How was Samsung able to go from copycat brand to product leader?

Samsung: From Gallop to Run

In the world of consumer electronics, copycat brands are a dime a dozen. These are the brands consumers turn to if they don’t want to pay the price for the high-end market leaders. So, if consumers want a top-tier television, they’ll probably look at one from Sony or LG. If they want something cheaper that’s probably not quite as good, they’ll look at brands such as Insignia, Dynex, or Vizio.

But what about Samsung? Believe it or not, Samsung Electronics was a maker of cheap consumer electronic knock-offs from the time it started making calculators and black-and-white TVs in 1969 through the mid-1990s.

Today, however, Samsung is the world’s largest television manufacturer and offers the most cutting-edge models around. Putting the brand in context, Samsung Electronics is part of the world’s largest conglomerate, South Korea’s Samsung Group. Founded in 1938, the huge Samsung Group also owns the world’s second largest shipbuilder, a major global construction company, and the largest life insurance company in Korea. The conglomerate is so big that it accounts for 25 percent of all corporate profits in South Korea, well ahead of the number two Hyundai-Kia Automotive Group at 6.4 percent. Under the direction of Lee Kunhee, CEO and chairman, the third son of founder Lee Byung-Chull, Samsung Electronics has made major strides.

THE NEW MANAGEMENT STRATEGY

In 1993, Lee unveiled what he called “new management,” a top-to-bottom strategy for the entire company. As part of Lee’s new management, he took Samsung Electronics in a very ambitious new direction.

The goal: He wanted Samsung to become a premier brand that would dethrone Sony as the biggest consumer electronics firm in the world. Instead of being a copycat, Samsung was to become a cutting-edge product leader. The company hired a new crop of fresh, young designers who unleashed a torrent of new products—not humdrum, me-too products, but sleek, bold, and beautiful products targeting high-end users. Samsung called them “lifestyle works of art.” Every new product had to pass the “Wow!” test: If it didn’t get a “Wow!” reaction during market testing, it went straight back to the design studio.

As part of Samsung’s revamped strategy and positioning, along with developing stylish and innovative new products, the company altered distribution to match. It abandoned low-end distributors like Walmart and Kmart, choosing to build strong relationships with specialty retailers like Best Buy and Circuit City. “We’re not el cheapo anymore,” said one Samsung designer. In less than two decades, Samsung Electronics has achieved its lofty goals—and much more.

In 2009, the company rang up revenues of $117 billion with profits of $8.3 billion. Compare that to Sony at $77 billion in revenues and a net loss of almost $1 billion. Interbrand crowned Samsung as the world’s fastest growing brand over one five-year period.

Most recently, Samsung hit number 17 on Interbrand’s list of most valuable global brands as Sony fell to number 29. Samsung is now by far the largest consumer electronics company in the world and has been since 2005. It’s the world’s largest TV manufacturer and the second-largest cell phone producer.

Samsung competes strongly in the markets for DVD players, home theaters, digital cameras and camcorders, home appliances, and laser printers. But more than just making finished consumer products, Samsung Electronics is also the world’s largest technology electronic components company. It makes a sizable share of LCD and LED panels, mobile displays, and telecommunications components used in other company’s products. It’s also the world’s largest manufacturer of flash memory.

WORKS OF ART

Samsung has become more than just big. It has also achieved its goal to become a producer of state-of-the-art products. In fact, both Fast Company and BusinessWeek recently placed Samsung high on their lists of most innovative companies. As evidence of its design prowess, Samsung took home eight prizes at the International Design Excellence Awards (IDEA), where entries are judged based on appearance, functionality, and the thinking behind each one. Design darling Apple took home only seven awards. Consider some of this year’s winners. A Samsung “Touch of Color” Blu-ray DVD player featuring a hint of red tone blended naturally into a piano black frame had the judges ogling. Comments indicated that, with color and appearance that changed in different lighting, the DVD player looked like a work of art made of glass. Samsung’s Luxia LED TV series also packed “wow” appeal. With specs that exceed anything on the market, a 55-inch model is a mere one-inch thick and weighs just 49 pounds. Samsung’s Eco-Fit monitors feature a transparent stand that give the appearance of floating in the air.

The Samsung YP-S2 Pebble is part MP3 player, part fashion item. Designed to conjure up images of nature with its pebble shape and stunning colors, it can be worn around the neck and sports five tactile keys that make it simple enough for grandma to use. And the Samsung Kiwi mini notebook PC is a 10-inch laptop that is high-tech, convenient, cute, and familiar all at once. These and the other Samsung winners at last year’s IDEA awards earned Samsung the designation of “a company that’s hitting its design stride.” Samsung is moving many of its product categories forward.

For example, as the cell phone industry moves from “dumbphones” to smartphones, Samsung aims to double its market share of the higher-end market from 5 to 10 percent. With the release of its latest high-tech communication phone, the Galaxy S, Samsung no doubt has a shot.

One industry analyst says, “Samsung may easily meet [its] target as the handset market is sharply transferring to smartphones and the hardware features of the Galaxy S are pretty competitive in the market.” Running on Google’s new Android operating system, the phone features a four-inch screen, an e-book reader, a five-megapixel camera, and a high-definition video recorder and player. But perhaps the best thing going for it is the fact that it will not be tied exclusively to any single carrier, as are many of the top smartphones. More than 100 mobile operators around the world will offer the Galaxy S.

MABULJUNGJE

Lee was recently named the top CEO of the Decade by Fortune Korea. True to that title, he has just recently announced that the “new management” is now old news. After 17 years of remarkable success, Lee admitted that the world’s largest technology firm’s current main products may likely become obsolete within the next 10 years. That forward thinking has him again in reform mode. He has dubbed Samsung’s newest strategy “mabuljungje,” a Chinese axiom that means “horse that does not stop.”

In a memo to Samsung employees, Lee said, “The ‘new management’ doctrine for the past 17 years helped catapult the company into being one of the world’s best electronics makers. Now is not a time to be complacent but a time to run.” As with any truly forward thinking, innovative company, Samsung doesn’t claim to know what will replace today’s products as they become obsolete. Rather, it is investing heavily to ensure that it is the company that develops them.

Samsung recently unveiled a $23 billion investment plan—its biggest to date. That amount is three times the one that Samsung discarded only months earlier. It’s also bigger than the combined investment budgets of Intel, IBM, and Sony. Much of this year’s budget is earmarked for capital expenditures, new equipment, and plants to ensure that Samsung stays ahead of the game. The rest is for R&D.

At a groundbreaking ceremony for a new chip plant outside of Seoul, Lee announced that despite Samsung’s past success, the company risked losing market share if it did not completely overhaul its business model. According to Timothy Baxter, president of Samsung Electronics America, as a major pillar of mabuljungje, Samsung will capitalize on interactivity—as in mobile phones with TVs and TVs with the Internet. Samsung’s future will bring many products that will talk to each other. At a recent expo, Baxter stared at a pair of aces displayed on his Samsung Omnia II mobile phone.

After tapping a few phone buttons, up popped a poker table on a Samsung big screen TV with a pile of cards held by his opponent—a poker buddy in another city. “There’s no reason these phones can’t interact with the TV,” Baxter said, indicating that if he has his way, Texas Hold ‘em is just the first in a series of such synergistic exchanges. But such advances in product interactivity go beyond just presenting consumers with flashy hardware features. They will take Samsung into a competition for consumer eyeballs with companies such as Apple. Samsung knows that it cannot thrive in the long term by merely offering sharper colors or better sound quality. Pricing power comes only from unique features or control over content. Samsung is putting plenty into discovering the unique features. But its investment strategy will also position Samsung as somewhat of a broker between advertisers and the devices that carry the ads.

Although Samsung is now hush-hush about its plans, it has announced its intention to unveil a tablet computer and an app store similar to Apple’s that will give Samsung control over that content. Samsung sees apps as the advertising vehicle of the future. In its favor, Samsung has access to a piece of the puzzle that Apple doesn’t—big screens. Thus, as its small devices interact with its Web-enabled TVs, Samsung could bring in lots of ad dollars from companies eager to pitch their products on screens 25 times the size of an iPhone’s.

If successful, Samsung will pose a threat to not only Apple but also cable companies. That’s because the type of network that Samsung has planned will also make it a data collector, privy to insight about the kinds of applications its TV owners like so that it could help suggest what ads they should receive.

Questions

  1. How was Samsung able to go from copycat brand to product leader?
  2. Is Samsung’s product development process customer centered? Team based? Systematic?
  3. Based on the PLC, what challenges does Samsung face in managing its high-tech products?
  4. Will Samsung likely achieve its goals in markets where it does not dominate, such as smartphones? Why or why not?

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