An Analysis of Samsung

Galaxy Smartphones
Strategic Position
ST3S03 Business Strategy
Dan Taylor
09/02/2014

Contents
1

Introduction .................................................................................................................................... 2

Identifying Samsungs Strategic Position ........................................................................................ 2

2.1

Porters Generic Strategies ..................................................................................................... 2

2.2

Bowmans Strategy Clock ........................................................................................................ 3

2.3

Strategic Group Mapping ........................................................................................................ 4

The Effects of the Key External Drivers of Change on Samsung ..................................................... 6

3.1

PESTLE ..................................................................................................................................... 6

3.2

Porters Five Forces ................................................................................................................. 9

3.2.1

Threat of Entry ................................................................................................................ 9

3.2.2

Substitutes ...................................................................................................................... 9

3.2.3

Buyer Power .................................................................................................................. 10

3.2.4

Supplier Power .............................................................................................................. 10

3.2.5

Competition .................................................................................................................. 10

Added value to Samsungs Strategic Position ............................................................................... 11

4.1 Resource and Competence Audit ............................................................................................... 11
4.2 The Value Chain .......................................................................................................................... 12

Conclusion ..................................................................................................................................... 14

References .................................................................................................................................... 15

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1 Introduction
The term Smartphone was first introduced by IBM in 1992, the Simon was classed as a
smartphone because it had new features such as a calendar, clock, the ability to send
electronic message and faxes (Entrepreneur, 2009). Samsung, the South Korean
multinational, was founded in 1938 but only entered the electronics industry in the late 1960s
(Samsung, 2014a). Samsung introduced their first Galaxy Smartphone in 2009 plus upgraded
phones, both high and low end, since then. All Samsung Galaxy Smartphones have used the
Android operating system developed by Google (Samsung, 2014b).
This report will use seven strategy models to analyse Samsung Galaxy Smartphones
strategic position and the sustainability of that position. This will be done using Porters
Generic Strategies, Bowmans strategy clock and strategic group mapping to identify
Samsungs position in comparison with their competition. PESTLE and Porters Five Forces
analysis will assess the external environment of the Smartphone industry and finally, a
resource audit and the value chain analysis will evaluate Samsungs resources and
competences in comparison with their competitors and how they add value with those
resources.

2 Identifying Samsungs Strategic Position

2.1 Porters Generic Strategies
Porter (1980) suggests that an organisation can only compete in one of three areas. These are
cost leadership, differentiation and focus. There are several models of the Samsung Galaxy
Smartphone therefore making it difficult to place the Galaxy Smartphone business unit into
one category. Samsung have developed a range of lower end Smartphones to cater to all
markets, especially the emerging markets (Portada, 2013). These products are not advertised
as lower quality products, just different models. There are also Galaxy Smartphones which
have been differentiated through the availability of different colours for several of the phones.
Although competitors give the choice of black or white, Samsung has created phones that are
available in orange, purple and red (GSM Arena, 2013). These phones, however, do not have
a premium price which is usually associated with differentiation. Samsung currently
manufacture the Smartphone with the largest screen (Daily Mail, 2013). Competitors charge a
higher price for their large screen phones but Samsungs high end Smartphones all come with
large screens as standard and the new developments are rumoured to have larger, curved or
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double screens (Johnson, 2014) as well new technology never seen in Smartphones before
such as eye scanning security (Curtis, 2014). These are all areas where Samsung are able to
differentiate. Two areas that an organisation can focus on are cost focus and differentiation
focus (Thompson and Martin, 2005). Samsung do not use cost focus as a strategy, however,
they have used differentiation focus in developing a Smartphone which combines a mobile
phone with a tablet. Although this product comes at a high price and only caters for a niche
market. Differentiation seems to be Samsungs preferred strategy for a variety of reasons
discussed throughout.

2.2 Bowmans Strategy Clock

5

PERCIEVED ADDED VALUE

8
1
PRICE

Samsung Galaxy: Differentiation

Apple iPhone: Focused Differentiation
Nokia Lumia: Hybrid
Blackberry Q: Low Price
HTC One: Hybrid/Differentiation

The analysis of Samsung Galaxy Smartphones using Porters Generic Strategies can be
transferred onto Bowmans strategy clock (Faulkner and Bowman, 1995), with other
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Smartphone brands to identify which competitors are using similar strategies in their attempt
to gain competitive advantage. The strategy clock clearly shows that no Smartphone is using
the no frills technique. The best-selling Smartphones all require extra in terms of innovation
to meet customer demand within the market today (Capone, 2013). Most competitors use a
similar strategy to Samsung Galaxy Smartphones.

2.3 Strategic Group Mapping

Group mapping is used to analyse an industry, comparing characteristics and techniques to
highlight key competitors. Group mapping can use a variety of criteria to analyse an industry
(Johnson, Scholes and Whittington, 2008).

Research & Development Expenditure

($Billion)

Figure 1:
10.5

Samsung
Apple
Nokia
Blackberry
HTC
Lenovo-Motorola

50
Global Market Share (%)

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Figure 2:

Cost of Highest Spec Model (GBP)

750

Samsung
Apple
Nokia
Blackberry
HTC
Lenovo-Motorola

7000
Number of US Patents

Figure 3:
40

Samsung

Operating Income ($bn)

Apple
Nokia
Blackberry
HTC
Lenovo-Motorola
-10

50
Global Market Share (%)

Figure 1 identifies the relationship between research and development expenditure and
percentage of the global market share in the Smartphone industry. It shows that Samsung is
spending the most on research and development (Hartung, 2012) and has the highest market
share (Kovach, 2013). There is no organisation that would be considered a direct competitor

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to Samsung in these areas, however Apple and Nokia both have relatively high research and
development expenditure with the potential to increase their market share.
Figure 2 indicates that Nokia is a key competitor as both are priced at a similar level and both
hold a comparable number of patents (Chetan Sharma, 2011). There does not seem to be a
correlation between patents held and the pricing of the handset.
Figure 3 relates to both previous graphs showing Samsungs high market share along with
their operating income derived from their Smartphone which is the second highest priced
Smartphone on the market (Samsung, 2014c). Although Samsung has the highest market
share their lower price may have affected the profit margin in comparison to Apple, the
highest priced Smartphone on the market which achieved a higher operating income but
lower market share than Samsung. There is a cluster of Smartphones at the lower end of the
global market share and a number of these are making a loss. Nokia, who are investing
heavily in research and development, have the biggest loss (Hughes, 2013) combined with
lower marker share therefore making them less of a direct competitor for Samsung.
Porters Generic Strategies, Bowmans strategy clock and strategic mapping have all placed
Samsung in a highly competitive position and conclude their Smartphones are one of the best
performing in terms of sales, perceived value and strategy. Samsung Galaxy Smartphones
main strategy is differentiation, the preferred strategy for the majority of Samsungs
competitors, to appeal to the dynamic markets demand. From the analysis conducted Apple
appears to be their strongest competitor.

3 The Effects of the Key External Drivers of Change on Samsung

3.1 PESTLE

PESTLE Analysis of Samsung Galaxy Smartphones

Political

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Foreign Trade: Samsung is a multinational organisation and the

majority of its Smartphone trade happens outside the domestic
country, South Korea (Yarow, 2013). The US contributes
considerably to the Smartphone market and after Samsung was
found guilty of infringing two of Apples patents, resulting in the
US International Trade Commission ordering a ban on some
Galaxy Smartphones being imported (Kendall and Clark, 2013)
Samsung had to alter their design to avoid further infringement and
their ability to trade within the US. Samsungs competitors have

Economical

Socio-Cultural

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faced similar problems, for example HTC having a ban in place in

the UK (Curtis, 2013) and Apple facing potential bans in Russia
and South Korea (RT, 2013; Kerr, 2013).
Employment Laws: Rules regarding employment differ from
country to country which can cause difficulties for multinational
organisations between domestic laws and adapting the host
countrys laws (Taft, 2013). Samsung was recently taken to court as
they were breaking employment laws in Brazil (Grainger, 2013)
where they are being sued for a large amount of money and also
damaging to their reputation. Samsung have a policy for Labour
and Human Rights which, in this case, contradicts the standards set
out in the policy (Samsung, 2014d). Samsung have had to revisit
their policies and ensure that all parts of the business abide by them
to regain their reputation. Competitors have faced similar issues
regarding employment laws and Apple has faced lawsuits alleging
discrimination against race and sex (Rogers, 2012).
Government Stability: South Korean Government is considered to
be the most stable within the emerging markets (Arirang News,
2013). South Korea has seen growth in all industries, especially
technology and Samsung has grown alongside it. Samsung has
maintained the majority of its operations in South Korea whose
economy has started to rely heavily on Samsung, especially with
recent sales success (The Economist, 2011). The USA Government
does not rely on Apples Smartphone sales in the same way that
South Korea does. Other Smartphone manufacturers are not relied
on in their domestic countries because their sales are not as high as
Samsung or Apples (Kovach, 2013).
Inflation: Technology is now included when calculating inflation
rates. Tablets such as the Samsung Galaxy Note have been added to
the basket of goods and services to calculate inflation (Warman,
2012). This supports the notion that todays society is becoming
more reliant on technology and there is a huge demand for the same
technology to be available worldwide.
Taxation: Corporation tax differs from country to country. South
Koreas corporation tax is 24% whereas the US is 40%. (KPMG,
2013). Samsungs decision to remain in South Korea could have
been down to the lower taxation rate however, several Samsung
executives and chairman were forced to step down because of
several tax evasion scandals (McNeill and Kirk, 2013). This
damages the organisations reputation and has been widely
criticised in the media for not helping the local community as part
of their Corporate Social Responsibility. Both Apple and Nokia
have been accused of trying to evade tax in different parts of the
world (RT, 2013).
Consumerism: In todays media culture there is always the desire
for better and newer products to be introduced to the market but at a
low price (Capone, 2013). Organisations are constantly trying to
lower their prices or cut costs which may reduce product quality or
profit margins. The ability to search online for a different product,
especially in the Smartphone industry, means that competition is

Technological

Legal

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extremely high. Organisations must find methods to either cut costs

or add value to their products.
Social Networking: This has given everyone the opportunity to
produce, consume and share media on a global scale (Bruns, 2008).
Social media can be used in marketing techniques as a message can
be shared instantly to the masses but conversely the rapid spread
of a negative message can be detrimental to the organisation. Since
the popularity of social media has grown Smartphones have to be
well integrated with social media sites or allow applications
(Apps) to be downloaded to satisfy the needs of the social media
age (Tye, 2010).
Migration: With the ability to travel worldwide, consumers expect
to get the same products at the same quality around the world.
Linked to the concept of consumerism, migration is the want for the
same products or services to be available around the globe.
Samsung have made their phone available in 155 countries around
the world which means Smartphone providers are competing on a
global scale. Samsung was also one of the first organisations to take
Smartphones to China and since then several others have moved
into the emerging markets, most worryingly Apple and their recent
deal with China Mobile (Curtis, 2014).
Internet: This has dramatically changed the way that not only
businesses but the general public communicate with one another.
Emails, video conferencing and online finance management allows
organisations to communicate globally (Tharp and Jeong, 2001).
Multinational organisations can minimise their travel budgets as
worldwide meetings can be conducted using video conferencing.
Internet access has become a key feature of every Smartphone.
Innovation: It is highly expected in todays Smartphone industry
that the organisation concentrates on research and development to
create innovative products (Kim and Park, 2010). Samsung
currently have the highest research and development expenditure
which has successfully created the technology for the Samsung
Galaxy Smartwatch ahead of the competition (Kelion and Lee,
2013).
Patents: Several Smartphone organisations have patents on their
intellectual property, components within the phone and designs
(Masnick, 2012). Samsung currently hold just over 6000 patents in
the US in comparison to Apple, with just over 600 US patents.
Within the Smartphone industry, there are several lawsuits being
filed between organisations regarding patent infringement (Thier,
2012). Smartphone providers must take care when developing new
products to avoid patent infringement.
Legal Battles: Legal procedures have extremely high costs,
especially for those who lose that battle. Samsung are currently in
several battles with a number of other Smartphone providers where
they have been accused of patent infringement or have accused
competitors (BBC, 2013). All competitors are in a similar position
putting all at risk of high legal costs.

Environmental

Corporate Social Responsibility (CSR): CSR is a huge

phenomenon requiring organisations to go beyond the expected
regulation minimum (Johnson, Scholes and Whittington, 2008) in
sustainability, recycling, renewable energy or charity work. Many
organisations have recognised that CSR enhances brand image and
Samsung has partnered with International Youth Foundation to
provide financial support and Samsungs technology to address the
issue of unemployment amongst young people in Africa (IT News,
2008). Competitors such as Apple and Nokia also undergo
programs relating to CSR.

3.2 Porters Five Forces

Porter (2008) developed the five forces enabling organisations to assess the attractiveness of
an industry by analysing the external environment separated into five categories (Johnson,
Scholes and Whittington, 2008).
3.2.1

Threat of Entry

The threat of new entrants into the market is dependent on the barriers to break into the
market (Wright, Kroll and Parnell, 1996). For Samsung Galaxy Smartphones high barriers
deter new competitors from joining the already competitive industry where extensive
experience is required. The top Smartphone providers have been developing their products
for years and it would be difficult for a new organisation to enter the industry successfully
without that same experience (Johnson, Scholes and Whittington, 2008). The start-up capital
required is also extremely high as machines would be needed to produce the same quality of
product that the existing organisations do (Wright, Kroll and Parnell, 1996). The ability to
achieve economies of scale is important to compete in the Smartphone industry and, as
discussed in the PESTLE analysis, there are legal issues such as avoiding patent
infringements and technology legislations which new entrants would have to consider and
fund. Finally, existing organisations would retaliate to protect their business through price or
marketing wars (Johnson, Scholes and Whittington, 2008), but more likely in the Smartphone
industry, deals with mobile networks to prevent new Smartphones from being sold by certain
carriers because current Smartphone providers have power in the industry.
3.2.2

Substitutes

Johnson, Scholes and Whittington (2008) state that substitutes are similar products or
services based on different processes. A Smartphone could be substituted by a computer or a
laptop, new products such as the Smartwatch or tablets (Wolf, 2013; Tofel, 2012). With
Page | 9

technological innovation driving the electronics industry there are more substitutes being
developed. These products are all similar to a Smartphone and can provide the same level of
communication and entertainment that a Smartphone offers but each at a different price and
level of performance (Campbell, Edgar and Stonehouse, 2011). There is also the option of
going without and using landline telephones, a conventional mobile phone or using the postal
service. These do not have the same access to applications but they allow users to
communicate at a much lower cost but have lower performance levels.
3.2.3

Buyer Power

A few large buyers in the industry means that those buyers have a lot of power (Thompson
and Martin, 2005). For Samsung Galaxy Smartphones this is not the case as there are millions
of small buyers spread across the world. It is very unlikely that if one buyer chooses to buy
from a competitor that Samsung would be greatly affected. Whilst there are no large buyers
that would make considerable difference to Smartphones sales the low switching costs means
that buyers can change brand easily which can be both good and bad for Samsung with
customers moving to or from competition (Campbell, Edgar and Stonehouse, 2011). Despite
there being a number of Smartphone providers only the ones available globally are perceived
highly.
3.2.4

Supplier Power

Similar to buyer power, suppliers will have a lot of power if there are few of them (Wright,
Kroll and Parnell, 1996). Although Samsung does not have many suppliers they are
considered to be a powerful buyer as several of their suppliers do not supply to anyone else.
Samsung have also undertaken vertical integration so they are in full control of the
manufacture of their own components (Keun and Xiyou, 2009). Suppliers may feel at risk
because Samsung have both strong buyer power and in house manufacturing capabilities so
suppliers may look for other buyers for security. However, due to high demand for their
handset Samsung are looking for additional suppliers from other Smartphone producers
(Page, 2013).
3.2.5

Competition

The Smartphone industry is very competitive (Karlgaard, 2013) and Samsung currently hold
the majority market share of Smartphone sales worldwide (Hughes, 2013). The industry is
continuously growing and extremely dynamic which causes high and changing competition.
Although they have slight differences, most Smartphones are based on similar foundations
(Campbell, Edgar and Stonehouse, 2011) and consumerism has led to buyers constantly
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wanting the latest and new products which combined with the ease and low cost of swapping
brands means customers regularly change their Smartphone handsets.
Samsung Galaxy Smartphones has been affected by several external factors. Consumerism
and travel are important in terms of competing, developing the newest models and making
them available worldwide. The ability to do this has made Samsung and others such as Apple
and Nokia powerful organisations in the industry. Networks want to have access to their
phones because individual buyers want to own a product that is recognisable worldwide and
perceived as a high value Smartphone. Social media, internet and innovation are expected
from Smartphones and the multinational organisations have the capital to provide that
whereas smaller or new organisations may not have the capital or technology to compete
effectively.
Legal issues have also played a key role as Samsung has been accused of several patent
infringements as well as accusing others. When developing their products, Samsung must
take care to avoid any further patent infringement cases as they come at high costs. For new
organisations entering an industry dominated by cash rich competitors, protected by patents
and not afraid of legal battles is not appealing.

4 Added value to Samsungs Strategic Position

4.1 Resource and Competence Audit
A resource and competence audit is used to investigate the sufficiency, adequacy and
availability of resources and competences (Campbell, Edgar and Stonehouse, 2011). There
are necessary resources and threshold competences that Samsung would need in order to
function in the Smartphone industry but it is the unique resources and core competences that
enables competitive advantage (Agha, Alrubaiee and Jamhour, 2012).
Same as competitors/easy to imitate
Resources

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Samsung owns buildings across

the world.
In the 4th quarter of 2012,
Samsungs revenue was $52.45
billion (Hildenbrand, 2013).
Total employee count was 15,451.
This includes staff in all areas
such as retail, admin, sales,
marketing
and
development

Better than competitors/difficult to

imitate
Samsung have opened a number
of their own stores throughout
Europe (Curtis, 2014).
They are currently building brand
new facilities for research and
development (Epstein, 2013).
Samsung have the resources to
make their own components to
eliminate additional costs and be

(Samsung, 2014d).

Competences

Knowledge of the Smartphone

industry.
Access to basic research and
development facilities as well as
staff with innovative minds.

in control of the total quality and

manufacturing process of their
Smartphones.
Developers all have experience in
Smartphone technology and a
great deal of knowledge (Olson,
2013).
The alliance with Google has
allowed Samsung to use the
Android operating system and
share patents (Williams, 2014).
The perceived value of Samsung
Galaxy Smartphones is good
quality and high standard phones
(BrandIndex, 2013).

Samsung have several areas within their resources and competences that would be considered
better than their competitors. Intangible resources are difficult for competitors to imitate such
as the experience and knowledge of Samsung employees, Samsungs alliance with Google
and their brand image which is a combination of marketing and consumer perceptions. Some
competitors would find it difficult to compete with Samsungs tangible resources such as the
ability to purchase stores and new facilities.

4.2 The Value Chain

The value chain analysis is used to identify the key activities within the organisation and
where value is added to the product and brand or where costs are cut (Campbell, Edgar and
Stonehouse, 2011).
Procurement

Technology
Development

HRM

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Samsung have a small collection of suppliers as well as undertaking

some production of components themselves (Keun and Xiyou,
2009).
There is high demand for the Galaxy Smartphone and Samsung are
looking for extra suppliers to help keep up with the demand (Page,
2013).
Brand new research and development facilities (Epstein, 2013).
The ability to be the highest research and development spender in
the Smartphone industry (Hartung, 2012).
New products released with more advanced technology than
competitorss have available eg. The Galaxy Smartwatch (Kelion and
Lee, 2013).
New and younger management team (Ihlwan, 2009).
Training available for staff at all levels (Samsung, 2014e).
Motivational methods and intrinsic incentives such as recognition
are used as well as monetary rewards.

Infrastructure

Inbound
Logistics
Samsung does not
rely
on
its
suppliers
for
every component
which means they
have cut costs of
inbound supply
(Keun and Xiyou,
2009). There is
high demand for
the
Galaxy
Smartphones
which has led to
Samsung looking
for more suppliers
to
meet
production levels
required.

A new organisational structure reflecting Samsungs refocusing

(Samsung, 2013).
Some vertical integration within Samsung (Keun and Xiyou, 2009).
Operations
Majority of the
production
process
takes
place within South
Korea, Samsungs
home
country.
Some phones are
assembled
in
Vietnam or India,
by hand, where
wage rates are low
to keep direct
costs
at
a
minimum
(Hodges, 2013). A
younger team has
been brought into
Samsung
and
more money is
being spent on
innovation
to
maintain
their
competitive
advantage.

Outbound
Logistics
Most phones are
shipped
from
South Korea to
155
countries
around the world.
Some are sent
directly
to
network stores or
to
Samsungs
own stores for
distribution.

Marketing &
Sales
Samsung Galaxy
Smartphones are
available in third
party
stores
worldwide.
Internet
advertising
enables marketing
campaigns
to
reach millions of
customers
and
potential
customers at low
cost.

Service
Updates of the
operating system
are
made
available to all
Galaxy
Smartphone
users. After sale
advice
and
services
are
available on the
Samsung website
as well as in a
variety of stores
around the world
(Samsung, 2013).
All Samsung staff
are trained to
provide the same
level of service.

Samsung Galaxy Smartphone has several strong support activities that work alongside their
primary activities. Vertical integration is a key area of Samsungs logistics and operations as
it offers the greatest potential for cost cutting and the majority of their Smartphone
production takes place within South Korea. Other multinational Smartphone providers such
as Apple have also taken on vertical integration recognising the potential to cut costs.
Technology development and innovation is an important part of Samsung Galaxy
Smartphones operations as it is vital to produce new and upgraded models in order to
compete in the Smartphone market. The after sales services provided are well managed and
customers perceive this to be valuable to their experience when purchasing and owning a
Samsung Galaxy Smartphone.

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5 Conclusion
Samsung has adopted more than one strategy in order to compete in the Smartphone market.
Differentiation is very important to Samsung Galaxy Smartphones because they want to set
themselves apart from the competition. Samsung have spent a large amount of money on
research and development (Hartung, 2012), which has been successful as Samsung hold the
majority market share for Smartphone sales (Kovach, 2013). Samsung is in a strong position
in the market because of its perceived value and therefore sales.
The external environment of the Smartphone industry is extremely dynamic which has
therefore lead to Samsung needing to spend money on research and development in order to
compete in an environment that is constantly expecting new and improved products (Capone,
2013). Samsungs position is strengthen by the availability of capital to concentrate on
creating innovative products and have more power than their suppliers and buyers.
For Samsung to maintain this competitive position they must continue to use their unique
resources and core competences in order to add value or cut costs. Galaxy Smartphones have
competences that competitors would find difficult to imitate which support the primary
activities of the organisation.
The sustainability of Samsungs strong strategic position is dependent on its ability to
develop with the dynamic environment ahead of competitors by using their unique resources
and core competences throughout all primary activities.

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