Executive 2017a, p.3). The multi-national company is the

Executive Summary

This report identifies
the five key microenvironmental drivers affecting Samsung Electronics Co., Ltd.
The analysis of these microenvironmental drivers will allow them to determine
the current conditions within the smartphone/mobile phone industry and how they
affect their business operations. The analytical model used within this report
to evaluate Samsung’s strategic response is ‘Porter’s Five Forces’.

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This report will include
the following key micro-environmental drivers:

·      
Rivalry Amongst Existing Competitors

·      
Threat of New Entrants

·      
Bargaining Power of Suppliers

·      
Threat of Substitute Products

·      
Bargaining Power of Buyers

Additionally, this report
outlines several possible managerial recommendations. These being an increased
focus on research and development, to create more cohesion with internal
supplier and to be aware of new entrants that become more established.

 

 

 

 

 

 

 

 

 

 

 

Table of Contents

Page
No.

1. Introduction…………………………………………………………………………4

2. Analytical Model……………………………………………………………………4

3. Key Environmental
Drivers…………………………………………………………4

3.1. Rivalry Among Existing
Competitors…………………………………………….4

3.1.1. Samsung’s
Strategic Responses…………………………………………………4

3.1.2. Evaluation of
Strategic Responses………………………………………………5

3.2. Threat of New
Entrants ……………………………………………………………5

3.2.1. Samsung’s
Strategic Responses………………………………………………….6

3.2.2. Evaluation of
Samsung’s Strategic Responses…………………………………..6

3.3. Bargaining Power of
Suppliers…………………………………………………….6

3.3.1. Samsung’s
Strategic Responses………………………………………………….7

3.3.2. Evaluation of
Samsung’s Strategic Responses……………………………………7

3.4. Threat of Substitute
Products……………………………………………………….7

3.4.1. Samsung’s
Strategic Responses…………………………………………………..8

3.4.2. Evaluation of
Samsung’s Strategic Responses……………………………………8

3.5. Bargaining Power of
Buyers…………………………………………………………8

3.5.1. Samsung’s
Strategic Responses……………………………………………………9

3.5.2. Evaluation of
Samsung’s Strategic Responses……………………………………..9

4. Managerial
Recommendations…………………………………………………………9

5. Reference List…………………………………………………………………………..11

6. The Appendix……………………………………………………………………………13

 

1.Introduction

The purpose of this
report was to analyse and evaluate the microenvironment for Samsung Electronics
Co., Ltd. (Samsung) within the smartphone and mobile industry. The method to be
used to analyse the environment will be Porter’s Five Forces.

Samsung Electronics Co.,
Ltd. is part of the Samsung Group, which is based in Gyeonggi-do, South Korea
(Marketline, 2017a, p.3). The multi-national company is the market leader with
in the smartphone industry with a 22.2% market share in 2016 (Marketline,
2017a, p.21).

Samsung’s strategic
approach is made up of four parts. These being: Human-centric, innovative,
fundamental and proactive (Samsung, 2018a). As well as this Samsung has a focus
on being sustainable, by creating economic value and social value through their
products and charity work (Samsung, 2018b).

2. Analytical Model

The analytical model to
be used in this report will be Porter’s Five Forces. This model will be used to
identify and evaluate the key micro-environmental drivers affecting Samsung.
Porter’s Five Forces is made up of five sections: Rivalry Among Existing
Competitors, Threat of New Entrants, Bargaining Power of Suppliers, Threat of
Substitute Products, and Bargaining Power of Buyers (Appendix A) (Porter, 2008,
p. 80).

3. Key Environmental
Drivers

3.1. Rivalry Among
Existing Competitors

Competition amongst
existing competitors is strong with but only within the top few companies.
These being Samsung, Apple, Sony, Microsoft, Google.

Samsung’s strongest
competitor would be Apple Inc. (Apple). Apple having the second highest market
share promotes this. As Apple is diversifying their product range into more
wearable technology, it would suggest there will be a market shift in the near
future (Marketline, 2017b, p.7).

3.1.1.
Samsung’s Strategic Responses

In 2009 the first iPhone
was released in Korea which brought a huge shock to Samsung’s home mobile phone
market (Lee, et al., 2015, p.2). When the Apple shock struck the world, Samsung
wasn’t a major player in the newly expanding smartphone market. This had hit
the company hard because, the rate at which smartphone technology over took
feature phones, which Samsung was well known for (Song, et al., 2016, p.118).

In response to this
Samsung spent the next three years developing the first smartphone in their
newly created range. This smartphone being the Samsung Galaxy. This phone and
its next generations focusing on developing hardware, to meet consumer demand
and to make their smartphones more powerful than other competitors.

3.1.2.
Evaluation of Strategic Responses

Samsung’s strategic
response although somewhat risky, was well thought out and necessary. The risk
involved in Samsung switching their main range to something new and untested
was substantial. With this being the case if consumers tastes had not shifted to
more innovative handsets, then Samsung may have not have ever recovered.
However, given the iPhone’s success it was clear customers wanted something
fresh and new.

Whether Samsung could do
this in the future is an unknown quantity. This may be mainly due to Samsung
recognising when a competitor was gaining momentum. Furthermore, especially
with such a close competitor as Apple, they should always be aware of what they
are doing. Whether this be them diversifying their product profile, or just
updating their OS.

Another reason why it may
not be possible for Samsung to replicate this may be due to the lack of
innovative ideas within the research and development division. Although,
Samsung do invest a good portion of their profits in to research and development,
so this may not be as likely (Marketline, 2017a, p.22).

3.2.
Threat of New Entrants

In the mobile-phone
market there seems to be high turnaround of new entrants. The main reason
being, any electronics company can easily switch production from one kind of
electronic equipment to another. An example of this happening recently was the
announcement from the gaming hardware and electronics firm Razer. As they will
be releasing a new smartphone. Based on this smartphone’s specs it “could
handily beat Apple’s iPhone X, Google’s Pixel 2, Samsung’s Galaxy devices”
(Villas-Boas, 2017).

However, it is hard for
non-electronic companies to gain a foothold. This being the case as the high
sunk costs involved in the setting up and manufacturing smartphones. Furthermore,
they would be entering a highly competitive market where branding is hard to
establish; but is essential to gain high profits. Meaning the threat of new
entrants is low. Although, there can be some exceptions.

3.2.1.
Samsung’s Strategic Responses

The current identifiable
threat to Samsung regarding the threat of new entrants would be the four
leading smartphone manufacturers in china. With three of the four also having
over 5% of the global market share as of Q3 2016 (Cendrowski, 2017, p.70).
Huawei, being the third largest manufacturer in the globe should be watched as
they have started to shift their focus to the western markets (Cendrowski,
2017, p.67).

However, Samsung have not
publicly mentioned them as the threat, or have shown concern of Huawei’s expansion.

3.2.2.
Evaluation of Samsung’s Strategic Responses

Samsung’s strategic
response is extremely poor, due to there being little to no response. This may
due to Samsung feeling that they have a different target market. For example,
as Samsung makes high quality, high spec devices at a high price. Chinese
manufacturers like Huawei make low cost, medium spec devices at a low, cheaper
price. Furthermore, another reason why Samsung may not feel threaten is due to
them having a large well establish brand image. Which they know is a big part
of financial success in western countries. Whereas, for Huawei they are
relatively an unknown in the western markets.

Although during October
2016 their market share rose above Samsung’s to take the top spot in the smartphone
market there (Cendrowski, 2017, p.68). Overall, Samsung should show more
caution when it comes to new firms, especially when they have a rapidly rising
market share and are able to influence consumers.

3.3.
Bargaining Power of Suppliers

In the smartphone market
the ratio of suppliers to smartphone distributors and manufactures are low.
This implying they have large bargaining power. They can shape the future
industry by proving some manufactures with high spec/new technology. While
suppling others with lower spec/ current technology. This can be done as many
of the suppliers supply many manufactures at once (Appendix 2) (Kwok and Lee,
2015, p.8).

 

 

3.3.1.
Samsung’s Strategic Responses

Samsung is in the unusual
position that they design, develop and manufacture their own hardware for their
devices (Kwok and Lee, 2015, p.10). This allows them to benefit from increased
economies of scale.

In addition to this
Samsung has developed over the years vertical co-opetition within their
business group (Appendix 3). Co-opetition being the mix of cooperation between
two businesses in a group, and competition against each other. Usually being
used to describe horizontal co-opetition. Therefore, vertical co-opetition is a
buyer and supplier relationship with the same principles (Lacoste, 2012,
p.649).

3.3.2.
Evaluation of Samsung’s Strategic Responses

As Samsung manufactures
hardware for themselves as well as, their competitors it could allow for an
indirect increase in market power. This is already being shown as, Kang (2017)
stated ‘the California-based company couldn’t really avoid Samsung’ and ‘won’t
be able to circumvent using Samsung’s DRAM memory chips, as it commands about
60% of the mobile DRAM market’, when talking about Apple. That increase in
indirect market power would allow Samsung to withhold their innovative
smartphone parts, to use in their handsets only.

Samsung’s use of vertical
co-opetition, allows them many benefits. One of these being that the Samsung
electronics mobile division, will get parts for a lower price than in the free
market. Another benefit is that the mobile division can cooperate with other
suppliers, to create more innovative parts. However, there are several pitfalls
to the concept of vertical co-opetition. For example, a main part of it is
value-sharing and the buyer’s side of this relationship tends to take more than
it gives (Lacoste, 2012, p.649-650). The internal supplier has the choice of
trying supply Samsung entirely, but would have the trade-off of certainty of
sales over profitability. The other option being to share Samsung with other
competitors.

Overall, though the use
of vertical integration is a good strategic decision as it beneficial for
Samsung Electronics. Samsung does need to bear in mind that the rest of the
group may be affected by their action in this case. Whether it be positively or
negatively.

3.4.
Threat of Substitute Products

For the mobile phone
industry there is little substitutes of the same quality or standard,
smartphones provide. These substitutes being mobile phones, where the
technology is outdated. The main reason for this being is that, the only
feasible substitutes will be what comes after the ‘era of smartphones’
(Weinberger, 2017). This being things such as promotion of AR by companies like
Microsoft, Google, Facebook. Even in the longer term the Neuralink which was
co-founded by Elon Musk, which the focus of internalising the device in to our
actual bodies (Weinberger, 2017). 

3.4.1.
Samsung’s Strategic Responses

Samsung has over the past
few years started to branch out to perform Market Diversification. An example
of this being the launch of Samsung’s range of smart watches, with them being
one of the first manufactures to do so.

Samsung have also
introduced a new AI named Bixby which Samsung Global Newsroom (2018) states
“Samsung’s advancements in artificial intelligence and smart technologies are
helping the company usher in an era of more open and connected IoT
experiences”. The addition of Bixby on Samsung’s newest smartphones and smartwatches,
displays that Samsung is seeing the future in AI, and thinking long term.

3.4.2.
Evaluation of Samsung’s Strategic Responses

This is a good strategic
response for Samsung as the rates at which wearable technology is being bought
is on the increase. As in 2018 the number of units sold is predicted to double
from the previous year (Appendix 4) (LinkedIn, 2016).

In addition, Bixby
although not just for Samsung’s smartphones is a step in the right direction
for the future market place. The AI also makes consumers who already have a
Samsung smart device, whether it be a tv or a microwave incentivised to buy a
Samsung smartphone or watch (Samsung Global Newsroom, 2018). Therefore, making
consumers gain brand loyalty and increased profits for not only the Smartphone
division, but the whole of Samsung Electronics, and subsequently the entire
Samsung group.

3.5.
Bargaining Power of Buyers

For the consumers and
customers of smartphones there is a need to have the latest up to date software
or hardware in their smartphone. Although with this true, consumers have little
bargaining power, due to brand loyalty or to be in trend.

However, consumers still
have some power due to preferences. For example, consumers prefer an android
operating system (Samsung’s and other major smartphone manufacture’s operating
system) rather than the IOS (Apple’s current operating system). This also being
a major deciding factor in purchasing a smartphone (Attri et al., 2017,
p.27-28).

It is shown that hardware
specifications have the maximum influence determining consumer’s preferences on
smartphones (Attri et al., 2017, p.33). These means that if Samsung’s hardware
was quantifiably the best out of its competitors with in the market, it would
see an increase in sales.

3.5.1.
Samsung’s Strategic Responses

Samsung over the years
have noticed the change in consumer preferences. Going back to when they
switched their product line from Omina range, to the well-known and popular
Galaxy range. The switch was a demonstration of Samsung’s response to the
change in consumer preferences from mobile phones to smartphones. The Galaxy
range also meant an increase in hardware specs, as well a switch to the at the
android operating system.

In addition to this
Samsung while being innovative, listened to their consumers, and know what they
prefer in having in a smartphone. Unlike their competitor Apple, who for the
iPhone 7 removed the audio jack in a failed innovate move. Many consumers who
disagreed with that decision, and decided not to upgrade to the newer iPhone at
that time (Silver, 2017).

 

3.5.2.
Evaluation of Samsung’s Strategic Responses

Samsung’s choice of
developing new and more consumer-friendly hardware/software did increase its
unit sales. These peaking when the Samsung galaxy S4 and Samsung galaxy note 3
were released in the latter of 2013(Appendix 5) (tecake.com). This would
suggest that if Samsung were to keep innovating and listening to consumers
preferences they would have continued success within the smartphone industry.

4.
Managerial Recommendations

There are key
recommendations that Samsung should consider. Firstly, the need to keep focus
on the research and development in to the software and hardware of their
handsets. This being as technology is becoming more and more powerful, the
lifecycle of a smartphone even high quality and high-priced ones, is
decreasing. As well as consumers preference tend toward higher specs. Samsung
should also develop their own internal operating system. Which then could be
sold to other smartphone manufactures. This ultimately would reduce the
outgoing costs for Samsung in the long term. However, while developing the
operating system they would have to pay Google for the continued licence for
android. Therefore, to keep consumers interested in Samsung’s products they
must keep up with the technological curve and innovate.

Linked to this,
alternatively Samsung could choose to focus on the idea of market
diversification for the same reasons as previously stated for the need of
research and development in the smartphone industry. However, whether consumers
could accept a new version/alternative to smartphones currently is an unknown,
but it would be like what Apple did when their released their first smartphone
and may be worth the risk if executed correctly. Meaning high profits and
renewed brand awareness.

The possibility of the
expansion of their manufacturing of smartphone parts, is also something to
consider. As there would be less production costs in the long run as well as
more opportunities to become more of an integral part of the entire industry’s
manufacturing process. The expansion should be focused on product
diversification. This also would allow Samsung some indirect market power; if
the internal supplier patented new parts, to be only used in Samsung devices.
However, as Samsung has the strategy of vertical co-competition with that part
of the company it could possibly hurt the internal supplier, Samsung  and the Samsung group.

The final possible
recommendation would be to be weary of Chinese competitors such as Huawei. As
it is likely many more companies after their success in China, may decide to
expand in to western markets where Samsung’s foothold is stronger. To combat
this Samsung should make sure their brand is as recognisable and trustworthy,
so consumers aren’t as tempted by the cheaper Chinese manufacturers. They could
do his buy publishing more about their sustainability programs.

 

 

 

 

 

 

5.
Reference List

Attri, R., Maheshwari, S.
and Sharma, V., 2017. Customer Purchase Behavior for Smartphone Brands. The IUP Journal of Brand Management. 14(2), 27-33

Cendrowski, S., 2017. Is
The World Enough For Huawei?. Fortune. 1st Feb 2017, 67-70

Kang, J., 2016, ‘Samsung
Will Be Apple’s Top Supplier For iPhones Again In 2017’, Forbes.Com, p. 1,
Business Source Complete, EBSCOhost, viewed 9 November 2017.

Kwok, J.J.M. and Lee,
D-Y., 2015. Coopetitive Supply Chain Relationship Model: Application to the
Smartphone Manufacturing Network. PLoS
ONE. 10(7), 10

Lacoste, S., 2012.
“Vertical coopetition”: The Key Account Perspective. Industrial Marketing Management. 41(4), 649-650

Lee, J., Lee, K., Heo,
J., 2015. Supplier Partnership Strategy And Global Competitiveness: A Case Of
Samsung Electronics. Eurasian Journal of
Business and Management. 3(4), 2

LinkedIn. n.d. Smartwatch unit sales worldwide from 2014 to
2018 (in millions). Statista. Available at:
Accessed 16th January 2018

Marketline., 2017a.
Company Profile Samsung Electronics Co., Ltd., 3-22

Marketline., 2017b.
Company Profile Apple Inc., 7

Porter, M.E., 2008. The
Five Competitive Forces That Shape Strategy. Harvard Business Review. 86(1).
78-93

Samsung., 2018a. Believe in Potential. Available at:
Accessed 16th January 2018

Samsung., 2018b. Our Approach to Sustainability. Available
at:
Accessed 16th January 2018

Samsung Global Newsroom.,
2018. How Bixby is Ushering in a More
Connected Future. Available at:
Accessed 17th January 2018

Silver, C., 2017. Apple Takes A Hit On iPhone 7 Sales, iPhone
8 May Be Worth Waiting For. Available at:
Accessed 17th January 2018

Song, J., Lee, K.,
Khanna, T., 2016. Dynamic Capabilities at Samsung: Optimizing Internal
Co-opetition. University of California,
Berkeley. 58(4), 118-120

tecake.com. n.d. Global market share held by Samsung in the
mobile phone market from 2009 to 2015. Statista. Available at:

Accessed 17th January 2018

Villas-Boas, A. 2017. A Gaming Company Just Announced a
High-Powered Smartphone Geared for Games – But its Best Feature is its Price. Online
Available at:
Accessed 20th October 2017.

Weinberger, M. 2017. The Smartphone is Eventually Going to Die,
and Then Things Are Going to Get Really Crazy. Online Available at: Accessed 20th October
2017

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