Report to Samsung Electronics

P6: “Explain the business strategies used by a business operating internationally”

Samsung are a multinational corporation and public limited company (PLC) traded on the London, Luxembourg and Korean Stock exchanges. Worldwide, Samsung Electronics generated turnover over $210bn in 2017, employed over 320,000 people in over 73 countries and made net profits of over $35bn. Samsung have garnered these massive revenues and profits through the international success of many of their product lines, which occupy the global #1 position in terms of market share. Some of these products include mobile phones, televisions, refrigerators, semiconductors and digital memory and storage. These product lines are developed in their 3 major business divisions, Consumer Electronics, IT & Mobile Communications and Device Solutions.

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A strategy can be defined as a way of achieving a main goal, where the available resources are not sufficient. Tactics should be implemented to facilitate strategy and are subordinate to the ultimate goals set out by strategy. Samsung use a number of business tactics successfully internationally to facilitate such dominance in the global markets. Samsung’s strategies internationally are made with considerations made to the goals of diversification, increasing potential markets, economies of scale, cost reduction through comparative advantages, favourable tax laws, favourable legal and regulatory regimes and ultimately, increased profitability.  Samsung use a number of international strategies, but can be seen to focus on their network of global strategic partnerships, a vast array of wholly owned subsidiaries, and a large number of additional, partially owned subsidiaries. Many of these subsidiaries will see the benefits of international vertical integration, though it is largely dependent on the business division, as mentioned above, geographical location and product type.

Businesses can use a variety of different methods to expand internationally, these bear different levels of risk and control. First, there is the strategy of exporting. Here, businesses will sell products to a foreign business, broker or organisation. After selling the products to the broker or alternative body, the business will have little to no control over the marketing of their products. This is due to the relatively small investment that the exporting business has made with their broker, transferring responsibility and potential profitability to the broker, typically due to a lack of resources, knowledge, or capabilities to get to know the market in which products are being sold. This is often the best course of action for firms that have little to no foreign marketing capabilities as the investment and risk taken on by implementing such systems would be disproportionately large. With exporting, there is a risk that the broker or organisation marketing the goods will implement poor policy or decisions that can damage the exporters brand and product perception. Samsung enact exports in many of their divisions, though it is typically not to agents or brokers where they have little or no control. This is due to the vast array of wholly owned subsidiaries that Samsung has internationally, alongside strategic partnerships with phone service providers, as I will touch upon below. In some of their product lines, a more typical relationship as described above will be undertaken, such as the export of OLED screen panels to Apple for use in their iPhone X’s, or use of Samsung’s semiconductors to be sold or exported into western countries such as the UK or US organised directly with manufacturers in foreign countries.

Next, there are Licensure agreements, these agreements allow a foreign firm to manufacture and sell products with the brand name on products. This allows other firms to use your brand name or design patents to make a profit, in a way similarly to franchising, but with less involvement from the original firm. Specifications and details of the methods of sale and manufacturing are typically set out by the original business for quality assurance, to reduce the potential risk of brand damage.

Businesses can also take a more hands-on approach to multinational business, instead of allowing other businesses and organisations to handle their goods in foreign markets through licensing and direct exporting, businesses can make significant commitments and investments into the potential of foreign markets. Samsung enact policies mentioned below, as they are highly committed to the potential gains of involvement in foreign markets. To achieve this level of control and potential gain, there are a number of strategies that can be enacted.

First, businesses may choose to enter into a joint venture, this occurs when two companies form a partnership, one supplying products to be sold and the other extensive local knowledge of their domestic markets and infrastructure that can provide crucial expertise and tactics to facilitate the success of the supplying company. The roles and responsibilities of each company will typically be established in a joint-venture agreement. This allows companies with little foreign knowledge or experience to effectively market their products and navigate foreign environments through the expertise of a partner, this fast-tracks a company’s ability to learn as the knowledge required should be readily available through the partnership, and will designate the responsibilities to their more adept partner to facilitate successful business. This increases both control and risk in foreign markets, as a significant reliance on partners and the health of business relations become vital to success. In 2011, Sony and Samsung had a joint venture in LCD television technology, Sony pulled out of this agreement, with Samsung buying out the stake in the venture for $939 million. This ended up being a significant positive decision for Samsung as they have gone on to dominate the TV market in both market share and quality following innovations into OLED LCD screen technology.

Businesses may also choose to partake in Global Strategic Partnerships, these are significantly larger in scale than joint ventures, as they are a long-term commitment between two firms in both time and monetary investment. These are undertaken to develop products and services that will lead to domination of global markets. In these partnerships, typically products are not adjusted or modified for different markets, but rather a single market strategy for a product will be utilised across all markets in the attempt to achieve global market dominance. This type of strategy can be seen by Samsung, as there is very little variation between models of their flagship phones sold in different countries, with only minor promotional adjustments made between regions for their marketing strategy, and to great success in global market share. In other products, such as tablets, Samsung have entered a strategic partnership with Microsoft, as of 2017. They are working together for the Samsung Galaxy Book, to compete more effectively with the apple iPad product line, allowing for greater effectiveness with Microsoft’s software solutions and marketing power in western countries such as the US. This partnership directly improved the device’s compatibility and connectivity specifications through combining technical knowledge.

Next, Businesses may wish to take on foreign markets through the implementation of whole owned subsidiaries. These occur when a foreign firm takes a controlling interest or all control over the operations of a firm in a foreign country and market. Samsung have a vast array of wholly owned subsidiary firms internationally. Samsung would give these firms considerable levels of freedoms to operate in their domestic market as the expertise and knowledge of the staff hired domestically at the firm should facilitate their decision-making for the company in that market. In the UK, these firms will effectively import goods from Samsung’s other manufacturing subsidiaries and facilities in Vietnam, and make efforts to most effectively market and sell the goods to UK consumers. Additionally, there are R&D facilities, such as the facility in Staines, set up in foreign countries through subsidiaries also. These are implemented to make use of the varied skillsets and knowledge presented by a global workforce, and can take advantage of unique local knowledge and understanding of markets to undertake R&D to better facilitate the exchange process and consumer need within each country specifically. This type of strategy requires a very high level of time and monetary investment, and also takes the full responsibility and risks of foreign markets full on by the company. Going hand-in-hand, this also facilitates the highest potential growth and profitability as the gains are all the companies alone.

Vertically integrated wholly-owned subsidiaries exist in certain markets for Samsung, where the comparative advantages presented by low cost labour and operations are sufficiently strong that it would save a higher proportion of operating income than exporting it from their main manufacturing facilities through an import tariff. This is the case for Samsung domestically in Korea, in China, and in India, so that Samsung can manufacture the products required for these phones domestically, and then pass them on for a low cost, with little logistics required, to their other subsidiaries within these national markets to be marketed and sold to consumers.

Finally, businesses may choose to franchise, similarly to licensure agreements, this diverts operations to a separate owner, however here, franchisees will usually pay a fee up front for the use of brand name and products, and also pay a royalty fee on revenue or profits to the corporate business. This is most commonly seen in the Fast-Food industry, in names such as McDonalds or Domino’s Pizza.

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Samsung extensively use their joint ventures, wholly owned subsidiaries and vertically integrated subsidiaries to manufacture products at a low cost through competitive advantages, in areas where tariffs would hurt profitability, to market and sell their goods effectively worldwide, with many of their product lines at the global #1 spot, to gain access to the variance in knowledge and understanding of local markets and different strains of thinking for their R&D internationally, which they spent over $13bn on in 2017, and to ultimately generate enormous levels of revenue and take significant profits from their business internationally, with revenues exceeding $210bn and profits $38bn.

In conclusion, I believe that it is crucial to a businesses success to understand and implement the correct strategies when undertaking international trade. The strategies mentioned above vary considerably in the levels of time, knowledge and monetary investments required to successfully operate, carry correspondingly different levels of risk and going hand in hand, carry significantly different levels of rewards in growth and profits. Businesses must consider which strategy would suit their business objectives, which their business and product are robust enough to withstand risks of and are capable of undertaking to have success in international trade. These strategies overall are fundamental to the current state of the globalised world economy, and underly the core of our capitalist consumer experience in the UK.

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