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Marketing Strategy
Samsung Growth Strategy: What is Next?
Senwayo, Lucia Verónica Denis (2B4047)
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Content
1. Introduction ……………………………………………………………..…………. 3
2. Core Competences ………………………………………...……………………….. 6
2.1 Global R&D Network and Patents …………………………..………………….. 6
2.2 Production Capability ………………………...…...…………………………….. 6
2.3 Branding ……………………………………………………………..………….. 7
2.4 Vertical integration ……………………………..……………………………….. 8
3. Financial and Market Analysis …………………………………………………..... 9
3.1. Revenue and Profit ………………….………………………………………….. 9
3.2 Market Share ………………………………………………………...………….. 10
3.3 Cash Flow ………………………………………………...…………………….. 13
3.4 Key Ratios …………………………………..……………………………….….. 14
4. Porter’s Five Forces Analysis ………………………………………………….….. 18
4.1. Power of Buyers …………………………………………………………….….. 18
4.2 Power of Suppliers ………….……………………………………………….….. 18
4.3 Threat of new entrants ………………………………………………….……….. 19
4.4 Threat of Substitutes ………………………………...………………………….. 20
4.5 Industry Rivalry ………………………………………………………..……….. 20
5. Samsung Growth Strategy …………………………………………………..…….. 21
5.1 Future of Smartphone business: What is Next?………………………………….. 21
5.2 What is Next?…………………………………………………………………….. 25
6. References ………………………………………………………………….……….. 28
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1. Introduction
Samsung has diversified product portfolio, including semiconductors, HDTVs, home
appliances, computers, printers, display screens, mobile phones, network products, and
mobile music devices. Such a diversified product portfolio was a result of the company
seeking growth opportunities in the relatively small domestic market of South Korea.
Limited growth potential in each product segment lead the company to seek new product
development to gain new growth. In an era of globalization when companies were able to
develop new markets outside of their home country, Samsung Electronics’ horizontal
growth strategy turned vertical.
Samsung group is composed of three core divisions: Consumer Electronics, IT and
Mobile Communications and Device Solutions.
Source: Adapted from Samsung Annual Report 2014
In terms of segmentation, Samsung business can be summarized under two categories:
The end retail production division and component division. The end retail production
division is divided into two business segments - Telecom and Digital Media. The
Telecom segment provides information and communication products such as
Consumer Electronics
Visual Display
Digital Appliance
Printing Solutions
Health and Medical Equipment
IT and Mobile Communications
Mobile Communications
Network Business
Digital Imaging Business
Media Solution Center
Device Solutions
Memory Business
System LSI Business
LED Business
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smartphones and telecom equipment for 3G/4G network. The digital media segment
manufactures and sells digital televisions (TVs), notebook computers, printers, air
conditioners, refrigerators and others. The component division supplies components used
in the above-mentioned products to Samsung itself as well as other manufacturers. It
comprises of two business segments - Semiconductors and Display Panels.
Semiconductors include DRAM and NAND flash memory chips, system large-scale
integrated circuit (LSI) products, application processors and image sensors. Displays
include liquid crystal display (LCD) displays used for TVs, monitors, notebooks,
personal computers (PCs) and others.
In 2007, the global consumer electronics market was heavily affected by the global
financial crisis. Consumer electronics sales declined of around 11% year on year. As a
result, sales of memory chips, semiconductors and foundries declined. Interestingly, the
global mobile phone segment saw an upward moving trend with smartphone sales
increasing by as much as 38% from 2011 to 2012.
Major global mobile handset players prior to the global economic downturn included
Nokia, Sony, Motorola and Samsung Electronics. In the post crisis years, Nokia, Sony
and Motorola experienced a shrinking demand in developed markets and slipped in their
rankings as leading handset producers, while Samsung Electronics and Apple launched
new mobile handsets that were built on digital and media convergence and new design
concepts. The premium Galaxy smartphone series achieved worldwide success and at
once became the stellar growth engine of the company.
In 2011, Samsung Electronics had the largest market share for mobile phones,
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smartphones, and televisions in developing countries, especial in China where maturing
middle-class Chinese urbanites were upgrading their purchases and becoming more IT
savvy, demanding cheaper and more innovative consumer electronics. The success was
attributed to a distribution network formed between the company and Chinese retail
titans.
Samsung’s growth strategy involves reaching more customers worldwide through new
distribution channels, such as consumer retail, expanding their relationships with value-
added resellers, and augmenting select areas of their business through targeted
acquisitions.
Despite this rapid growth, recently Samsung has lost much of its shares in both the low-
end to mid-range markets to Chinese competitors, and in high end to its major competitor
Apple. Moreover, the trend forecast shows that the company will tend to lose shares in
both segments. So, this research will focus on what should be Samsung sustainable
growth strategy? Should Samsung abandon or contract or expand or modify actions?
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2. Core Competences
Beside the strong network, four core competences have contributed to the company’s
success: Global R&D Network and Patents, Production capability, branding and vertical
integration.
2.1 Global R&D Network and Patents
Samsung has more than 18 centers in more than nine countries, R&D and design in
mobile phones had taken place in multiple centers to provide products for external
customers, such as Apple, and internal customers.
Besides focusing on the technological aspects of a device under development, Samsung
Electronics’ research team also relied heavily on market research. Their approach to in-
depth market research differentiated the company from its competitors as wireless
carriers preferred to partner with Samsung Electronics’ mobile devices. Based on these
market research reports, telecom carriers had bases to believe that Samsung’s mobiles
would sell well and thus were much more willing to display Samsung products in their
retail spaces.
2.2 Production capability
Samsung production capabilities for its products’ components were unique in the
industry. The company’s manufacturing of core products remained in nine plants located
in its home country, South Korea, thus emphasizing on no outsourcing strategy.
Samsung Electronics had manufacturing plants that integrated its plants with those of its
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suppliers in the same industrial zones or complexes. To ensure an optimal level of
inventory of components, Samsung Electronics and its suppliers shared information from
an integrated SAP-based system, acting as one company in this regard.
Furthermore the product delivery end, the company used a global tracking network
system, called the “In-Transit Tracking System,” which was similar to DHL’s tracking
system. The system tracked delivery from factory to the ordering party worldwide,
enabling the company’s global command Centre in its headquarters to receive real-time
information and deal with shipment-related emergency.
2.3 Branding
Samsung had adopted an aggressive branding and advertising strategy to transform the
company from a manufacturer of cheaper Japanese brands’ products to a global brand
known for innovation, cutting-edge technology and leading design.
Samsung Electronics’ branding strategy rested on the company’s strengths in product
innovations and design. Following the trends of digital convergence and wireless
communications, the company excelled in the fields of digital devices, memory chips and
plasma screens. The company aimed for leadership in products that integrated wireless
communication with multi-function features that were made possible by digital
technologies.
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2.4 Vertical integration
Samsung designed and manufactured the core parts of mobile devices, such as
processors, memory chips and display screens, it had the long-developed capabilities to
integrate, converge and coordinate the parts to create its own component infrastructure.
The cross and vertical product cooperation was achieved internally when different
products were converged onto a few product platforms such as the mobile phones,
computers, and many other devices that could be connected through digital and mobile
technologies. Also, due to a decade long development resulting in economies of scale and
scope, these capabilities became the competitive advantage of the company that few
competitors could emulate.
Samsung’s growth strategy involves reaching more customers worldwide through new
distribution channels, such as consumer retail, expanding their relationships with value-
added resellers, and augmenting select areas of their business through targeted
acquisitions.
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3. Financial and Market Analysis
3.1. Revenue and Profit
The graph bellow indicates that from 2010 to 2013 Samsung had reported significant
improvement in revenue and net profit. However, in 2014 the company’s revenue was
$195. 9 billion, 10% less than the revenue reported in the previous year. The company
operating profit had dropped by 32%, as a result of increasing on sales and administrative
costs.
2014 2013 2012 2011 20100
50,000,000
100,000,000
150,000,000
200,000,000
250,000,000
Graph 1: Sales Revenue and Operating profit
RevenueOperating Profit
In its annual report 2014, Samsung recognized that it has been lowering its profit margin
in smartphone business and form the year ahead; time looks right for the mobile business
to take off again. As a result, the company has been planning to propel smartphone sales
with competitive new lines, to secure Samsung market leadership by launching
innovative premium smartphones and to provide a range of upgraded mid-price products
of impressive quality. The company anticipated remarkable results from new Galaxy S6
and Galaxy S6 edge in the premium smartphone market and by launching new large-
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screen devices equipped with first-of-its-kind technology and already winning
widespread recognition, the S6 and S6 edge are beautifully crafted from metal and glass
and blend purposeful design with powerful features.
Despite Samsung price reduction strategy in high-end segment, the sales continued to
drop during the tree quarters of 2015. The sales of the S6 smartphone fell short of
expectations because the company could not meet the demand for its flagship model. At
the same time, rival Apple has been gaining ground. Apple reported a strong quarter
ending June 2015, driven by record sales of smartphone and Mac, record revenue from
services and the launch of Apple Watch.
3.2 Market Share
Graph 2: Smartphone vendors market share
Source: http://www.statista.com
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According to data from statista portal, Samsung is the leading smartphone vendor in the
world based on figures from the third quarter of 2014. The company held a 23.8 percent
share of smartphone shipments in this quarter, in comparison to the 12 percent held by its
closest rival, Apple. Samsung’s peaked at 32.5 percent in 2013, but it has since
diminished somewhat, in part due to the emergence of brands such as Lenovo and
Huawei in low-end segment share. Increasing competition means profits will fall in spite
of steady shipments, and this will be the primary issue that Samsung will have to deal
with in the near future.
Table 1: Comparison of Smartphone Vendor Market Share Q3’ 2014 and Q3’ 2015
Global Smartphone Vendor Market share (%) Q3 '14 Q3 '15
Samsung 24.5% 23.7%
Apple 12.2% 13.6%
Huawei 5.1% 7.5%
Lenovo-Motorola 7.6% 5.3%
Xiaomi 5.6% 5.0%
Others 45.1% 44.9%
Total 100% 100%
Interestingly, Samsung is the largest smartphone maker, with 23.7% market share, 9.1%
ahead of Apple. But it remains second, behind Apple, in terms of tablet shipments. Also,
APPLE appears to have a better management of their operating expenses, which allows
for them to post better net incomes, higher sales volumes and better growth potential in
the long run.
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2014 2013 2012 2011 20100.00%
10.00%
20.00%
30.00%
40.00%
Graph 3: Samsung Smartphone market share
Smartphone
Source: Adapted from Samsung Annual reports 2010, 2011, 2012, 2013, 2014
The graph above shows that Samsung smartphone market share trend is similar its sales
revenue trend - a significant drop from 2013 to 2014.
While smartphone market share is shrinking, Samsung’s semiconductor division grew
fastest, with 10% year-on year growth, as a result of increasing demand for high-density
DDR4/LPDDR4 memory chips, along with the shift to high-density storage and broader
adoption of solid-state drives. As it is shown in the graph bellow, memory business
market share seems to be relatively stable and it has been a great source of competitive
advantage.
2014 2013 2012 2011 20100.00%5.00%
10.00%15.00%20.00%25.00%30.00%35.00%40.00%45.00%
Graph 4: Smartphone vs. Semiconductor market share
Mobile PhoneSmartphoneGlobal DramNam Flash
Source: Adapted from Samsung Annual reports 2010, 2011, 2012, 2013, 2014
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Samsung has been losing market share in both high and low-end market. In High-end
market it has been difficult due to the increasing saturation and competition from Apple's
new large-screen iPhones. Similarly, low-end market shows intense competition from
local vendors in emerging markets, such as China and India, which offer lower prices and
lower production cost. So, these are the reasons why Samsung market share is shrinking
in both high and low-end segment.
So, despite Samsung market share leadership position in smartphone industry, the
company profit margin shows slightly opposite trend, due to it’s large operating expense
and pricing strategy. Basically, the company can reach many consumers than
competitors, but it is sells its products at cheap prices while production cost is not
reducing, which result in low margins.
3. 3. Cash Flow
Graph 5: Samsung Cash Flow (2012-2014)
Source: Samsung Annual Report 2014
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Cash flows from operations are a crucial part of a cash flow statement. It shows how
much cash the company produces internally from its own operations, as opposed to
money coming from borrowings or other kinds of financing and investing activities.
The figure bellow shows a fall down of about more than 30% of cash flow from
operations and investment. In same period its competitor Apple produced $46.46 billion
in cash flows from operations during 2014, a 6% increase versus $43.76 billion in the
same in 2013. So, we can see from a longer-term perspective that Apple is growing at
much faster rates than Samsung.
3.4. Key Ratios
The 2014 financial ratio comparison of Samsung and Apple is given is shown in the table
1. The current ratio of Samsung is 2.21, which is greater than the Apple which is1.08.
Similarly, Samsung shows higher working in capital than Apple. Both high working
capital and high current ratio, isn't always a good thing, it could indicate that Samsung
have too much inventory or the company is not investing its excess cash. Samsung quick
ratio is 1.88 while Apple is 1.05. Thus, a quick ratio of 1.88 means that Samsung has
$1.88 of liquid assets available to cover each $1 of current liabilities, while Apple has
$1.05. So, this higher quick ratio, indicates a better liquidity position for Samsung.
However, Samsung has better liquidity because it is highly leveraged than Apple.
Samsung Inventory Turnover is 7.04, while Apple presents the highest turnover in the
industry of 57.94. A low turnover implies that Samsung has poor sales and, therefore,
excess inventory, while Apple shows a high ratio implying either strong sales. Similarly,
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Samsung has lower Fixed Asset Turnover and Total Asset Turnover of 1.59 and 0.89
while Apple has 5.44 and 0.79. The fixed-asset turnover ratio measures a company's
ability to generate net sales from fixed-asset investments - specifically property, plant and
equipment (PP&E). Samsung has lower fixed-asset turnover ratio, which means that the
company has been less effective in using the investment in fixed assets to generate
revenues. During the last 5 years, Samsung has increased investment on PP&E, from
$45,924,386 in 2010, to $71,716,907 in 2013, to $76,824,309 in 2014. While PP&E is
increasing, revenues are declining from 2013 to 2014.
Samsung Debt ratio and Debt to Equity ratios are lower than Apple: 0.04 and 0.37 for
Samsung and 0.15 and 1.08 for Apple. The lower debt ratio, less leveraged the company
is, implying less financial risk. Samsung has lower debt/equity ratio it means that the
company has been less aggressive in financing its growth with debt. Thus, lower
aggressive leveraging practices are often associated with low levels of risk.
Samsung gross profit margin and net profit margin are also lower than Apple – 37.79%
and 11.35% for Samsung and 39% and 21.61% for Apple. Additionally, from the table 3,
it is shown that Samsung gross profit margin net profit margin has been declining.
Similarly to previous ratios, Return on Investment, Return on Equity and Return on
Assets are lower for Samsung. While Samsung has 11.56%, 13.92% and 10.15%, Apple
has 26.20%, 35.42% and 17.04%. This figures means that Samsung amount of return on
investment relative to its investment’s cost is lower, the amount of net income returned as
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a percentage of shareholders equity is also lower and Samsung is not using efficiently its
assets to generate earnings.
Furthermore, there is also the dividend factor with APPLE stock, which creates a built in
incentive for potential investors. Currently Samsung does not participate in distributing
dividends to its shareholders.
Table 3 shows Samsung key ratios from 2010 to 2014. Samsung liquidity and
profitability has increased from 2010 to 2013 and dropped from 2013 to 2015.
Table 2: Key Ratios comparison: Samsung vs. Apple
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Table 3: Samsung Ratios (2010 – 2015)
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4. Porter’s Five Forces Analysis
4.1. Power of Buyers
The bargaining power of buyers is high.
Buyers have good leverage when it comes to bargaining because of their access to
information and how competitive the mobile industry is. Due to commoditization of
smartphone the switching cost is low for consumers, and they have a multitude of options
to choose from competitors, they can easily switch to Apple, Huawei or any brand
without extra cost for them. Furthermore, their products are similar to one another.
Important factors that further increase bargaining power of buyers are: buyers’ price
sensitivity and comprehensiveness of information about features and functionalities of
products. Because of these reasons, consumers tend to switch lower priced smartphone
provided by competitors at low-end segment, such as Huawei, ZTE and some costumers
switch to high quality smartphone with unique features and functionalities provided by
Apple at high-end segment. Therefore, consumers will switch to those who have better
features or low prices.
4.2 Power of Suppliers
The bargaining power of buyers is low for general parts and components suppliers and
high for Android supplier.
Samsung provides opportunity for large order volume for businesses supplying general
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parts and components. It has established strong relationship with these suppliers segment
and about 72.7% of total economic value was shared with suppliers in 2014. Moreover,
Samsung maintains an extensive communication with its suppliers within the scope of
various programs and initiatives such as Shared Growth Day, Supplier Dialogue Fair, Hot
Line and informal meetings with suppliers. Therefore, Samsung has ability to negotiate
prices, and suppliers do not yield substantial bargaining power due to the importance of
Samsung’s order volume and its ability to negotiate prices. Additionally, Samsung also
designs and manufactures the core parts of mobile devices, such as processors, memory
chips and display screens.
In contrast, for android platform, there lack of alternative platforms available to
Samsung, thus Google exercises an immense bargaining power as the supplier of Android
platform.
4.3 Threat of new entrants
The barriers to entry are high.
Entering and operating in mobile phones requires massive capital investments and this
fact represents a significant barrier for new entrants. It is often very difficult to enter
emerging markets because a host of factors have to be taken into consideration such as
setting up the distribution network and the supply chain, such as wholesales warehouses,
distribution centers, and consumer technology selling outlets. Furthermore, Samsung
benefit from the economies of scale to a significant extent in terms of gaining cost
advantage. However, such a benefit is not available to the new market entrants, thus
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reducing the threat of new entrants to the competition.
4.4 Threat of Substitutes
The threat of substitutes is high.
Any mobile that performs the same functions as Samsung can be assumed as substitute,
e.g. iPhone. Another category of substitute is “Dumb phones” that are viable, due to the
lack features and capabilities, come as cheap or free substitute to the average of
Smartphone. Additionally, the smartphone industry is flooded with secondary substitutes,
such as Tablets, Laptops. This is also the reason why Samsung often adopt differential
pricing so as to attract consumers from across the income pyramid to wean them away
from cheaper substitutes.
4.5 Industry Rivalry
The industry rivalry is high.
The smart phone industry has many strong competitors. Competitors like Apple, Huawei,
Lenovo-Motorola, ZTE and Xiaomi are engaged in fierce competitive rivalry due to low
level of differentiation. Chinese firms are offering attractive smartphones at lower prices
with attractive features. It means that Samsung has to contend and compete with a
multitude of players domestic and global. This has made the impact of this dimension
especially strong for Samsung.
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5. Samsung Growth Strategy
5.1 Future of Smartphone business
Smartphone business has been declining. According to Forbes’s portal, “revenues for the
mobile division fell by around 10% from 2013 to 2014, impacted by lower average
selling prices and smaller sales mix of high-end devices. The company’s IT and Mobile
division’s profit margins (which are primarily driven by smartphones) also fell sharply
during the previous year, owing to lower pricing and higher marketing and promotional
costs. There were a few bright spots in the company’s IT and mobile device segment,
though, as networking products sales saw growth on the back of increasing LTE-focused
investments by mobile carriers”.
From 2007, when smartphone was launched, the number of smartphone vendors has
increased, which means that there is severe competition among vendors. Therefore, the
same-side network effect is negative.
Samsung is facing pressure for low and mid handsets. Despite the market opportunity in
emerging markets, realizing attractive pricing and margins is has been harder than ever.
Local manufacturers have been offering smartphones with attractive specifications at
affordable prices, appealing to aspirational yet price conscious customers. Some local
manufacturers sell their products at near cost, aiming to eventually turn a profit as
component prices fall, or by providing other Internet based services. As of Q2 2014,
Samsung lost its top spot in the Chinese smartphone market to upstart Xiaomi.
Samsung has lost cost competitive advantage over the time due its No Outsource policy.
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While Apple outsource many parts of iPhone, to reduce its production cost, Samsung
remains producing all smartphones core parts in house. However its production cost is
relative higher comparing to Chinese companies. Furthermore, Samsung keep
emphasizing on price discount and promotions, which in turn has negative impact in
profit margins. Therefore, if Samsung wants to reduce its production cost and increase
margins, it should apply an activity-based costing analysis to identify its most costly
components parts and then focused on those and outsource the ones that incur higher
cost. This strategy would be much more effective way than just applying a price-cutting
strategy.
Furthermore, emerging markets such as Southeast Asia and India are now the major
battlegrounds for vendors as developed markets have become fairly saturated. According
to TrendForce.com, Increasing competition also means that profits will fall in spite of
steady shipments, and this will be the primary issue that most vendors will have to deal
with in the near future.
Until the end of 2013, the Telecom was the most valuable segment for Samsung and
accounted for close 40% the company's valuation. The huge size of the mobile phone
market, the higher replacement rate of mobile devices as well as the greater margins of
this business makes the telecom division the firm's most valuable division. However,
according to trefis.com net income projection, by the end of 2021 smartphone revenue
will have decline by 28% and Samsung gross source of revenue will be semiconductor.
The figure bellow shows that by the end of 2021 semiconductor business revenue will
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increase by 38% from $37.2 billion in 2015 to $60 billion in 2021, while mobile handset
revenue will decline 28%, from $78.1 billion in 2015 to $56 billion in 2021.
Controversially, Selling and Administrative expenses for mobile handset will tend to
increase. Exhibit 1 shows the detailed net income projection from 2015 to 2021.
This trend is not surprise. Samsung has increased smartphone's average selling prices
from about $110 in 2010 to about $250 in 2013. However, the number declined to about
$220 in 2014 amid increasing saturation and competition in the smartphone market.
Additionally, Samsung has been facing pricing pressure in developing markets, where
local vendors have been offering high-end-specifications on low priced handsets.
Furthermore, if the company's market share declines to about 14%, this could reduce our
price estimate by around 10%.
The company’s memory division has been doing well, with sales rising due to higher
shipments of mobile DRAM and strong demand for NAND memory in mobile storage
and high-density PC and enterprise SSD products. Semiconductor margins also saw a
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bump, rising to around 22% from around 19% during the previous quarter, driven by
process improvements and new technologies. The outlook for the division also remains
strong, with the supply-demand balance in the memory markets expected to hold up and
sales of new mobile processors manufactured using the 20-nanometer process poised to
increase. Therefore, memory manufacturers currently enjoy a strong chip-pricing
environment, which sets the stage for continued spending growth through 2016.
Moreover, tablets and mobile devices are driving and will continue driving demand for
NAND and Mobile DRAM. According to trefis.com, consumers are buying tablets and
smartphones in increasing numbers, driving up the use of NAND flash memory for such
devices. NAND flash growth will be supported by tablets and SSD equipped ultra-books.
The market for dynamic random access memory (DRAM) will also see healthy growth in
coming years reversing the losses in 2011 due to oversupply problems that caused prices
to fall. DRAM shipments are expected to reach around $40 billion in 2016, up more than
35% from $29.6 billion in 2011.
Mobile DRAM has been the most attractive product segment for DRAM vendors. Mobile
DRAM production is based on known demand level, pricing is mostly driven by cost
reductions and not by the wild fluctuations of supply and demand that are more typical of
commodity DRAM. Samsung for instance has been expanding manufacturing of its
20nm-class of DRAM of late, in order to drive profitability and drive product
differentiation.
These projections are based on current status quo; assuming that Samsung will keep
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focusing on Smartphone business has the last trends. It means that if Samsung continue
emphasizing on cut pricing strategy, applying discounts, large investment in smartphone,
and the company would tend to increase cost and make losses rather than gains
5.2 What is Next?
The future is uncertain and as the dynamic investment path unfolds the firm’s
management learns, adapts and revises investment decisions in response to unexpected
market developments. This uncertain characterizes the smartphone industry. Thus, an
strategic investiment decision is crucial for the future growth of Samsung.
According to two-sided networks theory, platform leaders can leverage their higher
margins to invest more in R&D or lower their prices, driving out weaker rivals. As a
result, mature two-sided network industries are usually dominated by a handful of large
platforms. Samsung has employed this strategy in smartphone and it was successful until
the emergence of new Asian players that could win in cost competitive advantage.
Despite that, Samsung can successful apply this strategy in semiconductor business,
where the market opportunity seems to be favorable and Samsung has competitive
advantage over competitors, especial in R&D and production cost. Therefore, for future
growth Samsung should focus on strategies that can provide the company competitive
advantage.
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“Burning the Bridge” game theory state that each firm (player) has two possible actions:
high irreversible investment commitment or more flexible, low effort investment. The
value of early/heavy commitment is that it may set the product standard or signal to
competing firms about the reduced future profitability of their options in this market.
Consider a pioneer firm that makes an early, large-scale irreversible R&D investment in a
new market or market with potential growth opportunity. The firm’s competitors could
view this as a threat to their future profit base in the market, thus deciding to stay out or
entering the market later on a reduced scale to avoid a market share battle. Therefore, an
early huge investment in R&D for semiconductor business would strategically reduce the
number of players in these business, and thus, strengthening Samsung position.
Increasing R&D investment in semiconductors will also provide cost and first mover
advantages for Samsung. In the sense of “Burning the Bridge” game theory, an earlier (or
heavier) strategic investment in semiconductor business may confer Samsung (as pioneer
firm) a cost or timing advantage and influence the competitor’s behavior and the resulting
equilibrium in a way that strengthens Samsung’s competitive position and long-term
value. In other words, early investment commitment in semiconductor business may have
strategic benefits that must be balanced against the lost flexibility value component.
In conclusion, semiconductors business provides competitive advantage and larger
market share to Samsung. Because semiconductors might drive the future of the
company’s revenues, Samsung should allocate the available Free Cash flow to increase
its investment in Semiconductors business. Furthermore, being the first in the market
would enable Samsung to capture a larger share of the market and put followers on a
strategic disadvantage.
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Exhibit 1: Samsung Net income Projection (2015-2021)
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6. References
Samsung Annual Report 2010
Samsung Annual Report 2011
Samsung Annual Report 2012
Samsung Annual Report 2013
Samsung Annual Report 201
Farhoomand, Ali. “Samsung Electronics: Managing Innovations in an Economic Downturn”. Asia case - Research Center. University of Hong Kong
R. Grant, Wiley (2013). “Contemporary Strategy Analysis”. 8th Edition
SMIT, H. T. J. And TRIGEORGIS, L. (2004). "Strategic Environment: Real Options and Games,". Pricenton Universty Press.
http://www.idc.com
http://www.trefis.com/stock/ssnlf/model/trefis?easyAccessToken=PROVIDER_9655df4b07a9aa77aa4fadfe5526d1a4ba7ce7b8
http://www.statista.com
http://www.forbes.com/sites/greatspeculations/2014/10/30/samsung-could-refocus-
growth-strategy-as-q3-earnings-plummet/
https://faculty.ist.psu.edu/bagby/432f12/t11/samsung-business-strategy.html
http://www.fiercewireless.com/story/report-samsung-see-first-ever-year-over-year-drop-smartphone-shipments-2015/2015-10-14
https://en.wikipedia.org/wiki/Two-sided_market#Competition_in_Two-Sided_Networks
https://salesandmarketing.com/content/sales-strategies-uncertain-times
https://en.wikipedia.org/wiki/Two-sided_market#Competition_in_Two-Sided_Networks
http://financials.morningstar.com/ratios/r.html?t=SSNLF
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