International Business and Samsung - Case Study Example

International Business: A Case of Samsung Student’s Name Institutional Affiliation Course Name Date of Submission International Business: A Case of Samsung Samsung is a South Korean multinational company founded by Byung-Chull Lee in 1938 (Lee 2006, p. 2). Since then, the company has grown to become a leader in the electronics industry. Samsung specializes in the manufacture of a variety of electronic products, including mobile phones, television, cameras, refrigerators, tablets and many other home appliances. Although the company began small in Taegu South Korea, the company has since grown and has presence in many countries across the globe. Samsung is among amongst the most profitable electronic companies in the world. In 2009, for instance, the company generates a revenue totaling $117.8 billion (Reuters 2015). Despite the success that the company has registered in the international market, Samsung has faced many challenges in the recent past that is likely to affect its position in the market in the near future. The aim of this document is to analyze Samsung’s position in the international market with a focus on challenges and its competitive advantage and whether or not Samsung’s competitive advantage will be sustainable in the long run. Challenges Facing Samsung Samsung is currently the leader in the electronics industry, a position that it has maintained for many years now. The company’s success over the years has largely been attributed to the high demand for its products both locally and internationally. Despite the successes that the company has registered over the years, Samsung has been facing many challenges in the recent times, something that threatens its position in the market. Samsung’s first major challenge in the recent times has been stiff competition. Electronics industry is amongst the most competitive industries in the world. Currently, Samsung is facing stiff competition from quite a number of companies, including Apple, LG, Sony, HP, Microsoft, Techno and Chinese Smartphone makers Xiaomi and Lenovo among others (Michell 2011, p. 11). The competition that Samsung faces from these competitors has seen the firm’s profits fall to its lowest in three years. According to Samsung’s 2014 annual report, the firm’s profits to $21.3billion, making a 27% drop in profits compared to 201 (Reuters 2015). Samsung has attributed the fall in its revenue and profits in recent times to the growing competition from other firms, such as Apple and the Chinese Smartphone makers Xiaomi and Lenovo. BBC News (2014) report shows that Apple has been the major competitor that has contributed largely to Samsung’s latest woes. The report shows that, the move by Apple to introduce the iPhones with larger screen snatched Samsung’s Galaxy phones a big market share. The BBC News (2014) report also revealed that Samsung’s latest slump in performance has been caused by the entry of Chinese low-end phones manufactured by Chinese companies, such as Xiaomi, Levono and Huawei. These Chinese Smartphone makers have reportedly introduced a variety of Smartphone that cost far much less than what Samsung charge for its products. The low prices charged by Chinese Smartphone makers have seen them snatch a significant Samsung’s market share, thereby causing a slump in revenue and profits. Samsung’s second major challenge in the electronic industry has to do with legal issues that have affected its operations great deal. In particular, Samsung has been involved in a showdown with Apple over intellectual property rights on a number of occasions. Recently, Samsung alleged that that Apple ripped it of its intellectual property that enabled it create the iPhone. In 2011, Samsung was also sued by Apple that alleged that the South Korean firm infringed its patents (Cusumano 2013, p. 6). The tag of war between Samsung and Apple in the recent past regarding patent rights has greatly affected Samsung’s Smartphone market, causing a slump in performance. Samsung is not only facing having problems with Apple, but also with Chinese firms, which Samsung has accused on several occasions of ripping it of its IP (Cusumano 2013, p. 6). Thirdly, Samsung is also facing a major challenge of falling profits. The company attributes the fall in the profits that has characterized the firm in the recent years partly to the rising manufacturing cost. According to the CEO of the company, the cost of manufacturing Samsung products has been rising all the time (Michell 2011, p. 18). As a result, this has often forced Samsung to increase the prices of its products to cover the cost of production. However, the increase in prices of products has proved counterproductive as most of its customers have been avoiding its products because of high prices charged compared to those of its competitors in the market. Analysis of Sustainability of Samsung’s Competitive Advantage In The Long Run Samsung boasts of being the leader in the electronic market, a position that has maintained for many years now. Samsung is currently the leader in both Smartphone and TV market. According to the company’s 2014 annual report, the firm posted a profit of $21.3billion, which is the highest in the industry, despite being a decline in profits compared to the previous year. In the Smartphone, for example, Samsung posted a 27.8% growth in the first quarter of 2015 (Reuters 2015). Samsung grip of the electronic market is shown by the fact that the South Korean firm operates in more than 80 countries in the world. Furthermore, Samsung products are currently available in almost all countries in the world, where the firm’s products experience a huge demand. Samsung has maintained leadership in the electronic market because of a number of things that gives it a competitive advantage over its rivals in the industry. The main source of competitive advantage for Samsung has always been being the fact that the company has been the most innovative in the electronic company. Samsung understands that, in order to gain a competitive edge in a highly competitive environment, it must keep being highly innovative by developing products that meets the needs of its customers in the market. To achieve this, the company has invested heavy in research and development (R&D) (Michell 2011, p. 31). By being highly innovative, Samsung has been able to differentiate itself from its rivals. For instance, the firm has been developing its display technology that has helped differentiate itself from its rivals. An example of Samsung’s latest innovation is the Samsung Galaxy S4, which has a high definition OLED display, which is the first to feature in the market. The second source of Samsung’s competitive advantage has been being a cost leader. Samsung, unlike most of its rivals in the industry has been adopting an internal cost transfer of its own components. This has ensured that Samsung incurs lower cost compared to the price at which it sells similar components to others (Lee 2006, p. 33). Accordingly, this has helped increase the profitability of the company, thereby giving it a competitive advantage over rivals in the industry. Another source of competitive advantage for Samsung is quality. Samsung products command a huge demand both locally and internationally because of high quality. Samsung understands that quality is a key aspect that customers look for when making their purchasing decision. In response, Samsung has always ensured that the quality of its products is not compromised by manufacturing high quality products for its customers (Linsu, K 1997, p. 59). Others sources of competitive advantage for Samsung include having a highly skilled and motivated workforce, presence in many countries, effective value chain management, excellent customer service, as well as the fact that the company charges competitive prices for its products. Despite maintaining the leadership in the electronics market, sustainability remains a big question. Industry analysts are concerned that Samsung could soon lose its leadership position in the electronic markets due to the growing competition from both local and international companies. Reuters (2015) report shows that Samsung has continued to lose grip in most of the global markets where it has maintained dominance for many years. The researches point that Samsung may soon be dislodged as an electronic giant and begin playing second fiddle to its rivals. For instance, although Samsung may still be the leader in India’s mobile market, the South Korean firm is fast losing its grip of one of the world’s largest markets, which a population of over a billion people. The Economic Times (2015) report shows that Samsung is fast losing its market share to competitors, such as Micromax, Microsoft (Nokia) and Karbonn and Lava in India. This has been confirmed by the latest report that shows that Samsung’s market share slumped to 16.5% by the end of 2014 from 20.3% at the start of the year (The Economic Times 2015). Similarly, Samsung is fast losing its firm grip in the Chinese Smartphone market to local Chinese firms. China has been Samsung’s largest market for Smartphone for many years. Unfortunately, Samsung recently lost leadership of the Chinese Smartphone market to the Chinese Smartphone maker Xiaomi. Currently, Xiomi controls about 14% of the Chinese Smartphone market after posting a growth rate of 240% (Reuters 2015). Other Chinese local companies, such as Levono, Huawei, OPPO, BBK, Yulong, STE and K-Touch has also gained significant market share in China snatching Samsung a huge market share. Currently, Samsung and Apple controls only about 18% of the Chinese market share combined. Samsung’s lose of the Indian and Chinese market has been a big blow to the company and points that the South Korean company may not maintain its competitive advantage in the long run as its dominance continues being dislodged by rival companies. Solutions to Samsung’s Challenges It has become clear from the analysis that Samsung’s position in the electronic market is under serious threat to the extent that the company must adopt drastic measures to help it regain its leadership in the electronic market. The first appropriate solution for Samsung is to enhance its technological innovation to ensure that it differentiate itself from its rivals. This might require customizing its mobile and other electronic devises according to customer needs (Porter 1985, p. 42). Secondly, Samsung can regain its position in the industry; Samsung should consider expanding its market reach to underexploited emerging markets. After losing its grip in China and India, which were some of its largest markets, Samsung should consider exploiting emerging markets, such as Brazil, Indonesia, Malaysia, and African countries that most of Samsung’s rivals have not exploited well. Exploiting these emerging markets will help increase Samsung’s sales and profits, thereby enabling it regain its lost position in the market (Woonghee 2007, p. 14). Thirdly, Samsung should consider investing adequately in R&D, as this will enable it understand the market trend well and design products that meets to current demand in the market. For instance, it has been noted that Samsung lost a huge market share to Apple in the high-end market after Apple introduced a large iPhone 6. Therefore, to prevent such misfortunes occurring in the future, the company has to invest adequately in R&D to enable it come up with high-quality products that meets the needs of customers in the market. Additionally, Samsung should monitor its costs to ensure that it minimizes cost as much as position to reduce its cost of production. This will help it charge competitive prices and be able to compete effectively with Chinese firms that have introduced cheap mobile phones and other electronic products. Conclusion Samsung boast of being a leader in the electronics market. This is because Samsung has always ensured that customers’ needs are met by designing and providing them with high quality products and services at affordable prices. Additionally, the company has also been able to maintain a competitive advantage by being highly innovative. Nevertheless, Samsung’s position in the electronic market is currently under serious threat emanating from growing competition from Apple in the high-end and Chinese Smartphone manufacturers in the low-end market to which the South Korean firm has lost significant market share. Therefore, to regain its position in the market, Samsung should ensure that it invest adequately in R&D, become more innovative, improve customer service and expand to more emerging markets. Nevertheless, the solutions provided will not solve all the problems since some new challenges are bound to emerge in the future. References BBC News 2014, Samsung Electronics profit falls to lowest in three years. BBC News 30 October, viewed 11 July 2015 http://www.bbc.com/news/business-29828484 Cusumano, M 2013,’Technology strategy and management: The Apple-Samsung lawsuits,’ Communications of the ACM, vol.56, no.1, pp.28-31. Lee, D 2006, Samsung Electronic: The global inc. LEE Dongyoup, Soul. Linsu, K 1997,’The dynamics of Samsung’s technological learning in semiconductors’, California Management Review, vol.39, no3, pp.86-100. Michell, A 2011, Samsung Electronics and the Struggle for Leadership of the Electronics Industry. John Wiley & Sons, Hoboken, NJ. Porter M.E 1985, Competitive advantage: Creating and sustaining superior performance. The Free Press, New York, NY. Reuters 2015, Samsung inches closer to losing smartphone primacy, viewed 11 July 2015 http://www.businessdailyafrica.com/Corporate-News/Samsung-inches-closer-to-losing-smartphone-primacy/-/539550/2605994/-/nbn7tk/-/index.html The Economic Times 2015, Samsung leads India mobile phone market, but losing grip: CMR. The Economic Times 8 February, viewed 11 July 2015 http://articles.economictimes.indiatimes.com/2015-02-08/news/58928746_1_smartphone-segment-smartphone-market-market-share Woonghee, L 2007,’Understanding Samsung’s diversification strategy: The case of Samsung Motors inc’, LongRang Planning, vol.40, 4-5. Read More