The Samsung Group is a multinational conglomerate corporation headquartered in Samsung Town, Seoul, South Korea. It is the world’s largest conglomerate by revenue with annual revenue of US$173.4 billion in 2008 and is South Korea’s largest chaebol. The meaning of the Korean word Samsung is “TriStar” or “three stars”. As stated in its new motto, Samsung Electronics’ vision for the new decade is, “Inspire the World, Create the Future.” This new vision reflects Samsung Electronics’ commitment to inspiring its communities by leveraging Samsung’s three key strengths: “New Technology,” “Innovative Products,” and “Creative Solutions.” — and to promoting new value for Samsung’s core networks — Industry, Partners, and Employees. Through these efforts, Samsung hopes to contribute to a better world and a richer experience for all.
Samsung Group formed several electronics-related divisions, such as Samsung Electronics Devices Co., Samsung Electro-Mechanics Co., Samsung Corning Co., and Samsung Semiconductor & Telecommunications Co., and grouped them together under Samsung Electronics Co., Ltd. in 1980s. SAMSUNG’s aim is to develop innovative technologies and efficient processes that create new markets, enrich people’s lives and continue to make Samsung a trusted market leader. Today, Samsung Electronics global presence includes a total of 111 subsidiaries in the form of production subsidiaries, sales subsidiaries, distribution subsidiaries, research laboratories and eight overseas business divisions representing North America, Europe, China, Southeast Asia, Southwest Asia, Central and South America, CIS, the Middle East and Africa.
Porter’s Diamond Analysis for Korea/Samsung
Product Dimension To build a unique competitive advantage, Samsung followed a well laid out product growth strategy. These strategies can be examined under (a) product life cycle (b) product price level and (c) product diversification. Samsung followed a reverse order if we look from the product life cycle perspective. It started its operation in 1971 with manufacturing monochrome televisions which were in the declining stage in the advanced market. It then went on to manufacture colored televisions in 1977 which had already reached the mature stage in the PLC in other markets. It tapped the videocassette recorder (VCR) and microwave ovens (MWO) in its growth stage in the market by bridging the technology gap and reaped revenues. In early 1990’s SEC manufactured niche products such as DRAMs and digital videodisk (DVD) and entered this market in its introductory stage through agility, innovativeness and creativity.
In 1992, Samsung became the market firm to many companies by being the largest producer of memory chips and second largest chip maker in the world only after Intel. Through innovation Samsung manufactured its first liquid screen display in 1995 and within ten years became the world’s largest liquid-crystal display panel. Tapping the smart phone market in the growth stage, Samsung became the world’s largest phone maker by unit sales in the 2012. From the price perspective Samsung started manufacturing products that were low end of the price range and then gradually moved up to the niche end products using innovation and high end technology.
Starting from low end products was a strategic choice as there was low national income and the market had limited purchasing power, the JV partners were unwilling to share their technology and the availability of a niche market in US for the low end models. Samsung product path choice has moved from commodity product to high end niche product market as it now captures the global market. Samsung has strategically limited its diversification in the electronics-related area only. It follows a related product diversification strategy.
It started with consumer electronics and home appliances, and then moved to personal computers and peripherals, communication equipment, semi-conductor and then mobiles. With the aim of capturing the strategic fit by sharing technology and management, in 1998, SEC merged with Samsung Semiconductor & Communications. In 2006, Sony & Samsung formed a JV S-LCD Corporation to co-operate and provide a stable LCD supply to both the manufacturers. These diversifications have helped Samsung get a balanced revenue structure from its products.
Phase 5: Attaining technological competence whereby product and process innovation start to appear throughout the company.
During this process Samsung made serious efforts to develop its own product design competence. It started to increase in-house R&D budgets and stepped up its efforts to assimilate advanced foreign technologies and to develop new product. Having successfully caught up with foreign technologies for most conventional consumer-electronics products, SEC’s management accelerated its technological capability from reverse engineering to innovations in advanced consumer electronics, PCs and peripherals, semiconductors and communications equipment. To support this strategy, Samsung increased its R&D budgets. There was an accelerated gap reduction from the other major competitors of the world.
The accelerated gap reduction may be attributed to the synergy effect of three factors: In-house R&D capability with a critical mass of more than 7,300 researchers. Availability of multiple technology sources, such as licensing. Technology alliances with advanced companies, overseas research centers in advanced countries, and foreign high-tech companies owned by Samsung.
Intensity of effort by management and personnel in research and product development. Samsung is one of the leaders in OLED display research and the clear leader in AMOLED production. OLED Displays are thinner, more efficient and offer better picture quality than LCD or Plasma displays. A lot of research is being done on Innovative WLAN technology from Samsung Electronics for the wireless business environment to remove the issues with have with the existing WLAN.
Manufacturing Dimension Manufacturing system was the third dimension that the Samsung controlled. Samsung always wanted to benefit from the economies of scale and scope. They had two strategies that is to either get vertically integrated to support the mass production of television or alternatively, depend on CKD’s from joint partnership and other suppliers from Japan. The main reason for this strategy was because of the lack of capability to produce the parts locally.
However, Samsung soon realized that the foreign tie ups involved huge risk and transaction costs and hence decided to go with the minimally integrated manufacturing system locally. Hence Samsung built a cathode ray plant, a parts and components plant and CRT glass plant. In 1980’s, a large number of independent small and medium sizes businesses mushroomed due to technology assimilation in Korea. Now, Samsung was so good in technology and quality that they could start outsourcing anywhere and anytime. The Samsung started its overseas production base. The first location was the Portugal and by 1995 they had twenty bases globally which accounted to a huge economies of scale and scope. The Samsung was sensitive to the changing needs of customers and hence moved from mass production to flexible manufacturing system to accommodate a new product strategy by late 1980’s. Samsung introduced in multiple product models to meet the fast changing demand of the people thereby managing shorter product life cycles and competition.
In early 1990th Samsung was still perceived as a conservative manufacturer and always associated with bargains. Samsung realized that with its low pricing strategy it can only compete in the lower market segment whereas in upscale market technology and brand are competitive means. Samsung then onwards decided to penetrate the upscale market and gave up lower-market in order to exalt its brand image. It repositioned all series of its products such as mobile phone, consumer electronics and memory flash to upscale market. Corresponding to Samsung’s new position in the market it has relatively higher price in its category.
Higher pricing would bring more profit and at the same time improves the brand image. Samsung is now developing products for the Indian market and tailored to their needs. Samsung has clung to its premium positioning, with products that emphasized design, aesthetics and cutting-edge technology and prices that were commensurately higher. In 2005, Samsung introduced over 100 new products such as flat panel, LCD and plasma TVs, top-end refrigerators, home theatre systems, digital cameras and camcorders, MP3 players, notebook computers and mobile phones which were sold in lifestyle category. It is the market leader in LCD televisions and super-premium, side-by-side refrigerators and claims respectable market share figures in other product categories as well.
The most important strategy for competitive advantage has been the principle of survival inequality, which states that cost should always be lower than price, and price should always be smaller than product value. Apart from price, another important factor which was strategically exploited by SEC was the concept of speed management by emphasizing on good decisions and fast implementation. The company exploited the opportunities arising in the world market by making timely decisions on product development and technology acquisition ahead of its competitors, as well as shortening the time to implement for example: : VCRs, MWOs, and memory chips In 1970s, the most important factor for Samsung’s strategy design was to create a relevant product choice.
This decision was important as it would have affected 1. Technology acquisition 2. Marketability 3. Cost competitiveness To reduce its threatening profile to the technology supplier, SEC took products in the declining stage of the product life cycle. Further, to give an incentive to the technology supplier, the Joint venture form was used, whereby parts and components would be imported in the form of CKDs from the joint venture partner. To gain market experience and overseas sales network, OEM was used. To build up its brand image, SEC chose commodity type products in the low-end price range. SEC chose mass production as its strategy to exploit low-end commodity products in declining stage and Korea’s high quality and low wage labor. This lead to a higher learning rate and steeper decrease in costs which helped reduce the prices further.