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SAMSUNG Electronic case study By : Babak Jafarzadeh Kia / kaktos_golyakh@yahoo.

com

Samsungs Background
Samsung Electronics Company was established in Taegu, Korea in 1969 by Byung Chull Lee. During that time the company only manufactured black-and-white TV sets. Since 1969, the company has enjoyed steady growth. At the end of 2004, Samsung had around $80 billion in net sales, $60 billion in assets and had 113 thousand employees worldwide. Also, in 2004 Samsung stood up ahead of many their competitors such as Phillips, Kodak, and Panasonic . By that time the company produced TVs, AV equipment, and computers; the Telecommunication Business, which manufactured mobile phones and networking equipment; the LCD Business, which made LCD panels for notebook computers, desktop monitors, and HDTV; and the Digital Appliances Business, which produced and sold refrigerators, air conditioners, and washing machines . Samsung believes that the success of their contributions to society and to the mutual prosperity of people across national boundaries truly depends on how they manage their company. (Samsung, 2008) Kun Hee Lee, current chairman of the Samsung Group always teaches his employees: always demand superiority in product design and process efficiency. Under Lee s leadership, Samsung Corporation has become one of the worlds leading memory producers in all types of PCs, digital cameras, game players, and other electronics products. Company Overview the Samsung Group in 2005, which included Samsung Electronics Company, was the largest conglomerate in South Korea. The total net sales of the Samsung Group had reached $135 billion in 2004. In that same year, the Group had 337 overseas operations in 58 countries and employed approximately 212,000 people worldwide. The three core business sectors within the Group were electronics, finance, and trade and services. Samsung Electronics Company, henceforth called Samsung in this case, was established in 1969 to manufacture black-and-white TV sets. At the end of 2004, the company had $78.5 billion in net sales, $66 billion in assets, and 113,000 employees. According to Interbrand, the companys brand value increased from $5.2 billion (ranking 43rd in the world) in 2000, to $12.6 billion in 2004. In 2004, Samsung stood ahead of many brands such as Philips, Kodak, and Panasonic. Sony ranked 20th by comparison. In 2005 Samsung consisted of five business divisions, including the Semiconductor Business that is the focus of this case. Samsungs other divisions included the Digital Media Business, which produced TVs, AV equipment, and computers; the Telecommunications Business, which manufactured mobile phones and network equipment; the LCD Business, which made LCD panels for notebook computers, desktop monitors, and HDTV; and the Digital Appliances Business, which produced and sold refrigerators, air conditioners, and washing machines. The Industry type for Samsung is consumer electronics and entertainment. The market type is monopolistic competition because there are many producers and many consumers in the given market. Furthermore, when it comes to monopolistic competition, it involves a great deal of non-price competition which is based on product differentiation. Also, the producers have a certain degree of control over price. The electronics industry is a very wide category and it contains many types of products. Samsung competes with other companies in providing customers with a wide array of products that are good quality and affordable price. What they don't do is specialize in a certain product and thus they can't make an expensive superior product. With intense rivalry and competition in the

industry, Samsung is satisfying consumers who want modern reliable products ranging from cell phones to home electronics. The threat of entry The threat of entry to this industry depends on what part of the industry the company is trying to enter. If they enter a specific category of products such as mp3 players or cameras, Samsung will have a low threat level of entry from new companies. If a company decides to enter the same wide variety of product offering as Samsung then there will be a high threat level of entry. Therefore, for Samsung, the threat of entry is high. This is due to the fact that the Samsung Company is very widespread in terms of product offerings and service. Samsung offers a wide variety of products such as; mobile phones, television, mp3/audio, cameras, computers and home appliances. There are already many companies that are offering similar products and it is hard for the company to focus on a specific products. Technology is very important because the company has to keep up with latest trends and technology in all of its sections. It is difficult for new companies to enter the industry and compete with the larger companies specifying in an section because of already existing outstanding products in the electronic industry e.g. Apple's music entertainment products, or Sony's audio entertainment systems, or Canon's camera products. The new entrants of the electronic entertainment industry have to focus on whether to specialize in one area like music, TV, camera etc, or whether to have a wide variety of products for a affordable price. If they choose the latter, they will lost likely have to enter a price war. Samsung focuses on providing quality affordable price products for a wide group of people. Although with the rise of technology and high consumer interest in electronics, the industry is very popular and profitable for companies who have access to technology and capital. High capital is required to enter into electronic industry due to requirements of large investments on technology, distribution and marketing. New entrants in the industry have to spend a lot of money and time on branding and customer knowledge. The barriers to entry are high but are declining because of new technology and lower costs of production. The impact of new technology means that for content creation, the cost of digital cameras and video editing software is declining. The content storage is not limited by physical shelf space and server costs are declining. For product distribution, the growing number of distribution channels and the internet provides global distribution. Furthermore, bandwidth costs are declining. This makes it more attractable for new companies to enter the electronics and entertainment industry market. According to Airborn electronics, a realistic development path for a startup company will usually involve designing a low volume high price version of their product first, and then moving to high volume designs as the market matures. This is only possible where the economic demand for the product is "elastic" - in other words there is some demand even when the price is high. Fortunately, high technology products usually exhibit elastic demand (Airborn E. 2008). The consumer product market on the other hand can be a little bit less elastic This means that the demand goes down drastically when price is more than the consumer is willing to pay for. This means that it may be very difficult for a startup company to produce a new consumer product. Thus, the barriers to entry may be high in the industry depending on the economy. If the economy is good and people have more money to spend on electronics, it is better for the company, if not, there is a high barrier. In terms of product differentiation, there is a lot of specialization and increased value by companies to make their products stand out and gain competitive advantage. According to Chaffin, Apple has around 82% of the market share for mp3

players because they differentiate and specialize their mp3 products (Chaffin, 2008). A way for a new company to compete right now in the mp3 market is by price and lower quality alternative products or try to come up with new technology and features. For new companies to compete with Samsung they have to differentiate and specialize their products which can be very costly. The threat of Rivalry The threat of rivalry in the consumer electronic market is very high. Not only does a company have to compete on a level of technology and price, but they also have to keep track of what the competition is doing. There is a high intensity and constant competition in the electronics industry and usually the main competitors come up with new products very often. If a company does not keep up with trends and new products, they will lose their customers and profits. According to Barney and Hesterly, high levels of rivalry are indicated by such actions as frequent introduction of new products by firms in an industry (Barney, Hesterly, 2008: pg 46). In the mp3 industry, Apple introduces new 'I' products very often. In TV/DVD markets there are fewer introductions of new products because they are more expensive. The mobile phone market comes out with new products very often. There is a huge competition and rivalry amongst these markets. According to Barney and Hesterly, rivalry tends to be high where there are numerous of firms in an industry and these firms tend to be roughly the same size. Such is the case with the laptop personal computer industry. Worldwide, over 120 firms have entered the laptop computer market and no one firm dominates in market share (Barney, Hesterly, 2008: pg 46). Furthermore, rivalry tends to be high when firms are unable to differentiate their products from competitors in an industry. This can be seen in the personal computer and DVD industry. In the PC laptop industry, companies are focusing more on services that accompany the laptops and the designs of the computers. In the DVD industry the products are very similar and perform the same functions, thus it is hard to compete with existing companies. If a company decided to compete in this industry, they have to compete with intense price rivalry. Dell focuses their strategy on selling their computers online and providing excellent customer service. They save money on not having a physical store and focus on online distribution instead. This saves them money and they can compete on other levels. With the popular trend of the internet, companies are now competing with providing more services online and expanding their online advertisement. The threat of Substitutes Substitutes in the consumer electronics industry are many and the different companies competing in this industry must apply many strategies in order to compete and make profits. The substitutes in the electronics market can be divided in to 4 categories. As will be mentioned the important factors in every industry of the general electronics market. Telecom - The substitutes in the telecom industry are landline phones and email. At the moment, landline phones are losing popularity because of lower prices and popularity of cell phones and internet calling programs. In the cell phone industry, Apple's I phone has the latest technology with its Touch screen, but companies are following and introducing new phones. Technology is very important in this market. Samsung has just introduced new line of innovative cell phones for 2008. Cell phones and

PDA's have standard features and the only product differentiation lies with adding services such as Bluetooth, gaps and other communication applications and tools that are important for customers in the cell phone industry. it is important to know that there are several companies who compete based on price in the cell phone industry because it is a product that all kind of customers want. Samsung provides an affordable PDA with the modern features to satisfy the average telecom user. Apple and Nokia are selling mobile phones with new technology for a high price for customers who are willing to pay more. There are not many substitutes for PDA's. The main one is using a cell phone or computer, laptop to call someone using e.g. Skype. Laptops / PC - In the PC industry, the threat of substitutes is not very high because there are not many products that can do what a computer or laptop can provide. The only substitutes are portable and handheld devices. They are competing on price and trying to increase value based on service and customization. The major substitutes for computers are PDA's and cell phones for contacting other people. In terms of writing documents, portable devices are substitutes. Digital Cameras - In the digital camera industry, there are two major substitutes. The first one is the film camera, and the other one is the cell phone camera. Unfortunately, there is not much interest in film cameras because of outdates technology and cell phone cameras don't provide the same quality and storage as digital cameras. HD TV - Television have recently become very popular with the new HD technology. The substitutes for TV's are computers and laptops. For people who travel a lot, prefer to watch movies and favorite shows on their laptops because they can download or stream popular tv shows and movies from online sites. Furthermore, another substitute for TV s are going to the mov ies or watching videos on your Ipod. Because of the limited availability and space on Ipods and the smaller size of a laptop screen, TV s will still stay popular and be high in demand. The threat of Suppliers For companies, the threat of suppliers can be high depending on how many products they are selling and how differentiated they are. For example, in the HD and Blue ray competition, HD lost because the suppliers determined that they would go with blue ray instead of HD because of partnerships. Creating good supply chain management and a long term personal relationship with suppliers is very important for electronics companies. If they buy in bulks and have long lasting partnerships, they will reduce their costs by being more efficient in their SCM. Many suppliers work on integration and material-substitution projects to drive down costs. Technology has a very important factor in suppliers. By creating partnerships, suppliers can choose who they want to supply and what price to take. If they create a good that is very new and trendy, they can chose to supply to companies that will provide them with easier SCM and better price. Suppliers also want companies who they know will buy a lot in the long term, they want to create partnerships with companies to earn profits in the long run. Although because of price wars, suppliers are more and more forced to cut their

prices as their customers can go to other suppliers who may offer better components at a lower cost. Suppliers are also starting to lose power because more and more firms are starting to produce their own products and components in-house. The threat of Buyers The threat of buyers is very huge. The customer is the most important factor in the buying process. They decide where to buy the product and how much they want to pay for it. Most of the electronic entertainment products are created from wants, not needs, therefore the customer does not have to buy the product to survive. They can chose what to buy and from which company. Therefore it is important for the companies to create value and set a price that the customer is willing to pay for. In the consumer electronic industry, there are many products with different prices and different features. It is up to the customer to decide what features they need. Since there are a lot of buyers in the industry, there is not a large threat, but companies have to keep the buyer in mind and listen to what they want. Since the products are not very standard and differentiated, there is a lower threat of buyers. Furthermore, when the buyers are not earning significant economic profits, buyers may be very sensitive to costs and look for the lowest possible cost and highest possible quality of a product. Chinese Threat 1. What kind of advantage are the Chinese entrants seeking? How close are they to achieving that advantage? In this case the Major Memory Competitors in 2005 include: Elpida Japan s only remaining DRAM producer Hynix Has many financial problems Infineon Major DRAM player with 25 R&D locations all over the globe Micron Technology Investing in next generation DRAM technology with a $500 million investment from Intel Nanya Technology Producing 256 Mbit DRAM in a Joint Venture with Infineon

SMIC The only Chinese DRAM manufacturer. It is China s most advanced producer and a major competitor for Samsung Elpida is a Japan s only remaining DRAM producer that was established as a joint venture between NEC and Hitachi in December 1999 Hynix Semiconductor, Inc . South Korea based Hynix was founded in 1983 as Hyundai Electronics, and it changed its name in 2001 while separating from the financially distressed Hyundai Group. Infineon Technologies AG , Germany based Infineon was spun off from Siemens in 1999. Micron Technology , based in Boise, Idaho, was founded in 1978. Nanya Technology Corporation , Taiwan based Nanya was the fifth-largest DRAM manufacturer and it had two manufacturing plants. Semiconductor Manufacturing International Corp. (SMIC) , established in 2000 and headquartered in Shanghai, was China s largest foundry, manufacturing logic and memory products including DRAM. And the Chinese Environment includes: Regulatory A zero tariff rate for importing semi-conductors Tax rebates to dom estically produced semiconductors (avail in 2003 but stopped since April 2004) Other preferential policies although not announced in detail, are in the pipeline to encourage investment in semiconductors

Market Access issues still exist Technology China lacks the critical infrastructure necessary to support a cutting edge semi-conductor industry The US and Taiwan governments have forbidden shipment of cutting edge production technology to China. So China went to other countries Alliances Chinese governm ent provided cheap credit, abundant land, cheap utilities, engineering talent, tax incentives to anyone who was willing to partner with a Chinese company Labor China still enjoys an advantage in labor intensive activities

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