Strategy Management

Project Report
@Submitted By: Group-1
Name

Roll NO

Aditya Kumar

WMP11002

Alok Goel

WMP11003

Pulkit Saxena

WMP11034

Naryan Verma

WMP11028

Varun Vijay

WMP11044

Contents
Project Objective........................................................................................................................................... 2
Company Overview ....................................................................................................................................... 2
Consumer Durables Market .......................................................................................................................... 3
SWOT Analysis............................................................................................................................................... 6
Strengths ................................................................................................................................................... 6
Weaknesses .............................................................................................................................................. 7
Opportunities ............................................................................................................................................ 7
Threats ...................................................................................................................................................... 8
Five Forces Analysis ...................................................................................................................................... 9
Rivalry among existing competitors: High ................................................................................................ 9
Threat of New Entrants: Low .................................................................................................................. 10
Bargaining Power of Buyers: High........................................................................................................... 12
Bargaining Power of Suppliers: Low (for Samsung) ................................................................................ 12
Software Supplier.............................................................................................................................. 12
Hardware and other parts and Raw material supplier ....................................................................... 13
Threat of Substitutes: High ..................................................................................................................... 14
Value-Chain Analysis ................................................................................................................................... 14
VRIO Analysis .............................................................................................................................................. 15
Recommendations ...................................................................................................................................... 16

Group 1

Samsung Electronics

Project Objective
The objective of project is to analyze the strategy of Samsung in consumer electronics
with focus on Mobile and Smart phone segment. The purpose of the study is to
analyze the attractiveness of the consumer appliance industry and whether Samsung
has sustainable competitive advantage to compete, win and sustain the market
share.

Company Overview
Samsung Electronics commenced its operations in India in December 1995 and is
today a leading provider of Consumer Electronics, IT and Telecom products in the
Indian market. Samsung India is the Regional Headquarters for Samsungs
Southwest Asia operations, which provides employment to over 45,000 employees
with around 11,500 employees being involved in R&D.
Samsung began operations in India through its manufacturing complex located at
Noida (UP), which today houses facilities for Colour Televisions (including 3D, LED
and LCD Televisions), Mobile Phones, Refrigerators, Washing Machines and Split Air
Conditioners categories. Samsung commenced operations of its second state-of-theart manufacturing complex at Sriperumbudur, Tamil Nadu in November 2007. Today,
the Sriperumbudur facility manufactures Colour Televisions, Fully Automatic Front
Loading Washing Machines, Refrigerators and Split Air Conditioners. Samsung India
has three R&D Centres in Indiatwo in NCR and one in Bangalore. While the Noida
R&D Centres develops software solutions for high-end televisions such as Plasma
TVs, LCD TVs and Digital Media Products, the other Centre is engaged in R&D
solutions for product hardware. The Bangalore R&D Centre works on major projects
for Samsung Electronics in the area of telecom, wireless terminals and infrastructure,
Networking, SoC (System on Chip) Digital Printing and other multimedia/digital
media as well as application software. Samsung India is the Market leader in product
categories like Mobile Phones, Smart Phones, Panel TVs, Side By Side Refrigerators,

Group 1

Samsung Electronics

Frost

Free

Refrigerators,

Microwaves

and

Inverter

ACs.

Consumer Durables Market

Consumer appliance market can be split into segments.
Consumer
durables
Consumer
Electronics
(Brown Goods)

Consumer
Appliances
(White goods)

Televisions

Audio & Video

systems

Air Conditioners

Refridgerators

CD & DVD
players

Personal
computers

Washing
machines

Swing machines

Laptops

Digital cameras

Electric fans

Cleaning
equipments

Electrical
assessories

Mobile and
smart phones

Microwave
ovens

Other domestic
appliances

Samsung Financial Analysis

Samsungs Position & Profitability Trends

ROCE (%)
100
80
60
40
20
0

Industry

Group 1

2015

2014

2013

2012

2011

2010

2009

2008

Samsung

Samsung Electronics

ROCE is a measure of Return on capital employed. Samsung consistently shows

much higher ROCE versus industry, which clearly indicated that Samsung is able to
do more efficient use of capital. Higher ROCE means that Samsung is able to generate
higher returns than the companys capital cost.
Liquidity Ratio

Current Ratio
4
3
2
1
0

Industry
Samsung

The current ratio is mainly used to give an idea of the company's ability to pay back its
liabilities (debt and accounts payable) with its assets (cash,
marketable securities, inventory, and accounts receivable). Companies liquidity
performance is below the industry average but still is in relatively safe zone of >1.
Means Samsung will be able to meet immediate obligations in case of any
contingency.

Inventory turnover

Inventory Turnover
15
10
Industry

Samsung

2015

2014

2013

2012

2011

2010

2009

2008

Samsung performance in inventory management shows much higher performance

versus industry. Over a period of 2008 to 2015, Samsung consistently beat the
industry. In 2015, it is able to turn its inventory by nearly 12 times versus 8 times
in industry thereby exhibiting superior performance. This also has a significant

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Samsung Electronics

impact on the requirement of working capital to finance the inventory. Samsung

requirement of working capital in term be lower against other industry players.

Profitability Ratios

Gross Margin

Gross Margin
15.00
10.00
Industry

5.00

Samsung

2008
2009
2010
2011
2012
2013
2014
2015

Gross margin is ((Gross Profit)/Sales) %. Over the period, Samsung has been able
to improve its gross margin above the industry. This indicates that Samsung is
either able to charge superior prices for its products and able to reduce costs of its
material and manufacturing overheads from 2012-2015, In 2015 Samsung
performance was similar to the industry.
Net Margin

Net Margin
10.00
Industry

Samsung

(5.00)

2008
2009
2010
2011
2012
2013
2014
2015

5.00

Like gross margin, Net margin also shows the similar trend. Net margin shows the
companys profitability after taking care of overheads, interest & taxes etc. While

Group 1

Samsung Electronics

the Samsung performance was lower from 2008 to 2009 and in 2011 but Samsung
was clearly able to outperform industry from 2012 t0 2015.

SWOT Analysis
Strengths
1. High degree of vertical integration
a. Largest memory manufacturer in the world
b. Largest LCD screen manufacturer in the world
c. Makes bundled components for its most major competitor (Apple)
d. Releases software (Android) along with its phones that is usually good
2. Phones are of high quality
a. New phones released frequently
b. Innovative features
3. Pricing strategy allows for huge market capture
a. Many phones for various price points
b. Phone quality varies in speed and other factors
4. Good branding and advertising
a. Strong advertisements
b. Comparison to Apple
i. Apple is all about style and status with market segment catering
to premium customers
ii. Samsungs brand is competitive with complete product portfolio
in mobile handset devices from basic phones to high end
smartphones
5. Strong after sales service with large number of service centers spread across
country and they have long-standing relationships with channel partners for it
products
6. Samsung has impressive research and design capabilities specially in reverse
engineering .Samsung has been able to replicate many of the capabilities for
both Apple IOS and Google Android operating system for mobile devices.

Group 1

Samsung Electronics

Weaknesses
1. Dependence on Apple for component sales
2. Brand is fragmented ,unfocused and potentially unclear
3. Samsung phones dont have exceptional compatibility with other devices,
nor as well developed ancillary services compared with Apples phones
4. Samsung consumers view Apple products more advanced and robust
5. Samsung marketing are not sophisticated as Apples
6. Authority questioned internally and externally

Opportunities
1. Hardware
a. Producing more kinds of hardware to offer in the bundle
b. Producing more of the things they already offer
i. Economies of scale
ii. Making

alliances

with

the

Taiwanese

semiconductor

manufactories
2. Software
a. Improving the OS that runs on the phones
i. Partnering with Google to allow the latest OS to run on all
Samsung phones
ii. Continuing to develop own software
iii. Potentially hiring more talent from the United States
b. Improving software compatibility
i. Partnering with Windows and/or Lenovo to develop this
ii. Developing coding standards with Google
3. Branding
a. Dont play Apples game! Do not let them be the benchmark.
b. Need a focused message
i. Combine what consumers expect from Samsung phones, and

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Samsung Electronics

what Apple cant offer:

1. Pricing for their budget
2. Reliability
3. Compatibility with Windows
4. Competitive form
4. Emerging Markets
a. Africa
5. Growing Middle Class in developing countries specially in India
6. Growing online channel in India like Flipkart and Amazon to add one more sales
channel

Threats
1. Vertical
a. Below
i. Threats to bundled hardware
1. Taiwan
2. Global foundries
ii. Incredibly cheap hardware leads to smart phones that cost next
to nothing
b. Above
i. Google

delivers

incomplete

software

because

they

are

competitors
ii. Superior technology
iii. Mobile Devices from Google and Apple are growing in reputation
for quality, reliability and sophistication
2. Horizontal
a. Competitors superior branding
i. Apples style
ii. Googles software
iii. Microsofts compatibility
b. Competitor pricing

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Samsung Electronics

i. Luxury phones that steal market share

c. New entrants
i. Huawei stealing market share in China
ii. Cheap phone developers making super cheap smart phones
iii. With duty rationalization remarkable acceleration in the field of
electronics manufacturing is seen. Companies like Foxconn,
Micromax, Lava International, Intex Technologies, Videocon, Vivo
Mobile, Celkon Mobiles and Flextronics are coming up with new
production facilities in India thus resulting in cheap

Five Forces Analysis

Rivalry among existing competitors: High
1. Competitors in smart phone industry are highly committed to their products.
Chinese competitors are new to the industry and enjoy significant backing
from their government.
2. Continuous innovation leads to intense rivalry e.g Continuous innovation by
Apple puts lot of pressure on Samsung to innovate and match the
developments to sustain market share. And on the other hand Chinese (Oppo,
Coolpad, Gionee, MI and Vio etc) and Indian smart phone manufacturers
(Intex, Lava, Karbonn, and Micromax etc) are fast in coping the products from
Samsung and able to lower the prices significantly there by creating intense
price rivalry.
3. Homogeneity in products and low switching cost makes each rival to fight for
more market share and price war and make the threat of rivalry very high with
an unfavorable effect on this industry.
The mobile phone industry is rather concentrated as the largest 3 companies make
up nearly 53% of the market, while the largest 10 companies make up 72% of all
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Samsung Electronics

10

international sales. Samsung leads the industry with a 32% market share, followed
by Apple and Huawei at 16% and 5%, respectively. With the market being
dominated by a few firms, these companies must do anything and everything to
stay one step ahead of their competitors. Companies seek to stay ahead through
customer lock in, technology development, and product differentiation; but as
shifts in the market occur, these tactics are proving to be less sustainable.
As the smart phone industry ages, technological advancement becomes key.
Customers will be drawn to phones they feel offer the most functionality and the
best operating system. Samsung has done well in keeping up with and in some
instances leading the smart phone industry in technology development.
Unfortunately, these advances do not sustain themselves and are shortLived. Competitors copy any advances and quickly apply them to their own
devices.
Similar to technological advancements, product differentiation also is short-lived.
Samsung and its competitors keep a close eye on features the public reacts
positively to. Whether it is screen size, picture quality, voice interactions, or social
media integration, phone producers always want to have the best. Thus, with
product differentiation being so transient, companies in the industry cannot keep a
long-term competitive advantage through product differentiation.
Internal rivalry in the smart phone industry is high. During the years of the smart
phone boom, companies could find ways to improve technology and cut prices to
sustain a competitive advantage in the industry. The top competitors in the
industry now must do everything possible to steal rivals customers and take more
of the existing market share.

Threat of New Entrants: Low

1. The biggest barrier to entry into the consumer electronics industry is its huge
capital requirement and economies of scale.

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Samsung Electronics

11

2. Market leaders with significant cost advantage can retaliate against new
entrants. Overall, there are high barriers to entry in the consumer durables
market.
Entry in to the mobile industry is difficult given the existence of numerous barriers
to entry. The mobile industry has high capital requirements both for operating and
especially for entry. A company seeking entry into the mobile industry would not
only have to fund the purchases of each component, but also would need to
develop their own research and development programs to be competitive.
The inner workings of a phone have become so intricate and compartmentalized
that anyone hoping to break into in the mobile industry would need substantial
capital to purchase all the parts. Additionally, because Samsung already makes the
processors for most of the companies in the industry, any potential entrant would
more than likely have to go through Samsung. Thus, Samsung would exhibit
significant control over this particular entrant.
Currently, the three major operating system competitors are iOS (Apples system),
Microsoft and Android (Googles System). If a new company were to try and enter
the market, they would either need to develop their own system or buy the rights
to use one of the current operating systems. Both of these paths require significant
capital that most potential entrants do not possess.
Any potential new entrant would need to establish a competitive brand name while
achieving economies of scale to even be considered competitive in the smart phone
production market. In order to do so, the new entrant would have to find a way to
attain the components, materials, and processor needed for a smart phone without
infringing upon any existing patents. Thus, the new entrant would more than likely
need to purchase these goods from the same suppliers as their competitors, who
probably purchase on a much larger scale thereby reducing the total costs. The
start-up capital required to make such bulk purchases is immense, thereby creating
a strong barrier to entry into the industry.

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Samsung Electronics

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Even if the entrant were able to attain the needed capital, they would then incur
issues such as customer loyalty and switching costs. Currently, smart phone
companies do a good job integrating different aspects of consumers lives with
their product, such as the iPhone interacting with iTunes, iCloud, Gmail, etc.

Bargaining Power of Buyers: High

1. Buyers have high levels of bargaining power simply because the mobile
phone industry is so competitive. Additionally, buyers have substantial access
to market information and can use this information as bargaining power.
2. On the other hand, this industry has become highly commoditized and there
is little differentiation. Buyers are extremely price sensitive due to price
conscious consumers and thin margins. These factors suggest that buyers
are powerful. The threat of buyer power appears to be neutral to the
industry.
Companies that produce phones differentiate their products through hardware and
software components, operating systems, camera quality, screen size and
resolution and more. These aspects are also used by the consumer as bargaining
power over smart phone producers.
As competition between service providers increases and phones become more
alike, buyers will be able to choose which service and which phone to purchase
with minimal cost differences. Thus, as switching and lock in costs decrease, buyer
bargaining power increases.

Bargaining Power of Suppliers: Low (for Samsung)

We analyzed the power of suppliers under two categories as under:
Software Supplier
In case of software, supplier google (Android) had a very high bargain power.

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Samsung Electronics

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Hardware and other parts and Raw material supplier

Bargain power of other suppliers like IT hardware, Plastic parts and raw material
suppliers are relatively low for standard products and economy of scale of
Samsung.
Samsung is unique in that their individual supplier bargaining power of suppliers is
largely irrelevant because Samsung is its own supplier for most components.
Samsung manufactures its own processors, memory and storage components.
Additionally, Samsung also supplies its own raw materials.
In the industry, however, the bargaining power of suppliers is high because the
suppliers components and materials are crucial to the buyers marketplace success.
For companies who do not supply their own components, they would not be able to
compete or exist without the processors, memory chips and other raw components
that are used in smartphone production. Thus, suppliers of these components are
even more vital to smart phone makers than mobile service providers who sell their
phones.
The only leverage smart phone manufacturing companies have over their
suppliers is the threat of reverse-vertical integration. The manufacturers could
threaten to start producing their own processors and raw components. However,
both they and their suppliers know this process would be extremely costly. Still,
Apple, for example, is trending towards vertical integration, threatening both
Samsungs component sales and their comparatively low smart phone prices.
Samsung has a significant edge in supplier power over their competitors
because they supply their own components. By producing the processors and
components for not only their own phones but some of their competitors as
well, Samsungs supplier bargaining power is guaranteed to remain very low.

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Samsung Electronics

14

Threat of Substitutes: Medium to Low

For Samsung, following things can be considered as substitute

a. Laptops and Tablets
b. VOIP phones
c. Video Chat and Text programs
Outside of the smart phone market, the industry threat of substitutes is minimal.
Potential substitutes to a smart phone include tablets and laptops. The popularity
of tablets has been increasing significantly over the past few years, but they are
generally too bulky to be considered a direct substitute to a smart phone and hence
making them an inadequate substitute. Laptops realize the same problems as
tablets in that they cannot perform the basic telephone function of smart phones,
as well as being beyond bulky making mobility difficult. Thus, there is no true
substitute to a smart phone causing buyers propensity to switch to be low.
However with cheap or free VOIP like Skype/Gtalk or Watsapp calls over the
internet with use of Laptop or TAB its substituting mobile phones for Specially high
call volume calls and with increase collaboration tools like Webex the conventional
voice is been replaced by VOIPs specially for Corporate Communication .

Value-Chain Analysis
Activities contributing to the value-chain of Samsung are shown in Exhibit below.
The interaction or fit of activities shown in this framework suggests that it is a
difficult model to imitate and provides a considerable competitive advantage for
Samsung.

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Samsung Electronics

Technologhy and
product planning

Desigh and
engineering

Procurement

Inbound
Logistic

Manufacturing

Distribution order
planning &
forecasting

Outbound
logistic

Marketing

Sales

Services

Support
activities

Primary activities

15

Firm infrastructure

HR management

1. For Samsung, basic research, product development and design are primary
activities, unlike porters original value chain model.
2. Through Samsungs value chain, there is also spatial dimension because
these activities do not take place in the same place, but across the entire
globe, concentrated heavily in Korea, China, and Vietnam
3. Primary Activities Include: Technology and product planning, design and
engineering, procurement, inbound logistics, manufacturing, distribution
planning and forecasting, outbound logistics, marketing, sales, and service.
4. Supporting Activities Include: Firm infrastructure and HR management

VRIO Analysis
Difficult Exploited
of
Resources/Capability

Valuable? Rare? Imitate

by the

Competitve

Firm

Implications
Sustained

Tech & Prod. Line

Capabilities

Comp.
Y

Advantage
Sustained
Comp.

Brand Value

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Advantage

Samsung Electronics

16

Sustained
Comp.
Quality

Advantage
Temporary

Product Mix &

Customization

Comp.
Y

Advantage
Temporary
Comp.

Fabrication Capacity

Advantage

Parity

R & D Prod. Facility @

Same Loc.

Temporary
Comp.
Partners & Customers

Advantage

Based on the VRIO analysis Samsung has multiple resources and capabilities that
provide a sustained competitive advantage. Threats from Chinese manufacturers
can become more significant in the long run if they catch up on value drivers in the
temporary sustained competitive advantage category. These include factors such
as fabrication capacity, quality and product mix/customization capabilities. Our
analysis highlights Samsungs value drivers in terms of technological advantages
and intellectual property in their frontier products. These value drivers prevent
imitation by new entrants. Samsungs quality and reliability value driver keeps
customers from switching to competitors products.

Recommendations

As e-commerce is booming in India, Samsung is advised to integrate e-commerce

as outbound channel without hurting the sentiments of traditional brick & mortal
retailers. Our advice will be to create different product portfolio for online and

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Samsung Electronics

17

offline distribution channels so that new market share is gained without creating
conflict with existing channels.

The most important recommendation we have for Samsung is to strengthen its

partnership with Google. With Googles perceived shift away from the production
of its own smart phone, Google faces less of an incentive to restrict both
Samsungs access to the latest version of Android and Samsungs involvement in
the Android development process. Though it may be hard for Samsung to begin
to rely on Google, they should invest their trust in the other company. In the
future, Samsung may be able to request Operating System features for Google
to develop, and Samsung will be able to cut its own operating system and
application development teams entirely. This will save costs for both companies,
and hopefully drive revenues from a better user environment created with more
3rd party apps. In the short run, Samsung can use its own OS development team
to leverage Google to develop features that it wants, while in return reducing the
number of features it develops on its own. The crucial first step will be for both
companies to create a road map to the ideal future, including strict coding
standards and coding territories that allow for a better development environment.

Preserving their edge in component manufacture should be foremost among

these goals. Although they are unlikely to lose such an edge in the near future,
they should deal with threats to their dominance before bargaining costs become
too high. Forming alliances with other component manufacturers will help share
technology, contracting, and search costs, and hopefully increase the value and
decrease the price of Samsungs component bundle. Focusing the brand and
continuing customer-driven innovation will help Samsung push for even greater
sales in regions that it already does well in, and we believe that Samsung is a
strong candidate for expansion into emerging markets with their reliable and
comparatively cheap smart phones.

Make In India Effect-Samsung should expand its manufacturing units

As per the Indian Cellular Associations, the production of mobile phones in India
during current financial year is expected to cross Rs 40000 crore compared to the

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Samsung Electronics

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production of Rs 18900 crore during 2014-15.The differential duty (duty

rationalization) for mobile handset manufacturing is being termed as a game
changer by the industry thus Samsung should manufacture more units of mobile
devices and shift major facility from Vietnam to India and Expand Noida Facility
so to beat local competition from brand like Micromax, Penasonic,Celkon,
Karbonn,Lava,Vivo,Videocon etc and as the government is providing modified
special incentive package scheme (M-SIPS) which provides financial incentives to
offset disabilities that electronic manufacturing sector has been facing

Samsung to put more focus on 4G supporting devices (LTE Handsets )

With launch of Reliance Jio with attractive launch offers (Free voice and very low
data package) there is a growth in smart phones with lte functionality and
Samsung should focus on producing more ranges of LTE support handset

REFERENCES AND BIBLIOGRAPHY

1)

Prowess Database of IIM lucknow

2)

www.samsung.com

3)

Capitaline Database IIM Lucknow for

a. Company and Industry Financials
b. Industry Trends

4)

Group 1

www.moneycontrol.com

Samsung Electronics

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Group 1

Samsung Electronics