Samsung Electronics has developed from a company that was insignificant on the world stage,

and known for producing cheap, low quality products, to a world leader in electronics. It has
recently become the number one seller of smart phones in the world, exceeding the sales of its
primary competitor, Apple Inc. This report examines the strategic technology and innovation
that is present at Samsung Electronics and considers the way that the organisation has
positioned itself within the industry and the outcomes of this positioning. The discussion
focuses on the smart phone and mobile device component of the organisation, as this has been
a particularly important area of growth within the last decade.

Introduction
Samsung Electronics Co., Ltd. is a worldwide electronics company founded in 1938, with its
headquarters in South Korea. Along with its subsidiaries, Samsung Electronics is responsible
for the production, distribution and sale of a wide range of devices and electronic products
throughout the world (Bloomberg Businessweek, 2012a). The products that Samsung
Electronics produces are developed both for individual consumers as well as for industries, and
the company is also responsible for the development of network systems (Bloomberg
Businessweek, 2012b). In 2009, Samsung Electronics had been in business for 40 years, and
was ranked number one in terms of sales for all global information technology (IT) companies
for the first time. Currently, Samsung Electronics boasts around 20% of the global market share
for smartphones, and has seen growth in other markets also. The company strives to achieve a
sustainable growth, and has achieved double digit growth in 2011 (Samsung, 2012d).

Samsung Electronics is also renowned for its innovation, receiving 30 Innovation Awards at
the Consumer Electronics Show in 2012, which is considered to be the largest consumer
technology tradeshow. The company is focusing on continued growth and hopes to become the
leader in the global IT industry (Samsung, 2012d). Samsung Electronics faces significant
challenges in the present, as well as in the future, including patent litigation from Apple, and a
highly competitive IT market. As such, it is essential the Samsung Electronics develops a
technological position and strategy that effectively makes use of innovation to maintain a
strong position within the market and to navigate challenges that it is faced with.

The purpose of this report is to comprehensively examine the technological position and
technology strategy that is used at Samsung Electronics, maintaining a strong focus on the
innovation of the company. Because of the wide range of different products that are produced
by Samsung Electronics, this report will consider one specific business field that can be
technologically separated from the rest of the products produced by Samsung Electronics. This
field is the mobile communications division. This division consists of mobile phones, including
smart phones, as well as computer tablets and MP3 players often collectively referred as mobile
computing devices.

Technological Position and Strategy

The technology strategy of any organisation is based on two key types of information. These
are external information and internal information. External information is based on the
potential of technologies and what technologies are worthwhile for the business to acquire and
develop. The internal information is focused on the capabilities and resources of the business,
and considers what potential that a business has to acquire and master particular technologies.
This section considers some of the external and internal information that is available on
Samsung Electronics, and examines what this information means for the technological position
and strategy of the organisation.

External Information
Market Share and Approach
Samsung Electronics breaks its mobile communications division into two distinct types of
products; these are mobile phones and smart phones. The company maintains a relatively
consistent market share of mobile phones, moving from a market share of 19.8% in 2009 to
21.2% in 2011. In contrast, Samsung Electronics represented only 3.7% of the smart phone
market share in 2009, but was responsible for 19.9% of the market share by 2011, which is the
top market share out of any company (Samsung, 2012d). This indicates the strong focus that
Samsung Electronics has placed on smart phones as a business direction.

The organisation aimed to develop a business that was vertically integrated, so that the products
were developed from components and product that the organisation created, rather than those
sourced from suppliers. Samsung Electronics’ approach to the market significantly changed in
the 1990s, and the business went through significant organisational reform and internalisation,
which involved the development of research and development (R&D) within the organisation,
as well as developing strategic alliances. This approach was a significant step away from the
initial strategy of the organisation, which was to mimic the products of rival companies. In
doing this, Samsung Electronics was able to differentiate itself from competitors, and begin to
develop products that were innovative in their own right (Kim, 1997).

PESTEL Analysis
Political: Samsung Electronics sells its products throughout the world, and because of this, it
faces many political risks in some of the countries in which it operates. In some countries, such
as Africa and South East Asia the political environment is turbulent and hostile, which makes
it difficult for Samsung Electronics to operate. Likewise, the South Korean political
environment is frequently unstable. In contrast, within India and China, the political
environment is more predictable and conductive to Samsung (Yu, 1998).

Economic: In recent years, the world has been experiencing a global economic crisis, which
has had many impacts on countries, including decreases in job availability and in the amount
of available money that consumers have available to spend. For example, in 2011, consumer
spending in the United States dropped. This was the first time that this had occurred within two
years, and is thought to be related to the economic crisis, the limited number of jobs available,
stagnant wages and a decrease in household confidence (Chandra, 2011). A decrease in
consumer spending can harm companies like Samsung Electronics, as it can lead to a decrease
in sales. Many businesses and consumers are also experiencing increased costs, due to increases
in the cost of fuel. This has resulted in a large number of businesses reducing their forecasts
for profits and sales (Chandra, 2011).

Socio-Cultural: As technology has continued to develop and improve, telecommunication has

become an essential component of business and recreation for people throughout the world.
This has created a society that is highly receptive to advances in technology, and has a high
level of demand for electronics devices and gadgets. In the United States, the proportion of
people that own a smart phone was 16.8% at the end of 2009 and 27% one year later. There
has also been a steady growth in subscribers of data plans (ComScore, 2011). As such, the
socio-cultural environment is strongly aligned with Samsung Electronics’ aims and
technology.

Technological: The use of smart phones and other devices has resulted in the development of
a technological environment that strongly supports the use of these types of mobile devices.
Within the United States and many other countries, for example, there is a well-developed
cellular network infrastructure. This infrastructure is critical for ensuring that data and voice
transfers occur efficiently and that there are not any delays. However, there are limitations to
this infrastructure. The first is that the quality of the infrastructure is not consistent across
regions or countries. For example, in rural areas of the United States, it can be difficult to get
a signal or to transfer data. Likewise, in less developed countries where Samsung Electronics
sells its products, the infrastructure may be much lower, resulting in limited services. A second
limitation is that the infrastructure is subject to environmental influences, so extreme weather,
such as a hurricane or a storm can limit or disable the network.

Environmental: The manufacture of Samsung Electronics’ products, like the products of most
industries, has the potential to significantly impact the environment. Samsung Electronics
places a strong focus on managing its processes so that they have the lost impact on the
environment possible. This includes a significant reduction in the amount of greenhouse gas
emissions that are produced by the company (Samsung, n.d.).This focus allows Samsung
Electronics to improve its performance in this area. This is also a positive aspect in terms of
obtaining consumer support, as many consumers are concerned about the environment and are
more likely to purchase from a company that appears to care for the environment.

Legal: The legal environment for Samsung Electronics has been complex due to varying
viewpoints surrounding the patents used by Samsung Electronics, and one of its main
competitors, Apple Inc. Both Apple and Samsung Electronics develop a range of products,
including smart phones and other electronic devices. Patent litigation has been going on in
many countries throughout the world between these two companies, with Apple claiming that
Samsung Electronics has infringed its patents in the development of their smart phones, and
seeking to have many of Samsung Electronics’ devices blocked from the market (Aljazeera,
2012). This represents a significant challenge for Samsung Electronics, and the outcome of
most of these cases is not yet known.

Porter’s Five Forces

Rivalry among Competitive Firms (High). There is a large amount of rivalry within the current
industry, particularly the large and influential companies, which includes both Apple and
Samsung. Competition between these two companies is particularly intense, because the
products that they develop are similar to one another in appearance and function. The rivalry
has resulted in numerous lawsuits between the two companies, which are discussed later in this
report. Because of the significance of the rivalry between these two firms, as well as other
businesses within the industry, Samsung Electronics must constantly be aware of the strategies
of its competitors, and attempt to increase is brand awareness, loyalty and market share.
Threat of New Entrants (Medium). Samsung Electronics is present in a highly competitive
industry, where companies are competing against one another for not only in terms of the price
of their products, but also their innovation and uniqueness. New entrants into the industry
would need to developing customer knowledge and branding, which could be difficult, because
the current brands are very well known, and there are many established mobile companies.
Companies such as Samsung and Apple produce products that are perceived to be premium
and top of the market, while any new company would have to content with being perceived as
a ‘knock-off’ and low quality. Nevertheless, the history of Samsung Electronics itself shows
that it is possible for a company to move from being perceived in this way to a global leader
(Samsung, 2012d). Consequently, the largest threat for Samsung Electronics in terms of new
entrants into the industry, who have the potential to develop products that are substantially
different than those already offered.

There are many barriers to entry into the industry, including the need to develop a strong
customer base and brand recognition quickly, the fact that many consumers exhibit strong
brand loyalty, the capital requirements involved in entering the industry, government
regulations and retaliation by the companies that currently dominate the industry. Samsung
Electronics needs to be aware of any new businesses that are developing within its industry,
and monitor the strategies any new firms that develop.

The Bargaining Power of Buyers (High). The number of competitors present within the mobile
device industry presents consumers with a large amount of options. While innovation is a
significant aspect for many consumers, price also remains important. It is relatively easy for
consumers to switch from one company to another based on which offers better options and
lower costs. Companies within the industry are all appealing to the same group of consumers,
which gives consumers a significant amount of bargaining power.

One factor that limits the bargaining power of consumers is the types of products that are sold
within the industry. Consumers will not buy a large number of electronic items at one time,
and consequently, each purchasing decision is made based on the options that are available at
the time. Strong brand loyalty means that many consumers may accept higher prices and fewer
services than they could demand otherwise. Samsung Electronics needs to remain aware of the
requirements of the consumer, and the different options that are offered by its rival companies.
This helps the company remain competitive, while being aware of how to take the best
advantage of its market.

The Bargaining Power of Suppliers (Low). Within the mobile industry, there are many
suppliers of components, and consequently, it is easy for companies to switch from one to
another if the prices of the products from one supplier become too high. This lowers the
bargaining power of suppliers, and allows Samsung Electronics not to be driven by the
demands of its suppliers. In addition, unlike most other smart phone developers, Samsung
Electronics also produces memory chips, processors and displays. This creates the unusual
situation where Samsung Electronics acts as a supplier to its largest competitor. However, this
also means that Samsung Electronics is able to supply many components to itself, without
relying on an external supplier and the changes in prices that are associated with this (Lee,
2012).

The Potential Development of Substitute Products (Low). Smart phones have been becoming
increasingly popular as a device, offering consumers many functions, including voice calling,
applications and the ability to play music. The development of substitute products is
detrimental to Samsung Electronics, as it decreases the ability of Samsung Electronics to
control the market, as consumers can switch to another product easily. One of the strongest
factors limiting the development of substitute products is the patent centred nature of the
industry. Many of the cases between Apple and Samsung Electronics have not been decided,
however, if it is ruled that either Apple or Samsung Electronics voided patent law, then this
will make it difficult for any other companies to develop substitute products, and may even
result in injunctions against some of the products produced by Apple or Samsung Electronics.

Substitute products include anything that performs the same functions as Samsung Electronics’
smart phones and devices. This includes tablets, laptops, PDAs and non-smart phones (‘dumb
phones’). However, these are limited in their ability to act as a substitute. Tablets and laptops
are bulky compared to smart phones, and they also lack the traditional functions of a mobile
phone. This means that they cannot be considered a direct substitute. PDAs are also limited, as
this is not an area that is being extensively developed, and most PDAs lack the features of a
smart phone, or a mobile phone. Finally, a dumb phone has the advantage of being inexpensive,
and having the calling capabilities that is present in a smart phone. However, these phones do
not have many of the features that a smart phone has, including almost all of the applications.
As such, these do not act as effective substitute products.

Discussion
Porter’s Five Forces analysis is an effective way of analysing the position of an organisation
within its external environment. This analysis shows that Samsung Electronics is subject to a
large amount of competition from businesses that offer similar products, and that there is also
a significant threat that new companies will enter this competitive environment. This may make
it difficult for Samsung Electronics to continue to develop a competitive lead over other
organisations within the industry. The PESTLE analysis reveals that Samsung Electronics is a
strong organisation that may face some challenges in the legal and political areas. The company
has strongly focused on the development of smart phones and similar products, although it has
also been involved in manufacturing of components, including chips and screens. This gives it
a competitive advantage over Apple, because it does not need to rely on the supply of these
components from a competitor.

Internal Information
Research and Development
Samsung Electronics strongly focuses on the use of R&D in order to ensure the company
retains a competitive advantage in the market. At the end of 2011, the level of investment that
Samsung Electronics placed into R&D was $165 Trillion KRW (~ $18 Billion NZD), which
represented 6.2% of the consolidated sales for that period. This figure represents an increase
from 5.6% in 2009 (Samsung, 2012c).This approach helps Samsung to remain an innovative
company, and to stay on the cutting edge of new technology and products. A second component
of R&D that Samsung Electronics has been focusing on is bringing together all the disparate
components of R&D within Samsung Electronics to within a single area, providing a way to
concentrate the efforts of R&D and prevent redundancy between different components of the
business (Samsung, 2012d).
A final aspect of Samsung Electronics’ strategy for R&D is the development of a
comprehensive R&D staff to aid in the development of new technologies. To achieve this,
Samsung Electronics has focused on the recruitment of new staff members into the R&D
department. As a result of this, the R&D department at Samsung Electronics contained 55,320
staff members in 2011, an increase of more than 10% from 2010. This figure represents 25%
of all employees at the organisation. Samsung Electronics has also focused on the development
of a comprehensive academia-based support program, which aims to align the R&D needs of
the organisation with the development of promising students within academic fields (Samsung,
2012c). While this approach does not immediately increase the R&D of Samsung Electronics,
it does provide the potential for increased R&D and innovation in Samsung Electronics in the
future, as the sponsorship of Samsung Electronics makes it a well-known name among students
expressing skills in the required areas.

Patent Litigation between Samsung Electronics and Apple

Samsung Electronics’ ability to develop and use technology is strongly related to the patents
that it has available. With a wide range of patents, Samsung Electronics has the potential to
effectively develop many different technologies, while limitations in patents hinder their ability
to do this. One significant issue that has restricted the company is Apple, which developed a
range of products prior to Samsung Electronics or at the same time that have many similarities.
The two companies are the most significant competitors within the market for smartphones
mobile computing devices (Aljazeera, 2012). Apple believes that many of Samsung’s devices
have infringed its patents and this has resulted in patient infringement cases around the world.
These cases have concentrated on claims that Samsung had copied the design of Apple’s iPads
and iPhones in the development of Samsung’s smartphones and tablets.

The patents that Apple owns may potentially make it very difficult for Samsung Electronics to
develop new innovative technology and introduce it into the highly competitive mobile phone
and mobile computing market. Observers argue that the patents that Apple has gained are too
general to be reasonable and serve to stifle innovation. For example, one of Apple’s patents
focuses on the design that is used to unlock the screen, while other patents consider design
features, such as the rounded corners that are present on the device itself and on the icons. The
rounded corners feature is one that Samsung Electronics uses in many of its products, and
argues that Apple does not have the patent rights over the general physical design of the iPhone
and iPad, because these are logical designs (Aljazeera, 2012).

While Samsung Electronics is facing problems with patents in some areas, potentially
restricting its ability to develop and sell some types of products, Samsung Electronics does
have a strong patent base of its own. One particularly important patent that Samsung
Electronics holds is for its wireless technology. The presence of these patents has allowed
Samsung Electronics to counterclaim against Apple’s claims, arguing that Apple has infringed
on some of the wireless patents that Samsung Electronics holds (Aljazeera, 2012).

Consequently, in terms of patents, Samsung is restricted in its ability to acquire and master
many technologies, particularly those that are based on the Android operating system that was
initially developed by Google (Aljazeera, 2012). There are currently many litigation cases that
are being presented in courts throughout the world, and it is likely that these cases will continue
to appear as both Apple and Samsung Electronics continue to produce new products.
Furthermore, as the outcomes of these cases are decided, it is possible that some of Samsung’s
products will be banned within the United States. In particular, Apple is attempting to ban 17
different Samsung devices in a case that is currently before the courts (The Telegraph, 2012).
Recently, Apple has further escalated the patent war between the two companies by adding one
new device and an operating system onto the current lawsuit that is going through the courts
(Bryant, 2012).

Patent Capacity
Samsung has recognised the issues that are central to the patent disputes and litigation that is
occurring with Apple and argues that patent disputes are likely to become more common and
fiercer, as the global market for smart devices continues to develop. To address this problem,
Samsung Electronics has reorganised its intellectual property portfolio, developed an active
process of patent application to attempt to maintain a competitive edge, and developed a
dedicated patent team (Samsung, 2012b). The patent application process has focused primarily
on Korea and the United States, and Samsung Electronics had around 100,000 patent
applications at the end of 2011 (Figure 1). This approach helps to protect the company against
litigation, and develops a secure base for the development and utilisation of new technology.

Figure : Number of patent applications made by Samsung Electronics, by country. Retrieved

from Samsung (2012b).

Increasing the number of patents is only one aspect of Samsung Electronics strategy. Another
component that Samsung has been working extensively with is the development of partnerships
to help secure the cross use of patents. These alliances have included Toshiba, Qualcomm,
Microsoft and IBM (Samsung, 2012b). This allows the organisation to acquire the rights to a
wide range of technology, which is an important strategic approach for the organisation.

Samsung Electronics may also benefit from rulings that suggest one of the patents that Apple
has been awarded should not have been given. This has occurred in part because the allocation
of patents for software is often difficult, as innovation occurs in a step-wise manner, with one
invention building on the previous one. Furthermore, the boundaries between different
innovations can often be difficult to determine. In the case of Apple’s patent, a re-examination
by the patent office declared that the patent, which copyrights the ‘bounce’ feature that Apple
devices use, makes use of an innovation that was previously developed, even though the
original innovation was not used for the types of devices that are developed by Apple and
Samsung today (Lohr, 2012a).

Competitive Strategy
Samsung Electronics has been growing in strength as an organisation, from a position where it
was not a significant threat within the market, to its current position today, where it is an
important competitor with Apple, the leader within the smartphone and device market. In 2001,
the company was ranked 42 on the list produced by Interbrand, which ranks global brands
according to their value. By 2003, Samsung was ranked 25th on this scale (Rusch, 2003), and
in 2011, it was ranked 17th (Samsung, 2012d). This increase shows the way in which Samsung
has effectively broken into a highly competitive electronics market.

A considerable challenge that Samsung has faced as an organisation is the way that it is
perceived as a brand. Although the company has been growing within the electronics market,
and recognised as a significant competitor, producing quality products, this has not always been
the case. Previously, Samsung was perceived as producing products that were simply cheap
copies of what was currently available in the market. Samsung products have moved from
being the middle of the range, to premium products that are often some of the most expensive
products that are available. The high level of competition within the global market has meant
that it is no longer effective for organisations to compete with one another on the basis of price
alone. Differentiation has become a critical aspect of developing and maintaining a competitive
advantage, and this is particularly true fields where patents prevent products from being too
similar. The rise in sales in Samsung Electronics’ smart phones is strongly related to brand
development, the presence of strong software and hardware designs, as well as an extensive
network of global distribution (Chansanchai, 2011).

As an organisation, Samsung Electronics is at a considerable disadvantage compared to its

main competitor Apple, as Apple has dominated the market for a long time and has a large
number of patents in place. However, in 2011, Samsung Electronics took the leading market
share in the sales of smart phones, and in 2012, the sales of the Samsung handset Galaxy S3
overtook the sales for Apple’s fourth generation iPhone (Griggs, 2012). While this data
provides an indication that Samsung is gaining a foothold over Apple, the competition between
the two companies remains strong. It is believed that a significant part of the reason why
Samsung has seen increased sales over Apple is that the sales of fourth generation Apple
iPhones had decreased while consumers were waiting for the next generation of the phone to
be released (Chansanchai, 2011).

Technological Position and Strategy

The previous sections show that Samsung Electronics has developed from an organisation that
was perceived to produce inexpensive and low quality products to a high quality producer of
electronic products that competes head-to-head with one of the giants of the industry. Samsung
Electronics’ technological position and strategy has been strongly centred on the development
of smart phones, making use of Android’s operating system and creating a product that is
superficially similar to the products developed by Apple. By making use of strategic alliances
and R&D within the organisation, Samsung Electronics has been able to differentiate itself
from its competitors, and develop a strong patent base, that allows it to continue to innovate
and develop new products. Furthermore, the vertical stratification of the organisation gives it a
competitive advantage in the marketplace, as the organisation does not need to rely on suppliers
as much as other organisations.

Innovation
A significant part of Samsung Electronics’ technology strategy is the use of innovation and the
way that the organisation manages innovation. Samsung is a South Korean company and
although it has now expanded throughout the world, its roots remain in South Korea and the
cultural influences of this region are important for the company’s previous and current
development. Many successful brands that have developed from within this culture, including
Samsung Electronics. One significant cultural philosophy that has influenced companies has
been the philosophy of moving from imitation to innovation (Kim, 1997, pp. 85-90). This
perspective is evident in many of the products that Samsung Electronics has produced,
especially in the similarities that can be seen between many of Samsung Electronics’ smart
phones and the Apple iPhone and iPad devices.
Innovation has been a significant part of Samsung Electronics’ strategy, and aims to offer
consumers a wide range of choice. This approach has been particularly prevalent within the
televisions that are produced by Samsung Electronics, as well as other pieces of technology.
For example, Samsung Electronics has developed Smart TV models, which contain a slot at
the back that enables consumers to remain up-to-date with technology as it improves without
the need to purchase a new television model each time. Another aspect of these televisions is
the use of a web browser on the television, which users are able to control with their hands,
rather than use a physical mouse (Cherrayil, 2012). However, this same level of innovation has
not been observed within the smart phone market, where Samsung Electronics has remained
mostly within the approaches used by other companies, particularly Apple.

Despite a strong focus on innovation, Samsung Electronics does still have organisational
factors that limit the effectiveness of innovation. One issue that the company focuses, is that
the departments involve in the production of products are not often involved in the early stages
of any new product. Furthermore, the products that the company develops are often chosen for
the impact that these will have in the short-term, rather than any long-term outcomes (Kin,
1997).

Recommendations
Currently, Samsung Electronics is recognised as the 17th best brand globally, and the 38th
most admired company, which is a position that Samsung Electronics hopes to change. The
organisation aims to reach electronics sales of $400 billion USD by 2020, a target that is more
than double their current level of sales. In addition, the company also aims to be one of the top
five global brands, and top ten in the most admired companies, also by 2020 (Samsung, 2012d).
Although Samsung Electronics is developing as a strongly competitive electronics firm, that is
competing with businesses such as Apple, the business still has significant progress that it need
to make before it is counted within the top five or top ten brands worldwide.

While it is often considered to be highly innovative, the innovation of Samsung Electronics

remains partially reliant on its previous model of imitation. This can be seen through the way
in which Samsung Electronics’ smart phones are similar in design and function to the products
of Apple. The internal and external analysis shows that the smart phone market is an area of
significant promise that Samsung Electronics has developed a significant foothold into. It is
important that Samsung Electronics continues to pursue its advantage in this area, and also to
find approaches that decrease the reliance on technology that is potentially covered under
Apple’s patents. Consequently, the following recommendations can be made:

Develop a task force examining the similarities and differences between competitors’ products
and products by Samsung Electronics.

Use the information gathered in this process to determine key components of Samsung
Electronics’ products that are s

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