Business Analysis Case Study
Samsung Group is Korea's largest multinational conglomerate. Samsung Electronics is Korea's largest electronics industry and the largest subsidiary of the Samsung Group. Samsung Galaxy Note series models have been regarded as the "flagship" model of the Android, and the Samsung Galaxy Note 7 has a double-curved screen, blue body, iris recognition, new S Pen, waterproof, dust-proof and other functions have been recognized and expected by many netizens. Among them, the huge Chinese market has made great contributions to its achievements. However, the Note 7 smartphone produced has exploded in the past few years, which has hugely affected its users around the world. Due to Samsung's improper handling of its incidents and the recall of markets other than China, this practice of treating the Chinese consumers differently has led to a series of questions about ethics. Following, this article will focus on a series of issues raised by Samsung's note7 mobile phone explosion.
Samsung is one of the well-known companies in South Korea and is the abbreviation of Samsung Group, Korea's largest enterprise group. The Samsung Group is Korea's largest multinational conglomerate and can be regarded as one of the "World's Most Admired Companies". The Samsung Group includes a number of international subsidiaries, including Samsung Electronics, Samsung Products, Samsung Life Insurance, etc. The business covers electronics, finance, machinery, and chemistry (Samsung, 2019). The Samsung Group was founded in 1938 by Lee Byung-Chull (Samsung, 2019). Each of its Samsung industries is a family business and is managed by other members of the family. In the early 1990s, Lee Byung-Chull was dissatisfied with the company's product quality, burning unqualified products with $50 million worth of hardware (Velazco, 2013). At that time, Samsung hanged the banner of "quality first" and began to slowly enter the world. Samsung is a unique company that has grown up from these ashes, but the process of growth is very long. At the start-up period, Samsung was a trading company with seafood as its main commodity. In 1968, Lee Kun-hee, an MBA from George Washington University, officially joined Samsung and decided to acquire Korean semiconductor companies in 1974(Velazco, 2013) in order to change the situation of relying on foreign components and technology. Since then, Samsung has been able to produce its chips, and this move has determined Samsung's development in the coming decades (Velazco, 2013). Although the Asian financial turmoil in 1997 caused Samsung to suffer a serious loss, Samsung Electronics CEO Yun Jong-Yong took the lead in making long-term success in wise investment in products and sectors (Velazco, 2013). By creating the best products and services, Samsung can provide customers with the fullest satisfaction to improve the quality of human work and life and promote the common interests of humanity.
Organization Type and Strategies
Samsung Electronics is one of the flagship subsidiaries of the Samsung Group, which is focused on consumer electronics, DRAM and NAND Flash, smartphones, feature phones, microcontrollers and microprocessors, wireless communication chips and foundry (McGrath, 2010). Samsung Electronics is Korea's largest electronics industry and the largest subsidiary of the Samsung Group. Among the list of the 100 most famous trademarks in the world, Samsung Electronics is the only Korean trademark and a symbol of the Korean national industry. Samsung's vision for 2020 is to create a commitment to a better world with a richer digital experience through innovative technologies and products (Samsung, 2019). Samsung's strategy is to create sustainable management of comprehensive value. Samsung not only creates economic value by maximizing profits and shareholder value but as a global citizen, Samsung assumes greater responsibility to create social value (Samsung, 2019).
Competitors, Structure and Key Players
Samsung is better at learning from its competitors than anyone else (Nisen, 2013). Samsung is a competitor that can stand shoulder to shoulder with Apple. Apple is a technically talented designer, and Samsung is a top smart businessman. The early Samsung was once seen by the industry as a “cottage” enterprise that produces cheap products. Later, Samsung developed a new brand strategy, which shifted its original business core from large-scale manufacturing to production of its brands. Moreover, Samsung pays attention to competitors' new products and strategies and can compete with Apple with a larger screen and more features. Samsung also has many advantages over the design and production capabilities of core components that other electronics manufacturers do not have. Samsung has a completely independent vertical integration kingdom, and many key components can be self-sufficient, which makes Samsung's vertical integration more economies of scale and efficiency. The advantages of the supply chain and the industrial chain make Apple become both a Samsung customer and a Samsung competitor. This table from JPMorgan Chase clearly shows how much Samsung has produced itself. The SEC represents Samsung Electronics, and SDC represents Samsung Display (Nisen, 2013):
Table 1: Samsung smartphone supplier relationship (Nisen, 2013)
According to the contents of Samsung Security (n.d.), Samsung's management can actively communicate with stakeholders and consider their interests in decision-making. Stakeholders include clients, shareholders, government agencies and business partners, non-governmental organizations (NGOs), employees, and the next generations.
Problem and Issues
Samsung Note 7 explosion
In August 2016, the Samsung Galaxy Note7 smartphone was released for more than a month, and more than 30 explosions and fires caused by battery defects have occurred worldwide. Samsung had to recall the first version of Note 7 in September (Lopez, 2017). On the morning of October 5, 2016, a flight of the US Southwest Airlines flight number 994 was on fire because of a smoking Samsung Note7 smartphone (Golson, 2016). South Korea's Samsung Electronics decided to suspend the production of the Galaxy Note 7 smartphone and recalled more than 2 million devices, eventually caused a loss of $5.3 billion to Samsung (Lopez, 2017).
The reason for the Galaxy Note 7 series of explosions is that the official answer is the battery, or rather the battery supplier's design. Unfortunately, consumers don't see the battery in their smartphone. Samsung conducted a large-scale charge and discharge test on 200,000 smartphones and 30,000 batteries. As a result, the burn-in phenomenon caused by different reasons was found in both A and B batteries installed in Note7. The battery SDI (battery A) of the first version of Samsung Note7 is due to design reasons, causing the battery negative plate to be squeezed (Lopez, 2017) causing a short circuit between the positive and negative terminals. The second edition of the battery ATL (battery B) melted due to the manufacturing rigor, and the burr penetrated the insulating film during the soldering process (Lopez, 2017), which directly caused short-circuit fire.
Figure 1: Infographic Galaxy Note 7, what Samsung discovered (Lopez, 2017)
First, Samsung brand awareness and brand loyalty are high, and have a good international brand image (Omer, 2019). According to Choi (2014), Samsung has ranked among the top 10 in 12 major countries in its brand awareness surveys in 15 countries. According to Interbrand (2019), a New York-based global brand consultancy, the company’s brand value jumped from $32.2 billion in 2008 to $61.1 billion in 2019, thus has maintained the number seven rank in the “the world’s most valuable brand” list. Samsung is at the forefront of the IT industry and is increasingly becoming a leader in the industry, with its influence surpassing many traditional giants in the industry.
Table 2: Samsung growth history (Interbrand, 2019)
Second, Samsung's product development and design capabilities and technology are strong (Omer, 2019). Samsung not only has strong R&D capabilities but also vertically integrated industrial integration capabilities built by its factories and are rare among global information industry giants. In 2018, Samsung Electronics won 49 IDEA design awards in the Industrial Design Excellence Awards (IDEA), including one gold, six silver, and two copper (Samsung Newsroom, 2019). These prove Samsung's Design capabilities have reached world-class levels.
First, Samsung's market positioning is not accurate because the price of the product is far from high to high. Positioning covers high, medium and low-end markets, and there is no focus on a single market. Although the products are rich and the customer population is broad, it also makes customers suspect the quality of the products. Secondly, although Samsung Electronics has achieved rapid development in recent years, the pressure from old-fashioned electronic operators such as Sony is still very huge. Besides, Apple is also an industry giant, and its advantages over competitors are still in short supply. Third, the lack of innovation is another shortcoming of Samsung's smartphones. The lack of a master system and relying on an external Android system is not conducive to the long-term development of the company.
With the rise of the youth market, college students and white-collar markets have become Samsung's new high-end smartphone competition. For students, smartphones have become a must-have and a luxury. And Samsung's price positioning is suitable for students and office workers to buy without pressure. Compared to competitors Apple and other mid-range phones, Samsung's system, and configuration are very good, so consumer satisfaction has also increased. According to Martin (2019), Samsung's strategic partnership with software developers and online service companies is an opportunity to increase competitive advantage.
Market changes are changing rapidly, and smartphone updates are getting faster and faster. The market has a large number of new products entering every day, which will lead to an overall decline in the price of electronic products. And the biggest threat Samsung faces is a strong competitor. High-end market competitors such as Apple, HTC, Sony Ericsson and other smartphone manufacturers are constantly developing new products into the market, and Samsung is easily killed by strong competitors. Legal restrictions and unsupportive policies may also make Samsung's development slow, especially in major mobile technology markets such as the US and the European Union (Martin, 2019).
Assessment and Implementation Plan
On October 11, 2016, after experiencing a battery explosion, Samsung Electronics decided to permanently stop production and sales of the Galaxy Note7 smartphone, hoping to end this most shameful event in the company's history as soon as possible. Moreover, in order to seriously investigate the recent burning of Note7, Samsung strengthened its quality management and decided to interrupt the production and sales of Note7 with user safety. The findings ultimately determined that the root cause of the problem was battery design and manufacturing defects. Samsung allowed consumers who had purchased the Galaxy Note 7 smartphone to replace the new phone two weeks later and recalled a total of 2.5 million Note7 phones from 10 countries and regions including the US, South Korea, and Australia (Jeong, Wells, & Kim, 2016). However, because Note7 sold in mainland China uses a different battery supplier than other countries, Samsung feels that the battery does not pose a safety hazard. Unfortunately, China's Samsung Note7 smartphones exploded one after another, and it was not until the seventh explosion that they took back all the Note7 smartphones sold in mainland China. After the incident, representatives of Samsung Electronics apologized to all consumers. Samsung also announced the "8-point battery safety test system" to ensure the safety of mobile phone batteries in the future. It includes the Durability Test, Visual Inspection, X-Ray Test, Disassembling Test, TVOC Test, ΔOCV Test, Charge and Discharge Test and Accelerated Usage Test (Lopez, 2017). At the same time, Samsung will also adopt a multi-layered security measures agreement during the product planning phase. The agreement will enforce strict security standards for each part of the equipment, including the overall design and materials used, hardware strength and size, and new software algorithms. At the same time, it will enhance safety in terms of battery charging temperature, charging current and charging duration.
Galaxy Note7 first bombed on August 24th in South Korea, followed by a global recall of 2.5 million units, and finally stopped production and sales and announced a full recall. In this tough 47 days, Note7 continued to explode. In the face of consumer doubts and pressure from public opinion, Samsung's response was rather regrettable, because Samsung did not admit the mistakes at the beginning, making the whole event process full of drama. In the beginning, Korean netizens posted a picture of the explosion of the Korean version of Samsung Note7 during charging. Samsung Electronics officially responded to the Galaxy Note7 postponing shipments because of further testing for product quality. When Samsung Electronics decided to fully recall Note7 in the Korean market, Note7 will be available for sale in the Chinese market, because the Note7 China version does not use the battery provided by the problem provider. Finally, Samsung Electronics President publicly apologized for the incident and announced that it would recall the affected 2.5 million Notes7 worldwide, and said that it will stop selling in the ten markets where Note7 has been released.
Technology upgrades have driven the advent of the mobile Internet era, and the frequent replacement of smartphone hardware and the reduction in production costs have brought huge market growth. However, after the rapid growth in the past few years, the pace of upgrading has gradually slowed down, and market saturation has gradually increased. This has brought a certain degree of anxiety to mobile phone manufacturers. In order to save the increasingly weak growth and seize market share, the speed of launching new models has accelerated and the promotion has become even greater. As the world's largest mobile phone maker, Samsung has a strong sense of anxiety in the face of Apple's strong competitor. Therefore, the listing of Note7 is considered to be the response to iphone7, grab the time to release. In order to pursue speed and market share, Samsung has led to a decline in quality control. Moreover, consumers spend more and more time on their mobile phones, and as a result, the battery is not enough. The mobile phone body is getting lighter and thinner, and the fast charging and large battery have become the industry trend. It is also under such circumstances that the safety of the battery has become a big problem, which may not be unique to Samsung in the industry. Also, Samsung's attitude towards consumers after the accident is worthy of deep reflection, especially in China. When the quality problem first appeared, the "individual phenomenon" was used as a deduction, which further aggravated the situation. However, in another product accident in China, Samsung believed that it was caused by man. Samsung not only shirks responsibility but also questions Chinese consumers. The ethical awareness of business managers is weak, neglecting the role of morality in enterprise management, and all the energy is used to capture production and economic benefits. Without the establishment of corporate values and moral values, ethical violations will occur. Enterprises cannot establish a good self-image in the face of emergency events, but also become a factor restricting the development of enterprises.
Corporate ethics and social responsibility are important parts of the healthy development of enterprises and the core content of corporate culture. Enterprises must adopt practical methods and steps to strengthen the awareness of corporate ethics and social responsibility, and enable a balanced development between enterprises, society, and the economy. Regarding ethics and social responsibility as a core resource of enterprise competitiveness, enterprises should get rid of the misunderstanding of economic benefits and social responsibility conflicts as soon as possible, take the initiative to meet the challenges in the world economic integration, and quickly connect with the world to play an important role.
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- Golson, J. (2016). Replacement Samsung Galaxy Note 7 phone catches fire on Southwest plane. The Verge. Retrieved from: https://www.theverge.com/2016/10/5/13175000/samsung-galaxy-note-7-fire-replacement-plane-battery-southwest
- Interbrand. (2019). Samsung. Retrieved from: https://www.interbrand.com/best-brands/best-global-brands/2019/ranking/samsung/
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- Nisen, M. (2013). Samsung Has A Totally Different Strategy From Apple, And It's Working Great. Business Insider. Retrieved from: https://www.businessinsider.com/samsung-corporate-strategy-2013-3
- Omer, K. S. (2019). Swot Analysis Implementation’s Significance on Strategy Planning Samsung Mobile Company as an Example. Journal of Process Management. New Technologies, (1), 56.
- Samsung. (2019). Retrieved from: https://www.samsung.com/us/
- Samsung Newsroom. (2019). Samsung Electronics Wins 49 IDEA Design Awards. Retrieved from: https://news.samsung.com/global/samsung-electronics-wins-49-idea-design-awards
- Samsung Security. (n.d.). Communication with Stakeholders. Retrieved from: http://www.samsungsecurities.com/csr/engagement.do?cmd=list&MenuCode=M020102
- Velazco, C. (2013). How Samsung Got Big. TechCrunch. Retrieved from: https://techcrunch.com/2013/06/01/how-samsung-got-big/
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