Porters Five Forces Analysis of Samsung

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. 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. 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 30% of the global market share for smartphones, and has seen growth in other markets also.

Porters Five Forces Analysis of Samsung

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 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.

Porters Five Forces Analysis of Samsung

Porter’s five forces is a framework for finding out the industry structure, it is built around five competitive forces. It can tell you about the current situation of the Samsung.

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. 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.

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 centered 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.

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