Question

How did Samsung overtake Panasonic and Philips? What core competencies (resources and capabilities) did the firm possess that helped it to be successful? (Discuss the international strategy that Samsung executed.)

Samsung Leadership Era: 2000–Present

Samsung group was founded in 1938 by Byung-Chull Lee as a simple trading company in Taegu, Korea that exported basic goods such as dried fish, vegetables, and fruit before expanding into several business lines, including insurance, securities, and retail.43 In 1969, Lee decided to enter the electronics industry and established Samsung-Sanyo. The new unit would undergo several name changes due to joint ventures with foreign companies and mergers with other units, but it would eventually settle with the name Samsung Electronics Company (SEC).44 At first, SEC was primarily a low-cost manufacturer of black-and-white televisions, which it sold to other companies that would then resell them under their own better-known brand names. The company followed a neo-Confucian culture that led engineers and designers to imitate the masters of their industry, Japanese firms such as Panasonic and Sony.45 However, Samsung was exceptional in at least one area—manufacturing. By 1976, the company had produced their millionth black-and-white TV, and two years later, SEC produced its 4 millionth black-and-white TV, which made it the market share leader in units produced.46 Shortly thereafer, SEC started mass production of several products, including the successfully reverse-engineered designs of the Panasonic microwave oven and VCR. A couple of years later, SEC entered the telecommunications and semiconductor businesses, and by 1985, it had started mass production of its own DRAMs and integrated circuits.

Samsung New Management Initiative

In 1987, Lee passed away of lung cancer and was succeeded as chairman by his youngest son, Kun-Hee Lee. The younger Lee had been involved in Samsung’s leadership since he started at the company in 1968.48 When he took his father’s place, Samsung had already established itself as Korea’s undisputed leader in most of its markets, which were largely components such as semiconductors (DRAMS), TV screens, hard drives, and batteries. In some product areas, such as DRAMs from the semiconductor business, Samsung emerged as the worldwide market-share leader.49 But the Japanese, notably Panasonic and Sony, were still the clear leaders in most consumer electronics products, including TVs, VCRs, DVDs, and cameras. Lee saw an opportunity when Samsung’s Japanese competitors faced recession in their home market, however. The Japanese, leaders in analog technology, which was used in most products, were reluctant to adopt digital technology due to the large investments that would be required to displace analog. The market, however, seemed to be moving in the digital direction in the form of cameras, audio equipment, and other electronic goods.50 Lee knew that this was a chance to overtake the competition. But, in order to take advantage of its rivals’ hesitancy, Samsung needed to not only act quickly but also to prepare itself for the digital transformation. As the leader of a Korea-centric company, Lee felt that a change was needed.51 That change came in 1993 when Lee introduced the new management initiative, which emphasized four issues: decentralization, innovativeness, globalization, and outward-looking management.52 The aim was to retain core competencies in manufacturing and production processes while improving R&D, design, and marketing. The company decentralized by establishing more production and R&D centers around the globe. Although most of Samsung’s manufacturing had been done in Korea, the company established a number of new factories in China, India, Hungary, Slovakia, Mexico, and Brazil. Samsung also established new R&D centers in Japan, Frankfurt, and the United States—each working on the development of products for their respective regions of the world.53 Additionally, SEC hired IDEO, a US-based innovation design firm, to help in the design process for their consumer products.54 Designers and design thinking were introduced to the company. Before this time, the engineers controlled the design process.55 This resulted in products that were imitations with no distinct design. The new management initiative, however, empowered designers by requiring them to take a yearlong course in mechanical engineering so that they could properly defend their ideas.56 Engineers were also taught basic ideas in design in order to better work with designers. At first, progress was slow. For example, Gordon Bruce, a veteran design consultant who helped Samsung set up the $10 million state-of-the-art Innovative Design Lab of Samsung (IDS), was teaching a class to designers and engineers and asked what they considered to be a perfectly designed object. He suggested a banana and said, “Nature is the best designer. The banana fits in your pocket. It comes in its own sanitary package. It’s biodegradable. And the color indicates when the fruit is ripe.” Afer he explained there was a confused silence in the class. Then one a student asked, “You mean you want us to design a cell phone in the shape of a banana?”57 Gradually, SEC started to see improvement in their product designs. Through the new management initiative, Lee created a “hybrid management system” that imported Western best practices and combined them with their existing Korean management practices.58 This implementation was done sensitively. Only practices that needed change were implemented in a process that employees could understand and embrace. Some of those changes were adopted faster than others depending on the level of resistance from employees. For example, Samsung slowly added into its seniority-based pay structure a merit-based compensation system like those of General Electric and Hewlett-Packard. Some changes such as stock options were abandoned completely when resistance was too strong.59 The new system challenged key fundamentals and established a long-term commitment to investment in premium products and brand value—an area that had troubled Samsung in the past. The company had sufered from an image of “cheap Korean goods” due to its low-cost mass production methods that made it successful during the 1980s.60 To the chagrin of Lee, that image was sometimes validated. For example, as a New Year’s gif in 1995, Lee sent out some of Samsung’s newest phones, only to be informed shortly aferward that the phones didn’t work in the way they were meant to.61 However, the new management initiative aimed to correct such problems with the adoption of General Electric’s Six Sigma, which was customized to involve not just management but every Samsung employee.62 The new management initiative started to “internationalize” Samsung so that it was no longer a completely Koreacentric organization.

Effects of the Asian Financial Crises

In 1997, the “Asian financial crises” took a large toll on South Korea’s economy. For example, afer the Asian market downturn, Moody’s lowered South Korea’s credit rating from A1 to A3. The Seoul stock exchange experienced historic one day drops (7.2 percent). The South Korean won weakened from 800 per U.S. dollar to 1,700 per dollar, and many large businesses crashed or were bought up by foreigners.63 The efect of the crisis was both bad and good for Samsung. SEC had to cut its domestic and foreign workforces by 26 percent and 33 percent, respectively (a total of about 29,000 workers), and it had to sell nearly $2 billion in corporate assets that were not directly related to its core electronics businesses.64 The crisis forced Samsung to focus on core businesses and to think carefully about how it would ofer unique value to customers. Eric Kim, who acted as executive vice president for global marketing operations at SEC, explained, “The economic crisis in my view, impressed upon people the need for a system that could create a resilient and enduring value proposition unique to Samsung—products that would distinguish us from our competitors.”65 In other words, the crisis proved to those involved with SEC that the firm needed to diferentiate itself from the competition with premium products. In the wake of the crises, SEC dropped its debt from $15 billion in 1997 to $4.6 billion by 2002. In the same time frame, net margins went from –3 percent to 13 percent.

Samsung’s Continued “Global Localization”

The post-crisis initiative was again about increasing R&D, design, and brand value. In 1999, SEC began its “Samsung DigitAll: Everyone’s Invited” campaign in order to solidify its position against rivals as the premier consumer electronics company.67 Furthermore, from 1999 to 2007, SEC spent an average of 3 percent of net sales on changing its image as a producer of cheap products.68 Additional investment was put into R&D and design, with the construction of seven additional regional design centers located in Seoul, London, Los Angeles, Milan, New Delhi, Shanghai, and Tokyo (IDS being the corporate design center).69 This “Global Localization” strategy, as some called it, enabled designers to develop “product design blueprints according to global design standards and themes, while remaining flexible enough to allow local design centers to accommodate specific market needs and cultural contexts.”70 For example, in India, where inexpensive but clunky cathode-ray-tube televisions were more popular due to their afordability, Samsung didn’t try and push its more expensive LCD flat screen televisions. It relied on its design centers in emerging economies, such as New Delhi and Shanghai, to design a broad range of products, including some for price-sensitive customers. As a result, Samsung captured a quarter of the market for TVs in India while its Japanese competitors fought for a collective 13 percent of market share.71 The same was true for mobile phones. Although typically known for its higher end smart phones like the Galaxy series, Samsung developed diferent low-end smart phone models for Africa, Eastern Europe, Central America, Russia, India, and the Middle East. Between 1992 and 2005, Samsung also established highvolume manufacturing operations in diferent parts of the world, with North and South America primarily serviced by plants in Mexico and Brazil (with one large semiconductor plant in Austin, Texas) and Europe largely serviced by plants in Hungary, Slovakia, and the Czech Republic. Asia and much of the world was serviced by more than a dozen plants in China (which by 2007 made up 20 percent of Samsung’s worldwide workforce), as well as plants in India, Malaysia, Indonesia, the Philippines, Thailand, and Vietnam

Samsung Becomes the World Leader in Consumer Electronics

Samsung’s international strategy began to really bear fruit affer 2000. For four consecutive years, from 2000 to 2003, Samsung posted net earnings higher than five percent This was at a time when 16 out of the 30 top South Korean companies ceased operating in the wake of the unprecedented crisis. In 2005, Samsung Electronics surpassed Japanese rival, Sony, for the first time to become the world’s twentieth most valuable consumer brand, as measured by Interbrand. By 2013, Samsung’s brand was valued at $39.6 billion, making it the eighth most valuable global brand.72 Samsung became the world’s largest maker of LCD panels in 2002, the world’s largest television manufacturer in 2006, and the world’s largest manufacturer of mobile phones in 2012. Samsung has also become a leading producer in a broad array of other products, including tablets, laptops, printers, cameras, and refrigerators. In 2009, Samsung achieved total revenues of US $117.4 billion, overtaking Hewlett-Packard to become the world’s largest technology company measured by sales. And that was just the beginning. By 2013 they reached over US $207.9 billion in sales. Almost doubling their record setting sales in just four years and then maintaining that pace year afer year. Additionally, in 2013, 26 percent of SEC’s employees (approximately 235,868) were made up of R&D personnel.73 By 2015 SEC had been granted more U.S. patents than any other company - that incudes Google, Apple, Microsof, and IBM. By December of 2015 SEC had 7,679 U.S. patents.74 Moreover, SEC set the goal to triple its foreign R&D personnel (reaching 30,000) within the headquarters in Seoul, South Korea by 2022.75 Despite Samsung’s success in research, design, and innovation, it continued to stay true to its initial core strength in manufacturing and components. Samsung had long been a major manufacturer of electronic components and continued to be a leader manufacturing lithium-ion batteries, semiconductors, chips, flash memory and hard drive devices for clients such as Apple, Sony, HTC and Nokia. As of 2014, it operated 37 production facilities throughout the world, including Asia, Eastern Europe, the United States, and other regions.76 It continued to look for low-cost production sites, and in 2013, SEC announced that it would invest $2-4 billion to build 40 percent of its smart phones in Vietnam, where wages were one-third of those in China. Of course, as with any business, not everything went as planned. In 2012 a US Court ruled that Samsung had violated six of Apple’s patents. Samsung had to pay Apple $1.05 billion in damages.77 Even worse, in August 2016 SEC unveiled their newest, high-end smart phone, the Galaxy Note7, only to discover that there was a defect in the battery that caused some phones to catch fire or even explode. Ultimately SEC had to recall every Galaxy Note7 worldwide and permanently end production of that model. Despite those dificulties, Samsung’s future still looked very bright because it retained its position as the world leader in consumer electronics. The real question, though, is what did Samsung do right and what did the other three do wrong  Each of the other three companies had been the worldwide leader in consumer electronics - each with a diferent model and different responses to crises. Why Samsung And if the others lost their footing and fell from the #1 position is Samsung destined to follow in their footsteps

Answer 1

answer-

Samsung overtake phillips and panasonic by not staying in one or two product lines but give strong competition to panasonic and phillips to diversify its business into new trending market and introduce many kind of products to market. Samsung was known for being undisputed leader in semiconductors (DRAMS), TV screens, hard drives, and batteries but Samsung's leader lee did not stay in these market. he identified the opportunity in digitization and electronic items. Samsung started to produce its own TV, digital cameras, microwave, smartphones,laptops etc. The entering and increase product line reduces the risk of failure of samsung and get ahead of competition.there were 4 initiatives that helped lee to make samsung greater than philips and panasonic. those were decentralization, innovativeness, globalization, and outward-looking management.

The core competencies of samsung were its resources in the form of leadership, finance, strong brand and market leader in electronic items. the capabilities of samsung come from investment in manufacturing and production processes while improving R&D, design, and marketing. samsung open new and decentralize more production and R&D center all around the world.

for example- Company has factories in Japan, China, India, Hungary, Slovakia, Mexico, and Brazil. The new R&D centers in Japan, Frankfurt, and the United States—each working on the development of products for their respective regions of the world.

Samsung executed global localization strategy. This strategy, enable samsung to design and produce products on global standards while accommodating to specific market needs and cultural contexts.

For example, in India, where inexpensive but clunky cathode-ray-tube televisions were more popular due to their afordability, Samsung didn’t try and push its more expensive LCD flat screen televisions.

it also introduce recently exclusive M series phone for millennials in india based on thier affordability.