Cost leadership and differentiation strategies in samsungs SBU

I. Introduction.
Samsung Electronics Co., Ltd. is a South Korean multinational electronics company
headquartered in Suwon, South Korea which is the subsidiary of the Samsung Group. Since
2009, Samsung has been the world's largest information technology company. Samsung's
products and services go through 88 countries over the world with around 370,000 employees.
Samsung Electronics displaced Apple Inc. as the world's largest technology company in 2011
and has been a major part of the Economy of South Korea
Samsung has applied Cost Structure strategy in combination with Differentiation
strategy in order to maximize profits. Its products are grouped into some Products lines (PL).
Every product line could be treated as single business units, among of which there are some
strategic business units (SBU). Mobile phones & Tablets and PC/ Laptops are instances of SBU
that Samsung has applied effectively cost leadership and differentiation strategies (Jeff Bordes,
2009).
II. Product Line A: Mobile phones & Tablets
Samsung adopted differentiation strategy in developing Mobile phones & Tablets, and
this is an appropriate one that brings great profits to Samsung. While other mobile makers (e.g.
Apple Inc.) are trying to attract high-class customers in their mobiles market, Samsung focuses
on mid-tier and low-tier market (BBC, 2012; Business Standard, 2013). Samsung mobile &
tablet support various operating systems (such as Google Android, Symbian, Windows Phone,
etc), use the company own SRAM and chips, support free software and tutorial, and customize
products along customers' demands. Christina Bonnington (2013) states that there is a over 280
percent increase of the company’s market share since 2012. At the same year, Samsung became
the World's largest cellphone maker with $95 million sales of smart phones.
Mike W. Peng and Thomson South-Western (2007 – 08) believed that any business
must concern the resources and capabilities. In order to sustain the current strategy, Samsung


should focus on some resources and capabilities (R&C), especially three ones as physical,
technological, and innovation resources and capabilities. First, Samsung must focus more on its
physical R & C, since its main difference is that the company own materials for mobiles and
tablets. Meanwhile, BBC (2012) stated that upgrading factories where produce chips, CPU,

memory and other elements and opening more plants and research & developments centers are
necessary. Second, Technological R & C. Samsung must ensure that its mobile & tablet
technology is unique and avoid violating copyright laws that can harm its image. For instance,
recently, Samsung has announced the first 5G network helps customers going Internet hundred
times (Tomorrow Works, 2013). Third, Innovation R & C. Samsung must keep up with new
innovative ideals that create more unique for its mobile devices. For examples, its new tablet
ATIVQ adopt two operating system at the same time, while current tablets can give printing
order directly (Daily Times, 2013).
III. Product Line B: PC/ Laptop.
While development of Samsung's mobile devices adopt differentiation strategy, its PC/
Laptop product line adopt Cost Leadership strategy. Samsung's Vice President Won ParkCostof told that Samsung had been: “Focused on TV, focused on mobile, but the next ten years
is going to be focused on PC." (stated in Seth Barton, 2012). The cost leadership strategy has
been proved as suitable strategy for Samsung PC/Laptop area. The company's worldwide sales
has increased from 1 million laptops to 10 million laptops between 2005-2010. Main customers
of this line is medium-end people (students, workers, etc.), schools, and offices (Brian
Westover, 2011). These are clients with medium "pocket" who want products with best quality
with appropriate price. According to Youkyung Lee (2012), Samsung's PC/Laptop market
share was 10% in 2012 (compared to 7% in 2011 and only 5% in 2010). Moreover, Samsung
has relocated it's design and manufacturing factories in countries with lower producing costs
like Taiwan or China combined with using its owned raw materials.


Cost leadership has brought Samsung huge success in PC/ Laptop area (samsung.com,
2011), but the company still need to focus on some R & C to sustain the strategy. Samsung is
suggested to focus on technological, Human Resource, and reputation R & C. With
technological R & C, Samsung must give strong attention on its products' secrets, copyrights,
especially patents (Seth Barton, 2012). Second R & C is Human Resource. In order to maintain
current strategy, Samsung should have appropriate ways to find a human resource with high
quality (Tarun Khanna et. al., 2011) but still maintain low cost. Those employees' best
characteristics are trustworthy, talented, and knowledgeable. Final R & C is Reputation. Since

this product line of Samsung is still young, while other PC/Laptop sellers are well-known,
Samsung must have plans leverage its reputation by providing good products/services, working
with communities, and managing structure.
IV. GE matrix Analysis.

9-cell GE matrix or GE Business Screen gives business chances to evaluate its product
lines/SBU in order to find suitable future project for each PL/SBU


After analyze the figures (See Figure 1 & Figure 2 on Figures and References), a
suggestion for future movement of the company has been made. Apparently, the company’s
mobile phones & tablets industry attractiveness (3.68) and competitive strength (3.19) are very
high, which means this is the leader-type product in the GE matrix. It also shows that this will
be a high market share PL in current worldwide market. Samsung must invest more on this
PL. On the other hand, Samsung’s PC/ Laptop is not very successful PL. While its industry
attractiveness is quite high (2.2.5) the competitive strength is low (only 1.41). Therefore, it is
suggested that Samsung should harvest this PL. However, Laptop and PC market is an
attractive area in the market, so Samsung can consider selling them once the company has a
more specific and careful plan.

V. Figures and References
5.1. Figures


Figure 1: Mobile phones & Tablets
- Industry Attractiveness

Industry Attractiveness Significant degree Attractiveness
(Weight) (1)
(rating) (2)

Total score (1x2)

Market size

0.25

4

1

Market growth rate

0.12

3

0.36

Market profitability

0.2

5

1

Competitive intensity

0.18

4

0.72

Tech development

0.05

3

0.15

Pricing trends

0.15

2

0.3

Demand variability

0.05

3

0.15

Total

1

- Competitive Strength
Competitive Strength

Significant
degree
(Weight) (1)

Strength (rating) Total score (1x2)
(2)

Market share

0.2

4

0.8

and 0.07

2

0.14

brand/Marketing 0.13

4

0.52

Strength
of
competences
Relative
strenght

assets

Quality

0.2

3

0.6

Customer loyalty

0.07

4

0.28

Relative profit margins

0.03

3

0.09

Production capability

0.14

2

0.28

Access to financial & other 0.06
investment resources

3

0.18

Management strenght

0.1

3

0.3

Total

1

Figure 2: PC/ Laptop


- Industry Attractiveness
Industry Attractiveness Significant degree
(Weight) (1)

Attractiveness
(rating) (2)

Total score (1x2)

Market size

0.2

2

0.4

Market growth rate

0.12

3

0.36

Market profitability

0.2

2

0.4

Competitive intensity

0.23

3

0.69

Tech development

0.05

2

0.1

Pricing trends

0.15

1

0.15

Demand variability

0.05

2

0.1

Total

1

- Competitive strenght
Competitive Strength

Significant
Strength
degree
(rating) (2)
(Weight)
(1)

Total
(1x2)

Market share

0.1

1

0.1

Strength of assets and competences

0.1

2

0.2

Relative brand/ Marketing strength

0.16

1

0.16

Quality

0.2

1

0.2

Customer loyalty

0.04

2

0.08

Relative profit margins

0.05

2

0.1

Production capability

0.19

1

0.19

Access to financial & other investment 0.06
resources

3

0.18

Management strength

0.1

2

0.2

Total

1

5.2 References

score


1. BBC ( 2012). Samsung Galaxy Note tablet launched mid-patent trial. Online source:
/>2. BBC (2012). Samsung upgrades Texas mobile device chip factory. Online source:
/>3.

Brian Westover (2011). New Samsung Laptops Target Offices, Classrooms

4. Business Standard (2013). Samsung unveils Galaxy S4 mini phone to target mid-tier market
2013.

Online

source:

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unveils-galaxy-s4-mini-phone-to-target-mid-tier-market-113053000357_1.html
5. Christina Bonnington (2013). Samsung's scattershot product strategy explained. Online
source: />6. Daily Times (2013). Innovation in mobile printing by Samsung. Online source:
/>7. Mike W. Peng and Thomson South-Western (2007 – 08). Global Business. Chapter 4:
Leveraging Resources and Capabilities
8. samsung.com ( 2011) Samsung Electronics annual report.
9.

Seth Barton ( 2012). Samsung aims to be no.1 in laptops - we talk to the top men in Seoul.
Online Source: />
10. Tarun Khanna et. al. ( 2011). The Globe: The Paradox of Samsung’s Rise. Harvard
Business

Review.

Online

Source:

/>
samsungs-rise/ar/1
11. Tommorow Works ( 2013). Samsung Announces World’s First 5G mmWave Mobile
Technology
12. Youkyung Lee (2012). Samsung sees 10 percent growth in PC sales. Yahoo Finance.