Strategic Management: Samsung Electronics

April

2009

A report critically analyzing the strategic management of Samsung Electronics with a focus on the LCD market.

“Understanding the attitudes, needs and preferences of consumers is the cornerstone of the work we do.”

Samsung Global Strategy Group 2008

Research ReportApril 2009Onkardeep Singh Bhatia

IntroductionThe past few years has seen a huge advancement in display technologies with Liquid Crystal Displays (LCDs) taking much of the recent limelight over the once popular Cathode Ray Tube (CRT). The global market for display technologies today is already in excess of USD$82.4billion and it is estimated to exceed US$97.4 billion by 2011 (Vadera, 2008).

Samsung Electronics Co. LTD (SEC), the cornerstone of Samsung Group, is the world's largest manufacturer of LCD panels and is the leader in many other consumer electronic products (Moon, 2009). It principally operates in Asia, Europe and America through four business divisions; digital media, telecommunication, Semiconductor and LCD. The LCD division manufactures panels for TVs, Digital Information Displays, notebook PCs, desktop monitors and mobile products (Samsung, 2008). Its strategic objective is to create qualitative and quantitative growth and deliver competitive value to customers while maintaining profitability (Evans and Lindsay, 2008).

This report will analyse the strategy employed by SEC with a particular focus on the LCD division. The external and internal environment will be studied followed by an evaluation of the strategies employed by SEC and recommendations for continued success.

Samsung Electronics in the LCD MarketIn 1993 Lee Kun-hee changed the strategy of Samsung Group from imitating cost-leader to the role of a differentiator by downsizing and concentrating on three industries: electronics, engineering, and chemicals (Moon, 2009). By 1995 SEC had developed LCD technology and achieved a significant place in the market (Borrus et al, 2004)

Since then SEC has proven to be a flagship with revenues consistently increasing over the last 5 years (Figure 1). As of the end of 2007, the LCD division accounted for 16% of SEC’s total revenue (Figure 2).

SEC has held the highest global market share in LCDs for over six consecutive years (Samsung, 2008). SEC’s LCD TV shipments increased by 54% over 2007 and their global market share increased to 20% in 2008 (Global Markets Direct, 2009). In Q1 2009, SEC reported a 72% profit slump but still managed to increase sales by 8.5% (Samsung, 2009), highlighting their commitment to maintaining a lead in the industry. Table 1 shows the top 3 competitors in the LCD market.

Rank Notebook PC LCD Monitor LCD TV Others Total 1 LG Display Samsung Samsung AUO Samsung2 Samsung CMO LG Display Sharp LG Display3 AUO LG Display CMO LG Display AUO

Figure 1: SEC’s Consistent revenue growth(Global Markets Direct, 2009)

Figure 2: Sales Revenue by Division (Samsung, 2008)

Table 1: Overall Samsung is ranked number 1 in the LCD market (Korea IT Times, 2009)

External environmentThe macro and industry environments will now be looked at to assess the strategic position of SEC.

Macro EnvironmentThe macro-environment refers to the external factors which affect a company's planning and performance, and are beyond its control (CIM, 2009). The STEEPLE framework will be used for this analysis.

Social FactorsPeople’s obsession with technology is changing the way we relate to others and ourselves (Lam, 2008). Electronics is playing a central role in people’s lives (Intel, 2007; Subrahmanyam et al., 2000) and consumer attitudes towards gaming and mobile devices will increase demand for LCDs (FutureSource, 2008).

Technological Factors This industry has been one of the most progressive (Sixto, 2003) with ever shortening product life cycles (Mathews, 2005) that have lead to global revenues for LCD panels of $140 billion (BNET, 2009).

SEC has lead the industry with inventions like the first double-sided LCD panel (Samsung, 2008) as well as leading in new display technologies like OLED.

Political Factors Some governments provide subsidies and tax incentives to the LCD industry. Table 2 shows countries that provide incentives hold the largest global share (DisplaySearch, 2005).

Global LCD Panel Production by CountryCountry % of Global Panel Production Level of Incentives for LCD industryTaiwan 41 HighSouth Korea

37 High

Japan 11 HighChina 7 Medium (Growing)Other 4 Low

Exemplifying this is how SEC received a US$92.4million aid package towards building its LCD television plant in Slovakia (ExpansionManagement, 2008).

Further, Korean industrial policies have been important for facilitating international competitiveness by requiring foreign firms to transfer technology in exchange for market access (Kim, 1997).

Economic FactorsThe economic downturn reduced demand for LCD products (Table 3) with YoY shipments reducing in 2009. However, a MoM increase of 29% suggests a recovery in the market with revenues for March hitting US$3.9 Billion, the highest it’s been for 6 months (DisplaySearch, 2009).

Table 2: Global LCD Panel Production (DisplaySearch, 2005)

Figure 3: Children’s Daily ‘Screen Time’ (Subrahmanyam et al., 2000)

 LCD Panel Mar 08 Feb 09 Mar 09 Month on MonthGrowth

Yr on YrGrowth

Notebook PC 11.7 8.5 11.6 38% 0%Monitor 18.4 12.4 15.4 24% -17%TV 8.7 7.7 9.9 30% 14%Other 1.2 0.8 0.9 22% -24%Total 40.0 29.3 37.9 29% -5%

Demand is also expected to rise due to an increase in emerging markets like China and India.

Moreover, SEC is highly dependent on the local economy. The 1997 Asian Crisis is an important example (Mishkin, 1999).

Environmental Factors Customers have become increasingly environmentally conscious, wanting higher energy efficiency, greener products, lower emissions of harmful radiation better waste management (Tarr, 2009; EE Times-Asia, 2009).

Legal Factors Intellectual property (IP) is very important in any industry constantly innovating. In 2006 SEC filed 12000 new patents in Korea alone (Samsung Environment, 2007). The downside is that conflicts can occur. SEC recently won a patent dispute against Sharp started in 2007 (Wall Street Journal, 2009).

Legislations around local employee rights, IP, and tax will further influence SEC strategic decisions.

Industry EnvironmentPorter’s 5 Forces (Porter, 1997) will be used to understand the attractiveness, likely-profitability and power distribution of the LCD electronics industry. Understanding these forces provides the groundwork for a strategic agenda of action. A detailed summary of each of the 5 forces is given in the Appendix (Table 4) followed by an overview of the main points.

Figure 4: Porter’s Five Forces (Porter, 1997)

Table 3: Monthly Large-Area TFT LCD Panel Shipments by Application (Millions) (DisplaySearch, 2009)

Threat of New Entrants – LowOverall, the treat of new entrants is low. Barriers to entry are high due to the large capital requirements and economies of scale especially as SEC has proven production, research and marketing processes. Highlighting this is SEC’s investment of USD$852million for 2 manufacturing lines without definite production plans (Png and Lehman, 2004). Further, SEC benefits from good product differentiation due to strong brand identification and innovative products. In 2008 Samsung was ranked 21st amongst world brands (Samsung Brand, 2008).

SEC’s developed experience curve, proprietary technology, access to the best raw materials and favourable locations provides them with significant cost advantages (Hung, 2006). Also, easy access to distribution channels (Chiu et al., 2006) as well as SEC’s reputation for fighting hard (Williams, 2005) makes it difficult for potential new entrants.

Conversely, foreign government policy, in particular China, has been encouraging entry into the industry through financial incentives (Thomson and Sigurdson, 2008).

Bargaining Power of Suppliers – LowOverall the bargaining power of suppliers is low. The number of purchasers is large and many competitive suppliers exist. Also, supplier product differentiation and switching costs are low (Lee, 2006). Forward Integration is unlikely as purchasers like SEC collaborate with suppliers and increases in raw material prices are likely to be absorbed or passed on to customers (Samsung, 2008). Finally, the suppliers benefit from the industry making them willing to help in R&D. This is exemplified by SEC who has collaborated with more than 1000 suppliers (Lee, 2006).

Bargaining power of Customers - MedOverall customers have medium bargaining power but usually it would be a win-win situation. For example, SEC and Dell entered a US$16billion technology and R&D partnership (Farmer, 2001). Product differentiation is high but imitations may provide cheaper alternatives and increase buyer power. Further, price sensitivity is high due to a large number of similar products and the status they bring although the perception of quality allows for a price premium.

Business-to-business customers earn relatively high profits and are able to raise their prices due to SEC’s brand strength making them less price sensitive and therefore reducing their power over SEC (Gao et al., 2003).

Conversely, forward integration is unlikely to occur so retailers and distributers have some power in this respect.

Threat of Substitute Products - MedOverall, the threat of substitute products is medium. The fast moving LCD industry with various display technologies leads to pressure being put on lowering pricing and high R&D costs to continually differentiate products ensuring industry profitability and growth (Mathews, 2005). SEC tries to continually innovate and in 2008 they released the world’s largest and thinnest OLED-HD TV (Williams, 2008).

Figure 5: The TFT-LCD Industry Cycle

Competitive Rivalry within the Industry – HighOverall, rivalry is high with many diverse competitors (Figure 6).

Chinese competitors have also recently increased rivalry (Mathews, 2005). Similar products and low switching costs reduce brand loyalty (Png and Lehman, 2004). Storage costs and capacity is variable and demand is seasonal which can lead to price cutting to shift stock (Mathews, 2005). Finally, high exit barriers due to specialist resources (Camposa and Lootty, 2007) also intensify rivalry.

Summary of External EnvironmentThe analysis highlights the need for SEC to continue leading technologically whilst adapting products in line with social and environmental trends. Simkin (1997) found few companies look at changing factors such as substitutes and new entrants further highlighting the importance of diversification of products and internal processes as well as aggressive and timely R&D.

Internal EnvironmentSuperior resources and distinctive internal competencies to that of rivals have been shown as the basis of competitive advantage (Andrews, 1971; Barney 1991; Mills et al., 2002). A Resource Based View (RBV) will be used to analyse the internal environment and further understand the strategic position of SEC.

ResourcesMills et al. (2002) suggest resources can be tangible or intangible. They provide 6 categories suitable for resource identification that will be used to analyse SEC (See Table 5). This is similar to Barney’s (1991) VRIO framework that will be used later in the report. The importance of each resource can be evaluated based the competitive advantage they provide. Three metrics as outlined by Mills et al. (2002) will be used to measure this; Value, Sustainability and Versatility. Each measures how the performance generated by the resource is, valuable to the customer, lasting over time and useful over different product areas and markets respectively. Also shown is the Overall Importance and level of importance SEC gives to a particular resource.

Figure 6: Main Competitors by Total Market Share(ECN, 2009; Display Search, 2008)

Importance of ResourceResource Category

Resource Valued Sustained Versatile Overall Imp

SEC’s Imp

Comments

Tangible resources

Plants/Factories High Med High High High 4 major LCD production plants. 3 in Korea, 1 in ChinaApril 2008 SEC and Sony agreed on establishing a 8th Generation LCD plant in Tangjeong ‘Crystal Valley’ Complex. 6 design centres in Asia, the U.S., and Europe

R&D - Campus High High High High High Samsung to spent US$45 billion on R&D from 2005to 2010 (Samsung R&D Spend, 2005)SAITSamsung Advanced Institute of Technology (SAIT) established in 1987 as Samsung’s central R&D facility.

Access to raw materials and distribution channels

High Med High High High Strong links with wholesale and retail (Chiu et al., 2006).

Employees High Med Low Med Med Over 138,000 (2007) Mostly highly skilled, motivated, empowered, good work ethic.

Intellectual Property (Patents/ Trademarks/ Copyrights)

Low High Low Med High In 2006 SEC filed 12000 new patents in Korea alone (Samsung Environment, 2007).Willing to fight and maintain rights on their patents.

Six Sigma Academy High High High High High According to Bae and Kim (2004) Samsung’s Six Sigma Academy was established to educate the employees and build up teams of quality specialists with problem solving abilities.

Table 5: Samsung Electronics current resources and their importance

Knowledge resources, Skills and experience

Experience (learning) curve

High Med High High High Existed for 40 years. Market leaders in LCD panels.

Knowledge gained from R&D

High Med High High High Trading knowledge for access to foreign markets.

Knowledge of foreign markets

High Med High High High LCD Products available in over 10 countries worldwide.

System and procedural resources

Formal planning, command and control systems

High Med High High Med Low bureaucracy, quality focused, customer focused. Formal hierarchical structure but allowing innovation to be driven bottom up.

Integrated management information systems

High High High High Med Good use of IT systems including recent introduction of an integrated sales document management system (Adobe, 2003). Also use SCM (Supply Chain Management), PDM (Product Data Management), and CRM (Customer Relationship Management) systems and have set up global real-time management information systems.

Supply Chain High High High High Med SEC has a complex supply chain due to a huge product range and large geographies. To reduce the lead time on supply chain SEC networked customer management, R&D management, and supply chain management processes (Samsung, 2009).

Cultural resources and values

Culture High High Med High High Open, sharing, entrepreneurial.Diversity High Med High High Low Largely Korean due to language barriersSocial and environmental initiatives

Low Med Med Med High SEC is committed to sustainable environment in all of business activities

Leadership High Med High High High Not very risk averse, ambitious, committed to growing the company.

Reputation & Brand Loyalty

High High High High High The Brand Keys Customer Loyalty Award awarded to Samsung for last seven consecutive years.Associated with Quality and Value.Strong sponsor of Sports including the Olympics.Ranked 21st most well known global brand in 2008.

Network resources

International networks

High High High High High Foreign linkages has permitted Samsung to achieve a high level of vertical integration.

Strategic alliances High High High High High Various joint ventures with key competitors. For example, Sony, NEC and Sharp. Focus on win-win strategy.

Resources Important to change

Internal funds Med Med High Med High In 2008 US$5.3 billion cash reserves (Moon, 2009).

SEC’s resources provide them with inherent competitive advantage especially when they go beyond the ‘threshold resources’ that fulfil the minimum barriers to entry. More important however, is how these resources translate to distinctive core competencies (Mills et al., 2002) which will now be discussed.

Constant InnovationSEC’s state of the art LCD panel factories and design centres provide superior production capabilities. Linked to the well financed market-driven R&D centres SEC is able to be a leader of its industry. The Samsung Advanced Institute of Technology (SAIT) SAIT currently employs over 1,000 researchers, 40 percent and 12 percent of who hold doctoral and master’s degrees, respectively (Suh et al., 2004). The IT systems, formal and informal supporting organisation supports effective R&D efforts in that they are critical aspects of knowledge management initiatives being run by SEC (Figure 7). An example of SEC’s innovation includes 2.3-inch e-paper that uses electrodes made from carbon nanotubes for enhanced “fold-ability.” (Samsung, 2008). However, SEC has proved to be successful not only in product innovation but also in involving the employees in the process of innovation.

Delivering QualitySamsung has been one of the world's biggest advertisers over the past decade, building its brand into one of the most recognisable names on earth. A recent consumer survey shows Samsung tops product ratings in four of the six main sizes of LCD TVs (Samsung 2008). This reputation and brand strength is backed by SEC’s relentless focus on quality. They have their own Six Sigma Academy which was established to educate the employees and build up teams of quality specialists with problem solving abilities. Leveraging these resources SEC has developed a core competency in delivering quality.

Cost Leadership Access to raw materials and distribution channels as well as the relatively low power of suppliers and large production factories allow SEC to achieve economies of scale that translate into lower prices for the customer and higher margins for SEC. Leveraging the knowledge of foreign markets and 40 years of experience within the industry allow for costs to be kept to a minimum. This is undoubtedly a core competency of SEC.

Quick to MarketStrong leadership and focus on growth linked with its international networks and experience within the industry allows an end to end process to be owned and run by SEC. This is illustrated in the LCD TV market for which SEC develops and manufactures its own TV computer chips. Leveraging these resources provides SEC with a deep understanding of the fast changing market and makes them distinct in their competency to launch products to the market quicker than competitors.

Core Competencies SummaryBelow are shown the four key core competencies using Barney’s (1991) VRIO framework.

Figure 7: SAIT Knowledge Management framework and components (Suh et al., 2004)

Figure 8: SEC continues to lead on price even if it reduces its operating margin (Global Markets Direct, 2009)

Resource Category

Value Rarity Costly to Imitate?

Exploited by Organisation?

Constant Innovation

High Med Yes Yes

Delivering Quality High Med Yes YesCost Leadership High Med Yes YesQuick to Market High High Yes Yes

Summary of Internal EnvironmentThe RBV has shown that SEC benefits from competitive advantages intrinsic to its resources. However, its real strengths lie in the distinctive core competencies it generates by leveraging its resources. Namely, innovation, quality, cost leadership and being quick to market.

Evaluation of StrategiesThe second part of the report will draw on findings from the internal and external environment. An ‘inside-out’ perspective will be taken with theoretical frameworks being used to analyse and evaluate the corporate level strategy of SEC followed by recommendations for future success.

Current StrategyOne of the key areas of strategy for any business is how it intends to grow. (Chandler,1962; Penrose, 1959). This is central to SEC as it wants to be a leader as highlighted by their corporate vision; ‘Leading the Digital Convergence Revolution” (Figure 9). The two key strategic methods employed are organic growth and strategic alliances.

Organic GrowthOrganic growth is defined as the growth rate that a company can achieve by increasing output and enhancing sales as opposed to profits or growth acquired from takeovers, mergers or acquisitions (M&A) (Investopedia, 2009). Coyle (2000) argues that organic growth allows a firm to develop market position over the long term, can help to achieve growth much cheaper than M&A and is well suited to growing markets. This seems to fit well with SEC’s current strategic position as it is the industry leader and has the competencies to grow into other markets. Also, although SEC has large cash reserves, organic growth allows funds to be focused on other areas such as R&D. Finally, the external environmental analysis pointed towards a growth in the LCD market and the electronics industry as a whole thereby reinforcing the suitability of this growth strategy.

However, is this sustainable? Based on the internal-environment analysis SEC has leaders focused on growth, an appropriate culture for growth as well as excellent bonds with customers, effective sales and unrivalled competencies in innovating. According to Forum (2008), a leading company specialising in growth strategies, these are critical factors in sustainable organic growth. So yes, SEC’s growth is sustainable but it may not always be the best strategy to adopt. This is especially true when entering a new market/country which may require deep local knowledge that SEC lacks. SEC tries to balance this problem with strategic alliances.

Table 6: SEC’s distinctive core competencies

Figure 9: SEC’s Vision and mission statements (About Samsung, 2009)

Strategic AlliancesStrategic alliances are formal relationships between two or more parties to pursue a set of agreed upon goals while remaining independent organisations (Bleeke and Ernst, 1992). Since 2001 SEC agreed 29 different alliances (About Samsung, 2009). According to Bleeke and Ernst (1992) alliances are an efficient ways to enter new markets, to gain skills, technology, or products, and to share fixed costs and resources. It could be said that SEC does not need much skills or technology as they are arguably the most innovative and therefore any alliance would be disadvantageous because less competent competitors could learn from them. However, in most cases the sharing of costs and resources provides a win-win situation as illustrated by the SEC and Sony alliance. Also, organic growth can be used alongside alliances when entering new markets to minimise the learning curve and associated costs. Nonetheless, the applicability of this growth strategy when expanding operations to emerging markets like China and India is questionable as most firms would be imitators and mutual benefit for SEC would most likely not be achieved.

Further Analysis of Current StrategiesPorter (1980) argued that there are three basic strategic options available to organisations for gaining competitive advantage; Cost Leadership, Differentiation and Focus. This is summarised in Porter's Generic Strategies (Porter, 1985)

SEC fits the Cost Leadership strategy in that it increases profits by reducing costs, while charging industry average prices. Cost Leadership is one of SEC’s core competencies as discussed in the previous section and therefore this strategy fits well.

The Differentiation strategy also applies to SEC because they are constantly innovating. SEC has unmatched competencies in innovation and quality of LCD technology as has been shown in the previous section. Therefore, this strategy seems appropriate for SEC to follow. Based on this framework, it could further be argued that SEC varies its scope. For example, products like OLED TVs currently serve a niche market. According to Porter being "all things to all people" or ‘stuck in the middle’ is likely to lead to poor performance. However, in SEC’s case the combination of a cost leadership and differentiation strategy seems to work well. This highlights that the framework may have some significant limitations.

Bowman (2008) argues that this model has three main problems. Firstly it confuses ‘where to compete’ with ‘how to compete’ and does not take account of the segmentation of markets. Secondly, the model confuses competitive strategy with corporate strategy because even individual business units may have several different strategies like SEC does. Finally, it excludes other feasible strategy options because it suggests only one strategy should be followed. As can be clearly seen by the strategy of SEC, both Cost Leadership and Differentiation strategies can be used simultaneously.

SECSEC

Figure 10: Porter’s Generic Strategies (Porter, 1985)

Bowman’s Strategic Clock (1997) is another way to analyse strategic options. It looks at perceived added value by the customer against price. Based on this framework SEC’s strategy can be argued to be primarily ‘Hybrid’. This refers to a strategy which is low cost to the consumer but still differentiated. However, it could also be argued that there is an element of differentiation with and without a price premium depending on which markets and products are being referred to. As was discussed in the previous framework the strategy could also be described as focused differentiation where a price premium is charged within a niche. Therefore, based on this model SEC operates various strategic options from Hybrid through to Focused differentiation.

This framework allows for more flexibility than the over-simplistic generic strategies by Porter.

Overall Evaluation of Strategic ChoicesThe advantages of adopting a primarily low cost and differentiated strategy is that SEC can achieve significant margins on their products without necessarily charging premium prices. This is beneficial as customers will recognise the value being given, reinforcing brand loyalty and increasing customer satisfaction. Also, the strategy fits the internal competencies of the business well which is extremely desirable because it means SEC will be effective in implementing it. Further, the consistent focus on differentiation means there is constant innovation in products and within the firm. This means SEC’s products will constantly be adapting to the trends of the external-environment and ultimately the customer. An example of this is SEC’s response to social and environmental consciousness shifts, reflected in their products as well as strategy. Finally, it is a strategy well suited to hypercompetitive environments as differentiation is key; ‘Your responses should be different and better, not cheaper, faster, and the same’ (Boar, 1994).

On the other hand, whilst pursuing a differentiation strategy SEC needs to remain agile with their new product development processes. Else, they risk attack on several fronts by competitors pursuing Focus Differentiation strategies in different market segments. SEC mitigates this by creating new markets through innovation and charging premiums for some key products. Another problem with a differentiation strategy coupled with a cost leadership strategy is that customers can come to expect the best value. This can squeeze margins especially in financially weak times like the present. Furthermore, the problem in pursuing a cost leadership strategy is that these sources of cost reduction can be replicated by competitors which make it more important to continuously find ways of reducing cost. However, imitations in cost reduction can be minimised through strategic alliances with competitors; creating win-win situations.

Thus, the combined strategies employed by SEC allow it to achieve sustainable growth and sustainable competitive advantages. Having said this, there are still areas for improvement so recommendations will now be given.

Figure 11: Bowman’s Strategic Clock (Competitive and Corporate Strategy)

RecommendationsThree future strategies for continued success for SEC are given below.

Diversify Growth Strategy for Emerging MarketsMost emerging market competitors are imitators and SEC’s current strategy of organic growth and strategic alliances is not very effective because mutual benefit is unlikely to occur. Therefore, SEC should focus on seeking out and acquiring resources in emerging markets. This would be applicable as it would provide immediate market presence and the essential deep local knowledge to effectively compete. Mergers are not recommended as they too are unlikely to provide sufficient benefit to SEC who through acquisitions could fully own their own operations. This diversification in growth strategy would allow SEC to expand their global presence as well as employ a greater diversity of people, ultimately moving SEC towards their corporate vision of ‘Leading the Digital Convergence Revolution’.

Continue Heavy R&D and InnovationContinued investment in R&D especially in newer technologies such as OLED and nanotechnology will allow SEC to widen the cost leadership and differentiation gap meaning that they can produce more differentiated products at lower costs. SEC should aim to be the first to launch products at a premium price to maximise profits and continue innovating to ensure first-mover advantage is maintained. This will also allow SEC to create new markets and thus employ a more focused differentiation strategy so that price premiums can be charged. This is especially important in the current economic climate where margins are restricted.

Producing and promoting more environmentally friendly products should be made an important part of future innovation and R&D to adapt to changes in social and environmental consciousness of customers. This change however should be driven from SEC being an organisation that is environmentally and socially conscious in the way it conducts business so that the brand itself reflects customer preferences. It is also recommended that SEC innovate internally and further invest in cutting edge IT resources to streamline processes and effectiveness. This will allow SEC to further reduce costs and increase competitive advantage.

Enhance Brand LoyaltyRetaining customers for longer by enhancing customer loyalty schemes will help increase switching costs and therefore reduce the costs of customer acquisition and reduce the complications of hypercompetitive environments. This should include both domestic and business to business buyers. SEC should also continue to highlight the quality and unique selling points of products in marketing campaigns to ensure consumers feel products are value for money even at a premium costs.

Appendix

Porter’s 5 Forces

Overall Level

Analysis Individual Level

Threat of New

Entrants

Low threat of new

entrants

Economies of scale is a clear barrier to entry especially as SEC has proven production, research and marketing processes based on experience(Png and Lehman, 2004).

Low

Product Differentiation of SEC is large due to strong brand identification making it very difficult for entrants to compete (Samsung Brand, 2008)

Low

Capital Requirements are large for entrants to effectively compete especially due to large R&D expenditure (Samsung R&D Spend, 2005).

Low

Cost Disadvantages Independent of Size are large for entrants due to developed experience curve (learning curve), proprietary technology, access to the best raw materials, assets purchased at pre-inflation prices, government subsidies and favourable locations (Hung, 2006).

Low

Access to Distribution Channels acts as a huge barrier to entry. SEC has strong links with wholesale and retail channels as Samsung’s products popular with consumers (Chiu et al., 2006).

Low

Government Policy in Korea doesn’t play a large role in creating barriers for entry but foreign governments especially in China are encouraging entry into the industry through financial incentives (Thomson and Sigurdson, 2008).

High

Reaction of Existing Competitors also acts as a barrier as SEC has been known to fight fiercely for market share by cutting prices and possess substantial resources (Williams, 2005)

Low

Bargaining Power of Suppliers

Low supplier power

Number of purchasers is large and many competitive suppliers exist (Lee, 2006)

Low

Product Differentiation of raw materials is low and switching costs are low. (Lee, 2006)

Low

Forward Integration is unlikely as many of the purchasers like Samsung are more powerful and operate their own manufacturing factories. Any upward pressure on raw material prices is likely to be absorbed or passed on to customers (Samsung, 2008).

Low

The Industry is an Important Customer of Suppliers which means they will be willing to help in R&D efforts to provide better raw materials and technologies. For example nanotechnology (Lee, 2006)

Med

Bargaining Power of

Customers

Medium customer

power

Number of Customers is large but not concentrated. B2B buyers are more powerful due to bulk purchases. For example Dell (Farmer, 2001).

Med

Product Differentiation in Samsung products is large Low

Table 4: Summary of Porter’s Five Forces applied to LCD electronics industry

so exact alternatives not always available but imitations may provide cheaper alternatives and increase buyer power (Gao et al., 2003).Price Sensitivity is high due to a large number of similar products and the importance of the product to the buyer as a sign of affluence makes them more price sensitive although the perception of quality may mean that some customers are willing to pay a premium. B2B customers earn relatively high profits and are able to influence buyer behaviour due to the popularity of the brand making them less price sensitive and so reducing their power (Gao et al., 2003).

Med

Forward Integration is unlikely to occur so retails and distributers have some power in this respect.

High

Threat of Substitute Products

Medium threat of

substitute products

Fast moving industry with various display technologies leads to pressure being put on lowering pricing and high R&D costs to continually differentiate products ensuring industry profitability and growth (Mathews, 2005). For example, OLED and Nanotechnology.

Med

Competitive Rivalry

within the Industry

High Rivalry

Competitors are numerous and diverse with LG being the closest in size and power. Chinese competitors producing cheaper imitations has also increased rivalry (Mathews, 2005).

High

Low – Industry Growth is very fast so rivalry is €somewhat reduced (Mathews, 2005).

Low

High – Product Differentiation is large but many similar products are offered which don’t really lock in buyers to a particular company (Lee, 2006).

High

High - Switching Costs are low so rivalry is intensified (Lee, 2006).

High

Med – Fixed costs are high leading to an economies of scale effect and increasing rivalry (Hoovers, 2008).

Med

Med – Storage Costs and Capacity is variable and demand seasonal which can lead to price cutting to shift stock, increasing rivalry (Mathews, 2005).

Med

High – Exit Barriers are high with a lot of specialist resources needed to effectively compete (Camposa and Lootty, 2007).

High

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