ESM 611

Samsung Electronics: Creating, Capturing & Delivering Value in the Smartphone Industry

KICHUL JUNG, MUNA AL KAABI, OMAR SAIF

Introduction
Samsung Electronics is a leading technology company part of the large Samsung Group. The larger company was established in 1938 by Chairman Byung-Chul Lee along with Hong-jai Cho who joined in 1948 to help expand the firm through creating another business unit, Samsung Trading Corporation (now known as Samsung C&T Corporation). In the late 1960s Samsung entered the electronics market forming several electronics divisions, such as Samsung Electronics Devices, Samsung Electro-Mechanics, Samsung Corning, and Samsung

Semiconductor & Telecommunications. In 1998, the company grew to become the largest company in South Korea comprising 17% of Koreas GNP. Samsungs rapid and impressive growth was primarily due to their ability to effectively create, capture and deliver value, which will be explored in this report. Although several notable Samsung subsidiaries exist, for the purpose of this paper the main subsidiary of focus will be Samsung Electronics - the world's largest information technology company by 2012 revenues, and 4th by market value. The report will also focus specifically on Samsung Electronics strategy within the smartphone industry.

1.1.

History of Samsung Electronics

Samsung Electronics was founded in 1969 by providing black-and-white televisions,

followed by a move towards semiconductors in the early 1970s. Samsung Electronics noticed the high potential of growth and profitability in the semiconductor industry and consequently started manufacturing DRAMs in the 1980s. In order to design and create its first 64 K DRAMs, Samsung Electronics searched globally for a company willing to license its DRAM technology. The company approached a number of financially-distressed small semiconductor companies in the US, finally settling on Micron for chip designs and process technology [2]. In order to develop the company with its first frontier technology, Samsung Electronics externalized its research to two task forces in the US and Korea by employing Korean and American Ph.D students in the field of electrical engineering. These two task forces interacted both cooperatively and competitively actively and finally succeeded in developing a 64 K DRAM [2]. This strategy created the synergies in developing products as an internal process in Samsung Electronics. As a result, the firm obtained the best market position and the leadership position with respect to the
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DRAM industry [3]. However, by 1995 Samsung Electronics total ROI was only 60% of what it was in 1995 primarily due to market saturation in the DRAM industry. Nevertheless, Samsung Electronics continued to invest in facilities and R&D, establishing joint ventures in many countries. Resultant of the continued investment in the R&D of next-generation DRAM chips, Samsung Electronics cracked the 1 G DRAM in 1996 [4]. However, by 1997 the Asian Financial Crisis began to afflict the DRAM market. Consequently, Samsung Electronics stocks plummeted to their lowest value since 1994. Over this period, Samsung Electronics had to go through substantial corporate restructuring to overcome difficulties. Despite the weakened Korean currency, the corporation surmounted adversities and hardships from a strong rebound in market demand and price for DRAM in the late 1990s. Even though Samsung Electronics surpassed rival companies in the DRAM market owing to its commitment to DRAM improvement, it realized that the company needed to adopt an ambidextrous approach and innovate beyond existing products. This was achieved by devising a new strategy of product diversification to reduce dependence on DRAM for company revenue. Therefore, the firm made a major move towards non-memory chips. By providing chips to various manufacturers (including Apple for its iPhone), Samsung Electronics acquired vast knowledge on the manufacturing and development of high end consumer electronics including mobile phones and later smartphones. In the 2000s, Samsung Electronic had defined its strategy as digital convergence. This involved the creation of diverse and mixed products to provide a full-range of products from memory chips to highend state of the art consumer products [5].

1.2.

Samsung Electronics Organizational Strategy

Samsung Electronics rise in to becoming a top-tier manufacturer of semiconductors and

consumer electronics is owed to a great degree to the companys organizational strategy and architecture which is summarized in Figure 1.

Figure 1: Organization Chart of Samsung Electronics [8]

The company is split in to two core divisions, Digital Media & Communications and Device Solutions. In the divisions, it focused on mobile communications, digital media, semiconductor etc. while dominating the market with its products. In addition, Samsung Electronics adopted entrepreneurial incentives to battle rivals in mobile and smartphone markets. The company investigates the way to optimize its products and technological innovation processes by forming Pro-Teams which aim to integrate employees with their opinions in the mobile phone manufacturing process and to connect them. This strategy successfully built a balanced bottom-up along with horizontal communication culture for encouraging employees to be creative and flexible as well as to work innovatively [6]. With the organizational system in place, Samsung Electronics was able to systematically improve its technology and core products under a centralized and well communicated company vision. In 2005, the total net sales of the Samsung reached $140.9 billion with a net income of $9.4 billion. The firm had total assets worth $233.8 billion, and its market capitalization amounted to $80.8 billion. In 2007, Samsung Electronics became the world's second-largest mobile-phone maker by overcoming Motorola. In 2009, the corporation achieved total revenues of US$117.4 billion, overtaking Hewlett-Packard to become the world's largest technology company measured by sales [7]. During this time, Samsung Electronics utilized Googles free Android operating system in a move that would benefit both companies, and while Smasung and
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Google are separate businesses entirely, they were able to have a symbiotic relationship of coevolution. For Samsung Electronics to create a value and improve their market leadership, they need to organize the firm more effectively. So, Samsung Electronics began in 2013 reorganizing their firm structure by focusing on three sections: Consumer Electronics, IT & Mobile communications and Devise Solutions [8][9]. The new firm structure will allow the three units to be more effective in their decisions making and dealing with world market change. Moreover, Samsung Electronics can continue to develop and improve their Pro-Teams as to better capture internal talent and innovation inside the company, and between business units [6]. Samsung may also want to look into the potential acquisition of technology startups to increase their patents and decrease internal R&D costs. Although Samsungs traditional R&D structure has served the company well, looking into distributive R&D could be beneficial given the ever changing market trends and technologies.

1.3.

Samsungs Mobile Industry Evolution

The mobile phone market has recently witnessed tremendous growth and increased

competition among different firms. Although Samsung Electronics was initially better known for semiconductors and home appliances they remarkably succeeded in setting their name as one of the top mobile phone manufactures in the world with their products highly advertised by the media [10]. Samsung Electronics was a relative late comer to the emerging smartphone industry, as better established firms such as Nokia, Motorola, Sony-Ericsson, BlackBerry and Apple were already in the market. Despite their late entry into the
Figure 2: S-curves for Samsung mobile phone products

smartphone industry, Samsung Electronics technological

capacity was more than ready, as they had a strong foundation in the mobile phone and periphery markets through several product lines shown in Figure 2.

The initial start of Samsung in mobile telecommunications began in 1983 [10]. They did so by initially disassembling and reassembling Japanese car-phones repeatedly in order to come up with the first Samsung car phone, the SC-100 in 1986 [10][11]. However, the developed car phone was of low quality and they consequently considered exiting the mobile industry completely. In 1988, Samsung decided to delve into new technology by releasing their first mobile handset, the SH-100. However, once again the phone was of poor quality and could not compete with Motorolas higher quality and the worlds first ever mobile phone, the DynaTAC 8000X released earlier in 1983 [20]. Furthermore, Motorola had a much stronger customer base for mobile phones. Despite another market failure, Samsung continued their intensive R&D to overcome their technological impediment and stay in the business [10]. Samsung Electronics were determined to produce mobile phones at par with Motorola phones. Hence, they developed a team focused on connection quality as a key differentiator from Motorola. By the early 1990s Samsung developed a new model, the SH-700 with better quality than the previous SH-100 and it was upgraded later to the SH-770. The company initiated aggressive marketing campaigns to condition their brand name with quality and credibility. Samsung also utilized their Korean base to imbed a sense of patriotism among Korean users [10]. To keep up in the business, Samsung entered the CDMA (Code Division Multiple Access) and PCS (Personal Communication Services) market and had a huge success in both. By the end of 1990s, Samsung Electronics decided it was time to expand in to the global market. They tried to enter the GSM (Global System for Mobile Communications) in the European market, but with the strong competition from big firms like Nokia, Motorola and Ericsson it was difficult to succeed. Consequently, Samsung adjusted their products to more suitably meet the taste of European (and other markets) by following a localization strategy. By 2002, Samsung efforts had paid off as the company ranked in 4th place globally among mobile phone manufacturers for sales in both CDMA and GSM markets [10]. To remain competitive, Samsungs R&D is focusing on improving new technology standards for 4G communications and the mobile internet [10]. Moreover, from 2003 to 2011 the total number of personnel R&D increased from 21,000 to more than 60,000 [9]. In alignment with its product diversification strategy, Samsung continues to produce convergent technologies and products in order to compete with other manufacturing firms [10]. Furthermore, industry
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change from analog to digital technology has led to a narrowing in the technological gap of manufacturing firms. Technology commoditization and modularization is the new form of disruption, suiting Samsungs strategy of speed and aggressive investment in product lines, producing new products in short periods of time [13]. Samsungs late entry in to the smartphone industry put them in direct competition with Apple and their iPhone products. However, Samsung was able to penetrate the market with the success of their Galaxy phone line that ran the relatively new Android OS. Since then they have managed to maintain remarkably steady growth in the industry, overtaking Nokia in 2011 [14]. Currently, Samsung is leading the market and not likely to be majorly disrupted by other firms at the technology level as the industry nears its natural technology limit. In other words, technology innovation between various OEMs in the industry narrowing, though other forms of innovation remain possible. There is some talk of the possibility that tablets or phablets (referring to devices such as the Samsung Galaxy Note) will disrupt the smartphone industry and take over [15]. However, even if this was the case, it would not present a technological innovation or disruption given that tablets utilize much of the same technology and operating systems as current smartphones. To compensate for the diminishing returns in technological investment, Samsung, along with other OEMs, are focusing on managing their existing technologies and penetrating new markets. Apples ability to license its new iPhone on of the worlds largest carriers, China Mobile highlights this move in to new markets. Similarly, Samsung is making a similar move in to new markets including China and India, as the smartphone market remains largely unsaturated at the global level, particularly in developing economies [16]. In fact, Samsung is already ahead of Apple when it comes to the Chinese market with 19.4% penetration, compared with Apples 4.3% in Q2 2013 [17]. The various regional penetrations of smartphones is illustrated in Figure 3.
Figure 3: Smartphone Market Share World Map: March 2013 [18]

1.4.

Smartphone Industry History & Evolution:

In 1983, Motorola unveiled the very first portable phone the DynaTAC 8000x [20].

Compared with todays available smartphones, it was significantly bulkier in size, weight and came at a starting price of $3,995 USD equivalent to $9,130 in 2012 USD [20]. Since then technological progress has enabled cell phones to become smaller, cheaper and more reliable leading to accelerated adoption in the 90s and 2000s at the global level. It was during this time period that PDAs (Personal Digital Assistance) developed largely by IBM, Palm and Nokia emerged in the market; often considered the predecessors of todays smartphones. Though there is no established definition to what exactly constitutes a smartphone, they are often characterized by running an operating system that allows for the use of various applications or apps [20]. With time they also came to include touch screens, built in cameras, GPS, Wifi/Bluetooth amongst other features [21]. During the early 2000s, Nokia with its Symbian OS platform, played an instrumental role in paving the way for future smartphones; licensing its OS to other manufacturers including Sony Ericsson and Motorola [20]. However, the Symbian OS lost much of its popularity following the market entrance of RIMs Blackberry OS, Microsofts Windows Mobile OS and Palms OS in the mid 2000s [20]. These OS platforms further expanded the smartphone market allowing for greater multi-tasking and business oriented tasks including emails, contact management and web browsing. The next wave of smartphone market penetration would take place in 2007 with the launch of the Apple iPhone, and its iOS, going head to head with BlackBerry [21]. In developed economies, Apple and Blackberry deserve much of the credit for taking the smartphone adoption curve past the great chasm and into the early majority as shown in Figure 4. Handset devices running on Googles open source Android OS emerged in 2008, gaining adoption by customers fairly rapidly [20]. Apple and Google differentiated themselves through their supplementary app markets, the Mac App Store and the Google Play Store respectively. In partnership with developers, Apple and Google were able to provide well above 500,000 apps each through their respective app markets - a significant added value to customers that helped increase the global uptake of smartphones. This step by Apple and Google helped further capture the early majority and even move in to late majority customer segments also shown in Figure 4.

Figure 4: Smartphone S-curve and adoption in developed markets

1.5.

Smartphone Industry Market: Penetration and Current Outlook

Despite increases in global uptake of smartphones, global penetration remains low,

hovering around 12% of the total population, or 27% of all phones sold [20]. The main reason for the relatively low penetration rates comes down to cost. Penetration exists at levels of 50-60% in Europe and North America while other markets are only at 10-20% as shown previously in Figure 3. This can be attributed to not only lower wages, but also the popularity of pre-paid plans in many developing markets, which exclude the possibility of carriers subsidizing phones as the case in North America and other developed economies [20].

1.6.

OEM & OS Platform Competition:

The smartphone industry is highly competitive in manufacturing and OS platforms. In the

past decade alone, numerous OEMs and OS platforms have risen and fallen [19]. Figure 5 below illustrates the smartphone market share by OS at the global level. Android, an open source platform taking over 70% of the OS market share within the span of only 3 years at the primary expense of Nokias Symbian OS and RIMs Blackberry OS. Conversely, Figure 6 shows global smartphone market share by OEM, Samsung showing a 30% market share takeover since 2008 at the expense of BlackBerry and Nokia.
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Figure 5: Global smartphone market share by OS platform [19]

Figure 6: Global smartphone market share by OEM [23]

Table 1 highlights the different strategies that the major OS platforms employ in terms of manufacturer licensing. iOS and BlackBerry OS are both developed in house by the parent companies and the OS platforms are exclusive to them alone [19]. Google, Nokia and Microsoft on the other hand utilize a strategy of licensing to proliferate their respective OS platforms in the market. Microsoft charges a licensing fee to OEMs for the use of its Windows Mobile OS while Google and Nokia do not charge OEMs for the use of Android or Symbian. This licensing structure explains OS market shares seen in Figure 5 to a large degree. Androids widespread adoption and Windows Mobile stagnant market share reflect the licensing costs associated with the OS platforms. Symbian lost significant market share over the years, primarily due to Nokias

decision to partner with Microsoft and adopt the Windows Mobile OS platform, effectively killing the Symbian [20].
Table 1: Strategies in OS Licensing

OS Platform iOS Android BlackBerry OS Symbian

Developer Apple Google BlackBerry Nokia (with other contributors)

Licensed OEMs Apple only Multiple BlackBerry only Nokia, Ericsson, Motorola Multiple

Licensing Cost (USD/unit) N/A Open source N/A Open source (with some license restrictions) $8-$15
Adapted from Ogunsanwo, 2012

Windows Mobile OS

Microsoft

1.7.

Future Outlook of Smart Phone Industry:

The future of the Smart Phone industry seems to be one marked by greater market share

consolidation by fewer OS platforms. With the exception of the iOS, OS platforms limited to one OEM are unlikely to capture any significant market share [25]. The recent announcement of BlackBerrys agreement to be purchase by Fairfax Financial is likely to add another major blow to both BlackBerrys smart phones and OS platform. Table 2 illustrates a forecast of OS market share, showing current OS market shares along with a 2017 projection. Under this global scenario, Android and iOS will remain the dominant platforms for the coming years while Windows Mobile will gain more market share, becoming another key player. While various forecasts exist with varying market share margins, the future dominance of these three players is forecasted by most analysts [20]. When combined they will continue to represent well over 96% of global market share.
Table 2: Top Smartphone Operating Systems and Forecast Market Share, 20132017 Smartphone OS 2013 Market Share 75.3% 16.9% 3.9% 2.7% 1.2% 100.0% 2017 Market Share 68.3% 17.9% 10.2% 1.7% 1.9% 100.0%

Android iOS Windows Mobile BlackBerry OS Others Totals Source: IDC Worldwide Mobile Phone Tracker, September 4, 2013

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In terms of OEMs, Samsung and Apple are expected to continue to dominate in global market shares. However, market share drop by former power houses including Nokia, Sony-Ericsson and BlackBerry coupled with more open OS platforms such as Android and Windows Mobile has opened the floor for smaller OEMs to enter the market; Lenovo, LG, ZTE and Huawei being such examples. Figure 7 exemplifies this trend. Samsung and Apple in 2013 Q2 had a combined market

Figure 7: 2013 Q2 Market Share by OEM [23]

share of around 43%, the rest being divided between other OEMs. The way firms and/or OEMs also capture value has varied significantly and will continue to do so. Firms such as Nokia rely heavily on handset sales while others like Apple rely on their appstore. Google and Microsoft on the other hand capture value mostly through their online services. Figure 8 summarizes the financial strategy of the top OS platform providers excluding BlackBerry.
Figure 8: Where OS Firms Capture Value [19]

1.8.

Customer Segments and Growth Opportunities for Smart Phone Industry:

The smartphone industry can be broken down into numerous customer segments based on various criterias including: geographic, psychographic, demographic, and behavioral [22]. Figure 9 illustrates one study performed on a sample population segmented into four psychographic groups Traditionalists, Career-makers, Socially-concerned and Yuppies. Simmons has created a similar consumer psychographic segmentation, with the consumer profiles summarized below in Table 3.

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Table 3: Psychographic customer segment profiles [24]

Mobirati (Yuppies): Mobirati represent the mobile generation. They grew up with cell phones and cannot imagine life without them. Cell phone devices are a central part of their everyday lives. Social Connectors (Socially-concerned): Communication is central in the lives of Social Connectors. Their cell phone allows them to keep up-to-date with friends and social events. The cell phone device is the bridge to their social world. Mobile Professionals (Career-makers): Mobile Professionals are multiple feature users. Their cell phone helps them keep up with their professional life in addition to their personal life. Members of this segment are more likely to own a smart phone. Their cell phone has become their all-in-one device for their communication and information needs. Pragmatic Adopters: Cell phones came to life for Pragmatic Adopters in their adult years. They are the ones who are still learning there are other things to do with your phone beyond just saying Hello. Cell phones are more a part of their everyday life than before but still more functional than entertaining to them. Basic Planners (Traditionalists): Basic Planners are not into cell phones or the world of technology. They use their cell phone just for the basics. The cell phone is just another communication device for this group.
Figure 7: Psychographic Characteristics of Various Customer Segments [22]

According to the methodology involved customer segments can vary, however demographic and psychographic are more important to consider at national or more localized scales. At the global level, segmentation has become largely a function of handset prices [20][25]. Smart phone penetration in the global mobile market is reflective of this, standing currently at 27% [20]. This penetration is mostly in developed countries where disposable income is higher, and handset subsidization by carriers is more widespread [20][25]. Consequently, developed countries are
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seeing a saturation in smartphone uptake while developing countries remain a largely untapped market (referring to Figure 4, developing markets would have an adoption curve shifted much greater to the right). Consequently, many OEMs, including Samsung are investing in cheaper smartphone and tablet devices that would capture the remaining late majority and laggard segments in developed countries while also breaking in to more price sensitive developing economies [20][25]. The tradeoff between the traditionally pricier smartphones and tables and the cheaper more affordable ones being summarized in Figure 10.
Figure 8: Tradeoff between higher-end & price-affordable devices

Non-Price sensitive customers

Price sensitive customers

Higher-end Devices
Higher profit margins Lower market capture of late adopters, laggards and developing economies

Price-affordable Devices
Lower profit margins Higher market capture of late adopters, laggards and developing economies

1.9.

Customer Need Evolution:

Customer needs in the smartphone industry have been fast evolving and changing. The technology developed by OEMs has in part defined customer needs while customer needs have also fueled OEM R&D into product design, performance, usability etc. In a response to customer needs, the industry is also becoming more commoditized [25][26]. Due to diminishing returns, OEMs are managing their technology by focusing on niche and peripheral markets. This is done by tweaking phones for various customer lifestyles, for example the rugged Casio G'zOne smartphone, which is built and marketed towards outdoor users and wilderness survival or alternatively the Sony Xperia Play, which is marketed towards gamers [26]. Such products are a direct response to customer needs in niche markets.

2.0.

Conclusion:

In summary, Samsung Electronics has come a long way since its inception. Historically it created value by utilizing its strong R&D towards DRAMs and memory chips which later helped it enter
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the mobile and smartphone industry. Through a strategy of convergent technology and alignment with industry trends, Samsung was able to make key moves that would propel it as a leader in the industry. One notable move was its partnership with Googles Android OS, allowing it to penetrate developed markets across the globe. As it now sits as the worlds largest smartphone manufacturer, Samsung Electronics is attempting to capture the remaining customer segments by managing its current technology through a commoditization strategy, as well as entering new developing markets through more affordable handset devices.

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[1] Y. Gil, S. Bong, and J. Lee, Integration model of technology internalization modes and learning strategy: globally late starter Samsung's successful practices in South Korea, Technovation, 23(4): 333-347, 2003. [2] L. Kim, 1997, The dynamics of Samsung's technological learning in semiconductors, California Management Review 39, 86100, 1997. [3] [4] J. I. Siegel and J. J. Chang, Samsung Electronics, Harvard Business School Case Study, 2005. G. Haour and H. Cho, Samsung Electronics Co., LTD(A): radical innovation for the DRAM Business, IMD Case Study, 2003. [5] [6] S. Kumar, Samsung Electronics' Turnaround, ICFA Case Study, 2004. P. Baloh, K. Uthicke, and G. Moon, A business process-oriented method of KM solution design: A case study of Samsung Electronics, Int. J. Inf. Manage., vol. 28, no. 5, pp. 433437, Oct. 2008. [7] J. Lee and J. Slater, Dynamic capabilities, entrepreneurial rent-seeking and the investment development path: The case of Samsung, Journal of International Management, vol 13, pp. 241257, 2007. [8] [9] 2012 Samsung Electronics Annual Report Sustainability Report 2013 . [Online]. Available: http://www.samsung.com/us/aboutsamsung/sustainability/sustainabilityreports/download/2013/20 13_Sustainability_Report.pdf [Accessed: 22-September-2013] [10] S.-J. Lee and B.-Y. Lee, Case study of Samsungs mobile phone business, KDI Sch. Pub Policy Manag. Pap., no. 0411, 2004. [11] L. Byung-chul, The Life Cycle of Samsung Electronics, Samsung Electron. Struggle Leadersh. Electron. Ind., p. 17, 2010. [12] Motorola DynaTAC 8000x. [Online]. Available: http://www.retrobrick.com/moto8000.html [Accessed: 25-September-2013] [13] A. M. Badawy, S.-J. ChangSony vs. Samsung: The Inside Story of the Electronics Giants Battle for Global Supremacy2008Wiley206 pp., J. Eng. Technol. Manag., vol. 26, no. 3, pp. 215217, 2009. [14] Samsung and Apple Continue to Dominate Smartphone Market, But iOS Market Share Falls. [Online]. Available: http://www.macrumors.com/2013/02/13/samsung-and-apple-continue-todominate-smartphone-market-but-ios-market-share-falls/ .[Accessed: 25-September-2013] [15] K. C. Tofel, Heres why tablets will replace the smartphone, gigaom, 2012. [Online]. Available: http://gigaom.com/2012/08/01/heres-why-tablets-yes-tablets-will-replace-the-smartphone/.

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Marketing Strategy of SAMSUNG in India.[Online].Available: http://www.slideshare.net/vvikaschauhan/marketing-strategy-of-samsung-in-india .[Accessed:25September-2013] In response to Apples latest iPhone, Samsung says its next smartphones will have 64 -bit processing . [Online]. Available: http://thenextweb.com/asia/2013/09/12/in-response-to-appleslatest-iphone-samsung-says-its-next-smartphones-will-have-64-bit-processing/ . [Accessesd:24September-2013] Smartphone Market Share World Map: March 2013.[Online]. Available: http://www.geekchamp.com/news/smartphone-market-share-world-map-march-2013 .[Accessed: 28-September-2013] M. Kenney and B. Pon, Structuring the Smartphone Industry: Is the Mobile Internet OS Platform the Key?, J. Ind. Compet. Trade, vol. 11, no. 3, pp. 239261, Jun. 2011. O. Ogunsanwo, The changing competitive landscape of the smartphone industry, 2012. L. Wirtschaft, Mobile Ecosystems in Global Transition Driving Factors of becoming a mobile. F. Hamka and G. Committee, Smartphones Customer Segmentation and Targeting: Defining market segment for different type of mobile service, 2012. Morgan, analyzing the worlds 14 biggest handset makers in Q2 2013. [Online]. Available: http://www.fiercewireless.com/europe/special-reports/analyzing-worlds-14-biggest-handsetmakers-q2-2013. Simmons Mobile Consumer Segmentation System and Psychographic Scales, Experian. [Online]. Available: http://www.experian.com/simmons-research/mobile-usagesegmentation.html. Connected Consumer Survey 2013 Highlights Smartphone Saturation and the Need for Creative Operator Approaches, Analysismason, 2013. [Online]. Available: http://www.analysysmason.com/About-Us/News/Insight/Smartphone-saturation-ConnectedConsumer-Aug2013/#.Ukf-EoZpknY. A. Mouton, Nokias Camera Phone, Samsung's Outdoor Handset Point to a Fragmented Market, 2013. [Online]. Available: http://www.minyanville.com/sectors/technology/articles/Nokia2527sCamera-Phone-Samsung2527s-OutdoorHandset/9/16/2013/id/51757#ixzz2f3oNCPOC?refresh=1.

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ESM 611

How has the industry captured the value that it has created historically?
Five Force Analysis: The way in which the smartphone industry has historically captured value is best represented through Porters Five Force Analysis, which is illustrated in Figure 1. Competitive rivalry [HIGH]: Within the smartphone industry, competitive rivalry exists on two main fronts, hardware and software (OS platform). In terms of OS rivalry, the main current players are Apples iOS, Googles Android and Microsofts Windows Mobile. Collectively, the three operating systems represent over 96% of 2013 smartphone OS
Figure 1: Porters Five Force Analysis

market share as shown in Figure 1. Historically, OS

rivalry has been low in terms of the number of competitors in the market, however fairly high between them. The radical drop in market share by RIMs Blackberry OS and Nokias Symbian OS in such a short time period demonstrate how competitive the OS market is [3].

Figure 2: Top Smartphone Operating Systems by Market Share

At the hardware levels, the number of competitors is much higher, with OEM market share being less oligopolistic in comparison with OS market share. Figure 2 demonstrates market share breakdown according to smartphone manufacturers. 2

Similar to competition at the OS level, smartphone manufacturers

have also seen rapid rise and fall over the last decade. Powerhouses like Nokia have seen a 40% market share loss in just five years, mainly to Samsung as shown in Figure 4 [1].

Threat of new entrants: [LOW] The threat of new entrants to the smartphone industry is quite low for multiple reasons. Firstly, whether at the OS or manufacturing end, the number of patents along with proprietary knowledge needed to enter the market is often too great of a barrier for new entrants [2]. Even existing companies fight tooth and nail in the smartphone industry over patents, such as the litigation war between Apple & Samsung [21]. Furthermore, significant and
Figure 4: Market Share by OEM Figure 3: 2013 Market Share by OEM

investment,

resources

partnerships are needed for research, product development and marketing [2]. Lastly, brand loyalty is another major barrier to entry for new companies [2]. However, some relatively new entrants to the smartphone industry such as ZTE and Huawei have succeeded in entering North American markets through price differentiation [3]. Google is already heavily involved in the smartphone industry through the Android OS and some Google phone partnerships with existing manufacturers. However, its recent acquisition of Motorola could spell a possible entry into smartphone manufacturing, if so, this would be a major threat to existing OEMs as

the traditional barriers to entry would not apply to Google given its appropriation of Motorola patents and large resource/investment base [4]. Threat of substitute products: [LOW] The threat of substitute products for smartphones is particularly low given that smartphones are already multi-functional, and have substituted many other products in the market such as Mp3 players, PDAs, Cameras, GPS systems and even computers/laptops to a lesser degree [2]. Consequently, it is highly unlikely that smartphones will be substituted by a competing product in the near future. Some analysts have suggested that services such as Skype or other VoIP services could potentially substitute phones as access to internet increases. However, this is unlikely to be the case as even VoIP services are now being used more greatly on smartphones opposed to laptops or desktop computers [2].

Bargaining power of customers: [MEDIUM] Customers have multiple smartphone manufacturers and operating systems to choose from, giving them some bargaining power [2]. However, customer bargaining power, particularly in developed economies where handsets are often subsidized by carriers through plans is lower, as customers have a less direct link with smartphone manufacturers and direct retailers [3]. Bargaining power of suppliers: [HIGH] The bargaining power of suppliers depends on whether it is the hardware or the software being supplied. In terms of software, the bargaining power is relatively high unless the smartphone manufacturer also owns its own software such as Apple or BlackBerry. Samsungs method of capturing value differs from other industry players such as Apple, BlackBerry and Nokia in that, it did not develop its own operating system. It has rather utilized Googles existing Android OS [5]. Controlling your own OS is a double edged sword, with the case of Apple, it has been highly beneficial as it allowed for greater market penetration and higher profit margins. On the other hand, poor management of an OS such as the case with BlackBerry OS and Symbian has resulted in BlackBerrys and Nokias fall as was shown in Figure 4. At the hardware level, bargaining power of suppliers also relies heavily on how vertically integrated the company is. In the case of Samsung, it benefits from having low supplier bargaining power as it manufactures all of its needed components internally [7]. This is somewhat unique in the industry, where most OEMs such as Apple purchase chips and other electronic components from external manufacturers such as Samsung [8].

Does your firm capture value in a different way from firms in your industry? Will this change in the future?
Samsung Electronics captures value in similar ways to other industry competitors. However, it does focus on different aspects of its value chain in comparison to arch-rivals such as Apple. Samsung has traditionally captured value through utilizing its tightly held manufacturing assets, however this is likely change as Samsung advances forward in its value chain (shown in Figure 3) and attempts to capture value in its historically weaker areas like software and services.

Business value chain:

Figure 5: Samsung Electronics Value Chain

Samsung was able to capture value through some key supply chain transformations. 1) Firstly, they made significant attempts to listen to customer needs. One such method that was employed was to send Samsung staff to different countries and communities to attend MBA programs there. While there, they were to identify customer preferences and integrate them into the product design process, through quality function deployment [6]. 2) Secondly, they adopted a Six-Sigma strategy that was adapted from GEs approach. Samsung called this approach DMAEV, short for define, measure, analyze, enable and verify. This approach allowed Samsung to drastically improve their internal operations, and hence capture value more effectively [6]. 3) Thirdly, Samsung utilizes an Advanced Planning & Scheduling system (APS) to help them better optimize raw materials and production capacity with product demand [6]. Such a system is 5

especially important in the electronics industry given how quickly the market changes, therefore demanding flexible and resilient production. 4) Fourthly, to further capture value within the company, Samsung Electronics uses a Streamline Performance evaluation system that allows high performers within the company to advance faster in their respective career paths [6]. 5) Fifthly, Samsung uses Standardized Process and Parts to achieve both economies of scale, and manage quality more effectively, in doing so better capturing the value they create [6]. 6) Lastly, Samsung has established a strong Risk Management System to reduce risk in their highly competitive and fast-changing industry [6]. Some risk management strategies undertaken include: maintaining lower inventory, having flexible production capacity, and building in redundancies within their supply chain to minimize risk [6]. Vertical & Horizontal Integration: Samsung Electronics, like Apple, is known largely as a vertically integrated company rather than a horizontally integrated one like Intel [7]. Consequently, in an attempt to better capture value, Samsung has made key moves at vertically integrating its value chain. Part of Samsungs risk management strategy is to reduce the number of transactions with multiple parties through vertical integration [7, 8]. Samsung Electronics has done a great deal to tightly manage its value chain, a trend seen elsewhere in the electronics industry [7]. Samsung Electronics vertically integrates practically all of its manufacturing, from raw materials to electronic

components, and finally to fully assembled devices as shown in Figure 4 [8]. Acquisition of companies developing key hardware components is another strategy Samsung employs [9]. One such example being Samsungs acquisition of the German company Novaled for its OLED screen technology [12]. In doing so, Samsung is able to achieve economies of scale through is high volume manufacturing efficiency [8]. Consequently, it stands as one of the worlds largest suppliers of electronic components to OEMs including Sony, Apple, Dell, and Hewlett Packard [8]. Samsungs vertical integration however is fairly
Figure 6: Samsung's Vertical Integration

different from others in the industry such as Apple, who integrates more forward in the value chain compared with Samsung [11]. Apple develops its own software, services its users through iTunes and 6

iCloud and also does its own retailing through its Apple stores [11]. Though Samsung is unlikely to venture into retailing like Apple, it has been making greater efforts to strengthen its comparitvely weak software division through a number of acquisitions [9, 14]. Partnerships: Samsung Electronics has developed some key partnerships to help it better capture value. Among the most famous is its partnership with Google through the Open Handset Alliance which included other OEMs such as Sony, HTC, LG, and Motorola [13]. By adopting the Android OS, Samsung was able to benefit greatly as it historically lagged in software and could not produce an OS of its own that would rival existing rivals such as Apple, Microsoft or BlackBerry. Google benefits greatly from the partnership as well through the proliferation of its Android OS uptake resultant of Samsung handset sales. Another key partnership that Samsung Electronics has undertaken is with Intel through the Tizen OS. Recognizing its software vulnerability and overreliance on external operating systems such as Android, Samsung partnered with Intel in 2011 to develop Tizen, a Linux based open source OS that will compete with Googles Android (16). Tizen is expected to not all be used on handsets, but even Samsung TVs and tablets [15]. Tizen reflects Samsungs overall vertical integration strategy and entrance into software and services. Aside from company partnerships, Samsung Electronics is also trying to make strategic geographic partnerships that will allow it to capture value in new markets. This is highlighted through Samsungs push for partnerships on the African continent [17]. Partners include: 1) Multichoice Africa (Africas leading pay TV operator): Samsung is partnering with them to deliver content, technology products and services to African markets [17]. 2) Universal Music Group: Samsung has partnered with them and African record labels to provide a mobile music streaming service called Kleek [17]. 3) Learnthings Africa: Samsung has partnered with Intel to co-develop technology products and solutions to deliver quality education through Learnthings Africas existing interactive learning material [17].

What has been the relative role of uniqueness (IP, Speed) and complementary assets in you firm/industry?

Uniqueness
In rapidly and dramatically changes of smart phone markets where we obtain the benefits of high technologies, companies which provide mobile phones are required to develop and enhance a strategy which represents its brand name and captures the value after creating the value from innovation. Among firms offering smart phones, Samsung Electronics achieves success in capturing the values based on an understanding of uniqueness regarding Intellectual Property Protection (IP), Speed, and Secrecy as a crucial scheme to earn a tremendous amount of profits. The uniqueness of vital points has a significant role in capturing and seizing the value for Samsung Electronics in the global market. After creating the value, Samsung Electronics has sought to capture the value by holding a large number of patents for the uniqueness for products with each m arkets characteristics. For example, in Germany, the firm registered patents for digital devices while using the localization strategy by launching an online community of Funclub which brings in customers attachment for the Samsung phones as well as strengthens the relationship between the company and its service providers. In France, Samsung created the concept of culture marketing while connecting technology and culture, and made the slogan of Samsung, going together with culture which appealed the customers for the Samsung phones with acquisition of patents for the phones in 2001. Owing to the strategy of uniqueness, Samsung ranked 4th for the phone sale in the global market in 2002, and the corporation firmly held the 3rd rank for the sales and 2nd for the revenues in 2003 (Figure 7) [18].

Figure 7: The world Mobile Phone Sale by Manufacturer (1000 units)

Moreover, research and development (R&D) enhances technologies for phones of Samsung Electronics and produces a large number of patents in the phone industry with high quality functionalities. The company has approximately 19,700 researchers who account for 34% of total employees for R&D. They 8

improved 100 new technologies every year and achieved 1,313 US patents with the 11 th rank of the world in 2003 presented by Figure 8 [18]. In phone markets, Samsung has applied for 12,000 patents in South Korea and 25,000 patents oversea, and holds about 100 patents which are related to 3G and 4G technologies.

Figure 8: Samsung Electronics R&D Expenditures (2001 2003)

Samsung Electronics is consistently investing R&D and patent capabilities to reinforce competitiveness by collaborating with a number of research centers and partners. This firm registered 5,801 patents in the USA (2012), acquired four awards from the European Imaging and Sound Association (EISA 2012), and earned twenty seven innovation awards in the Worlds Largest Consumer Electronics Show (CES 2013). Due to such efforts for its uniqueness of Samsung Electronics, it obtained the 9 th rank on Interbrands Best 100 Global Brands 2012 list which represents the brand value of USD 32.9 billion [19]. In addition, the company captures the value of the Samsung smart phone by continuously and rapidly upgrading the models for customers preferences with a number of services such as blogging, news, finance, shopping, and new applications which make customers buy its products. For example, the recent Galaxy series in Samsung Electronics are innovatively characterized by a curve screen for the first smart phone and waterproof with the luxury design and functionality. The high speed of innovation for improving smart phones applications has led Samsung Smart phones to where it is now (we will discuss more details because it is related to the business strategy in Question 4). The high speed of production has also helped the Samsung smart phones to become the best company of smart phones with the high phone sales in the global market. Lastly, the secrecy for the process with its technologies to make products (ex. smart phones) supports the uniqueness of Samsung Electronics. Sharing and exchanging technologies of Samsung Electronics with other firms is strictly prohibited by laws in South Korea. Therefore, the corporation produces its own digital devices in the global market.

Complementary Assets
The complementary assets of a company are important to capture the value which is derived from innovation to create its value. Samsung Electronics also has the complementary assets such as global marketing and customer services for its products to seize the value.

First of all, Samsung Electronics marketing strategy has a significant role in capturing the value of Samsung digital devices as the global digital technology leader [18]. To maximize its brand name in the world, Samsung Electronics decided on Olympic sponsorship with the new structure to effectively organize the global marketing. In the Atlanta 1996 Olympics, although the company was an unofficial sponsor, it gained an opportunity to participate in The Olympic Partners (TOP) by emphasizing the high technology communication company. In the Nagano Winter Olympics 1998, Samsung was presented by an official sponsor while providing the mobile technologies for the Olympics. Also, the firm has involved several Olympics games (the Sydney 2000 Olympics, the Salt Lake 2002 Olympic Winter Games, the Athens 2004 Olympics, the Torino 2006 Winter Olympics, and the Beijing 2008 Olympics).

Samsungs sponsorships are not limited only for the Olympics games. It also sponsored a number of equestrian games (the Federal Equestrian International Samsung Nations Cup and the Samsung Super League) and golf games as an official sponsor for the Samsung Ladies Professional Golfer Association World Championship. These strategies enhance the brand value with the reputation of the sponsor and capture the value of the firm. The corporation has also taken its value in movie markets by placing its products such as TVs, monitors, and mobile phones. For examples, it developed the Matrix Phone shown in the Matrix movie. In Korean movies, Samsung also runs the advertising campaign before showing movies to contribute Samsungs brand value.

Furthermore, the customer services play an important role in capturing the value of the company with the high quality brand value by actively communicating with current customers and potential customers [20]. Samsung Electronics always opens to all customers with complaint and inconvenience by forming deep relationships to develop and provide better products. The company has sought to differentiate its services from other companies while completely understanding the customers voices and suggestions. For example, the company carried out survey on 2,400 users of digital devices to ensure consumers needs for batteries in 2011. The firm analyzed the collected data in the survey to improve products that meet customers expectation by listening directly to the voice of customers on their priorities. Then, the 10

corporation produces the better digital devices and captures the value for the products by rapidly responding its customers, reviewing their user conditions, and improving its products with the high quality services. Due to this strategy of the customer services, the company maximizes customer satisfaction via a more responsible and active communication and becomes the best technology firm in the Korean market and even in the global market. Based on what we discussed for uniqueness and complementary assets of Samsung Electronics, we can identify the following figure 9:

Figure 9: Complementary Assets versus Uniqueness

This figure indicates that Samsung Electronics obtains The Big Win because of its strong strategy for uniqueness and complementary assets to capture the value of the company. In other word, Samsung Electronics has complementary assets of tightly held with its marketing and service strategies and uniqueness of easy to maintain which is based on a number of patents, the very high speed of innovation, and the secrecy of high technologies.

What roles do standards 10% (Access & Control), platforms/ecosystem 10%, and network effects 10% (Tipping & WinnerTakeAll) play in how value is captured in your firm/industry?
Standards (Access & Control):
Now a days there is what we called standards war in the electronics market. Firms try to compete between each other by being innovative, building their brand name, etc. There are different category of standard wars depending on how different competitive firms proposed new technology, as shown in Figure (10).

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Figure 10: Type of standard wars [21]

Samsung Electronics it falls in the Rival Evolutions and the Evolution versus Revolution quadrant. This is due to the fact that all Samsung competitors are using touch screens when it comes for smart phones and TRIZ methodology for systematic problem solving. However, Samsung projected in the Evolution versus Revolution when it comes to Apple, because Apple use their own operating system iOS while Samsung used Android Operating system that developed by google. Both operating system use touch interfaces that have a lot in common - swiping, tapping and pinch-and-zoom. However, iOS home screen contains only rows of applications icons, while Android give the opportunity to use of widgets that shows an auto-updating information, for instance weather and email [22]. The ability of the firms to be successful in standards war depend on some key assets that defined by the Art of the war [21], such as : intellectual property rights, ability to innovate, first mover advantage, manufacturing capabilities , brand name and reputation. Samsung Electronics, has what it take when it comes to the brand name and reputation, Samsung now is a global leader in screen technology, TVs, batteries, and chip design. In addition, Samsung does not do innovation, but they do have an innovation culture founded on extensive training, repeatable methodology and creative elite construction, supported by the highest level of management [23]. Moreover, Samsung Electronics holds approximately 100,000 patents which are used for developing technology in different aspects such as flash memory, mobile phones and other core products [24].Furthermore, Samsung manufacturing capabilities are very strong since they are the leaders on the semiconductor manufacturing which help in developing a lot of their products.

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Currently, Samsung Electronics are the leaders in screen technology, TVs, batteries, and chip design. This current position of Samsung Electronics is due to combination between the key assets they have and their dynamics of the strategic space of access and control, as shown in Figure (11).

Figure 11: Dynamics of the strategic space [25]

Samsung Electronics projected in the closed, private and the open, private quadrant. For the closed, private it was clear when they developed their own Super AMOLED panel brand that is the staple signature of their Galaxy flagship smartphone line [26]. Moreover, when it comes for the semiconductor manufacturing, Samsung Electronics follows the open, private strategy. For instant, Apple's latest flagship iPhone 5s includes 64-bit A7 microprocessor built by arch-rival Samsung [27]. So when Samsung Electronics follows the open, private strategy this may help to strength the position of the firm in the industry and could cause a lock-in scenario. Platforms/Ecosystem: Currently, number of knowledge-based technology applications trying to start a business ecosystem. Where a group of complex products and services made by different firms collaborate together in which no firm is dominant [28]. The ecosystem productivity and efficiency could be increased when there is an effective keystones strategy. This keystones instead of being a small part of their ecosystems mass can try being a system wide role and be in advantage position. They can be effective by creating value within the ecosystem which will help to attract or retain members in the business ecosystem. Also, sharing the value with other participants in the ecosystem so they will not become permanently enriched and

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eventually abounded by the ecosystem. Keystones can create a value for their ecosystems in different ways, but the most important thing is through creation a platform. This platform could be an asset in the form of services, tools, or technologies that offers solutions to others in the ecosystem. This platforms can be a physical asset such as manufacturing capabilities, intellectual asset, etc [29]. In case of Samsung Electronics, they are trying now to strength their position in the mobile innovativeness through establishing an ecosystem of business applications. So the company will start a new innovation strategy called Samsung Solutions Exchange, which includes working directly with line of business owners, carriers, independent software sellers and developers to create customized mobile enterprise solutions. So Samsung Solutions Exchange, is an online site where corporate customers can find apps and third-party developers with experience in developing mobile applications for Samsung smartphones and tablets. Moreover, to help some initiative customers such as American Airlines to develop custom business applications for Samsung devices, the developers have been given wideranging tools to accomplish the coal. In addition, when it comes to the platforms Samsung Mobiles enterprise business unit success over the past view years to become one of the biggest areas of growth for Samsung in the U.S. and globally. For instant, they launch some of the products such as Samsung for Enterprise (SAFE) in 2011, a description to let businesses and consumers know which devices have enterprise-grade security and Samsung Knox, which is a feature for security and management that can help in creating a secure zone on employee-owned Samsung devices for corporate applications and data. So, Samsung Electronics can effectively increase the productivity of their ecosystem through offering over 1,000 application programming interfaces in its software development kit to help developers to create customized applications [30]. Which mean, if Samsung Electronics success in being an effective keystone in it is ecosystem this will guarantee for the firm an advantage position within the industry. Network effects (Tipping& winner- take-all): Generally, Network is based on creating a cluster of connections and associates and maintain the network active through communication for common benefit [31]. Network business is key value for firms to expand their knowledge learn from the success and failure of others and gain new clients and customers. However, in order to dominate the global market and create a technology or product that accomplish Tipping& winner take-all, the firm should create strong global network. Usually, these global networks are flexible in a way that make firms and their suppliers as independent organization that compete, cooperate, shift and recombine networks from one product generation to the next.

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Networks are kind of supplying chain and activities that add a value to the final product of the firm, as shown in Figure (12) [32].

Figure 12: Generic Electronics Supply Chain [32].

In 2012, Samsung Electronics Tipped in the market of the LCD TVs and ranked as number 1, as shown in Table. 1 [33]. Table.1: Preliminary Global Q2 LCD-TV Ranking (Percentage Market Share Based on Unit Shipments):

Samsung Electronics manage to dominate (Winner- Take-all) the market and win because of its Global distribution, efficient Production and smart marketing. In addition, by signing cross-patent contracts Samsung Electronics proved the enormous strength of its patent protection portfolio, this contracts allow a broader cross-use of patents with other global IT companies. This makes a network between Samsung Electronics and different firms such as Qualcomm (mobile phones), Kodak (camera technology), Rambus (entire semiconductor products), and Sharp (LCD panel module), followed by contracts with IBM and Microsoft (MS) for the cross-license of technologies of the mobile phone operation system. Establish such a network enhanced the position of Samsung in the market and make it the leader when it comes to smartphones, TVs, semiconductors, etc [24]. Moreover, when it comes to customer services, Samsung tipped over other companies and ranked as the top of original equipment manufacturer (OEM) with 25.7 percent of U.S. mobile subscribers (up 0.1 percentage points), followed by LG with 19.1 percent share. Using an OEM allows the selling company to acquire needed components

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or products without owning and operating a factory, Samsung achieve that through its network with firms such as IBM. Furthermore, in 2012 Google Android tipped over other operating systems and become in the 1st place as the best smart phones platform. Since Samsung smartphones use Android Operating system this also is a win-win situation because of the advantage thats customers get from using Samsung Android phones the Samsung market share will increase [34].

What is your firms Technology Strategy versus Business Strategy?

In achieving success of capturing the value of the companys product, a technology strategy and a business strategy are crucial while effectively identifying and organizing every segments of the value chain. Innovative design and functionality in the mobile phones industry play a vital role in making a profit as the technology strategy with a number of patents. Samsung Electronics has always sought to create unique and innovative products with user-friendly design and functionality. Due to the importance of the technology strategy, the firm built the organization structure, the design management center, which is related to the entire development process with R&D for features of mobile phones [18]. Based on the center with customer research and lifestyle segmentation, the company improves and enhances its products with a number of unique design features that distinguished between other phones. For instance, in the beginning model of the mobile phone, the arrangement of the SEND and END buttons was inconvenient. However, by changing the location of the buttons, it became easier for users to push the SEND and END. Samsung Electronics also developed a clamshell or dual-folder phone which was designed for the first time with an external display window. In addition, the corporation introduced the Intenna phone that consists of an antenna embedded with touch-screen and a remotecontrol function. Owing to such efforts, Samsung Electronics won the iF Deign Award 2004, Europes most prestigious design award for eight products. Recently, the firm releases the smart phone of the Galaxy S4 filed 150 patents and equipped with attractive functions such as Dual Shot (see both sides of the story), Sound & Shot (listen to your photos), Group Play Share Music (share the enjoyment with friends), Samsung Hub (one stop shop for any content you want), S Translator (no more language barriers), and Samsung Watch ON (the ultimate TV remote) [35]. In fierce competitions of the mobile phone market, Samsung Electronics makes the core business strategy to cater to the customers needs. The corporation becomes the technology leader in the phone market which becomes saturated with a shorter lifecycle using competitive business strategies by 16

introducing new phones and communicating with customers to provoke the replacement demand [18]. One of the main business strategies is that Samsung Electronics has become the ultimate fast follower which means that it is faster than any company to learn from its competitors [36]. The firm develops the products and meets customers expectation by adjusting what competitors are doing and analyzing what other companies are bringing to the market first. Then, the firm produces rapidly coming out with a variety of devices and very quickly releasing its own version of the products with innovation. Moreover, Samsung Electronics is willing to spend the money of 5.7 percent of its revenue for R&D by investing in development of its digital devices whereas Apple spends its cash for research of 2.4 percent of its revenue [36]. Samsung smart phone can therefore have and offer diverse features that Apple has not gotten to. Whenever the corporation decides to get into any business, it does not hesitate to make decisions and to commit to its goal until the firm achieves it. In addition, as the phone market gets saturated by becoming standardized and modularized, the company targets emerging markets such as China, India, Brazil, and Eastern Europe for future revenue sources. As a result, Samsung Electronics becomes the worlds largest technology company being the dominant player in the smart phone market based on the technology and business strategies with its products.

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16) Iyer, Sandhya. Samsung, Intels Tizen 2.0 OS officially announced at MWC. 2013. Retrieved (http://gadgets.ndtv.com/mobiles/news/samsung-intels-tizen-20-os-officially-announced-at-mwc336464). 17) BizzTechAfrica. Synergistic partnerships key to successful growth and sustainability. 2013. Retrieved (http://www.biztechafrica.com/press/samsung-electronics/article/synergistic-partnerships-keysuccessful-growth-and/6023/). 18) Case Study of Samsungs Mobile Phone Business, 2004, Boon-Young Lee, Seung-Joo Lee 19) 2012 Samsung Electronics Annual Report 20) http://www.samsungsdi.com/main.jsp 21) Carl, S., & R., V. H. (1999). The Art of Standards Wars, 41. 22) Android vs iOS. (n.d.). Retrieved from http://www.diffen.com/difference/Android_vs_iO S 23) Haydn, S. (2013). What Makes Samsung Such An Innovative Company? Retrieved from http://www.forbes.com/sites/haydnshaughnessy/2013/03/07/why-is-samsung-such-an-innovativecompany/ 24) Building, P. C. (2012). 450 2011, 20102011. 25) Day 12 Network Effects and Standards. (n.d.).class notes 26) Samsung to buy Novaled for longer-lasting, more efficient Super AMOLED displays. (n.d.). Retrieved from http://www.phonearena.com/news/Samsung-to-buy-Novaled-for-longer-lasting-more-efficientSuper-AMOLED-displays_id45841 27) Apple uses Samsung-built A7 processor in iPhone 5s. (n.d.). Retrieved from

http://www.cbronline.com/news/mobile-and-tablets/apple-uses-samsung-built-a7-processor-iniphone-5s-230913 28) Who Joins the Platform? The Case of the RFID Business Ecosystem. (n.d.). Retrieved from http://ieeexplore.ieee.org/xpl/login.jsp?tp=&arnumber=1385792&url=http%3A%2F%2Fieeexplore.ie ee.org%2Fxpls%2Fabs_all.jsp%3Farnumber%3D1385792 29) Creating Value in Your Business Ecosystem. (n.d.). Retrieved from

http://hbswk.hbs.edu/item/3967.html 30) Samsung Targets Mobile Enterprise with Partner Ecosystem. (n.d.). Retrieved from

http://blogs.wsj.com/cio/2013/09/25/samsung-targets-mobile-enterprise-with-partner-ecosystem/ 31) Networking. (n.d.). Retrieved from http://www.businessdictionary.com/definition/networking.html 32) Dedrick, J., Kraemer, K. L., Linden, G., & North, B. P. (2007). Capturing Value in a Global Innovation Network : A Comparison of Radical and Incremental Innovation, (September). 33) MORROD, T. (2012). Global Flat-Panel TV Shipments Return to Growth in Q2; Samsung Stays on Top of LCD Market. Retrieved from HTTP://www.isuppli.com/DISPLAY-MATERIALS-AND-

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SYSTEMS/NEWS/PAGES/GLOBAL-FLAT-PANEL-TV-SHIPMENTS-RETURN-TO-GROWTH-IN-Q2SAMSUNG-STAYS-ON-TOP-OF-LCD-MARKET.ASPX 34) Apples Market Share Approaches 1 In Every 3 Smartphones. (2012). Retrieved from http://www.floatingpath.com/2012/07/02/apples-market-share-approaches-1-3-smartphones/ 35) http://www.samsung.com/latin_en/#latest-home 36) http://www.businessinsider.com/samsung-corporate-strategy-2013-3

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Q. What are your firms current business strategy as simple rules, short-term, and longterm growth strategy? Whats the rhythm of growth in your firm? 1. Simple Rules In order to deliver the value, a company should consider and adapt simple rules based on its efforts for creating value and capturing value. A number of companies such as Intel, Oticon, and Cisco relied on simple rules as strategy to capture the best opportunities while extending the power brand and investing in promising fields. Given simples rules for delivering the value, one can identify five broad categories including how to rules, boundary rules, priority rules, timing rules and exit rules [1]. Each category has its objective as shown in Table (1).
Table 1 Five Categories for Simple Rules with the Purpose [1]

Type How-to rules

Purpose They spell out key features of how a process is executed What makes our process unique? They focus managers on which opportunities can be pursued and which are outside the pale. They help managers rank the accepted opportunities. They synchronize managers with the space of emerging opportunities and other parts of the company. They help managers decide when to pull out of yesterdays opportunities.

Boundary rules

Priority rules Timing rules

Exit rules

Samsung Electronics is also dedicated to conducting five rules as strategy to deliver the value of products by controlling systems and structures of the company. How-to Rules: Samsung Electronics has a simple rule (strategy) based on its philosophy of creating innovation, strong values, and high ethical standards [2]. The corporation makes efforts to provide innovative technologies and efficient processes of rapid reorganization. It attempts to identify the brightest talent from the world and offer the resources to them in a best way while focusing on Research and Development (R&D). Samsung Electronics significantly invests in Research and Development (R&D) with the collaborative global research networks to produce innovative products and make peoples lives better. The organization of R&D consists of three parts such as The Samsung Advanced Institute of Technology to secure and manage technologies, R&D Centers to deliver the most promising long term with its technologies, and Division Product Development Teams to commercialize products by hitting the market.

Boundary Rules: Samsung Electronics does not only focus on the Korean market but expands its market to Asia or even the world. For the beginning model of Samsung mobile phone, the company targeted the Korean and Japan markets while producing the phone with innovative design and functionalities. However, in 2002, the firm turns its attention to the US, Africa, and Europe with its products to extend the Samsung brand and philosophy [3]. While Samsung Electronics expands its market, it constructs the global research networks in the US, Russia, UK, India, and China etc. [2]. Based on the markets and the networks, it strengths and offers the latest technology trends and the greatest benefits for its customers. Figure 1 (a) illustrates the global smartphone market for Samsung with other companies and (b) shows the five smartphone firms with shipments and market share. (a)

(b)

Figure 1 (a) Smartphone Market in the world (source: www.techcrunch.com) (b) Five vendors, shipment, and market share (source: www.idownloadblog.com)

Priority Rules: Priority rules are clearly shown in Samsung Electronics for Service, R&D, and Protecting Global Environment. For example, Samsung Electronics made Priority Service Agreement (PSA) to provide optimal performance of service while deriving maximum benefit

[4]. According to PSA, if there would be a problem with a Samsung telephone system, its technician call out free to fix the issue and it ensures that the clients are always considered to be at the top of the call out list by offering the help desk and free remote programming updates. The firm also focuses on R&D to produce innovative devices, make profits, and satisfy customers. It encourages Figure2 Reduction of Greenhouse Gas Emissions Intensity [5] Samsung Engineers to work abroad to obtain skills and technologies and invites to return the company to catch up with other competitors [5]. Based on R&D, Samsung Electronics keeps maintaining the leader in the global smart phone market and leads to innovation with its products. The corporation is also dedicated to reducing greenhouse gases with eco-friendly electronic devices. It creates Eco-innovation and green management so that the greenhouse gases decreases as shown in Figure 2 and improves energy efficiency by an average of 30% over 2008 [6]. Timing Rules: A number of companies have their timing rules which can be regarded as the rhythm and the key strategic process (we will describe more details in the rhythm later). These timing rules ensure that the company can capture and deliver the value of products. For instance, Samsun Electronics released the first Samsung Galaxy S smart phone in the summer of 2010 and in 2011 it also released the Galaxy SII. In early July 2012, Samsung Electronics announced and provided the Galaxy SIII and in April 2013 the Galaxy S4 was arrived [7]. The corporation has released more smartphones with upgrades every year than other firms to meet all the needs of customers. Exit Rules: It is required for companies to use Exit Rules when they identify that products cannot deliver the value and meet certain sales. For instance, although Samsung Electronics invested in the semiconductor business, the firm was losing money with its semiconductor products during the mid-1990s under the Asian financial crisis [8]. The corporation decided on selling unprofitable business units and manufacturing facilities by shifting the attention to the resources of the Liquid Crystal Display (LCD) and focused on mobile phone sections in order to create profits. As a result, Samsung Electronics won tremendous successes with brand reputations in LCD and Smartphone markets due to investment in promising parts. 2. Short Term & Long Term Growth Strategy

Samsung Electronics is committed to delivering the value by determining short term and long term strategies. Basically, the company focuses on a long term strategy for investment in innovative & premium devices and a short term strategy for brand values [9]. In a short term strategy, the business section is in charge of this strategy by marketing and selling its products. For the short term plan, Samsung Electronics invested in business marketing to gradually distribute its brand images. The firm created a global brand with new logo in 1993 and launched its first corporate advertising campaign while airing in nine languages in Europe, the Middle East, and South America etc. regarding its products [9]. Furthermore, the firm supported the Seoul 1988 Olympic Summer Games as a local sponsor, became a member of The Olympic Partner, and organized the worlds largest sporting events for the marketing. In the strategy, it highlights the innovative features of new products through innovative advertising and branding and establishes a number of Samsung Mobile Stores to create and enhance the visibility of the brand. As a long term strategy, Samsung Electronics invests in R&D for innovative electronic devices while being a world-class manufacturer with world-class quality for its products. With R&D, the firm is dedicated to inspiring its communities on the basis of three titles such as New Technology, Innovative Products, and Creative Solutions [9]. One of the long term strategies is Blue Ocean Strategy which is Samsung Electronics primary tool for developing products. A number of Blue Ocean Project teams are at work and have ingrained the approach to improve better and new products. Due to its strategy, Samsung Electronics received 32 innovation & design engineering awards and attracted customers by providing new and innovative devices. It also emphasizes the core networks including Industry, Partners, and Employees to make innovative technologies and deliver the value of the corporation. For the future as the long term scheme, Samsung Electronics has a plan of reaching $400 billion in revenue and obtaining the brand name as one of the worlds top five companies by 2020 [9]. 3. The rhythm of growth in your firm A large number of companies have their important rhythms for time pacing effectively which is the introduction of a new product with seasons, suppliers product development cycles, or swings in customer spending [10]. In dramatically changing smartphone markets, time pacing or rhythm strategy becomes a significant factor to increase sales and profits. Samsung Electronics currently has the largest shipment in smartphone market because of the strategy. Samsung smartphones have been released more frequently and faster than other competitors (ex. Apple) as shown in Figure 3. While the Apple has released new model of the smartphone for a couple of years, Samsung Electronics have released several versions of smartphones and models with upgraded functionality and innovative design more frequently.

Figure 3 Apple & Samsung Product Timeline [11]

Samsung Electronics have released new version of Galaxy Series which are most popular model of Samsung smartphones almost every year while providing other models of Samsung Electronics. R&D in the company continuously develops its products and releases new model including innovative contents of the smartphone to maintain the value and enhance its brand with reputation. Samsung Electronics follows the product life cycle as shown in Figure 4. In the product life cycle, there are five stages such as R&D, Introduction, Growth, Maturity, and Decline. By creating new curve with innovation fast and effectively, Samsung Electronics generates short product life cycle which is matched well with the smartphone market. For example, in the product life cycle for its premium product the Samsung galaxy S3 is released only after 9 months since the Samsung galaxy S2 was announced. This short cycle urges customers to purchase new product for updating and replacing imminently [12].
Figure4 Product Life Cycle & Adoption [11]

How does your firm make decisions and deal with change and ambiguity in high velocity environment? Generally, in a high velocity environment there are always rapid changes in demands, competition and technology. In such an environment information is usually inaccurate, unavailable or outdated. For firms to be able to make fast decisions having a real-time information is vital. Real-time information is describe information about firms operations where there is no time lag between occurrence and reporting. These information help the decision makers through speed issue identification, allowing executives to spot problems and opportunities sooner. In addition, it helps executive teams to gain experience in responding as group. Another things that helps firms to take fast decisions in high velocity environment are consideration of few alternatives, obtaining input from few sources and limited analysis [13]. Currently, the growth of computer and information technology assisted the managers and organizations to overcome the information availably issue. It makes it easy for managers to get real-time information at required time, also it helps to organized team work since many people can accessed at the same time accurately. For firms such as Samsung, they were aware about the significant of the real- time information and as a strong business leader they had given priority to the process of information all the time and at every stage. Samsung, tries to make use of their Managing information System and Information technology in every aspect such as their relationships with customers, suppliers, trade partners, production systems, work processes, skills and labour requirement. Which help Samsung to create a great information system as a strategic tool that will help the firm in such high-velocity environment [14]. For instance, Samsung open a research institute named Samsung Semiconductor Inc. (SSI) which plays a great role in collecting up to date information about technology and markets, in addition to training post for Korean engineers. [15] Between 1996 and 1999 when the selling price of dynamic random access memory devices decline, Samsung electronics tried to manage their Semiconductor production by applying SLIM (Short Cycle Time and Low Inventory in Manufacturing) strategy which is about setting methodologies and scheduling applications for managing cycle time in semiconductor manufacturing. In addition, the SLIM contains methodology for calculating target cycle times and target work in process (WIP) levels for individual manufacturing steps, empirical algorithms for factory floor scheduling, and optimization-based capacity analysis. So they success at that time to reduced manufacturing cycle times to fabricate dynamic random access memory devices from more than 80 days to less than 30 and enabling Samsung to capture an additional $1 billion in sales revenue compared to the revenue if they didnt reduce cycle times. It was easy for Samsung electronics to applied the SLIM strategy directly when market and demand suddenly change because in contrast to other semiconductors companies, Samsung electronics was data rich and the Samsung electronics total productivity team already maintained a properly complete database of intrinsic cycle times and process

times for most device-steps and efficiency and availability metrics for the major equipment types in all semiconductor fabrication plants lines. [16] Samsung electronics facing a lot of competition especially in the 90s from Japanese companies, so in order to manage the hard situations when it comes to high velocity environment, the company tend to increase its overseas production as a response. In addition their production networks in Asia now extend beyond the Association of Southeast Asian Nations (ASEAN) region to China and India. Also, Samsung was focusing on developing mass production capability to manage demand changing, so international linkages were used to acquire product designs and marketing outlets which allowed Samsung to focus its resources on the development of mass production capability. Another thing that helped Samsung to overcome critical situations was their caring about informal learning and training in addition to the purchase of foreign technology. For example, they succeeded in managing more than 300 manufacturing steps, excepting only eight key process steps and in order to solve this problem they decide to added three experts who had participated in the project of 64K DRAM in the US and been trained at Micron Technology.[15] Is your firm working smart instead of just working hard? Smart working, is in contrast with hard work contain using new methods of working using advances technology and made important by economic, environment and social pressures. It includes developing a new work culture, so it means creating new ways for doing things and not stuck with old ways and some new technologies as in hard working just to survive present crisis or for short term plans . In addition, it needs to use new tools, new processes, and new approaches to management and teamwork. Smart working needs different kinds of behaviors and expectations about how work is done. In the current challenging environment, the way of work is changing but not fast enough. [17] Samsung Electronics, started its journey as a hard working firm as a market follower through mimicking its Japanese rivals. So Samsung started their business with imported foreign technology, having a close relationship with Japanese electronics firms. In addition, when Samsung electronics started they were having four features that characterize their activities in the 1980s: an emphasis on mass production, reliance on foreign technology, a follow-theleader strategy, and government support. Their aim was to become a vertically integrated electronics firm from materials to components to end-products, including consumer and industrial electronics. At that time Samsung were lack in previous experience with electronics, so in order to achieve their aim they involved in learning some of different technologies and turned to foreign sources of technology in management, production and marketing. In addition, they tried to create numbers of several joint venture companies with foreign technology suppliers such as NEC, Sanyo, Corning Glass Works and other companies. So through these series of joint ventures, Samsung rapidly achieve its goal of becoming a vertically integrated producer of television sets. And with foreign linkages, Samsung success to achieve a high level of vertical integration in the production of televisions in an

extraordinarily short time. In addition, original equipment manufacturer (OEM) buyers provided Samsung with product design, quality control and engineering support, leaving Samsung to increase its manufacturing capability through the intensive training of employees, particularly shop-level technicians.[15] Samsung Electronics now is the leader in the market of smartphones, TVs, semiconductors, etc. But this is not enough in the current changing climate, because now most of the firms and public sector organizations are focusing at what they do and how they do it. So, everyone now is trying to work smart to not only maintain their presences for the time being but also as long term plan. For that, Samsung is trying to step up and be more flexible and working smarter and Communicate Effectively. As an initiative, Samsung electronics has combined all its domestic sites into a single wireless network to establish the world's largest mobile office. This move will allow its entire staff (about 80,000 employees) to use the Fixed Mobile Convergence (FMC)-enabled PBX services. Moreover, the FMC solution interoperates with the IP-PBX to provide convenient smart-device services onsite through offering economic viability by reducing costs in telecommunications by more than 30% on average. In addition, to enhance security in internal wireless data communications, the Wireless Intrusion Prevention System (WIPS), Mobile Device Management (MDM), integrated mobile authentication, and SSL VPN are also included. Samsung electronics adopted flexibility in their new project, they has combined eight networks from across the country to provide subscribers with the same services regardless of the site they belong to. Additionally, with using FMC services, this insure the flexibly for the staff, so they can use their smart devices anywhere anytime to continue with their work. Also, with the enhanced security solutions the company can secure an infrastructure that supports limitless mobile content for work purposes without worrying about information leaks. Moreover, by using FMC personal coast in telecommunication were reduced also the business itself successfully cut overall costs through smart routing. This kind of results can be translated into work efficiency, and the company is expected to have a full return on investment in one to two years. [18] How does your company collaborate with competitors to deliver value? Samsung Electronics has been significantly involved in co-opetition with other companies over the years. It has usually done so quite effectively, opening up new markets, expanding its skill sets and strengthening its brand image. One of Samsungs most widely known collaborations has been with Google through the Open Handset Alliance (20). Though not traditionally competitors, as theyve both originally existed in somewhat separate industries, both Samsung and Google saw a convergence in their services. Google wanted to bring its expertise in software development to the mobile industry by developing a new operating system that would compete with the existing Apple iOS, BlackBerry OS, Windows Mobile and Symbian (21). However, it had no experience in handset manufacturing. Samsung, on the other hand had strong expertise in mobile manufacturing

but lacked the software skills that competitors like Apple possessed (21). Consequently, Google entered an alliance with Samsung and other manufacturers such as HTC, LG, SonyEricsson, amongst others to drive its OS. The result was the Android OS which has become the dominant OS in the industry (19). The collaboration between the two companies was extremely beneficial as it helped propel Samsung handset sales while also bringing in profits to Google through ads and Google search function on Android (19). Another example of co-opetition is with Apple. Though highly publicized as an arch-rivalry between the two companies due to the ongoing litigation wars, the two companies have both benefited from co-opetition (23). Prior to Samsungs strong entrance into the smartphone market, it decided to enter the competitive computational chip market by leveraging its existing memory chip knowledge and factories (24). Apple happened to be their first major customer at the time that the first iPhone was heading to market (24). The subsequent success of the iPhone and increasing demands transformed Samsung into a chip manufacturing powerhouse (22). Apple, benefited from getting the chips it needed, while Samsung benefited from gaining legitimacy and sales in a new market. Another key area that Samsung benefited from was that by manufacturing computational chips, it gained valuable insight on what other manufacturers were planning to build based on the chip specifications they were given (24). This information is what helped Samsung develop its own smartphones and tablets that would later compete directly with Apples products (24).

Report Conclusion
To conclude, Samsungs Electronics rapid rise in the smartphone and electronics industry is no doubt the result of effective planning and strategizing. They were able to effectively create value by utilizing their strong semiconductor manufacturing background, and managing their diminishing returns by opening new markets and market segments. They then captured that value by capitalizing on their complementary assets, vertically integrated structure, ability to bring products quickly to market, and key partnerships. The deliverance of this value was carried out by following a high rhythm, guided by Samsungs Simple Rules as well as changing the company culture to work smarter rather than working harder towards meeting customer needs.

References
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