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HBR Samsung Case: Industry Analysis
In 1993, Samsung restructured its operation to concentrate on three industries: electronics, engineering, and chemicals, with electronics becoming the primary industry. This renewed focus allowed the company to invest more in LCD technology making Samsung emerge to be the Worlds largest manufacturer of LCD panels by 2005. Further focus on mobile phone electronics made the company become the largest producer of mobile phones in 2012. This primary industry remains highly attractive in this era of technological advancements, with several competitors such as Sony, Apple, LG, Huawei, Nokia, among others. This paper, therefore, conducts an industry analysis to understand the attractiveness and the competitive ability of Samsung.
Industry Analysis: Porters 5 Forces Analysis
Porters Five Forces analysis tool is ideal in assessing how the market drivers influence performance of Samsung, and the process allows the identification and adoption of suitable management strategies capable of facilitating improved productivity and maintaining their competitive advantage
Industry Competitive Rivalry
The electronics industry and particularly the mobile phone electronics is a highly competitive industry that can present formidable competitors to Samsung. The main competitors of Samsung include LG, Nokia, Apple, and Motorola, among others. Samsung still leads the industry by controlling 26.2% of the global market share; Nokia comes second at 14.1%, Apple controlling 7.2%, and LG and ZTE coming fifth at 3.5% of the market share. The remaining 39.2% is shared by several other small companies (Epstein, 2013). Apple products give Samsung fierce competitive rivalry from their smartphones technology, with several iPhones that are similar to the Samsung smartphones. This rivalry is more tense and tight in the emerging markets such as India where Samsung has to compete with several other local as well as international players. To keep their competitive edge, Samsung must always diversify and produce superior products, adopt a cost leadership strategy, continue the research and development to develop new strategies, and grow the unique company culture.
The Threat of Potential New Entrants
Electronics industry is a capital intensive industry that requires much capital to enable establishing the large technological investment, the distribution channels, manufacturing plants, and the service outlets. This high cost of setting up limits the potential entrants in the industry. Similarly, the switching costs are high for customers, especially when they are familiar and loyal to the already existing companies. The branding and customer knowledge for the new entrants may be very expensive. This gives Samsung a well established competitive advantage to maintain its lead.
Buyers Bargaining Power
Mobile phone users have the power to bargain the prices downwards based on the fact that there are several products that are similar in other companies. For instance, the products of Apple are almost similar to those of Samsung. This means that customers can easily switch from one brand to another at the slightest dissatisfaction and also based on the cost. Large scale and repeat buyers retaining the Samsung products also have power to bargain the prices in order to continue buying. Based on the fact that there are several companies offering similar products, such customers buy from companies where they receive better discount; hence, Samsung must negotiate with customers to maintain its market share.
High Threat of Substitutes Products
In regard with the availability of similar mobile phone products, there is a high threat to substitute goods. The current Samsung customers can easily switch to Apple, LG or Nokia products, which are also readily available in the markets and have same features and applications. This threat is also applicable for plasma TVs, microwaves, Laptops, tablets, among others.
Suppliers Bargaining Power
The electronics industry has numerous suppliers in the developed supply chain. In case Samsung fails to meet their agreement with a supplier, the supplier can easily switch to the alternatives such as LG, Apple, or Nokia, thus disadvantaging Samsung. An example of such suppliers in the mobile phone industry with high bargaining power is Seek International. The supplier also has products that are compatible with Nokia, which makes it easy to switch if not given better offers and discounts by Samsung. To avert this challenge, Samsung studies the market forces before entering a market.
One strategy that Samsung adopted is cost leadership. Samsung has the ability to produce more products in a single run, thus enjoying lower production costs than its competitors from the US, Germany and EU. This is also attributed to the lower labor costs in South Korea. The companys core design for customized products and associating with others helps the company save about 12% on construction and mobile production costs. The income statement reveals that the revenue and profits of the firm have consistently grown for the last five years. Revenue grew from $116,938.444 to $136,383.949 in 2010 and to $188,373.754 and $215,085.453 in 2012 and 2013 respectively. Gross profits also grew from $35,794.971 in 2009 to $45,831.811 in 2010 and to $69,738.891 and $85,582.075 in 2012 and 2013 respectively. This shows a growth in profit before tax by 22.7% in 2013 (Hoovers.com, 2015). As noted earlier, Samsung tries to keep the cost of production as low as possible. For instance, the production cost of Samsung Galaxy S4 is estimated to be $244; then using the cost plus pricing strategy, the products sell at ?529 in UK, priced range 600-700 in the rest of Europe and about $579 in U.S. (Calif, 2013).
This paper analyzed how attractive the mobile phone industry, in which Samsung operates, is. This analysis has been done using Porters 5 forces analysis tool and had outlined the positive financial performance of the company, highlighting the consistent revenue and profit growth for the last five years.