Question 2

If a firm such as Samsung wishes to reduce costs there are a number of approaches which may be utilized. Most manufacturers are already using outsourcing for manufacturing either the handsets or some of the components. Costs are often saved by going to firms in countries where there is the ability to makes gains of comparative advantages, especially in areas where wages and overheads are lower. China is particularly well-known as a manufacturing base, but to save costs it would be possible to move to even lower cost countries, such as the African states where there is a lower level of economic development. However, this may also have costs, as the staff may not be as skills and quality may suffer.

Cost cutting may also be achieved by reducing the cost of the inputs, this could include buying cheaper components for the products, or by leveraging buyer power to try and force down prices from current suppliers. Redesigning units so that there are more universal components across the range may also reduce costs, as fewer parts will need to be held and less capital will be tied up in inventory. Redesigning units so the telephones are easier to assemble; this will reduce the assembly costs. Reducing the amount of packaging, this will decrease the packaging costs and if the packages are lighter may also reduce transportation costs.

Lowering the quality of the input components will reduce the build cost, but if the quality suffers there may be increased costs associated with honouring after sales warranties. If a firm differentiates its products on quality and reliability, reducing the quality could harm the competitive advantage of the firm and undermine sales. If differentiation is based on style, a cheaper style may reduce sales. A firm may also consider the ethical issues associated with some cost saving strategies, if the ethical issues associated with moving to a lower cost supplier or strategy is negative firms may shy away from the idea, especially if they are aware of the potential impact of public opinion their sales. Overall, even profit maximising firms, will assess the benefits of any cost saving strategies against any potential negative impact.
References

Gartner, (2012, February), Gartner Says Worldwide Mobile Phone Sales Declined 1.7% in 2012, Garner, [online] retrieved 21st Feb 2012 from http://www.gartner.com/newsroom/id/2335616

Kotler Philip; Keller Kevin, (2011), Marketing Management, Prentice Hall

Nellis JG, Parker D, (2006), Principles of the Business Economics, London, Prentice Hall