TECH: SAMSUNG: WILL IT STAY ON TOP?

SAMSUNG: WILL IT STAY ON TOP? Is this perch a wobbly one?

From an OEM to a technology brand, Samsung’s journey to global fame and fortune has been a terrific case study in recent years. But could it be its own worst enemy?

The word Samsung means ‘three stars’ – or a business that will be huge and eternal. It looks quite apt today when you consider how the company has grown from strength to strength and is credibly challenging the biggies like Sony and Apple in their own spaces.It’s the 17th most valuable brand of today as per Interbrand, larger than even American Express, Nike and Pepsi. A Samsung top official declared in 2005 that the company’s intent was to be valued like a BMW. That approach seems to have worked wonders for its transition from an OEM to one of the hottest technology brands in the world of today.

Samsung Electronics recently made news when it overtook Apple in smartphone shipments for the third quarter as per IDC data. With shipments of 23.6 million, it has a major lead in the market with a share of 20% as compared to Apple (14.5%) and Nokia (14.2%). But in a technology world where heroes are built and vanquished in fairly short spans of time, and market advantages come and go fairly quickly, can Samsung prove true to the ‘eternal’ aspect of its vision?

When you compare Samsung to LG in a market like India, the difference looks glaringly huge, more so because Samsung has placed its bets right. Samsung India has beaten LGEIL to become a bigger player in the Rs.1.1 trillion consumer electronics (as per retail advisory firm Technopak) and mobile handsets market, thanks to its booming mobile handset business. Considering that the Rs.750 billion mobile handset market is more than twice the size of all consumer electronics and appliances put together (roughly Rs.350 billion), it doesn’t look like LG can browbeat Samsung anytime soon. Samsung has strategically brought in innovative and timely mobility products (especially since Galaxy was launched) where replacement cycles are faster, typically a year, compared to a segment like refrigerators or TVs, where it can be anywhere from 5-10 years. Almost 50% of Samsung’s revenues are coming from the mobility segment, which is also the fastest growing. It’s already the largest tablet and smartphone maker in India, and aims to achieve 40% of the market by the end of 2011. It achieved net sales of Rs.116.63 billion and net profit of Rs.4.02 billion for the year ended March 2010, against LG India’s Rs.106.91 billion in net sales and Rs.3.47 billion in net profit, as per data with Registrar of Companies (RoC). Samsung’s sales projection for 2011 shows a revenue of Rs.224 billion, a growth of 40% yoy. By 2013, Samsung India hopes to touch around Rs.460 billion and become a $10 billion company by 2014.

Whether Samsung will be able to sustain its leadership in India will also depend on how it sustains its leadership in the smartphone and tablet spaces globally. Though Apple is its biggest competitor, Samsung also shares a symbiotic relation with the former. Since Apple doesn’t make the iPhone itself, it depends on various suppliers, and Samsung provides some of iPhone’s most important components: the flash memory for apps, music and operating software; the working memory or DRAM and the applications processor, which account for 26% of the component cost of an iPhone. Samsung thrives on this business model; acting as a supplier of components for others gives it the scale to produce its own products cheaply. But if the Nokia-Microsoft combine can make a mark (considering the stakes for both, they are expected to be extremely aggressive with product launches) and if Apple starts getting more aggressive in third world markets, Samsung may find its leadership tougher to sustain. The threat will also be significant as the Apple-Samsung war intensifies in the IP arena. Samsung was recently stopped from selling the Galaxy Tab 10.1 in Australia. The two are in the midst of around two dozen patent wars in 10 countries.

Going beyond, Samsung has prepared “Vision 2020” to become not an Apple but probably more a GE – a technology player affecting every sphere of life. It plans to invest a whopping $20 billion in five fresh fields: solar panels, energy-saving LED lighting, medical devices, biotech drugs and batteries for electric cars. These have two crucial things in common. They will grow rapidly thanks to new environmental rules and exploding demand in emerging markets. By 2020, the group predicts that it will have around $50 billion in sales from these areas to add to Samsung Electronics’ projected global sales of $400 billion. Katyayan Gupta, analyst and connectivity lead, Asia Pacific & Emerging Markets at Forrester Research, says, “Culturally, Samsung has matured as a company. So in percentage terms it might go down, but expect it to continue to be a front leader in the technology space.”

However, the possible threats for Samsung can be linked to it’s very penchant for going wide rather than deep. That may lead to the company losing its ability to successfully synergise businesses across categories (a problem that afflicts companies like Sony currently, see related story in this issue) and also keep bringing out successful products. For instance, who do you know drives a Samsung car? Moreover, Samsung has had great leaders in Chull and Lee so far, but who can guarantee the same in future? The current boss Lee Kun-Hee is already 68, and has initiated his 42-year-old son into the leadership role. Due to the complex family holding structure, it will be difficult for shareholders to oust a bad leader, unlike in the case of a GE or even a Nokia. Hence, Samsung will do well to shed off its Chaebol style of management, and get some management reforms going, even though it has done exceptionally well by bringing in a diverse mix of Western and Eastern (read Japanese mainly) management practices. If the rapid expansion strategies make the company relatively unmanageable, its remarkable advantages can erode very fast.


By Onkar Pandey (In Business & Economy, Nov. 2011)