Samsung vs Apple Strategy Comparisons

Today’s competitive world has its highest turmoil in electronics industry where two main giant competitors dominates the market and bloody war is going out there for taking the title of being leader. You know what I mean…War between Samsung and Apple is more like a Cold War between Russia and USA. War already bounced to lawsuits respect to licensing and patent issues with Cupertino(Apple’s R&D center in California). Who would imagine a company which produces LCD panels, flash memories around 1990s will become the most innovative company with highest share in electronic market by 2012? Here what I will try to explain will be the success story of Samsung and its differences against major rival: Apple. Let’s start with brief history of Samsung; a company has built in 1938 by Lee Byung-Chul. Over the next decade company has diversified into areas including food, textile, insurance, retailing etc. Following Lee Byung-Chul death, Lee Kun Hee takes the charge at 1988. Lee has made a world tour to see how his company manages business internationally.

After He realized that his products are not prestigious and quality enough as Philips and Sony, he was disappointed with the result. He has brought all lieutenants in Frankfurt and this is where famous mantra comes out; ‘Change everything but your wife and children’. This meeting has named as Frankfurt Declaration. Surely it was a milestone for Samsung. New management principals has decided and published as a book for employees and for ones who cannot read, cartoons and other videos are prepared. Lee Kun-hee sold off ten of Samsung Group’s subsidiaries, downsized the company, and merged other operations to concentrate on three industries: electronics, engineering, and chemicals. Company efficiency seeking has started too.

When cell phones were inoperable in 1995, Lee ordered subordinates to assembly another 150000 devices and bring them together in a field. Other 2000 stuff gathered around then it was set on fire. Message was clear ‘If you continue to make poor-quality products like these, I will come back and do the same’. Message was clear and well taken by the company when a single customer has complained about back covers of SIII model, company replaced and scrapped back covers at 2012.

Apple’s Way: Innovative, Efficient, High Profit Margin, Outsourced and Focus Apple and Samsung Electronics are competing for the same niche with different strategies. Apple has made ‘focus’ strategy and gaining its revenue from cloud access devices, related services and products. Apple prefers to outsource its operations as much as possible in order to decrease cost and create high efficiency and profitability by acquiring vast majority of inputs from external suppliers Apple has been able to preserve their cost efficient Research and Development activities relatively low against their major rival by outsourcing. While Samsung has made a massive investment in R&D amount of 5.7% to net revenue, Apple has amount of 2.2%.

Apple’s way of outsourcing main activities like production and hardware provision has made great cost savings and make the Apple’s industry leader in terms of cash flow and profitability. Apple’s first aim to keep the profit margin as high as possible by introducing market with state of art premium priced products with providing their cloud and software services simultaneously. Innovative character of company is another competitive advantage against Samsung which I can name as a fastest follower and exploiter of the industry. Apple has already proved it by introducing us with I Pad and I Phones. Competition against Apple is rapidly increasing. Google and Android, Microsoft and its Windows on one side for its software and cloud services: IOS, on the other Samsung for its hardware devices Iphones, Ipad, Macbook etc. Samsung has made critical strategic decision by implementing Windows and mostly Android software into their hardware devices.

Samsung’s Way: Conglomerate, Vertically Integrated, Economies of Scale, Highly Diversified, Effective

Samsung on the other hand is the most vertically integrated electronic company which seeks competitive advantage through supply chain activities and price advantage of being main supplier. Samsung makes a lots of parts; AMOLED displays, memory, processors, lithium ion batteries, semiconductors and component business… they are all prepared for surprises in future. Samsung vertically integrated activities drives competitiveness in a range of downstream products like mobile phones, tablets and PCs and in other home electronics; refrigerators, washing machines and other household appliances. Apple declared that some $8-billion of Samsung components in 2012 has purchased. Every time Apple sells an iPhone, it puts money in Samsung’s pocket. Thus, revenge against Apple was sarcastic and sweet on behalf of Samsung when they provide A6 hi-tech processors for the newest model of Apple; Iphone5. Being supplier of major rival in market gives Samsung an advantage of foreseeing the strategies and focus of their major rival. Samsung is aware of product plan and development of Apple.

Structure of Organization in Samsung is also different than its major rival. Lee Kun Hee, is like a wizard behind the success. He establishes an organizational culture which is quite mechanistic and militaristic. Employees and operations are working in a much disciplined way, highly concentrated on aim. Training in Samsung is also critical. Each employee has to read handbook of teachings of Lee Kun Hee. Centralized and mechanistic structure gives Samsung an advantage of quick response to market. While Western type organizations have spent their time on arguments, Samsung just acts and exploit the opportunity. On these circumstances we can name Samsung as ‘fastest follower’ of the industry. Their strategy can be summarized as some steps;

1- Set up infrastructure for particular industry
2- Start to sell small amount, make a component for that industry 3- Have the insights and experience of industry, how it works 4- Massive investment with leveraging (Plants, technologies etc) on the main product As an example, Samsung started to make LCD panels for main producers like Sharp, Sony and Philips. In 1994, Samsung was the number one in producing LCDs. Samsung overpowered its Japanese competitors over the past twenty years by outspending them in most areas of the value chain, in particular R&D, capital expenditures, marketing and promotion, sales channels. The company is now leaning on the same formula in its fight with Apple. While it is true
that Samsung’s spending in these areas is spread across all of its main business lines, we see that a growing proportion of resources are being devoted to the universe of cloud access devices and related software, peripherals and services, where Apple plays.

Samsung’s business model is highly costly with high expenditures on R&D and factories for diversified range of products to provide long-term stability present and in future. Since operations of Samsung are widely diversified, it makes impossible for Samsung to catch operational profitability as Apple has achieved by focusing on a narrow range of products. However if Samsung steadily invest on R&D and have positive results on this expenditures in all his diversified business empire, the time for Samsung outperforming than Apple both in profit and efficiency is fairly close.

Competing with Apple is also driving Samsung to invest at accelerating levels in software and cloud-based value-added. One key goal of these efforts is to be able to pull sensor-generated data from all Samsung mobile and consumer electronics products — data that can be sold to various types of business partners. Another goal is to better integrate the universe of Samsung mobile and consumer electronics products, in the manner of Apple’s generally well-integrated product portfolio.

To conclude up, Apple still has a lead over Samsung in software, cloud access devices and profitability. In 2012, Apple’s revenue was 165 billion dollar compared to 90 billion dollar for Samsung.(For the same product range). On the table above, Apple’s operating income is $55 billion compared to $19 billion for Samsung. Apple has a distinctive advantage and highly profitable operations put a great pressure on Samsung to invest massively on software and cloud services. While Apple has a cut for the each application in IOS market, Samsung has no profit for Android free for users. Acquisition of Motorola by Google has also put pressure for the Samsung to has its own software and services. The question derives as while people upload their pictures, files and data via ICloud, Google Drive, or Microsoft, they would also use Samsung to do that? As Samsung has possible risks and disadvantages in terms of software, Apple is under pressure of Samsung’s immense power advantage in semiconductors, batteries, processors…Which makes Samsung main supplier of Apple.