2. Making strategic decisions in practice
Introduction
The Asian Economic Crisis of 1997 has a primary key importance in the history of
economy. That crisis is one of the worst crises that occurred in the history of economic crisis.
The Thai baht crashed at a significant rate and it started turmoil of Asian economy. Many
countries suffered significant losses from this crisis. It was apparent that many organizations
with massive capitals also suffered due to this Asian economic recession. One of those
organizations was Samsung, which suffered great losses from this economic recession. Samsung
is known for developing different sort of electronics, mechanical equipment and other
engineering related products but even Samsung was suffering loses from this recession.
In 1995 the company also smashed earnings records, only to see chip prices tumble and
currencies head into turmoil. By the dark days of the 1997 Asian economic crisis, Samsung was
deep in debt and heading towards bankruptcy. But this time things should be different. The
company has now been transformed in so many ways, maintains Yun Jong-yong, a company
veteran who took over as chief executive in 1996, that it cannot only weather the coming storm,
but will sail on to even greater things. (The Economist, 2005)
Smartphone are the prime product of Samsung. The diversification that has taken place in
this product is astonishing. From Samsung Galaxy S3 to Samsung Galaxy S5 and now Samsung
Galaxy S6, have revolutionized the Smartphone industry in its own. Every next model of their
smartphone introduces a new set of chipsets and software that increase the attention of the
consumers which boosts the company’s profit rate to another new level. Samsung has targeted
not only a particular customer market similar to its competitors, but Samsung madeit's approach
flexible. It developed software’s and devices that are approachable by all sets of customers. Such
diversification is set to target all markets which depends on several races and economical
classes.The South Korean company estimated its operating profit for the April-June period at
Won8.1tn ($7bn), up 17.4 per cent from the same period a year earlier. This is Samsung’s
highest since a Won8.5tn profit in the first quarter of 2014 (Jung-a, 2016).
These changes, which have taken place in the Samsung’s, are needed to be understood,
before we can measure the economic growth of this tech giant organization. We need to
3. understand how this organization arrived to a level that it is today and how it depicts the current
level of our organization of its own certain level in the organization’s history.The organization's
name is one of the core reason why Samsung has had such successful diversification and still
carrying it out today. The popularity of the name Samsung has received an unvocal motto of
“reliability and affordability. “. The organization has spent a big amount of capital in developing
its marketing branch that has created such popularity for the organization and it is important to
note that Samsung was at some similar level at which our organization is today. So to develop
such strategy that would be viel for us in the long term, it is necessary to develop a strong
marketing department. That makes Samsung a prime example that we should utilize it as our
course of direction, it’s strategic and innovation management path that will help us evaluate our
organization’s management plan and the growth aspects in which we should attempt for
diversification.
Current Situation of Samsung Electronics
When Samsung took a start in 1938, it was atrading organization and it used to sale noodles as
it’s other business, The diversification process of the organization starts in 1954.In 1954, Cheil
Industries, originally named Cheil Woolen Fabrics Industries, was founded in Korea’s fourth
largest city Daegu. (samsungvillage, 2011). At that time, Korea was suffering from the ongoing
war between the North Korea and South Korea. As Korea recovered from the aftermath of the
1950-53 Korean War and devoted its postwar efforts to rebuilding the basic industrial
infrastructure, Cheil built the nation’s first carded wool factory in 1955. (samsungvillage, 2011)
The company was the first step towards diversification of the organization. At that time,
Samsung was still in its initial stage of success, but its diversification towards for wool factory
produced the highest quality of wool in whole Korea. It seems, as diversification is the main
motto of Samsung as it even introduced innovation and applied change management in every
step of its business. The company (Cheil Woolen Fabrics Industries) exported its first batch of
carded wool of 8,000 pounds to Hong Kong in 1961, making a debut in the global woolen fabrics
industry (Samsung, 2011). As of now, the organization did not have any intention to take a turn
their attention towards electronics and manufacturing, but then comes the 60s. In the late 60s,
Samsung made a turn towards electronics, mechanics and construction and produced several
divisions, such as, Samsung Electro-Mechanics,Samsung Electronics Devices, Samsung
4. Semiconductor & Telecommunications, Samsung Corning, etc. Many of these organizations will
develop into the core parts of Samsung’s core strategy towards devices and communication.
It was around 1985 when Samsung built its first cell phone made for in-car use, the Samsung SC-
1000. It wasn't exactly a success, however, as it was plagued by quality issues. So for what was
going to become the company's first hand-held cell phone, Samsung invested 2 years in research
and development. Also, the company's engineers used Motorola cell phones as benchmark
devices. (T., 2014)
Samsung’s biggest strategy seems to be investing in Research & Development and mostly
developing their own devices and not reverse engineering. So far, Samsung has invested heavily
in Research and development and that accounts that resulted in initial failures but eventually it
lead the industry and organization to be labeled as genuine and high standard in nature. In 1995,
Samsung introduced its first liquid crystal display. Samsung introduced its first smart phone in
2009 and that was Samsung Galaxy. It was the first phone by Samsung to be introduced as
smartphone and to use Android as an open source operating system in its produced cellphone.
The following series of smartphones took the smart phone world with astonishment and
Samsung sales boomed at a level that it left Apple behind in its competition. (Triggs, Samsung
invested nearly $14 billion in R&D last year, 2015)
The numbers come from Counterpoint Research, and suggest that March saw Samsung on 28.8
percent of the US Market, while Apple slipped down to 23 percent. LG came in third with 17.1
percent, ZTE in fourth on 6.6 percent, and Alcatel on 4.5 percent (Spence, 2016).
That’s not all, Samsung has many different other products which includes Textiles, securities,
insurance, construction, rechargeable batteries for hybrid cars, Smartphone, LED technology,
biopharmaceuticals, solar cells, military equipment and medical equipment. The reason why
diversification of Samsung has succeeded so far is because of its brand name, its popularity and
their high-class products, their innovation and creativity and approach. (Zeman, 2016)
5. Diversification strategy of Samsung
Samsung is a well-known brand today, it is well known for its genuine attempts in innovation, its
high class of products and its popularity. Samsung has concentrated mostly on 3 core factors that
have driven it to its success today. It has invested heavily in two main things. Marketing and
Research and Development. The third is developing a high class and reliable product that does
not includes any cheap or lower reliability material in it. Samsung has always made sure that
people know its products name. Even after being well known in the world, It still spends heavily
on its marketing.
It is important to note that although Samsung has taken a hit on sales figures and revenue stream,
its marketing budget was reported to be the biggest in history in fiscal year 2013. It was an
astounding $14 billion and constituted 5.4% of the company’s total revenue, while the marketing
budgets of Apple and Microsoft in 2013 stood at $1 billion and $2.5 billion, respectively. This
shows the level of importance Samsung gives to putting brand awareness across to its
consumers. (Ahmed, 2015)
It is visible that even whatever the consequences are, Samsung never neglects it marketing
department. For any organization to grow, it is necessary that it create awareness to the
consumers of its services and all of its products through any means that is available to it.
Samsung has created the genuine image through the same mean .Now; there are many innovative
methods and means when it comes to introducing innovation in marketing of your product and
your organization’s brand name. It is necessary to understand the main mean of media that
people are using at what stage of the generation. It would not be a wise choice to advertise much
through radios, as there is no visual in this median of marketing. Mostly use of radio is now
when people are using transportation. Radio is an old technology now so investing in it much
would not a viable advice. Nowadays, people mostly use internet to interconnect with each other
social media is mostly used to communicate with each other, and through the world. According
to CMO Council, Global marketing trend through media is rising at the rate of 5.1 percentages
and at the moment, it amounts for $1.6 trillion of the whole world. So as it is visible why
Samsung concentrates mostly on developing a strong marketing innovation management area in
its organization, as it is the reason why today Samsung has beaten its competitors in sales area,
through marketing and brand-awareness to its customers and that too with better and efficient
6. marketing strategies and innovation. Secondly, Samsung has concentrated on another core factor.
Even, at some point, it has given it more priority than marketing and that is its Research and
development for its products. Samsung has concentrated on this sector for various reason that
drove it towards indigenous and also improving its innovation sectors for providing better quality
of goodsand be effective to customer driven market. At the start, Samsung’s idea was to deliver
products of customer’s desire and increasing the net income, but bysince the 80s, Samsung’s
strategy took a turn and focused towards indigenous and Research and Development. At the start,
they did not face much success in the international market, but gradually, Samsung approached
to a pint where every instrument that it required to develop its own next product, was being
developed by its own efforts of indigenization. It is important for any corporation that aims
towards globalization for its industry to develop such tactics that will increase its indigenous
efforts. However, it is necessary to point out what sorts of benefits does an organization achieve
through indigenization. If an organization is developing a product on its own to assist itself to
achieve a process, it reduces the cost of that task significantly. When purchasing other
organization’s efforts or products to develop your own, the price of that product or service
includes not only the cost but also many other factors such as profit, taxation, etc., that increases
the value of the product and eventually the value to achieve the objective increases significantly
as well. Indigenous efforts also provide the characteristics of freedom of use. That is, the
organization is at freedom to modify the product the way it wants to and update it in any form
also utilize it in any form it desires to. If a product is not produces in indigenous manner, then
the benefit of freedom of use will not be applicable. The product owner can put any sort of
restriction and prohibit the use of product at certain circumstances.
Samsung’s R&D costs have increased by a massive 28 percent compared with 2013. The figure
also increased substantially the year before, up 15.6 percent between 2013 and 2012. The
electronics giant spent an impressive $13.4 billion this year. (Triggs, Samsung Electronics is the
biggest R&D spender in tech, 2nd overall, 2014)
Samsung does have massive budgets in Research and Development sector and Marketing as
well, and they both result in developing a mind frame for the customer that they produce the best
electronic product in its industry. Samsung’s efforts for this task are also visible by the customer
satisfaction that they do provide such devices that not only targets the elite class, but also the
7. middle class of people, As Third world countries are also moving towards modernization and
Samsung is not failing to capture this market.
Product evaluation
Samsung has mainly focus on developing tactics that will expand their products availability to
people of all kind. Many of its competitors have focused mostly on a particular part of the
consumer part which is based on selective group of consumer that find it appealing for
themselves. However, Samsung has taken different route as compare to their competitors. They
have focused on market development strategy as they develop such products that will tap un-
attended customers. The research that Samsung has taken about different ethnicities is also
availing its growth rate.
The Note is a perfect example. The company found through market research that Asian-
language speakers in particular wanted a device that they could hand-write on, because
drawing characters is easier with a pen. The result was a combination phone/tablet
("phablet") that's been an unexpected hit. (Nisen, 2013)
But at some point, it seems that Samsung has also followed the market penetration strategy for
its development. (Chand) They have flooded the consumer market with all sorts of low-cost to
high cost cell phones in every country. They have acquired major share of Smartphone market in
the west. As they have sold many high end Smartphone in the west. But similarly, Samsung has
introduced its many low price and medium price Smartphone and mobile phones which have
been in high demand as compare to other high end Smartphone. These sorts of efforts have
driven Samsung to develop technologies in accordance of what is in demand by the market. This
has also opened the Chinese and other Asian markets. It is to be noticed that Samsung has
appointed different business-level strategies at different era and conditions. They have appointed
identity market niche strategy when developing Note series but they have also concentrated on
developing distinctive marketing strategy that have differentiated their approach towards
customer as compared to their competitors. So far their business-level strategies have been a
story of success for the organization. As of 2015, Samsung has a market share of $27 billion in
China’s smartphone market. Samsung may be doing comparatively better at the premium-end of
the market, with the Galaxy S7 and S7 Edge reported to have received over ten million pre-
8. orders back in March. (Kundu, 2016). It is apparent that Samsung follows the trend, that what is
required by which market of the world and what is in the demand by that market. However, the
company is also looking to earn back some of its lost market share in the mid and entry-level
segments, having recently introduced the all-new Galaxy C-series of smartphones aimed
specifically at the Chinese market. (Kundu, 2016)
Key Points To Consider:
Developing such a strategy that will eventually lead to major success of an organization such as
ours, it will be a difficult task as it is a known fact that is hard to develop innovation strategies
for smaller organizations and then to implement them as well accordingly. The resources are
very limited at this point to do massive expansion of the organization. Our organization, Xexo, is
developing Smartphones for 5 years now and the production of our products is going smoothly
without much hassle, but innovation is a process for the growth of every organization that exists
today and looks forward to become a corporate level organization. There are some major steps
required to be taken that are required for initialization of achieve diversification process.
Developing required funds and resources
Selection of an appropriate product in accordance of public demand.
Studying the somepition level in certain product’s industry.
Allocation of resources is the most primary need when it comes to diversification. Many
organizations fail to understand the importance of resources when they are initiating a project. It
is necessary for the organization to maintain utmost resources that might be required to sustain
the current operational services of the organization. Neglecting the current operational services
and leaning for diversification can be risky and may develop financial constraints for the
organization in the future. Second is to develop plans for short term and long-term period. It is
necessary to understand the path whenattempting for diversification. Public demand and
Competition are the third most important factors of diversification. If an organization is
attempting for diversification, then it is necessary to look for the public demand for it. It would
be a financial catastrophe if the diversification suffers significant losses. Competition is another
factor that needs to be taken under consideration. If there is monopoly of any other contender, it
9. is wise to reevaluate the diversification plan. Competition can also become a reason for the fail
diversification because of people’s trust on the product and their loyalty towards it
Challenges in Strategic Management
The biggest challenge and the biggest virtue as well in today’s world is globalization. The easy
of globalizing has been a great virtue when it comes to ease of doing business. (Entrepreneurs,
2011). In the past, it was not that easy to travel from city to city, left alone country-to-country or
continent to continent. Now it takes only 22 hours to travel from china to America where it used
to take 5-6 months in the past. In the same manner, brands have also developed to take
international coverage and it has increased the approach of organizations. In the meantime, it has
also developed competition. This is the biggest problem from which the strategic managers
suffer from the most. Nowadays due to many well-known brands, it is difficult to develop a
strategic plan that will keep the organization at par with its competitors. Kmart is an example of
this scenario. Kmart’s big mistake in the mid-to-late 1990s was to try to compete with Walmart
on price. Walmart had a supply chain system known as “just-in-time” inventory, which allowed
the retailer to restock shelves efficiently. Kmart failed to implement a similar system. (Power,
2016) When developing a strategic plan, many core points are kept in mind as a priority and one
of them is a fine workforce that is capable enough to perform a task and achieve objective
efficiently, that is the second biggest challenge in strategy development and management. It is
relatively difficult to develop a powerful and capable workforce when it is shortage of such
capable employees. Even more, for a small organization it is much more difficult to develop such
employees when applying strategic management plan. Kodak’s missed many opportunities in
digital photography, a technology that it invented, cf., Mui (2012). Steve Sasson, the Kodak
engineer who invented the first digital camera in 1975, characterized the initial corporate
response to his invention this way: "But it was filmless photography, so management’s reaction
was, ‘that’s cute—but don’t tell anyone about it.'" This statement is from The New York Times,
5/2/2008. (Power, 2016). The usage of internet media and other technologies can also become a
hurdle. Evolution in technology occurs every day and for small organizations, it is challenging to
keep up with this innovation. Many industries for the moment use robots to develop their
machinery parts which then rechecked by the help of many relative engineers but now as the
10. innovation is taking place, 3D printers are taking place of those robots and different software are
taking place of those engineers to optimize the output of their product and quality. These sorts of
measures are necessary to be taken if an organization aims for a successful diversification
through strategic planning.
Conclusion:
Diversification in an organization is a sign that the organization’s intentions are to expand and
not to be stagnating in nature. Diversification is just another method to provide growth to the
organization, but it is the most difficult one to attempt. The strategic management is one of the
major sections of diversification and as hard as it is to develop this plan, it is same as difficult to
deploy this plan in effective manner. Samsung is presented as the prime example of this scenario.
How they innovated and evolved by time, the methods they utilized to develop strategies that
would increase their organization’s capital, innovation, creativity and strategy brought them the
growth that they expected. If we desire same expansion with similar success rate, our strategic
management plan also needs to be developed around these notified criteria.
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