Chinese Business

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Case Study 1- Samsung China ¡®The Introduction of color TV¡¯

EXECUTIVE SUMMARY

This is a case study report on Samsung China ¡®The introduction of color TV¡¯. The main focus of this report analyzes the information provided by Samsung¡¯s official website and the printed text provided by the unit coordinator; Professor David Zhang. This report will first identify the primary and secondary problems, followed by a PEST analysis which will consist of the 4 aspects of political, environmental, social and technological issues. Based on the findings from the PEST analysis, this report will recommend some appropriate solutions and alternatives.

The problems faced by Samsung China in this particular case study are not considered serious as Samsung has established itself as a reputable organization both locally and internationally. The political environment may seem to be uncontrollable but will significantly improve after China gains full membership with the WTO and China welcoming FDI. The rest of the PEST analysis such as economical, social and technological components is all favorable for Samsung to change its multiple business units¡¯ strategies to a single focused business strategy. However, the only crucial factor will be the time duration and the possible resistance for the changes to take place.

A few assumptions have been made

1) There are no major human resource related issues and problems

) SCH marketing director, Mr Hyun Young-Koo is a capable marketing director and is deemed to be the best suited person for restructuring Samsung¡¯s business system in China.

) Resistance from Samsung¡¯s business units are kept minimal.

4) While Samsung is advancing with its proposal in China, there are no major changes or counter reaction from its competitors.

PRIMARY PROBLEMS

1) Too many separate business strategies adopted by too many Samsung¡¯s individual business units (lack of focus).

) The China market can be very complex for Samsung as a foreign investor.

) Unclear market segment and product line.

4) Ever increasing competitiveness from competitors.

SECONDARY PROBLEMS

1) Resistance from Soul-based people in Samsung Electronics to produce high-end products, preferring to do business in China through higher volume than higher priced.

) Strong Japanese competitors.

) Disadvantage of selling Samsung television more cheaply to off-set the Japanese high brand image.

4) Tendency to follow USA¡¯s operation footsteps (which may not be appropriate for some China market situations).

PEST ANALYSIS

Political

The China market is indeed a very unique one. Although China has introduced many market-driven economic reforms, it is primarily a centrally planned socialist economy. There is a high degree of competition among the government at both the central and local levels. This could be due to the fact for the lack of a better organized planning system, there is still a huge gap between the stated plans and the actual ability of the Government to manage and control the economy. There is also another unique concept of emphasizing Social Profitability over Economic Profitability adopted by the Chinese Government, which is often the ¡®basis¡¯ for consideration for majority of their projects.

There have been too many examples from other industries that China still has many gaps between the stated plans and the actual ability to manage and control the economy. As such, many legal laws still have some flaws and contracts are often not legally bounded. China is infamously known to be governed by its people instead of its laws and regulations. However, such a political environment has changes dramatically over the years.

Samsung¡¯s active move into the Chinese market started only after Beijing and Seoul established diplomatic relations in 1. With its recent membership into WTO in December 000- China economy is more receptive and participative towards foreign investments and its activities. However, this may be a double edged sword as this will benefit Samsung but also at the same time face more competition from other competitors.

Economical

According to McKinsey, 60 million Chinese had per capital purchasing power exceeding US 1,000, an income level above which Chinese could start buying color televisions. By the year 000, this number of household will increase to 00 million (0-40 cities). However, this proportion is not evenly spread as some cities will be enjoying more material benefits than some. In 1, the biggest differences are cities of Shanghai and Tianjin, it is unclear if the disparity will be narrowed in the near future.

The possible reasons for the influx of money and increase in their spending power may be due to the unreported income, booming black market in labor, goods, services and foreign exchange. Another possible reason may be due to the Government¡¯s aid in housing subsidies, less money is spent on housing/utilities and more can be portioned to home appliances/equipments.

In 14, 41% of its 00 million households own color televisions. 0 of the 00 million households belong to the rural regions while 80 million belongs to the urban cities. More rural sales is suggested towards the low 8 percent (television owners) while there is a increasing need for more sophisticated television for the 80 percent rural dwellers who already owned colored televisions.

Social

Culture is part and parcel of the Chinese society and they mainly practice the Confucian culture and are collectivism-oriented and emphasize a lot on social harmony. Chinese people place great importance on personal relationship and trust. Therefore for foreign companies such as Samsung, it is very important for them to build long-term mutual trust relationship with their Chinese counterparts.

Although there is an abundance of workers ready for Samsung¡¯s employment, there is a tendency that the Chinese workforce is not as productive as expected. According to the data provided many foreign companies who enter into a joint venture with socialists firms had found themselves in the position of having to inherit a large number of workers and stuff, of which perhaps only 50 percent were needed to complete the required work.

Technological

The Mechatronics Center is the backbone of the technology component of Samsung Corporation. The center is in charge of providing the core components technology and equipment in the manufacturing of the LCD for the televisions.

This is supported by

Robot Application

Inspection System

Next Generation Factory Design

SMT (Surface mount technology)

Precision Optical Lens

Intelligent Robot

There are too many technological advantages in Samsung television, just to name a few that clearly have a competitive advantage over its nearest competitor.

Lifelike Picture Quality- Samsung has perfected its own unique picture technology, DNIe¢â. What distinguishes DNIe¢â is that it uses its own algorithm to analyze any kind of input signal (HD, SD, RF or DVD) and convert it to an optimal output signal tailored to any kind of display device (Flat CRT TV, Projection TV, Plasma TV, LCD TV), guaranteeing a lifelike picture every time.

Clearer and Brighter- At 400 cd/m, DLP¢â outshines other micro-display technologies for a bright, clear picture, with incredible contrast and color accuracy. Its unique optical engine preserves the intensity of the original image with vibrant colors and rich, deep blacks. Its high, 10001 contrast ratio makes for ideal color separation and crisp, detailed images.

On Screen Graphic Menus- Unlike their competitors, all Samsung TVs have the convenience of on-screen-graphic menus while our refined picture quality also provides clearer text information and graphic images for interactive digital broadcasting. Designed with the viewer in mind, Samsungs on-screen-graphic menu takes a step further with its sophisticated graphic interface, that overlays the pictures with easy-to-use, drop-down menus.

SOLUTIONS/ALTERNATIVES

To boost the image of Samsung and aim to achieve greater brand differentiation

Currently Samsung is enjoying great success in its mobile phone product line£¬semi-conductors, home appliances (especially its PAD refrigerators), TFT LDC modules, CCTV and recently launched laptop product range. It is of paramount importance that Samsung makes full use of this opportunity to use this platform to enhance its image of Samsung¡¯s television branding in China.

Increase current advertising budget

Based on the US market data, Samsung is 4th on the list in its advertising expenses among other major electronics firms. However, the difference in expenditure from the 1st company (Sony) is almost 1. times. Samsung¡¯s value for money and its high quality products deserve more advertising budget because positive word of mouth advertising is very limited in its effectiveness. Media advertising through commercial, internet, radio and print is very crucial for informing its existing/potential customer through its Reach and Frequency capability.

Concentrate on the high-end color television using the Samsung brand

In order to achieve an image of a high-end/high-quality brand, Samsung China should be focused in achieving this objective by concentrating on the high-end color television so as to propel and position Samsung as a premium product producer. In, fact, Samsung should aim to close the gap with Sony in terms of consumer¡¯s brand and quality perception.

Niche marketing and production

Since the 18¡±, 0¡± and 1¡± televisions are the best selling sizes; Samsung should strive to concentrate more on these particular product ranges. The production department should concentrating more in improving it economies of scale and its learning curve, so as to have a better edge over its competitors.

Dominate the mid-end color television by seeking joint-ventures with using existing and established China Brands

Only established brands from the top three among the consumer¡¯s favorite should be considered for Joint Venture such as with Changhong, XiongMao and Konka (these three companies already control 5% of the local market). Samsung can either buy more shares or co-produce the television set by borrowing the local manufacturer¡¯s goodwill brand name by earning more based on volume selling (lower end products) and at the same time protecting Samsung¡¯s own high profile brand image.

Ensure highest product quality

Due to the intense competition from aggressive foreign and the domestic competitors, Samsung must strive to become the leading global company by always placing quality as their number 1 priority. The best way to gain their customer¡¯s trust and loyalty is to provide the best value for their money. Currently, Samsung is doing very well in its 7¡± television (nd position) but need more improvement in the 0¡± category (6th position).

Anticipate future consumer taste and preference trend

Another possible trend shift may be towards the 5¡± television as the case study had indicated that this is the 4th most popular size preferences. If consumers are now having more purchasing power, it is very likely that bigger televisions will be affordable and preferred. The shift will come from the 6% of 1¡± television buyers towards the now existing 11% of 5¡± television buyers. In addition, Samsung may continue to enjoy positive experience curve and economies of scale, thus making prices of their 5¡± television more competitive. Another possible significant shift may be buyers from the 18¡± television consumers heading toward the bigger television sets since the China market is now enjoying more economic growth and increased awareness of high technological high premium product brands.

Take the first step for the ¡®First Mover¡¯ Advantage

Since the China market has a history of their first mover enjoying advantages over late comers and tend to be loyal to a first mover¡¯s product, Samsung must make strong efforts in its marketing strategy for their future products. One very good example will be a ¡®soft launch¡¯ of Samsung¡¯s ¡®future¡¯ PLASMA, PROJECTOR and FLAT screened television in the bigger cities of China. This is not for sales purpose but more of an exhibit or showcase portfolio.

Although these products are very expensive and is most unlikely unaffordable, it is still a viable idea to expose to the China market of the latest and best technology made available by Samsung outside the China market- this helps to create a deeper impression in the eyes for the future television market in China. When the market is ready for such premium products, Samsung may be the first one to be associated with it.

More research on the China consumer market

Based on Exhibit 7, Samsung¡¯s pricing of their products are ranging between lower and mid ranged. Does this reflect on the perception of Samsung¡¯s product as a premium product? There are many researches that concluded that Chinese people often closely associate high premium brands with high prices. If Samsung wants to increase its profile as a better brand or close the perception gap with Sony, there is a need to adjust its pricing strategy.

Increase the Company¡¯s Economies of Scale

Economies of scale can be achieved by increasing productivity- if existing workforce or resources can produce more with lesser time required, profit will increase and enjoy higher leverage. The other option would to transfer the production of television from the more capital intensive factories (such as its SEMUK in UK) and the least productive plant SETAS in Turkey into China; however it must be cost effective and justifiable in terms of the overall business objectives. Currently, total volume of 6 million color television productions has only 44% being produced oversea, there is still room for expansion into China region.

Comprehensive and regular training programs

In order to survive doing business in a highly technological demanding industry, it is very important that the employees in Samsung are constantly up-grading themselves. The organization must provide the resources and opportunities to motivate their workers, mainly in their skills and management (human resource) component. Old management employees must constantly be motivated to upgrade and reinforce their concept of ¡®moving¡¯ along and ahead of the times. The old thinking of the formidable Japanese brands must be overcome and welcome all its challenges.

Efficient and Effective Work Team

Samsung should always hire the best team of committed employees to lead the development of next-generation technologies and strengthen patent portfolio by securing fundamental technologies to solidify our position as a global leader in IT industry. For Samsung Electronics, continued innovation in technology development is the key to demonstrating our global technology leadership

Good infrastructure of after sales service and support

China has a wide customer base in many different locations, in order to maintain strong customer loyalty and the handle any potential customer post purchase dissonance. Samsung must have a good infrastructure of an informative website dedicated to answer/advice any queries regarding any Samsung products. More importantly the management must plan and strategically located Samsung service centers all over China to meet their ever increasing consumer demand.

Continue to show support for China

Samsung should always strive to establish good working relationship and ¡®guan xi¡¯ with their China counterparts by increasing their investment and social contribution budget in China. Such commitment from Samsung will enhance the working relationship with the authorities and show great sincerity in looking at China¡¯s welfare in terms of knowledge transfer, employment and the overall well being of China¡¯s economy.

THE END

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