Supply Chain and Samsung

Samsung The first element of the general environment that influences Samsung is technology. Samsung's consumer electronics products are driven by advances in technological capabilities. Samsung needs to be responsive to changes in technology, but also needs to be an innovator, especially with its smartphone lines. Technology is a critical influencer in terms of the direction of all of Samsung's key businesses. There are many competitors, new entrants, and different types of technology that could emerge to transform any of Samsung's key businesses (Samsung, 2017).

The second element of the general environment that is critical to Samsung is the economy. At this point, most of Samsung's main products are priced at a premium, but are in segments that are more mature. What this means is that consumers need to have the money to pay the premium for Samsung products. In part, this relates to the social environment as well, especially given the issues that the company faced last year.

In that situation, with the Note 7, Samsung 's faulty product reduced consumer sentiment and undermined the ability of the company to price at a premium (Hollister,2016). 2. The five forces of competition are the bargaining power of suppliers, bargaining power of buyers, the threat of new entrants, the threat of substitutes and the intensity of rivalry (Mind Tools, 2017). These forces all contribute to the pricing power that the company has in the market, and thus its ability to earn profits consistently.

For Samsung, there are a couple of these that are the most important. The first is the intensity of rivalry. According to the latest figures, Samsung's mobile business contribute 44.4% of revenue, making it the company's largest business by revenue (Samsung 2016 Annual Report). It was not the largest business by profit, which indicates a couple of things. The company is basically in a duopoly with Apple at the top end of the smartphone market (IDC, 2016).

This means that the two companies play off of each other, so when one invests heavily in technological development, the other will as well. The same goes for marketing expenditure, and the same goes for things like product design, launches and pricing. The duopoly system often suppresses profits, and since the smartphone business earned less profit than the smaller semiconductor business that might well be the case here. The second of the five forces that has the most critical impact on Samsung is the bargaining power it has with buyers.

This is affected by a number of things. First, by competitors, and Apple is a strong competitor. The Android operating system appears to be one of the major competitive advantage that Samsung phones have. Samsung's brand name is also important. The Galaxy Note 7 issue not only hurt the company's smartphone brand, but the brand suffered across all of its other products lines that are sold to consumers. Thus, the company might have seen a decline in its ability to price at the high end of the market.

In the history of mobile, there have been many companies that stood as market leaders for at least a short time, such as Nokia, Motorola and later HTC, but only Samsung and Apple have been able to maintain premium pricing and high market shares. There is risk that if Samsung's products are seen as inferior that its pricing power will diminish, and with it the company's standing in the market as a true competitor for Apple. 3.

The force that Samsung has the most power over is its bargaining power over buyers. Samsung has the ability to improve its reputation, by demonstrating that the spontaneous combustion issue was simply temporary, and not indicative of the company overall. As time goes by, if Samsung can demonstrate that this was a one-off, consumers will forgive the company and the long-run damage to the brand will be limited. If there are issues, even with some of the company's other products, then that could be a major problem for pricing power.

But there is definitely opportunity with quality products and strong marketing for Samsung to put this incident behind them and restore full premium pricing power across its entire suite of consumer electronics. Addressing the duopoly is an interesting issue, because duopoly conditions are typically created by the market, as it rewards two companies for their excellent.

Samsung and Apple both likely would prefer not to have any new competitors enter the space at the high end, especially Samsung given that it operates Android and any new competitor likely would as well. There are frequent new entrants to the market at the low end, but none appear to have the technological capability of either Samsung and Apple. So the interesting thing for Samsung is that the best way to deal with the duopoly is to innovate, and to differentiate.

It can leverage the open nature of the Android platform for a higher degree of innovation than what Apple has, and that will serve Samsung well. Further, the company has a range of other products, including a profitable semiconductor division, that can help provide a financial buffer for the company if the duopoly market conditions at some point in the future prove to be less favorable than they are today. 4. There are a few different external threats that Samsung is facing. Certainly, changes in technology are the number one threat.

Through the history of mobile, companies have entered the market, only to leapfrog the incumbents. If this happens, Samsung could be in a lot of trouble bleed market share, and see its premium pricing power eroded. So it is imperative for Samsung that the company maintain its position of technological leadership, especially in its two biggest divisions in mobile and semiconductors. Social changes are tied a little bit to technological change.

This threat is powerful should anything change the way that consumers feel about technology or how they interact with it. As such, social and technological change manifest together in something like the Internet of Things. Nobody really knows what IoT is going to look like in the long run, but that also means that there is a lot of risk for large, incumbent companies like Samsung to find themselves on the outside looking in when a new technology dramatically reshapes the way people interact with technology (Burrus, 2014).

Another threat that Samsung faces is with its supply chain. There are some materials, such as rare earths and things like cobalt that go into batteries, that have volatile supply chains. This puts Samsung at the nexus of international trade discussions, in particular where trade with China for rare earths is concerned. Samsung has some control over this, but cannot control the relationship between its government and the government of the PRC. Arguably, Samsung faces a certain amount of political risk that affects its supply chain.

That said, there are many opportunities in the market for Samsung. The Internet of Things should increase demand for semiconductors, and Samsung is well-positioned in that market. So there is some opportunity there. Overall, there is a lot of opportunity that comes from improving global economies. As the number of people in the world in the middle class increases steadily, that puts more people into the category where they can afford Samsung's televisions, phones and other consumer electronics.

Such economic progress is a tremendous opportunity for Samsung, and this opportunity will emerge in a number of different countries. Samsung must ensure that it has global distribution channels to hit all the key emerging markets of the world. Perhaps the greatest opportunity lies with the Internet of Things. IoT is the greatest opportunity mainly because it shares a lot of the competencies at which Samsung already has leadership. Samsung makes a wide range of consumer electronics. It interfaces with Android and all of the apps in that ecosystem.

So the company is unique well-positioned to create or collaborate on products that access the Internet for any number of different, often specialized tasks. The potential of this market is unknown, but understood to be large, and there will be a lot of market to go around. Samsung merely needs to build on its existing expertise in order to create any number of different means by which someone can interface with the Internet. 5. The greatest strength that Samsung has ties into that biggest opportunity.

The company has strength in its depth of experience with Android, and its breadth of experience in consumer electronics, including the development of global distribution channels for those products. These are both strengths that the company can leverage to build its business further. The home market for Samsung remains a source of strength. Samsung attracts a lot of Korean talent, and has impressive market shares there. Further it has the support of government and banks in Korea, which will help Samsung in the event that the company sees a downturn.

So Samsung has a layer of protection that a lot of companies -- including ones with which it compete -- simply do not have. Another strength that the company has is its brand. Interbrand (2016) ranked Samsung as the 7th most valuable brand in the world, at over $51 billion USD. Of course this ranks behind Apple, but it outranks other consumer electronics companies significantly. The brand strength that Samsung derives from its phone business carries over into its other products, which makes it easier for the company to sell those products.

That said, Samsung does have some weaknesses. It has the baggage of the Note 7 scandal. The company may have dealt with the process and other issues that go along with the incident to ensure it will not be repeated, but the baggage is still there until the company lays down an interrupted run of high quality product with no major defects.

Right now this is the biggest weakness, and it will simply need to tighten its supply chain and its design, to ensure that there are no similar incidents in the foreseeable future, as a second one would likely be very damaging. The Korean base may be a source of strength, but it is a double-edged sword. The company mostly only recruits Koreans, whereas there might be benefit to having access to a broader pool of labor, especially engineers.

Further, there is an entrenched culture that the company has been working to change. It has a legacy of hierarchical control, but recognized this as a weakness and began taking steps not too long ago to address this weakness (Lee, 2016). A third major weakness worth noting at Samsung is a relative weakness -- it isn't Apple.

When a company is in a duopoly it is forced to take its major competitor into account, but the reality is that Samsung does not have the near-infinite war chest that Apple has with respect to money. So Samsung is competing for premium status in phones with a company that is a lot richer, and has access to better engineers.

Such a situation is inevitably going to present challenges for Samsung, and even if Samsung has survived this so far, there is a risk that this weakness will eventually be exploited. 6. Samsung has decent resources -- it is a leading global company, after all. But its financial resources and access to top talent are lower than its competitors, even outside of the smartphone space.

So on one hand, the company is quite well-situated in terms of resources but on the other hand really is positioned worse than its major competitors in this regard. Still, it has a lot of capabilities and competencies, some of which are sure to be critical for it going forward. The company has a great brand, extensive distribution networks, strong marketing, strong engineering, and it has to this point maintained a strong supply chain, give or take a few batteries.

Senior management seems to recognize the challenges it faces and has been proactive at addressing issues like the need to create an innovative culture. The core competencies are in engineering and marketing. This is a company that makes good consumer electronics and semiconductors, and has been able to market these effectively all over the world. That is a tremendous record of success, and one that Samsung has been able to sustain for years.

So this is a company that has done some great things, and is positioned to continue building on these competencies going forward into the coming years. 7. The value chain is comprised of the following elements: inbound logistics, operations, outbound logistics, marketing & sales, and service (MindTools, 2017). A company can create value with each of these steps, but usually will focus on value creation in one or two of them only. For example, Samsung is focused largely on operations and marketing. The company steps back on.