COMPETITIVE STRATEGY ANALYSIS-SAMSUNG
Table of Contents
Samsung Competitive Strategy………………..….................................................................................................. 4
Porter’s five forces analysis………………….............................................................. ... 6
Reasons for Samsung Success...............…………………................................................................................. . 9
Bowman’s Clock Strategy interpretation.....................………………………........................................................... 10
Value Chain Analysis…………......................................................................................... 11
Research & Development....................... ........................................................................... 12
Distribution Chain.............................................................................................................. 13
List of References............................................................................................................... 14
The tremendous rise of Samsung Corporation to the top of consumer electronics manufacturer table has left many management and industry scholars awed. Many people are still wondering how an Asian company pulled its strings to challenge some of the world known companies such as Apple and Nokia in their own game. Over the years, Samsung products have become a household name in almost every corner of the world. From this success, Samsung Corporation has become an important case study on how corporation can survive in a highly competitive global market. In management language, scholars believe that for a company to succeed in a competitive market it has to have a competitive advantage. So, what has been Samsung competitive advantage? This essay unravels the mystery of Samsung success by analysing its competitive strategy.
Towards the end of the 20th century, the importance of an effective competitive advantage began to attract interest in management circles. Management gurus like Porter (1980) and Bowman (1996) thrust the centrality of competitive strategies in management limelight (Shay and Rothaermel 1999, p. 553). Since then, their seminal work on management has become an interesting focal point for analysing companies’ competitive strategies. Porter (1980) argued that for a company to have a competitive advantage it has to strategise on the overall cost leadership (price), differentiate its products (instil a perceived value) and be focused (market segmentation). Reflecting on this line of argument later, Bowman and Faulkner (1996) expounded on Porter’s generic strategies to eight and examined how the price and the perceived value combine to create a competitive advantage. The centrality of a competitive advantage in management arises from the understanding that in an open market, customers have a wide range of choices from companies that produce almost similar products. The concern of the organisations in such an environment is how they can create a niche and produce products that attract customer to their side at the expense of the other competitive partner.
Samsung competitive strategy
From the outset, Samsung can be described as having one of the best inventory management systems, skilled manpower, a stable supply and distribution chain and competitive products that are innovative and durable. This combination of factors makes Samsung a unique case study in the field of management. Along with a SWOT analysis, porter’s five forces, value chain and strategic clock are some of the management theories that can help in putting Samsung competitive strategy into perspective.
Unlike its competitors, the rise of Samsung to the top of consumer electronics is very unique. While its competitors specialised on producing one product that they thought they were well positioned to compete on, Samsung approached the market with a full basket of consumer electronics. Apple has specialised in producing an end-to-end mobile device and producing high quality Smartphone and tablets. Google has focused on user data and Microsoft is hell-bent on laying the platform for other businesses to thrive. In the contrary, Samsung has approached the market with a wide array of consumer electronics ranging from phones (low end and Smartphone) televisions, tablets, washing machines, driers, cameras, computers, refrigerators just to mention a few. The most surprising thing is how Samsung has managed to excel in all these products.
Initially, Samsung looked as if it was driven by what can be called in a market language “a beat apple strategy”. Samsung management seems to have realised that their main challenger in the market was Apple, Inc. This informed their strategy to counter every product that apple released with almost a similar product, but at a lesser price. For iPhone 4 Samsung released Galaxy S III and now with the iPhone 5, there is a Galaxy S4 to counter it. This is a glimpse of how Samsung has strategized its products.
The rise of Samsung to the top can be attributed to many factors, but there are two that are outstanding: price and selection. In Samsung phones for example, customers have a wide range of choices. Samsung produces phones both for the low end and the upper end. If a customer cannot afford an expensive phone, there is a cheap phone that can suitably service. Even those phones that are almost equivalent in features with Apple products, Samsung makes sure that they retail at a much lower price. As for the iPhones, there is no much significant difference between one phone and the other. It is also notable that Apple has concentrated on products that are best suited for the affluent while Samsung caters for all markets.
The bottom line for every competitive strategy is creating the best value for customers. Samsung has captured this value so well in its vision and mission statement. According to Samsung, it wants to be the leader in digital convergence. Its vision for the decade is “inspire the World, Create the future” (Samsung 2011). Samsung has stated it so clearly- it wants to be the home of revolution. Towards this end, the company has invested heavily in research and development.
Porter’s Five Forces
In analysing a companies’ competitive strategy, porter (1980) came up with five forces that shape up their competitive strategy. According to porter (1996), the five forces are threat of new entrants to a market, bargaining power of suppliers, bargaining power of customers, threat of substitute products and the intensity of the rivalry within the industry. While expounding on how these forces influence a business strategy, porter argued that where the forces are intense, the return on investment is marginal. Where the forces are less intense, the companies are likely to make profit (Lessard 2003, p.6).
As a corporation, Samsung has been subject to all these forces. The most force that is so evident is the rivalry between competing companies. As a consumer electronics manufacturer, Samsung faces a stiff competition from Apple, Nokia, Siemens, Sony, Hewlett-Packard, BlackBerry, Dell, HP, Motorola, Intel, among other companies that are competing in the same market. The rivalry is so intense that each company is employing every trick to outdo the others and emerge the market leader. Almost all of these firms pose a serious challenge: they produce similar products and have the ability to destabilise the market.
The rivalry between these companies intensifies bearing in mind that dislodging a customer from a competitor is not easy. Almost all of these firms have equal power to retain their customers and shield their market share from competitors. Differentiation in this industry is also short lived since most of these products can be interchanged. In addition, consumer electronics is a high revolving field and any effort to differentiate can easily be overturned by the discovery of new technology.
The difficulty in differentiation is also made worse by the high threat of substitute. Customers can switch from Samsung Galaxy to iPhone or to Nokia Lumia with relatively the same satisfaction. Similarly, they can switch from a Samsung LCD to Sony TV or from a Samsung Laptop to Dell or a HP laptop and retain the same relative quality. This interchangeable ability in the consumer electronics makes the position of differentiation and retaining customers extremely difficult.
Connected to the above point, Samsung faces a high consumer bargaining power. In this market, consumers have a wide range of choices that can equally satisfy their needs. The products from these companies are almost similar. The only market that Samsung experiences a low bargaining power is on a business-to-business transaction where it competes with few firms in supplying products such as semiconductors (Arvand 2012).
The threat from suppliers is low since Samsung is almost a vertically integrated company. Most of the raw materials it needs to produce its product come from within. The only challenge is that Samsung does not have its own operating system. It has almost solely relied on Google’s android.
The consumer electronic industry is less penetrable. New firms will find it difficult in entering a field that is already dominated by not only powerful but also ruthless players. The cost for setting electronic industry is also an inhibiting factor. New entrants will be required to cater for this overhead cost at the time that the already successful players are leveraging on mass production to lower down the prices. The entrance is also inhibited by the differentiation and the brand image of the already existing firms (Farhoomand and Desai 2009. The phone and the TV industry are almost taking shape of an exclusive few companies. If it is not a Samsung product, it is a Nokia, Apple or Motorola product. If it is not a Samsung laptop, it is a HP or a Dell laptop and if it is not a Samsung TV, it is most likely to be a Sony TV. Entering with a new brand that will upset these renowned brands is becoming increasingly difficult. This is not to mention the rigorous process that a new company will go before acquiring operating licenses.
Reasons for Samsung Success
In what appears to be an effective competitive strategy, Samsung has managed to rise above the stiff competition and emerge as a world leader in consumer electronics. As Reisinger (2012) has observed, Samsung is the leading TV maker in the world with a 22.5% market share. It commands a recommendable 15.1% share in display monitor market and 13.5% in the world refrigerator market. In washing machines, Samsung had a 9.2% market share by 2010. It has also managed to give the leading laptops giants, HP and Dell, a run for their money at an improving 6.3% market share (Reisinger 2012). The meteoric rise must have gained more momentum when Samsung replaced Nokia in the mass market phone category.
Such a tremendous success is worthy paying more attention. There must be a hidden, or rather an open, secret behind it. As mentioned earlier, some of the Samsung competitive advantage has been price and selection. The porter’s five forces and the Bowman strategic clock recognise the importance of price in a competitive strategy. According to the theory of five forces and strategic clock, in a rivalry market, a company can lower the prices to gain a temporary competitive advantage (Stalk, Evans and Schulman 1992). Such a lowering in price is expected to be recovered in voluminous sales. This strategy must have worked for Samsung as it has overtaken Nokia in mass-market phone category.
Bowman’s Clock Strategy
In Bowman clock strategy, Samsung can be said to be operating in position 2, that of low price. According to clock strategy, companies operating in this position are the low cost leaders. These are the companies that operate on the bare minimum prices and earn their profit through voluminous sales. In the second quarter of 2012 for instance Samsung sales hit the $42.2 billion mark. The profit for the same quarter was $4.6 billion (Reisinger 2012).
The other key strategies to Samsung success is differentiation. In the strategy clock theory, differentiation is market as Position 4. Samsung premium products like Smartphone and the LCD TVs can be termed as focused differentiation, or Position 5 in strategy clock theory. In differentiation, companies create a perceived premium value (Prahalad and Hamel 1990, p.84). Samsung has been so effective in creating a perceived premium value for its products. In Smartphone niche for example, customer believe that the equivalent alternative of an iPhone is a Samsung Galaxy. Most customers are questioning the logic of going for an iPhone at a relatively high price while they can go for a Samsung equivalent at almost half the price. To capitalise on its differential advantage, Samsung has distinguished itself with a strong brand name in consumer electronics (Arvand 2012). In consumer electronics, a mention of a Samsung product, to say the least, carries with it the connotation of quality.
Value Chain Analysis
In value chain analysis, Porter (1985) recognised that companies create a competitive advantage by streamlining their activities to produce the best value for their customers. Value chain are the activities that are carried out to turn a raw material to refined product that is of the value to the customer and at the same time the producer earn a profit in the process (Gil, Bong and Lee 2003). As a manufacturer, the bottom line for Samsung is adding value to raw materials so that they can be meaningful to customers. As Rugman A & Richard H (2001, p.37) notes, the guiding principle here is that, the more value that a producer add to the raw materials, the more the consumers will be willing to pay for it. The way this process has been carried out at Samsung has created a competitive position (Farhoomand and Desai 2009).
Porter breaks the value chain to five activities: inbound and outbound logistics, operations, marketing and sales, and services. Of all these, Samsung has performed tremendously well to create a competitive advantage, but there are two activities that need to be singled out: operations and marketing and sales. The activity that needs to be emphasised in operations is research and development (R&D) and in marketing and sales the distribution of Samsung products.
Compared to its competitors, Samsung takes a different route, starting from the way it carries out research to the way it manufactures its products. Unlike apple, where its late leader, Steve Jobs, believed that consumers were ignorant-they do not know what they want- Samsung has always insisted on market research do understand consumer preferences. As Chen (2013) observed “Apple stakes its success on creating new markets and dominating them, as it did with iPhone and iPad” while “Samsung invests heavily in studying existing markets and innovating inside them”. Samsung believes that the production should be guided by the market. This means that Samsung production has been focused to the consumer.
Research and Development
In R&D, Samsung leads the pack. While Samsung spends 5.7 percent (approximately $10.5 billion) of its revenue on research, Apple only spends a partly 2.2 percent ($3.4 billion) (Samsung 2009; Chen 2013). Chen (2013) adds that Samsung has deployed a staggering 60, 000 or a quarter of its staff on research and development. This kind of investment in research underlies Samsung commitment to innovation, and of course it vision to lead the digital convergence and “inspire the World, Create the future”. Besides that, Samsung has always recruited and retained a high level of talented employees. This explains why Samsung has moved from being a follower to a challenger of Apple. It is no longer the copycat. For instance, by the time Apple was releasing iPhone 5, Samsung was already selling phones with bigger displays. To add on that Samsung has already announced that it is designing a wristwatch phone, a design that is way ahead of Apple plans.
In terms of marketing and sales, Samsung has been more aggressive. It carries out targeted campaigns and promotes its products to all parts of the world. In fact, unlike some of its competitors like Apple that are yet to penetrate some parts of the world, Samsung has opened distribution channels in almost all corners of the world (Samsung Corporation 2011). This is indicating a determination to concur every part of the world. Apple may be concentrating on affluent markets like North America and Europe, but Samsung has ensured that it has a wide range of products to fit even in low-income areas of Africa. In addition, Samsung has ensured that it has controlled the populous Asian market. Why it is facing challenges like North America, the company has partnered with local companies such as AT&T.
In summary, Samsung success has been driven by a combination of factors. Pricing and producing and wide range of products that cater for a wide market has been the cornerstone of its competitive advantage. Samsung has managed to balance its prices between the low-income earners and the high-end market. It has produced products of similar value but sold them at a relatively lower price. In promotion terms, Samsung has already become a household name in most every corner of the world. In addition, the company has heavily invested in R&D with an aim of creating products that are of the best value to customers. At the moment, although it might be early to predict, it is only a matter of time before Samsung stamps its authority in consumer electronics across the globe.
List of references
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