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Samsung Electronics has developed from a company that was insignificant on the world stage, and known for producing cheap, low quality products, to a world leader in electronics. It has recently become the number one seller of smart phones in the world, exceeding the sales of its primary competitor, Apple Inc. This report examines the strategic technology and innovation that is present at Samsung Electronics and considers the way that the organisation has positioned itself within the industry and the outcomes of this positioning. The discussion focuses on the smart phone and mobile device component of the organisation, as this has been a particularly important area of growth within the last decade.
Samsung Electronics Co., Ltd. is a worldwide electronics company founded in 1938, with its headquarters in South Korea. Along with its subsidiaries, Samsung Electronics is responsible for the production, distribution and sale of a wide range of devices and electronic products throughout the world (Bloomberg Businessweek, 2012a). The products that Samsung Electronics produces are developed both for individual consumers as well as for industries, and the company is also responsible for the development of network systems (Bloomberg Businessweek, 2012b). In 2009, Samsung Electronics had been in business for 40 years, and was ranked number one in terms of sales for all global information technology (IT) companies for the first time. Currently, Samsung Electronics boasts around 20% of the global market share for smartphones, and has seen growth in other markets also. The company strives to achieve a sustainable growth, and has achieved double digit growth in 2011 (Samsung, 2012d).
Samsung Electronics is also renowned for its innovation, receiving 30 Innovation Awards at the Consumer Electronics Show in 2012, which is considered to be the largest consumer technology tradeshow. The company is focusing on continued growth and hopes to become the leader in the global IT industry (Samsung, 2012d). Samsung Electronics faces significant challenges in the present, as well as in the future, including patent litigation from Apple, and a highly competitive IT market. As such, it is essential the Samsung Electronics develops a technological position and strategy that effectively makes use of innovation to maintain a strong position within the market and to navigate challenges that it is faced with.
The purpose of this report is to comprehensively examine the technological position and technology strategy that is used at Samsung Electronics, maintaining a strong focus on the innovation of the company. Because of the wide range of different products that are produced by Samsung Electronics, this report will consider one specific business field that can be technologically separated from the rest of the products produced by Samsung Electronics. This field is the mobile communications division. This division consists of mobile phones, including smart phones, as well as computer tablets and MP3 players often collectively referred as mobile computing devices.
Technological Position and Strategy
The technology strategy of any organisation is based on two key types of information. These are external information and internal information. External information is based on the potential of technologies and what technologies are worthwhile for the business to acquire and develop. The internal information is focused on the capabilities and resources of the business, and considers what potential that a business has to acquire and master particular technologies. This section considers some of the external and internal information that is available on Samsung Electronics, and examines what this information means for the technological position and strategy of the organisation.
Market Share and Approach
Samsung Electronics breaks its mobile communications division into two distinct types of products; these are mobile phones and smart phones. The company maintains a relatively consistent market share of mobile phones, moving from a market share of 19.8% in 2009 to 21.2% in 2011. In contrast, Samsung Electronics represented only 3.7% of the smart phone market share in 2009, but was responsible for 19.9% of the market share by 2011, which is the top market share out of any company (Samsung, 2012d). This indicates the strong focus that Samsung Electronics has placed on smart phones as a business direction.
The organisation aimed to develop a business that was vertically integrated, so that the products were developed from components and product that the organisation created, rather than those sourced from suppliers. Samsung Electronics’ approach to the market significantly changed in the 1990s, and the business went through significant organisational reform and internalisation, which involved the development of research and development (R&D) within the organisation, as well as developing strategic alliances. This approach was a significant step away from the initial strategy of the organisation, which was to mimic the products of rival companies. In doing this, Samsung Electronics was able to differentiate itself from competitors, and begin to develop products that were innovative in their own right (Kim, 1997).
Political: Samsung Electronics sells its products throughout the world, and because of this, it faces many political risks in some of the countries in which it operates. In some countries, such as Africa and South East Asia the political environment is turbulent and hostile, which makes it difficult for Samsung Electronics to operate. Likewise, the South Korean political environment is frequently unstable. In contrast, within India and China, the political environment is more predictable and conductive to Samsung (Yu, 1998).
Economic: In recent years, the world has been experiencing a global economic crisis, which has had many impacts on countries, including decreases in job availability and in the amount of available money that consumers have available to spend. For example, in 2011, consumer spending in the United States dropped. This was the first time that this had occurred within two years, and is thought to be related to the economic crisis, the limited number of jobs available, stagnant wages and a decrease in household confidence (Chandra, 2011). A decrease in consumer spending can harm companies like Samsung Electronics, as it can lead to a decrease in sales. Many businesses and consumers are also experiencing increased costs, due to increases in the cost of fuel. This has resulted in a large number of businesses reducing their forecasts for profits and sales (Chandra, 2011).
Socio-Cultural: As technology has continued to develop and improve, telecommunication has become an essential component of business and recreation for people throughout the world. This has created a society that is highly receptive to advances in technology, and has a high level of demand for electronics devices and gadgets. In the United States, the proportion of people that own a smart phone was 16.8% at the end of 2009 and 27% one year later. There has also been a steady growth in subscribers of data plans (ComScore, 2011). As such, the socio-cultural environment is strongly aligned with Samsung Electronics’ aims and technology.
Technological: The use of smart phones and other devices has resulted in the development of a technological environment that strongly supports the use of these types of mobile devices. Within the United States and many other countries, for example, there is a well-developed cellular network infrastructure. This infrastructure is critical for ensuring that data and voice transfers occur efficiently and that there are not any delays. However, there are limitations to this infrastructure. The first is that the quality of the infrastructure is not consistent across regions or countries. For example, in rural areas of the United States, it can be difficult to get a signal or to transfer data. Likewise, in less developed countries where Samsung Electronics sells its products, the infrastructure may be much lower, resulting in limited services. A second limitation is that the infrastructure is subject to environmental influences, so extreme weather, such as a hurricane or a storm can limit or disable the network.
Environmental: The manufacture of Samsung Electronics’ products, like the products of most industries, has the potential to significantly impact the environment. Samsung Electronics places a strong focus on managing its processes so that they have the lost impact on the environment possible. This includes a significant reduction in the amount of greenhouse gas emissions that are produced by the company (Samsung, n.d.).This focus allows Samsung Electronics to improve its performance in this area. This is also a positive aspect in terms of obtaining consumer support, as many consumers are concerned about the environment and are more likely to purchase from a company that appears to care for the environment.
Legal: The legal environment for Samsung Electronics has been complex due to varying viewpoints surrounding the patents used by Samsung Electronics, and one of its main competitors, Apple Inc. Both Apple and Samsung Electronics develop a range of products, including smart phones and other electronic devices. Patent litigation has been going on in many countries throughout the world between these two companies, with Apple claiming that Samsung Electronics has infringed its patents in the development of their smart phones, and seeking to have many of Samsung Electronics’ devices blocked from the market (Aljazeera, 2012). This represents a significant challenge for Samsung Electronics, and the outcome of most of these cases is not yet known.
Porter’s Five Forces
Rivalry among Competitive Firms (High). There is a large amount of rivalry within the current industry, particularly the large and influential companies, which includes both Apple and Samsung. Competition between these two companies is particularly intense, because the products that they develop are similar to one another in appearance and function. The rivalry has resulted in numerous lawsuits between the two companies, which are discussed later in this report. Because of the significance of the rivalry between these two firms, as well as other businesses within the industry, Samsung Electronics must constantly be aware of the strategies of its competitors, and attempt to increase is brand awareness, loyalty and market share.
Threat of New Entrants (Medium). Samsung Electronics is present in a highly competitive industry, where companies are competing against one another for not only in terms of the price of their products, but also their innovation and uniqueness. New entrants into the industry would need to developing customer knowledge and branding, which could be difficult, because the current brands are very well known, and there are many established mobile companies. Companies such as Samsung and Apple produce products that are perceived to be premium and top of the market, while any new company would have to content with being perceived as a ‘knock-off’ and low quality. Nevertheless, the history of Samsung Electronics itself shows that it is possible for a company to move from being perceived in this way to a global leader (Samsung, 2012d). Consequently, the largest threat for Samsung Electronics in terms of new entrants into the industry, who have the potential to develop products that are substantially different than those already offered.
There are many barriers to entry into the industry, including the need to develop a strong customer base and brand recognition quickly, the fact that many consumers exhibit strong brand loyalty, the capital requirements involved in entering the industry, government regulations and retaliation by the companies that currently dominate the industry. Samsung Electronics needs to be aware of any new businesses that are developing within its industry, and monitor the strategies any new firms that develop.
The Bargaining Power of Buyers (High). The number of competitors present within the mobile device industry presents consumers with a large amount of options. While innovation is a significant aspect for many consumers, price also remains important. It is relatively easy for consumers to switch from one company to another based on which offers better options and lower costs. Companies within the industry are all appealing to the same group of consumers, which gives consumers a significant amount of bargaining power.
One factor that limits the bargaining power of consumers is the types of products that are sold within the industry. Consumers will not buy a large number of electronic items at one time, and consequently, each purchasing decision is made based on the options that are available at the time. Strong brand loyalty means that many consumers may accept higher prices and fewer services than they could demand otherwise. Samsung Electronics needs to remain aware of the requirements of the consumer, and the different options that are offered by its rival companies. This helps the company remain competitive, while being aware of how to take the best advantage of its market.
The Bargaining Power of Suppliers (Low). Within the mobile industry, there are many suppliers of components, and consequently, it is easy for companies to switch from one to another if the prices of the products from one supplier become too high. This lowers the bargaining power of suppliers, and allows Samsung Electronics not to be driven by the demands of its suppliers. In addition, unlike most other smart phone developers, Samsung Electronics also produces memory chips, processors and displays. This creates the unusual situation where Samsung Electronics acts as a supplier to its largest competitor. However, this also means that Samsung Electronics is able to supply many components to itself, without relying on an external supplier and the changes in prices that are associated with this (Lee, 2012).
The Potential Development of Substitute Products (Low). Smart phones have been becoming increasingly popular as a device, offering consumers many functions, including voice calling, applications and the ability to play music. The development of substitute products is detrimental to Samsung Electronics, as it decreases the ability of Samsung Electronics to control the market, as consumers can switch to another product easily. One of the strongest factors limiting the development of substitute products is the patent centred nature of the industry. Many of the cases between Apple and Samsung Electronics have not been decided, however, if it is ruled that either Apple or Samsung Electronics voided patent law, then this will make it difficult for any other companies to develop substitute products, and may even result in injunctions against some of the products produced by Apple or Samsung Electronics.
Substitute products include anything that performs the same functions as Samsung Electronics’ smart phones and devices. This includes tablets, laptops, PDAs and non-smart phones (‘dumb phones’). However, these are limited in their ability to act as a substitute. Tablets and laptops are bulky compared to smart phones, and they also lack the traditional functions of a mobile phone. This means that they cannot be considered a direct substitute. PDAs are also limited, as this is not an area that is being extensively developed, and most PDAs lack the features of a smart phone, or a mobile phone. Finally, a dumb phone has the advantage of being inexpensive, and having the calling capabilities that is present in a smart phone. However, these phones do not have many of the features that a smart phone has, including almost all of the applications. As such, these do not act as effective substitute products.
Porter’s Five Forces analysis is an effective way of analysing the position of an organisation within its external environment. This analysis shows that Samsung Electronics is subject to a large amount of competition from businesses that offer similar products, and that there is also a significant threat that new companies will enter this competitive environment. This may make it difficult for Samsung Electronics to continue to develop a competitive lead over other organisations within the industry. The PESTLE analysis reveals that Samsung Electronics is a strong organisation that may face some challenges in the legal and political areas. The company has strongly focused on the development of smart phones and similar products, although it has also been involved in manufacturing of components, including chips and screens. This gives it a competitive advantage over Apple, because it does not need to rely on the supply of these components from a competitor.
Research and Development
Samsung Electronics strongly focuses on the use of R&D in order to ensure the company retains a competitive advantage in the market. At the end of 2011, the level of investment that Samsung Electronics placed into R&D was $165 Trillion KRW (~ $18 Billion NZD), which represented 6.2% of the consolidated sales for that period. This figure represents an increase from 5.6% in 2009 (Samsung, 2012c).This approach helps Samsung to remain an innovative company, and to stay on the cutting edge of new technology and products. A second component of R&D that Samsung Electronics has been focusing on is bringing together all the disparate components of R&D within Samsung Electronics to within a single area, providing a way to concentrate the efforts of R&D and prevent redundancy between different components of the business (Samsung, 2012d).
A final aspect of Samsung Electronics’ strategy for R&D is the development of a comprehensive R&D staff to aid in the development of new technologies. To achieve this, Samsung Electronics has focused on the recruitment of new staff members into the R&D department. As a result of this, the R&D department at Samsung Electronics contained 55,320 staff members in 2011, an increase of more than 10% from 2010. This figure represents 25% of all employees at the organisation. Samsung Electronics has also focused on the development of a comprehensive academia-based support program, which aims to align the R&D needs of the organisation with the development of promising students within academic fields (Samsung, 2012c). While this approach does not immediately increase the R&D of Samsung Electronics, it does provide the potential for increased R&D and innovation in Samsung Electronics in the future, as the sponsorship of Samsung Electronics makes it a well-known name among students expressing skills in the required areas.
Patent Litigation between Samsung Electronics and Apple
Samsung Electronics’ ability to develop and use technology is strongly related to the patents that it has available. With a wide range of patents, Samsung Electronics has the potential to effectively develop many different technologies, while limitations in patents hinder their ability to do this. One significant issue that has restricted the company is Apple, which developed a range of products prior to Samsung Electronics or at the same time that have many similarities. The two companies are the most significant competitors within the market for smartphones mobile computing devices (Aljazeera, 2012). Apple believes that many of Samsung’s devices have infringed its patents and this has resulted in patient infringement cases around the world. These cases have concentrated on claims that Samsung had copied the design of Apple’s iPads and iPhones in the development of Samsung’s smartphones and tablets.
The patents that Apple owns may potentially make it very difficult for Samsung Electronics to develop new innovative technology and introduce it into the highly competitive mobile phone and mobile computing market. Observers argue that the patents that Apple has gained are too general to be reasonable and serve to stifle innovation. For example, one of Apple’s patents focuses on the design that is used to unlock the screen, while other patents consider design features, such as the rounded corners that are present on the device itself and on the icons. The rounded corners feature is one that Samsung Electronics uses in many of its products, and argues that Apple does not have the patent rights over the general physical design of the iPhone and iPad, because these are logical designs (Aljazeera, 2012).
While Samsung Electronics is facing problems with patents in some areas, potentially restricting its ability to develop and sell some types of products, Samsung Electronics does have a strong patent base of its own. One particularly important patent that Samsung Electronics holds is for its wireless technology. The presence of these patents has allowed Samsung Electronics to counterclaim against Apple’s claims, arguing that Apple has infringed on some of the wireless patents that Samsung Electronics holds (Aljazeera, 2012).
Consequently, in terms of patents, Samsung is restricted in its ability to acquire and master many technologies, particularly those that are based on the Android operating system that was initially developed by Google (Aljazeera, 2012). There are currently many litigation cases that are being presented in courts throughout the world, and it is likely that these cases will continue to appear as both Apple and Samsung Electronics continue to produce new products. Furthermore, as the outcomes of these cases are decided, it is possible that some of Samsung’s products will be banned within the United States. In particular, Apple is attempting to ban 17 different Samsung devices in a case that is currently before the courts (The Telegraph, 2012). Recently, Apple has further escalated the patent war between the two companies by adding one new device and an operating system onto the current lawsuit that is going through the courts (Bryant, 2012).
Samsung has recognised the issues that are central to the patent disputes and litigation that is occurring with Apple and argues that patent disputes are likely to become more common and fiercer, as the global market for smart devices continues to develop. To address this problem, Samsung Electronics has reorganised its intellectual property portfolio, developed an active process of patent application to attempt to maintain a competitive edge, and developed a dedicated patent team (Samsung, 2012b). The patent application process has focused primarily on Korea and the United States, and Samsung Electronics had around 100,000 patent applications at the end of 2011 (Figure 1). This approach helps to protect the company against litigation, and develops a secure base for the development and utilisation of new technology.
Figure : Number of patent applications made by Samsung Electronics, by country. Retrieved from Samsung (2012b).
Increasing the number of patents is only one aspect of Samsung Electronics strategy. Another component that Samsung has been working extensively with is the development of partnerships to help secure the cross use of patents. These alliances have included Toshiba, Qualcomm, Microsoft and IBM (Samsung, 2012b). This allows the organisation to acquire the rights to a wide range of technology, which is an important strategic approach for the organisation.
Samsung Electronics may also benefit from rulings that suggest one of the patents that Apple has been awarded should not have been given. This has occurred in part because the allocation of patents for software is often difficult, as innovation occurs in a step-wise manner, with one invention building on the previous one. Furthermore, the boundaries between different innovations can often be difficult to determine. In the case of Apple’s patent, a re-examination by the patent office declared that the patent, which copyrights the ‘bounce’ feature that Apple devices use, makes use of an innovation that was previously developed, even though the original innovation was not used for the types of devices that are developed by Apple and Samsung today (Lohr, 2012a).
Samsung Electronics has been growing in strength as an organisation, from a position where it was not a significant threat within the market, to its current position today, where it is an important competitor with Apple, the leader within the smartphone and device market. In 2001, the company was ranked 42 on the list produced by Interbrand, which ranks global brands according to their value. By 2003, Samsung was ranked 25th on this scale (Rusch, 2003), and in 2011, it was ranked 17th (Samsung, 2012d). This increase shows the way in which Samsung has effectively broken into a highly competitive electronics market.
A considerable challenge that Samsung has faced as an organisation is the way that it is perceived as a brand. Although the company has been growing within the electronics market, and recognised as a significant competitor, producing quality products, this has not always been the case. Previously, Samsung was perceived as producing products that were simply cheap copies of what was currently available in the market. Samsung products have moved from being the middle of the range, to premium products that are often some of the most expensive products that are available. The high level of competition within the global market has meant that it is no longer effective for organisations to compete with one another on the basis of price alone. Differentiation has become a critical aspect of developing and maintaining a competitive advantage, and this is particularly true fields where patents prevent products from being too similar. The rise in sales in Samsung Electronics’ smart phones is strongly related to brand development, the presence of strong software and hardware designs, as well as an extensive network of global distribution (Chansanchai, 2011).
As an organisation, Samsung Electronics is at a considerable disadvantage compared to its main competitor Apple, as Apple has dominated the market for a long time and has a large number of patents in place. However, in 2011, Samsung Electronics took the leading market share in the sales of smart phones, and in 2012, the sales of the Samsung handset Galaxy S3 overtook the sales for Apple’s fourth generation iPhone (Griggs, 2012). While this data provides an indication that Samsung is gaining a foothold over Apple, the competition between the two companies remains strong. It is believed that a significant part of the reason why Samsung has seen increased sales over Apple is that the sales of fourth generation Apple iPhones had decreased while consumers were waiting for the next generation of the phone to be released (Chansanchai, 2011).
Technological Position and Strategy
The previous sections show that Samsung Electronics has developed from an organisation that was perceived to produce inexpensive and low quality products to a high quality producer of electronic products that competes head-to-head with one of the giants of the industry. Samsung Electronics’ technological position and strategy has been strongly centred on the development of smart phones, making use of Android’s operating system and creating a product that is superficially similar to the products developed by Apple. By making use of strategic alliances and R&D within the organisation, Samsung Electronics has been able to differentiate itself from its competitors, and develop a strong patent base, that allows it to continue to innovate and develop new products. Furthermore, the vertical stratification of the organisation gives it a competitive advantage in the marketplace, as the organisation does not need to rely on suppliers as much as other organisations.
A significant part of Samsung Electronics’ technology strategy is the use of innovation and the way that the organisation manages innovation. Samsung is a South Korean company and although it has now expanded throughout the world, its roots remain in South Korea and the cultural influences of this region are important for the company’s previous and current development. Many successful brands that have developed from within this culture, including Samsung Electronics. One significant cultural philosophy that has influenced companies has been the philosophy of moving from imitation to innovation (Kim, 1997, pp. 85-90). This perspective is evident in many of the products that Samsung Electronics has produced, especially in the similarities that can be seen between many of Samsung Electronics’ smart phones and the Apple iPhone and iPad devices.
Innovation has been a significant part of Samsung Electronics’ strategy, and aims to offer consumers a wide range of choice. This approach has been particularly prevalent within the televisions that are produced by Samsung Electronics, as well as other pieces of technology. For example, Samsung Electronics has developed Smart TV models, which contain a slot at the back that enables consumers to remain up-to-date with technology as it improves without the need to purchase a new television model each time. Another aspect of these televisions is the use of a web browser on the television, which users are able to control with their hands, rather than use a physical mouse (Cherrayil, 2012). However, this same level of innovation has not been observed within the smart phone market, where Samsung Electronics has remained mostly within the approaches used by other companies, particularly Apple.
Despite a strong focus on innovation, Samsung Electronics does still have organisational factors that limit the effectiveness of innovation. One issue that the company focuses, is that the departments involve in the production of products are not often involved in the early stages of any new product. Furthermore, the products that the company develops are often chosen for the impact that these will have in the short-term, rather than any long-term outcomes (Kin, 1997).
Currently, Samsung Electronics is recognised as the 17th best brand globally, and the 38th most admired company, which is a position that Samsung Electronics hopes to change. The organisation aims to reach electronics sales of $400 billion USD by 2020, a target that is more than double their current level of sales. In addition, the company also aims to be one of the top five global brands, and top ten in the most admired companies, also by 2020 (Samsung, 2012d). Although Samsung Electronics is developing as a strongly competitive electronics firm, that is competing with businesses such as Apple, the business still has significant progress that it need to make before it is counted within the top five or top ten brands worldwide.
While it is often considered to be highly innovative, the innovation of Samsung Electronics remains partially reliant on its previous model of imitation. This can be seen through the way in which Samsung Electronics’ smart phones are similar in design and function to the products of Apple. The internal and external analysis shows that the smart phone market is an area of significant promise that Samsung Electronics has developed a significant foothold into. It is important that Samsung Electronics continues to pursue its advantage in this area, and also to find approaches that decrease the reliance on technology that is potentially covered under Apple’s patents. Consequently, the following recommendations can be made:
Develop a task force examining the similarities and differences between competitors’ products and products by Samsung Electronics.
Use the information gathered in this process to determine key components of Samsung Electronics’ products that are s
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