MASTER OF BUSINESS

ADMINISTRATION

INTERNATIONAL BUSINESS

Final Exam

Prepared by:
Tawfik AbdelMajeed Aydieh

Supervised by:
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Dr. Raafat Youssef Shehata
March, 2018
 TABLE OF CONTENTS

SECTION I (50 MARKS) ................................................................................................................................................. 3

1.0 Question 1: Explain how the culture can affect the business of Samsung in the international
environment? .................................................................................................................................................... 3
1.1 Education and Language ................................................................................................................................... 3
1.2 Social Organization ........................................................................................................................................... 3
1.3 Reference Group and Family ............................................................................................................................ 4
1.4 Role and Status in Society ................................................................................................................................ 4
2.0 Mention a proper entry strategy for Samsung to be used to sell its mobile phone globally? ....................... 4
3.0 Mention how Samsung marketing mix should be modified to fit the global markets? ................................. 7
3.1 Marketing Mix of Samsung Smartphones ........................................................................................................ 8
3.1.1 Product ...................................................................................................................... 8
3.1.2 Price ........................................................................................................................... 9
3.1.3 Place........................................................................................................................... 9
3.1.4 Promotion................................................................................................................ 10
4.0 Mention 4 reasons that encourage Samsung to operate globally)? ............................................................. 11
The 4 reasons are as follows:........................................................................................... 11
1. Economy of scale....................................................................................................... 11
2. Profit .......................................................................................................................... 11
3. Growth ...................................................................................................................... 11
4. Expansion .................................................................................................................. 11
4.1 Economy of scale ............................................................................................................................................ 11
4.2 Profit ................................................................................................................................................................ 11
4.3 Growth ............................................................................................................................................................ 14
4.4 Expansion ........................................................................................................................................................ 15

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 SECTION I (50 MARKS)

1.0 Question 1: Explain how the culture can affect the business of Samsung in the
international environment?

1.1 Education and Language

The average level of education in a society affects the interests and sophistication of
consumers. For example, in a community in which a high percentage of potential customers
have some form of post-secondary education, small-business owners might use more details
and explanations while advertising and promoting products.

The spoken language of the community is a decisive factor on the labeling and advertising
of the products. Consider the foreign language skills in the society while advertising. For
example, in Washington, D.C., different transportation companies use English and Spanish
on their brochures.

Actually, the language barrier is a serious problem, the coordination, communications and
motivation issues are very important when access to a new market. Samsung Electronics is
an oversea company, when they want to set up factories or headquarters in China or the
other country, foreigners do not understand Korean, miscommunication may occur,
affecting the company's operations. They need to recruit some language expert to solve the
problem, also, they can recruit the translators or local agents to manage, but it will increase
the management cost.

1.2 Social Organization

As part of the culture, social organization is the way a society organizes itself, how it
considers kinship, status system, social institutions and interest groups.

Samsung organizational culture has been traditionally seniority-oriented reflecting the

national culture of its home country South Korea. Positive aspects of such a culture may
include higher levels of employee loyalty and faster speed of decision making. On the
negative side, however, seniority-oriented organizational culture does not encourage junior
employees to communicate their ideas and propose initiative to their superiors. Such ideas
and initiatives may prove to be insightful and play an instrumental role in new product
development or adding innovative features and capabilities to existing products. Taking into
account critical role of innovations and creativity in electronics industry, it can be argued
that negative aspects of seniority-oriented corporate culture outweigh its positive aspects
for Samsung.

The company is aware of this and in 2016, the senior management announced plans to
reform Samsung organizational culture. These reforms included simplification of job
rankings from the previous seven stages to four stages and employees calling each other by
their name with the suffix “-nim,” which shows respect in Korean, instead of calling them by
their job titles, such as manager or director.
Moreover, culture-related changes vowed by the company included holding more online
internal discussions and reducing extraneous meetings, reducing overtime and encouraging
employees to spend their weekends with family or pursuing professional education
opportunities.

However, the implementation of cultural changes announced above a year ago, now seems
questionable. This is because Jay Y. Lee, former Samsung executive and de facto head of the
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 Samsung conglomerate who announced these cultural changes was jailed for five years for
offering bribes to former president of South Korea and other officials, as well as, for other
crimes.

For example, the role of women in a society, whether they are the decision-makers in
shopping, for example, is a decisive factor in marketing. A major interest group in the area
such as oil companies in Texas -- can also influence society. The marketing of a small business
can be successful by building its advertising strategy on women or moms, a specific interest
group or a leader that has the biggest influence in the community.

1.3 Reference Group and Family

Because people are social beings, each person has people around him who influence his
decisions in some way. Reference groups comprise people with whom individuals compare
themselves. Family members, relatives, neighbors, friends, co-workers and seniors at
workplace can form reference groups. Well-known and respected idols in society serve as
examples in lifestyle, values and buying habits.

Family is a specific reference group and can play the most important role in influencing the
buying decisions of the individuals. Spouses, children or grandparents have different needs
and necessities. Being aware of and finding the major reference groups, persons or family
structures in a community and building marketing on them can help small businesses
achieve success.

1.4 Role and Status in Society

A person's role in society and social status affects her buying decisions. Each person plays a
dual role in society depending on the group to which she belongs. An individual working as
president at a reputed firm is also someone’s wife and mother at home. The social status is
also a relevant factor; an individual from an upper-middle class would spend on luxurious
goods, while an individual from a lower income group would buy items required for basic
needs. Knowing the income information of the potential customers gives the small-business
owner an edge, allowing her to have more information about customer habits and
implement a successful marketing strategy.

2.0 Mention a proper entry strategy for Samsung to be used to sell its mobile phone globally?

2.1 Foreign direct investment

Samsung electronics is the largest manufacturer in Korea. Korea is an ideal country for foreign direct
investment and for a manufacturing plant because the country is poor in raw materials but rich in
highly skilled people. Samsung joined the electronics industry as it had the capacity for high income
elasticity, it would produce lots of jobs, and there was the opportunity for a very high return. The
Samsung group counts for 20% of South Korea's exports. It was only in the 90's, almost 50 years into
business, that Samsung became an international enterprise and not only secured a number of
businesses abroad but also became the market leader for some electronic components.

AT the end of the 1980's Samsung were merely copying other American and Japanese brands,
especially where mobile phones were concerned. Today, almost all of the products that Samsung
make are their own. Now, not only are Samsung the market leader for mobile phones, but also for
flat screen televisions and computers, and memory chips. In 1982, Samsung joined the United States
and Japan in making memory chips, and by 1992, merely ten years later, Samsung was not only the
number one producer, but also the second largest supplier in the world. Samsung say that their
success was due to three points; research and development, organization, and production.

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Research and development: Samsung have always kept a very close eye on their competitors, and
have always kept a close working relationship between their producers and their technological
developers. If an idea comes to a dead end, then the idea is kept for future reference and is therefore
already ready to be incorporated in to new products.

Organization: Samsung say that they try to keep to their deadlines and allow their staff, that is, their
producers and developers, to move from group to group. Enabling this interaction means that there
is in general a better understanding of the product and opens up opportunities for further product
developments and improvements.

Production
The research and development and the organization lead to quick but good quality production.
Samsung require new and complicated production lines on a regular basis and organization and
research and development are key.

Raymond Vernon said that there are four stages; introduction, growth, maturity and decline. And
where the product is produced depends on the stage that it is at. If the product is in its introduction
stage then it will be produced locally and then in time exported to countries with similar needs,
similar expectations, and similar incomes.

In the growth stage, the company will usually move to a foreign country (foreign direct investment
perhaps), due to lower production costs, cheaper labour. It is also in the growth stage that other
producers will begin to make similar products and these will be sold in the local market to create
both growth of the product and demand. Samsung began in 1938 in Daegu with a mere 40
employees. During the growth stage, Samsung did not have to move to a foreign country. As I
mentioned before, South Korea was, and is, the perfect country to produce electrical products in. In
the 1980's Samsung became Samsung Electronics Co, and by 1990 Samsung had business in
Malaysia, Taiwan and United Arab Emirates.

The third stage is the "maturity" stage. This is when the company who can produce the goods for
the lowest cost, wins, effectively. Stage for is the decline. This is when a product is no longer needed,
or has been replaced, or the only places that demand the product are less economically developed
countries. The President of Samsung Electronics Co said "we move on, if other companies catch up".
Samsung say that their success is due to the fact that they develop products for niche markets with
fatter margins. They have a simple approach to business - organization, research and development,
and keeping production costs low.

Samsung’s contribution to China through FDI

Samsung has been one of the largest foreign investors in China and has built a China structure that
rivals that found in its home country of South Korea. Samsung recognized China’s importance, not
just as a production location, but as the location for a wide range of corporate activities, including
research and development and a variety of senior management functions. However, the Samsung
case also shows that major multinationals will actively and continuously evaluate their FDI options.
In particular, Samsung is making investments in Vietnam that will rival its China operations in size.
This is perhaps a cautionary tale that major multinationals can find other places if China becomes
too expensive, or not as hospitable to foreign companies as other countries.

 Samsung has invested extensively in production facilities, research and development, and
marketing and sales in China. By 2011, Samsung was estimated to have become the largest
foreign investor in China, with 155 subsidiaries and a total investment of USD 12.7 billion.
 Samsung has also invested extensively to build capabilities in its own Chinese workforce and
has localized the vast majority of key management and research positions in China. In 2014,
China was responsible for 25 percent of Samsung Electronics’ total workforce –a total of 60,000

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 individuals– with the average employee numbers having grown 14 percent per annum since
2010.
 Samsung has contributed to the development of China’s electronics manufacturing base by
engaging not just in electronics assembly in China, but also in advanced componentry, extensive
research and development in China, and bringing much of its most advanced technology to
China.
Reasons for Foreign Direct Investment
Generally, the more ownership a company has, the greater its control over decisions, although if
equity shares are widely held a company may be able to effectively control with even a minority
interest. However, governments often protect minority owners so that majority owners do not act
against their interests; thus, companies may opt for 100 percent ownership if they want control.
There are four primary explanations for companies to take a controlling interest: market failure,
internalization theory, appropriability theory, and freedom to pursue global objectives.

Market Failure Collaboration involves a transaction across the market between unrelated entities.
Given liability of foreignness and the extra costs of investing abroad (along with other factors to be
discussed later), collaboration is appealing, but only if management can find a collaborator at
acceptable terms. For instance, they may not be able to find a contractor who is familiar enough
with the company’s unique technology to deal with it efficiently. In these instances, companies must
control foreign activities within their own management structures (internal hierarchies) rather than
depending on the external market to do it for them.9 The extent to which companies take controlling
ownership equity (FDI) in foreign operations—such as in warehousing, sales offices, or production
facilities—indicates market failure.

2.2 Exportation
Direct exporting: Export as an entry strategy is divided into two as direct and indirect approaches.
Direct exporting is entry strategy that allows the firm to sell its products directly into the market of
interest. Direct export unlike indirect exporting, the organization makes a direct commitment to the
international market. Through direct commitment, the company is capable of having control of its
brand and all its operations in the foreign market more than it would be with indirect exporting.
Piggybacking is one of the direct exporting where new products of the entering firm use the already
existing distribution and logistics of a different business. The other one is the consortia which are
the coming together of small or medium-sized enterprises with an aim of marketing their related or
even unrelated goods in the international market.

2.3 Franchising
Viability of opening Samsung Smart phones retail Franchise
As per International Data Corporation and the realistic experiences of many in the society, Samsung
is one of the best mobile brands in the globe. The smart phone brand that is termed as the best in
the year 2015 has in its clutch the complete high class society. While Samsung targets to release
budget phones to capture the middle-class market, in the African and Asian continents, this move is
expected to sweep the local market completely.

Samsung is such an influential brand that its name acts as the selling point more than anything else.
Anyone becoming a dealer or Franchise for Smart Phones is keeping himself away from taking efforts
towards advertising and marketing the brand. Mobile phones sales happen automatically in high
volumes for the brand name Samsung and the faith people have in the brand assures continued
sales.

The high-quality phones produced by Samsung for years now has won the hearts of many across the
world and any one becoming a Franchise Samsung enjoys this advantage to the fullest extent.
The abundance of new features introduced with every new model and up-gradations offered for the
existing models makes sales happen automatically without much effort from the Franchisee’s side.

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 All the above are undeniable promises that becoming a Franchise for Samsung Smart Phones is
undoubtedly a profitable business venture.

Samsung Smart Café in India

 Minimum required carpet area, between 450 – 600 sq.ft.

 Single Plate on Ground Floor.
 Minimum ceiling height required, 10.5 ft.
 Minimum Frontage required, 14 ft.
 Located in a good Retail market.
 Metros and Tier I, II and III cities can apply.
 Following product categories available for retailing-Mobiles, Tablets, Laptops, Cameras and
Accessories.

3.0 Mention how Samsung marketing mix should be modified to fit the global markets?

The concept of the marketing mix plays an important role in the success of Samsung in the
smartphone market. Out of the 4Ps, Price and Promotion mainly contributed to the success of
Samsung.

Samsung used differentiation strategy on its price component of 4Ps. Pricing strategy has seemed
to have played a major role in Samsung’s success “in the smartphone market”. While Apple seemed
focused more in innovation, Samsung mixed the cost leadership with innovation as its competitive
advantage. In the beginning of smartphones by Apple Inc. in 2007, Smartphone was a luxurious
phone afforded by upper class segment in the market, but as time passed more people gained the
desire to have smartphones. Nokia was busy to position itself in the upper segment, Samsung filled
the gap perfectly with its Galaxy series. This made them penetrate the evolving market of
smartphones. Other competitors could not deliver such cutting edge smartphones with low price
range to compete with Samsung galaxy series. Samsung is believed to provide products at
reasonable prices to its consumers. Samsung is focused in cost-cutting measures to maintain its
price low. This helps in combating the discount schemes of other brands. It might seem difficult to
achieve this ambitious target keeping in mind the pricing strategy of Samsung, But, Samsung believes
that it takes time to ensure the supremacy in the market share. Samsung managed to get its brand
perception right in its consumers’ mind as a brand that offers best technology and gives its consumer
value for their money, this resulted to its market share going up. Samsung is aggressive in launching
its new smartphone devices with the latest technology at an economic cost globally. This is also
evident with the data collected on consumer perception to Samsung pricing strategy. The price was
rated good compared to its competitors. The review from the respondents shows how effective the
pricing strategy has been in the success of Samsung smartphone in the smartphone market.

Samsung success can also be connected with its aggressive marketing and advertising of its products
to develop the attitude, transmit information so that it gain response from the target market and
create awareness. Its initial advertisement communicated presence of Samsung in the worldwide
market and its dominance in those markets. They have also used celebrity endorsement to create
its brand awareness. They even focused in the technological supremacy. In order to come up with
promotional schemes that have boosted its sales further leading to Samsung success. The
effectiveness of this aggressive promotion is felt in the data collection where many respondents
claimed to have come across Samsung advertisements. The communication strategy used by
Samsung is easily understood by many respondents.

Global marketing is becoming an important key term for the current marketplace. There are many
different definitions of global marketing. Consider the following definition by De Mooij, an American
Economist.

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 “Global marketing refers to the integration of the international and multinational marketing
approaches, where the objective is to create the greatest value for customers and the greatest
competitive advantage for the company”.

Today, this form of global marketing is referred to as the hybrid strategic approach, or
“globalization.” The strategic intent is to use a centralized strategic “footprint” to build global brand
identity, while allowing country-specific flexibility in the executive or tactical and communication
mix decisions. When determining what the strategic implications are for global interactive
advertising under this form of marketing, one finds that the concepts of global marketing and global
interactive advertising are no longer utilizing an ethnocentric perspective. Instead, global marketing
should be considered polycentric or geocentric (outward looking). Global marketing acknowledges
and uses strategic intent to coordinate the combination of centralized corporate or brand directives
with more localized adaptations in interactive advertising placement and executive decision-making.
Thus, global marketing does suggest that reaching global consumers is a strategically intended
outcome of a hybrid strategic approach. In more details, four main factors included in the above-
mentioned approach are product, price, place, and promotion. In other words, when marketing their
products, whether locally or globally, firms need to create a successful mix of:
 The right product
 Sold at the right price
 In the right place
 Using the most suitable promotion.

3.1 Marketing Mix of Samsung Smartphones

In order to find out which strategy Samsung used to achieve its leading position in the
smartphone market, I will take a look at its marketing mix. The marketing mix will point out
the strategic choices of the company. Marketing mix is referred to blend of product, pricing,
promotion distribution strategies made to produce a mutual satisfying exchange with the
target market (Hutchison, 2009). The marketing mix is a synonym of 4ps, which is made of
the four relevant components of all product strategy. These are Product, Promotion, Price
and Place. They hold the opportunity for the company to differentiate. (Borden, 1964). The
four “P”s of product, price, promotion and place constitute the offer that an organization
offers to the business. If this offers suits well the consumers’ needs, it should lead to sales.
In addition, if it’s sufficiently managed, these sales should add profit to the business.
(McDonald, 2013) suppliers need to understand the attributes and benefits the buyers’
value so that they customize each “P” to their needs, and the mix of the elements that will
be appealing to the buyers.

3.1.1 Product
Samsung’s smartphones evolve beyond its limitation in slim phones to embody the perfect
combination of comfort, simplicity and sophistication. All their unique customized
smartphones come with outstanding features. Products vary greatly in Samsung’s phone
department. They have a number of Galaxy smartphones. Samsung galaxy Series are
Android based.

Samsung’s is among the top quality Smartphones manufacturers in the world. This thing has
developed a strong brand image of Samsung in the minds of people. So they expect Samsung
to keep providing such top quality products forever. Samsung’s produce / provide more
variety in the current Smartphones product offerings.

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3.1.2 Price
This is the amount for what the product is to be paid. (Borden, 1964). Hutchison (2009)
referred price as what customers will exchange for product. Among the four components,
price is determined as an important variable since it is one of the key determinants of a
product value. Price is thus one of the evaluative criteria used by consumers, as are the cost
incurred in buying and owning or using the product (McDonald, 2013). He also noted that
the price is very difficult aspect of the marketing mix to manage. McDonald (2013) urges
that to maintain the integrity of prices; the company should implement a sound pricing
strategy; this will support the company’s overall marketing strategy and profitability. After
manufacturing innovative and cost effective phones worldwide for a long time, Samsung has
been able to learn what is required to stay on top of its industry. It has not allowed Apple
Inc. to grow in markets like Asia and developing countries like India due to its price policy.
This is the results of manufacturing wide range of products with different price range.

Not all customers belong to a single income class. Samsung should make its products
acceptable and affordable for as many income classes as possible. Samsung should make
Smartphones of varying prices, affordable for low income people and target many income
classes.

Samsung Marketing Mix Pricing Strategy – Samsung marketing strategy involves two
pricing strategies:

 Skimming Price – Smartphones of Samsung are leading the market with Apple’s iPhone.
As Apple, Samsung also uses skimming price to gain the upper hand over their
competitors. For instance, Galaxy S7 and S7 Edge are the brands new products of
Samsung carrying the slogan “Next is Now” and claiming that they are the most
beautiful smartphones ever created. Without a doubt, S7 Edge (64 GB) that costs 1 180$
will brilliantly/smoothly sell around the globe. Once similar devices are available from
competitors, Samsung will drop the price to be able to hold the competition (Samsung
will lower the price and easily steal customers from the competitor).

 Competitive Pricing – One of my favorite parts of Samsung marketing strategy. Due to

the fact, that unlike smartphones, Samsung has difficulties in gaining an edge over its
competitors with other products (for example, Samsung has trouble keeping up with
robotic vacuums like the Roomba 650 and 880). Surely, Samsung is an authentic brand,
but in terms of home appliance, it can’t possibly surpass LG. Furthermore, in Cameras
Cannon and Nikon are leading the market. So, for Samsung to withstand this fierce
competition, it’s vital to use competitive pricing. Also, Samsung never is a late comer in
production and non-innovative, but they are mostly the first ones to introduce a
change.

3.1.3 Place
Also known as distribution. This is to how the product finally reaches the consumer. The distribution
channels. Providing of products at a place where is convenient for customers to access. This is how
to deliver and distribute the product to the customer from a consumer point of view, the channel
through which they purchase products provide the most direct relationship with the supplier. So the
development of a strategy for the channel is important for the relationship an organization has with
its customer. Many distribution systems are made up of channel intermediaries such as wholesalers
and retailers According to McDonald a supplier must decide where to focus marketing efforts. That
is, on a push approach, whereby attention is concentrated on the intermediary, to sell in more
products, or on a pull approach where the supplier emphasizes the creation of demand so that

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 intermediaries are encouraged to deal in that product. A marketer can use; intensive distribution,
selective distribution, exclusive distribution and franchising to complement the other aspects of the
marketing mix. Samsung uses variety of distribution channels. They distribute to various
telecommunication companies like mobile phone retailers, Internet partners such as Amazon and
other carriers. They also have Pop-up Samsung retail stores.

Just making a product and running a marketing campaign for it is not enough. The products
must be available at convenient places for the target customers. Samsung has its presence
in all the big cities and towns of its target markets. This is important to capture a target
market before the competitors do so.

3.1.4 Promotion
These are all types of communications a marketer may use to give information to different people
about the product. All the promotion activities are designed to communicate with the market and
thus promotes the sale of the products. Promotion provides information that will assist customers
in making a decision to purchase a product. This includes: advertising. Public relations, personal
selling and sales promotion. These are important tools that support positioning within the various
market a company wishes to address. It is also seen as informing, motivating the customers and
reminding the consumers to purchase the product. Promotion is an essential tool for solving
organizational problems like enhancing market position or persuading customers to behave in line
with the economic interest of the business.

Samsung should use different promotional tools across different media platforms to
promote its smartphones. They use the television, print advertising, internet social media
and outdoor media.

Advertising is one of the best forms of promotion to engage potential consumers, Samsung
marketing strategy uses diverse forms of promotion. As Coca-Cola and Nike, Samsung is
convinced that.

Besides advertising, Samsung should approach different promotional tactics to make

customers buy the product.

For instance, Samsung should introduce discounts, sponsors events, engages with national
and worldwide festivals, etc.

Sponsorship – Samsung is one of the largest companies in the world. Today, they have
150,00 employees worldwide.

Samsung is mostly famous for its product quality, but besides the gadgets, Samsung is known
for being a sponsor giant. Samsung should increase the numbers of the sponsorship.

Advertising – Samsung should concentrate on commercials like Coca-Cola or Pepsi, they

always promote their most important products.

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4.0 Mention 4 reasons that encourage Samsung to operate globally)?

The 4 reasons are as follows:

1. Economy of scale
2. Profit
3. Growth
4. Expansion

4.1 Economy of scale

Economic of scale is the expansion of production scale and increase the economic benefits.
It is to reflect the relationship between the concentration factors of production and the
economic benefits. Economies of scale help producers to lower their cost by producing large
amount of output at lower costs. Samsung Electronics has realized economies of scale in
semiconductor production. Semiconductor devices can perform a variety of control
functions in electronic equipment, such as Samsung touch smartphone. Through the
continuous improvement, Samsung's semiconductor production successfully extended the
R & D centers and production lines to China and other countries, and the products can sell
around the world, via mass production to reduce the costs. This is the cost advantage

The advantage of the economies of scale of Samsung:

 Can be achieve the harmonization and standardization of the products
 high quantity of raw materials, reduce the purchase cost
 Easily to control the quantity and quality of products
 Conducive to management and technician specialization and professionalization
 It can have strong competitiveness in the national market

Economic of Scope
This is also a cost advantage to make the cost lower to produce a range of related products
than to produce only one of the individual products on one company. A company can expand
its range of products to take full advantage of the value of its existing capacity. Samsung
produces various electronic products, such as LCD TV, LCD panel, semiconductor (DRAM,
NAND Flash), mobile phones, digital cameras, LCD monitors, printers and other related
electronic business, production of these products can use the same or similar of raw
materials, for example ,produce the TV and the computer can use the same type of LCD
screen, it can also be carried out in the same factory, and the workers all have same
knowledge, produce different products to reach international diversification, fully to take
the advantage of economies of scope.

4.2 Profit
 Samsung Electronics recorded an operating profit of about $14.15 billion for the
December quarter in line with guidance.
 The firm's semiconductor division drove the fourth-quarter earnings on the back of
strong demand for its memory chips.
 Samsung's mobile business saw a 3.2 percent on-year decline in operating profits.
 The tech giant also announced a 50:1 stock split that saw its shares jump more than 8
percent in morning trade.

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The firm's fourth-quarter revenue came in at about 66 trillion won, a 23.7 percent on-year
increase. For the full year, Samsung recorded an operating profit of nearly 54 trillion won on
revenue of about 240 trillion won.

Samsung shares jumped more than 8 percent in morning trade after the firm announced a
50:1 stock split. But that rally eventually faded and the stock closed up only 0.2 percent at
2,495,000 won.

The South Korean tech giant said its fourth-quarter earnings were driven by strong demand
for its memory chips that are used in data centers and smartphones. In recent years, Samsung's
semiconductor business became a major earnings driver. That unit recorded an operating
profit of nearly 11 trillion won for the December quarter.

For the current quarter that will end on Mar. 31, Samsung said strong demand for its
memory chips that are used in data centers would likely offset weak seasonal demand.
Samsung said its earnings from the mobile business declined in the December quarter due
to higher marketing costs. Fourth-quarter operating profit for the mobile division came in at
2.42 trillion won, lower than the 2.5 trillion seen a year earlier.

The firm said smartphone sales for its low-end models declined. Indeed, recent data
showed that Samsung was pushed out of the pole position last quarter from
the Indian smartphone market, where it sells many of those low-end models.

Samsung Electronics posted KRW 65.98 trillion in consolidated revenue and KRW 15.15
trillion in operating profit for the fourth quarter of 2017.

More illustration:
Fourth quarter earnings were driven by the components business, with the largest
contribution coming from the Memory business that manufactures DRAM and NAND, as
orders for high-performance memory products for servers and mobile storage were strong.
However, weak seasonality impacted growth for the System LSI and Foundry businesses.

The Display Panel business, which manufactures OLED and LCD screens, saw increased
shipments of OLED panels for premium smartphones, but profitability for LCD panels
decreased due to weak seasonality, which dampened sales and ASP.

For the IT & Mobile Communications Division (IM), earnings in the mobile business declined
due to a hike in marketing costs under strong seasonality. Total smartphone shipments
decreased due to the lineup optimization of low-end models, while shipments of flagship
products, such as the Galaxy Note 8, increased from the previous quarter. In the network
business, customers’ LTE investments concentrated in the first half, resulting in the weak
earnings in the second half.

The Consumer Electronics Division, comprising the TV and home appliances businesses,
posted gains for the quarter. TV earnings increased QoQ on increased sales of premium
products including ultra large-size and QLED models. For home appliances, demand for high-
end washing machines and ovens in North America and Europe was responsible for stronger
revenue on a YoY basis.

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As indicated in Samsung’s preliminary earnings announcement in early January, operating
profit was affected by the appreciation of the Korean won against the U.S. dollar and other
major currencies, with the impact amounting to approximately KRW 660 billion QoQ. A one-
off incentive paid to employees of the semiconductor division also affected earnings.

Looking ahead, the first quarter, despite being a traditionally slow season, is expected to
show strong demand for memory products used in datacenters. Shipments of System LSI
products are forecast to pick up, as orders for APs and image sensors for flagship devices
are expected to improve.

The Display Panel business in the first three months of the year is likely to face challenges
such as intensified competition from LTPS LCD vendors and seasonally weak LCD demand.
In spite of this, Samsung will try to improve profitability by increasing the high-end LCD
portion of screens and enhancing productivity of flexible OLED panels, among other
measures.

In the first quarter, the company expects the mobile business to improve its earnings, led by
an increase in sales of flagship products with the launch of Galaxy S9. Samsung’s TV business
will be affected by weak seasonality, but is aiming to be profitable by expanding sales of
premium products and pushing for the early release of new models. Meanwhile, the Digital
Appliances Business will focus on achieving growth by increasing sales of premium products
and strengthening marketing.

In 2018, demand for NAND is likely to remain strong and market conditions are forecast to
be stable. Samsung will expand 64-layer V-NAND production mainly at its Pyeongtaek plant.
As for DRAM, the company expects solid demand growth due to new datacenter builds and
will increase product competitiveness by expanding 10nm-class process migration. As for
Foundry, Samsung will lead the technological process leadership with a risk production of 7-
nano.

For the Display Panel business in 2018, the company expects OLED to become a mainstream
panel in the smartphone industry and will reinforce its competencies in new applications
such as foldable, automotive, and IT displays. In the case of LCD panels, it will focus on
meeting the market’s needs for ultra large-size and high-resolution TVs and strengthening
partnerships with strategic customers.

For Mobile in 2018, the company will pursue earnings growth by increasing premium
products sales and maintaining profitability of mid-range to low-end products. The
Networks Business plans to expand the supply of network solutions for 5G
commercialization to major markets including Korea, the U.S., and Japan.

For the CE Division this year, sales of ultra large-size TVs will continue to grow as the global
market gears up for major international sporting events, including the FIFA World Cup and
Winter Olympics. The Digital Appliances Business is expected to improve earnings by
expanding its B2B business and online sales.

Total capital expenditure (capex) executed in 2017 was KRW 43.4 trillion. Investment in the
display panel segment reached KRW 13.5 trillion, while the Semiconductor business was
accountable for KRW 27.3 trillion. The total was up significantly YoY because of investments
in the Pyeongtaek plant and efforts to address demand for the foundry business and flexible

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 OLED panels. Samsung’s capex plan for 2018 has yet to be finalized, but we expect the total
amount to decrease on a YoY basis.

Looking at the mid to long term, Samsung expects the components business to see demand
expand from new applications. For the set business, the company expects to enjoy increased
opportunities mainly related to software, connected devices, and services based on AI/IoT
platforms.

In semiconductors, as demand for high-density memory products for cloud servers and for
chipsets required for automotive electronics and AI is expected to increase, Samsung will
boost its technology competitiveness with cutting-edge processes and solutions with next-
generation packaging.

The OLED panel business will strengthen its competitiveness in the premium segment with
the release of foldable panels, and focus on expanding new applications in areas such as
automotive electronics by capitalizing on its technology and cost competitiveness.

As for the Mobile business, Samsung will continue its efforts to differentiate its smartphones
by adopting cutting-edge technologies, such as foldable OLED displays. It will also drive
forward new businesses related to AI/IoT by strengthening the ecosystem based on Bixby
and building on Samsung’s 5G technology.

The CE Division will bolster its leadership in the TV market by applying new technologies,
such as 8K and Micro LED. Samsung will also improve the connectivity and usability of home
appliances by expanding the application of Bixby.

4.3 Growth
Samsung Electronics is the world’s largest consumer electronics company. Producing
everything from phones, TVs, cameras and laptops to microwaves and freezers, it is a top
three brand in pretty much every category in which it is active. 2010 sales were in excess of
$135 billion with net profits of over $14 billion. Samsung Electronics is now twice the size of
Sony, the company which 20 years ago was the undisputed leader in the sector.

The company is part of the larger $200 billion revenue Samsung Group that accounts for a
fifth of Korea’s exports. Samsung has become the flagship of the South Korean economy and
the source of much of the innovation that is taking place across the consumer electronics
sector. Given that it was a low-cost me-too manufacturer of imitations of Sharp’s
microwaves in the 1970s this is a huge achievement. Pivotal to Samsung Electronics’ success
over the past decade or so has been the way it has embraced design as the source of
competition. Growing from 2 to 900, the Samsung Electronics design team now consistently
takes most awards at the prestigious annual design events as the company’s products are
time and time again seen as leading the category in performance, quality, and value.

While design has become an important part of the success, Samsung Electronics is a
vertically integrated hardware company: it makes the product and pretty much every
component that goes in it. And this means that Samsung Electronics is first and foremost a
technology company. Samsung Electronics’ component business is the leading producer of
many of the best technologies: whether it is memory, integrated circuits, storage, or LCD
panels Samsung Electronics makes great products. And it doesn’t just make them for use in
Samsung products – most of its competitors’ products also source their components from

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 Samsung Electronics. Whether you buy a Samsung or another brand, chances are you are
still buying Samsung Electronics’ technology and this brings efficiencies of scale and cost to
Samsung over their competition.

Samsung Electronics have made a major success of product design, but this has not been
done in isolation of great technology. As with Audi, it has been the increasingly close and
symbiotic relationship between the engineering and the aesthetic design that has made the
brands stand out more from the crowd.

Going forward, a big challenge for Samsung Electronics will be to utilize its competences in
design, technology and integrated processes to continue pushing the technological
boundaries, competing on quality with its Asian peers, and producing the products that the
vast majority of the world’s consumers clearly want to buy.

The Display Panel business posted KRW 11.18 trillion in consolidated revenue and KRW 1.41
trillion in operating profit for the fourth quarter. Despite decreased revenue from LCD
panels due to lower ASPs under weak seasonality, total earnings for the display business
grew QoQ, driven by increased shipments of OLED panels for flagship smartphones.

In 2018, OLED is expected to become the mainstream panel in the smartphone market,
specifically in the high-end segment. Samsung will make efforts to actively address
customers’ demands and differentiate its technology over LTPS LCD, as well as seeking new
growth engines.

As for LCD in 2018, while the company foresees market uncertainties due to intensified
competition, Samsung will strive to solidify its position by offering differentiated products
based on its technology leadership. Moreover, Samsung will reinforce its strategic
partnerships and expand the sales of value-added products.

Looking to the first quarter, the OLED business is likely to be affected by declining demand
due to weak seasonality and by intensifying competition with LTPS LCD in the smartphone
market. To secure profitability, Samsung will focus on product line-ups for flagship
smartphones and expand its customer portfolio. In addition, the company will improve the
productivity of flexible OLED panel manufacturing.

For LCD in the first quarter, even though a decline in LCD demand is expected under weak
seasonality, the company forecasts stable utilization thanks to rising demand for large-sized
and high-resolution TVs led by major sporting events in the first half. Samsung will also focus
on cost reduction and yield improvement as well as expansion of value-added products such
as UHD, large-sized, and Quantum Dot products to enhance its profitability in response to
market conditions.

4.4 Expansion
Samsung Electronics Company (SEC)’s Approaches to Global Expansion Samsung’s Strategic
Intent In the 1970s and 1980s, SEC was an industry follower playing a catch-up game with a
clear bench mark of Western and Japanese companies to imitate, thus it was simpler for SEC
to set its strategic planning of what to do and how to do them. For example, during the
1970s,

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SEC managed to win the market by the best pricing strategy, capitalizing on the advantage
of low cost production, then in the 1980s moved onto developing competitive advantage in
manufacturing efficiency and competence to emphasize the quality. By mid 1990s, SEC
caught up with major industry players with accelerated rate of technological advancement
and now SEC is posing as a global market leader in various major market segments. Standing
at the edge of technological progress,

SEC’s strategic planning is quite different from what they used to be 10-20 years ago. For
example, now SEC has 8 different business units (called growth engine), in which SEC intends
to maintain market competitiveness such as DTV, Displays, Memories, Mobile
communications, Printers, System LSI, Mass Storage and Air control system. Clearly, SEC
diversified horizontally into wider spectrum of business and its strategic planning changes
accordingly, striving for continuous delivery of innovative technologies and products in
these areas.

SEC’s current strategic planning clearly exhibits emphasis on technological leadership in all
aspects of its business operation. However, what remains the same is SEC’s strategic intent.
Since the beginning of its existence, the original strategic intent of SEC was to become a
major global competitor with a premium brand position in the global market. SEC’s CEO Lee
continues to pursue a future without limits by overcoming its constraints of limited
resources in the early period and by reinventing the rule of game in the current

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