Introduction
This paper is a company analysis of Samsung Electronics, which is a business division in Samsung Corporation responsible for the firm’s dominance in the mobile phone market (Stonehem 2016). The current study contains a review of the organization’s business environment. The goal of the analysis is to understand possible business and corporate-level strategies that could be applied to help it increase its global market share. Nonetheless, before delving into the details of this assessment, it is, first, important to understand the history and operations of Samsung Corporation below.
Company Background
Samsung is one of the world’s largest conglomerates. Lee Byung-Chul started the company in the late 1930s as a trading organization (Stonehem 2016). At the time, it had interests in multiple sectors, including insurance, textiles, and food processing. However, over the years, it has attained its success by focusing on the technology industry, which it ventured into in the 1960s (Kim 2016). In the 1990s, the company embarked on an elaborate global strategy that saw its operations spread to different parts of the world (Sawaikar 2014). Today, its mobile phone business is its greatest source of income. In fact, according to recent statistics, the company’s global operations bring it more than $300 billion in annual revenues (Sawaikar 2014). This financial success is largely responsible for Samsung’s superior brand name, which is deemed the sixth most valuable, globally (Sawaikar 2014).
Located in Seoul, South Korea, Samsung is known for the production and sale of multiple consumer products, including apparel, automotive parts, electronic components, medical equipment, and semiconductors (Kim 2016). Samsung’s business scope also spreads into the service industry, where it has developed a strong market presence in the marketing, hospitality, finance, information and communications technology, shipbuilding, healthcare, and retail industries (Kim 2016). The Seoul-based conglomerate has a global market presence in more than 100 countries and it employs 489,000 people worldwide (Stonehem 2016). An analysis of its external environment appears below.
Analysis of Outer Organisational Environment (Porter’s Five-Force Analysis)
The porter’s five-force analysis will be used in this section of the assessment to analyze Samsung’s business environment. This theoretical framework is instrumental in understanding the main operational issues in the company’s home environment that affect its operations. Key tenets of the analysis explore five main forces influencing its external environment. They include supplier bargaining power, the threat of substitute products, customer bargaining power, the threat of new entrants, and industry rivalry (Fleisher & Bensoussan 2015).
Industry Rivalry
Rivalry in the telecommunications industry is strong. This factor is among the most important elements affecting Samsung’s business performance because the company’s rivals are fiercely competitive (Rao 2016; Stonehem 2016). For example, its main rival is Apple, which is a very competitive brand. It also has other aggressive rivals, such as Nokia, Huawei, Sony Erikson, Blackberry, and LG (Rao 2016; Stonehem 2016). Based on the existence of a strong industry rivalry in the mobile market space, experts say Samsung cannot take its dominant position in the market for granted because its competitors could easily “dethrone it” (Fleisher & Bensoussan 2015). The firm is also fighting a dominance war in many emerging markets, such as India, which are saturated with the influx of cheap mobile phone brands. Fleisher and Bensoussan (2015) equate Samsung’s dominance wars to those of Cola and Pepsi in the nineties. Therefore, intense competition has made industry rivalry a significant force in Samsung’s external environment.
Barriers to Entry
High barriers to entry and low barriers to exit characterize Samsung’s external industry. Indeed, it is difficult for new technology companies to venture into current markets without carefully thinking about their business strategies because, without them, existing firms will prove to be strong rivals (Rao 2016). In this regard, they have to develop an elaborate distribution network and a robust marketing strategy that would deviate people’s attention away from established brands, such as Samsung and Apple. This is a difficult endeavor. However, it is easy for global multinationals to exit the markets they operate in because doing so only requires their willingness to sell non-performing business divisions to other international players or local companies. For example, Samsung has exited many markets that it has deemed unprofitable (Song 2017). The strong barrier to entry explains why the firm often undertakes thorough market research before venturing into new markets.
Buyer Bargaining Power
The buyer bargaining power in Samsung’s mobile phone market is moderate. On one hand, customers enjoy the opportunity to switch mobile phone companies whenever they want to, but on the other hand, they may not do so easily because their mobile phones are valuable to them. Furthermore, in most instances, customers often rely on their mobile phone companies to gain access to after-sale services. Although they may need the company’s assistance in doing so, it does not mean that the service providers have power over them. As Campbell-Kelly and Garcia-Swartz (2015) report, most smartphone users are known to be finicky about the products or services they buy. Therefore, they often explore a myriad of options before settling on one. This analysis shows that buyer bargaining power is moderate because both the customers and the companies need each other. The same moderate buyer bargaining power is also evident in the analysis of supplier power below.
Supplier Bargaining Power
According to Ethical Consumer (2017), most of the suppliers who work with Samsung are willing to offer a discount on the materials and services offered to the company. While this goodwill seems like an edge over the suppliers, reports show that it is equally difficult for the company to end its relationship with its partners once they start doing business together (Ethical Consumer, 2017). Indeed, it is even more difficult for the same company to establish a new relationship with a new supplier because it involves a lot of resources and time. Therefore, the supplier bargaining power is moderate.
Threat of Substitutes
The threat of substitutes in Samsung’s electronic market is high because mobile phones offer similar services. At the same time, the gadgets are purchased for long-term use. Therefore, the company is always careful about the effect that substitute products have on its sales numbers because a strong impact of substitutes would mean that the company does not revamp its sales quickly enough to make a recovery (Campbell-Kelly & Garcia-Swartz 2015). This concern partly explains why Samsung adopts a differentiation pricing strategy from its competitors to insulate itself from the effect that substitute products would have on its bottom-line (Campbell-Kelly & Garcia-Swartz 2015). At the same time, Giachetti (2013) points out a weak dependence on mobile phones in emerging markets because some people (in these markets) still depend on traditional forms of communication to converse with others. However, the rapid urbanization that is ongoing in these regions is slowly changing this trend (Giachetti 2013). Therefore, the threat of substitute products in these markets is set to decline after a while.
Table 1 below summarizes the findings of Porter’s five-force analysis.
(Source: Developed by the author of this work).
While the theory used above draws attention to five main attributes of Samsung’s business environment, it is ill-equipped to account for new industry forces affecting the technology industry.
Corporate Level Strategies for the Company
Main Corporate-Level Strategies
Samsung has enjoyed unparalleled success in the technology sector because, unlike its peers, it has tentacles in many subsets of the technology market (Moynihan 2017). While it is globally known for producing quality products, it has not demonstrated the same business acumen in the mobile phone market. Recently, there have been many concerns expressed by some mobile phone users and industry players about the quality of mobile phones produced by the technology giant (Samuelson 2016). For example, in 2017, the company was struggling to explain why some of its Galaxy Note 7 mobile phones were exploding when charging (Samuelson 2016). This concern forced the firm to recall the product – a move that led to millions of dollars in losses (Samuelson 2016). This issue shows that the company has not focused on quality as part of its corporate-level strategy.
Proposed Strategy
Samsung needs to focus its future corporate-level strategies on investing in the development of quality products. This recommendation links with the supplier bargaining power highlighted in the external environment analysis because some of the quality issues reported about the Galaxy Note 7 were attributed to defective materials sourced from its suppliers (Moynihan 2017). This finding shows that Samsung’s procurement and quality strategy is ineffective and needs to be reviewed. Again, the emphasis of the review process should be on “quality” because it does not matter how affordable the company’s mobile phones are; customers would often reject poor quality gadgets (Nisen 2013). Similarly, the production of poor quality goods would lead to a negative brand image for Samsung, as that which was witnessed when the Galaxy Note 7 mobile phones started to malfunction (Moynihan 2017).
Possible Business Level Strategies
Main Business Level Strategies
The analysis of Samsung’s external environment shows that competition is a huge threat to the company’s operations. Particularly, the dominance of Apple in the mobile phone market is denying the Korean-based conglomerate the opportunity to become an unrivaled market leader. As a response to this threat, Samsung has focused on improving its marketing strategy (Hamper 2013; Rasheed et al. 2015). Indeed, the firm has invested many resources in increasing its marketing budget to give it more exposure in the industry (Hamper 2013).
Proposed Strategy
Samsung needs to change its strategy by focusing on creating revolutionary products. This approach should mark a departure from its current strategy, which is concentrated on revamping its marketing strategy (Cecere et al. 2014). Therefore, some of the firm’s current strategies, such as its differentiated marketing plan, should be substituted for a more robust plan that aims to create or develop revolutionary products. Such innovation means that the company should focus more on improving research and development efforts, as opposed to marketing. The strategy could be applied in both software and hardware development.
Apple has pursued such a strategy in the past and it currently accounts for the company’s success (Rasheed et al. 2015). Indeed, introducing revolutionary products, such as iPad, iTunes, and iPod, were game-changing corporate-level strategies that helped the company to evolve from a little-known Silicon Valley enterprise to one of the world’s most recognizable and valuable brands. Samsung should pursue the same strategy. This recommendation should address the intense competitive rivalry that emerged in the firm’s industry analysis.
Conclusion
Being a globally renowned mobile phone company, Samsung has made inroads in different markets around the world. An assessment of its operational environment shows that the threat of substitute products and industry rivalry are two of its strongest threats. Supplier bargaining power, consumer bargaining power, and barriers to entry all have moderate effects on the company’s operations. The business and corporate-level strategies highlighted in this report address the two strongest forces in its operating environment – intense rivalry and the threat of substitute products. The corporate level strategy proposal is directed at addressing the threat of substitute products because the company’s poor quality of some of its products is threatening its brand image. Indeed, it cannot claim to be a global leader in the mobile phone market by making defective gadgets.
At the same time, the business level proposal addresses the intense competitive rivalry that exists in the industry. Particularly, it shows how Samsung could effectively outperform its competitors. The recommendation to shift its corporate strategy towards producing game-changing products is particularly aimed at increasing its business profile beyond that of Apple, which is its main competitor. An implementation of both the corporate and business level strategies highlighted in this report is likely to improve the South Korean company’s success in the next decade.
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