Samsung in China

Environmental Analysis

External Environment

Chinese Market

- still socialist economy

„» huge gap between the stated plans and the actual ability of government to manage and control the economy

„» tremendous amount of economic interaction took place outside the governmentÐŽ¦s formal economic plan

- many smugglings and piracies

- regional blockades

- over-employment problem

Chinese color TV Market

- full production capacity in demand

„» principal battleground

- high competition

„» Japanese firms: high-end market. Increasing production bases

„» Domestic Firms: low-end market. But they were less competitive in large screen TV.

- small color TV market was shrinking

„» large market size of these product lines facilitated the fast achievement of cost reduction(economy of the scale, learning effect)

Consumer analysis

- only 41% of households had color TV

„» 80% of urban, 28% of rural

„» Low-end market is not a viable long-term. But overall market was still expanding.

- Buying power: expanding both high-ends and low-ends

- Tendency that first image of a product lasted long in the eyes of the consumer.

„» the reason for differentiation needed focusing on high-ends

- consumer preference

„» Urban- brand name, functionality were important factors.

„» Rural- reasonable quality and low price were preferred.

- High protected market: too much tariff cost

„» localization needed

Domestic (Korean) Market

- Deteriorating of competitive advantage: rising the labor cost

- Korean government policy: supportive of big business

„» getting worse of Korean market

„» Losing the M/S in the U.S. and no longer competitive in the low-end product

„» need to change the strategy focusing on high-end, high-tech

- Liberalization of Korean market

„» Foreign firms were permitted to sell their product directly

„» More competitive in Domestic market, losing the domestic M/S

„» Samsung had to expand the foreign market.

Internal Environment

Experience in the U.S.

- Set up the subsidiary there in 1979

- Focusing on the low-end market segment based on competitive labor cost in Korea because of large demand and low competition base, and low barrier in the U.S.

- Samsung produced a few of the most popular sizes TV for cost reduction through economies of scale and the experience curve.

- Dual brand policy: adopting ÐŽ§buyer brand name(large retailers or OEM)ЎЁ mostly but trying to build its own brand image

- Establishing a production subsidiary in the U.S. because of trade barrier

- Policy of Japanese firms: targeting high-ends for differentiation through brand name recognition

„» Matsushita: 4% of M/S in 1995 but could be high-price, higher profit

- Policy of Samsung: still pricing strategy even though it had good quality of product

„» 3% of M/S, but much less

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