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Posted: October 18th, 2024
The main objective of the research is to delineate strategic planning process utilized in multinational organizations for gaining competitive advantage. The mobile phone markets across the globe are undergoing rapid transformation. Consumers are continuously demanding more technologies and only those mobile phone producers who improvise constantly can remain competitive in the market. Many producers strengthened their positions and gained market share while some lost their position in the market. From 2011, it is understood that only a mobile phone producer who continuously innovate will succeed in the market. The industry demands survival of the fittest theory of Darwin. This research is conducted considering my role as a strategic consultant for Samsung Electronics. The research comprises of three sections.
The first section focused on analyzing the strategic planning process that is generally followed in an organization. This section outlines the strategic planning process that is required in the mobile phone industry. The second section explains how Samsung utilizes the various competitive advantage strategies. Five important competitive strategies are picked and are compared in context to its usage in Samsung. The third section involves my recommendation to the mobile phone industry. The mobile phone industry requires
Strategic planning process is of high priority for any company as it prioritizes on what to accomplish in the future. The process helps a company to make choices on what they should do and what they should not do. Also, a strategic planning process in place will organize the entire organization for executing one common goal. Strategic planning improves performance solves every issue at a macro level. It is basically an assessment of the present situation, identifying gaps and connecting it with future goals, developing strategic plans to close the gaps, monitoring the progress of the plans. Strategic planning helps to address critical performance issues, to create perfect balance between the capability and the ability, to close the performance gap, as a visionary to convey a desire future, and to guide decision making at individual, operational, and tactical levels.
The strategic planning process comprises of five important stages:
Assessment
Baseline
Components
Down to Specifics &
Evaluation
Figure: Strategic Planning Process
The above figure explains the various stages of strategic planning process. This is a modern process of strategic planning. This process involves integrating all the components forward and backward. All components such as vision, mission, goals, objectives, measures, targets, initiatives, action plans and budgets have to be integrated.
Samsung Electronics is one of a leading consumer electronics brands in the world. Their primary markets are Europe, America, and Asia. The company employs more than 157,000 people and recorded revenues of $109 billion in 2009, an increase of 14.6% over 2008. The net profit of the company was $7.6 billion in 2009 with an increase of 74.6% over 2008, and an operating profit of $9.1 billion with an increase of 91.9% over 2008. Samsung Electronics is headquartered in Seoul of South Korea.
One of a key strength for Samsung Electronics is their research and development function (R&D). They ensure significant resource allocation and attention to develop the best-in-class products that are distinctive and innovative. The company invested approximately $6 billion in 2009. They spend approximately 5% of their sales revenues in R&D over 2008 and 2009. As a strategic plan to gain market share, Samsung Electronics have decided to invest more in their R&D. They increased their spending by $1 billion over 2009 to reach $7 billion spending in R&D in 2010.
As to improve their R&D activities, Samsung Electronics have deployed more than 42,000 people for their research purpose across the world. The company now has 42 research facilities along with numerous research centers globally. The company’s R&D network is significant with 6 centers in Korea and 18 in nine countries. Network centers based at the US, India, China, UK, Russia, and Israel is considered to be the most important.
Figure: Samsung R&D Employees
Samsung in 2010 announced on its plan to leverage its design advantage to become environmental friendly. According to the plans, the company will develop environmental friendly products and helps to reduce global warming by reducing the greenhouse gas emissions during their production process. The company will now assess all its mobile phone designs and processes as to reduce the emissions and its manufacturing effort. As a result, the company rolled out its new product Blue Earth, which is a touch screen mobile phone advertised as environmental friendly. This phone has notable characteristics as it has the latest multimedia features, stylish design, incorporate eco-friendly materials, and achieve consumption of low energy. As a boost to their R&D, this product is made from post consumer resin from water bottles helping to reduce carbon emission and fuel consumption during manufacturing.
Samsung mobile phones witnessed product recalls which affected the brand of the company. In 2009, during many instances, cell phone models such as SPH-a110 and SPH-a120 were recalled. Similarly, many products other than cell phones were recalled in 2009. This reflects poor brand image on the consumers mind.
The mobile phone industry is monopolistic in nature as there are many mobile phone producers and many consumers in the market. Monopolistic competition also demands product differentiation and all the producers will have control over their product price to certain extent. Samsung provides a tough competition with other companies through good quality products and competitive prices. With innovation being the major driver for such a market, it impacts largely on a company. Samsung is equally impacted by innovation or product differentiation of its competitors. The porter’s five force model is analyzed considering innovation as the key differentiator.
Figure: Porters Five Force Model & Impact Analysis
Samsung will have a low threat level of entry from new companies. Most of the new companies will enter the similar range of product offering as Samsung. Samsung offerings are widespread and are focused upon a particular model. However, it is tough for a smaller organization to compete with large organizations such as Samsung. Since Samsung is offering its products at an affordable price, it is relatively tougher for the new company to provide at the same cost. The industry is prone to media, branding and consume knowledge, and hence it takes considerable investment from the new company to mange. Though a new enterer with an innovative technology enters the market, it wouldn’t be a serious threat to Samsung in the short term. Hence the barriers of entry may be high. In this market, price and product differentiation will be the key driver for a new company. Hence the impact of new enterer in the market is low.
The threat for rivalry for Samsung is very high in the mobile phone market. Mobile phone market demands more on innovation, technology and the price. Hence it is important for Samsung to align its strategies to that of competitors. Due to high intensity and continuous competition in the market, Samsung has to provide the advanced technology products at a highly competitive price. There are many producers in the market and their product ranges are similar in technology and price. If products are similar, the only possible way to compete is through a price war. If a competitor for Samsung launch a new mobile phone model with a new innovation in its product differentiation, its impact would be very high.
There are very few substitutes for mobile phones. They could be emails, online calling facilities such as Skype, and landline phones. Innovation in these products was fewer and their impact for the mobile phone producers is low.
The threat of suppliers for Samsung is of medium impact. Samsung holds its presence in this market for many years and holds a very strong supply chain management and long term relationships with the suppliers. Samsung is known for long lasting relationships where they buy in bulk and reduce costs. Suppliers in this industry always wanted to know about the long term profitability and Samsung ensure a perfect supply chain management. Also, in this industry, since suppliers are increasing faster, they have lost their power. Hence the impact from threat of suppliers is very low for Samsung.
Threat of buyers is very high for Samsung. Consumers are the most important in the process of buying. At the end of the day, they decide on the model and the price they would pay for it. Most of the mobile phone models are developed and produced based on the needs of the consumers. It is important to set a price points that a customer will afford to buy. The choice of their buying is all based upon their preferences. Buyers are always sensitive to costs and features, and it is important for a producer to satisfy the buyer. In another viewpoint, since there are many buyers, this factor will not affect the producer. However, negative produce perception can influence the buyers buying behavior negatively. Buyers would always prefer a mobile phone model with superior innovation. Hence the impact from threat of buyers is very high for Samsung.
By the end of 2009, Samsung electronics had weak presence in developing countries. The company lagged behind in two key segments: cheaper models and high-end smart phones. The company had a mere 3.5% share of the global smart phone market. While in the low end models, they had limited presence in countries such as India with a market share of lesser than 10%. They weren’t able to compete with the market leader Nokia that had a 58% market share. Moreover, they company didn’t focus much on the cheaper models. This hindered the company’s growth. However, their 2010 plans were successful. They developed several new innovative models and followed the best strategies.
Samsung used generic competitive strategies such as low cost and product differentiations strategies. Samsung has developed an ecosystem around the different mobile ranges and are able to successfully deploy both the strategies. Combining
Samsung’s one of the regional strategy is product differentiation. Samsung always differentiates their mobile phone models based on product attributes, customer relationships and firm linkages. For developed market, it planned to develop high-end and carrier specific models in 2009. However, their plans changed in 2010. For emerging market, Samsung planned to develop mass market models.
At present, they have various models differentiated by carriers, style, features, and phone operating system.
Operating Systems Diversification: In 2009 and 2010, Samsung utilized the product differentiation strategy to diversify their operating system. Now they have range of phones that used Android, Windows Mobile 6.X, Windows phone, Symbian and Limo.
Carrier Service Optimization: In 2009 and 2010, Samsung developed phones that are optimized with various carriers. This includes AT&T, Verizon Wireless, Sprint, T-Mobile, and others.
High-end Smart Phones: Samsung launched high end smart phones with touch screen and QWERTY keyboard styles.
Advance Features: Samsung introduced new features with cameras of 8MP in certain models. The advanced in features such as GPS/Navigation, Bluetooth, HTML web browser, WIFI and premium camera.
They follow the generic product differentiation model:
Samsung builds mobile phone models that are used to generate customer loyalty. They build products that are different from competitor’s products. They often found ways to differentiate and create value for customers. By following this mode, they are able to set a premium price for their mobile phones, gain trust and build brand loyalty.
Their latest Samsung Galaxy Models are the best example.
Samsung follows a focus strategy based on differentiation, where they offer nice customer, a mobile model that is customized to their requirements. The key objective of such a strategy is to do perform better than the competitors to serve the market. The customer they serve has a distinctive preference and unique needs. They have certain special requirements in a mobile phone. Samsung always address these unique needs by developing the models that they want. Their latest mobile phone models with advanced cameras are the best example. Recently Samsung launched a mobile phone with 8MP camera.
Some of the new features that are in the advanced smart phones of Samsung:
Figure: Product Differentiation of Samsung Products
Samsung is able to provide the various models at a affordable prices for their consumers. They operate in two different ranges.
By following this strategy, Samsung is able to compete with other overall low-cost providers in the market. Samsung as an organization is a better position to compete with others on their lower price range of mobiles. At the same time, Samsung is able to compete with Chinese manufacturers who are low cost providers. Samsung is also in a position to use price as a defense against substitute products. As being a large organization, they are able to build economies of scale, examining each cost activity and reengineering them to reduce overall costs.
For example: In a market like India, there are several local producers who are currently competing with Samsung and other large producers. However, Samsung is able to compete with local players with superior technology and low cost. They were also the first company who produced low cost touch screen models to the segment of customers who prefer low cost products. At present, with several ranges of models in India, Samsung is gaining significant market share.
Samsung as being a large organization, are able to focus on a narrow customer segment and still able to surpass competition on lower cost. Samsung has widest range of smart phones with advanced features and multimedia functions, and offer them at a low cost. They develop products for niche customers and offer them at low cost. By doing this, they specialize in being both overall low cost provider as well focused low cost providers. The overall low cost strategy is mostly followed in the emerging market while the focused cost strategy is followed in the developed markets.
In strive to provide the best price value and best differentiation, the objective of Samsung is to create superior value by following the best-cost provider strategy.
Figure: Samsung Best-Cost Provider Strategy
Samsung combine low cost and differentiation and create superior value by meeting or surpassing the customer expectation. Samsung does this by matching them very closely on their competitors product attributes and offering them at a low cost.
Samsung followed a smart distribution strategy against the industry standard model. The industry standard model is to have an exclusive device relationship with only one service provider. However, Samsung for its android based galaxy S smart phone model partnered with all the four largest wireless service providers. This provided Samsung to capitalize on the best distribution possible to increase its sales of their smart phone model. As a result of this, Samsung was able to sell more than a million smart phones before it’s availability from the service providers. They also ensured that devices are exclusive to the respective wireless carrier. This go-to-market strategy will deliver Samsung cell phone products to many partners and help them gain market share. This helped them to boost their average selling price of their smart phone models. The similar model is applied to its latest product such as Galaxy Tab. This will help the company to increase their market share and keep a tab on their selling price.
I am proposing the following strategies for effective management in the mobile phone industry market.
Design Outsourcing: Outsourcing of design to some of the original design manufacturers (ODM’s) will help the producers to gain competitive advantage through low cost manufacturing and offering them at a low cost to gain market share. Outsourcing policies are highly critical for the mobile industry.
Manufacturing Outsourcing: Outsourcing of manufacturing should be well manager. Usually mobile phone producers outsource their manufacturing to electronics manufacturing service (EMS) providers. The choice of outsourcing to high quality EMS should be of high priority for the producers.
Modularity: Modular architectures have to be build by all the mobile phone producers. This will help the industry to reuse the architectures between product lines. This also decreases the amount of time to develop a product. It has to be developed such as no innovative design processes are avoided.
Logistics and Transportation: Fulfillment of supply chain is an important aspect. In this physically transporting goods from suppliers to manufactures, manufacturers to distributors, and distributors to customers is critical for any producers. In these situations, outsourcing logistics will be of greater help to the producers by taking advantage of the infrastructure owned by the logistics companies.
Collaboration with Partners: A high level of collaboration has to be established between the producers and the suppliers. This will help the companies to produce products faster. If innovation is the standpoint, then complete transparency has to be avoided.
Joint Supply Chain Management (SCM) Product Strategy: The product strategy and the supply chain strategy should be combined in to a single scale and should be called as Joint SCM strategy. This will encompass on how the companies should implement their supply chain based on the product goals.
Cost-based Supplier Selection: All producers should select suppliers based on the cost of manufacturing or design, and their flexibility to deliver it. In the current market environment, it is essential for any producer to offer low cost products. By preferring cost based suppliers, a producer can have competitive advantage over others.
Design Integration: Design integration is crucial for a mobile phone producer. The level of collaboration between design teams, both internally and externally has to increase to develop innovative products.
In the mobile phone industry, only a mobile phone producer who can implement the various competitive advantage strategies will succeed in the market. Samsung electronics successfully developed a strategic plan and implemented it. The sales revenues for Samsung are likely to increase more than 20% in their mobile phone segment in 2010. They will set as an example for many other producers in the market.
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