Assignment 1

Introduction

Over the last decade many barriers to international trade fell and a wave of firms began
pursuing global strategies to gain a competitive advantage. However, some industries benefit
more from globalization than do others, and some nations have a comparative advantage over
other nations in certain industries. To create a successful global strategy, managers first must
understand the nature of global industries and the dynamics of global competition. In 21st
century and in the era of knowledge based industry when global markets in shrinking, cross
culture adaptation is not only a must but is only a mantra to succeed.

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Q1.0 The Mobile Phone Industry and The Major Competitors’

According to Perez, the latest phone shipment numbers are out from IDC (Q4 2010) and the
top mobile phone manufacturers are Nokia, Samsung, LG and Apple. The phone industry is a
global industry with successful cross cultural management strategies. A global industry can
be defined as an industry in which firms must compete in all world markets of that product in
order to survive. An industry in which a firm's competitive advantage depends on economies
of scale and economies of scope gained across markets. All these manufacturers are the major
competitors in the industry.

Q2.1 Unique capabilities of Companies.

Unique capabilities exists when the firm is able to deliver the same benefits as competitors
but at a lower cost (Cost Advantage) or deliver benefits that exceed those of competing
products (Differentiation Advantage). The company will then have competitive advantage
over its competitors. Competitive advantage (Unique capabilities) enables the company to
create superior value for its customers and superior profits for itself. A firm positions itself by
leveraging its competitive advantage.

Let us take Apple (American company) and Samsung Electronics (South Korean) to compare
their unique capabilities.

2.1.1 Apple

Apple manufactures the popular I-Phone 3GS and I-Phone 4. Apple is known as the most
innovative company, it leads the list of the 10 most innovative companies (Exhibit i). Today
Apple epitomizes a capabilities-driven innovation strategy. Apple’s I-Phone gives an
exceptional consumer experience, intuitive user interfaces and sleek product design. Apple
also has an iconic branding. This focus on what the company did distinctly well help Apple
both narrow and extend its portfolio to products that made the most of these unique
capabilities. Apple's profitability and market capitalization are well above the industry
average, and it was voted the most innovative company by a huge margin. Apple has

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consistently spent far less on R&D as a percentage of sales than the median company in the
computer and electronics industry.

2.1.2 Samsung

Samsung is also known for its innovation (Exhibit i). Samsung ranked in 10th position in
terms of R&D spending in 2009. Samsung Electronic employs a total of 16,000 scientists and
engineers. Samsung have been able to continuous churning out newer and better models of
mobile phones. Samsung is also very adept to re-engineer phones from competitors and
include other value added features such as higher pixel cameras and more freeware
applications.

In its battle with other phone makers, Samsung’s control of the vertical components market
may give it a competitive advantage over rivals like Nokia. Samsung makes displays,
memory chips, mobile processors, and other components, which can help Samsung Mobile,
the phone and tablet division of Samsung, be price competitive against rivals.

The semiconductor division of Samsung Electronics is the world's number 1 manufacturer of

all key areas of semiconductors which are also used in the phones as well as competitors such
as Apple.

2.2. Identify the Locations and the Value Chain Where These Capabilities Exist

The value chain is also known as the value chain analysis. It is a concept from business
management that was first described and popularized by Michael Porter in his 1985 best-
seller, Competitive Advantage: Creating and Sustaining Superior Performance. A value chain
is a chain of activities for a firm operating in a specific industry. Products pass through all
activities of the chain in order, and at each activity the product gains some value. The chain
of activities gives the products more added value than the sum of the independent activity's
value.

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2.2.1 Apple

Apple has value chains in several countries such as USA, China, Taiwan and Singapore.
Taiwan provides facilities to make phone cameras, and circuitry. In Singapore Apple have
facilities for CPU and video processing. All these components are then sent to China for the
final assembly of the end product.

Locations & Value Chain of Apple (Abilla Pete)

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2.2.2 Samsung

Unlike Apple which sourced its microchips and other components, Samsung manufactures its
hardware such as microchip, cameras, screens from its various factories located in China,
India and in South Korea. The lower end phones are manufactured in China and India while
the high end smart phones are manufactured in South Korea.

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Q 3.0 How These Capabilities Lead To Distinct Competencies?

In general, an organization's distinctive competencies are the set of strengths, characteristics

and qualities including skills, technologies, or resources that distinguish it from competitors.
When the strength provides superior and unique customer value and is difficult to imitate
then the distinctive competence creates a sustainable competitive advantage.

A distinctive competency is something that a firm does well and meets the following three
conditions:
• It provides consumer benefits
• It is not easy for competitors to imitate
• It can be leveraged widely to many products and markets.

3.1 Apple

With the advent of commodity semiconductors and contract manufacturers these distinctive
competencies can be easily imitated by competitors. Instead, new core competencies that are
becoming increasingly important are:
• Software / User Interface
• Captive retail
• Cash

The importance of software and better user interface as a distinctive competency came with
the advent of the Apple’s I-Pod and I-Pod Touch. The software and user interface is then
used on the I-Phone, providing a handheld computer with specialized Mobile. Apple’s I-
Tunes online store allows the consumers to purchase media and applications for all their
Apple’s devices. Apple’s software and user interface is distinctive a competency because it
provides unique consumer benefits and it is very difficult to imitate. It is also leveraged
widely to all Apple’s products such as I-Pod, I-Pod Touch, I-Phone and I-Pad. Likewise, the
I-Tunes store is a captive retail store which can be accessed by all Apple’s products. This is
also a core competency.

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Cash is not normally thought of as a distinct competency. But used intelligently and
aggressively, it provides a substantial competitive advantage. The ability to prepay for
commodity parts enables Apple to both obtain the lowest prices and be the preferred first
customer to receive parts. Competitors pay higher prices and may be put on allocation
schedules.

3.2 Samsung

Samsung have thrived where others have faltered by using creative and innovative
technology to create new lifestyles and markets. Samsung believe that continuous innovation
is the only way companies can achieve a sustainable competitive advantage going forward.
That is why nearly one out of four of its 123,000 employees are directly involved in
developing tomorrow’s products at a growing network of 17 R&D centers on almost every
continent of the globe.

Samsung’s innovation enables it to churn out mobile phones that could appeal to a mass
group of consumers. From cheap and affordable mobiles to high-end for the affluent
consumers. Samsung embodies style and technology for the young professional, with its
cutting edge design and superior connectivity features.

In the local market where myriad choices abound, Samsung's sleek exterior design,
accompanied by its selection of soft and hard features, render it an optimal purchase for the
young, technologically updated professional.

Samsung’s control of the vertical components market is also a distinct competency. .

Samsung makes displays, memory chips, mobile processors, and other components, which
can help Samsung Mobile phones, be price competitive against rivals.

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4.0 Implementing A Generic Strategy Successfully Across Borders and Cultures

Both Apple and Samsung have different strategy to be successfully across borders and
cultures. Apple is an American company while Samsung is a South Korean company. Let us
use Geert Hofstede’s Cultural Dimensions model to discuss both these companies strategy. In
the Individualism dimension, Apple (USA) scores more than 4 times higher than Samsung (S.
Korea). High individualism characteristics include ‘I’ consciousness and full obligations to
self.

Apple’s I-Phone when launched has only one model (difference in memory capacity only)
and the use of its operating software (OS) only. In US and other countries, Apple’s I-Phone is
only available with one network carrier company like AT & T (USA). The only way to own
one was by signing a contract with the carrier. The deal allowed AT&T exclusive rights to
the handset and ensured that Apple could maintain premium prices and claim an
unprecedented 15% of the operator's revenues from each user. Apple repeated the
arrangement with O2 in the UK, Orange in France and Maxis in Malaysia. Apple would only
allow software applications to be sold via its I-Tune online store. Independent software not in
I-Tune is not allowed to be installed. All these further support Hofstede’s dimension theory.

S. Korea scores low in individualism, where the characteristics are relationship is a priority,
“We” consciousness. Samsung prefers to focus only on the phone hardware and to use
outside software and operating system. Although Apple is a direct competitor, Samsung is
still willing to sell their micro-processors to Apple. Samsung seems to adopt the same
similarities like its parent country.

In terms of Long term orientation (LTO) S. Korea scores highly as compared to USA. High
LTO companies look for long term growth, planning for the future while low LTO companies
look for quick results. In the case of Samsung (high LTO), there is proper planning for the
future like producing all its hardware and microchips. This is to ensure ample supply of
inventories and able to control cost of production. Apple practically sourced all its
components from other companies such as Samsung for its microchips. Apple is more
concern of yearly gains and bottom line. Like all USA companies, Apple needs to ensure
yearly growth in revenue. This is consistence with Hofstede’s model.

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PDI Power Distance Index

IDV Individualism

MAS Masculinity

UAI Uncertainty Avoidance Index

LTO Long-Term Orientation

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4.1 Using Distinctive Competencies

Both Apple and Samsung use their distinctive competencies to implement strategies to be
successful across borders and cultures. Let us take Maslow’s hierarchy of needs theory and
look at the target segments for both Apple and Samsung.

The importance of software, better user interface and captive retail are used as distinctive
competencies for Apple to target their target market. Apple’s I-Phone is perceived as the
ultimate smart-phone. Its iconic brand plus all the distinctive competencies allows I-Phone to
be sold at a premium. The phone is targeted at those

When iPhone is considered a luxury product in the Smartphone market, Apple does not
require different pricing strategies for different markets. Just as Louis Vuitton for purses or
Rolex for watches, premium brands do not require different prices for different markets. . I-
Phone is targeted at those with esteem need, to project personal social status.

Apple’s marketing strategy which was a success in USA was also replicated across borders
and cultures. Apple’s distinctive competencies and also being an iconic brand allows it to be
successful in marketing their phones. Om Malik states “In response to an analyst’s question,
Steve Jobs (Apple’s CEO) said that while the company has a “miniscule market share of the
mobile phone market” and that it “may not appeal to every prospective customer,” but “the
percentage of prospective customers we need to attract in order to significantly increase our
market share isn’t that many.” Jobs also said that software (and user experience) is Apple’s
current and future strategy.

As for Samsung, they are producing high end smart phones, mid-range as well as low end
phones. Looking at Maslow’s theory, Samsung is targeting 3 segments of the hierarchy. The
low end phones are targeted to those who use phone as a mode to make and answer calls
only. This group would generally fall under the Safety Need hierarchy. The mid-range
phones are for those with social needs. This group usually consist of those with middle
income and also the need of self-belonging. This group are keen follower of Face Book,
Twitter and other chat sites to keep in-touch with their on-line friends. Samsung’s mid-range
phones can satisfy their needs.

Samsung also produces high end phones smart-phones such as Samsung Galaxy to target the
esteem needs hierarchy. This group wants self-esteem, recognition and status. Samsung’s
high-end phones help this group to meet all their needs.

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Samsung uses its distinct competencies such as brand icon and innovation enables it to churn
out mobile phones that could appeal to a mass group of consumers. Like Apple, Samsung
uses brand and innovation as distinct competencies to market their products successfully
across borders and cultures. The difference is Apple concentrate the innovation of software
while Samsung’s innovation is on the hardware. Apple only offers one type of phone for a
niche market while Samsung offers a variety to target a broader market.

Apple and Samsung have been successful in implementing their global marketing strategy
and this is reflected on their market share of the mobile phone sales.

Maslow’s Hierarchy of Needs Theory

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 References

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11. Samsung R & D website. Available online at
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