The goal of the paper is to give a better understanding of Samsung Electronics that how it has been successfully managing as continuing to lead as a top player in such a high competitive industries, consumer electronics industry. I would like to elaborate on several concepts for innovation and design strategy in terms of appropriate strategy, R&D decision, and absorptive capacity that Samsung pursues which are as follows:
What is the place that takes innovation in Samsung Electronics and how it relates to absorptive capacity? And how it can link to innovation? How the company is concretely managing its design strategy? And what other mediating factors related to its success? How we can delineate R&D roles in terms of carrying on competitiveness for Samsung Electronics?
In order to give some answers to those questions, we will first have a closer look at the company's history, business modes, its products and financials and try to see how innovation and design strategy interact and incorporate with them.
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Following we will try to underline the key elements of its success and have a closer look at the external means Samsung Electronics has used to expend its design and the necessary knowledge over time.
Finally, I would like work on a global R&D management and how Samsung Electronics intends to expend its R&D network, whereas other competitors, such as Sony and Apple reducing R&D investment ratio per products.
2. Samsung Electronics
Samsung Electronics was established in 1969 and its sole purpose was to produce black-and-white TV. Accumulated knowledge and experiences necessary to sell its products to not only domestic markets but also overseas was acquired since Samsung runs its businesses dealing with various industries, moving from agricultural products and dried fish to heavy industries, petrochemicals, and ship-building, etc. Albeit experiences and knowledge cannot fully explain Samsung's success, no one can deny its success is based upon past knowledge and experiences. During the course of time, Samsung Electronics acquired Korea Semiconductor in 1974 which became its one of the competitive forces and started producing consumer electronics goods being morphed as original equipment manufacturer. Samsung Electronics' growth skyrocketed in annual basis. Nevertheless, Samsung Electronics encountered obstacles, such that more technologically advanced competitors or price-competitive products threatened and the phenomena with being reduced market growth in the key export markets. I will further discuss, later on, how Samsung Electronics overcame these difficulties in this paper.
As of today in March 2009, Samsung Electronics is known to people as the most successful high-tech corporation. However, its success was not just given nor granted. Rather, it is the combination of efforts from top management's intent and will to change, capacity within group members to adapt newness and innovativeness, appropriate strategies used to innovate whether it is technical or incremental for far future, flexible organization not being afraid of disruptive changes-rather their ability to recognize the value of new information, strategic alliance with many companies, etc. I will research deeper on these respective issues. In this paper I would like to take a closer look on Samsung Electronics' development strategy. I will look how their businesses developed and strived to demonstrate how they were able to climb to the very top of the global high-tech market.
3. Strategy Perspective
Samsung Electronics is the world leading high technology corporation, such as in digital media, telecommunication, semiconductor, LCD, etc, with revenue of around US 105 billion dollars in 2007. They are one of the giants in the global business world, yet Samsung Electronics' start was nothing more than so-called, some might disagree the term, duplicator, simply making copies from other advanced companies. Nevertheless, March and Simon mentioned that most innovations result from borrowing rather than invention. Roberts and Berry stated that entering a new business may be achieved by a variety of mechanisms, such as internal development, acquisition, joint ventures, and minority investments of venture capital. Samsung Electronics' strategy was to form joint venture with technologically advanced corporations, such as NEC, Sanyo, and Corning Glass Works that their intent was to raise manufacturing efficiency to meet mass production with comparatively cheaper labor forces and to some extent location advantage factors, whereas Samsung Electronics needed to learn technology to generate products with superior product design for competition against other market players. In light with "mutual pursuit," both parties gained profits with synergetic effects. With this accumulated experiences and knowledge, although Samsung Electronics still lacked capabilities, Samsung Electronics was able to reverse-engineer the design of Panasonic microwave ovens and VCRs. Other strategy Samsung Electronics undergone was reconstructing Samsung Semiconductors as a separate business entity after its acquisition of Korea Semiconductor in 1978. Even if Samsung Electronics was familiar with the technologies and market due to its usage on consumer electronics products, it decided to form internal venture. Samsung Electronics strived to give authorities to those who are in senior management team who own better insight and knowledge and minimize time lagging coming from big hierarchy. This could nurture entrepreneurship with great flexibility. Also, Samsung Electronics strategically works in partnership with Giorgio Armani, Jasper Morrison, Bang & Olufsen, Adidas, BMW, and Cartier, etc to further gain advantages and market shares. Samsung Electronics has been working together with many partners and started much collaboration which enhanced it to find a design, better fit to certain regions and markets.
4. Absorptive Capacity
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According to Cohen and Leginthal, prior related knowledge bestows a firm on ability to recognize the value of new information, assimilate it, and apply it to commercial ends is defined as a firm's absorptive capacity. And this can be achieved by internal R&D investment and by manufacturing operations with organization's ability to exploit it. Even if it is impossible to absorb and transfer all the knowledge and experiences acquired from previous manufacturing operations, a relative amount of information can be transferred and passed along to other production lines, within a company, which influence performance that varies depending upon companies' familiarity on that field and ability to derive from it to innovativeness and efficient level of production. This progressive improvement term is referred as "learning to learn." Did not Samsung Electronics only sequentially expand its product lines, to name few, from black-and-white TV as an initial stage to microwave ovens and VCRs and later on to refrigerators and A/Cs, and to 64K DRAM to 1M DRAM, etc. Development of absorptive capacity was accumulated cumulatively and Samsung Electronics' cognitive domain was well structured to be processed next level of production in a good manner. I will further elaborate on R&D issues in the following topic.
Furthermore, structure of communication between organization and among subunits of the organization is essential to maintain absorptive capacity as pointed out by Cohen and Levinthal that Samsung transferred its knowledge acquired from producing heavy industries, petrochemicals, and ship-building, etc. to Samsung Electronics which enabled to make Black-and-white TV in the first place.
In addition, one of the critical success factors among many which contribute to its success was due to the fact of familiarity with a technology and market. Rumelt categorized into three kinds in terms of diversification and that of related business companies showed most profitable among its industries. Samsung Electronics started making products with what they were familiar with and capable of and advanced to related products in terms of consumer electronics business which incorporated its increased success rates.
5. R&D Perspective
According to Pisano, he stated that R&D decisions are an important element for established corporations [confronting broad and rapid changes in their core technologies]. In the past, Samsung Electronics was inexperienced and numb to the importance of design development. In order to cope with the difficulties, such as technologically advanced or price competitive firms, marginalized market growth, reduced growth in demand, obsoleteness of technologies, which are inherent in consumer electronics industries, Chairman Kun-Hee Lee initiated New Management initiative in 1993 and focused more on the importance of R&D. Lee's view on heavily investing R&D is further supplemented by Teece and Armour's statement that they argued R&D is more efficiently governed by hierarchies than by markets that instead of outsourcing internally generating activities outperformed in profits. Samsung Electronics established many R&D centers to improve in-house product design and its existing technologies. By 2004, Samsung Electronics established 16 R&D centers around the world. In addition, Samsung Electronics puts a strong focus on the growth of their global R&D system and assigns specific roles to them which formulate their goals for the future. They try to stretch their innovation efforts all over the world and therefore try to invest in the world class developers. It is other goal of theirs to strengthen the technology cooperation between the R&D centers and find hidden synergies.
Between 2002 and 2007, Samsung Electronics spent on average 9% of its sales revenue on R&D. Their efforts to create new and the better design and product itself made Samsung Electronics to receive many innovation and design engineering awards and to register 17,377 patents worldwide.
It is constantly looking for new business opportunities, checking market development and following product and technology trends. It is then connecting this new Information with the company's current existing technologies. It also tries to coordinate the internal and external communication, to save cost and encourage synergies within organization and among subunits. Every new R&D such as intellectual property or intangible assets are managed and controlled in order to gain additional market shares in consumer electronics business and R&D value.
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Over the years the R&D division of Samsung Electronics did not just show exceptional foresight in terms of their manufactured innovations and designs, they also showed foresight in organizing the process of innovation, when they as one the first in the 'Digital - eCompany' that would be capable of leading in digital convergence into their developing process using a single platform.
5. Evaluation and Recommendation
Although Samsung Electronics is a giant and leading in the field of consumer electronics business, Samsung Electronics realized that it is a business with certain risks and that in order to keep up with the leadership position they need to set appropriate and optimal strategies when selecting entry strategies to stay competitive. Also, Samsung Electronics realized that they have to spread the cash burden over many fields; therefore, they expanded production lines one by one that are related businesses which increased product success rates. But over time the some products were given more focus and attention due to their very nature: obsoleteness and profit perspective to firms.
Samsung Electronics also realized the need for being globally present. They have international R&D centers and branch offices, to look for a closer customer relation, to widen their knowledge network, and to get the feeling for regional trends.
Another factor which has to be accounted for is that as the division grows and earns more importance and independence, Samsung Electronics has to pay attention to the problems that might result out of it. The division might experience NIH syndrome coming from too much internal communication or start to deviate from common purpose and work for their very interests.
Lastly, perhaps sales objective as a whole can be estimated roughly yet with lower reality and vision and objectives tend to be unclear which caused top management seldom to maintain consistency and set up directions upon business performance. So, it is always difficult tasks to specify and materialize of feasible ideas from planning to action. I believe that top management is critical factor determining firm's absorptive capacity.