Samsung's market expansion strategies in Egypt and China

Country Analysis for Samsung in Egypt and China

Market Opportunity

Country Risk

Business Environment

Political factors

Economic factors

Environmental factors

Technological factors

e-Business Readiness Rating

Samsung Electronics comprises 150 worldwide subsidiaries, which include nine regional production and sales headquarters, each in the divisions of Information Technology & Mobile Communications and Consumer Electronics, and five in its Device Solutions division. Its Consumer Electronics division produces and sells Cable TVs, ACs, refrigerators, monitors, and printers, while its Information Technology & Mobile Communications division is focused on handheld phone manufacturing and sales (including smartphones and feature phones), computers and network systems. The cellphone industry first surfaced during the early eighties with its first generation analog mobiles, subsequently evolving to its next generation digital technology, and then to the third generation of mobile communication (Wideband Code Division Multiple Access or WCDMA accompanied by high-speed transmission of data) (Samsung electronics Co., Ltd. 2014). In its Egyptian market, Samsung's focus is offering novel products concurrently with their global launch, emphasizing the recent high demand for smartphones among Egyptians. Samsung is expanding its mobile device market (i.e., tablets, smartphones, etc.), particularly in developing areas like India and Africa (including Egypt), where citizens aren't familiar with computers, resulting in the ultimate overtaking of personal computer sales by tablet sales. While Samsung represents China's largest smartphone vendor (20% market share as of the first sales quarter in the year 2013), as per Canalys, a number of Chinese firms surged past its rival Apple (8% market share). Egypt's Economist Intelligence is higher compared to China with regards to Unit e-readiness ranks and, hence, will be more favorable for Samsung (Pfanner, 2013).

Introduction

Global technology leader, Samsung Electronics, has been known to open fresh avenues for people the world over. By means of constant discovery and innovation, the company has been transforming the smartphone, TV, camera, tablet, wearable devices, digital appliances, LED solutions, printer, medical devices, network systems, and semiconductor markets. The corporation also leads the global market in the area of IoT "Internet of Things" through initiatives like Digital Health, Smart Home, etc. Instituted in the year 1969, the corporation has become one among the leading technology firms in the world, and features in the list of top 10 international brands. Samsung's network covers all corners of the world; the company is known for its talented pool of creative and diverse employees, who drive the company's growth. The company engages in production and selling of electronic goods, operating through its Consumer Electronics (offering cable TV, printer, monitor, refrigerators, ACs, medical devices, and washing machines), Device Solutions (offering light emitting diodes, large-scale system ICs (integrated circuits) and memory chips), and Information Technology & Mobile Communications (offering computers, digital cameras, handheld devices, and communication systems) business divisions (Jacks, 2013).

Market Opportunity

The Information and Communication Technology (ICT) sector of Egypt is a key contributor to the nation's economic development and employment. It already has a firm position as key supplier of multinational companies' ICT services and back office operations, and is now prioritizing its ascent towards manufacturing and exporting higher value-added ICT services and software. Intellectual property has a significant role to play in the country's ICT sector development, and is linked to innovation and foreign direct investment (FDI). Promoting the ICT sector as well as its contribution to the nation's economic development has long remained the focus of government policy in the country. This strategic backing of Egypt's ICT sector appears to have produced positive results. The country performs fairly well in IT and business processes, but has shown limited activity when it comes to the call-center area (Jacks, 2013).

Meanwhile, in China, the company, Samsung Electronics, represents the ideal example of a successful corporation, continuously changing the technological industry in the past two decades. The company has ascended to occupy the "market leader" slot for semiconductors, enjoying the biggest share of the market for more than 13 years. But, owing to the success achieved by every technological industry sector, new competitors typically make their way into any market segment rather quickly. Akin to how Samsung made its entry into China's semiconductor market more than fifteen years ago, numerous other corporations in China are working hard to capture Samsung's market share. Chiefly because of low-cost product manufacturing, these local firms have threatened the main segment of the company's semiconductor business -- its 256 Mbit Dynamic Random Access Memory (DRAM) division. This product, as of the year 2003, accounted for 78% of the company's manufacturing process. It was predicted by some analysts that, by the year 2010, China would become the second largest global semiconductor manufacturer, behind the U.S. (Jacks, 2013).

In Egypt, the aim of Samsung Group is increasing its cellphone market share by 10%age-points (pps) between 2014 and 2015. Following the launch of Note 4, its latest offering, Samsung intends to boost smartphone sales and acquire 75% of the Egyptian market. Tamer El Gamal, Sales Head for the company's Egyptian division, states that Samsung expects a minimum 5% monthly growth within Egypt in the near future. Its strategic objectives differ every year, and one of these involves its offering, the way it upgrades product technology, and the launch of novel devices. Further, Samsung intends to continue reducing product prices in keeping with Egyptians' purchasing power. The company has been working on offering products to Egyptian markets with prices identical to those offered in similar markets in other countries, to match the nation's financial capabilities. New technology products' prices usually drop with further technological advances, complementing Samsung's strategy to cater to the needs of every Egyptian social class. Another aspect of Samsung's strategy for Egypt is enhancing smartphone usage across the nation, particularly given its goal of increasing smartphone sales growth in the country (Eldin, 2014). Meanwhile, China represents the largest global smartphone market, accounting for 30% of overall smartphone sales in last year's second quarter. Poor performance has adversely impacted the Chinese cellphone market's performance during this period. China has clearly attained saturation, with its cellphone market being principally dominated by replacement buyers, and hardly any first-timers. Beyond the cellphone market's lower end, premium smartphones' appeal will be important for smartphone vendors to sustain or increase their Chinese market share and attract upgrades. In spite of the introduction of novel S6 phones, the large-screen smartphones produced by Apple (iPhones) continue challenging Samsung's premium smartphones. In last year's second quarter, the company's market share declined by 4.3 pps and unit sales dropped by 5.3%. Huawei reported the highest rate of sales growth (46.3%), on account of local 4G smartphones sales and strong sales in its overseas markets. Apple's iPhone witnessed a 36% growth in sales, helping the company gain 2.4 pps of market share. Further, Apple witnessed strong replacement buying of iPhones in mature as well as emerging markets (and especially in its Chinese market) (Gartner, 2015).

Samsung's Chinese market is one of the world's most attractive areas. The nation has steadily risen to become a strong economy, thereby boosting international business. Moreover, the Chinese legal system has witnessed improvements as well. Foreign investors are largely drawn to the country due to its market size, overall growth potential, and extremely cheap labor cost. The country is increasingly integrating with other regions of the globe and has, of late, welcomed and involved itself in a range of overseas economic activities. Nevertheless, managing international business within the nation is no easy task. The key challenges faced by enterprises in China include:

Achieving their strategic aim of reduced costs,

Core competency strengthening in particular business activities and areas, and Local differentiation

China is formally a World Trade Organization member; its entry into the global marketplace profits its own economy as well as enhances global economic progress through technological, political, economic and social factors. Political factors in China that influence Samsung's market include: (1) Governmental regulations: These include informal as well as formal rules that corporations need to adhere to, to impact the company. Many individuals assert that the most variable force is political force. In the last few years, e-commerce development has been the Chinese government's focus. (2) Legal concerns: E-commerce's legal framework is still in its initial stage in China. The nation has scant experience with drafting legislation in this context, for subjects like intellectual property (IP) tax and protection of IP rights. There are no regulations in China to support digital signature recognition, privacy, electronic contracts validation, and consumer rights, as yet. Samsung's Chinese market witnessed significant growth in its gross domestic product (GDP). Reports indicate that if the country continues excelling at its current pace, it will soon surpass USA's GDP. Contributory factors include:

High savings rate

Abundance of skilled labor

Likely urban growth

Increased export business (Makos, 2015).

Minor economic developments are capable of significantly impacting small-to-medium enterprises and their operations. The GDP rate of China suggests that all its citizens are adding increasingly more values to Chinese society, successively resulting in increased purchasing power. China is characterized by extremely low labor cost, causing leading corporations (e.g., Apple) to hire people from the nation. The cultural and social elements of Samsung's Chinese market contribute significantly, since the demographics undergo constant changes. For instance, there are continuous fluctuations in population age distribution and growth, and these may cause shifts in cultural values and social trends. Social behaviors and family size usually affect decision-making. Other social elements of potential importance with regard to Samsung's Chinese market include consumer lifestyles, emigration, education, collectivism, and religion (Makos, 2015).

Country Risk

Samsung's financial risk managers in its Egyptian firm concentrate on minimization of credit risk, liquidity risk, and market risk that arise from operations. For risk mitigation, Samsung has its own financial risk program and policy in place, which closely tracks and manages the aforementioned risks. The Company's finance team is in charge of managing financial risks. In collaboration with its overseas and local subsidiaries and divisions, Samsung's finance team measures, appraises, and hedges its financial risk on a periodic basis, while also establishing and implementing its global policy for management of financial risks. Company assets covered under this policy include cash, cash equivalents, receivables (including trade), available-for-sale financial assets, short-term financial instruments, etc. Company liabilities covered by this policy include payables (including trade payables), debentures, borrowings, etc. Between 2004 and 2008, Egypt aggressively introduced a series of economic reforms for attracting investment from overseas investors and facilitating GDP growth. However, it is now postponing additional economic reforms, owing to the global economic instability. The Egyptian parliament (government) of 2004 started a novel reform movement, by following a suspended economic reform initiative, which was started in the year 1991, but collapsed beginning from the mid-nineties. Domestic demand led to a strong economic growth in 2007. The liberal approach of the Egyptian government since the year 2004 has encouraged an atmosphere of confidence favorable for investment and consumption. The Egyptian economy has profited from oil-rich nations' boom as well, through migrant worker remittances and investments. With regards to technological factors significant to Samsung's Egyptian market, IT spending in Egypt was expected to rise from 1.3 billion U.S. dollars (2010) to 2.1 billion dollars (2014). Growth of the nation's IT market, in 2010, was predicted to be less than the growth levels before the global economic crisis. However, economic recovery, higher incomes owing to increased civil servant salaries, and delayed tenders from 2009, ought to maintain sales growth. Numerous policies for attracting foreign investors in the sector of IT outsourcing have been effected, including domestic employment subsidies, training cost deductions, and reduced corporate taxes. Telecom, finance, and government sector demands dominate Egypt's information technology services market, accounting for over 25% of the nation's overall spending. With regard to the nation's sociocultural environment, the total population of Egypt is estimated at 80.3 million with roughly 90% of citizens being Muslims and the rest being Christians. The population is highly concentrated in regions adjacent to the River Nile, with nearly 50% of the population residing in Alexandria, Cairo and other densely populated, urban cities. Regarding political factors influencing Samsung's market growth in Egypt, the country's market has been gradually opening itself up to the global marketplace, particularly after it signed an agreement in 2006 with EFTA (European Free Trade Association), as well as a treaty of free trade with USA. The three major export partners of Egypt are USA, Syria and the EU (the latter constitutes over 33% of Egyptian export trade), while USA, EU and China are its three major import partners. The principle export products of Egypt are oil and mineral fuels, iron, steel, and cotton, while its main imports include consumer capital and electronic goods, cereals, nuclear power-driven boilers and nuclear reactors, chemical products and food products. The country's volume of imports has not only increased two-fold, of late, but is also twice its export volume, causing a trade balance deterioration (Sobhi, 2010).

Samsung is faced with the challenge of dealing with China's newly developed semiconductor industry. The company's future rests on its evolution in the face of this impending transformation in the international semiconductor market's structure. Samsung can potentially profit from the extensive growth of China's technology manufacturing industry. Chinese labor expenses are low compared to Korea, with tax incentives being provided by the country's government. However, a few risks are involved (copyright infringement, for instance) and the company needs to weigh such risks against future opportunities. The growing, strong relevance and utilization of intellectual property is, especially true, in case of the ICT hardware and telecommunications equipment areas. In a majority of high-income nations, companies in these sectors regularly feature at the top of the list of leading patent filers (Jacks, 2013).

Business Environment

Both Egypt and China have witnessed three population development stages, with respect to their policies in the family planning area. In China, the early family planning phase started during the fifties, succeeded by further developmental waves during the sixties, and its historic "single-child policy" during the seventies. In Egypt, family planning's first phase started in 1965. This was succeeded by two additional developmental stages during the seventies and eighties. The two nations' family planning initiatives gleaned impressive results with both countries experiencing an extraordinary decline in fertility since the eighties. However, in spite of these accomplishments in the family planning sector, Egypt and China are both expected to witness waves of growth in population in the near future, which would, undoubtedly, continue challenging these nations' economic development prospects (Ahram, 2013).

Owing to China's rapid economic growth, entrepreneurs (including Samsung Electronics) are increasingly being attracted to the country. Multinational investment helps boost economic prosperity and growth. For attracting FDI and achieving success in China, analyzing one's macro-environment and identifying factors (cost, supply, demand, etc.) capable of impacting the firm's economy, is imperative. A PEST (Political, Economic, Social, Technological factor) analysis represents a strategic tool for businesses (Porter, M., 1985). Some recommendations are given to foreign and local investors and entrepreneurs, to enable them access China's market and effectively share management skills, cultural skills and advanced technological information with local businessmen, for creating competition and stimulating faster growth of the nation's economy (Ahram, 2013).

Political Factors:

Political factors influencing Samsung's Chinese market pertain to law, government and regulatory policy, which impact governmental decisions and economic factors. Subsequent to the 1978 economic reform, China's economy is witnessing a spectacular growth. The reform encourages private business development, FDI, employment profile, industrial production investment, and foreign trade liberalization. Between 1979 and 1994, an economic growth of over 42% has occurred (Mohsin S. Khan, 1997).

Economic Factors:

Economic factors directly impact businesses, as they influence capital availability, supply, demand, and cost. High demand and low capital costs attract a larger number of investments, allowing increased production. But in times of economic recession, a few small-scale enterprises can enter and compete in the business market (Blind, Pohlmann, Ramel & Wunsch-Vincent, 2014).

Environmental Factors:

Environmental factors that impact Samsung include the fact that capital markets in China are determined by its government. Increase in government spending can lead to increase in money supply and capital market boom. Depending on company performance, its shareholders decide upon selling their shares or providing more equity funds. The Chinese labor market hints at the presence of specific labor costs and skills for specific industries and regions, governed by governmental and training policies, in addition to the activities of trade unions, inflation, and industrial sector needs (Judy, 2015).