Business

Model
Analysis
September 12
2013
[To inslghLfully map ouL a flrm's buslness model
and describe its strengths & weaknesses]
Case Study on Samsung
Electronics
Submitted by: Amanpreet Singh Monga
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Company Overview and History:
Samsung Electronics Co. Ltd. is part of Samsung group which started way back in 1938 when
it was a company that exported dried fish to China and now is a global conglomerate with
Samsung Electronics Co. Ltd. (SEC) being one of its core businesses. SEC is mainly engaged in
the production of consumer electronic products and operates in two divisions: end product
division producing digital media and communication products and component division
which produces semiconductors. With profits at USD 21.68 billion and revenues of USD
187.85 billion it has surpassed sales of its main competitor
1
and world renowed mobile
manufacLurer 'Apple' whlch had revenues of USD 164.69 billion (Forbes, 2013) and catching
up with 'lnLel' anoLher compeLlLor ln lLs semlconducLor buslness (Shah, 2013).
Brief History:














1
Samsung and Apple mainly compete in communication product space (i.e smart phones and tablets)
1969
1970
1970
1972
1978
1980
1982
2013
Samsung Electronics was formed
Successful production of 12inch black and white TV
Starts its first export of the TV sets to Panama
Sets up Braun-tube bulb factory and capacity of TV production increased to 480,000
Becomes world no.1 black and white TV manufacturer and exports reached USD 100 million
Merger of Samsung electronics and Samsung Semiconductor to create synergies
Goes Global with manufacturing set up established in Portugal. Followed by the U.S, the U.K and Mexico
World's largest consumer electronics manufacturer
Source: (Samsung, 2013) and (Davidson, 2013)
1
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Business Canvas



Summarization of Business Model
Samsung electronics is operating in the segments of Consumer electronics under different
verticals namely visual display business with market share of 37.22% selling (Television,
Music systems); digital appliances business selling (Refrigerators, Washing machines, Oven,
Microwaves); printing solutions with market share of 16% selling (Heavy duty and Normal
printers); health and medical equipment business selling (X-ray, Ultrasound, Chemical
analyzer machines) ; IT & mobile communications under verticals mobile communication
business with market share of 30.4% selling (Smart phones, Tablets and Laptops); network
business with market share 9.36% selling (Next generation network infrastructure and
solutions); digital imaging business with market share of 12.1% selling (Digital cameras and
camcorders) and Device solutions with vertical of memory business with market share
- Individual
Customers
- Corporate
Organizations and/or
ML's.
[Retail, Healthcare,
Education or
Hospitality]
{example: Apple for
semiconductor
buslness ls amsung's
client}
-Retail Stores
- Distributors
-Company outlets
-Telecom
Operators
-Corporate Sales
Employees
-Sponsorships
-Corporate Social
Responsibility (CSR)
- Marketing
- Customer service
- Creating new
Products
Provide
differentiated
and quality
products to wide
range of
customer
segments,
through
innovation and
Corporate Social
Responsibility.

- IP (Patents)
- Human
Resources
- R & D
Infrastructure
-Marketing campaign
-Brand building:
*Sponsorship
*CSR
- Quality management
- Innovation

- Retail stores
- Telecom Operators
- Logistics suppliers
- Distributors
- Suppliers (raw
material and
strategic)
[e.g Strategic
Supplier Google]

- R & D [expense CAGR 2009-2012 @ 13.05%
- Expense related to [Production, Labor, Human
Resources, Marketing, Logistics and Legal]
(CAGR 2009-2012 @ 11.57%)
Revenue Portfolio: Revenue CAGR
- TV - Semiconductor (2009-2012 @ 11.9%)
- Digital Cameras - Digital Appliances - Handset division
- Handset division Contribution @ 23.9%
(As of Q1 2013)

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Samsung Electronics
41.4% selling (Mobile DRAM, Mobile storage and Mobile flash memory devices); system LSI
business with 72.1% market share selling (Image sensor) and LED business with 10.2%
market share selling (LED display modules, Light engines and LED retrofit lamps). These
products are catered to individual customers and business houses through different
channels namely distributors, direct retailers, their own retail outlets, telecom companies
and through their own corporate sales team to their B2B customers
2
like Apple for
semiconductor business. The company is creating customer relationship by participating in
consumer electronics shows such as CES 2013 and sponsoring range of international sports
events, like London 2012 Olympics. These efforts of brand building activities have helped
Samsung to create a brand with a value that customers can trust. This growth and brand
value has been possible for Samsung because it provides differentiated and quality products
to wide range of customer segments, through innovation and corporate social
responsibility(CSR), where in terms of CSR the company reduced its green house emission
by 58.34 million tons during 2009-2012 by improving energy efficiency in the products
(Samsung Electronics, 2012,2011,2010).
The innovation has been a key activity fuelling growth for the company with 12000 patents,
highest (refer figure 1 below) amongst all companies (Reid, 2011) and (Samsung Electronics,
2012,2011,2010). This quantum of patents can be collaborated with investment figures
mentioned in annual report of Samsung from (2009-2012) which shows approx 40%
3

increase in investments for Research & Development division. Also, when compared with
other expense heads (operating and marketing), the CAGR in terms of the expenses is 1.5%

2
This division is also important which we can understand from LSI business market share, which is at 72.1%. Since revenue breakup of
divisions is not provided, importance of division has been ascertained on market share basis.
3
The investment and CAGR figure for R & D has been calculated by taking average percentage of expenses from 2009-2011 , as figures for
2012 have been consolidated and no break up is available(refer appendix -1)
3
higher for Research & Development division at 13.05% showcasing increased focus on
innovation by the company (Samsung Electronics, 2012,2011,2010).



The key component contributing in revenue for Samsung is the mobile and semiconductor
4

division where mobile division was at USD 5.2 billion in Q2 -2013, contributing staggering
23.9% to its revenue which in total was at USD 21.68 billion in the same quarter (France-
Presse, 2013) and (Forbes, 2013).
Strengths and Weakness
The Strength of SEC is its ability to launch
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new quality products in short span of time, adapt
quickly as per customer demands and ability to penetrate in growing markets with wide
range of product portfolio. As per the reports in Financial Times (2012) this wide spread of
product portfolio has helped SEC in their growing profit, as when chips and flat screen

4
The sales figure of semi conductor business was at USD 7.95 billion; revenue figures were not available as figures were consolidated.
5
As per CCS Insight's Ben Wood "Samsung has a history of latching on to the latest trends and throwing a product into the market to try
and get ahead of potential rivals," (Kelion & Lee, 2013).
Image Source: (Reid, 2011), Image rights Chetan Sharma Consulting
Figure 1
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segment had hit hard times, mobile phones helped fuel this growth accounting for 36 per
cent of total sales in the Q3 2012, compared to 27 per cent a year ago. The other important
strength in terms of product mix is its semiconductor business which is more like a vertical
integration Lo amsung's oLher producL llne and also supports major
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part of sales by
catering to external clients like Apple (Shah, 2013). Apart from the portfolio mix, marketing
and branding campaign has also become one of the key strengths for SEC where Samsung
recenLly aLLalned no.9 ranklng on lnLerbrand's 'besL 100 global brands 2012' llsL, wlLh uu
32.9 billion as an estimated brand value of the company (Samsung Electronics,
2012,2011,2010) , (Interbrand, 2012) and (RDT Trusted Brands, 2013).
If we look at the weaknesses of the company based on the model and above discussions, it
is the increasing dependence on mobile (smart phone & tablet) segment in spite of a vast
product portfolio mix. The risks of relying too much on single division like mobile which even
Financial Times (2012) also highlights in its article is that, this segment is too demanding by
consumers in terms of new product launches and any delay or error in launches can make a
dent on the balance sheet of the company. The Nokia and Blackberry are classic examples of
pure moblle phone play sLorles from 'rlches Lo rags' (Financial Times, 2012). The other
weakness which is again in sync to dependence on mobile division is missing eco system in
place aL amsung's end, Lhe sofLware Lo its mobile phone. Samsung does not have its own
software in its mobile phone and has strategic tie up with Google to use its software
Androld" ln lLs devlces. Since Google has purchased a handset division (Motorola) and has
its own plan to compete in market by using its software (Android), it will become a threat
for Samsung if Google has its own way (Shaughnessy, 2013), Ramstad (2011) and (Oliver,

6
As discussed it contributes USD 7.95 billion (Shah, 2013).
5
2011). Apart from dependence on mobile division, its major sales from Apple in its semi
conductor business are a weakness for Samsung. With ongoing patent wars, Apple could
consider moving from Samsung to other suppliers, polishing off that chunk of business
(Kingsley-Hughes, 2013).

Appendix
Appendix-1
2009 2010 2011 2012 CAGR
Revenue 119697664 134076414 154048895 187754283 11.91

R n D 6485830 7889840 8653291 10597130 13.05
Admin and Other Expenses 20512851 22754810 23776910 31791390 11.57
Total Operating Expenses
26998681 30644650 32430201 42388520 11.93
R & D in % of total expenses 24.022766 25.746223 26.682816 25.00


Step 1:
Average percentage spend was calculated for R & D division from 2009-2011.
Step 2:
The average of 2009-2001 was added and divided by 3 {24+25+26=75}/3 =25, this figure was used as
average percentage spend for 2012
Step 3:
This percentage was multiplied with total operating expense of 2012 to calculate R & D expense of
2012.
Step 4:
The figure derived for R & D was subtracted from total operating expenses of 2012 to calculate
admin & other expenses for 2012.

Figure source: (Samsung Electronics, 2012,2011,2010)
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References
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gkkLoRRqkeTI
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http://www.forbes.com/companies/samsung-electronics/
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