Diversified in industries and electronics

Introduction

Initially, Samsung started out as a small export business in Korea. It then diversified in industries and electronics. The company has been responsive to change and opportunity in global business brought by the digital era with its constant innovation and attractive, marketable products.1 As a result, Samsung is now positioned as one of the world recognized leaders in the digital technology industry. The Samsung World Headquarters is located in Seoul, Korean. 1

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History

In 1938, founding chairman Byung-Chull Lee started a small trade export business in Taegu, Korea. In the 1970s, Samsung invested in the heavy, chemical and petrochemical industries as a foundation for future growth. Samsung also incorporated its manufacturing processes from raw materials to end products which further enhance its position in the world’s textile industry. Samsung’s core technology businesses diversified and expanded globally during the late 1970s and early 1980s. Soon after, two research and development (R&D) institutes were created. This boost its reach even further into electronics, semiconductors, high polymer chemicals, genetic engineering, optical telecommunications, aerospace and new fields of technology innovation from nanotechnology to advanced network architectures. In the mid-1990s, Samsung revolutionised its business aiming to make world-class products, provide total customer satisfaction and be a good corporate citizen. Samsung has constantly developed advanced technologies, competitive products and constant innovation 1.

Main Technologies and Capabilities

Main Capabilities

Research and Development

Innovation is at the heart Samsung’s business success. To be competitive in the new digital age, Samsung maintains and strengthens its market dominance through the speedy introduction of new technology. The company has placed high importance to the interplay of creative, imaginative human resources, a global R&D network, a strong collaboration among business partners all along the supply chain, and the commitment to ongoing investment. Currently, Samsung is making historic advances in R&D of semiconductor products, especially flash memory and non-memory, custom semiconductors, DRAM and SRAM, LCDs, mobile phones, and digital appliances1

Eco Samsung

Samsung has displayed its strong commitment and responsibility for the world environment. It has made efforts to develop environmentally-friendly products which consume low levels of energy and which contain no hazardous materials. The company has also modified its assembly processes to cut down carbon emissions substantially.2

Main Technologies

Samsung comprises of companies that have become market leaders in a wide range of business, from electronics to financial services, from chemicals and heavy industries to trade and services. All the businesses are setting new standards in innovation, constantly generating high quality products and services.3 Owing to Samsung’s large R&D sector, many new technologies and innovative designs emerge. Below are a few of the newest technologies developed by Samsung.

Main Markets, Products and Competitors

Markets

Samsung Group consists of numerous international affiliated businesses such as Samsung Electronics, Samsung Heavy Industries, and Samsung C&T. These three multinational core businesses of Samsung Group signify their strong foothold in the electronics, shipbuilding and construction markets. Besides that, Samsung also plays a part in the financial, chemical, retail and entertainment markets. 1

Samsung reports a strong presence in its home country of South Korea as its market share in telecommunications is 18.87%. 1 Samsung appeals to the global market as it is the most popular consumer electronics brand since 2005 with 7.55% of global market share in telecommunications1.

Products

Samsung first started moving into businesses such as insurance, securities and retail. Later, upon borrowed foreign investments, Samsung ventured into the telecommunications industry with Samsung Electronics. With the support of South Korean President; Samsung developed the first dynamic random access memory chip. 1Most importantly Samsung are leading in the production of memory chips, chipmakers and liquid-crystal display panels. 1 Considered as a strong competitor in the world of electronics, Samsung highlighted innovative strategy and expanded production rapidly to become the worlds’ largest producers of DRAM chips, flash memory, optical storage and recently liquid crystal displays. In addition Samsung strives to improve by delivering innovative products such as the TV and monitor industry’s thinnest LED TV’s and most compact colour laser printers and multifunctional devices. Being a global leader in telecommunications equipment; Samsung plays the role in development of the next generation of 4G-network. 1

Competitors

According to the Figure 1 below; Nokia is clearly the main competitor as it holds 37% of the mobile phones sales global market share. In 2009, Samsung’s touch screen devices, QWERTY phones and smart phones drove sales in mature markets with 19% of the global market share7. LG poses 11% as a competitor as it moves into lower-tier devices which drive growth in emerging markets. It is also well positioned to take advantage of China’s 3G Rollout as it can deliver good-value-for-money devices. Motorola has 11% market share which is reasonably smaller, however with its presence rapidly concentrated on the American it serves as a competition in the American market. Being in a competitive market, Sony Ericsson at 5% of the global market share attributes its poor performance to its uncompetitive range of handsets such as exploiting trends like QWERTY products. Therefore Sony Ericsson is a smaller competitor compare to Nokia and other phones such as Apple, HTC, and Blackberry.

Nokia is Samsung’s biggest competitor due to its early investments in GSM technologies therefore making the company into the world’s largest mobile producer manufacture. Up to date Nokia produced various innovative products such as the first 3G phones, Ovi internet services and N-series multimedia phone. Nokia’s revenue is reported to be 9.3 million Euros. 9 Its success is due to its high investment in the R&D which is present in 16 countries, representing 31% of their total workforce. 8 Nokia phones are also seen as being highest quality as they have a highly recognizable packaging style which operates with an aggressive marketing strategy hence elevating them above their competitors.

Samsung’s Innovative Activities

Samsung’s ambition to become one of the world’s top companies is supported by continuous pursuit in innovative R&D and building a distinctive brand. As stated in the Annual Report 2008, approximately 40 %( 42,100 researchers) of Samsung’s global employees are involved in R&D to develop cutting edge technologies1. Samsung Advanced Institute in Technology is the global hub of Samsung’s R&D organization which includes Mechatronics and Manufacturing Technology Centre and 14 overseas centres7. In 2008, Samsung obtained 3,515 patents in the US with an increase from 2007 placing them in second place in the annual patent ranking. To further push forward in a variety of market and customer focused brand marketing programs, Samsung successfully completed their role as the official wireless equipment partner of the 2008 Beijing Olympics and Paralympics Games. 7

In 2008, Samsung’s investment of 6.9 trillion KRW which represented 9.5% of parent company sales brings in technological breakthrough such as 256GB solid-state drive, 90nm high-performance smart card chip, 82-inch 120Hz quad-HD-resolution TV panel, and a Mobile WiMax II (802.61m) solution.1 This also enables innovations like front-load washers with time, energy and wear-saving “bubble wash” technology and the industry’s most compact colour laser printers. Following these success, Samsung plans to invest 7.9 trillion KRW in R&D to support future development of tomorrow’s technology. 7

R&D Structure and Priorities

Table 2: Core business research areas at SAIT10

Organisation of R&D

Samsung’s R&D organisation run in SAIT consists of three layers: Samsung’s technology competitiveness in core business areas identifies growth engines for the future and securing, and management of technology. The R&D centres of each business focus on technology that is expected to deliver the long-term results. Division product development teams are responsible for marketing products due to hit markets in a short period of time.

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From the Figure 2, the organisation is shown to be a hybrid between centralised and decentralised R&D. It is a simplified diagram of the organisation of Samsung R&D involving SAIT and two of their centres in their global network of R&D. Samsung’s R&D network consist of six centres in Korea and 18 centres in 9 different countries such as United States, United Kingdom, Russia, Israel, India, Japan and China. 11 These various R&D centres and their distribution into research areas such as Dallas Telecom Laboratory that research on technologies and products for next-generation telecommunications systems.

Innovation Strategy

Firm’s Innovation Strategy

Background and Strategy

“By implementing this newly established R&D plan, we can develop the technology that will drive Samsung’s future.” -Hak-Soo Lee, vice-chairman of Samsung Electronics said.14 Samsung Electronics instituted many R&D centres globally to enhance in-house product design. The first centre was established in Osaka, Japan, followed by another in Frankfurt, Germany to focus on products for the European markets.15 In the same year, Samsung Electronics established a research centre to address product planning needs in South-East Asian markets.

In November 2000, Samsung Electronics targeted to transform itself into a “Digital -eCompany”, capable of leading in digital convergence. The company upgraded the development model from division-centric into portfolio-centri16. This aimed to multiple divisions and units to create integrated solutions for home networks, mobile networks, office networks and core-component business portfolios. With these initiatives, Samsung Electronics pursued four key areas: R&D, design, brand marketing and corporate citizenship.

Investment in Design and R&D

R&D is an important innovation strategy at Samsung. R&D and design centres developed technologies which is being used to produce products. Samsung Electronics employed more than 40000 engineers17 in its R&D department, and 3,200 held PhDs. Samsung Electronics attributed its leading position in the industry to four main factors: creative people in the organization who could develop technologies; co-operation among business partners throughout the supply chain; the firm’s ability to explore and penetrate new markets; and the speed of innovation and product development18.

Users-Centric Design Philosophy

Samsung Electronics applied the design philosophy into its products and stressed that “design and creative strengths were at the heart of corporate competitiveness.”19 This reflected a concept of a balance between reason and feelings, from which Samsung Electronics developed a scale with “reason” on one end and “feeling” on the other to measure perfection of design. The products manufactured by Apple Computer Inc (“Apple”) occupied the “feeling” zone with an emphasis on simplicity of products, whereas Sony products tended toward the “reason” zone with lots of complex features.20 However, Samsung Electronics designers balanced “reason” and “feeling” by rationalizing the design of products using geometric and technological parameters and then enhancing the design such that products made an emotional connection with the user.

Over 700 highly skilled designers in different design centres conducted various research projects in the fields of industrial design, graphic design, interaction design, human factors, lifestyle research; creative business-planning, visual brand strategy, materials exploration, colour theory and computer-aided design.

Global Localization strategy

Global Localization strategy is adopted, through which designers developed product design blueprints according to global design standards and themes, while remaining flexible enough to allow local design centres to accommodate specific market needs and cultural contexts.22 A simple example is explained by, Younghee Lee, vice-president of marketing, that beautiful design of mobile phones could be appreciated by a Parisian or Indian, but noted that the Indian user, who often lacked a reliable electricity supply, needed a longer-lasting battery than a Parisian.23 The Global Localization strategy helped Samsung Electronics establish itself as an innovative and first-class consumer electronics company.

EXHIBIT 1: SAMSUNG’S DESIGN PHILOSOPHY: BALANCE OF REASON AND FEELING

Fast Follower

To overcome the company’s image as a producer of cheap products, Samsung Electrons’s product diversification differentiated the company from its key competitors, many of which were focused on single or smaller numbers of products. Apple, for example, specialised in portable music players and held a major share in the global market for these devices. Nokia and Motorola were best known for mobile phones, and Sony focused on consumer electronics. The market trends and technological, also the competitive circumstances impacts on its innovation strategy, which has a lots of reason to reveal that Samsung Electron is fast follower, although some brand-new design of products were launched.

Protect its innovations

Samsung Electronics’ strategy of combining product design, R&D and brand management turned the firm into a leader in the consumer electronics market. Samsung Electronics operated six R&D centres in South Korea and a total of 16 centres in eight different countries. These R&D centres developed technologies that could be commercialised in the near future. The CTO developed proprietary technologies, managed the deployment of key technologies and guided the overall R&D process within the organisation. This highly efficiency of organization system is not easily imitated by the rivals in a short period of time. Thus, it has enough evidence to believe that a large amount of R&D spending combined with brand management as well as the effective organization system is able to protect its innovations.

Patents and Achievement

During seven years from 2001, Samsung Electronics received 19 awards at the International Design Excellence Awards (“IDEA”). In 2006, the company registered 17,377 patents worldwide, including patents aimed at fusion technology, nanotechnology and biotechnology24. In 2007, Samsung Electronics held a dominant worldwide market share25for LCDs and TVs. The company unparalleled edge and leadership in R&D and design were underscored by awards for 32 of its products at the CES Innovations 2008 Awards.

Challenges for the Future

Competition in the consumer electronics market was fierce, as many global players entered the market with large product portfolios. Digital convergence invited more companies from related industries such as software, PC and network services to enter the market. Entry of such new players further intensified the competition. Competitors of Samsung Electronics such as LG, Nokia, Panasonic, Sony and some Chinese firms had started investing heavily in R&D and product design. All major competitors adopted the concept of localizing their product design to suit target markets. The design advantage of Samsung Electronics started to diminish as product design strategies and processes became commoditized. Samsung Electronics had to devise strategies to defend not only its position in the market, but also its profitability in the competitive environment.

Advancements in technology had shortened product lifecycles and product replacement had become a key driver for revenue growth. Samsung Electronics invested about 9% of net sales in R&D of newer technologies, features and designs to offer newer products and attract customers. However, some of its competitors, including Apple, Sony and LG Electronics, had significantly lower R&D expenditure per product.

Firms such as Philips, Dell and Motorola were adopting outsourcing of product design to lower R&D costs and shorten time-to-market. These brands were buying product blueprints and technology from contract manufacturers and independent design firms such as IDEO, Quanta Computer, Premier Imaging, HCL Technologies and Wipro Technologies. Companies took varying approaches to design outsourcing. For example, HP contributed key technology and design to its computers, whereas Dell preferred to adopt entire designs from its design partners. Motorola bought complete designs for its low-end mobile phones but kept tight control over the development of its high-end cell phones, such as the Razr.

However, outsourcing of product design and R&D raised serious concerns about intellectual property rights, product management, integrity and incubation of new competitors. For example, Motorola outsourced the design and manufacturing of its mobile phones to Taiwanese manufacturer BenQ. In 2004, BenQ started selling the mobile phones in the Chinese market under its own brand, which resulted in termination of its contract with Motorola. Considering the immediate urge to optimise R&D costs and potential concerns associated with design outsourcing.

References

1. Samsung INC. (2009) [Online] Available from http://www.samsung.com/uk/aboutsamsung/corporateprofile/history03.html
2. Samsung INC. (2009) [Online] Available from http://www.samsung.com/global/business/semiconductor/aboutus/ESH/ESH.html
3. Samsung INC. (2009) [Online] Available from http://www.samsung.com/uk/aboutsamsung/corporateprofile/affiliatedcompanies.html
4. Samsung INC. (2009) [Online] Available from http://www.samsung.com/uk/aboutsamsung/ourbusinesses/businessarea/devicesolutionsbusiness.html
5. Gartner Newsroom: http://www.gartner.com/it/page.jsp?id=1126812
6. Nokia Connecting People: Story of Nokia http://www.nokia.com/about-nokia/company/story-of-nokia/mobile-revolution/leading-the-world
7. Appsolutely Everything: Samsung Market Share: http://stats.getjar.com/statistics/world/manufacturer/Samsung
8. Nokia: Mobile Revolution: http://www.nokia.com/about-nokia/company/story-of-nokia/mobile-revolution
9. Nokia: Biz Covering: http://bizcovering.com/major-companies/nokias-revenue-lowered-with-twenty-seven-percent/
10. Samsung Research and Development: http://www.samsung.com/us/aboutsamsung/ourbusinesses/researchdevelopment.html
11. Samsung R&D Center(SISA): http://www.sisa.samsung.com/default.htm
12. Kim, Y. (1997) “Technological Capabilities and Samsung Electronics’ International Production Network in Asia”, BRIE
13. Kim, Y. (1997) “Technological Capabilities and Samsung Electronics’ International Production Network in Asia”, BRIE Working Paper 106, p. 20
14. Newswire (8 November 2005) “Samsung Companies Announce 5-Year, 47 Trillion Won Investment Plan”
15. Kim, Y. (1997) “Technological Capabilities and Samsung Electronics’ International Production Network in Asia”, BRIE Working Paper 106, p. 26
16. Samsung Electronics (2001) “Annual Report”
17. Samsung Electronics (2007) “Annual Report”
18. Samsung Electronics (2007) “Annual Report”
19. Samsung (2006) “Annual Report”, p. 41.
20. Breen, B. (2007) “The Seoul of Design”
21. Delaney, M., et al. (2002) “Global Localization”, Global Design and Cultural Identity
22. Ibid., p. 44.
23. Ewing, J. (2008) “Samsung’s New Marketing Push”, BusinessWeek
24. Samsung Electronics (2006) “Annual Report”
25. Samsung Electronics (2007) “Annual Report”.