Case Study of Samsung’s Mobile Phone Business
For Samsung Electronics, 2003 was a watershed year. It successfully positioned itself as one of the world’s best mobile phone manufacturers and its products were featured all over the media. Many were calling its mobile phones as “the best gift for Christmas”1 or “the Mercedes of mobile phones.”2 Samsung’s achievements were particularly remarkable considering that its primary focus had previously been in semiconductors and home appliances. Indeed, when it first made the decision to enter the mobile phone business, industry observers viewed the move as foolhardy and reckless. But, much to their surprise, Samsung’s foray into the market turned out to be a great success, contributing significantly to the company’s profit growth and brand reputation.
In 2003, Samsung posted net profits of 6 trillion won ($5 billion) on annual sales of 43.6 trillion won ($37.9 billion). As of April 2004, its market capitalization stood at around 100 trillion won ($87.4 billion). It had also surpassed Sony, which had been a benchmark for Samsung, in terms of revenues and market capitalization. (Exhibit 1) Samsung’s exports currently account for two-thirds (79%) of total sales. In addition, Samsung has built its brand around the world; in 2003, the ‘Samsung’ brand was ranked 25th in the annual BusinessWeek/Interbrand study of the world’s most valuable brands, having grown from $8.31 billion in 2002 to $10.85 billion in 2003. (Exhibit 2)
Few would deny the claim that Samsung has achieved remarkable success in the global market. As such, it could be worthwhile to take a closer look to find out which factors have contributed most to its success. In particular, we should focus our attention on the company’s emerging mobile phone business, which has achieved some of the most outstanding gains of any of Samsung’s business lines. The objective of this study is to gain helpful insights into how a late-comer to an industry can overcome certain disadvantages and successfully position itself as a widely respected and successful brand.
II. Company Background: Samsung Electronics
Samsung Electronics was established in 1969 in order to provide an engine of future growth for the Samsung Group. Though the electronics industry seemed promising in the 1960s, none of the Korean firms had advanced technology. Samsung began by producing low-end black–and-white televisions in a joint venture with Sanyo, a Japanese electronics company. With NEC, another Japanese firm, it produced Braun tubes and kinescope tubes. After three years, it began to produce black-and-white televisions under its own name, “Samsung.” In the 1970s, it began producing other home appliances, including washing machines, refrigerators, color televisions and microwave ovens.
During the 1980s, it expanded its business lines to personal computers (1983), semiconductors, and telecommunication networks and devices (1988). For years, Samsung was regarded as a low-end product manufacturer that made cheaper alternatives to the high-end Japanese products. Its products were not considered to be very reliable, and it did not have a very strong reputation amongst consumers.
By the end of 1992, however, the company emerged as a leading semiconductor manufacturer in the DRAM (Dynamic Random Access Memory) market. It was the first case in Korea that Samsung, a domestic latecomer, successfully caught up incumbents and even became better than them in the world market. Behind their success was the management’s strong drive to develop the semiconductor business into a truly world-class business and the company’s future growth engine.
Samsung’s system of group-wide coordination and governance enabled Samsung to concentrate its resources in the semiconductor business, which required enormous investment. For technology transfer, Samsung relied on technology licensing, established an R&D center in Silicon Valley and invited Japanese...
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