Samsung Electronics

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Samsung Electronics

Objectives, goals and environment

Samsung was formed in 1938 by Lee Byung-chull as a trading company based in Su-dong. The small company started as a grocery, trading goods produced in and around the city as well as its own noodles. 

Samsung entered the electronics industry in the 1960's with the formation of several electronics focused divisions. The initial electronics divisions included Samsung Electronics Devices, Samsung Electro-Mechanics, Samsung Corning, and Samsung Semiconductor & Telecommunications. Samsung built their initial facilities in Suwon, South Korea, where they started producing black and white television sets.

Samsung grew as an international corporation throughout the 1990's. The construction division of Samsung secured several high profile construction projects, including one of the Petronas Towers in Malaysia, Taipei 101 in Taiwan and the half mile tall Burj Khalifa Tower in the UAE. Samsung's engineering division also includes Samsung Techwin, an aerospace manufacturer that manufacturers aircraft engines and gas turbines as well as supplying parts used in jet engines on Boeing and Airbus aircraft.

In 1993, Samsung reorganized to focus on three industries, electronics, engineering, and chemicals. The reorganization included selling off ten subsidiaries and downsizing. With renewed focus in electronics, Samsung invested in LCD technology, becoming the largest manufacturer of LCD panels in the world by 2005. Sony partnered with Samsung in 2006 to develop a stable supply of LCD panels for both companies, which had been an increasing problem for Sony which had not invested in large LCD panels. While the partnership was nearly a 50-50 split, Samsung owned one share more than Sony, giving them control over the manufacturing. At the end of 2011, Samsung bought Sony's stake in the partnership and took full control.

Samsung's focus in the future is centered on five core businesses including mobile, electronics and biopharmaceuticals. As part of it bio-pharma investment, Samsung formed a joint venture with Biogen, investing $255 million to provide technical development and biopharmaceutical manufacturing capacity in South Korea. Samsung has budgeted nearly $2 billion in additional investment to pursue their bio-pharma growth strategy and leverage the advantages of their joint venture.

Samsung has also continued to expand in the mobile phone market, becoming the largest manufacturer of mobile phones in 2012. To remain a dominate manufacturer, Samsung has earmarked $3-4 billion to upgrade their Austin Texas semiconductor manufacturing facility.

The underlying principle that defines their vision for the future of Samsung Electronics is "Inspire the World, Create the Future".

This vision is at the very core of their commitment to lead innovations in technology, products and solutions that inspire communities around the world to join their aspiration for creating a better world full of richer digital experiences. As they recognise their responsibility as a creative leader in the global society, they also dedicate their efforts and resources to offering new values to the industry and customers while fulfilling shared values of their employees and partners. At Samsung Electronics, they want to create a future that is exciting and promising for all together.

As a guide to common understanding and measurable goal, a set of specific objectives is incorporated into their vision. By 2020, they seek to achieve annual sales of USD 400 billion while placing Samsung Electronics' overall brand value among the global top 5. Three key strategic pillars that are now part of their culture, business operation and management describe the governing initiatives to this end: `Creativity ', `Partnership' and `Great People'.

They pride themselves on delivering the world's best products through operational excellence and innovation prowess. As they look forward to exploring new business areas including healthcare and biotechnology, they are excited for new challenges and opportunities ahead. Samsung Electronics will continue to build on top of its current achievements new capacity and expertise to further its competitiveness and its history of innovation.

Matter of business

The business area of Samsung Electronics can be divided into three main groups:

1. Consumer Electronics such as:

- Visual Display Business. Our astute strategy for the evolutionary Smart TV and premium large size TVs solidified our No. 1 status as global leader for eight consecutive years.

- Digital Appliance Business. Primed for home innovation, with premium lifestyle technology and harmonious design.

- Printing Solutions Business. Providing total printing solutions with first-class products and technology.

- Health & Medical Equipment Business. Developing new and advanced healthcare and medical equipment for faster and more accurate diagnosis.

2. IT & Mobile Communication such as:

- Mobile Communications Business. Focused on People Inspired innovation, we always aim to deepen value and convenience for our customers.

- Networks Business. Providing next-generation network infrastructure and solutions with outstanding technology and successful experience.

- Digital Imaging. Introducing the next big thing in digital imaging and the innovative SMART cameras that lead the trends.

3. Device Solution such as

- Memory Business. Creating an easier world through cutting-edge green memory with the world's highest performance.

- System LSI Business. Leading innovation in electronic devices with competitive R&D and trailblazing process technology.

- LED Business. Continuous eco-friendly, next-generation technology excellence and leadership in light sources in the LED industry.

Samsung Electronics global presence is massive with the company operating in over 60 countries.

Now let's consider their sales and financial performance.

Samsung Electronics' sales was reached 228.7 trillion KRW, which is equal to 0.207 trillion USD dollar in 2013. While in 2011 it was only 165 trillion KRW.

The most profitable segments in 2013 was IT and Mobile- almost 54% of total sales. Consumer Electronics- 20%, Semiconductors and Display Panels less than 15 percent each. If compare 2013 and 2012 we see that the situation did not change dramatically. We have quite the distribution of sales by sector.

Also let's consider distribution of sales by region. Performance by Region Unit: KRW 1T

From the table we see that during three years USA is most profitable market for Samsung Electronics. Almost 30% of the whole sale is corresponds to USA in 2013. Europe is second most important market, more than 20% of whole sales. Asia with Africa placed in the third line with 43.7 trillion KRW, which is 19% of the total sales in 2013. The situation in China and Korea is dramatically changed. China increased their sales by almost 12 trillion KRW from 2012. 18% of the sales were done in China, while Korean market lost their position in 2013 and decreased their sales by 6.4 trillion KRW. Only 10% of the total sales were done there in 2013.

Major Products and Global Market Shares ( in %)

Leading the Global Market with Cutting-edge Technology & Quality Products Samsung Electronics sold more than 406 million mobile phones in 2012, securing a position as the global market leader with an overall share of 23.4%. Samsung also maintained its global market leader positions in other key product areas, including TVs, monitors, semiconductors and digital appliances. And will continue to lead the global market with cutting-edge technologies and quality products.

samsung electronics financial performance

Main competitors

Apple, Sony, Dell, HP are the main buyers of Samsung Electronics products as well as the firm's main competitors. Such situation would be favorable to Samsung (if competitors could not find complementary products and would form a relatively low share Samsung's revenues) because it could use its bargaining power over competitors. Due to reverse conditions (competitors can find complements and they form a relatively high share of firm's revenues) Samsung cannot use its bargaining power over competitors as it can easily lose its customers and sales.

Samsung Electronics has spent $10.4 billion for R&D in 2013, which was the 2nd largest amount spent for R&D in the world. R&D spending strongly correlates with the company's revenue growth and expansion into the new product markets.

R&D spending by Samsung Electronics and its largest competitors

Samsung invested the most in research in 2013 and 2014 and only Intel and Microsoft came close to spending the same amount. Samsung's R&D budget was also used quite efficiently as the company spent only 5.8% and 6.4% of its total revenues for R&D in 2013 and 2014, respectively.

Samsung's high R&D spending also resulted in the largest patent portfolio among its key rivals. The flowing table shows the number of patents granted for each company in the U.S.

Utility patents granted in the U.S.

The more patents the company has, the better position it has to defend its innovations from being copied by rivals. Currently, Samsung Electronics patents portfolio is one of the strongest in the technology industry.

Both, R&D sending and patent portfolio, factors indicate Samsung Electronics strong competitive position.

Strengths

1. Hardware integration with many open source OS and software. Samsung is focused on producing devices which can be integrated with most of the software and OS. This gives Samsung products an edge over Apple's (its arch rival) devices, especially as Android and other OS are gaining market share when iOS and OS X are losing it.

2. Excellence in engineering and producing hardware parts and consumer electronics. Samsung is the number 1 by market share in televisions and mobile phones sales and some of the hardware parts (processors, memory chips, etc.). This was largely achieved due to excellence in engineering and both efficient and effective production.

3. Innovation and design. In 2011, Samsung ranked second on the list of US top patent assignees. More patents strengthen Samsung position among its competitors. The firm also won many awards for the design of its products, proving the superior advanatage over the competitors.

4. Focus on environment. Samsung focuses on producing environment friendly products that are free from PVC and BFRs (currently only MP3 and mobile phones). It also develops various recycling programs that are awarded for their success.

5. Low production costs. The company has set up its production facilities in low cost countries. This allows producing goods with low production cost and benefit Samsung as it can offer lower price and earn higher margins.

As a guide to common understanding and measurable goal, a set of specific objectives is incorporated into their vision. By 2020, they seek to achieve annual sales of USD 400 billion while placing Samsung Electronics' overall brand value among the global top 5. Three key strategic pillars that are now part of their culture, business operation and management describe the governing initiatives to this end: `Creativity ', `Partnership' and `Great People'.

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