CASE ANALYSIS 6

“Struggling Samsung Electronics”

MM 5012
BUSINESS STRATEGY & ENTERPRISE MODELLING

GROUP 4

Ananda Carissa (29319515)

Ahmad Barra Vicra (29319446)

Moudina Agita Bukit (29319418)

Aziz Wimaman (29319513)

Yusuf Ali (29319450)

1. Case Summary

Samsung was established in 1938 by Lee Byung-chul. It is one of the biggest

conglomerates globally, with some $200 billion in revenues in 2015. Samsung has
diversified into a variety of industries, including electronics, chemicals, shipbuilding,
financial services and construction. In l987, Lee Kun-hee, the youngest son of the
founder, took over as the chairman of the conglomerate. He focused first on gaining
market share by invading markets from the bottom up with lower-priced products at
acceptable value. Lee Kun-hee is undergoing a cultural overhaul into a culture that values
seniority a lot, he is introducing salary and promotion based on merit. Samsung
Electronics enforces the time-tested "follow first, innovate second" rule.

In recent years, Samsung has experienced a sharp decline in revenues and profits.
Since the iPhone 6 and iPhone 6 Plus were introduced, Apple has captured a larger share
of the high-end market. On the high end, Samsung has lagged behind Apple, which
continues to pull away with its innovations and designs to set new standards for the most
profitable market segments. In the lower class, upstarts from China and India are
grabbing leading positions in markets with great growth potential.

Soul-searching about Samsung's future has begun in Seoul. The involvement of

the Lee family in Samsung is persistent throughout the conglomerate, however, with
descendants of the company's founder serving in multiple leadership positions' Should
Lee Jae-yong (Lee Kun-hee's son) get the top job at Samsung Electronics, he will have
his work cut out for him to turn around the struggling conglomerate and especially
Samsung Electronics, its flagship division.

2. Problems and Issue Identifying

Samsung gained a temporary competitive advantage and in recent years, it has

stumbled, with revenues and profits falling sharply. Iphone's profit margins per phone
were much higher, with the introduction of the Iphone 6 in 2014. Since the iPhone 6 and
iPhone 6 Plus were introduced, Apple has captured a larger share of the high-end market.
Apple captures 92 percent of all profits generated in the industry. In addition, Samsung
 lost to Apple in a court battle over infringement among various smartphone models.

Samsung Electronics also lost market share in the lower class. Chinese tech
companies Lenovo, Huawei and Xiaomi are becoming increasingly popular. In the upper
class, Samsung has lagged behind Apple, which continues to pull away with its
innovations and designs to set new standards for the market's most profitable segments.
In the lower class, upstarts from China and India are grabbing leading positions in
markets with great growth potential. As additional information, Samsung adheres to the
iron fist principle in the company, that no strategic or personnel decisions are made
without Lee Kun-hee's consent.

3. Related Theory or Framework

a. Organizing Economic Activity: Firms vs Markets

Figure 1/ Organizing Economic Activity: Firms vs Markets

 In terms of activities of companies, they have an option of whether they should
make it by themselves or buy it from external resources. For example, when Samsung
needs a product designer they would have to choose whether they should hire a product
designer or contracting someone or an organization externally. Indeed this option has a
lot to do with cost, knowledge management, proprietary assets, etc. they would have to
consider all of the things mentioned before and make a decision which would best for
their current condition and best for the company. For example, Samsung and Apple is a
rival as we all know, they even have an ongoing battle in court over patents, but Samsung
is actually a main vendor for Apple, they buy Samsung’s products such as the screen of
an iPhone for example because they know it would be too expensive for them to produce
it themselves, they would have to pay for R&D cost and it would take a long time for
them to create the best screen. Whereas Samsung is already leading in the screen market,
so it is cheaper for Apple to just buy it from Samsung even if they are their biggest rival.

b. Alternatives on the Make-or-Buy Continuum

​ Figure 2/ Alternatives on the Make-or-Buy Continuum

Companies usually have a dilemma whether they should go for buy or make
because each option has its own pros and cons. For example, with the option of “buy”,
the contract is usually just for a short period of time and it would be hard to integrate
what has been done by an external source into the company, whereas if they choose to
“make” there would be more integration within the company and eventually it will lower
the cost.

Companies actually have more options then just to “buy'' or “make”, they could
form a strategic alliance with an external source and produce a longer contract then “buy”
but not necessarily fall into the “make” category. Strategic alliance could be in a number
of forms such as licensing, franchising, equity alliances and joint ventures. Companies
must choose what is best for them depending on their goals and what they are willing to
give up because each option has a price that the company needs to pay.

c. Vertical Integration along the Industry Value Chain

Figure 3/ Backward and Forward Vertical Integration along an Industry Value Chain

Vertical integration is the firm’s ownership of its production of needed inputs or

of the channels by which it distributes its outputs. If a company is producing from
upstream to downstream, they must make a decision in each of the stages whether they
want to outsource or not. Usually they would choose to produce it themselves if they
have the resources and a lot of them also outsource many of the manufacturing processes
 to the external source because they see that it would be cheaper to do so. What matters is
that they need to add a value in each of the production processes from raw material until
it reaches the customer so they can charge it higher than the production cost and the
customer would want to buy the product.

4. Case Solution and Analysis

Questions
Corporate Strategy
1. What makes Samsung a conglomerate? What type of diversification does Samsung
pursue? Identify possible factors such as core competencies, economies of scale, and
economies of scope that were the basis of its past success as a widely diversified
conglomerate (chaebol). Why is Samsung as a conglomerate struggling today?
2. Despite being a widely diversified conglomerate, Samsung prefers vertical integration:
in-house design and development teams, manufacturing in large company-owned
factories, and coordinating a sprawling global supply chain. In contrast, Apple
concentrates on the design (and retail sales) of high-end mobile devices, while it
outsources its production to Foxconn and others. Do you think Samsung’s high degree of
vertical integration contributed to its recent problems? Why or why not? Explain.

Business Strategy
1. Lee Jae-yong, the 46-year-old grandson of the Samsung founder and heir apparent, was
educated at Seoul National University, Keio University (in Japan), and Harvard Business
School. He wrote a master’s thesis at Keio University on Japan’s struggle to retain its
world leadership in manufacturing in the mid-1990s when the country’s fast-growing
period was ending. He concluded, “Japan’s troubles were worsened by its manufacturers’
pursuit of scale and market share.” Is Samsung Electronics’ pursuit of scale and market
share to blame for its losing its competitive advantage?
2. Why is Samsung Electronics encountering problems selling its flagship line of
smartphones, the Galaxy? How should it compete against premium phone makers such as
Apple and low-cost leaders such as Xiaomi and Micromax?
 3. What would you recommend Samsung Electronics would need to do to revive and turn
around its fledgling mobile division?

Answer
Corporate Strategy
1. The importance of conglomerate is that an undertaking that enhances into a market that
has no association with the market where the venture is working for the occasion.
conglomerate is a budgetary procedure for an endeavor so as to expand the investor
esteem. The negative reason for this system is that it expands hazards along at least one
business sector, just as diminishing benefit upgrades, and deals all inclusive. Samsung
was delivering and selling noodles, just as staple goods when it previously showed up
available. Samsung got an aggregate by entering in the gadgets market during the 60s.
Samsung's venture is currently assessed among the world's greatest customer hardware
producers, just as they construct electronic parts for the airplane organization, Airbus. We
can recognize various elements that may underlie its prosperity as a broadened
conglomerate. The first, Core Competencies speaks to the remarkable qualities joined
inside an undertaking, which give to an organization to separate its items and
administrations from its simultaneous. Samsung has had the option to use its center
abilities to redirect off the opposition. Economies of Scale is another factor, which shows
up when an organization's normal expense for every unit declines at its yield increments.
Samsung has utilized this factor by building up countless electronic things, with its
enormous item variety. At long last, Economies of Scope is another factor, which
depends on the reserve funds that originates from creating at least two yields or offering
various administrations at a less expense than delivering every year. For instance,
Samsung is utilizing only one lot of specialists to grow a large portion of their items,
rather than utilizing various architects for various items, which gives Samsung more
administrations at less expense.
2. Yes. Vertical integration represents a few dangers. We should distinguish three key
dangers. In the first place, the firm ends up rivaling its clients or potentially providers.
The article expresses that, "Around 33% of Samsung's income originates from
organizations that contend with it in delivering the TVs, cellphones, PCs, printers and
 cameras where it gets the remainder of its cash." Second, vertical integration can make
dulled motivating forces. As such, in the event that you produce your own segments, at
that point a significant level of "ensured inside created income" may cause the segment
creation unit to be less effective than it ought to be. At long last, vertical integration can
prompt sat around and exertion related with interior exchange value fights. The Wall
Street Journal article proposes that Samsung faces a few difficulties related with rivaling
key clients. In any case, it likewise recommends that Samsung mitigates every one of the
three of these dangers by constraining every one of its organizations to unmistakably
show that it can contend effectively in the outer market. Interior and outer rivalry is by all
accounts key to Samsung's way of life and procedure. As indicated by the article:
"Individuals take a gander at our organizations and see vertical mix. It truly isn't," says
David Steel, a Samsung senior VP and advertising planner. "It's an arrangement of part
organizations and customer item organizations and, inside that, we don't settle on the
possibility that every business is accused of its own prosperity." obviously, it is vertical
reconciliation, yet what Mr. Steel is stating is that they treat every business as an
independent element that must show it can contend adequately... no ensures that a
segment creation unit will have the option to work at limit basically in light of the fact
that the organization could utilize each one of those segments in completed items. The
parts unit must demonstrate it's making a superior showing than outside players that
could be providers to the completed item divisions at Samsung.

Business Strategy
1. Yes. Samsung is known as an organization whose key methodology is to utilize
economies of scale to increase an upper hand. The difficulty is, the organization doesn't
generally prevail in that quest. Surprisingly enough, one of the business sectors in which
Samsung does the most noticeably awful is in PDAs. The PDA is one of the prime
drivers of the $300B semiconductor industry. There were various multi-reason PDAs
driving the high-finish of the cell business before Apple joined the market, yet it took
Apple with its original iPhone to take shape the remote handset to a more strong industry
that would draw a huge number of extra members, generally in programming products.
The organization has had past achievements of this sort: Apple assumed control over the
 MP3 music player with its iPod gadget upheld by the iTunes store 10 years prior. Apple
gets its 15% piece of the pie with only three models of keen phones. While Samsung
takes 30% of the market, it must create 150 models of advanced cells to do as such. You
could state that Apple midpoints 50 MU for every handset model while Samsung
midpoints only 2 MU for each model. That's a 25x contrast. Volume drives cost focal
points in gadgets hardware. Software advancement and upkeep becomes confounded
when it needs to run on an expansive scope of equipment stages.
2. Samsung must put forth an attempt to be speedy pioneers instead of continuing in the
means of their rivals. To contend with Apple and other advanced cell organizations,
Samsung needs to locate their serious edge. Instead of following patterns and keeping
costs moderately high, they should discover a center competency that makes them one of
a kind.
3. We accept that to resuscitate the organization's declining cell phone issue, Samsung
needs to zero in on their opposition. Their ease rivals are detracting from Samsung's low
end business. From a hierarchical viewpoint there should be a reallocation of assets so the
organization can drop the expense of creation with the goal that they can stand to sell
items at a more reasonable cost. Samsung will look more appealing to their ease clients,
which will assist them with recovering that piece of the pie. This strategy may be fruitful
if Samsung amends their items botches. Their new item the Galaxy Note 20 and S20
should enable Samsung to recapture and keep their piece of the overall industry. To be
effective Samsung should zero in on who their clients are, what their methodologies are,
and approaches to improve their items​.

5. Conclusion and Recommend Detail

First, define a clear vision and company standards and values. In addition the
company has years of experience in manufacturing processes and economies of scope and
scale. This has allowed Samsung to compete successfully as products become more
integrated, and they introduced their Smartphones.

As Samsung developed their smartphones, they experienced a sharp decline in

revenue and profit since Apple introduced iPhone 6 and 6 plus 2014. Apple has larger
 shares on the high end market. In the lower market, higher shares are grabbed by
smartphones from China and India.

Recommendation for this case is Samsung, in an immediate war-footing must

replace their old type of smartphones and announce a new sales strategy for the next
quarter to improve sales on an immediate basis. Next, the management needs to correct
its R&D process, not just raising their budget. The R & D process is important to search
for the best features and technology so that such products with some technical snag are
not rolled down in the market as Samsung is known for technological innovation and
high quality products.

6. Lesson Learned from Case

1. Be the eye of the storm

Everyone wants a cool, collected, in-control leader in times of crisis. In

Samsung's case, sources told the New York Times that the corporate culture was
"militaristic" and that the senior leaders were wildly making decisions without the
technical knowledge of the phone’s architect..

2. Provide visibility

In a storm, your view is obstructed. You need visibility to what's going on, and
exactly what's swirling around you. Leaders must provide this visibility. According to the
case, Samsung executives found out the truth of Samsung quality in the eyes of the US
and Europe market. That’s why Samsung’s executives need to provide this truth to their
employees.

3. Be clear on what's expected from employees

We don't know what Samsung leaders have told their employees, but since they
appear to have misdiagnosed the original problem, it's likely that employees are confused
on what to do.
4. Give reality--and hope

In crisis, leaders have to get real with the troops, fast, while balancing that with a
sense of hope. Despondent employees leading the charge on spelling out reality hardly
feels like Samsung leadership was proactively providing reality and hope.

5. Show urgency, accountability, vulnerability and empathy

The company must also show more vulnerability, opening themselves up to some
level of analysis and investigation.

6. Don't forget to reward and recognize along the way

It's so easy in times of crisis to forget that it's also the time employees need
recognition the most. Certainly employee (and management) error will be uncovered
along the way. But undoubtedly, countless numbers of employees will be busting their
tail to get things out of crisis mode.

7. Don't waste the opportunity to make needed changes

Crises expose all kinds of things that need fixing. Use the crisis as an inflection
point to bring about that change once you've sailed into calmer waters. Employees will be
hungry to find the good in the crisis. Give them that.