
capability to assimilate the licensed technologies.
Appendix 3 Boston Consulting Group:
Cash cow
Products in cash cow quadrants, are those products, where growth is stagnant and
market reach to saturation point ,Best action is to reduce research and development
expenditure and curtail marketing investment in this area because these are already
established brands but try hard to maintain market share of cash cow, which
required to be cognizant of technological change and improvements, limited and
focus Research to improve current products design, technology, because these
products generating plenty of cash flow ,Our dependence on these products for cash
flow generation is very high in order to develop new products, increase competency
and other major expenditures, the positive cash flow form these products would be
used to strengthen high growth stars like cell phones, which are in growing market
and required lot of investment in terms of marketing and innovation.
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Question Mark
This market is slow growth due to cheaply available mobile phone cameras SE is not
a market leader in these products, it required lot of investment to become a market
leader, digital cameras market lead by canon and Sony, while wearable gadgets
market leader are APPLE and FITPIT. And laptop market is headed by DELL and
HP.these powerful brands, we need a lot of investment to compete with them in
terms of brand awareness, marketing and R&D, although wearable gadgets such as
smart watches and smart glasses market is on introductory phase, and predicted a
rapid proliferation by 2020.growth is slow in wearable gadgets, SE must decide at
this point of time whether it want to highly invest in new tech which going to shape
the future or abandon or withdraw from this market. As it will required a lot of focus
and diversion of resources in this area.
Stars
A future cash cow product in this array are usually cash neutral or negative cash,
Smart phones and Led’s required lot of investment to maintain share in continuous
growing markets should be invest fund for increase brand awareness and visibility by
extensive marketing campaigns, sponsoring events, allocate human and financial
resources to improve product design and functionality, technology disruption IS very
high in this market, to maintain current position of market leader Samsung need to
be cognizant of disruptive change in market and look for new ways to improve
product and to stay ahead from competitor.SE should use cash generated from
cash cow to develop these line of products, should use fund from them to enhance
or maintain competitive advantage in stars(smartphones).
Dogs
Handy camera,mp3 technology is getting obsolete and market is in declining phases
should analyse the future of these product and invest accordingly as they have
limited future in current technological landscape ,extra investment to maintain market
share not advisable.as these products are eroding profitability .
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