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Managerial Economics – The Comparison and Analysis of Two Well - Known Companies:

Apple Inc. and Samsung Electronics Co., Limited

[Name of the Writer]

[Name of the Course]

[Name of the Professor]

[Name of the Institution]

[Date of Submission]
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ABSTRACT

The title of this paper is ‘Managerial Economics – The Comparison and Analysis of Two Well

- Known Companies: Apple and Samsung’. As suggested by the title, the purpose of this

paper was to critically analyze the financial functioning of the mentioned companies while

highlighting their potential risk factors as well. The data for this purpose was collected from

various offline and online sources which included the company profiles and their annual

reports. The examination of their functioning revealed that for years Apple Inc. had been

succeeding in the industry. Despite being on top, over the past few years, Apple Inc. seems to

have lost its mojo which is clearly seen by its perceived lack of innovation as well as the

lackluster product releases. Samsung on the other hand, seems to be catching up the pace and

it seems to be directing dedicated efforts in taking this lead. A limitation of this paper was the

inadequate consideration of the relevant patent lawsuits. Therefore, for further studies in the

field, it is recommended that this aspect is also kept well under consideration. Also, for the

healthy functioning of the two companies, it is advised that the research and development

department is made even stronger so as to keep their brand values intact.

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SECTION I: INTRODUCTION

The purpose of this paper is to explore the economic functioning of two well-known

electronic companies, that is, Apple Inc. and Samsung Electronics Co., Limited. The paper

involves a thorough comparison of the economics of these companies, their ratios related to

production, costs and sales as well. Founded by Steve Jobs, Ronald Wayne and Steve

Wozniac in the year 1976, Apple Inc. provides an extensive line of products which includes

the Mac line of computers and other products like iPads, iPods, iTunes, and Apple Watches

(Apple Inc. , 2015).

Samsung Electronics Co., Ltd. on the other hand, was founded by Lee Byung-chul in

the year 1938. The company is involved in designing, developing, and the selling of various

electronics, computer hardware systems and mobile phones as well. Over the years, both,

Apple Inc. and Samsung have established themselves as the industry leaders. However, the

two are generally seen as struggling for mobile domination (Gershgorn, 2015; Chang &

Hong, 2000; Bellis, 2013).

Considering the rapid increase of growth and popularity of the two companies,

various researchers have come forward to assess their differences in terms of a diverse range

of aspects (Gershgorn, 2015; Bellis, 2013). The most common of these include the

assessment of their economic functioning. The findings established through this paper will

add to the body of this knowledge while simultaneously highlighting areas that need to be

looked further into.

For the process of data analysis, the recorded figures of the production costs, the sales

and revenue of the two companies will be comparatively analyzed and relevant graphs and

figures will also be prepared for an easier and a clearer understanding. With the intent, this

paper will be properly organized in the form of five major sections which include;
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introduction, a critical review of the chosen companies, industry analysis, evaluation of the

long term prospects and conclusion.

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SECTION II: A CRITICAL REVIEW OF APPLE INC. AND SAMSUNG

ELECTRONICS CO., LIMITED

II.1: A Brief Background of the Two Companies

Over the years, the rapid technological advancements have affected the humankind in

a wide range of ways. This is primarily because these advancements and innovations have

caused ineffable change in terms of the ways people communicate with each other by means

of voice, text and images (Jung, Han & Lee, 2015). Presently, individuals can share their

ideas and thoughts with others by making use of the various devices and services that are now

present across the world (Halt, Donch, Stiles & Fesnak, 2013; Lee, Woo & Chun, 2011;

Cusumano, 2013).

The mentioned changes started surfacing essentially after the introduction and the

progression of Smartphone, Notepads and tablets. Some of the most popularly used devices

of this nature have been conceived by two well – known companies, that is, Apple Inc. and

Samsung Electronics Limited. The two companies are known widely as the strongest

competitor of the other (Hitt, Ireland & Hoskisson, 2014). Nevertheless, despite being loved

by the majority of people, the labor practices of both of these companies have then and again

received significant criticism.

Elaborating further, with its headquarters in Suwon, South Korea, Samsung, is a

multinational electronics company with a string presence all over the world. The company

has around 400,000 employees and has its assembly lines in almost eighty countries all over

the world. Apple Inc., on the other hand, has approximately a total of 120,000 employees and

has around five hundred retail stores in 17 countries. Both of these companies also maintain

their online stores as well (Lee, Woo & Chun, 2011).

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II.2: Products and Services Offered by Apple Inc. and Samsung

As seen on the company’s profile, Apple Inc. is involved in the designing,

development, and the selling of electronic devices such as iPhone smart phones, iPod

portable media player s, iPad tablets, the Apple Smart Watch, the Mac personal computers

and the Apple TV digital media players. Also, the company launches its consumer software

and other online services such as the iOS and the OS X operating systems, the iOS App Store,

iCloud and the iTunes Store etc (Kim, Han, Sinn, Hyung, Cho, Kim, 2014).

Moving on, Samsung Electronics is the largest manufacturer of televisions as well as

cellular phones. The company is most famous for its Samsung Galaxy line of mobile phones

(Verbeke, Tulder & Lundan, 2014). Other products and services which are developed and

sold by the company include; tablet computers, Notebooks, LCD and LED television sets,

digital cameras and camcorders, MP3 players, hard disk drives, laptops and various multi-

function models of printers for personal and office use.

II.3: Competition between Apple Inc. and Samsung

Ever since the development and the sale of the Google Android operating system

(OS), Samsung Electronics has gained a firm command of the entire Smartphone as well as

the tablet industry while simultaneously developing a major chunk of the market share

(O'Reilly Media Inc. , 2005). The authorities functioning at both of these companies realize

that conclusive dominance of the prospect development in terms of these goods can help

them in maintaining this command over the respective industry.

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With each passing year, the competition between these two well - established

electronics firms is further intensified (Kim, Han, Sinn, Hyung, Cho, Kim, 2014). This deep-

rooted rivalry has now crossed the boundaries of mere retail stores and is often seen as

combating through legal procedures in the courts (Samsung Global Strategy Group, 2013).

The decisions which are passed as a result of these procedures have also been seen as an

important factor that impacts the market share and industry command of these companies.

II.4: The Local and International Ranking of Apple Inc.

In terms of revenue and total assets, the huge multinational organization, Apple Inc.

has maintained its position as the world’s leading company dealing in Information

Technology. It also holds the title of the globally acknowledged second largest manufacturer

of mobile phones. Being the biggest corporation functioning by means of public trade, the

company had established its roots deeply and by capitalizing its market, Apple Inc. has now

become a company that holds the worth of over 700 billion USD (Kim, Han, Sinn, Hyung,

Cho, Kim, 2014).

According to estimates, the annual revenue of the company worldwide for the

previous year was 233 billion USD. It has also been found that Apple Inc. contributes to

almost two percent of the total GDP of the United States of America. Owing to the quality of

the products and services offered, the company has maintained a remarkable level of brand

value and customer loyalty (Kim, Han, Sinn, Hyung, Cho, Kim, 2014). Talking about United

Arab Emirates in particular, the company has opened various retain stores all over and its

products and services are much loved by the people here.

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II.5: The Local and International Ranking of Samsung Electronics Co., Ltd.

With their keen dedication to research and the maintenance of quality, Samsung has

established itself as the second largest firm in terms of revenue that deals in the field of

information technology (Bosker & Grandoni, 2012). The first position in the industry has

long been held by Apple Inc. which as mentioned earlier, is the strongest competitor for

Samsung. However, in the line of television manufacturing and cellular phones, Samsung has

now displaced Apple (Cusumano, 2013).

Despite their love - hate relationship, statistics have shown that Apple is the prime

customer for Samsung and thus contributes heavily towards the generation of their revenues

(Halt, Donch, Stiles & Fesnak, 2013). Over the years, the company has also won various

noteworthy awards and achievements making it a company that is loved by many throughout

the globe. In the UAE too, people tend to have an intense fondness for Samsung’s products. It

fulfils their needs and imparts them with a significant sense of brand value.
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SECTION III: INDUSTRY ANALYSIS

For this paper, the data of two competing multinational companies that are

functioning in the field of information technology was analyzed. As mentioned earlier, these

companies included Apple Inc. and Samsung Electronics Limited. The prime product which

makes the most of market share of both of these companies is mobile phones. It has been

established that their competition too, is fundamentally focused in this line of products (Halt,

Donch, Stiles & Fesnak, 2013). That is why this line of products has been focused primarily

for this paper.

Mentioned in this section is their SWOT analysis which has been prepared for a

clearer understanding.

III.1: Strengths

 A major strength for Apple Inc. is their strong brand image and value. The company

focuses on the sustenance of good customer experiences and customer care services.

The company has the finest financial performance in the industry (Apple Inc., 2015).

 The strength of Samsung lies in its expansive geographic reach and positioning. The

company maintains a comprehensive product portfolio and focuses heavily on the

effective advertising on their products (Samsung Global Strategy Group, 2013).

III.2: Weaknesses

 Apple Inc. suffers when it has to go through a series of patent / patent infringements.

Also, the prices of their products are very high. In the long-run this reduced

affordability can affect its market share.

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 Samsung Electronics has been involved in numerous legal proceedings (Samsung

Global Strategy Group, 2013). This holds the potential of leading to a decline in its

operational performance.

III.3: Opportunities

 Apple Inc. can look for opportunities in the developing mobile phone industry. Also,

the demand for the company’s Cloud services is also increasingly rapidly.

 Samsung too, can benefit from the blossoming mobile phone industry. The company

could focus more on the maintenance of their strategic collaborations.

III.4: Threats

 Apple Inc. has been experiencing challenges because of the increasing market share

of Android operating systems and because of the unstable exchange rates of US

dollars (Apple Inc. , 2015).

 Samsung has been facing a critical situation because of very strong competition in the

industry and because of a swift rise in the development and sale of various counterfeit

products. The unstable exchange rates of foreign currency have also been a cause of

concern for the company (Samsung Global Strategy Group, 2013).

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SECTION IV: EVALUATION OF THE LONG TERM PROSPECTS

IV.1: The Current Performance of Apple Inc. and Samsung

Statistics have show that both of the brands under consideration are recognized

globally. According to the Brand Finance Global 500, both Apple Inc. and Samsung hold the

top two positions in the list of the best brands for the year 2013. The first position in the list is

held by Apple Inc. while Samsung holds the second position (De Feo, & Bar - El, 2002). A

picture of this list is mentioned below showing the first ten positions of the list.

The Smartphone that are produced by Samsung are highly comparable with those that

are launched by their competitors like Sony, HTC and LG (Kim, Han, Sinn, Hyung, Cho,

Kim, 2014 ; Halt, Donch , Stiles & Fesnak, 2013). However, the brand has been successful in

maintaining its position on top. A prime factor that helps the brand in doing so is that it
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spends a major portion of its annual revenues for the promotion and advertising of its

products. It has been concluded by the Thomson Reuters data that Samsung spends the

highest amount for these purposes (Levine - Weinberg, 2015).

Apple Inc. spends a very little amount for the promotion and advertising of their

products. The Thomson Reuters data has stated that while Apple dedicates only 0.6 percent of

its revenues for the cause, Samsung spends as much as 5.4 percent to ensure that it maintains

its top position. The company also spends hefty amounts for ensuring the availability of their

products. The chart below shows these comparisons of c=advertising expenses among some

of the leading companies that are functioning at a global level (Chikhale & Mansouri, 2015).

IV.2: Comparison of the Price, Sales and Market Share of Apple Inc. and Samsung

Despite its very high costs, Apple Inc. has maintained very high ratios of sales ever

since its establishment (Chang & Hong, 2000; Verbeke, Tulder & Lundan, 2014). The high

market share of the company gives a very tough competition to other companies functioning

in the field and especially to Samsung Electronics. These figures and stats which have been
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recorded for various companies for the year 2015 have been mentioned below in the form of

a table;

The table above shows that Samsung made the most sales in the year 2015, also, they

maintained the highest market share for the year as well. The company seem to have

flourished the most in the last year as it can be seen that both of these ratios were higher for

Apple Inc. in the year 2014 (Verbeke, Tulder & Lundan, 2014). Samsung seem to have made

a sudden and a remarkable increase of sales comparatively. These increase in the sales ratio

for iphone and Samsung Galaxy in particular has been further presented in the form of a chart

below;
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IV.3: Profitability of the Two Companies

As concluded by the Fortune 500 Global ranking system for the companies present

worldwide, in the mid of the year 2013, Samsung beat Apple Inc. in terms of their total

revenue (Samsung Global Strategy Group, 2013). The total revenues of Apple Inc. were

around 160 billion US dollars while they totaled up to 180 billion US dollars for Samsung.

However, the annual profits of Apple Inc. were 42 billion US dollars and they exceeded those

of Samsung’s which were only 20 billion US dollars (Apple Inc., 2013; Verbeke, Tulder &

Lundan, 2014).

However, this trend experienced a shift and The Business Insider reported that for the

last two quarters of the year 2013, the profits of Samsung went higher (Samsung Global

Strategy Group, 2013). Ever since then, these trends have shown sharp shifts and have gone

in favor of any one. In the year 2015 again, Samsung celebrated its victory when its net

income exceeded that of Apple Inc. The chart mentioned below also highlights the first time

when Samsung became comparatively more profitable.

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IV.4: Potential Rick Factors

The global market for the industry is growing rapidly with various competitive

products and services being introduced in the market. These brisk technological changes are

making it hard for the companies to effectively compete in the market (De Feo, & Bar - El,

2002; O'Reilly Media, Inc., 2005; Lee, Woo & Chun, 2011). Also, it has now become rather

challenging to sustain an appropriate level of customer demand.

It puts immense pressure on the companies to efficiently manage the frequent

introduction and transition of their products and services while simultaneously ensuring that

their quality remains intact (Wilson & Gilligan, 2012). Another risk factor that the two

companies being examined experience is that their performance relies heavily on the proper
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functioning of their carriers, distributors as well as other resellers. These aspects have been

mentioned below in the form of a line graph for the years 2012 to 2015.

IV.4: Future Prospects of the Two Companies

Despite being on top, over the past few years, Apple Inc. seems to have lost its mojo

which is clearly seen by its perceived lack of innovation as well as the lackluster product

releases (Halt, Donch, Stiles & Fesnak, 2013). Samsung on the other hand, seems to be

catching up the pace and has already come up to secure the second position. The authorities at

the company seem to be taking over through their dedicated investments and by carrying out

their processes with extreme conviction (Samsung Global Strategy Group, 2013).
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SECTION V: CONCLUSION

The paper looked into the financial functioning of two competing companies, that is,

Apple Inc. and Samsung Electronics Co. Limited. A closer examination revealed that for

years Apple Inc. had been succeeding in the industry. However, with the rapid technological

advancements and the introduction of various counterfeit products as well, the company has

experienced certain low points as well. Samsung Electronics, being a prime competitor of

Apple Inc. has directed dedicated efforts in taking this lead and considering the calculated

revenues and net profits, it appears that the company is doing well in this regards.

Although the paper has covered various imminent concepts related to the two

companies, the aspects of patent lawsuits have not been discussed properly. This certainly is a

limitation of this paper as these lawsuits too, effect the financial functioning fundamentally

because they require heavy dues. Therefore, for further studies, it is recommended that these

aspects are also kept well under consideration. Also, for the healthy functioning of the two

companies, it is advised that the research and development department is made even stronger

so as to keep their brand values intact.

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