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Samsung growth strategy

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Research project about critical decisions that Samsung should take to compete in Smartphone industry

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Samsung growth strategy

  1. 1. 1 Marketing Strategy Samsung Growth Strategy: What is Next? Senwayo, Lucia Verónica Denis (2B4047)
  2. 2. 2 Content 1. Introduction ……………………………………………………………..…………. 3 2. Core Competences ………………………………………...……………………….. 6 2.1 Global R&D Network and Patents …………………………..………………….. 6 2.2 Production Capability ………………………...…...…………………………….. 6 2.3 Branding ……………………………………………………………..………….. 7 2.4 Vertical integration ……………………………..……………………………….. 8 3. Financial and Market Analysis …………………………………………………..... 9 3.1. Revenue and Profit ………………….………………………………………….. 9 3.2 Market Share ………………………………………………………...………….. 10 3.3 Cash Flow ………………………………………………...…………………….. 13 3.4 Key Ratios …………………………………..……………………………….….. 14 4. Porter’s Five Forces Analysis ………………………………………………….….. 18 4.1. Power of Buyers …………………………………………………………….….. 18 4.2 Power of Suppliers ………….……………………………………………….….. 18 4.3 Threat of new entrants ………………………………………………….……….. 19 4.4 Threat of Substitutes ………………………………...………………………….. 20 4.5 Industry Rivalry ………………………………………………………..……….. 20 5. Samsung Growth Strategy …………………………………………………..…….. 21 5.1 Future of Smartphone business: What is Next?………………………………….. 21 5.2 What is Next?…………………………………………………………………….. 25 6. References ………………………………………………………………….……….. 28
  3. 3. 3 1. Introduction Samsung has diversified product portfolio, including semiconductors, HDTVs, home appliances, computers, printers, display screens, mobile phones, network products, and mobile music devices. Such a diversified product portfolio was a result of the company seeking growth opportunities in the relatively small domestic market of South Korea. Limited growth potential in each product segment lead the company to seek new product development to gain new growth. In an era of globalization when companies were able to develop new markets outside of their home country, Samsung Electronics’ horizontal growth strategy turned vertical. Samsung group is composed of three core divisions: Consumer Electronics, IT and Mobile Communications and Device Solutions. Source: Adaptedfrom SamsungAnnual Report 2014 In terms of segmentation, Samsung business can be summarized under two categories: The end retail production division and component division. The end retail production division is divided into two business segments - Telecom and Digital Media. The Telecom segment provides information and communication products such as ConsumerElectronics Visual Display Digital Appliance Printing Solutions Health and Medical Equipment IT andMobile Communications Mobile Communications NetworkBusiness Digital Imaging Business Media Solution Center DeviceSolutions MemoryBusiness System LSI Business LEDBusiness
  4. 4. 4 smartphones and telecom equipment for 3G/4G network. The digital media segment manufactures and sells digital televisions (TVs), notebook computers, printers, air conditioners, refrigerators and others. The component division supplies components used in the above-mentioned products to Samsung itself as well as other manufacturers. It comprises of two business segments - Semiconductors and Display Panels. Semiconductors include DRAM and NAND flash memory chips, system large-scale integrated circuit (LSI) products, application processors and image sensors. Displays include liquid crystal display (LCD) displays used for TVs, monitors, notebooks, personal computers (PCs) and others. In 2007, the global consumer electronics market was heavily affected by the global financial crisis. Consumer electronics sales declined of around 11% year on year. As a result, sales of memory chips, semiconductors and foundries declined. Interestingly, the global mobile phone segment saw an upward moving trend with smartphone sales increasing by as much as 38% from 2011 to 2012. Major global mobile handset players prior to the global economic downturn included Nokia, Sony, Motorola and Samsung Electronics. In the post crisis years, Nokia, Sony and Motorola experienced a shrinking demand in developed markets and slipped in their rankings as leading handset producers, while Samsung Electronics and Apple launched new mobile handsets that were built on digital and media convergence and new design concepts. The premium Galaxy smartphone series achieved worldwide success and at once became the stellar growth engine of the company. In 2011, Samsung Electronics had the largest market share for mobile phones,
  5. 5. 5 smartphones, and televisions in developing countries, especial in China where maturing middle-class Chinese urbanites were upgrading their purchases and becoming more IT savvy, demanding cheaper and more innovative consumer electronics. The success was attributed to a distribution network formed between the company and Chinese retail titans. Samsung’s growth strategy involves reaching more customers worldwide through new distribution channels, such as consumer retail, expanding their relationships with value- added resellers, and augmenting select areas of their business through targeted acquisitions. Despite this rapid growth, recently Samsung has lost much of its shares in both the low- end to mid-range markets to Chinese competitors, and in high end to its major competitor Apple. Moreover, the trend forecast shows that the company will tend to lose shares in both segments. So, this research will focus on what should be Samsung sustainable growth strategy? Should Samsung abandon or contract or expand or modify actions?
  6. 6. 6 2. Core Competences Beside the strong network, four core competences have contributed to the company’s success: Global R&D Network and Patents, Production capability, branding and vertical integration. 2.1 Global R&D Network and Patents Samsung has more than 18 centers in more than nine countries, R&D and design in mobile phones had taken place in multiple centers to provide products for external customers, such as Apple, and internal customers. Besides focusing on the technological aspects of a device under development, Samsung Electronics’ research team also relied heavily on market research. Their approach to in- depth market research differentiated the company from its competitors as wireless carriers preferred to partner with Samsung Electronics’ mobile devices. Based on these market research reports, telecom carriers had bases to believe that Samsung’s mobiles would sell well and thus were much more willing to display Samsung products in their retail spaces. 2.2 Production capability Samsung production capabilities for its products’ components were unique in the industry. The company’s manufacturing of core products remained in nine plants located in its home country, South Korea, thus emphasizing on no outsourcing strategy. Samsung Electronics had manufacturing plants that integrated its plants with those of its
  7. 7. 7 suppliers in the same industrial zones or complexes. To ensure an optimal level of inventory of components, Samsung Electronics and its suppliers shared information from an integrated SAP-based system, acting as one company in this regard. Furthermore the product delivery end, the company used a global tracking network system, called the “In-Transit Tracking System,” which was similar to DHL’s tracking system. The system tracked delivery from factory to the ordering party worldwide, enabling the company’s global command Centre in its headquarters to receive real-time information and deal with shipment-related emergency. 2.3 Branding Samsung had adopted an aggressive branding and advertising strategy to transform the company from a manufacturer of cheaper Japanese brands’ products to a global brand known for innovation, cutting-edge technology and leading design. Samsung Electronics’ branding strategy rested on the company’s strengths in product innovations and design. Following the trends of digital convergence and wireless communications, the company excelled in the fields of digital devices, memory chips and plasma screens. The company aimed for leadership in products that integrated wireless communication with multi-function features that were made possible by digital technologies.
  8. 8. 8 2.4 Vertical integration Samsung designed and manufactured the core parts of mobile devices, such as processors, memory chips and display screens, it had the long-developed capabilities to integrate, converge and coordinate the parts to create its own component infrastructure. The cross and vertical product cooperation was achieved internally when different products were converged onto a few product platforms such as the mobile phones, computers, and many other devices that could be connected through digital and mobile technologies. Also, due to a decade long development resulting in economies of scale and scope, these capabilities became the competitive advantage of the company that few competitors could emulate. Samsung’s growth strategy involves reaching more customers worldwide through new distribution channels, such as consumer retail, expanding their relationships with value- added resellers, and augmenting select areas of their business through targeted acquisitions.
  9. 9. 9 3. Financial and Market Analysis 3.1. Revenue and Profit The graph bellow indicates that from 2010 to 2013 Samsung had reported significant improvement in revenue and net profit. However, in 2014 the company’s revenue was $195. 9 billion, 10% less than the revenue reported in the previous year. The company operating profit had dropped by 32%, as a result of increasing on sales and administrative costs. In its annual report 2014, Samsung recognized that it has been lowering its profit margin in smartphone business and form the year ahead; time looks right for the mobile business to take off again. As a result, the company has been planning to propel smartphone sales with competitive new lines, to secure Samsung market leadership by launching innovative premium smartphones and to provide a range of upgraded mid-price products of impressive quality. The company anticipated remarkable results from new Galaxy S6 and Galaxy S6 edge in the premium smartphone market and by launching new large- 0 50,000,000 100,000,000 150,000,000 200,000,000 250,000,000 2014 2013 2012 2011 2010 Graph 1: Sales Revenue and Operating profit Revenue Operating Profit
  10. 10. 10 screen devices equipped with first-of-its-kind technology and already winning widespread recognition, the S6 and S6 edge are beautifully crafted from metal and glass and blend purposeful design with powerful features. Despite Samsung price reduction strategy in high-end segment, the sales continued to drop during the tree quarters of 2015. The sales of the S6 smartphone fell short of expectations because the company could not meet the demand for its flagship model. At the same time, rival Apple has been gaining ground. Apple reported a strong quarter ending June 2015, driven by record sales of smartphone and Mac, record revenue from services and the launch of Apple Watch. 3.2 Market Share Graph 2: Smartphone vendors market share Source: http://www.statista.com
  11. 11. 11 According to data from statista portal, Samsung is the leading smartphone vendor in the world based on figures from the third quarter of 2014. The company held a 23.8 percent share of smartphone shipments in this quarter, in comparison to the 12 percent held by its closest rival, Apple. Samsung’s peaked at 32.5 percent in 2013, but it has since diminished somewhat, in part due to the emergence of brands such as Lenovo and Huawei in low-end segment share. Increasing competition means profits will fall in spite of steady shipments, and this will be the primary issue that Samsung will have to deal with in the near future. Table 1: Comparison of Smartphone Vendor Market Share Q3’ 2014 and Q3’ 2015 Global Smartphone Vendor Market share (%) Q3 '14 Q3 '15 Samsung 24.5% 23.7% Apple 12.2% 13.6% Huawei 5.1% 7.5% Lenovo-Motorola 7.6% 5.3% Xiaomi 5.6% 5.0% Others 45.1% 44.9% Total 100% 100% Interestingly, Samsung is the largest smartphone maker, with 23.7% market share, 9.1% ahead of Apple. But it remains second, behind Apple, in terms of tablet shipments. Also, APPLE appears to have a better management of their operating expenses, which allows for them to post better net incomes, higher sales volumes and better growth potential in the long run.
  12. 12. 12 Source: Adaptedfrom SamsungAnnual reports 2010,2011, 2012, 2013, 2014 The graph above shows that Samsung smartphone market share trend is similar its sales revenue trend - a significant drop from 2013 to 2014. While smartphone market share is shrinking, Samsung’s semiconductor division grew fastest, with 10% year-on year growth, as a result of increasing demand for high-density DDR4/LPDDR4 memory chips, along with the shift to high-density storage and broader adoption of solid-state drives. As it is shown in the graph bellow, memory business market share seems to be relatively stable and it has been a great source of competitive advantage. Source: Adaptedfrom SamsungAnnual reports 2010,2011, 2012, 2013, 2014 0.00% 10.00% 20.00% 30.00% 40.00% 2014 2013 2012 2011 2010 Graph 3: Samsung Smartphone market share Smartphone 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 2014 2013 2012 2011 2010 Graph 4: Smartphone vs. Semiconductor market share Mobile Phone Smartphone Global Dram Nam Flash
  13. 13. 13 Samsung has been losing market share in both high and low-end market. In High-end market it has been difficult due to the increasing saturation and competition from Apple's new large-screen iPhones. Similarly, low-end market shows intense competition from local vendors in emerging markets, such as China and India, which offer lower prices and lower production cost. So, these are the reasons why Samsung market share is shrinking in both high and low-end segment. So, despite Samsung market share leadership position in smartphone industry, the company profit margin shows slightly opposite trend, due to it’s large operating expense and pricing strategy. Basically, the company can reach many consumers than competitors, but it is sells its products at cheap prices while production cost is not reducing, which result in low margins. 3. 3. Cash Flow Graph 5: Samsung Cash Flow (2012-2014) Source: Samsung Annual Report 2014
  14. 14. 14 Cash flows from operations are a crucial part of a cash flow statement. It shows how much cash the company produces internally from its own operations, as opposed to money coming from borrowings or other kinds of financing and investing activities. The figure bellow shows a fall down of about more than 30% of cash flow from operations and investment. In same period its competitor Apple produced $46.46 billion in cash flows from operations during 2014, a 6% increase versus $43.76 billion in the same in 2013. So, we can see from a longer-term perspective that Apple is growing at much faster rates than Samsung. 3.4. Key Ratios The 2014 financial ratio comparison of Samsung and Apple is given is shown in the table 1. The current ratio of Samsung is 2.21, which is greater than the Apple which is1.08. Similarly, Samsung shows higher working in capital than Apple. Both high working capital and high current ratio, isn't always a good thing, it could indicate that Samsung have too much inventory or the company is not investing its excess cash. Samsung quick ratio is 1.88 while Apple is 1.05. Thus, a quick ratio of 1.88 means that Samsung has $1.88 of liquid assets available to cover each $1 of current liabilities, while Apple has $1.05. So, this higher quick ratio, indicates a better liquidity position for Samsung. However, Samsung has better liquidity because it is highly leveraged than Apple. Samsung Inventory Turnover is 7.04, while Apple presents the highest turnover in the industry of 57.94. A low turnover implies that Samsung has poor sales and, therefore, excess inventory, while Apple shows a high ratio implying either strong sales. Similarly,
  15. 15. 15 Samsung has lower Fixed Asset Turnover and Total Asset Turnover of 1.59 and 0.89 while Apple has 5.44 and 0.79. The fixed-asset turnover ratio measures a company's ability to generate net sales from fixed-asset investments - specifically property, plant and equipment (PP&E). Samsung has lower fixed-asset turnover ratio, which means that the company has been less effective in using the investment in fixed assets to generate revenues. During the last 5 years, Samsung has increased investment on PP&E, from $45,924,386 in 2010, to $71,716,907 in 2013, to $76,824,309 in 2014. While PP&E is increasing, revenues are declining from 2013 to 2014. Samsung Debt ratio and Debt to Equity ratios are lower than Apple: 0.04 and 0.37 for Samsung and 0.15 and 1.08 for Apple. The lower debt ratio, less leveraged the company is, implying less financial risk. Samsung has lower debt/equity ratio it means that the company has been less aggressive in financing its growth with debt. Thus, lower aggressive leveraging practices are often associated with low levels of risk. Samsung gross profit margin and net profit margin are also lower than Apple – 37.79% and 11.35% for Samsung and 39% and 21.61% for Apple. Additionally, from the table 3, it is shown that Samsung gross profit margin net profit margin has been declining. Similarly to previous ratios, Return on Investment, Return on Equity and Return on Assets are lower for Samsung. While Samsung has 11.56%, 13.92% and 10.15%, Apple has 26.20%, 35.42% and 17.04%. This figures means that Samsung amount of return on investment relative to its investment’s cost is lower, the amount of net income returned as
  16. 16. 16 a percentage of shareholders equity is also lower and Samsung is not using efficiently its assets to generate earnings. Furthermore, there is also the dividend factor with APPLE stock, which creates a built in incentive for potential investors. Currently Samsung does not participate in distributing dividends to its shareholders. Table 3 shows Samsung key ratios from 2010 to 2014. Samsung liquidity and profitability has increased from 2010 to 2013 and dropped from 2013 to 2015. Table 2: Key Ratios comparison: Samsung vs. Apple
  17. 17. 17 Table 3: Samsung Ratios (2010 – 2015)
  18. 18. 18 4. Porter’s Five Forces Analysis 4.1. Power of Buyers The bargaining power of buyers is high. Buyers have good leverage when it comes to bargaining because of their access to information and how competitive the mobile industry is. Due to commoditization of smartphone the switching cost is low for consumers, and they have a multitude of options to choose from competitors, they can easily switch to Apple, Huawei or any brand without extra cost for them. Furthermore, their products are similar to one another. Important factors that further increase bargaining power of buyers are: buyers’ price sensitivity and comprehensiveness of information about features and functionalities of products. Because of these reasons, consumers tend to switch lower priced smartphone provided by competitors at low-end segment, such as Huawei, ZTE and some costumers switch to high quality smartphone with unique features and functionalities provided by Apple at high-end segment. Therefore, consumers will switch to those who have better features or low prices. 4.2 Power of Suppliers The bargaining power of buyers is low for general parts and components suppliers and high for Android supplier. Samsung provides opportunity for large order volume for businesses supplying general
  19. 19. 19 parts and components. It has established strong relationship with these suppliers segment and about 72.7% of total economic value was shared with suppliers in 2014. Moreover, Samsung maintains an extensive communication with its suppliers within the scope of various programs and initiatives such as Shared Growth Day, Supplier Dialogue Fair, Hot Line and informal meetings with suppliers. Therefore, Samsung has ability to negotiate prices, and suppliers do not yield substantial bargaining power due to the importance of Samsung’s order volume and its ability to negotiate prices. Additionally, Samsung also designs and manufactures the core parts of mobile devices, such as processors, memory chips and display screens. In contrast, for android platform, there lack of alternative platforms available to Samsung, thus Google exercises an immense bargaining power as the supplier of Android platform. 4.3 Threat of new entrants The barriers to entry are high. Entering and operating in mobile phones requires massive capital investments and this fact represents a significant barrier for new entrants. It is often very difficult to enter emerging markets because a host of factors have to be taken into consideration such as setting up the distribution network and the supply chain, such as wholesales warehouses, distribution centers, and consumer technology selling outlets. Furthermore, Samsung benefit from the economies of scale to a significant extent in terms of gaining cost advantage. However, such a benefit is not available to the new market entrants, thus
  20. 20. 20 reducing the threat of new entrants to the competition. 4.4 Threat of Substitutes The threat of substitutes is high. Any mobile that performs the same functions as Samsung can be assumed as substitute, e.g. iPhone. Another category of substitute is “Dumb phones” that are viable, due to the lack features and capabilities, come as cheap or free substitute to the average of Smartphone. Additionally, the smartphone industry is flooded with secondary substitutes, such as Tablets, Laptops. This is also the reason why Samsung often adopt differential pricing so as to attract consumers from across the income pyramid to wean them away from cheaper substitutes. 4.5 Industry Rivalry The industry rivalry is high. The smart phone industry has many strong competitors. Competitors like Apple, Huawei, Lenovo-Motorola, ZTE and Xiaomi are engaged in fierce competitive rivalry due to low level of differentiation. Chinese firms are offering attractive smartphones at lower prices with attractive features. It means that Samsung has to contend and compete with a multitude of players domestic and global. This has made the impact of this dimension especially strong for Samsung.
  21. 21. 21 5. Samsung Growth Strategy 5.1 Future of Smartphone business Smartphone business has been declining. According to Forbes’s portal, “revenues for the mobile division fell by around 10% from 2013 to 2014, impacted by lower average selling prices and smaller sales mix of high-end devices. The company’s IT and Mobile division’s profit margins (which are primarily driven by smartphones) also fell sharply during the previous year, owing to lower pricing and higher marketing and promotional costs. There were a few bright spots in the company’s IT and mobile device segment, though, as networking products sales saw growth on the back of increasing LTE-focused investments by mobile carriers”. From 2007, when smartphone was launched, the number of smartphone vendors has increased, which means that there is severe competition among vendors. Therefore, the same-side network effect is negative. Samsung is facing pressure for low and mid handsets. Despite the market opportunity in emerging markets, realizing attractive pricing and margins is has been harder than ever. Local manufacturers have been offering smartphones with attractive specifications at affordable prices, appealing to aspirational yet price conscious customers. Some local manufacturers sell their products at near cost, aiming to eventually turn a profit as component prices fall, or by providing other Internet based services. As of Q2 2014, Samsung lost its top spot in the Chinese smartphone market to upstart Xiaomi. Samsung has lost cost competitive advantage over the time due its No Outsource policy.
  22. 22. 22 While Apple outsource many parts of iPhone, to reduce its production cost, Samsung remains producing all smartphones core parts in house. However its production cost is relative higher comparing to Chinese companies. Furthermore, Samsung keep emphasizing on price discount and promotions, which in turn has negative impact in profit margins. Therefore, if Samsung wants to reduce its production cost and increase margins, it should apply an activity-based costing analysis to identify its most costly components parts and then focused on those and outsource the ones that incur higher cost. This strategy would be much more effective way than just applying a price-cutting strategy. Furthermore, emerging markets such as Southeast Asia and India are now the major battlegrounds for vendors as developed markets have become fairly saturated. According to TrendForce.com, Increasing competition also means that profits will fall in spite of steady shipments, and this will be the primary issue that most vendors will have to deal with in the near future. Until the end of 2013, the Telecom was the most valuable segment for Samsung and accounted for close 40% the company's valuation. The huge size of the mobile phone market, the higher replacement rate of mobile devices as well as the greater margins of this business makes the telecom division the firm's most valuable division. However, according to trefis.com net income projection, by the end of 2021 smartphone revenue will have decline by 28% and Samsung gross source of revenue will be semiconductor. The figure bellow shows that by the end of 2021 semiconductor business revenue will
  23. 23. 23 increase by 38% from $37.2 billion in 2015 to $60 billion in 2021, while mobile handset revenue will decline 28%, from $78.1 billion in 2015 to $56 billion in 2021. Controversially, Selling and Administrative expenses for mobile handset will tend to increase. Exhibit 1 shows the detailed net income projection from 2015 to 2021. This trend is not surprise. Samsung has increased smartphone's average selling prices from about $110 in 2010 to about $250 in 2013. However, the number declined to about $220 in 2014 amid increasing saturation and competition in the smartphone market. Additionally, Samsung has been facing pricing pressure in developing markets, where local vendors have been offering high-end-specifications on low priced handsets. Furthermore, if the company's market share declines to about 14%, this could reduce our price estimate by around 10%. The company’s memory division has been doing well, with sales rising due to higher shipments of mobile DRAM and strong demand for NAND memory in mobile storage and high-density PC and enterprise SSD products. Semiconductor margins also saw a
  24. 24. 24 bump, rising to around 22% from around 19% during the previous quarter, driven by process improvements and new technologies. The outlook for the division also remains strong, with the supply-demand balance in the memory markets expected to hold up and sales of new mobile processors manufactured using the 20-nanometer process poised to increase. Therefore, memory manufacturers currently enjoy a strong chip-pricing environment, which sets the stage for continued spending growth through 2016. Moreover, tablets and mobile devices are driving and will continue driving demand for NAND and Mobile DRAM. According to trefis.com, consumers are buying tablets and smartphones in increasing numbers, driving up the use of NAND flash memory for such devices. NAND flash growth will be supported by tablets and SSD equipped ultra-books. The market for dynamic random access memory (DRAM) will also see healthy growth in coming years reversing the losses in 2011 due to oversupply problems that caused prices to fall. DRAM shipments are expected to reach around $40 billion in 2016, up more than 35% from $29.6 billion in 2011. Mobile DRAM has been the most attractive product segment for DRAM vendors. Mobile DRAM production is based on known demand level, pricing is mostly driven by cost reductions and not by the wild fluctuations of supply and demand that are more typical of commodity DRAM. Samsung for instance has been expanding manufacturing of its 20nm-class of DRAM of late, in order to drive profitability and drive product differentiation. These projections are based on current status quo; assuming that Samsung will keep
  25. 25. 25 focusing on Smartphone business has the last trends. It means that if Samsung continue emphasizing on cut pricing strategy, applying discounts, large investment in smartphone, and the company would tend to increase cost and make losses rather than gains 5.2 What is Next? The future is uncertain and as the dynamic investment path unfolds the firm’s management learns, adapts and revises investment decisions in response to unexpected market developments. This uncertain characterizes the smartphone industry. Thus, an strategic investiment decision is crucial for the future growth of Samsung. According to two-sided networks theory, platform leaders can leverage their higher margins to invest more in R&D or lower their prices, driving out weaker rivals. As a result, mature two-sided network industries are usually dominated by a handful of large platforms. Samsung has employed this strategy in smartphone and it was successful until the emergence of new Asian players that could win in cost competitive advantage. Despite that, Samsung can successful apply this strategy in semiconductor business, where the market opportunity seems to be favorable and Samsung has competitive advantage over competitors, especial in R&D and production cost. Therefore, for future growth Samsung should focus on strategies that can provide the company competitive advantage.
  26. 26. 26 “Burning the Bridge” game theory state that each firm (player) has two possible actions: high irreversible investment commitment or more flexible, low effort investment. The value of early/heavy commitment is that it may set the product standard or signal to competing firms about the reduced future profitability of their options in this market. Consider a pioneer firm that makes an early, large-scale irreversible R&D investment in a new market or market with potential growth opportunity. The firm’s competitors could view this as a threat to their future profit base in the market, thus deciding to stay out or entering the market later on a reduced scale to avoid a market share battle. Therefore, an early huge investment in R&D for semiconductor business would strategically reduce the number of players in these business, and thus, strengthening Samsung position. Increasing R&D investment in semiconductors will also provide cost and first mover advantages for Samsung. In the sense of “Burning the Bridge” game theory, an earlier (or heavier) strategic investment in semiconductor business may confer Samsung (as pioneer firm) a cost or timing advantage and influence the competitor’s behavior and the resulting equilibrium in a way that strengthens Samsung’s competitive position and long-term value. In other words, early investment commitment in semiconductor business may have strategic benefits that must be balanced against the lost flexibility value component. In conclusion, semiconductors business provides competitive advantage and larger market share to Samsung. Because semiconductors might drive the future of the company’s revenues, Samsung should allocate the available Free Cash flow to increase its investment in Semiconductors business. Furthermore, being the first in the market would enable Samsung to capture a larger share of the market and put followers on a strategic disadvantage.
  27. 27. 27 Exhibit 1: Samsung Net income Projection (2015-2021)
  28. 28. 28 6. References Samsung Annual Report 2010 Samsung Annual Report 2011 Samsung Annual Report 2012 Samsung Annual Report 2013 Samsung Annual Report 201 Farhoomand, Ali. “Samsung Electronics: Managing Innovations in an Economic Downturn”. Asia case - Research Center. University of Hong Kong R. Grant, Wiley (2013). “Contemporary Strategy Analysis”. 8th Edition SMIT, H. T. J. And TRIGEORGIS, L. (2004). "Strategic Environment: Real Options and Games,". Pricenton Universty Press. http://www.idc.com http://www.trefis.com/stock/ssnlf/model/trefis?easyAccessToken=PROVIDER_9655df4 b07a9aa77aa4fadfe5526d1a4ba7ce7b8 http://www.statista.com http://www.forbes.com/sites/greatspeculations/2014/10/30/samsung-could-refocus- growth-strategy-as-q3-earnings-plummet/ https://faculty.ist.psu.edu/bagby/432f12/t11/samsung-business-strategy.html http://www.fiercewireless.com/story/report-samsung-see-first-ever-year-over-year-drop- smartphone-shipments-2015/2015-10-14 https://en.wikipedia.org/wiki/Two-sided_market#Competition_in_Two-Sided_Networks https://salesandmarketing.com/content/sales-strategies-uncertain-times https://en.wikipedia.org/wiki/Two-sided_market#Competition_in_Two-Sided_Networks http://financials.morningstar.com/ratios/r.html?t=SSNLF

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