Samsung China

In the mid-1990s, one of the most significant threats facing Samsung was deterioration in low labor costs as compared to competing Southeast Asian countries. China had entered the competition for manufacturing of color TVs at lower costs. At the same time, the Korean government was discontinuing subsidies and export credits to Korean manufacturers.

The Chinese color TV market was the second largest behind the US and third largest behind NAFTA and the EU with respect to unit sales. With the increase in demand for color TVs in China, Samsung China Headquarters (SCH) has been created (in 1995). At this time, Samsung China currently has too many separate business strategies adopted by individual business units. The president is faced with the challenge of integrating the various business segments into a single corporate entity. He is also confronted with an unclear market segment and product line in the context of increasing competition from local producers in the low- and medium-sized color televisions and Japanese competitors in the high-end markets. Moreover, SCH faces intense competition in the color TV market. A premium-priced brand would not sell in large volumes.

The Color TV Industry – Porter’s Five Forces Analysis

The color TV industry witnessed an intense rivalry among the firms competing in China. The Japanese firms, Sony and Matsushita, dominated the high-end market with a combined market share of 75% in this segment. About 20 indigenous firms focused on the low-end market segment. Due to their low technology, insufficient capital and lack of promotion efforts, the Chinese firms could not compete with the foreign firms in the large screen color TVs. The color TV industry has relatively high barriers to entry due to significant capital investment required to enter the industry as well as high costs to develop the technology to produce high quality products and market them. The overall threat of substitute products is low, because of lack of substitute products with equivalent product features (radios, music players, etc. do not offer all the features that color TVs could provide).

The bargaining power of buyers might be moderate when the technology is first rolled out due to limited choices of products. However, buyers might easily be able to switch from one brand to another if the product is interchangeable, particularly in the small- and medium-sized TV sets. The bargaining power of suppliers is likely to be high when the technology is relatively new. However, as the technology matures, suppliers might be involved in providing increasingly commoditized items to TV manufacturers, thereby losing their bargaining power. The overall industry is attractive for the color TV sets. However, Samsung needs to develop clear segmentation strategies in order to compete in this industry; and develop target markets, positioning strategies and sales/distribution/promotion strategies to support their corporate strategy.

The color TV industry – Market Attractiveness

Demographic: The Chinese market has about 300 million households with just 41% of them owning a color TV set. In the 80 million urban homes, 80% of the households owned a color TV set. However, in the 220 million rural households only 28% of them owned a color TV set.

Sociocultural: Chinese people place great importance on personal relationship and trust. Therefore, foreign companies need to build long-term mutual trust with them in order to be successful. Although there is an abundance of workers available for employment, worker productivity might not be very high.

Economic: Research by McKinsey showed that the 60 million Chinese had the capital purchasing power exceeding US $1,000 – an income level above which they could start buying color TVs. This number was likely to rise to 200 million spread over 30-40 cities.

Technology: Many technological advantages such as clearer and brighter picture, on-screen graphic menus, and lifelike picture quality can help provide Samsung competitive advantages over its competitors.

Political: China is yet a centrally planned socialist economy. A gap between stated plans and ability of the government to control the economy, as well as emphasis on social profitability over economic rationale can be barriers to business establishments.

Regulatory: China made it a compulsory rule for workers to work only five days a week in a bid to force companies to employ more workers. Workers cannot be laid off or fired.

Samsung in China is confronted with decisions on the product line to market, segmentation of customers (mass market, low- and medium-end units to rural customers or high-end products to urban customers). A mass market approach with a wide-ranging product line would