The Nature of the Relationship between Firms: Samsung and Apple - Essay Example

? The Nature of the Relationship between Firms: Samsung and Apple Contents Contents 2 Introduction 3 The benefits from the nature of the relationshipbetween the two firms 3 Learning 4 Apple vs. Samsung litigation 5 Global Collusive Oligopoly 6 Opportunity Cost 7 Flexibility and Control 8 Dominant Element 9 Apple and Samsung 10 Conclusions 11 References 13 Bibliography 15 Introduction Samsung and Apple have turned out both ardent competitors in the mobile gadget industry. In the course of the competition both the companies tend to gain mutual benefits and advantages from each other. Apple tends to gain the research and development benefits of Samsung to enhance its product quality of its iPhones and iTabs. On the other hand, Samsung tends to gain the marketing potentials of Apple to thereby gain in required revenues pertaining to the sales of its components. The paper in turn focuses on understanding the contractual benefits gained from the relationship between the two firms through the use of theoretical underpinnings to bring out potential inferences. The benefits from the nature of the relationship between the two firms Apple and Samsung, the two firms tend to gain mutual benefits by dearth of their relationships. Kogut and Zander reflect to this end that each of the different firms tend to become a large repository of knowledge developed by mode of interactions of the individuals employed. The tacit knowledge of the individuals or groups is transformed into explicit knowledge such that the same is shared with the external stakeholders in the form of effective outputs. People employed in an organisation focus on generation of ideas that thereby contribute in the generation of a large database of knowhow needed for gaining competence in the marketplace (Kogut and Zander, 2003, p.519-520). Samsung tends to become a large repository of knowledge through large scale investment in research and development activities. The company tends to render utmost priority to the activities relating to research and development so as to enhance their competitive potential in the global marketplace for technological products. Organisational culture in Samsung focuses on generating active collaboration and cooperation between the different business partners and supply chain bodies in terms of enhancing the overall technological competence. Research and Development being in the list of core priorities for Samsung tends to attract firms like Apple that get inclined on forming a contract with the same (Samsung, 2012). Apple tends to gain support from Samsung on a considerable scale pertaining to the production of iPhones. Samsung is found to be the largest supplier for essential components required for production of iPhones thereby making Apple dependent on the latter for essential knowhow (The Economist, 2011). On the contrary Samsung focuses on enhancing its component sales in terms of becoming the potential suppliers for the most important components for manufacture of iPhones. Out of the 70 percent market share relating to the supply of components for innovative mobile gadgets possessed by Samsung the supply chain activity rendered to Apple amounts to around 40 percent. Thus the above data reflects that Samsung’s supply chain activities for components in the production of iPhones by Apple are a strategic outlook developed by the company to enhance both its revenue and profit margins. Estimates and forecasts made further reflects that during 2013 the sale and supply of components for mobile phones and gadgets by Samsung would contribute in generating total sales of around $13 billion with a total operating profit estimated to be around $2.2 billion (Kim, 2012). Thus in where Apple tends to depend on Samsung for needed technical knowhow and expertise for production of iPhones and iTabs the latter tends to depend on the former for gaining on in further revenue and profit potential. Learning Employees pertaining to an organisation tend to reflect different sets of technical knowhow and skills that in turn tend to differ from other concerns or organisations pertaining to the same or different industry. These sets of technical know-how or skills pertaining to an organisation is held to be the Tacit body of knowledge that generally cannot be fails to be get codified and thus easily transferred. Gaining or sharing of the tacit knowledge component is possible only in terms of gaining an integral part in the operational and practice scenario. The tacit body of knowledge to be gained or shared requires organisations to voluntarily participate in the practice of production or generation activities on an equivalent scale. Thus in here, Apple tends to gain support of the tacit knowledge of the research and development activities of Samsung pertaining to the gaining of requisite components and technical knowhow for the production of iPhones. Apple and Samsung both tend to possess tacit knowledge relating to the production of innovative mobile gadgets. Tacit body of knowledge pertaining to research and development ability for the production of innovative mobile gadgets essentially cannot be separated from the applicability of the same in production of required parts. Thus the relationship patterns of both Apple and Samsung gets enhanced through the sharing of needed knowhow and skills for the production of the mobile phones to meet the needs of the targeted market (Lam, 2000, p.492). Apple vs. Samsung litigation As Hymer observes that two or more firms competing with each other to conduct the sales of goods relevant for both in a particular zone or business territory whether national or internationally based in a horizontal or vertical fashion tends to run into potential conflicts. It is because in the form of horizontal coverage the firms generally act as complementary to each other in the optimal utilisation of the available resource base to gain or enhance the profits and market share in the oligopolistic market structure. These firms to avoid the event of collision can generally form mergers or go for acquisitions to jointly gain on the profits and revenue generated. However in that the firms are also potential leaders on an individual basis in their own relevant markets pertaining to significant geographies there lays the chance for emergence of potential conflicts such that the profits and revenue gained fails to offset the costs of production. The same concept also applies in case of firms operating on the basis of vertical integration such that where they tend to operate based on a single source of supply (Yamin, 1991, p.67-68). Herein, Apple and Samsung tend to form a duopoly market in the generation of innovative mobile gadgets and tablets. These two companies are found to operate based on a vertical integration fashion such that Samsung acts as a potential supplier to Apple in the generation of components for the production of iPhones and iTabs. However Apple in the course of creating an obstacle for Samsung in entering the European and Australian market filed a suit against Samsung on the fact that the latter had copied some of the features of its mobile gadgets in the generation of Galaxy Tabs. However Samsung also filed a suit against the former in terms of patent infringement activities (The Economist, 2011; Yang, 2011). Firms operating in a vertical integration fashion tend to gain success such that there is existence of reduced trade and tariff barriers pertaining to the gaining of investments and partnerships in the formation of supply contracts by one firm with the other in the production of like commodities. However the company gaining the supply or investment from the former company can also focus on developing its core competencies in the enhancement of the local supply chain base thus reducing the dependency on the foreign concern. Global Collusive Oligopoly The event of Collusion in the Oligopolistic market emerges significantly when one company tends to take resort to considerable negotiations or agreements with other competing firms in the same industry to gain mutual growth and incentives. The companies can tend to enhance the incentives or profits attributable through the mode of reducing mutual competition and thereby tending to gain on in mutual profits. Similarly the strong coordination between oligopolistic firms would also contribute in the reduction of potential threats pertaining to the entry of foreign firms. Again the formation of effective collusion agreements and contracts would also reduce the threat of competing firms forming strategies to reduce the market share and profitability concerned of the other firm. These three events tend to contribute in the growth and enhancement of profitability and market share of the oligopolistic firms (Pagoso, Dinio and Villasis, 1994, p.246). Apple and Samsung are found to be two technology companies that are increasingly performing in a collusive fashion in the oligopolistic mobile market framework such that Samsung tends to share potential technological and supply chain information and logistics with Apple thereby contributing to the development of its marketing base. On the other hand Apple contributes in the revenue and market enhancement and also in the profitability development of Samsung in the targeted high-tech mobile market. Opportunity Cost The companies to form a contract to gain on individual competencies related to marketing and production capabilities are required to considerably evaluate their networking decisions in terms of costs factors and also in terms of their popularity related to local areas. Price or cost factors being evaluated would contribute in the gaining of profitability involved and similarly would also relate to the economies of scale gained pertaining to the cost associated related to the production volumes. Similarly the development of adequate networking bases along different markets would enable the companies to gain adequate revenues from the relevant markets. Flexibility and Control Hymer’s Theory of Transnational Corporation focus on the dual activity sets concerning centralisation and decentralisation and also on the parameters of integration and differentiation on a simultaneous fashion. Firms tend to decentralise its operations to gain effective entry into new markets to gain relevant opportunities in terms of market expansion and growth. Moreover focusing on the parameter of transactional opportunity and cost firms tend to form bargaining relationship with other firms thereby to gain on the resource and knowhow to produce efficient goods to gain on the competition in the external or foreign markets. Firms tend to gain larger flexibility through the parameter of collusion as noted in the duopoly or oligopolistic market in that it conducts bargain with other firms to take part of the production or marketing ventures and thereby contribute in the gaining of potencies. Herein, Apple tends to gain larger flexibility through the outsourcing of its production activities in the hands of Samsung such that the latter contributes in the rendering of components for the production of iPhones. Apple tends to centralise on the contrary its marketing ventures rendering further importance or priority to such. On the other hand, Samsung renders further importance on the production activities thereby centralising such and enhancing based on applicable knowhow and skills through promoting large scale research and development opportunities internally. Samsung on the contrary decentralises its marketing functions and potentials outsourcing them in the hands of third parties like Apple that in turn contributes in the gaining of effective markets for the production capabilities of the former. Dominant Element Firms tend to capitalise on their production and marketing capabilities to gain core competence in the international markets and outsource the parts in which they tend to reflect weaker dominance. The dominant element for the firms is the tangible elements like the different production and manufacturing resources or the different intangibles pertaining to the knowhow, skill sets, marketing and supply chain potentials. Firms tend to enhance the power through augmenting the skill sets and production and manufacturing opportunities and through forming contractual relationships with other firms to thereby outsource other activities in which no power is considerable reflected like potency to gain on market or supply chain opportunities. This contractual relationship between the different firms is also reflected in that where the firm tends to enhance the power or dominance in the gaining of potential market or supply chain opportunities through augmenting their marketing potentials and gains contracts with other firms to aid in their production activities. Thus firms tending to expand in the international landscape would not require on the creation of further multinational enterprises in the different international branches. Creation of international branches would amount to higher costs for the ownership firm in terms of management and development of its production and marketing capabilities to help gain larger profits. Thus these firms in the mode of internationalization focused on another plausible alternative of forming sub-contracts with other foreign firms to supply them with resources in which they lack core competencies. Outsourcing of elements in which the firm lacks core competence contributes in the optimal utilisation of the resource base present to gain on production and marketing potentials. Henceforth, herein that Apple lacked core competencies relating to production it formed contractual relationship with Samsung to help deliver effective supply chain components to produce iPhones and iTabs. The firm had needed and adequate power pertaining to marketing activities that in turn required Samsung to considerably depend upon for effective marketing of its research knowhow and skills. Samsung on the other hand reflected effective dominance pertaining to possessing an effective research and development base for the production of innovative and high quality components for electronic and mobile gadgets. This potency of the firm attracted the formation of contracts by Apple to gain the supply of components for enhanced production of its phones and gadgets. On the contrary it depended on the forming of contracts with its competitor Apple in the gaining of effective marketing potentials to thereby enhance its sales revenues earned from the sale of components in the global market. Apple and Samsung Samsung focuses on internalising its production and research and development capabilities to enhance its dominance and power related to the effective and innovative production of different types of components used in gadgets and phones. Internalisation of its production and research and development bases contribute in the gaining of considerable dominance and power to thereby gain active control on its contractual parties to continue purchasing the same from them. Moreover Samsung is also noted to market the components produced at a comparatively lesser price than that gained in from other firms. Thus owing to the parameters of quality and price Apple is held to continue its contractual relationship with Samsung for the gaining of effective components for the production of its iPhones. Similarly Apple tends to internalise its marketing potentials to thereby gain on the required dominance and power to help deliver the considerable amount of revenues to the contractual parties like Samsung that supplies the required components for production of its iPhones. Thus where internalisation of the production and research and development capabilities enhances the quality paradigm of the components produced relating to Samsung; similarly the internalising of the marketing features and potentials on the part of Apple requires Samsung to effectively depend on the latter to gain in the required revenues and profits from the global market. Conclusions Apple and Samsung are global players in the cellular industry related to the production of innovative mobile gadgets and phones. However the two companies are found to effectively depend upon each other for the gaining of internal potencies pertaining to the development of markets along the international region. Samsung through its potential research and development activities carried out in the internal landscape focuses on rendering high quality components at comparatively low price to its contractual partners, Apple. On the other hand Apple through the use of its marketing potentials aims to deliver the required revenues to Samsung relating to the sale of the quality components for iPhones and iTabs. Apple is noted to be the largest contributor in revenue earning pertaining to the component sales business arm of Samsung. The paper effectively analyses the relationship between these two companies in terms of theoretical designs to evaluate the effectiveness in such in mutually benefiting the two companies. It also analyses the mode of conflicts pertaining to the two companies competing in the same industry based on related dependencies to gain hold of a larger marketplace. Apple and Samsung operating on a duopolistic framework tend to actively form collusions to gain on profits and competencies and also in reducing threat from the entry of rivals in the related industry. However a current breach of contract pertaining to the two companies led to litigating activities tarnishing their long-term relationships. This type of contractual braches though possible relating to the duopolistic companies to gain on the local marketplaces can be effectively streamlined through the process of sub-contracting rather than focusing on the formation of multinationals. References Kim, M., 2012. Analysis: Friend and foe; Samsung, Apple won't want to damage parts deal. Reuters [Online]. Available at: http://www.reuters.com/article/2012/08/27/us-samsung-apple-supply-idUSBRE87Q06N20120827 [Accessed December 7, 2012]. Kogut, B., and Zander, U., 2003. Knowledge of the firm and the evolutionary theory of the multinational corporation. Journal of International Business Studies (2003) 34,516–529 [Pdf]. Available at: http://teaching.ust.hk/~mgto650p/meyer/readings/7/KogutZander1993.pdf [Accessed December 7, 2012]. Lam, A., 2000. Tacit Knowledge, Organizational Learning and Societal Institutions: An Integrated Framework. Organization Studies, 21(3): 487-513 [Pdf]. Available at: http://depd.gov.bn/download/KBE/Tacit%20knowledge%20organisational%20learning.pdf [Accessed December 7, 2012]. Pagoso, C., Dinio, R., and Villasis, G., 1994. introductory MICROECONOMICS. United States: Rex Book Inc. Samsung, 2012. Research and Development [Online]. Available at: http://www.samsung.com/us/aboutsamsung/ourbusinesses/researchdevelopment.html [Accessed December 7, 2012]. The Economist, 2011. Slicing an Apple [Online]. Available at: http://www.economist.com/blogs/dailychart/2011/08/apple-and-samsungs-symbiotic-relationship [Accessed December 7, 2012]. Yang, J., 2011. Samsung Sues Apple on Patent-Infringement Claims as Legal Dispute Deepens [Online]. Available at: http://www.bloomberg.com/news/2011-04-22/samsung-sues-apple-on-patent-infringement-claims-as-legal-dispute-deepens.html [Accessed December 7, 2012]. 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