Samsung Electronics Case Review


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This case describes the journey of Samsung Electronics from its inception and its success as a global electronics manufacturer. It also describes the strategies followed by Samsung Electronics.

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Samsung Electronics Case Review

  1. 1. Samsung Electronics Case ReviewSubmitted By Deepankar Boro (119278037)This review is about the success of Samsung Electronics in the global market. It tells abouthow Samsung Electronics has been successful internationally while other Korean playershaven’t been. What is that Samsung Electronics did different, how did it do are somethingwhich have been covered in this review. 9/17/2012
  2. 2. Samsung Electronics Case Review Case Review – Samsung ElectronicsThere are many reasons that define Samsung Electronics success over the years, while its South-Korean counterparts are way left behind in the fight.Brief about Samsung ElectronicsSamsung Electronics Company - headquartered in Suwon, South Korea is a South Koreanmultinational electronics and information technology company. It is part of the Samsung Group andis the flagship subsidiary of Samsung Group. Samsung Group started operating since 1938, andSamsung Electronics was founded in 1969, primarily as a low-cost manufacturer of black and whitetelevisions. In 1970s, Samsung acquired a semiconductor business which set the stage for its futuregrowth in electronics. Samsung Electronics has been the world’s largest IT Company by revenuessince 2009. Being present in 61 countries and employing around 222,000 people (2011 statistics), itis the world’s largest mobile phone manufacturer and 2nd largest semiconductor chip maker. It hasbeen the world’s largest television manufacturer since 2006 and for eight consecutive years, it stoodat being the world’s largest manufacturer of LCD panels. With the introduction of Samsung Galaxy S,it brought out a revolution in its mobile phone revenues. It is giving a tough competition to Apple inthe tablet market with the launch of Android-powered Samsung Galaxy Tab.Success behind Samsung Electronics’ GrowthSamsung followed a different strategy as compared to its competitors in South Korea. At a very earlystage, Samsung learnt the importance of Research & Development (R&D). It wanted to berecognized globally as a brand. During the 1980s, Samsung Electronics emphasized on manufacturingquality and technical leadership, while most of its competitors focused on large-scale manufacturingand outsourcing to OEMs. Profits were reinvested in R&D and in state-of-the-art manufacturing andsupply-chain activities.In 1993, Samsung Electronics’ Chairman Kun Hee Lee launched the “New Management Initiative”which set out to remake Samsung as a global business leader. It was this initiative which helpedSamsung Electronics in subsidizing the losses during the Asian financial crisis and streamlined thecompany into a profitable enterprise. The “New Management Initiative” changed the developmentpath of Samsung and has placed Samsung in its current position of being a global leader in consumerelectronics. Samsung planned for a long-term commitment to investment in innovative, premiumproducts and brand value, as compared to its competitors which were more focused in short-termgoals of maximizing product output. Some of the steps which Samsung followed as part of the “NewManagement Initiative” are mentioned below.Focus on Long-TermSamsung Electronics changed its perception from being a short-term goal oriented company andfocused more on long-term goals. In 1993, Samsung Electronics changed its logo and the name waswritten in English to acquire a global identity. It focused on being a world-class manufacturer andinvesting resources on Resource and Development (R&D) and maintaining world-class quality for itsproducts.Shailesh J Mehta School of Management, IIT Bombay Page 1
  3. 3. Samsung Electronics Case ReviewSticking to Basics – ManufacturingSamsung Electronics emphasized manufacturing as a core competency in its own right. Yun JongYong who was appointed as vice-chairman in 1997, focused on internal manufacturing credibilitythan outsourcing production to external suppliers. Samsung’s main focus in the late 1990s was in in-house chip development. Between 1998 and 2003, Samsung Electronics invested $19 billion in newchip factories. It made sure that it competes with every single outside companies, which deliversproducts for internal business, thereby making them competitive for the outside market.FlexibilityWhen compared to other electronics manufacturers in South Korea which were rigid with plantlocations being at South Korea just to avoid manufacturing overheads, Samsung Electronics wasquite flexible. Samsung set up its plant locations in China & India to take advantage of theabundance of relatively low-cost human capital.Samsung also customized its production to avoid the commoditization trap. Over half of its memorychips were special orders from companies like Dell, Microsoft and Nokia. Samsung’s average priceswere 17% above industry levels as a result of customization and reliable & timely supply of chips.Focus on HardwareSamsung decided not to develop proprietary software and content and save itself from theintricacies associated with protecting proprietary content from piracy. By focusing on hardware, itcould develop newer technologies and higher efficiencies and saved on outsourcing. By keeping“open architecture” in Samsung products, customers were able to access more software & utilitiesthan other products offered. This helped Samsung lure more customers because of the freedom ofaccessibility to software & utilities.Diverse Product PortfolioCompared to other competitors catering to a single product category, Samsung has a diverseproduct portfolio. It deals with the manufacturing of Televisions, Cell Phones, Flash Memories,DRAM Chips, MP3 players, DVD Players, Refrigerators, Microwave Ovens, etc. Samsung is both in thechip market as well as in the consumer electronics market. Samsung is the number one globalmanufacturer of DRAM (used in PCs). The NAND flash chips (used in digital cameras and MP3players) store 3 times the information as NOR flash chips (manufactured by Intel) and are almost forthe same price. This helped Samsung Electronics in competing Intel as more people started usingNAND chips.Digital Product InnovationSamsung Electronics focused on the transition from analog to digital technology at a very early stageas compared to its competitors. The investment in digital technologies helped Samsung Electronicsto launch premium products and new innovations. In 2003, Samsung Electronics launched agroundbreaking 57-inch LCD television, a first of its kind. Samsung set new standards for qualityperformance and award-winning design.Shailesh J Mehta School of Management, IIT Bombay Page 2
  4. 4. Samsung Electronics Case ReviewSamsung Electronics was able to launch new products twice as fast because of the shorter productlife cycles, and the fast movement of product concept from inception to commercialization. SamsungElectronics was able to launch new products frequently, as a result of which prices quickly fell.Competitors were not able to catch up as Samsung was too fast for them.Samsung has fewer levels of organizational bureaucracy, and multiple technology capabilities whichlead to faster decision-making process.Focus on MarketingBefore the implementation of the “New Management Initiative”, Samsung Electronics didn’t have aproper marketing scene. Marketing budgets were controlled by product managers, allocated to“below-the-line” price promotions and was designed to meet short-term sales targets.To change Samsung from “a cheap OEM” to a “high value-added products provider”, Samsung had todevelop a strong brand power for which they needed a lot of effective marketing. Vice-Chairman Yunled an effort to convert Samsung’s product line emphasis on low-end commodities to high-endpremium goods fir which he recruited Eric Kim as Executive Vice-President of global marketing in1999. Kim stressed the importance of viewing the brand as a core strategic asset and the objectivewas to create a global brand; the Korean origin of the brand was not emphasized.Samsung was able to gain world-wide recognition in 1998, when it sponsored the 1998 SeoulOlympics. This helped the company to increase its brand visibility and brand recall among itscustomers worldwide. In the late 1990s, Samsung entered into several marketing alliances withcompanies worldwide and sponsored events to enhance its brand awareness.Before 2001, Samsung Electronics was using more than 55 advertising agencies worldwide, andproducts were advertised using 20 different slogans. Samsung Electronics consolidated itsadvertising with a single global agency, Foote, Cone & Belding (FCB). This helped in developing aunique brand essence for Samsung Electronics and differentiates itself in the marketplace. It alsohelped Samsung to gradually strip-away sub-brands, which had diverted resources and distractedmanagement. There were more funds allocated to advertising after the implementation of the “NewManagement Initiative”. The implementation of M-Net program helped Samsung Electronics to findout the overheads and allowed for proper budget reallocations. The M-Net program analyzed theresults of past marketing plans to recommend where marketing funds should be spent by countryand by category. Market-Driven Change (MDC) introduced by Kim helped Samsung managers viewmarketing as an important business function rather than as a series of one-off advertising campaignsand promotions. With the help of MDC, Samsung focused on customer insights and identifycustomer segments that are willing to pay higher prices for particular functional or aestheticinnovations.Open Work CultureSamsung has a very diverse company culture. There are people from different places workingtogether. Samsung recruits employees from a global pool of talent bringing in talent from variouscountries, making these people work together at one table designing the best product. This helpedin getting various ideas and insights about different cultural views, and made it useful to develop thebest product acceptable worldwide.Shailesh J Mehta School of Management, IIT Bombay Page 3