Samsung Strategic Analysis: SWOT, Five Forces & Value Chain

General Environment: Technology and Economic Influences

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 business segments (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 exist in segments that are relatively mature. This means that consumers need the financial means to pay the premium for Samsung products. This concern relates to the social environment as well, especially given the issues the company faced with the Galaxy Note 7. That product recall reduced consumer sentiment and undermined the company's ability to price at a premium (Hollister, 2016).

Porter's Five Forces and Competitive Dynamics

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 (MindTools, 2017). These forces all contribute to the pricing power that a company holds in the market, and thus its ability to earn profits consistently. For Samsung, a couple of these forces are the most significant.

The first is the intensity of rivalry. According to the latest figures, Samsung's mobile business contributes 44.4% of revenue, making it the company's largest business segment by revenue (Samsung 2016 Annual Report). It was not, however, the largest business by profit — a fact that reveals something important. Samsung and Apple essentially operate in a duopoly at the top end of the smartphone market (IDC, 2016). This means the two companies respond directly to each other: when one invests heavily in technological development, the other follows. The same dynamic applies to marketing expenditure, product design, launch timing, and pricing. Duopoly conditions often suppress profits, and since the smartphone business earned less profit than Samsung's smaller semiconductor division, that suppression may well be at work here.

The second critical force is the bargaining power Samsung holds with buyers. This is shaped by several factors, most notably the strength of competing offerings. Apple represents a formidable competitor, while the Android operating system provides one of Samsung's most significant competitive advantages. Samsung's brand name also plays an important role. The Galaxy Note 7 crisis not only damaged the smartphone brand but created negative spillover across all consumer-facing product lines. Throughout the history of mobile, companies such as Nokia, Motorola, and HTC have each held market leadership briefly, but only Samsung and Apple have been able to sustain premium pricing alongside high market share. Should Samsung's products come to be seen as inferior, its pricing power — and its standing as a genuine competitor to Apple — would be seriously at risk.

Managing Competitive Forces: Strategic Options

The competitive force over which Samsung has the most control is its bargaining power with buyers. The company has the ability to restore its reputation by demonstrating that the spontaneous combustion issue was temporary and not reflective of its broader product quality. If Samsung can establish the Note 7 incident as a one-time anomaly, consumers are likely to forgive the company and long-run brand damage will be contained. Conversely, if additional product issues emerge across any of its lines, the threat to premium pricing power would be severe. With strong product quality and effective marketing, however, there is a clear path for Samsung to put this incident behind it and restore full pricing power across its consumer electronics portfolio.

Addressing the duopoly dynamic is a more complex challenge, since duopoly conditions are typically created by market forces that reward two dominant players. Both Samsung and Apple likely prefer to keep new competitors out of the premium segment — a concern that is especially acute for Samsung, since any new Android competitor would compete on its own operating platform. New entrants do appear frequently at the low end of the market, but none have yet demonstrated the technological capability to challenge Samsung or Apple at the premium tier. The most effective strategy for Samsung within these duopoly conditions is to innovate and differentiate. The open nature of the Android platform affords Samsung a greater degree of flexibility and innovation than Apple's closed ecosystem allows. Beyond smartphones, Samsung's profitable semiconductor division provides a financial buffer in the event that duopoly dynamics in mobile become less favorable in the future.

SWOT Analysis: Strengths and Weaknesses

Samsung's greatest strength connects directly to its greatest opportunity. The company has deep experience with the Android platform and broad experience across consumer electronics categories, including the development of global distribution networks. Both of these strengths can be actively leveraged to grow the business further.

The South Korean home market remains a foundational source of strength. Samsung attracts substantial Korean engineering talent and holds impressive domestic market shares. It also benefits from the support of the Korean government and major financial institutions, which provides a layer of protection in the event of a business downturn — support that many of its global competitors do not enjoy.

Brand equity is another major strength. Interbrand (2016) ranked Samsung as the seventh most valuable brand in the world, valued at over $51 billion USD. While this places it behind Apple, it surpasses all other consumer electronics companies by a significant margin. The strength of Samsung's smartphone brand carries over into its broader product portfolio, reducing barriers to customer adoption across product lines.

Samsung does, however, carry meaningful weaknesses. The residual reputational damage from the Note 7 scandal remains an ongoing liability. While the company has taken steps to address the underlying process and quality failures, the reputational baggage will persist until Samsung establishes an uninterrupted record of high-quality, defect-free products. A second major incident of this type would likely be far more damaging than the first.

The Korean home base, while a strength, also functions as a limitation. Samsung's recruitment has historically been concentrated among Korean nationals, potentially restricting access to a broader global pool of engineering talent. The company also contends with an entrenched hierarchical culture, which it has recognized as a strategic weakness and has begun taking steps to reform (Lee, 2016).

A third weakness is structural: Samsung is not Apple. In a duopoly, a company must always account for its primary competitor, and in this case that competitor commands a substantially larger financial war chest and greater access to elite engineering talent. Competing for premium market status against a significantly wealthier rival presents an inherent and ongoing challenge, and there is a risk that this disparity will eventually be exploited.

Conclusion

Samsung is well-positioned in most of its consumer electronics markets and in its semiconductor market. It has focused its efforts on two core functions — engineering and marketing — and its competencies in these areas have allowed it to capitalize on major opportunities, including establishing a leadership position in the global smartphone market. Samsung is also reasonably well-positioned to pursue IoT opportunities as they develop.

Where Samsung may face greater difficulty going forward is its vulnerability to shifts in brand perception, given that its brand value is distributed across multiple product lines simultaneously. The company also needs to invest consistently in innovation to protect its competitive position over time, and has sought to reshape its organizational culture in service of that goal. Broader strategic pivots — such as shifting emphasis to underdeveloped parts of the value chain — do not appear likely given current resource constraints. Samsung's strategy is therefore to concentrate on what it does best rather than attempting to excel across all elements of the value chain, a focus that carries both clarity of purpose and a degree of strategic inflexibility.

References

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Hollister, S. (2016). Here's why Samsung Note 7 phones are catching fire. CNet. Retrieved April 27, 2017 from https://www.cnet.com/news/why-is-samsung-galaxy-note-7-exploding-overheating/

IDC. (2016). Smartphone vendor market share, 2016 Q3. IDC. Retrieved April 27, 2017 from http://www.idc.com/promo/smartphone-market-share/vendor

Interbrand. (2016). Best global brands 2016 rankings. Interbrand. Retrieved April 27, 2017 from

Lee, S. (2016). World's biggest startup? Reuters. Retrieved April 27, 2017 from http://www.reuters.com/article/us-samsung-elec-culture-idUSKCN0WQ0CP

MindTools. (2017). Porter's five forces. MindTools.com. Retrieved April 27, 2017 from https://www.mindtools.com/pages/article/newTMC_08.htm

MindTools. (2017). Porter's value chain. MindTools.com. Retrieved April 27, 2017 from https://www.mindtools.com/pages/article/newSTR_66.htm

Samsung. (2017). Corporate profile. Retrieved from

Samsung 2016 Annual Report. Retrieved April 27, 2017 from http://images.samsung.com/is/content/samsung/p5/sg/ir/docs/2017_1Q_Earnings_Release_Samsung_Electronics.pdf