Samsung has some rough waters ahead. While still the biggest smartphone seller in the world, its last few quarters reveal an alarming trend. The company’s market share plummeted from 32.6% to 25.2%. If that wasn’t enough, news broke in quick succession that Samsung had lost its crown as top mobile seller in India and China to local manufacturers Micromax and Xiaomi respectively. This is extremely worrying given the fact that these countries represent the greatest potential growth markets for the company.

1. Technology
70 | GlobeAsia September 2014
S
amsung has some rough waters ahead.
While still the biggest smartphone seller
in the world, its last few quarters reveal
an alarming trend. The company’s market
share plummeted from 32.6% to 25.2%. If that
wasn’t enough, news broke in quick succession
that Samsung had lost its crown as top mobile
seller in India and China to local manufacturers
Micromax and Xiaomi respectively. This is
extremely worrying given the fact that these
countries represent the greatest potential growth
markets for the company.
Samsung, for the record, predictably
dismisses the report, citing its own internal
figures and those of an outside firm (which
it did not name) indicating that Samsung’s
market share is at least twice that of its nearest
competitor. The fact that this outside firm
remains nameless is probably a good indication
of its willingness (or lack thereof) to stand by its
statements.
Samsung cheerleaders have been quick to
point out that the same report seems to indicate
that Samsung’s market share in the smartphone
category specifically remains strong even as
its overall mobile market share took a hit.
Unfortunately in August, Fitch Ratings, a US-
based credit rating agency, poured cold water
over even this thin glimmer of hope. Nitin Soni,
director of corporate rating at Fitch, announced
that he expects Samsung’s smartphone market
share to fall from 31% to 25% in 2015: A decrease
mirroring their recent drop in overall mobile
market share.
Soni’s view is not isolated either. Bernstein
Research analyst Mark Newman also noted
that Samsung would likely see some challenges
if it does not drastically modify its strategy.
Market share is tricky to gauge however, and
the numbers are controversial. Cyber Media
Research, an India-based research firm, has
Samsung’s share at 40.5% but slipping. Whatever
figures you choose to believe, none of these
numbers add up to a good time for Samsung.
Samsung’s culture does it no favors
Samsung’s Achilles heel is its rigid militaristic
culture. While previously the source of its
strength and its ability to respond quickly
to threats, it has quickly become a liability.
Samsung’s culture does not encourage free
expression of ideas. In line with the general
culture of the region, the company is heavily
influenced by Confucian ideals. These may
work great when there is effective leadership
at the top, but they can be disastrous when the
leadership is young and untested.
Unfortunately, Samsung’s chairman Lee
Kun-hee remains hospitalized following a heart
attack in May and his son, the Harvard-educated
heir apparent Jay Y Lee, has been unable to cure
what ails the company. Such little information
is sent upstream in these hierarchies that
Can Samsung stop the exodus?

2. September 2014 GlobeAsia | 71
management is unable to quickly respond to
changing scenarios without better guidance from
leadership.
Samsung uncompetitive
Exacerbating the issue is Samsung’s abysmal
pricing policy. The company has shown little
interest in competing with cheaper competitors
in countries like India and China with even
remotely attractive specs in the mid to low range.
While it continues to make more money than
its competitors, Samsung protects its margins at
great detriment to market share. This myopic
strategy has caused a mass exodus of its user
base. Ultimately lower sales will lead to lower
margins anyway because Samsung’s will lose the
benefit it gleaned from scale, thus invalidating
the whole purpose.
This problem has wide implications if one
considers that many smartphone users invest in
ecosystems and Samsung’s appears to be wasting
away on the vine. Marc Newman of Bernstein
Research proposed recently that Samsung should
consider taking a drastic hit on its margins down
to 15.5% from 23% in order to freeze out the
cheaper competition.
Newman’s theory is interesting because
unlike Samsung’s competitors, the company
remains one of the best vertically integrated
companies in the world, making many of
the components that eventually end up in its
products. This gives Samsung an advantage that
few Chinese competitors (who have to actually
buy components from outside sources) can
overcome.
According to Newman, the plan would lead
to Samsung’s competitors either going out of
business or needing to consolidate to take on
the top dog. Either way, it’s an option Samsung
should consider before it has to cede the entire
low-end and mid-tier segments to competitors.
Samsung must simplify its offerings
When Steve Jobs rejoined Apple one of the
first things he did was go through the product
portfolio and simplify. Yes, this meant axing a
few potential products on the way but it was the
right thing to do. Samsung needs just this sort of
approach.
Samsung’s biggest branding issue is its affinity
for naming products so confusingly similar that
there is little differentiation, brand-wise, between
their mid-tier offerings and higher-end lines. Last
year for example we saw the launch of no less
than five versions of the Galaxy S4 and this year
the trend continues with the S5 Mini, Zoom and
Active.
This isn’t an isolated trend. Perhaps you’ve
heard of the Galaxy Grand? Or the S Duos, or
perhaps the Y Duos or maybe the Galaxy Grand
Quattro – for the people who thought Samsung
needed just one more Galaxy to round out their
universe.
Jason Fernandes
Tech commentator and the founder of SmartKlock.
PHOTOGADGETICWORLD.COM
Samsung’s Achilles
heel is its rigid
militaristic culture.
While previously the
source of its strength
and its ability to
respond quickly to
threats, it has quickly
become a liability.
Samsung’s culture does
not encourage free
expression of ideas.

3. Technology
72 | GlobeAsia August 2014
Some steps in the right direction
To be clear, Samsung has taken some steps
toward addressing its culture problem. The
company ushered in its “Creative Lab” program
where employees can work on ideas they think
are worthy both individually and in a group.
According to company figures almost 14,000 ideas
were worked on in just one year. Programs such
as these and Google’s famed “20% time rule”,
where employees spend 20% of their time on pet
projects, are legend for inspiring excellence and
innovation among workers.
Samsung also recently hosted a “Grand
Discussion” via its internal message board that
generated enormous interest among its staff.
More concrete steps are needed and a sustained
effort is imperative if Samsung is to buck the
present trend. A recent Reuters article on the
subject laudingly refers to positive changes
Samsung has made in allowing workers on its
main campus to wear shorts on weekends and
allowing female staff maternity leave without
fears about job security.
Samsung will need to do much more. I hate to
point out the obvious here, but sartorial choices
aside, why are workers slaving through the
weekend in the first place? And since when do we
count maternity leave without the risk of being
fired as a plus? When a company like Samsung
has to set the bar this low to find positive spin, its
clear something’s not working.
Stemming the bleeding
Samsung has occupied the enviable position
at the top of the heap among smartphone
vendors since its initial foray into the segment.
It fought hard for this position but now appears
surprisingly disinclined to protect it. Its losses in
the Chinese and Indian markets are indicative
of the fact that it simply has not taken Chinese
manufacturers seriously at all. While Samsung
ignores these manufacturers, consumers don’t.
Buyers seem decidedly more comfortable making
the switch to Chinese low-cost manufacturers
now that their devices have improved markedly
on quality.
Samsung will need to attack this trend
head-on if it is to stop hemorrhaging market
share. This may involve taking a hit on margins
but if it doesn’t tackle this quickly, it will soon
look around and find that when it comes to the
smartphone segment, it’s on the margins itself.
Compare this with Motorola’s smartphone
portfolio. Motorola has released the high-end
Moto X, the Moto G and the low cost Moto E.
Motorola consumers know exactly what to expect
for their money. Samsung buyers don’t know
what to make of the Galaxy S or Galaxy line of
phones because there is such great variation in
features and capabilities between devices that
often bear mostly the same name. The company
should pick three levels; high-end, mid-tier and
budget and limit their offerings to just three
corresponding products.
Given its metal body, some have suggested
Samsung’s Galaxy Alpha could be the company’s
attempt at launching a premium line of products
but I am not hopeful. Given the substandard
screen and less-than-stellar specs, it is much more
likely that the Alpha line will give birth to many
a forgettable device arising from Samsung’s mis-
guided strategy to market to everybody all at once.
Samsung has occupied the enviable position at the
top of the heap among smartphone vendors since its
initial foray into the segment. It fought hard for this
position but now appears surprisingly disinclined
to protect it. Their losses in the Chinese and Indian
markets are indicative of the fact that they simply
have not taken Chinese manufacturers seriously at all.
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4. THE
DAWN
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Joko Widodo
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5. 8 | GlobeAsia September 2014 A Media Holdings Publication
82 Charting a new course
State-owned weapons manufacturer PT
Pindad is financially sound and has the
capacity to produce equipment that is not
only useful, but which many Indonesians
can be proud of. New chief Sudirman Said
is taking aim at greater achievement.
84 Unfinished legacy
Many charge that President Susilo
Bambang Yudhoyono did not do enough
in his two terms, but forget that Indonesia
has made some significant strides in the
last decade. Like it or not, it’s where the
next leader has to start.
Knowledge at Wharton
100 Arianna Huffington on how to
‘Thrive’
Motoring
104 Sheer driving pleasure: The new
BMW i8
German carmaker BMW’s new offering
promises to meld top-end sports
performance with a green slant.
Events
112 Lippo Group Halal Bihalal
114 Best Syariah Awards 2014
Living the Good Life
118 Backed by innovation
A new Jakarta restaurant, Akira Back,
offers Japanese cuisine like you’ve never
seen it.
Back Page
120 Kalimas Surabaya
Columnists
20 Paulius Kuncinas
Merger plans set to
transform Malaysian
banking sector
22 Steve Hanke
Europe’s depressing dog
day of summer
26 Suryo Sulisto
Energy Policy: Do we have
one?
28 Jamil Maidan Flores
The UN Alliance of
Civilizations: The final
legacy of Ali Alatas
66 Wijayanto Samirin and
Muhamad Ikhsan
Uncertainty
70 Jason Fernandes
Can Samsung stop the
exodus?
92 Keith Loveard
A new beginning, or a false
start?
96 Scott Younger
Mini-hydro, geothermal
and regional development
contentsVOLUME 8 NUMBER 9 / SEPTEMBER 2014
64 Creating a foothold in
pharmaceuticals
Like many other world-changing
inventions, the industry of specialized
glass-making began as a solution to a
problem. In Schott’s case, that involved
the microscope.
Special report
74 Harnessing a brand’s might
Beyond financial performance, Indonesian
companies should be keeping an eye on
the value of their brands.
78 All about the money
With incomes on the rise and many
cultivating a taste for the high life, luxury
brands are doing brisk business.
80 Up in the cloud
A new CEO at the helm, Microsoft is taking
a new direction with a mobile-first, cloud-
first agenda.
Interview
86 Alwi Shihab: Indonesia to witness
change
Alwi Shihab, a prominent Islamic scholar
of Nahdlatul Ulama and former foreign
minister under President Abdurrahman
Wahid, now advises president-elect Jokowi
on religious issues as well as foreign policy.
90 Making things happen
In today’s globalized world, productivity
is the name of the game and emerging
markets such as Indonesia have to
innovate. Kaushik Das, chairman of
McKinsey Indonesia says the country
must do a few simple things right.
104
64
86

6. 10 | GlobeAsia September 2014
I
t has been an exhilarating
ride but after the ruling of the
Constitutional Court affirming
the Jakarta governor’s victory in the
July direct presidential elections,
hopefully the focus can now shift
once again from politics to business.
Joko Widodo will be sworn in
as the nation’s seventh president in
October. The president-elect moved
swiftly to allay any fears of politi-
cal division and paralysis under his
administration by declaring that
Prabowo Subianto and Hatta Rajasa,
the losing presidential pairing, are
his “best friends.” That statement
may be stretching the truth a little
after a bruising election and post-
election battle, but Jokowi has laid
the grounds for a possible reconcili-
ation.
Politics will still be top of mind
for the next few months and into the
early months of the new administra-
tion. The new president will need
as many allies in parliament as he
can get if he is to pass his ambitious
reform program. But given his savvy
and willingness to reach out, the
signs are optimistic.
Political certainty will be good
for business. For the best part of this
year, business and the economy have
taken a back seat as the country has
focused on the two major elections.
Now hopefully it can turn its atten-
tion back to business and getting
the economy back on a solid growth
path.
The new president will have
his plate full. He will have to move
quickly to address the fuel subsidy
issue by rising prices in a controlled
manner. There is now wide accep-
tance that the country simply can-
not afford to continue to subsidize
fuel, both for fiscal reasons as well
as for social and economic reasons.
As such, as argued by the chairman
of the Indonesian Chamber of Com-
merce and Industry in this issue (see
page 26), a new energy policy is ur-
gently needed.
The reliance on costly fuel im-
ports has to stop before it bankrupts
the country and sets it backwards.
A new energy policy that focuses on
more efficient consumption, greater
diversity of energy sources and
better distribution will encourage
more investments and promote new
industries. It will lead to innovation
and research, which will ultimately
benefit all Indonesians.
President-elect Jokowi has also
explicitly noted that he will not en-
ter into horse-trading for cabinet
positions and that cabinet ministers
cannot hold party positions. This will
ensure greater professionalism and
limit political agendas within the
cabinet, leading to better decision-
making on critical issues. We hope
that he keeps to his word.
The business community is look-
ing forward to a possible new era
under the next president. He has
much work to do and many hurdles
to cross but if he can remain true to
his campaign promises there is great
hope for the future.
Shoeb K. Zainuddin
Group Editor in Chief
Editor’s Note
Editorial
Group Editor in Chief
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Managing Editor
Yanto Soegiarto
Deputy Editors
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Muhamad Al Azhari
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Contributing Editors
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Steve Hanke
Scott Younger
Contributors
Suryo Bambang Sulisto
Wuddy Warsono
Wijayanto Samirin
Frans Winarta
Jason Fernandes
John Denton
Special Columnist
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