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Boon-Young Lee
aliceboon@kdischool.ac .kr
Abstract: This paper examines Samsung Electronics successful growth strategy in the mobile phone business. It examines its early efforts at developing a competitive product in the domestic market, its globalization strategies, and some of the key challenges it faces today. The paper provide insights into how a late comer to an industry can overcome certain disadvantages and successfully position itself as a widely respected and successful brand. JEL classification: ! "#, $%& Key ords: Samsung, mobile phone, strategy
$'( student, )*I School of +ublic +olicy and $anagement +rofessor, )*I School of +ublic +olicy and $anagement
I. Introduction
,or Samsung Electronics, -&&# was a watershed year. It successfully positioned itself as one of the world.s best mobile phone manufacturers and its products were featured all over the media. $any were calling its mobile phones as /the best gift for 0hristmas1 or /the $ercedes of mobile phones.1
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Samsung.s achievements were particularly remarkable considering that its primary focus had previously been in semiconductors and home appliances. Indeed, when it first made the decision to enter the mobile phone business, industry observers viewed the move as foolhardy and reckless. 'ut, much to their surprise, Samsung.s foray into the market turned out to be a great success, contributing significantly to the company.s profit growth and brand reputation. In -&&#, Samsung posted net profits of " trillion won 234 billion5 on annual sales of 6#." trillion won 23#7.8 billion5. (s of (pril -&&6, its market capitalization stood at around %&& trillion won 2397.6 billion5. It had also surpassed Sony, which had been a benchmark for Samsung, in terms of revenues and market capitalization. !E"hibit #$ Samsung.s exports currently account for two thirds 278:5 of total sales. In addition, Samsung has built its brand around the world; in -&&#, the <Samsung. brand was ranked -4 in the annual 'usiness=eek>Interbrand study of the world.s most valuable brands, having grown from 39.#% billion in -&&- to 3%&.94 billion in -&&#. !E"hibit %$ ,ew would deny the claim that Samsung has achieved remarkable success in the global market. (s such, it could be worthwhile to take a closer look to find out which factors have contributed most to its success. In particular, we should focus our attention on the company.s emerging mobile phone business, which has achieved some of the most outstanding gains of any of Samsung.s business lines. The ob?ective of this study is to gain helpful insights into how a late comer to an industry can overcome certain disadvantages and successfully position itself as a widely respected and successful brand.
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CE0, another Bapanese firm, it produced 'raun tubes and kinescope tubes. (fter three years, it began to produce black and white televisions under its own name, /Samsung.1 In the %87&s, it began producing other home appliances, including washing machines, refrigerators, color televisions and microwave ovens. *uring the %89&s, it expanded its business lines to personal computers 2%89#5, semiconductors, and telecommunication networks and devices 2%8995. ,or years, Samsung was regarded as a low end product manufacturer that made cheaper alternatives to the high end Bapanese products. Its products were not considered to be very reliable, and it did not have a very strong reputation amongst consumers. 'y the end of %88-, however, the company emerged as a leading semiconductor manufacturer in the *D($ 2*ynamic Dandom (ccess $emory5 market. It was the first case in )orea that Samsung, a domestic latecomer, successfully caught up incumbents and even became better than them in the world market. 'ehind their success was the management.s strong drive to develop the semiconductor business into a truly world class business and the company.s future growth engine. Samsung.s system of group wide coordination and governance enabled Samsung to concentrate its resources in the semiconductor business, which reEuired enormous investment. ,or technology transfer, Samsung relied on technology licensing, established an DF* center in Silicon Galley and invited Bapanese engineers to )orea on weekends to instruct )orean engineers in semiconductors. To secure human resources, Samsung recruited many )orean (merican engineers with semiconductors expertise, offering them attractive compensation and benefits. *espite a ma?or surge in its semiconductor business, Samsung was losing money in its appliance business during the mid %88&s, as it had not managed to improve the Euality and image of its products. $oreover, the (sian financial crisis of late %887 deteriorated the situation further, causing profits to drop from 3%86 million in %88" to 397 million in %887. To cope with its difficulties, Samsung launched a bold restructuring initiative in %887. The initiative aimed to restructure the company in accordance with /global standards.1 The company laid off %",&&& employees during the first year, and it sold or spun off unprofitable business units and manufacturing facilities. It also shifted more of its resources to the !0* 2!iEuid 0rystal *isplay5 and mobile phone businesses in order to diversify its revenue sources, which had previously relied on the semiconductor business. The emphasis on profitability and shareholder value was not typical of )orean firms at that time. The company.s unyielding emphasis on Euality, innovation, and globalization resulted in significant changes within the organization, and galvanized its foundation for future growth. (s the result of many years of reorganization, Samsung now has four ma?or divisionsH *igital $edia Cetwork, *igital (ppliance Cetwork, Telecommunications, and *evice Solution Cetwork. !E"hibit &' ($ It holds market leadership in several product categories I*D($,
-
SD($ , T,T !0* , 0*$( mobile phone, etc. !E"hibit )$ ,urthermore, the four divisions are closely connected to one another and in line with the company.s pursuit of /digital convergence,1 the company.s vision of its future. Samsung currently has -4 production>sales subsidiaries, #8 sales subsidiaries, and -branch offices all over the world. !E"hibit *$
Static Dandom (ccess $emory Thin ,ilm Transistor A !iEuid 0rystal *isplay 0ode *ivision $ultiple (ccess
the Samsung phone was not good enough to break the customers. pre?udice. (lthough Samsung introduced new models every year, each model sold only one or two thousand units. =ith such disappointing sales, talks of dropping the mobile phone line arose once again. 'y the early %88&s, the worldwide mobile telecom market was growing rapidly, and many new players were entering the market. In )orea, $otorola accounted for "& 7&: of the market, and Samsung accounted for only %&:. Jowever, the engineers who participated in DF* for Samsung.s mobile phones had a strong desire that they would be able to succeed in their endeavor, based on the process of trial and error that they had already been through. The decision was made to continue with the mobile phone business. Jowever, the pro?ect leaders felt that a more deliberate strategy was needed.
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appropriate
technologies,
development
procedures,
and
design
)un Jee !ee, the third son of the founder 'yung 0hul !ee, took over the business and was appointed the chairman of Samsung @roup and Samsung Electronics.
to take action at that critical moment. Kn Bune 7, %88#, in ,rankfurt, !ee gathered -&& Samsung executives and pointed out every problem that Samsung had and emphasized that Samsung needed a turnaround and declared a new management initiative I /Samsung Cew $anagement.1 The /Cew $anagement1 is a management philosophy that conveys 0hairman !ee.s strong drive for change, particularly in the area of Euality improvement. Jis famous comment, /0hange everything except your wife and children,1 revealed how seriously he took the situation. The /Cew $anagement1 reached to the mobile phone business as well, and 0hairman !ee gave the division an ultimatumH /+roduce mobile phones comparable to $otorola.s by %886, or Samsung would disengage itself from the mobile phone business.1 )yung Bun 0heon, the then head of the product development team, was confident that his team could achieve the goal. (t that time, the development team had already come up with twenty ideas for improvement, from its hundreds of comparison tests on voice Euality, connectability and durability with $otorola.s products, and had been working on the development of solutions. Every weekend, the executives and engineers teamed up and traveled to the mountains all over the country. They tested connection Euality on the mountains, which the company had decided to focus on as the key differentiator against $otorola. Since the members were carrying heavy telecom eEuipment, sometimes they were mistaken as spies hiding in the mountains. In Covember %88#, the development team finally unveiled a new model, the SJ 7&&. =hen )i Tae !ee first got the phone from the development team, he threw it on the floor and stepped on it. Then he picked it up and tried making a call. Surprisingly, it worked. Since many people carry mobile phones in their rear pockets, !ee had reEuested that his team make a very sturdy phone. The phone could endure 97& kg of pressure, due to a special integration technology 2inserting many support pillars in the circuit body5. This model was Euite remarkable. It weighed less than any other company.s models, the design was compact, and its Euality was substantially improved over previous models. Each product manufactured was tested piece by piece to assure perfect Euality. +hones with any kind of defect were burned openly for all employees to see. 2The products that had been burned were worth %4 billion won, or 3%99 million.5 The burning ceremony ingrained the motto <Luality is +ride,. the essence of Cew $anagement, in every employee.s mind. In Kctober %886, the SJ 77& was introduced under the brand name /Anycall.1 It was a result of the marketing team.s effort at brand building. The model was an upgraded version of the SJ 7&&, with a few changes in design and improvements in product Euality. Samsung expected that branding would change customers. perception of Samsung.s mobile phone and build up their trust. (ggressive marketing campaigns started as well. (t the initial stage, the most important ob?ective of the company.s marketing strategy was to break customers. preconception that
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Samsung.s phone would be inferior to $otorola.s. To market this idea of Euality, Samsung developed the slogan, Strong in Koreas unique topography. This slogan helped persuade customers that Samsung.s mobile phone was best fitted for )orea and its mountainous topography. It emphasized the fact that foreign products had been tested more in flat areas rather than in mountainous ones. In addition, the company launched a marketing campaign known as /0heon wang bong 2$t. 0heon wang5 +ro?ect.1 (s part of the campaign, the company held free trial events in famous mountain areas and on islands. Kn holidays, the events were held at highway rest areas. $any celebrities participated in the events. The company also focused on building good relationship with distributors, since consumer choice was largely influenced by the sales agents. product recommendations. Samsung employees visited about #,&&& distributors in the country and held new product launching sessions. Some employees gave the distributors gifts of oriental health supplements to let them feel that they were being taken care of. Samsung also began an agent referral program, in which distributors tested the Euality of Samsung mobile phones and permitted their names and pictures to be used in Samsung.s newspaper advertisements. ( full blown advertising campaign was run as well. 'y casting some of the most famous and respected actors in )orea in it ads, Samsung was able to create a strong association between the Samsung brand and Euality, credibility and patriotic feelings. 0ustomer testimonials also worked in a positive way. $any customers called Samsung to provide their opinions of the Samsung mobile phone. Kne customer reported that the phone was still working even after a car ran over it. (nother said the phone saved his life because he was still able to call the fire department even after his Anycall phone had been half burned. These stories were used in a series of television commercials, thus strengthening the connection between Samsung and Euality in consumers. minds. (s a result of all the extensive marketing efforts, the market share of Samsung mobile phones soared from -4.9 percent in Kctober %886, to 4%.4 percent in (ugust %884. In the same period, $otorola.s market share dropped from 4-.4 percent to 6-.% percent. Some people compared Samsung.s success to the story of *avid against @oliath. Co one but the development members had expected that Samsung would be able to beat $otorola.
subscribers grew rapidly during this time. In $ay %889, the mobile phone penetration rate had been %&:. 'y (ugust %888, it had reached 6-.7:. Samsung developed its first 0*$( mobile phone in $arch %88", to coincide with the launch of 0*$( service. The first digital handset, the S0J %&&, was extra light and slim, and enabled clear voice communication. In the digital era, voice Euality was not as important as it used to be. Dather, the focus of competition shifted to additional features such as design, weight, and the capture of delicate sounds. Samsung also developed a voice recognition function and embedded it into its handsets. 'efore long, Samsung became the leader in the +0S market. It partnered with )T,reetel and Jansol +0S to provide +0S phones. Its first +0S phone, the S0J %%&&, entered the market with innovative features, including a lightweight body, enhanced battery life, and the ability to capture delicate sounds. The design was targeted at the young generation because the young generation had emerged as a large and growing customer base . It also shifted its marketing communications strategy. ,or the 0*$( cellular market, it emphasized the phone.s new functions, for example, its voice recognition feature. ,or the +0S market, the company coined a new slogan, Strong in small sounds, to emphasize the mobile phone.s capability to capture delicate sounds. The slogan spread rapidly via the appearance of young idol stars in the +0S commercials and the execution of various I$0 2Integrated $arketing 0ommunication5 strategies. 'y the end of %887, one year after the 0*$( service was first launched, Samsung had achieved a 47: market share in the 0*$( cellular market and 49: in the +0S market. (lso, in (pril %887, it achieved sales of one million 0*$( phone units.
9 7
To stimulate the +0S market, the )orean government provided subsidies to service providers, enabling them to provide customers with +0S handsets very cheaply or even for free. This enabled many young people to buy mobile phones. (ggressive marketing targeted to the young generation also helped increase demand. 9 The lower freEuency band 29&&$Jz5 service is called the <cellular. market to distinguish it from the +0S market, which uses the higher freEuency band 2%.9@Jz5. 3Samsung @ains @round on $otorola in 0ell +hone Sales, Chicago Tribune, $arch 7, -&&#
ended up a great success. (fter this first export success, Samsung expanded into Jong )ong 2Juchinson, 0*$(5 in %887, and 'razil 2TE!ES+ and TE!EDB, 0*$(5 in %889. (fter successfully exporting to 'razil, Samsung built a mobile phone production facility in 'razil in %889, in the hopes of expanding into !atin (merica. Samsung.s leading position in 0*$( technology and its significant domestic market share gave it the confidence and momentum to go abroad. Samsung targeted countries that use the 0*$( technology for mobile communication. In %888, Samsung secured the number one position in the worldwide 0*$( market where it accounted for more than 4&: of market share. Jowever, the worldwide 0*$( market was far smaller than the @S$ market, which accounted for 7&: of the total worldwide mobile communications market. $oreover, the domestic market was approaching saturation, and competition was becoming more intense. $otorola tried to reposition itself in the )orean market, and emerging domestic players, which were supported by exclusive distribution partnerships with service providers, actively launched new mobile phones. Thus, to achieve further growth, Samsung had to penetrate the @S$ market. The first @S$ model was the S@J -&&, which was made for European customers. 'ut it was not as good as the company.s 0*$( phone. It was difficult to hurdle the high entry barrier, which the then /'ig #1ICokia, $otorola, and EricssonIhad built for years. The company.s next few models didn.t attract Europeans, either. The development team realized that a simple change in the circuit system wouldn.t work in the European market. Thus, it decided to look more closely at the customer.s point of view. They found that Europeans preferred geometric, balanced, and simple designs. Msing this information, Samsung adopted <simple. as the design concept, then developed a new design to suit the tastes of Europeans. The S@J "&& was born in September %889. To market this model, Samsung changed its market entry strategy by adopting a high end strategy. Samsung needed to escape from its low end image. It figured that its new mobile phone, with its sophisticated design and distinguished functionality, would help it do ?ust that. 'efore the S@J "&& was launched, Samsung exhibited the model at many trade shows to build up a premium image. (fter the first stop in @ermany, many members of the press commented favorably to the Euality of the product. Taking this as encouragement, Samsung entered into Italy, +ortugal, ,rance, and England. (lthough the price was higher than that of competitors, the sales of the S@J "&& reached %& million units in the European market. The @S$ market accelerated Samsung.s growth, providing new opportunities. Samsung.s high end positioning, along with its Euality product, helped raise the prestige of Samsung.s mobile phones to that of a luxury good. In 0hina, for example, Samsung dominates the high end market. Though the average price of @S$ phones in 0hina is about %,"&& D$', Samsung mobile phones sell for about
9
#,&&&N6,&&& D$'. Even $otorola or Cokia, the first and the second players in 0hina, sell for -,&&&N#,&&& D$'. Though Samsung.s overall market share in 0hina is in third place, its share in the high end market 2over 6,&&&N4,&&& D$'5 is around 4&:. In the 0*$( market in 0hina, Samsung beat $otorola and became the number one player in terms of market share in -&&#. ,or most 0hinese people, a 0*$( phone is regarded as <cheap. or <free,. because the 0hinese government provides subsidies for the 0*$( phone purchases. Cevertheless, Samsung mobile phones are sold at prices 4&&N%,&&& D$' higher than average. In the M), Samsung.s market share has been growing rapidly since its entry in %888. Its market share in -&&& was -.":, but grew to 6.8: in -&&%, then to 8.8: in -&&-. Its estimated market share in -&&# was %4:. Thanks to such growth, Samsung was granted the /'est $anufacturer1 award twice by the $obile Cews (ward, an award that was previously given to Cokia and Ericsson. $oreover, the localization strategy has paid off in Europe. ,or instance, in @ermany, where service providers mainly compete in mobile contents, Samsung launched an online community called the /,unclub.1 Cot only does the /,unclub1 bring in customer.s attachment for Samsung, it strengthens Samsung.s relationship with its service providers. Through the /,unclub,1 Samsung proved that it is able to provide popular mobile contents, in addition to the handset itself. In ,rance, Samsung tries to connect technology and culture through what is called /culture marketing.1 ,or instance, in $ay -&&%, Samsung had an exhibition titled Samsung, going together with culture at the @uimet $useum and displayed its products, including its mobile phones. It was a provocative trial for a famous ,rench museum to display a company.s products rather than historical relics. (lso, it invited ,rench artists to the new product launching session in the 0hamps OlysPes. In 0*$( and @S$ markets combined, Samsung ranked 6 in the worldwide mobile phone sales in -&&-. In -&&#, the company firmly held the number three rank in terms of unit sales and number two in terms of revenues. !E"hibit .$
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IV. Samsungs
lobal Management
6lobal 09, !0esearch 9 ,e:elo8ment$
In -&&#, Samsung invested #.4 trillion won 23# billion5 or 9: of total revenues in DF*. It acEuired %,#%# MS patents in -&&#, ranking it %%
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!E"hibit -$ Samsung has about %8,7&& researchers working in DF*. Desearchers account for
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approximately #6: of its total employees. Every year, DF* engineers developed about %&& new technologies and they work on the development of core technologies in the fourth generation 26@5 mobile communications and in next generation memory chips. Samsung.s Information and Telecommunication DF* 0enter is in Suwon, where the company.s headEuarters are located. This DF* 0enter was designed to incorporate all of its business specialtiesIsemiconductors, electronic components, multimedia, and telecommuni cationsIto maximize technological synergies among them. The Suwon DF* 0enter also interconnects with other DF* centers, both in )orea and in other countries. !E"hibit #;$ In the mobile business, Samsung has applied for %-,&&& patents in )orea and -4,&&& patents overseas since %889. The main focus of DF* is the development of new technology standards for 6@ communications and the mobile Internet. Samsung holds approximately one hundred patents related to #@ and 6@ technologies. Decently, Samsung sold its cdma-&&& %x EG *K
%&
6lobal Mar1eting
Samsung.s clever marketing strategies played an important role in lifting Samsung.s image from that of a low end manufacturer to that of a global digital technology leader. ,or effective global marketing and branding, Samsung established a new organization to deal with its integrated global marketing activities. Eric ' )im, who used to work at I'$, was recruited to lead the @lobal $arketing *epartment. Kne of his most important decisions was to cease all existing contracts with 44 advertising agencies and to sign a 36&& million contract with one ad agency, ,0' =orldwide. Since then, Samsung has unveiled a series of corporate branding campaigns and the slogan, Samsung !"!Tall# $%eryones in%ited. Kne of Samsung.s ma?or global branding strategies is Klympic sponsorship. In %88", Samsung was an unofficial sponsor of the (tlanta %88" Klympics, having sponsored the Samsung Expo in the +avilion of the $ain Stadium. In the same year, )un Jee !ee was selected as an IK0 member, and Samsung received an opportunity to participate in TK+ 2The Klympic +artners5. The IK0 proposed that Samsung participate in sponsoring the home appliance category for the Klympics. Jowever, Samsung wanted to utilize the opportunity to promote a high tech image, and felt that the home appliance category was not enough to emphasize Samsung.s technological advances. Samsung set its sights on the telecommunications category and believed that, through the Klympic sponsorship, it could shed its image as a low end home appliance maker and reposition itself as a high tech mobile communications company. To win the sponsorship negotiations, Samsung concentrated its marketing resources on the mobile
%&
cdma-&&& %x EG *K2Evolution *ata Kptimized5 is an advanced version of cdma-&&&, which upgraded the data transfer speed to maximum -.6$bps, from the cdma-&&&.s %66kbps.
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phone business. In %889, Samsung participated in the Cagano =inter Klympics as an official sponsor, and assumed the responsibility of providing all the mobile technologies needed for the Klympics. ,or this, Samsung allocated most of its corporate resources to the mobile telecommunications business. Samsung also participated in the mobile telecommunication eEuipment category in the Sydney -&&& Klympics and in the Salt !ake -&&- Klympic =inter @ames. Samsung.s Klympic sponsorship is planned to continue in (thens 2-&&65, Torino 2-&&", winter5, and 'ei?ing 2-&&95. In addition to its Klympic sponsorship, Samsung has been very active in sports marketing through the support of sporting events and athletes worldwide. It sponsored several eEuestrian gamesIfor instance, the ,EI 2,ederal EEuestrian International5 Samsung Cation.s 0up and the SS! 2Samsung Super !eague5 in ,rance. Samsung.s sponsorships in the world of golf also contributed to its global branding. Samsung thought a great golfer would increase brand value and the reputation of the sponsor, so it decided to sponsor Seri +ark ?ust as her career was taking off in the MS(. In addition, Samsung became an official sponsor of the S($SMC@ !+@( 2!adies +rofessional @olfer (ssociation5 =orld 0hampionship. $ovies have also taken on a significant role in Samsung.s marketing. ,or example, Samsung has shown its products A such as its monitors, TGs, mobile phones, etc. A through product placements in many Jollywood movies. (nd for the popular movie <$atrixH Deloaded,. Samsung actively participated in developing the /$atrix +hone.1 In -&&-, =arner 'rothers, the Jollywood studio that made the movie /$atrix,1 reEuested the three top mobile phone manufacturersICokia, $otorola, and SamsungIto develop a new /$atrix +hone1 for /$atrix Deloaded,1 the /$atrix1 seEuel. The studio specified that the phone should be highly usable, and that its design should be uniEue and suitable to the $atrix concept. It was a highly challenging design and engineering task. Samsung.s engineers and designers labored for six months to deliver a prototype. Mpon seeing the prototype, =arner 'rothers selected Samsung over Cokia, the company whose phone had appeared in the first $atrix series. The Samsung phone appeared in the seEuel, and 4&& units were produced for sales. Thanks to the popularity of the movie, Samsung.s $atrix +hone received a great deal of attention and acclaim. In )orea, Samsung ran an advertising campaign that included scenes from the movie. In this way, Samsung.s co marketing effort with the most hyped movie of the year contributed significantly to Samsung.s brand value. In evidence, Samsung won the /Super Deggie (ward1
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The Deggie (ward is a prize given to the companies that have executed the most successful promotional campaigns. The +romotion $arketing (ssociation and the 'rand=eek are the co granters of the Deggie (ward.
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+hone 2with integrated $+# player5, and the =atch +hone 2which was wearable on one.s wrist5 were all the first products of their kind in the world. !E"hibit ##$ Decently, Samsung introduced the /Intenna1 phone, which has an antenna embedded within the phone body, making the phone slimmer. It has also released a phone with a touch screen for playing mobile games, and one eEuipped with a remote control function. $any authoritative design awards have already recognized Samsung.s excellence in design. Samsung has been awarded the I*E(.s 2Industrial *esign Excellence (wards5 many times. $ost recently, it won the /i, *esign (ward -&&6,1 one of Europe.s most prestigious design awards, for eight products, including one +*( phone and two mobile phones. @uk Jyun 0hung, the director of the *esign Strategy Team, commented, /Kur basic goal is to make customers recognize Samsung.s products even when there is no logo attached.1
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Jowever, as technologies and components are becoming standardized and modularized, the technology gap among the industry players is narrowing. Decently, new mobile phone manufacturers have begun outsourcing core technologies and product modules; in other words, the market entry barrier is getting lowered. (s the number of market players increases, those players are increasingly competing on price. !E"hibit #($ (lso, as the mobile phone market gets saturated, the demand for replacement will lead market growth. To stimulate the replacement demand, introduction of new mobile communications technologies and services will be reEuired, resulting in a shorter lifecycle for mobile phones. In addition, the market is diversifying at an increasingly rapid pace, embracing new technologies, features and applications. 0olor screens, Bava, multimedia messaging, consumer applications and enterprise applications now characterize the market that only recently was defined simply by high, middle and low tiers. 0onseEuently, product development leadership, i.e. the ability to develop innovative, new products that match well defined customer segments in a timely manner, will become a crucial capability.
,igital Con:ergence
/*igital convergence1
%#
st
Since the early %88&s, the concept of /convergence1 of media content, otherwise known as /multimedia,1 has become an important buzzword. Since the mid %88&s, many companies have been actively pursuing convergence in devices 2computing, appliances, communications, etc.5 and networks 2wired and wireless communications5. $any companies expect that digital convergence will provide great opportunities because convergence devices and services will cover larger market segments. Jowever, at the same time, those companies will have to compete with an increasing number of competitors. ,or example, $icrosoft 2a software company5 is competing with Sony 2an electronics company5 in the game industry. To succeed in the convergence era, a company must develop a core technology and make it the industry standard. *oing so will give the company a first mover advantage and additional revenue streams from its proprietary technology. ,or this reason, strategic alliances among companies have become more prevalent. ,or instance, Cokia recently introduced an enterprise smart phone in alliance with I'$, while $otorola launched a smart phone with $icrosoft. Kf the many digital products available, mobile phones are one of the most suitable
%#
/*igital convergence1 is a technology trend that drives convergence of various devices, services, and networks by means of digital technology.
%6
platforms for achieving a /ubiEuitous1 network . $obile phones have already become a part of people.s everyday lives, and people carry mobile phones anytime and anywhere. +lus, mobile phones have become more multi functional, integrated with digital cameras, +*(.s, camcorders, TGs and the Internet. $a?or mobile phone manufacturers, including Samsung, have focused on developing convergence technologies and products. In Kctober, -&&#, Cokia launched the C @age phone, which embedded online games, an ,$ radio, a digital music player, and $$S 2$ultimedia $essaging Service5. The C @age phone was sold 6&&,&&& units only in two weeks since its launch. (nd Cokia places top DF* priority on the standardized platform that is applicable to all of its mobile handsets and mobile software.
%6
%4
( ubiEuitous network refers to the communication environment that enables a person to get connected to the Internet anytime, anywhere, and with any device. %4 In the case of the advanced camera phone modules, five Bapanese firms 2Sony, $atsushita, Sharp, Sanyo, and ,u?i
%4
royalty payment in total manufacturing cost is likely to increase unless Samsung develops its own technologies. Some industry experts argue that most of Samsung.s patents are on applied technologies, which are developed based on others. patent protected core technologies. Decently, Samsung experienced a shortage in the supply of Lualcomm chips and camera phone modules. This suggests that Samsung.s high dependency on core technologies and product modules would threaten not only its future profitability but also its competitive position. ,ourth, Samsung needs to strengthen its product portfolio in next generation phones. In the smart phone segment, Cokia has shown a great start, shipping 4.6 million units in -&&#, which accounted for 46: of the world market.
%"
and the shipment is even less than that of Sony Ericsson, which shipped &.9 million units.
,ilm5 dominate the world market. %" (oney Today, (pril 8, -&&6
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Ca, B., /0ritical (ssessment of @rowing $obile +hone Industry,1 !@EDI Economy =eekly Gol.7"7, -&&6
Cam, *., /Securing 0ompetitive (dvantage in the $obile 0onvergence Era,1 !@EDI Economy =eekly Gol.74", -&&#
/The #& Qear Jistory of Samsung Electronics,1 Samsung Electronics +ublication, %888 /Samsung ElectronicsH $r. Qun.s Efforts for Mpscale Image,1 I0,(I 'usiness School 0ase #&# %78 %, -&&# /*avid 'eat @oliathH The $yth of Samsung $obile,1 )'S, *ecember %-, -&&# 2'roadcasting material5
%9
E"hibit #
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Computer System
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R Telecommunications division deals with network eEuipment as well as mobile phones. Jowever, mobile phone business accounts for 8&: of total sales of Telecommunications division. Source H 0ompany.s website 2www.sec.co.kr5
S*ivision *escriptionT *evice Solution Cetwork H $emory, T,T !0*, SQSTE$ !SI Telecommunication H 0*$(, @S$ mobile phone *igital $edia Cetwork H *igital TG, !0* $onitor, !aptop, *G*, *igital 0amcorder, +rinter *igital (ppliance Cetwork H (ir conditioner, Defrigerator, =ashing machine, $icrowave Kven, Jome Cetworking
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Europe
;ustria D;E= Iran= Egypt= Gordan= Saudi ;rabia= 5urkey= Morocco= ;lgeria= 5unisia= "enya 6ussia= "aEakhstan= DEbekistan China #/% Malaysia
Middle East and ;3rica CIS China Southeast ;sia and Gapan !ceania SourceH 0ompany.s website 2www.sec.co.kr5 China #('% Indonesia= 5hailand= Malaysia#&%= India#&%= Vietnam= Philippines=
South ;3rica= D;E 6ussia= Dkraine China #-%= 5ai4an Philippines= Gapan ;ustralia #&%
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Living Lab
M!S Lab
+io,tech Lab
+io,engineering Lab
;pplied In3ormation
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Credibility
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Reg&on Dnited States Canada :atin ;merica Aestern Europe Central and Eastern Europe Middle East and ;3rica Gapan ;siaHPaci3ic
2004 &-=+.( &=.)& /=./) &(=,&, +=)// +=-&. )=',/ &&=(-* ./=,&.
Aorld4ide total .+=*+* .,=&-. ('&=.&('(=+*/ SourceH @artner *ataEuest $arket *atabook 2*ecember -&&# update5, reproduced by casewriter
E"hibit #& =orldwide $obile +hone $arket Estimation, by Technology 2%,&&& units5
$e,hnology C8M; 58M; SM AC8M; !thers 5otal 2002 ,/=&-+ &&=),+ &,+=(+& &=,.( +/=.(' +(*=.,( 200 .&=-'* /(=++* /'&=()' -='*+ &)=-'+ +-.=,'' 2000 ('+=')) &/=/-' /')=/&, (*=,.( /'=).+)/=+-( 2005 (&*=&/+ &+=.). +'*=).& &&=+-* &.=*,) *('=&+. 2002 (++=&&, (.=-(+/&=-'( &/=*.. &*=+), *+*=+&. C+6R 2002<2002 ().-> 1/..> (&.(> ,'.,> 1((..> ((.*>
6e<enues !perating Pro3it Pro3it margin #>% 6e<enues !perating Pro3it Pro3it margin #>% 6e<enues !perating Pro3it Pro3it margin #>% 6e<enues !perating Pro3it Pro3it margin #>% 6e<enues !perating Pro3it Pro3it margin #>%
Motorola
#$M%
Samsung #"6Ab%
Siemens
#ED6m%
#"6Ab%
-7
E"hibit #* (verage Selling +rices of $a?or @lobal $obile +hone $anufacturer 235
Company 0okia Motorola Samsung Siemens : 2002 (+* (*/ &'* ((* (*& 200 (+. (+/ (.+ (&+ (-/ 2000(") (*+ (++ &'' (((*(
Source H (nalyst.s report, Tong Qang Investment 'ank Desearch 0enter, ,ebruary %&, -&&6
$ $
Sales 7 Marketing in Mobile Phone Business Samsung Motorola Motorola 0okia 0okia
Sales 7 Marketing eBpense per unit Samsung Samsung Motorola Motorola 0okia 0okia
Estimated Sales 7 Marketing #$M% Estimated Sales 7 Marketing EBpenses EBpenses #$M%
$ $
Source H Strategic (nalytics, reorganized by )IS*I 2)orea Information Strategy *evelopment Institute5