Samsung Final [PDF]

Zitiervorschau

Case study: Samsung as a Silicon Valley Company

Table of Contents: I.

Introduction.

II.

What are the strengths of Samsung’s traditional fast-follower strategy?

III.

What are the weaknesses of Samsung’s in the fast-follower strategy?

IV.

What strategic threats is Samsung facing? How are they related to the fast-follower strategy?

V.

What capabilities do Samsung’s Silicon Valley outposts provide? How do these capabilities go beyond the typical research lab model used by many other foreign technology companies?

VI.

How should Samsung leverage its presence in the Silicon Valley innovation ecosystem? How should Samsung leverage its traditional strengths in Seoul?

VII.

How Should Samsung integrate its operations in Silicon Valley and Seoul?

I.

Introduction:

Samsung

(Korean,

means

"three

Korean multinational conglomerate headquartered

stars"

in

in Samsung

English)

is

Town, Seoul. It

a

South comprises

numerous affiliated businesses, most of them united under the Samsung brand, it is the largest South Korean business conglomerate. Samsung was founded by Lee Byung-chul in 1938 as a trading company. Over the next three decades, the group diversified into areas including food processing, textiles, insurance, securities, and retail. Samsung entered the electronics industry in the late 1960s and the construction and shipbuilding industries in the mid-1970s; these areas would drive its subsequent growth. Following Lee's death in 1987, Samsung was separated into four business groups – Samsung Group, Shinsegae Group, CJ Group and Hansol Group. Since 1990, Samsung has increasingly globalised its activities and electronics; in particular, its mobile phones and semiconductors have become its most important source of income. As of 2017, Samsung has the 6th highest global brand value.

2

Notable

Samsung

industrial

affiliates

include Samsung

Electronics (the

world's

largest information technology company, consumer electronics maker and chipmaker measured by 2017 revenues) Samsung Heavy Industries (the world's 2nd largest shipbuilder measured by 2010 revenues) and Samsung Engineering and Samsung C&T (respectively the world's 13th and 36th largest construction companies). Other notable subsidiaries include Samsung Life Insurance (the world's 14th largest life insurance company),Samsung Everland (operator of Everland Resort, the oldest theme park in South Korea) and Cheil Worldwide (the world's 15th largest advertising agency, as measured by 2012 revenues). Samsung has a powerful influence on South Korea's economic development, politics, media and culture and has been a major driving force behind the "Miracle on the Han River" Its affiliate companies produce around a fifth of South Korea's total exports. Samsung's revenue was equal to 17% of South Korea's $1,082 billion GDP.

II.

Strengths of Samsung in the fast-follower strategy:

Samsung is the classic fast follower: they’re attuned to what competitors are doing and what other people are bringing to market first. They watch like a hawk as others gain traction and then very rapidly come up with their own version. Samsung figures out where the world is heading in terms of mass-market consumer electronics products, sees what is selling well and what is growing and moves into that space with a better product than the original offering. Samsung isn’t the only fast follower in the consumer electronics industry. Professor Birkinshaw points to the newer companies that are now moving into Samsung’s territory on mobile, notably the Chinese players such as Xiaomi, Huawei and ZTE that similarly take existing products made by other companies and improve and refine them to produce something they can call their own. “They’re playing Samsung’s game but Samsung invented it.” Don’t think that this fast-follower approach to innovation is easy: it still requires enormous creativity and skill. Samsung invests heavily in training its engineers to systematically innovate.

It has had a close working relationship with the Russian Academy of Science since the 1990s, tapping into the country’s scientific expertise at relatively low cost. “The creative efforts of others may provide the inspiration but Samsung always puts a unique twist on its products. They’ve developed a number of different products that are selling incredibly well. Yes, Samsung is copying but it’s also enhancing. And it builds on all of its other strengths in order to create a high-quality, low-cost product that can undercut Apple.” Samsung is better than anybody else at learning from its competitors. “A market reader is sort of the classic fast follower,” explains Barry Jaruzelski, senior partner at Booz&Co and the coauthor of the Global Innovation 1000. “It doesn’t mean they ignore their customers, but they’re very attuned to what competitors are doing and what other people are bringing to market first and observing what seems to be gaining traction, then very rapidly coming up with their own version of that innovation.”

 Research and Development: – The foundation of Samsung has always been on Innovative research and development. Expenditure in these departments resulted in the company having a wide range of product portfolio among its competitors. These include tablet, camcorder, mobile phone, camera, TV/video/audio, Memory Cards, PC, and other accessories.

 Samsung had long maintained a strong research and development presence in Silicon Valley.

Stronghold in the Asian Markets: Samsung retains a stronghold in the Asian markets, particularly India and China. Both India’s and China’s business markets are growing substantially which is why Samsung has taken advantage of the opportunity and incentive in these countries accordingly.

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The company pivots and produces quickly, coming out with a variety of devices. It sees what the market responds to, pushes successes, and kills failures. And now, rather than just providing a cheaper and lesser iPhone, it’s differentiated itself with larger screens, different features, successful marketing, and delivering what consumers want. The Note is a perfect example. The company found through market research that Asianlanguage speakers in particular wanted a device that they could hand-write on, because drawing characters is easier with a pen. The result was a combination phone/tablet (“phablet”) that’s been an unexpected hit.

Samsung has strong manufacturing and marketing capabilities: Samsung has long-standing relationships with retailers in the United States and Europe that provide a steady sales channel for its products:

 Innovation: -

Samsung didn’t invent the mobile phone – that honour goes to Motorola – but it took a transformative new technology and ran with it. “Innovation isn’t just about doing something new. It can also be about doing something better,” For example, in 1983, when Motorola launched the Motorola 8000, Samsung was still proudly making black-andwhite TVs. Today, the Motorola brand name has all but vanished: only the “Moto” product name is left as a small reminder of what was once a pioneering company at the forefront of innovation.Samsung, on the other hand, has become a dominant force in consumer electronics. It introduced its first Android phone, the Galaxy S, in 2010.

The potential to read the market and invent product better than the original one:

“Samsung’s strategy has been essentially to read the markets,” says Professor Birkinshaw. “Samsung figures out where the world is heading in terms of mass-market consumer electronics products, sees what is selling well and what is growing and moves into that space with a better product than the original offering.”For example Every time Apple launches a new product, Samsung brings out its own version a year or so later: think of the touchscreen phone, the tablet, the smart watch. And it isn’t just Apple that has been Samsung’s inspiration: twenty years ago, Sony was first to market, Samsung was close on its heels. Strong global brand tied to consumer electronics: -

The Samsung brand is one of the most competitive in the global market, especially for consumer electronics. The brand rivals some of the biggest names in the industry, such as Apple, Google, and Sony.

 Semiconductors and electronics manufacturing expertise: -

This strength is an internal factor that supports Samsung’s ability to grow and expand against competitors. This strength is notable, considering that major technology companies use Samsung electronic components in their respective finished products.

 Synergistic support among divisions or subsidiaries: -

Another strength in this case is the synergistic support involving the technology company’s divisions and subsidiaries. For example, Samsung Electronics benefits from the conglomerate’s semiconductors business. This synergistic support is based on the divisions and subsidiaries in Samsung’s organizational structure.

 High degree of vertical integration: -

Largest memory manufacturer in the world.

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-

Largest LCD screen manufacturer in the world. 

-

Makes bundled components for its most major competitor (Apple).

-

Releases software along with its phones that is usually good.

 Phones are high quality: -

Always be the highest/top 2 or 3 ranked phones on CNET.

-

New phones released frequently.

-

Innovative water proof Galaxy S5.

 Pricing strategy allows for huge market capture: -

Many phones for various price points.

-

Phone quality varies in speed and other factors.

 Good branding and advertising: -

Evidenced by recent Oscar “stunt”.

-

Comparison to Apple: Apple is all about style and “ease of use’. Samsung’s brand is competitive.

Weaknesses of Samsung in the fast-follower strategy:

III.



Heavily dependent on the American Markets:

– It is estimated that both Apple and Samsung sold at least 70.8% of smartphones in the USA. While Samsung has diversified its resources and expanded its operations in Asia, it is still heavily dependent on the American markets. The American economy is very unpredictable and another recession could put Samsung’s revenues in jeopardy and can damage its operational resources. That’s why Samsung needs to involve itself into the

Asian and European markets to ensure sustainability and avoid potential failures if the US economy ever collapses.



The decline in Smartphone Sales:

– Samsung has been experiencing a decline in smartphone sales since 2017. A similar trend was seen in China due to the price sensitivity of the Chinese market. They dump a lot of those products in the Indian market at a lower cost which harms the Samsung sales. Samsung has tried to shift more focus in India, but that strategy did not produce substantial results for the company. -

From 2013 to 2016, Samsung Electronics’ total sales declined from USD182bn to

USD162bn. -

From 2013 to 2015, the company’s operating profit decreased from USD30bn to barley

over USD20bn. -

Chinese manufactures had driven the profit margin for Samsung’s mobile division down

from 15.5% in 2014 to 10.6% in the second quarter of 2015.

➢ Dependence on Android OS: -

Samsung’s dependence on Android OS is a weakness that limits business

capabilities. For example, the company’s smartphone’s operating-system functions and related licenses are restricted because of Google’s licensing of Android.

➢ Lack of a competitive comprehensive platform for hardware, software, and services:

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-

Also, Google’s influence on Android development weakens Samsung’s

competitive position, as both of these companies directly compete in the market for smartphones and other mobile computing devices. In relation, this SWOT analysis points to the lack of a competitive platform to rival Apple’s ecosystem of hardware, software, and services. This internal strategic factor makes Samsung relatively weak in increasing the switching cost of its customers when deciding to purchase consumer electronics from the competition. The weaknesses shown in this aspect of the SWOT analysis are internal strategic factors that prevent the company from offering an expansive product range and further strengthening customer loyalty relative to Apple and Google. ➢ Lack of control on ads: -

A second area that Samsung doesn't have control over is the profit from any Android apps or ads. Apparently 90 per cent of the profit on ads sold on a Samsung Android device goes to Google, while Samsung gets a paltry 10 per cent of that fee. And as far as I can tell, it gets almost no revenue from apps because Google controls that money flow through Google Play. Each vendor has the opportunity to create its own app store to earn revenue from, but this is not normally a major money-maker.

IV.

Threats of Samsung and their relation with the fast-follower strategy:

➢

The large number of competitors: the mobile market is saturated. Samsung has a lot of

competitors in the market, the number is also growing like Apple, HTC, Xiaomi Mobile. This is the biggest threat for Samsung.

➢

Chinese competitors are gaining competitive advantages: The Chinese companies can

product products at low price and they can also give high quality, people are accepting those brands.

➢

Threats to bundled hardware:

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•

Incredibly cheap hardware leads to smart phones that cost next to nothing

•

Google delivers incomplete software because they are competitor

•

Superior technology

➢

Competitors’ superior branding:

•

Apple’s style

•

Google’s software

•

Microsoft’s compatibility

➢

Competitor pricing:

•

Luxury phones that steal market share in China c. New entrants i. Huawei stealing market

share in China •

Cheap phone developers making super cheap smart phones

V.

What capabilities do Samsung’s Silicon Valley outposts provide? How do these capabilities go beyond the typical research lab model used by many other foreign technology companies?

While Samsung remains one of the largest and most profitable companies in the world, it is facing a need to re-invent itself. Due to the lack of innovation capabilities in the Korean headquarters, Samsung has shifted to Silicon Valley. Samsung ‘s aggressive expansion in Silicon Valley was pushed by the challenges and competition faced in the smartphone market. Samsung has been transforming itself since 1987 into a Silicon Valley entity that aims to create new markets for new product categories. The new facility of Samsung is a giant complex with 1.1 million square feet of floor space, near Apple’s headquarters, enhancing efficiency that is crucial in creating products and solutions at the cutting edge of technology. Unlike workers in other companies, Silicon Valley encouraged friendships between coworkers even at competitor companies that leads to innovation and new opportunities. The design encourages interaction among staff, invites the community on campus and attracts employees in the highly competitive tech market, which is growing at a faster pace than overall employment. Opened in 2015, the Samsung Device Solutions America campus is known locally as “Samsung@First” because of its

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North 1st Street address. The building is LEED Platinum Certified, and features a large solar farm, unique design, and lots of open and green spaces. Onsite facilities include a full-service café, a fitness center, basketball and tennis courts, and a recreation and relaxation area known as “The Chill Zone.” The new site became Samsung’s biggest and most prominent building in Silicon Valley and the North America headquarters for its semiconductor operations. This was a way-back to offer gratitude for a while back when Samsung was facing a lawsuit against Apple. Many Silicon Valley companies were supporting Samsung back then. But in 2014, a serious problem was detected: Samsung lacked a leader, like Steve Jobs, and his absence in meetings and deal making negotiations. Speaking of this, we cannot ignore the contribution of Young Sohn, entrepreneur whose passion is building businesses and fostering emerging technologies that have the potential to transform the world for the better. He currently serves as Corporate President and Chief Strategy Officer of Samsung Electronics. He leads Samsung strategy for global innovation, investment and new business creation. He stated that Samsung products are “Device centric “and he identified mobile-ecosystem technologies and cloud technologies to be key targets for Samsung development. Samsung’ research lab was staffed by Silicon Valley engineers and executives which aligned closely with Samsung’s history of using Silicon Valley as a research and development center. This experience helped Samsung with the goal of bringing specific projects from inception to market. The Samsung’s divisions in Silicon Valley says that they will continue to grow their portfolio of content services in the entertainment and lifestyle categories in addition to working with developers to build great apps for Samsung devices. They also understand that they are uniquely positioned to push the boundaries because Samsung is the display company, the component maker, the first touch experience. However, most importantly, they want to create products that offer meaning experiences to our users, so they will continue to develop products that enable people to use technology in new ways, enable them to connect with the world around us in new ways.

VI.

How should Samsung leverage its presence in the Silicon Valley innovation ecosystem? How should Samsung leverage its traditional strengths in Seoul?

To leverage the powerful innovation ecosystem found in Silicon Valley, Samsung has increasingly reoriented itself away from its mother country in Korea toward Silicon Valley. Moreover, Samsung has recently taken further steps, more than any other foreign company, aiming to become an authentic Silicon Valley entity. Today Samsung’s target is to become a top five company in San Francisco Silicon Valley The question is how should Samsung leverage its presence in the Silicon Valley to stay also ahead of her strong competitors and the Chinese ones? Samsung existence in the Silicon Valley proves that they will continue to expend and grow by offering unique services and features to their devices and products and in order to leverage their presence in this market they continue their aggressive strategies and adopt new ones as below: 

Recruiting and Selecting high-level experienced executives in the country with high competence and aggressiveness to build strong presence in the Silicon Valley.



Investing in Research and development: Samsung should invest in the R&D departments to maintain its strong position in the market and identify continuously new products and devices that keep her one of the leading companies in innovation and development.

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

Hiring practices: better understanding of the skills required to sustain a competitive advantages in the area of expertise.



Investment strategies: Samsung has opened a new headquarters for US Semiconductor operations. In addition, Samsung has started four businesses in the Silicon Valley and these businesses expanded aggressively by recruiting locally. A 100’000 USD funds were selected to invest in early-stage startups and during the first 5 years Samsung invested in 24 companies.



Mergers and acquisitions: Samsung has also bought and grow startups.



Corporate social responsibility: Samsung has established 1 million dollars as college education scholarship celebrating its latest expansion. Donated 100’000 USD to the family giving tree. Donated 100’000 USD to the second Harvest food bank.



Development in healthcare: They launched SONO SCHOOL, which delivers medical training focused on ultrasound diagnosis and obstetrics and gynecology.



Cooperating with leading companies.



Merge Korean and US thoughts and education and innovate globally to identify new technologies and new market around the world.

Samsung had a powerful influence on South Korea’s economic development.

Since Seoul is Samsung’s mother town, they have to sustain their place in their natal market in collaboration with all the innovation and the growth in the Silicon Valley as below: 

Innovate in Chaebols culture: It is a large industrial company. A Chaebol often consists of many diversified affiliates and often exceeds legal authority Chaebols are historically known by their lack of openness to external inputs.



They should solve their confusion and different points of view between the headquarters and the Silicon Valley in order to make Samsung one unified entity and maintain their position in Seoul. Find a way to work together as one management and one company not two different ones and reduce cultural mismatches.

VIII.



Focus on Research and development and expending in their investment.



Recruiting local employees.

How Should Samsung integrate its operations in Silicon Valley and Seoul?

Integrated operation is a term used to define a company that combines two or more operations or divisions and operates as a single business unit. This collaborative method of conducting business offers cost savings and increase efficiency.

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It refers to the integration of people, organizations, and communication technology to take smarter decision. In order to integrate its operations, and since Software has been a traditional weakness for Samsung, the company should increase its investments in software and hardware that precise engineering and advanced technology like smart phones and to leverage an open system model common for ventures in Silicon Valley. Samsung should develop their technologies and enter new market, taking advantages of opportunities in the market and their internal strengths and start dealing in machines, automobiles and robotics for example and invest in intelligent health care solutions. To enter these markets Samsung should follow the below: Expend her investments in R&D so it can gain more knowledge about the market she wants to enter and identify more products and services to handle next generation technologies. Look forward for mergers and acquisition, invest and buy startups Recruiting engineers to build graphical processing units and for running machines.