Strategic Audit of Samsung Corporation

V. Analysis of Strategic factors Based on the SWOT analysis and the subsequent creation of the IFAS, EFAS and the SFAS tables, discussed below are the most important strategic factors that would affect Samsungs performance in the short, medium and long term and also its present performance. A. Situational Analysis From the SFAS Matrix, discussed below are the most important internal and external factors that affect Samsungs performance i. Access to funding Samsung is one of the largest conglomerates in the world having a huge market capitalization among its group companies and is also the largest consumer electronics companies in the world. This puts it in a position of strength in terms of market power and also in access to capital which is very important for future growth and survival in the intensely competitive scenario of today. Samsung has huge reserves and also has access to unlimited loans from South Korean banks that would fund its business and growth plans. This access to funds allows Samsung to be aggressive, pursue acquisitions, enter new markets and also manage its cash flows in a recessionary scenario such as the one that exists today.

ii. Diverse and Global Presence From being South Korean company that has its operations primarily based there, Samsung has expanded itself to have a global presence all across the world including the Americas, Europe, Asia and Australia. It is present in all the developed markets where there is demand for higher value added products and also in the emerging markets where there is very high demand across product categories and very high growth rates. In addition to that Samsung has a very diverse product portfolio in consumer electronics and has products that span the entire range. In addition to that it is a supplier of parts such as flat panel monitors and memory to many other corporations across the world that ensures that it has steady cash flows. In addition to being present both in the consumer, business and trade side in the consumer electronics business, Samsung through its other group companies has got varied interests in many other industries such as real estate, shipping etc. This product diversification across categories and industries ensures that it has got its risk spread out and also achieves synergies due to interdependency between these companies. It has to be noted that even though it is present in so many sectors, it is a strong player in most of the markets that it operates in.

iii. Brand Value Samsung has been consistently ranked among the top twenty brands in the world by the many surveys such as Interbrand. This strong parent brand that it has established gives it instant recognition that adds positively to each of its products and also enables it to grow and scale up very fast in each and every market that it enters. The brand value that it has also ensures that consumers relate to Samsung, trust the name and also ensure a premium pricing in a competitive industry. iv. Falling operating profit across products From the annual report of Samsung and various analyst presentations, we can see that the margins across the four product divisions have been falling and thus reducing its overall profitability. This is especially noticeable in its memory, LCD and B2B businesses with only the new media business driving the profits. This could be attributed to the oversupply and the tough economic conditions. v. High demand in Asian markets For future growth, Samsung should target in expanding its presence and scaling up its operations in economies that show great promise such as the BRIC economies. This is because that high economic growth rates puts cash into the hands of consumers in these

economies that has pushed growth rates in these economies. Also the volumes and margins in these economies are bigger compared to the developed economies. vi. Good demand in higher value added products From the annual report, we can see that even though there is stagnation in the commoditized products per se, there is very high demand in the higher value added products such as the bigger LCD monitors, phones that have more capability and features etc. Samsung should try to focus on research and design that would ensure that products that are innovative, margin rich are produced. vii. Demand for design and innovation As has been discussed, there is a huge demand for products that are on the cutting edge of innovation and design as has been demonstrated in the case of the Apple I-pod and the Apple I-phone. Even in a market that is very price sensitive and intensely competitive, consumers are willing to pay a premium for a product that is different and can solve a latent consumer need. viii. Weakening Global Scenario and tending towards recession From the start of 2008, the global and economic scenario has been very weak with falling stock market, rising interest rates, rising oil prices, weakening and then strengthening dollar all

leading to decline in profitability, consumer spending and very tough time across industries. This scenario is tending towards recession which would be a very bad situation for a company like Samsung with its revenues and profitability being affected very badly. ix. Lower spending on consumer goods in major markets As has been discussed in the previous point with regard to the weak global scenario, there has been very low consumer confidence and consumer spending across categories which have been in its lowest in some of the biggest markets in the world such as that of the United States. Consumer confidence and low spends directly impacts all segments of the industry such as retail and also the producers of durables and luxury items such as high end and innovative products as consumers generally cut down their spending on luxury items during this time. x. Companies like Apple, Dell, HP etc actively entering consumer electronics markets Apple and Dell, who till 2005-06 had been competing primarily in the computer hardware, due to the extreme levels of competition and market maturity in that industry has entered the consumer electronics markets with their related diversification strategy. They have had good

amount of success as well due to their instant brand recognition and their reputation in the market. They have entered the television, LCD panel, music players market in a big manner and are expected to do well giving tough competition to the incumbent players in this market such as Samsung.

B. Review of Mission and Objectives Samsung has very clearly defined mission statement that gives it direction and propels it towards growth over the years. Economic contribution to the nation, Priority to human resources, Pursuit of rationalism is its mission statement that shows the reasons for the existence of the company. It has been delivering consistently on this mission statement as it has been one of the largest wealth creators on the world and the biggest company in South Korea, it has a very high employee commitment levels that ensure dedication and commitment to its vision and also its pursuit of rationalism by bring to its customers some of the best products that make their life better. In addition to their above defined mission statement, they have a very clearly defined management philosophy that says, We will devote our human resources and technology to create superior

products and services, thereby contributing to a better global society that shows a vision that guides each and every activity that is done in the company. Also Samsung shows a very high degree of customer orientation putting in a lot of though and to ensure that their products are based on customer need that ensures better success than being a very product oriented company. Based on the current strategic thrust and objectives, I feel that Samsung is very well positioned to leverage its position of strength, has clarity on what it has to achieve and has very distinct mission statements that guide it to execute perfectly in delivering on its objectives.

VI.

Strategic Alternatives and Recommended Strategy A. Strategic Alternatives The current strategic objectives are to demonstrate product leadership, strong performance, global presence and profitability, focus on research and development and customer orientation. To ensure meeting these objectives Samsung has a strong mission statement and management philosophy and being a conglomerate follows the related

diversification and also the unrelated diversifications in the other group companies that it has. Discussed below are the major strategies that it should look at in addition to its current strategy to leverage its position and become a dominant presence in the worldwide consumer industry. i. Growth Strategy at the Corporate level Due to the declining global economic conditions, its performance has been stagnant in certain segments. Given the opportunity that a tough global scenario presents to a large player like Samsung that has a history of successful acquisitions, it must actively look at opportunities to leverage its brand and grow fast in growth markets. ii. Differentiation at the Business level Due to the commoditization of vanilla products such as memory, flat panel monitors etc. it has been hurt with lower profitability in these segments. However it should invest in latest technology to ensure that it comes out with cutting edge products that have demand with very high margins such as the I-Phone or I-pod. iii. Cost Leadership at the Business level Since Samsung operates at a very big scale and also since it is a supplier for many raw materials for its own products , it would

definitely have a cost advantage over other competitors that would not have this advantage. This it can effectively use to drive volumes through lower cost that would also bring it customers away from competition and also ensure steady cash flows in a tough economic environment. iv. Leveraging Information technology at the Functional Level Due to the scale of operation that Samsung has, it must be having a lot of knowledge captured within the company in the form of customer information, customer preferences, market trends etc. It must use the latest information technology tools such as business intelligence to make use of this data to understand its customer even better, engage them at a more targeted level to ensure brand loyalty and higher margins.

B. Recommended Strategy Based on SWOT analysis and the subsequent SFAS matrix, below is the TOWS Matrix for Samsung that recommends strategies that it should leverage to ensure present and future growth
Internal factors Strengths Weaknesses

Opportuni ties

Exter nal Facto rs

SO Strategies Investment in research and development Acquisitions for growth Leverage brand for growth and expansion in emerging markets ST Strategies Leverage brand to differentiate Focus on innovation for higher margins

WO Strategies New markets for increasing profitability Higher margin innovative products to drive profitability Acquisition of new technology for innovation WT Strategies Differentiation to avoid commoditization Diversification into new emerging markets Invest in branding and customer loyalty programs

Threats

As can be seen from the above TOWS matrix, Samsung should pursue growth, expansion in emerging markets, invest in innovation and research and go for a differentiation strategy as its future strategy. Discussed below are the recommended strategy based on the TOWS matrix 1. Growth Based on its strength of market capitalization, access to funds and a very strong brand, Samsung should aggressively pursue growth through various means such as international expansion, regional expansion and expansion through acquisition to ensure that it comes out f the current tough economic conditions as a dominant entity on the world level and as the strongest player in each of the geographies that it operates in. 2. Differentiation In order to move away from profitability pressures and ensure that it is not competing at the lower end of

the market, Samsung should strengthen its investment in research and developments and also possible try to capture additional value or access to new and cutting edge technology through acquisitions. This will ensure that it has better profitability and also that it is catering to the higher value added market that has good demand and also very good profitability. 3. Information technology focus To ensure better targeted positioning and also products that meet the customer needs, Samsung should heavily leverage information technology to ensure that it is able to satisfy customer needs the best. This would leverage on its strength of huge market presence and customer know how to prevent lower profitability and ensure better satisfaction. 4. Branding and customer loyalty - In order to ensure that it fights off competition and enjoys a premium positioning that can allow it to get better margins, Samsung should invest more in branding and customer loyalty programs that ensure that Samsung is the first choice when consumers want to purchase anything. Also customer loyalty would play a very important role in tough economic conditions such as this and would help customers choose Samsung over other competitors.

VII.

Implementation Samsung Electronics has restructured itself into four strategic divisions namely semiconductor, telecom, LCD and digital media and each of these four divisions have their well defined strategies, customers, operational focus and critical success factors. At a group level Samsung being a very large conglomerate has separate businesses each which operate as separate entities with their own mission and strategic objectives. In addition to the above structure that positions Samsung very well in order to achieve its future and present growth goals, and with its very high process orientation and customer focus, the only other thing that Samsung would require would investment into information technology that would help it to mine the wealth of information that exists in the company come out with knowledge about the customers and the market that will give it additional insights to leverage its capabilities to ensure that it overachieves on its strategic objectives. Though this would be an information technology initiative that is supposed to bring in organizational benefits, due to the strategic importance that this would play in the overall organizational strategy, this initiative should be championed at the executive level so that it is given the due importance that is necessary to make this a success. Only when the senior management and then the leadership and managerial team realizes the importance of this to overall strategy will

this initiative work and hence the CEO should be the person championing this program. Though Samsung would not have to change an of their operating procedures, there should be orientation towards appreciation of how this can transform their business and help them achieve the overall strategy. VIII. Evaluation and Control Samsung, being one of the best known brands and also one that has witnessed very fast growth in recent times, must without a doubt have the best information system that would not only allow it to execute its organizational strategy but would also have features that would give it feedback and reporting capabilities on a real time basis that would ensure that Samsung can keep a very close track at required intervals on its strategic and operational objectives so that it can monitor and make necessary changes as and when required. However to ensure that it is able to measure strategic factors, the usage of the balance scorecard is recommended that would allow it to closely track strategic, financial and operational controls, so that it can closely evaluate how it is progressing on its strategy and also bring in control when necessary and make changes to operational strategy whenever needed. The balance scorecard is an established and well

known tool and should be used for evaluation on its progress on its strategic objectives. To ensure that it can measure its performance at a granular level by which it can break down its objectives and measure and pinpoint at by area, unit, project or function, it has to leverage information technology especially data warehousing and data mining that can give it the capability to slice and dice real time data to ensure that it can generate real time reports, extract exceptions and take necessary corrective actions in the quickest possible time. In addition to the information technology, Samsung realizes that people are the biggest asset that it has which can be seen in their mission statement. The information technology system that it has and the data that it captures about performance should be objective, detailed that would give people insight into what is expected out of them so that they can put in their best to deliver the best performance. Samsung should continue to invest in people, encourage a performance based rewards system and ensure very high motivation in its employees to ensure achievement of strategic objectives.

References 1. http://www.samsung.com/us/ 2. http://news.cnet.com/8301-1035_3-10086271-94.html

3. http://www.samsungcorp.com/ 4. http://www.samsung.com/in/aboutsamsung/samsunggroup/annualrepo rt/index.html 5. http://www.samsung.com/in/aboutsamsung/samsunggroup/valuesphilo sophy/SAMSUNGGroup_ValuesPhilosophy.html 6. http://www.samsungcorp.com/ 7. http://www.sjsu.edu/faculty/watkins/chaebol.htm 8. http://www.reuters.com/article/businessNews/idUSSP22999820080422 9. http://seekingalpha.com/article/94979-samsung-and-the-consumerelectronics-price-war