Competetive Strategy Analysis: Samsung - Essay Example

? Competitive strategy analysis – Samsung Table of contents Introduction 3 Porters Five Forces 3 The Value Chain 10 Strategic Clock 14 Summary 17 References 16 Introduction Samsung is one of the leading firms in the global electronics industry. Since its establishment in 1938 (Samsung History 2013), the firm has managed to achieve an impressive growth, expanding its activities in several countries. The strategy of the paper has been already analyzed using two critical analysis techniques, the SWOT and the PESTEL analysis. At the next level, the firm’s competitiveness needs to be identified in order to understand the potentials of the firm to face industry competition. The current status of the firm’s competitiveness is evaluated using three strategic tools: the Five Forces model, the Value Chain analysis framework, and the Strategic Clock. The first two models were developed by Porter while the Strategic Clock has been designed by Bowman. These theoretical models allow the identification of all aspects of the firm’s strategic position in the global market. In this way, the understanding of the firm’s current position towards its rivals and of its future prospects in the particular industry becomes easier. Porter’s Five Forces Literature review The Five Forces model of Porter (see Figure 1 below) highlights the forces that a firm is likely to face when developing its daily activities. The identification and the evaluation of these forces are necessary in order to check whether a firm has prospects in its industry or not (Hill and Jones 2009). The forces included in the Five Forces model of Porter are the following: ‘a) new entrants, b) suppliers, c) buyers, d) substitute products, e) industry competition’ (Henry 2008, p.69). The analysis of this model’s elements would help to understand its value for evaluating the potentials of Samsung in the global electronics industry. New entrants could threaten the performance of an industry’s existing firms reflect the following phenomenon: the entrance in an industry of a new firm would threaten the profitability of existing firms at the level that their customers could possibly choose to leave them and buy the products/ services of the new entrant (Roy 2011). Suppliers are able to press their clients to increase the amount paid for the products delivered by suppliers (Roy 2011). The power of suppliers to ask for increase in prices is higher as the material/ product delivered to the client is rare and cannot be easily located through other suppliers (Roy 2011). This phenomenon is known as the bargaining power of suppliers (Roy 2011). In sectors that are critical in terms of the material used in products, the bargaining power of suppliers can be high: for example, the pharmaceutical industry or the luxury cars industry (Roy 2011). At the next level, reference should be made to the other element of Porter’s model: customers. Customers are able to press firms to proceed to the reduction of their prices in the following case: when the products/ services provided by a firm become common in the market, the customers of a firm may decide to leave their firm and prefer the products of a rival that are at lower price (Gordon 2004). The specific potential of customers can exist only if a product is widely expanded in the market or if a new entrant that offers the same product at lower price has appeared in the local market (Gordon 2004). The term ‘substitute products’ is used for describing the products with similar characteristics but of lower quality (Ungson and Wong 2008). These products can be available at lower price since their production cost is significantly lower than that of the products with similar characteristics but of high quality (Ungson and Wong 2008). Consumers may prefer these products instead of those that used to buy until now in order to save money (Ungson and Wong 2008). Substitute products cannot particularly threaten a firm that offers products that cannot be easily replicated (Alrawashdeh 2013); Finally, reference should be made to the industry’s competition, as a critical element of the Five Forces model. The specific element is also known as competitive rivalry and has the following characteristics: a) in industries that have just started to flourish there are increased prospects for the new comers (Kew and Stredwick 2005); in these industries there can be no pressures from competitive rivalry (Kew and Stredwick 2005); in industries that have reached the top level of their performance, competitive rivalry can be increased causing strong pressures on existing firms (Kew and Stredwick 2005); c) in industries that are dominated by a group of large firms, ‘the competitive rivalry is intense’ (Kew and Stredwick 2005, p.25) since ‘it is quite difficult for discipline to be applied’ (Kew and Stredwick 2005, p.25). Figure 1 – Porter’s Five Forces of industry competition (source: Porter 2008) Grundy (2006) noted that the interactions between the elements of the model can be continuous and intensive. This view is made clear in the Graph presented in Figure 2. In the particular graph another version of Porter’s model is presented. The interdependencies developed between the model’s elements are understood by reviewing the model of Porter, as alternated by Grundy (2006). Figrure 1a – Interdependencies developed within the Porter model (source: Grundy 2006, p.218) The Five Forces model can help managers to take appropriate measures in order to minimize the exposure of their firm to risks (Henry (2008). For example, after reviewing the forces that their firm has to face within a particular industry the strategic managers of an organization may decide that ‘their firm should not enter the specific industry or that it should limit its operations within this industry’ (Henry 2008, p.70). The Five Forces model refers to a firm’s external environment (Faulkner and Campbell 2006). In this context it could be suggested that the forces incorporated in this model are not critical for business performance, at the level that it is primarily the internal environment that affects organizational performance (Faulkner and Campbell 2006). In practice, it has been proved that when referring to modern organizations the external environment can influence business operations at the same level as the internal organizational environment (Faulkner and Campbell 2006). In any case, a firm can use the findings of the Five Forces model in two ways: it can either search for a highly safe position within its industry or it can try ‘to influence the five forces for achieving specific benefits’ (Henry 2008, p.70). Use of Five Forces model in Samsung The Five Forces model could be used for evaluating the competitiveness of Samsung in the global electronics industry. Using this model, the competitiveness of Samsung in its industry could be analyzed as follows: a) New entrants; the electronics industry remains attractive to entrepreneurs worldwide. The low risks of the industry, at least as compared to other industries can be considered as a key reason for such phenomenon. In Figure 2 below the changes in the industry’s performance during the recent crisis, and up today is presented. It is clear that the industry has managed to escape the negative consequences of the crisis rather quickly, a fact that can be highly appreciated by new entrepreneurs. Figure 2 – growth of the global electronics industry during the crisis (source: Electronica 2008, p.8) b) Suppliers; suppliers are able to force firms ‘to increase the amount paid for their inputs’ (Amrollahi and Akhgar, 2013, p.164); in the case of Samsung such phenomenon would be difficult to appear because of the following reasons: b1) the components of electric devices can be identified in many suppliers worldwide, i.e. there is no uniqueness of the suppliers’ products (Amrollahi and Akhgar, 2013) and b2) the number of suppliers in the electronic industries is rather high (Q Finance 2007); so no case of pressure from suppliers would exist for Samsung; c) Customers; Samsung is already well positioned in the global market (Samsung About Us 2013). However, competition in the particular industry is high. In addition, the prices of electronic products/ devices are at rather low levels; customers of Samsung would be able to leave the firm and buy the products of a competitor. The following example could be used for explaining the above view: Munir et al. (2011) used Porter’s Five Forces model in order to check the status of competition in the mobile industry of Pakistan. It was proved that ‘low switching costs and the existence of strong rivals’ (Munir et al. 2011, p.704) could threaten the position of firms operating in the particular industry; d) Substitute products; the continuous financial turbulences has led many consumers to focus on price rather than the quality of the product; for Samsung it would be quite difficult to face effectively the pressures from substitute products since lowering the prices a lot could result to the inability of the firm to cover the cost of production (Numakura 2013); and e) Competition rivalry; electronics, as an industry, incorporates a ‘high range of specialist industries, from IT industry (governed by firms like IBM and Intel) up to the mobile phone industry’ (Q Finance 2007). In 2012 the industry was characterized by decline in profits, even in markets that used to perform high in regard to this industry, such as Taiwan and North America (Numakura 2013). However, Samsung proved quite capable in facing market turbulences. In fact, for 2012 its profits were kept at high levels, being increased compared to 2011 (Figure 3). Figure 3 – Financial indicators in regard to Samsung’s performance, from 2010 to 2012 (source: Samsung Financial Highlights 2013) According to the data presented in Figure 3, Samsung’s performance in 2012 has been increased, even if for the same period other firms in the particular industry have suffered losses (Numakura 2013). Such view would be verified by the fact that the growth of global electronics industry is standardized from 2011 to 2013 (Figure 4). In this context, Samsung would not have to face pressures from competitors as its potentials to secure its growth are quite high, as indicated in Figure 3 above. Figure 4 - % growth of global electronics industry (source: Decision 2009, p.13) The Value Chain Literature The Value Chain analysis framework has been developed by Porter (Saxena 2009). Porter established the specific model for helping managers in modern firms to identify strategies that could secure the competitiveness of their businesses (Saxena 2009). In the context of the particular framework, the activities of each firm are considered as a value system which, if appropriately managed, can help towards the increase of their competitiveness (Saxena 2009). In order to understand the specific framework it is necessary to refer to the characteristics of value, as described in the literature. Wulf (2012) describes value as ‘the amount buyers are willing to pay for what a firm provides them’ (Wulf 2012, p.37). The business activities that contribute in the increase of a firm’s value, if considered as a unit, they constitute the value chain (Rao and Sivaramakrishna 2009) According to Henry (2008) the Value Chain analysis framework helps ‘to assess a firm’s existing resources’ (Henry 2008, p.103); after completing this task it is easier to identify the market’s threats and opportunities and to establish plans that could secure growth, even in the long term (Henry 2008). Overbeck (2009) notes that the Value Chain analysis categorizes all firm’s activities into two, major, categories: ‘primary activities and support activities’ (Overbeck 2009, p.26). The careful review of these activities helps a firm to identify whether certain of its resources could be used ‘for developing an advantage towards rivals’ (Overbeck 2009, p.26). From a similar point of view, Jonker and de Witte (2006) note that the Value chain analysis helps a firm to understand clearer the potentials of its resources to be used for developing a competitive advantage. In regard to this issue, Wulf (2012) supported that the Value chain analysis can be used only in case that the availability of a firm’s resources is secured; estimations in regard to the potential availability of resources for developing one or more business tasks could not be accepted for developing a firm’s value chain (Wulf 2012). When studying a firm’s value chain, there are certain facts that need to be taken into consideration: a) firms can choose to emphasize on different aspects of their strategic activities in order to increase value (Vom Brocke and Rosemann 2010), b) the effects of each strategic activity on value may differ in firms with different characteristics (Van Weele 2009); c) in certain cases, it is possible for a firm’s strategic activities to be considered as belonging in a single chain, not in two chains, as Porter suggests (Taylor 2008) and d) the elements of value chain can be differentiated across firms operating in different industries (Bamford and West 2010); reference is made to the strategies that each firm employs for developing its daily activities and for achieving its goals (Bamford and West 2010). Figure 5 below shows the parts of the Value Chain analysis, as developed by Porter. Figure 5 – Value chain analysis framework of Porter (source: Porter 1985, as cited in Research Methodology net) Value Chain Analysis for Samsung The Value Chain analysis framework could be used for identifying the strategic activities of Samsung that could be used for the development for the firm of a competitive advantage. Using the above framework, the strategic activities of Samsung could be categorized as follows: A. Primary activities Inbound logistics; include the firm’s employees working on the development of innovative technologies in regard to the firm’s products Outbound logistics; Samsung’s products are available through retailers in many countries worldwide; the extensive network of sellers is one of the firm’s strengths Operations; the firm’s operations are expanded globally through schemes of cooperation with strategic partners, as explained in Figure 6 below. Figure 6 – Existing network of Samsung’s strategic partners globally (source: 2011 Annual Report, p.19) Marketing and sales; the firm’s sales are kept at high level, despite the decline in the performance of many firms in the electronics industry (Figure 3). The products of Samsung are promoted in the market through similar marketing tools like those used by competitors; reference is made, for example, to press, media and social networking sites. Service; the firm’s vision is ‘Inspire the World, Create the Future’ (Samsung Vision 2013); it is clear that emphasis is given on customer value, as a key criterion for the strategic choices of the organization. B. Support activities Infrastructure; Samsung emphasizes on the excellence of its services to the customers; a series of support activities, such finance and technical support is available to the firm’s customers. Human Resource Management; The HRM of Samsung is common with that used by the industry’s major competitors; fairness and equality are the key characteristics of HRM in Samsung Technology development; for Samsung R&D is of critical importance for the firm’s success; appropriate R&D are continuously developed so that the uniqueness of the firm’s products is secured, as possible. Procurement; the firm has established an innovative scheme for attracting suppliers. This scheme is presented in Figure 7 below. Procurement could be considered as one of the firm’s major advantages compared to its rivals. Figure 7 – Procurement in Samsung (source: Samsung Global Procurement 2013) Strategic Clock Literature The Strategy Clock of Bowman (Figure 8) is based on the interaction between two strategic criteria: ‘perceived user value and price’ (Pitt and Koufopoulos 2012). In general, the Strategy Clock reflects the differences in customers’ willingness to pay a specific price for acquiring products of particular characteristics ((Johnson and Whittington 2009). The Clock also shows the following trend: the expectations of people in regard to the products they buy tend to vary (Johnson and Whittington 2009). According to Obitz (2009) the flexibility of Strategy Clock offers the following advantage: ‘the interdependencies developed in regard to price and customers’ perceived value can be fixed’ (Obitz 2009, p.56). Also, the Strategy Clock offers to firms the chance to choose the strategy they prefer for resolving a key organizational problem (Wittmann and Reuter 2008). The use one of the strategies suggested by the Strategy Clock does not exclude the potential use of other strategies, for responding to emergent business problems (Thomson and Baden-Fuller 2010). Figure 8 – Strategy clock of Bowman (source: Mindtools 2013) As a strategic tool, the Strategy Clock can be characterized as quite effective, offering the advantage of choice between different strategic approaches, such as the reduction of prices and so on (Jeffs 2008). In addition, it has been revealed that the strategy clock is more flexible that other strategic frameworks for achieving a competitive advantage (Jeffs 2008). The Strategy Clock suggests eight potential strategies for promoting competitiveness; each firm can choose the strategy they consider as most appropriate for responding their needs (Jeffs 2008). Although the mode of the strategy is standardized, meaning that each firm need to choose one of those strategies included in the strategy, the approaches used by each firm to promote this strategy can be differentiated. Strategic Clock as a strategic tool for Samsung In Samsung, the Strategic Clock could be used as a tool for identifying strategies that can ensure the high competitiveness of the organization (Jeffs 2008). Among the strategies incorporated in the Clock the strategy that could be considered as most appropriate for firms operating in the same industry with Samsung are: Strategy No 3 and Strategy No 4 (Figure 8). As already noted, Samsung cannot decrease too much the price of its products since such practice could possibly require the decrease of quality of the firm’s products. In other words, it would be difficult for the firm to meet the terms of Strategy No 3 (Hybrid Strategy). However, because of the pressures from substitute products, as analyzed earlier, the firm needs to identify strategies that are based on the following practice: ‘moderate differentiation and moderate price’ (Mindtools 2013, Figure 8). Using the Strategic Clock an important competitive advantage of Samsung is revealed: the firm has already managed to meet the terms of Strategy No 4, the Differentiation Strategy. The specific strategy is based on the following terms: the products offered to customers are of high – perceived value (Mindtools 2013, analysis of Strategic Clock). Samsung secures the level of value of its products not by increasing too much its prices but by keeping its prices at average to low level while seeking for continuous expansion in the global market. Summary Electronics industry is a highly competitive industry. The industry’s competitiveness can be evaluated using a series of strategic tools, as those presented above. It is made clear that despite the market pressures and the increased competitive rivalry the industry’s prospects for growth are significant. 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