Samsung China Mmgmt Report

MARKETING MANAGEMENT 2009 A

Samsung China The Introduction of Colour TV Submitted to: Mr Khalid Hussain 10/6/2009

Arsalan Vohra 82003

Submitted by: Hammad Rashid Razia Pukhraj 91017 91022

Samiya Illias 91007

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Contents Introduction................................................................................................................................. 4 Samsung and its competitors in the Colour TV Industry................................................................... 5 Market Segments...................................................................................................................... 5 High-end............................................................................................................................... 5 Medium-end......................................................................................................................... 5 Low-end ............................................................................................................................... 5 Analysis.................................................................................................................................... 5 SWOT Analysis – Samsung China ................................................................................................... 6 Weakness................................................................................................................................. 6 Strengths.................................................................................................................................. 6 Opportunities ........................................................................................................................... 6 Threats..................................................................................................................................... 7 The Marketing Mix ....................................................................................................................... 8 Marketing Strategy ..................................................................................................................... 11 Target Market......................................................................................................................... 11 Market Penetration ................................................................................................................ 12 Positioning ............................................................................................................................. 13 Conclusion ................................................................................................................................. 14

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Introduction Any multinational that ignores marketing to a quarter of mankind is putting its future in jeopardy.1 Therefore, the interest of MNCs2 in TE3 markets is easy to understand, because of the attractiveness of these new markets.4 Likewise, without fully understanding China's market structure and its consumers, a foreign marketer is risking its long-term viability in the market.5 Based on data compiled by Richard Ivey School of Business, we have attempted to analyse Samsung’s entry into the Colour TV industry in China vis-à-vis specific conditions of the Chinese market. A SWOT analysis, the four Ps of Marketing, strategy development from a marketing perspective and a brief outlook of the existing competition are included in this report.

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Xu 1990 Multi-National Corporations 3 Transitional Economies 4 http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp12.pdf 5 Consumer behavior in Asia: issues and marketing practice By Tsang-sing Chan Pg 71 2

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Samsung and its competitors in the Colour TV Industry Market Segments High-end: Japanese firms, Sony and Matsushita, with excellent brand recognition had a combined market share of 75% in the high-end market segment. Sharp, Sanyo, Mitsubishi, Toshiba, JVC and Hitachi had also established significant market share.

Medium-end: Served partly by MNCs and partly by local firms. Low-end: More than 20 indigenous firms focused on the low-end market.

Analysis Japanese firms had a strong presence in China, both in market-share and production-capacity. They were concentrating on the high-end TV market, and selling mostly in urban areas where the demand for their products existed. In the medium to low-end side, local firms were quite active and capable of competing with foreign firms in producing small and medium-sized TV sets. This presented Samsung with a dilemma. The Japanese had a definite first-mover advantage in the high-end market, whereas Chinese companies were quite capable of price wars in the low and medium-end markets. (In fact, post 1995 data shows that at one time, TVs were actually being sold by weight!6) To create a niche for itself in the existing market, Samsung must re-consider its core competency and select the market which would best respond to its products. As its area of expertise 7 is semiconductors, and as its business strength lies in hardware8 development, it should consider which market it can be most competitive in. Furthermore, keeping true to its simple business philosophy: “to devote our talent and technology to creating superior products and services that contribute to a better global society”9, it must evaluate which market-segment would be willing to purchase its superior products and services.

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http://www.apmforum.com/columns/china16.htm Samsung.com 8 http://www.businessweek.com/magazine/content/03_24/b3837001_mz001.htm 9 http://www.samsung.com/baltic/aboutsamsung/corporateprofile/valuesphilosophy.html 7

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SWOT Analysis – Samsung China Weakness 1. Samsung – Korea was not sold to Mr. Chung’s idea 2. Changing the mindset existing in Samsung Head office – Seoul (i.e. Chinese peasants, Tiananmen Sq) 3. Samsung’s investment in building up production capacities – making it difficult to move away from the idea of high-end TV sets. 4. Late movers’ disadvantage would always play heavily in the decision-makers mind.

Strengths 1. 2. 3. 4. 5. 6. 7. 8. 9.

Prior US experience, of tapping a well-poised market. Grew to be one of the top 12 companies in the US by Market share 3% Have set-up a production subsidiary in the US Ranked 221st in the fortune global 500. Largest consumer electronics firm in native South Korea In US recorded a total of $21 billion sales in 1995. Net income grew from 3.2 billion $9 (almost 15%) 6 Fully functional Overseas Production Bases. Seoul -China fully functional diplomatic relationships.

Opportunities 1. 2. 3. 4. 5.

Changes have been introduced to allow streamlining of the workforce – in china Supply side; production capacity is 18 million units. Demand side; second largest after US. Industry was quite heterogeneous Chinese market was strategically important. As a hub, you can cater to a host of other markets. 6. Chinese firms were less competitive due to low technology, insufficient capital base and lack of promotion. 7. Medium and large size TV set market was growing fast, although curre ntly the 80/20 rule is

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8. 9. 10. 11. 12. 13. 14. 15. 16.

applicable. Approximately 300 million households in the Chinese market: Currently only 41% is tapped. Overall market expansion 10% - which is fairly good. China's market size 1 ½ times as large as Japans'. 60 million Chinese have a per capita income 1000$ +, which would grow to 200 million by year 2000 Chinese market is expanding both in low-end and high-end segments alike. Inherently the Chinese are loyal customers Chinese govt. set to lower the tariff 36% Import tariff to be lowered at 15% China plans entry into the WTO

Threats 1. There existed sever gaps between stated plans of the Chinese govt. v/s their actual delivering capacity. 2. Smuggling and Piracy: rampant 3. Internal Govt. competition (Competition between one regional / Provincial govt with another. e.g using or utilizing foreign joint venture to affect “Regional Blockades” 4. Social Profitability taking strong precedence over economic profitability. 5. A general perception of over employment, with a compulsory week of only 5 days. 6. Sony and Matsushita (Panasonic) had excellent brand recognition from high-end consumers 75% combined market share. 7. Japanese firms intended to expand their production base (in China) from 19 to 30. 8. China had 20 indigenous firms focused on low-end market segment. 9. Late mover are at a relative disadvantage in China (due to customer loyalty factor) 10. China, highly protected market, very high current tariff structure. 11. Product differentiation through brand name recognition (Should also be treated as an Opportunity) 12. Economies of scale and learning curve effect – A common perception about the Chinese market would make it difficulty for any other business plan to work. 13. Korea's own high cost of labour – eliminating any option of long term import into the Chinese market. 14. Position of a low cost supplier in China would be increasingly endangered, since there are plans of local Chinese companies coming into the play. 15. Korean govt. had cut back on subsidies and export credit. 16. Performance of low-end product in US for Samsung has been poor 17. Increased competition in the home market as well as the global market.

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The Marketing Mix Marketing is about projecting the right product at the right price in the right way to the right customers. This is how value is added. Bringing a product to a market involves balancing several key ingredients, i.e. the 4Ps of the Marketing Mix: Product, Price, Promotion and Place. Samsung China has been evaluated below in the light of these 4Ps: A product must deliver value to customers in the target market by meeting customer requirements. Samsung China had carried out detailed market research and understood the needs of its market. Samsung China had to identify what features the product would need to have to meet its customers’ needs. However, before investing in developing a Color TV, it needed to check whether such a product already existed. By searching the patent database, a business can verify that its idea is entirely new. A patent gives protection from copying or imitation by competitors. Price needs to be competitive and offer customers value for money. Samsung China needs to make positive returns on its investment, so if a competitor took Samsung China technology to develop a similar product, it could price it much lower because it would not need to recover research costs. In effect taking out a patent gives a company time to reap the benefits of its research in the market place. Samsung China used its specialist knowledge of the market and personal links with key customer to promote its product. The final P is the marketing mix is placement, a responsibility of the marketing channel. This is the process that enables customers to buy and receive the product this can be use of wholesalers and retailers. Product  High degree of competition among government at both the central and local levels. This was due to a scarcity problem as well as an incomplete planning system. Provincial governments tended to vie with one another to protect their already scarce resources, while government authorities in certain localities created various obstacles to block such competition. It was only after high levels of intervention from Beijing that the distribution channel would open. Therefore MNEs targeting both the domestic market

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

   

and the export market set up production bases in at least two places: typically one in the south and the other in the north. After that, the Chinese government judged that its current TV production capacity was sufficient to fulfill the demand in both domestic and export markets. China was a market where the first mover enjoyed advantages over late comers. Consumers had a tendency to be loyal to a first mover’s product. This meant first image of a product lasted long in the eyes of the consumer and the first to enter the market could gain the largest market shares In 1994 China had 300 millions households. The percentage of households with a color TV set was just 41%. Strategy to increase sales in china they were said to have to plan increase production bases from 19 to 30 Samsung China has high levels of knowledge in electronics. Samsung China (Color TV) Analyzer was the first product of its type in a growing market. The product differentiation through brand name recognition posed another barrier against firms relying on low prices for their unknown branded product

Price  Pricing depends on the market. There are many different pricing strategies that a business can apply. Setting a relatively low price can attract customers, but reduce the profit margin. The approach is called market penetration.  Samsung initiated a complete review of its strategies for China up to that date. Abandoning its original, somewhat passive approach to enter the Chinese market, it espoused a proactive policy aimed at moving ahead of the competition. It also switched to a sales strategy that viewed China as a market for launching and selling a high value – added product.  These moves were based on the realization that although it is possible to make shortterm profit on low to medium price product in China this approach offers little in the longer term.  Samsung decided to end its strategy of mass producing to sell a medium priced product. China Strategy and any sense of complacency or superiority about the market must be

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avoided at all cost.

Promotion & Place  The most innovative product in the world will still fail if potential customers do not understand the value it brings to them. The most effective method of promoting sales will depend on the types of product and the target market.  The TV set industry had made significant up-front investments not only in advertising but also in after sales service facilities and dealer networks to support the brand image and to move from the low-end to the high end market segment.

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Marketing Strategy Marketing strategy is a process that can allow an organization to concentrate its limited resources on the greatest opportunities to increase sales and achieve a sustainable competitive advantage. A marketing strategy should be centered on the key concept that customer satisfaction is the main goal. A marketing strategy combines product development, promotion, distribution, pricing, relationship management and other elements; identifies the firm's marketing goals, and explains how they will be achieved, ideally within a stated timeframe. Marketing strategy determines the choice of target market segments, positioning, marketing mix, and allocation of resources

SAMSUNG’S MARKETING STRATEGY

Target Market Samsung should target both the high-end market segment as well as low-end market segment because in both areas there are opportunities. The two international brands Sony and Matsushita have 75% share of the high-end market segment in China. Samsung is an international brand so it can enter easily in both the high-end and low-end marketing segment because of its experience and capability to invest in the market.

Market Share 0%

20%

40%

Sony & Matsushita

Others

60%

80%

75%

25%

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To enter in high-end market segment Samsung has to build a competitive advantage over others, which it can by its better technology, plethora of features, or low prices as compared to Sony and Matsushita. Samsung has to increase its marketing budget because Sony has invested heavily in its marketing. There is a high opportunity in low-end marketing segment for Samsung as well. There are many local producers in market but they have only expertise in TV set 19” or smaller.

Market Penetration

In 1994, China had 300 million households. The percentage of households with a colour TV set was just 41 per cent. It was estimated that about 80 per cent of 80 million urban households owned Colour TV sets, whereas only 28 per cent of 220 million rural household owned Colour TV Sets, so there was a big opportunity in that area. Samsung should target very carefully in the rural area, as these areas mostly prefer (or perhaps they can afford) only small TV sets (19” or smaller) and only local producers are facilitating them so if Samsung entered in that area it would get a big market share due to its brand name. Ergo, keeping an initially a low profit margin, they can capture a huge market share as local producers cannot inject high capital, and so achieve a competitive advantage over local producers.

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Positioning Samsung should also focus on their brand image while entering China’s market and should focus on the culture and trends of society and the growing economy of China. Advertising should be in such a way that it attracts the customer because the Chinese are loyal to their specific brands. Hence, some short term marketing should be launched as well. The Chinese sense of pride should be tapped into to make them feel proud to buy a Samsung product.

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Conclusion

1995: Samsung has a great future in Chinese markets if it can find the right mix, and create a niche for itself in that market. Based on its experience in the global market place, the China-specific market conditions, and Samsung’s research on the Chinese Colour TV market, we feel it will be able to pull it off. As such, our recommendation is to concentrate on the medium to high-end markets, keeping in mind Samsung’s core competence and its business philosophy. The rural market, although largely untapped, is not a feasible sector as Samsung would have to compromise on either profit margins, or product quality. Quoting Business Week 2003, Jul 16 titled The Samsung Way: “No wonder Samsung exited the lowmargin market for TV sets 27" and under”.

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MARKETING MANAGEMENT 2009 A

Samsung China The Introduction of Colour TV Submitted to: Mr Khalid Hussain 10/6/2009

Appendix A Samsung US experience and lessons to be learnt for China

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Appendix A Samsung US experience and lessons to be learnt for China Samsung Electronics Co has been active in the US market since 1979. Also, by 1995, it had six production bases in different countries, and four more were under-construction. As such, it has a lot of international business experience that it can use to compare the Chinese market and the strategies and policies it must adopt to succeed here. US

China

Market Entry Low End

_home-country low-labour cost advantage _Large demand base for lowend _fewer competing firms _Samsung could compete better with low-end producers than with Japanese firms

_Chinese labour cheaper than Korean _ Large market potential, especially in rural China _ Many indigenous firms already in low to medium end _ Samsung brand could compete effectively with local TV manufacturers than with Japanese brands

Market Entry High End

_Japanese firms changing focus to high-end; low-end market open for other companies

_ Japanese firms dominating the market: First-mover advantage

_Popular sizes: 13” and 19” selected for low-end

_Rural market demand 19” and 21”. (36% demand for 21”) _TTSEC of China already manufacturing 14” sets for exports _16 existing operations in China _Largest consumer electronics firm of Korea; 221st in Fortune Global 500

Economies of Scale Experience Curve

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Buyer Brand Name

_To create large volume sales _Short-term policy _Marketing and physical distribution by foreign buyers, especially large retailers and OEMs _Stable volume business with differentiated product Long term objective _Grew to become one of the top 12 companies in US market _3% market share

_Samsung’s China operations would give it the insider image in China because it showed Samsung’s commitment to the Chinese market _Investment of $4bn more in 2000

Legal issues and other threats and opportunities

_Anti-dumping suit filed by US companies _Shifted production from US to Mexico to take advantage of NAFTA

_Comparatively high tariff to discourage foreign products in local markets _ Foreign companies encouraged to focus on exports _Tariffs expected to be lowered with China’s entry in WTO

Profit margin

Low operating profit margin due to low-end products

Highly competitive Chinese firms would lower the already low profit margins in the low-end segment

Samsung Brand

Total Sales

1994: $14.6billion 1995: $21billion

Net Income

1994: $1.2billion 1995: $3.2billion

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