GLOBAL BUSINESS

Case 4

Samsung Electronics Company

Brock University

Goodman School of Business

Table of Contents

Summary_____________________________________________________________________3

Introduction___________________________________________________________________4

Ingredients of corporate turnaround strategy and marketing implications_________________7

Strength of Samsung’s brand and competition with Sony_______________________________9

Roles and Responsibilities of Chief Marketing Officer and Kim’s Influence________________10

Conclusion___________________________________________________________________12
Recommendations_____________________________________________________________13
Summary

It was the year 1969 when Samsung Electronics Company (SEC) was founded. The company primarily

focused on the manufacturing of black-and-white televisions. In 1970s company expanded its operations

by acquiring a semiconductor business. Throughout 1980s company focused on the manufacturing of

components and profit from a business was invested in R&D. By the year 2003 Samsung shares were

most widely held in stock. The company had a market capitalization of $41 billion making it the largest

Asian electronics company.

Samsung Electronics chairman, Kun Hee Lee lead this transformation. Mr. Lee launched a program

called “New Management Initiative” which changed companies conventional wisdom approach by a

long-term commitment to investment in innovative premium products and brand value. Under “New

Management Initiative” program Samsung was exposed to revolutionary changes. Under Vertical

Integration policy, Samsung decided to focus on manufacturing processes, soon Samsung expanded to

China and India. Hardware Focus: With Samsung “open architecture” policy, end users got an

opportunity to access more software through its devices. By the year 2003 company was number one

global manufacturer of D-RAM (Chips used in PCs), S-RAM (used in cell phones) and N-AND flash chips

(Used in Digital Camera and MP3 players). Product diversification differentiated Samsung from its

competitors.

Analog to Digital: “New Management Initiative” helped the company with speedier decision-making

processes and fewer levels of organizational bureaucracy. Faster decision-making process made

Samsung to gain first mover advantage in market.

Focus on Marketing was a game change for Samsung. Increasing brand awareness is important to

expand its reach within market. Newley appointed marketing manager Mr. Eric Kim strategy to
reposition Samsung brand from “Cheap OEM” to a high value-added products provider” helped

company to gain competitor advantage. Moreover, in case analysis we will discuss about implications of

marketing in Samsung’s success. What should be Samsung’s key strategy to surpass its main competitor

Sony and role and responsibilities of Mr. Eric Kim, his vision for Samsung’s bright future.

Introduction

Samsung started its operations in 1938 when it produced agricultural products. In the 1970s, it shifted

its focus to shipbuilding, chemicals and textiles. In 1969, Samsung Electronics Company (SEC) was

founded primarily as a low-cost producer of black-and-white televisions. In 1970, they also acquired a

semiconductor business. It supplied international markets with massive quantities of commodity

products like television, VCRs and microwave ovens and sold its products to Original Equipment

Manufacturers (OEM), who resold them under their own better brand names. Its primary goal was to

become technical and quality leaders in the consumer electronics market. It re-invested its profits in

R&D, supply chain and manufacturing activities. In 1993, SEC’s Chariman - Kun Hee Lee led the

transformation of positioning Samsung as the global business leader by initiating the “New Management

Initiative”. The changes implemented because of this initiative led to Samsung’s survival during the Asian

financial crisis of 1997. Samsung also brought about several key changes within its existing

organizational structure. The appointment of Vice Chairman – Yun Jong Yong in 1997 brought in

different set of strategies contrasting several existing traditional perceptions. The financial crisis

positioned Samsung in a better way and net profits rose from -3% to 13% by 2002. Samsung, at this

time, had a net profit of $5.9 billion on sales. In 2003, Samsung was the most widely held stock amongst

all emerging market companies and more than half of its market shares were held outside Korea. Its

stock price increased 10 times between 1997 and 2002. It also became the largest Asian electronics

company by this time as they had a market capitalization of $41 billion.

However, they were very flexible with the plant location. By 2003, it had around 12 manufacturing

plants in China and had set-up R&D facilities in India to take advantage of India’s abundant low-cost

human capital. By doing this, it had a competitive advantage of low-costs in the market. It also dealt in

customization of production. More than half of its memory chips were special orders from industry

giants like Dell, Microsoft and Nokia. The chips were priced at 17% more than the industry average due

to its superior quality and timely delivery.

Hardware Focus: Samsung focused on hardware and devices and followed the concept of ‘open

architecture’. It collaborated for content with content providers whenever they felt the need to as

content had a disadvantage of piracy violation. This concept helped their customers in accessing more

software through its devices as compared to competitors’ products.

Product Breath: Where Samsung’s competitors were highly focused on manufacturing single category

products, Samsung emphasized on product differentiation by providing their customers with a wide

variety of products. Their products included semiconductors, telecommunications, digital appliances,

digital media etc. In 2002, while semiconductors provided Samsung with the maximum amount of

operating profits, Digital Media held the maximum amount of sales. It was positioned number one

globally for manufacturing DRAM (semiconductor chips used in PCs), SRAM (used in cell phones and

handhelds), and NAND flash chips (used in digital cameras and MP3 players). In the telecommunications

market, Samsung was the top provider of the CDMA digital phones and thin-film LCD displays which

were being ideal for PCs, cellular phones and televisions. Competing against Motorola and Nokia,

Samsung was placed at number three in the cellular phone industry. Samsung was the first to initiate the

launch of color screen phones in the USA. It charged around 20% above the average price to its

customers as its primary focus was on mid-range and high-end phones market. Due to its competitive
advantage of low-cost production, it was the market leader in LCD (Liquid Crystal Display) televisions. As

a matter of fact, Sony entered into a joint venture with Samsung to produce LCDs with lower costs.

Digital Product Innovation: In the late 1990s, Mr. Lee focused on the expected change in the consumer

preference from analog to digital technology. With the help of 17,000 R&D personnel consisting of

scientists, engineers and designers, Samsung introduced a wide range of new digital products into the

market. Due to its multiple technology capabilities, fast decision-making processes and a smaller

number of organisational bureaucracy levels, Samsung could refresh its existing product lines twice as

fast as its competitors.

Digital Convergence: Samsung’s focus on digital products across multiple segments helped it to maintain

its position as a market leader. Digital convergence included two trends: combining two different

technologies into one main product and linking multiple technologies via one major network. Samsung

foresaw this digital phone being used by the household for different purposes and envisioned a future

where all electronic devices would be controlled by one single device. By 2003, Samsung had already

introduced several ground-breaking innovations in many areas and provided with a degree of

convergence with its products such as Wireless Home AV centre, the “Systems-in-Package”

semiconductor which combined mobile CPU, NAND flash memory and SDRAM into one product.

In 1997, Vice Chairman – Yun focused on shifting Samsung’s current market positioning from low-end

commodities to high-end premium goods. Repositioning the product line required heavy emphasis on

marketing in order to change the consumer perspective of the current brand. Mr. Eric Kim was therefore

appointed as the Vice President of Global Marketing to work on this new strategy. Kim’s strategy was to

make Samsung a global brand and to do this Kim required support from the top executives of Samsung.

Kim was faced with several internal challenges as the executives didn’t really find any difference

between sales and marketing and considered marketing as a requirement only for “me-too” or “weak”
products. Kim marketed the brand by using three simple words viz. “wow”, “simple” and “inclusive”. The

Global Marketing Operations (GMO) headed by Kim was responsible for incorporating marketing

program for the Samsung brand outside of Korea and comprised of three major teams: Marketing

Strategy Team, Regional Strategy Team and Product Strategy Team.

Ingredients of corporate turnaround strategy and marketing implications

The key factors of SEC’s turnaround strategies were as follows:

 Cost Advantage: Samsung had a low-cost competitive advantage as it outsourced its production

to countries like India and China. This acted as a major source in Samsung’s market share and

profitability as the Indian and Chinese market helped Samsung to produce at a very low cost due

to the abundant supply of cheap raw material and labor force.

 Premium Pricing: Samsung, over the years developed a brand image and gained a high amount

of customer loyalty. This saw a substantial increase in their market share, and they were able to

set premium pricing on their products and distinguish them. However, this didn’t really mean

that they were the market leaders as they were ranked 6 th in the Chinese cell phones market.

The reason behind this ranking was due to the competitors cheaper pricing for products with

similar features. Samsung was unable to reduce its product pricing as it had invested heavily in

R&D, human capital, product development and innovation, and marketing.

 Quickest: Being quick and adaptable to the changing consumer preferences and the ever-

changing technologies was one of Samsung’s key strategies. Samsung had a first mover

advantage and would ensure that with an introduction of a new technology in the market,

Samsung had its own product available too.

 New Technology and Innovation: Samsung’s quick adaptability to the changing consumer

preferences and technologies made Samsung introduce several new technologies in all of the
 different product lines and business sectors that they had. Samsung knew how important

technology and innovation was and this led them to always being a step ahead of their

competitors, further being recognized as a technologically advanced product manufacturing

firm.

 High Investment in Product Development: Samsung invested heavily in product development,

be it the quality of the product or the quantity. The CEO believed in selling a product which was

not only efficient enough to be placed in the competitive market but also added value to the

buyers.

 Vertical Integration: Samsung was following the strategy of vertical integration where it ensured

that it manufactured all of its products in-house to not compromise on the quality of the

product. While its competitors were outsourcing most of the parts/elements of their final

product, Samsung simply chose to manufacture its products in cost effective economies like

India and China.

 Highly Skilled Employees: Another reason for Samsung’s success was the hiring of talent pool.

Samsung had amazing talent pool which consisted of scientists, engineers, marketers and

strategists and these personnel were spread across 79 countries worldwide. These people were

responsible for ensuring that Samsung always delivered high-quality electronic consumer goods

to its customers.

 Market Segmentation: Samsung also focused on manufacturing products based on specific

customer requirements. They had their products into customization for specific market

segments. One instance was the introduction of Rex Series in the developing markets such as

India. This series featured high quality products at fairly reasonable prices and targeted the

needs of the developing economies.

due to poor branding strategies and improper allocation of marketing budgets. When a brand is alive in

the eyes of the consumers, the consumers are aware about the brand and are willing to purchase it.

Their purchase intentions are higher as they find familiarities with the products. For a company, it is

highly crucial to make their market aware about their existence and ensure that the reach is properly

established. SEC neglected the importance of branding which was affecting Samsung’s image. Their

marketing budget was allocated based on short-term goals and did not really pay attention to the long-

term strategies of the company. Their strategy was more product driven rather than consumer driven

and although they really had product development and innovation in place, their products were

positioned incorrectly in the market and the consumers perceived the products as a cheap OEM

provider with hardly any product innovation. All of this happened due to incorrect positioning of the

brand image, and lack of awareness and product knowledge.

Strength of Samsung’s brand and competition with Sony

For a long time, the Samsung brand was centered for the most part around the Korean market. Samsung

was at that point the brand head in vast numbers of the business sectors, for instance, the extra-large

sized flat screen televisions, LCD Displays, DRAM Chips and Microwave Ovens. However, it didn't appear

to be the situation all along. Due to the conflicting tasks, the brand was more grounded in certain

nations as contrasted with others.

For instance, in nations like Russia, Samsung worked admirably in building up a decent brand image

anyway despite not being the market leader. Likewise, in the United States of America, Samsung was

behind Sony. Buyers started perceiving Samsung as reliable and innovative while Samsung was still in

the process of improving its brand awareness. In correlation with that, the European market was a
better platform for Samsung however the discontinuity of retail dispersion influenced Samsung's

margins.

In China, Samsung was effective in accomplishing 33% of the Chinese market however, the overall

revenues were still low. On the other side, the Indian market was booming with opportunities

particularly in the reselling of software products. Turning into a noteworthy provider of software

products gave Samsung a brilliant brand recognition in the Indian market.

A noteworthy defining moment in changing the brand perception was the appointment of Eric Kim - the

VP of Global Marketing. He began off with educating Samsung’s employees and making Samsung a

strong brand for its employees. After leading the Global Marketing Operations (GMO) group to

strategize the new brand, Kim went on to centralizing Samsung’s advertising to one organization as

against the previous approach. New innovative improvements additionally supported in structuring

Samsung as a solid brand.

While It is surely feasible that Samsung could pass Sony and position itself as one of the top ten global

brands, their 2005 target may not be plausible. Sony has been in the industry for a very long time and

had diversified product lines as compared to Samsung. For instance, customers depicted Sony as

"popular, smart, sleek, affluent, cool, trend-setter, determined, dependable and forward-thinking" and

perceived Samsung as "sophisticated, friendly, innovative and not afraid”. However, Samsung also had a

negative image as the customers thought of it as a “low profile, cheap, loner and arrogant/off-putting”

brand. This vast difference in the consumer’s perspective should be overcome and the marketing team

should be highly focused on implementing strategies to fill in these gaps. Overall, Samsung needs to put

resources into consumer research and product enhancement to become a strong brand that could

surpass Sony.
Roles and Responsibilities of Chief Marketing Officer and Kim’s Influence

Samsung has always been a product-driven company and was well-renowned in Korea. Samsung was

focused on selling its products to OEM rather than the ultimate customer – the end users. Moreover,

Samsung didn’t emphasize on building a Brand Image and their product positioning was also not well-

defined in its goals. Samsung was more focused on accomplishing its short-term objectives rather than

the company’s long-term vision. Realizing the importance of having a strong brand image, the Vice

Chairman, Mr. Yun, appointed Mr. Eric Kim as the Vice-President of Global Marketing in the year 1999.

Mr. Kim was an experienced Korean-born general manager and had global working knowledge of the

implementation of marketing strategies and branding. A year later, Kim was promoted as the Head of

Marketing. As the head of Global Marketing Operations (GMO) unit, Kim was responsible for leading the

global marketing and brand building efforts to position Samsung on becoming a renowned global brand.

Kim had a team comprising of 90 employees and managed the Marketing Strategy Team, the Regional

Strategy Team and the Product Strategy Team.

Kim’s responsibilities of positioning Samsung as a high value-added producer involved promoting

Samsung worldwide and creating a global brand image for Samsung. Kim noticed that Samsung as a

brand was placed in different levels of development in different economies. He helped in repositioning

the brand in several countries by enforcing his technical abilities and emphasizing on marketing

strategies. When Kim had first joined the company, he had to invest a lot of his time on educating the

employees as at that point of time Samsung’s executives themselves did not value marketing. Kim

educated the divisional managers for four years and made them understand the importance of

marketing in order to attain a company’s long-term goals. Kim showed them the importance of key

marketing concepts like selling and promotions and also, developed a marketing career path for

marketers by providing them with essential trainings.

Samsung’s brand image. In 2001, GMO consolidated SEC advertising with a single global agency – Foote,

Cone and Belding (FCB), as opposed to the 55 advertising agencies that they previously dealt with. After

this big collaboration, Samsung introduced worldwide guidelines for its unique logo and brand spirit to

differentiate itself from its competitors, further turning it into a globally renowned brand. Appropriate

allocations of budget were implemented by Kim with the help of a computer program. M-Net was

developed to help determine the highest ROI (return on investment). Brand preferences, market share

and operating profit had been significantly improved after implementing this program. Initially, where

Samsung was more focused on being a product-driven company, with Kim’s marketing initiatives

Samsung balanced itself by turning into a market-driven company. This changed the perspective of

Samsung’s managers and they now perceived marketing as one of the key business departments. Kim’s

work was recognized in August 2003 when Samsung was ranked 25 th in Businessweek’s annual ranking

of the world’s most valuable brans.

Conclusion

In order to position itself as the global blockbuster by 2005, Samsung had several strategies to consider.

Few of the alternatives included changing the marketing strategies, reallocating the marketing resources

based on the target market or changing the products/product line to be marketed. Initially, SEC would

determine its marketing budget based on the sales percentage instead of looking at the potential of the

target market with respect to market growth and purchase intentions. For SEC, the primary aim of

marketing was to build brand awareness and investing money where sales were already performing well

would merely be improper allocation of the marketing budget. This does not mean that SEC should stop

allocating any marketing resources to these markets, however, SEC should also focus on markets with

potential growth in the upcoming years. In the case, they mentioned about overspending and

underspending of the budget. While North America and Russia were over-spending by 10%, Europe and
China were under-spending by the same amount. This small change when implemented would

significantly affect Samsung’s brand awareness globally. Samsung also lacked a consistent brand image.

With guidelines on setting up a standardized logo, Samsung would portray itself in the same way to

every market be it North America, Europe or APAC(Asia-Pacific). SEC should emphasize on focusing on

maintaining the high quality of its products and investing in research and development as well as

innovation. Samsung should focus on making its products customer-driven and pay attention to making

the products more relatable to their market. Lastly, SEC should maintain its current marketing strategy,

continue investing in R&D and introduce several products based on new technologies in the market,

thereby retaining its first-mover competitive advantage. Mobile phones and gaming appliances are two

areas that we see have a potential growth in the future and where Samsung should be majorly focusing

heavily on in the upcoming years.

Recommendations

Samsung is well known for its innovation and technology. Samsung must continue focusing on its

strengths like Manufacturing and Semiconductor business.

Currently Samsung management pertains to be focusing more on R&D and neglecting power of

Marketing. Samsung must implement change management techniques to bring awareness about

Marketing within internal staff. Internal staff must be aligned with companies’ vision and mission.

Samsung’s expansion policy heavily dependent on Marketing, especially in “Accelerator” markets where

Samsung has Hugh potential growth.

Samsung need to work on bring more customized products to market. Products need to match with end

customer demand and expectations. Ease of use, accessibility and value for money is important for

customers. Samsung can focus on these key areas.

mass merchandise can help Samsung to reach more customers. Its main competitor Sony’s USP is

quality. Samsung need to ensure its products display highest quality in market.