Individual Essay 1 - International Business Strategy

Samsung Electronics

Name: Ngo Thi Thao Linh

Class: IB 1606
Subject: SSB 301m
Lecturer: Ms. Bui Thuy Duong
TABLE OF CONTENT
I. Company Background
II. Level 5 Forces Analysis
III. Five Forces Analysis
IV. Conclusion
V. References
I. COMPANY BACKGROUND

● Samsung Electronics Co., Ltd. is a South Korean multinational electronics

corporation. Samsung Electronics has assembly plants and sales networks in 74
countries and employs around 290,000 people.
● Founded: 13 January 1969; 53 years ago in Suwon, South Korea
● Headquarters: Samsung Digital City, Samsungno 129, Maetan-dong, Yeongtong
District, Suwon, South Korea.
● Area Served: Worldwide
● Industry: Electronics; Semiconductors; Information technology; Artificial
intelligence; Automation; Home appliances; Medical devices; Internet of things;
Robotics.
● Products: Samsung Electronics produces LCD and LED panels, mobile phones,
memory chips, NAND flash, solid-state drives, televisions, digital cinema screens,
and laptops. The company previously produced hard drives and printers.
● Samsung consistently invests in innovation. In 2021, the World Intellectual Property
Organization (WIPO)’s annual World Intellectual Property Indicators report ranked
Samsung's number of patent applications published under the PCT System as 2nd in
the world, with 3,093 patent applications being published during 2020. This position
is up from their previous ranking as 3rd in 2019 with 2,334 applications.

II. LEVEL FIVE FORCES ANALYSIS

About the Worldwide Smartphone Industry:
The competition to become the most prosperous smartphone manufacturer in the
world is heating up. Apple and Samsung, two of the world's largest technology companies,
are competing in this race. According to the statistics on the market at this time, Samsung
appears to be winning the battle.

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 According to the most recent data on the global smartphone market share:
- Samsung is in the lead with a market share of 28.43%. This indicates that over
three out of ten smartphone users use Samsung devices globally.
- Apple is ranked second among the most well-known smartphone makers. The US
phone manufacturer holds a 27.73% market share in smartphones.
- With 13.04% of the overall market share, Xiaomi is the third-largest smartphone
brand. Given that the Chinese company was only established in 2010, this is
noteworthy. The past five years have seen the majority of Xiaomi's expansion. The
phone manufacturer held only about 2% of the market before 2017. However, it
increased its share that year by more than doubling it, finishing the year with 4.75%.
- Huawei and Oppo, with 5.66% and 5.32% of the market share, respectively, come in
second to Xiaomi.
- Vivo, which has 4.29% of the market share for smartphones, is the sixth-largest
smartphone manufacturer.
- Other manufacturers shared 15.53% of the market.

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III. FIVE FORCES ANALYSIS
1. THREAT OF ENTRY (LOW)
- Entrants face high sunk costs. For example, when you have invested money to rent a
factory, hire workers, and buy materials and machines to manufacture phones, but you
can't sell them because you can't compete with other big players in the industry, then
you will lose those costs forever.
- Due to the well-known current brands and the abundance of well-established mobile
companies, it may be challenging for newcomers to the industry to acquire brand
recognition and customer awareness. Any new company would have to settle for
being viewed as a "knock-off" and low quality, in contrast to companies like Samsung
and Apple, whose products are perceived as premium and top of the market.
There are many barriers to entry into the industry:
- Entering markets is very difficult for new brands because building a supply chain and
distribution network is not easy.
- The high capital requirements in the industry also make it difficult for new entrants to
set up a business.
- The need to develop a strong customer base and brand recognition quickly, the fact
that many consumers exhibit strong brand loyalty.
- Need a lot of financial investment plus marketing and skilled human resources. One
can enter on a smaller scale and enhance the local brand, but then the level of
competition for the market leaders is already very high.
- Government regulations and retaliation by the companies that currently dominate the
industry.
- However, leaving the market is simple because all that is required in the event of low
sales is to sell the venture to any international competitor or domestic rival.
Competitive Advantage of Samsung:
● Patents and licenses ✅ (In the patent application entitled "Electronic devices
including transparent screens", Samsung describes the device as having a front screen
and a rear screen on the back, both of which can be turned on and off when needed.
Samsung has been a leading supplier of foldable phones over the past few years with
the Galaxy Z Fold and Z Flip.)

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 ● Pioneering brands ✅ (With the success of its electronics business, Samsung has been
recognized globally as an industry leader in technology and is now ranked as a top 10
global brand.)
● Pre-commitment contracts ✅ (Samsung has been contracted with Qualcomm to
provide the exclusive rights to the Snapdragon 875 mobile chipset generation…)
● Large economies of scale (relative to demand) ✅ (Samsung is known as a company
whose key strategy is to use economies of scale to gain a competitive advantage.)
● Steep learning (experience) curves ✅ (Samsung produces a wide range of phones
from low to high segments)

=> THREAT OF ENTRY is LOW

2. THREAT OF SUBSTITUTES (MODERATE)

Anything that performs the same tasks as the smartphones and devices made by
Samsung Electronics is considered a substitute product. This includes non-smartphones
(sometimes known as "dumb phones"), PDAs, tablets, and laptops. Nevertheless, these have a
limited capacity to serve as a replacement. Tablets and laptops are bulkier than smartphones
and lack the standard features of a mobile phone. This means they cannot be used as a direct
replacement. Due to the lack of widespread development in this field and the fact that most

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PDAs lack the characteristics
of a smartphone or mobile
phone, PDAs are also limited
in functionality. Last but not
least, a dumb phone has the
advantages of being
affordable and having the
same calling features as a
smartphone. However, these
phones lack many of the capabilities and practically all of the applications that come with
smartphones. As a result, these are ineffective substitute items.
The cross-price elasticity of demand is low: Samsung often uses differential pricing to
lure users away from cheaper alternatives.
However, switching costs are low. Because users can easily switch to any other phone
brand, for example, in the same flagship segment, users can switch to Oppo, Huawei, or Vivo
because they are a bit cheaper than Samsung.

=> THREAT OF SUBSTITUTES is MODERATE

3. BARGAINING POWER OF BUYERS (HIGH)

- Customers have several options due to the vast number of competitors in the mobile
device sector. While many consumers place a high value on innovation, the cost is
still a key consideration.
- Consumers can very easily migrate from one business to another based on which has
better selections and cheaper prices. (Low switching cost)
- Customers have a lot of bargaining leverage because businesses in the industry are
competing for the same group of customers.
- Buyers and consumers now have access to exact information and comparison data to
make an informed choice instead of depending just on brand value.

=> BARGAINING POWER OF BUYERS is HIGH

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 4. BARGAINING POWER OF SUPPLIERS (LOW)
Samsung Electronics has a huge supply chain made up of about 2,500 suppliers
worldwide.

- The number of suppliers in the industry in which the Samsung Group operates is vast
compared to the buyers. This means that suppliers have less control over prices and
makes the bargaining power of suppliers a weaker force.

- The products these vendors offer are fairly standardized, have little differentiation,
and have low switching costs. This makes it easier for buyers like Samsung Group to
switch suppliers. The supplier's bargaining power is reduced.

- In addition, Samsung also has a Samsung Electronics factory with the ability to
manufacture memory chips, processors, and displays on its own. As a result, Samsung
can supply many of its own components without depending on external suppliers, and
price changes originate from suppliers. This reduces the supplier's bargaining power.
Side story: Samsung Electronics acts as a
supplier to its biggest competitor - Apple. Samsung is
the main screen supplier for this year's iPhone 14
series, with a statistic of up to 82%. (Apple has been
buying OLED screens from Samsung for iPhones
since 2017.)

- Samsung is a significant source of income for many suppliers, they find it difficult to
transfer to another brand. Samsung thus sets the rules that vendors must follow. To
determine if suppliers are abiding by the laws and standards, it regularly conducts
investigations. Samsung suppliers must adhere to regulations in all of these areas,

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 from worker welfare to product quality and sustainability. As a result, the bargaining
power of suppliers becomes a weaker force in the industry.

=> BARGAINING POWER OF SUPPLIERS is LOW.

5. INTENSITY OF RIVALRY (HIGH)

Smartphones are not as popular as they used to be. The "brick" that you carry
everywhere all the time doesn't look like a device of the future anymore – it's more like an
essential product.
As consumers have settled into the ecosystem and brand loyalty, the competition in
this market is getting narrower. While regions like China and India also have "land" for new
brands, in markets like North America or Europe – only a few companies are popular with
consumers. More importantly, new brands have almost no "door" to win the trust of
consumers.

“That's the "world" of Apple and Samsung, we just live in that world.”

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 Looking at smartphone sales globally (part II), this is very clear. Apple and Samsung
currently lead the rankings, followed by Xiaomi, Oppo, and Vivo in the top 5. But in the US,
Oppo (including OnePlus), Xiaomi, and Vivo do not have official sales channels. All other
manufacturers - including Motorola - are classified as "other manufacturers".
The story is not new, but it still has to be repeated: the gap between Apple and
Samsung and the rest of the industry – especially in the high-end mobile segment, which
attracts the attention of the majority of users – is increasing. The reason is that the market has
gradually lost its competitiveness, leading to a series of famous manufacturers choosing to
leave the market rather than "putting one's pride in one's pocket for the sake of one's end".
=> INTENSITY OF RIVALRY is HIGH (Samsung >< Apple)

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IV. CONCLUSION
Through all of the information that I have researched, in my opinion, the smartphone
industry is not an attractive market and it is really difficult for newcomers to enter this sector.
Samsung has gained for itself so many competitive advantages, such as:
- Huge financial potential
- Strong brand image, its products are famous all over the world
- Strong supply chain
- Good marketing strategy, pricing strategy
- Large customer base, high degree of customer loyalty
- Samsung is an innovative brand. Samsung invests a large sum each year in Research
and development.

Thanks to those advantages, Samsung dominates the market share and crushes many
other competitors in the industry, and it claims to be king in many countries it passes through.
However, once standing at the top, Samsung always needs to try harder to maintain its
position.

V. REFERENCES
- https://www.banklesstimes.com/news/2022/07/07/samsung-is-q1-2022s-most-success
ful-smartphone-vendor-globally-with-73m-shipments/
- https://gs.statcounter.com/vendor-market-share/mobile
- https://www.counterpointresearch.com/global-smartphone-share/
- https://www.oberlo.com/statistics/smartphone-market-share
- https://www.24h.com.vn/thoi-trang-hi-tech/samsung-mat-phan-san-xuat-man-hinh-ch
o-iphone-14-vi-ly-do-nay-c407a1350866.html
- https://www.samsung.com/us/aboutsamsung/sustainability/environment/sustainable-s
upply-chain/
- https://cafef.vn/thi-truong-smartphone-het-yeu-to-canh-tranh-lg-da-dung-khi-roi-di-20
220418102505898.chn
- https://www.notesmatic.com/samsung-sources-of-competitive-advantage/