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Samsung Analysis

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Troy Heumphreus

on 29 September 2012

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Transcript of Samsung Analysis

Smartphone Industry Analysis: Bridget Han
Troy Heumphreus
Alistair Kwein
Susan Zhang Alternatives Vertical integration by acquiring platform developer Implementation A step up from Samsung’s current strategy
Form strategic alliance Google
Perfect operating system functionality and capability
Develop cooperative relationship with app developers (positive feedback loop)
Work together to develop the new generation smartphone
Software
Hardware
Concept
Push for complementary products (network effect)
Invest heavily into market research, marketing, and positioning
Make sure the benefits of the strategic alliance is communicated clearly to consumers
Innovations cannot stop in any aspect History Samsung Town, Seoul, South Korea
Part of Samsung Corporation
Vertical Integration focus
First exports in 1977
Byung-Chull Lee 1938-1987
Kun-Hee Lee 1987-today
Restructured itself in vision of “Quality First” Vision and Mission “Inspire the World, Create the Future”
Five Core Values:
People
Excellence
Change
Integrity
Co-Prosperity Highly competitive business environment
Regulatory issues
Less profitable because of over-employment
Patent litigation lawsuit Distinguish service from competitor
Offer product variation
Investment in Supply Chain, build a 24h R&D system, production investment boost efficiency, marketing increase brand awareness
International expansion: India, Eastern European Definition Smartphone definition
High end mobile phone built on a mobile computing platform with advanced computing ability and connectivity
Touch screen, web browsers, various application, high speed data access via Wi-Fi 5 Forces Traditional feature phone market Big Five: Nokia, Samsung Electronics, Sony Ericson, Motorola, and LG electronics
New powerful players in smartphone market: Apple, RIM, and HTC
Current smartphone Big Three: Apple, Samsung, and HTC EXTREMELY
STRONG
Two types of buyers
Service providers
Consumers

Innovations and strategic groups
No breakthroughs since iPhone
Premier innovators: Apple
Large spectrum pursuers: Samsung, HTC, Motorola, Nokia
Business Oriented competitors: Blackberry
Low cost competitors: LG and Sony Ericson PROFITABILITY Industry in shakeout stage
Major players show increased sales revenue
Dominant players are being established
Bad for new entrants
Not attractive for new companies (Barriers of entry, Economies of scale)
Very profitable for existing players COMPETITOR Industry growth: 47.3% from 2010-2011
Android – 50.9%
iOS – 23.8%
Symbian – 11.7%
Windows – 1.9% 1st in mobile device sales (23.4%)
3rd in smartphone sales (11.7%)
Strengths
Diversity
Consumer base and loyalty
Low cost
Weaknesses
Symbian not competitive
Lose high end consumers
Weak product line Key Competitors Nokia
Partnered with Microsoft
Improving Symbian
Market share
Apple
improving iPad
Fall off without new releases
Lawsuits Industry Key Success Factors Innovation
Samsung vs. Apple (Patents)
The operating system
Android, iOS, and Windows 7
Applications
Aggressive pricing and marketing
common tactic to jump-start demand Governance CEO leadership style
Samsung lifer
Rise to power after the 2009 executive restructuring after slush fund scandal Debt to Equity- 14.4%
Debt Ratio- 34.6x
ROA- 6.56%
ROIC- 8.78%.
ROE-14.37%.
Gross Margin (profit margins)- 32.03%
Current Ratio- 1.6x Ratio Analysis VALUE CHAIN Patent war – Apple vs. Samsung
Lack of own designed operating system
Too much focus on design rather than technology
Weak customer perception in western world
Excessive centralization Strategic Issue Invest in dominant format and win the format war
Current:
Android (majority)
Windows
Bada (self-developed for basic phones)
No competitive self-developed platform
Hardware differentiation diminishes
Increasing attention to “soft” portion
Operating system
Application programming interface
Apps
Norms conform to standard Best Advantages
Shaping the format war and more directly compete with iOS
Do not need to incur large R&D expense
Combine the distinctive competencies from both companies
If chosen format wins, huge first mover advantage wins
Create network effect and positive feedback loop Apple 3rd in mobile device sales (7.4%)
1st in smartphone sales (23.8%)
Brand image and increasing profits
Strengths
Innovation and quality
Forward integration
Customer base
Weaknesses
Too expensive
Incompatability
Samsung produces chips for iPhone STEEP Social/ Demographic
-Lifestyle and Trend Technological
Operating System (Format War)
Constant need to innovate Economic
Recession
Economies of Scale Environmental/ Geographic
Waste Management
Sustainability Issue Political/ Governmental
- Legal Barriers
-Environmental Laws. Evidence:
Prices are stable, promotion not done at manufacturer’s side
Number of competitors is small and almost no new entrants
Game of big established companies Conditions:
Highly consolidated
EnormousBarriers to entry is
Economies of scale, experience curve, and operating efficiency hard to surpass
Marketing and advertising expense high WEAK Evidence:
Hardware feature differentiation is diminishing but players continue to differentiate on software and services
Advertising battles
Constant new product introduction: raising qualities without raising prices Condition
End of the growth stage and entering shakeout stage
46% of phone owners have smartphones: captured all early majority and start to capture late majority
Customer switching cost is low
High exit barriers : high fixed cost, emotion attachment

Negatively impact bottom line
R&D
Advertising STRONG Service provides (Strong)
Smartphones are useless without services
Buy in large quantities
Lots of substitutes and low switching costs Consumers (Moderate)
Becoming more and more like necessity than luxury, price sensitivity will likely to rise
Growing expectation without wanting to pay more
More information because of internet, able to compare before purchases Hardware parts manufactures (weak)
Software developers (Moderate) WEAK
Substitutes include:
traditional feature phones
land lines
internet calling
tablet
etc. WEAK Ultimate function:
COMMUNICATION Benefits of all substitutes in one Demand side:
Communication (Consumers)
Includes substitutes:
Skype
Internet
Landlines
Supply side:
Business Aspect
Phone manufacturer, software vendor, service provider or carrier
Substitutes
Skype, generic handsets, cameras, and landlines Analysis 2.3% of mobile device industry
Partnered with Android and Microsoft
Strength
Android and Microsoft
Customizable
Loyal customers
Weaknesses
Customizable
EVO 3D release date Risks of Differentiation Strategy Continuing format war
Android, iOS, RIM, and Windows 7
Improved and similar Technology
Hard to differentiate
High cost
Needs heavy investment in R&D Competitive Rivalry
Samsung – Heavy investment in R&D
Apple – High price, long innovation cycle and simple product line
Bargain power of customers
Short innovation cycle – 3 months
Capabilities not limited to phones at premium price
Broader product line – “Smartphone is for everyone” Against Powerful Forces Building Blocks Strategy Previously Cost leadership
New products are a result of Samsung’s desire to differentiate itself
Samsung’s position in the marketplace: BUSINESS LEVEL INTERNATIONAL/COOPERATIVE Vertical Integration is biggest strength
Suppliers must operate outside of Samsung
Recommendations:
Forward vertical integration
Develop backward integration Apple iPhone - 2007
Need for “iPhone killer”
Samsung partnered with Android
Galaxy profile
Lawsuits
Not many acquisitions
Rumors of acquiring RiM CORPORATE LEVEL 67 countries
Samsung GSG in 1997
Develop a pool of global managers
Enhance Samsung’s business performance
Globalize Samsung
Globalization standardization
Greenfield, joint ventures, acquisitions and licenses Samsung Corporation (Conglomerate)
Electronics
Financial
Chemical
Machinery and Heavy
Many others Conditions Samsung Electronics (Concentric)
Diversification recommendations:
Doing well
Diversify OS SWOT Strong market position in emerging market
Supports multiplatform
Focus on innovation product
Strong brand – 19th in brand value
Heavy invest in technology, product design, human resources
Catching need of customer well
Variety and wide product lines STRENGTHS WEAKNESSES OPPORTUNITIES THREATS Ownership concentration
Family controlled
Other investors are largely institutions Board of directors
Gee-Sung Choi: current CEO and Vice Chairman
3 insiders, 4 outsides
Outside board members control executive compensation issues and audit committees Non-engineering, known as a marketing expert
Led the Digital Media &Communication unit and smartphone business
Low key, down to earth
US executive team exclusively expatriates Agency problem
Slush funds scandal in 2007
Chairman Kun-hee Lee resigned in 2008 and back to Chairman in 2010
Accused of bribing government figures and other illicit activities
Accused of opaque management and corruption
Hugh organizational structure and higher executive restructuring
Suggestions
Needs more radical changes
Higher management needs more outside influence and supervision
Western corporate governance principles to balance the family control Structure/Culture Corporate Culture Criticized as rigid before
New higher management and organizational restructuring
Striving for more innovative and dynamic structure
Decentralize authority
Innovation = Customer needs > Technical aspects
Adapt to competition
Internal process model => Open system model
Decentralization
Competitive positioning
Innovation
Growth and expansion
Adaptation
Exponential smartphone growth since 2009 Centralized
Multidivisional structure
2009 organizational restructuring:
2 principle business
10 divisions
8 independent companies
Aim to become a flatter organization
Strategic Business-Unit (SBU) Form
Greater control at each division
Decreased coordination needed between SBUs
Global product group structure
Global standardization strategy ORGANIZATIONAL STRUCTURE ANALYSIS Segmentation and Position Ratio/Market OPERATIONAL HR strategies Lean Production
Six Sigma
Vertical Integration Heavily invest in one Invest equally in all existing running platforms Develop their own platform to compete with Apple Do nothing!!!!! Conclusion Smartphone industry is at the end of the growth stage, approaching shakeout stage
The industry very consolidated and face strong competitive rivalry
Samsung is among the top players in the industry exhibiting tremendous growth and potential
The key to future success: win the format war
The best alternative: Heavily invest in one existing running platform and develop close cooperative with the platform developer
Android is a great potential partner
Success depends on mutual cooperation
Innovation cannot stop in any aspect: new generation smartphone Heavily invest in one existing running platform and develop close cooperative with the platform developer
Judging from the current market share and growth condition, Android may be the best option Disadvantages
Large investment
High return, high risk: if lose, may have to exit the market
Success depends on mutual cooperation QUESTIONS?!?! INDUSTRY ANALYSIS
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