This is an interesting write-up about the two companies that really shaped or still shape Asia.
Sony is
still struggling, despite a
new CEO who
promised wonders by laying off people.
Samsung, is still powering ahead and
keeps shocking Japan. Two different business models with fascinating outcomes resulting in a company that is fascinated with
world's first records.
The thing is - Samsung delivers and stretches itself outside its comfort zones. But what helped the company is its fierce focus on electronics. "Indeed, Samsung's decision to concentrate solely on electronics has already paid off handsomely. The company reported a profit of more than US$10 billion on sales of US$56 billion in 2004. Sony's profit for the year ending March 31, 2005, was US$1.53 billion on revenues of US$66.9 billion. In addition, Samsung's credit rating is on a par with technology stalwarts such as Intel and Microsoft." How often is a company going astray while there still is a market ready to serve?
The article also provides a nice outline about the rise of Samsung. And because it is so interesting, I just copy the rest of the article below. Thanks to
Wharton - this is a great piece of work!
"Samsung's emergence as a dominant global player has been a relatively recent development. The company dates back to 1938 when founding chairman Byung-Chull Lee began exporting dried fish, vegetables and fruit to China. In 1969, it began producing black and white televisions, many of them exported to markets like Panama. In the early 1970s, the company made appliances such as refrigerators, washing machines and microwave ovens. In 1978, its exports totaled US$100 million. During the late 1980s, Samsung expanded into making semiconductors; by 1989 it was the 13th largest chip producer.
The 1990s set off a 10-year effort to become a global technology player. In 1992, Samsung developed the first 64 megabit dynamic random access memory chip and 250 megabit hard disk drive; in 1994, it topped US$10 billion in annual exports, a first for a Korean manufacturer; in 1997, it landed Sprint as a mobile phone customer; and in 1998 it completed development of its first flat-screen television set.
In 1999, Samsung set its sights on becoming as global a brand as Sony. The company outlined its current vision, "leading the digital convergence revolution," and launched its new brand slogan: "Samsung DigitALL Everyone's Invited." Tim Bajarin, president of Creative Strategies, a Campbell, Calif.-based consulting firm, says Samsung's digitALL marketing campaign was more than just a slogan; it was a mission that energized the company and helped it become a leading consumer electronics manufacturer. "Samsung's designers and business units are all unified under the digitALL vision," Bajarin notes. "The company is in tune."
A Tier-one BrandAccording to Wharton management professor Daniel Levinthal, a main driver for Samsung's success is that it kept its focus on hardware, such as consumer electronics and semiconductors, even as Sony broadened its business into movies and music distribution. "Samsung did not have the distraction of the media business and used its expertise in cost management and product design [to compete with Sony]," says Levinthal.
Without a media business, Samsung can create more interesting products, argues Fader. Because Samsung doesn't have a music label to protect, it is free to offer products that make it easier to download and receive music. For instance, Samsung on July 26 announced a strategic partnership with XM Satellite Radio to allow its (Samsung's) digital music players to receive satellite radio signals. A partnership with Internet music service Napster was announced the following day. Fader suggests that Sony probably wouldn't pursue partnerships with Napster and XM because satellite radio and file sharing could encroach on its music sales. "You can say Samsung only does hardware, but that also allows it to do the most interesting things. There will be rewards in hardware."
The result of a single focus on hardware is apparent in the flat-screen television business -- a main reason that Sony has been struggling. For the second quarter ending June 30, 2005, DisplaySearch found that Samsung leapfrogged Sony in LCD television revenue to become the third largest player in terms of revenue. Sharp is the number one brand, followed by Philips/Magnavox. For plasma television sets, Panasonic is number one, followed by LG Electronics, Samsung and Philips.
According to DisplaySearch, for all television sets for the second quarter, Samsung had a 9.9% market share globally and was the top producer in terms of revenue. Panasonic was number two, with 9.7% market share. Sony, the market share leader in the first quarter, fell to third with a market share of 8.8%. "Sony was caught off guard by Samsung," which has "crept up to be a tier-one brand," says Naranjo.
From High-tech to Commodity
According to Wharton operations and information professor Christian Terwiesch, Samsung is an example of the new guard in consumer electronics -- companies that are using manufacturing and low costs to get an edge. "If you are able to squeeze out a few pennies in savings here and there, you can become dominant in hardware," he says. "The technology is becoming increasingly off the shelf, and what was high tech three years ago is now a commodity."
Naranjo says Samsung's dominance in flat-panel televisions stems from the fact that it is a leading manufacturer of flat-screen computer monitors and has the size bulk to procure key supplies, such as plasma. Manufacturing flat-panel displays requires complicated techniques more similar to making semiconductors than regular television sets. Sony was slow to move toward plasma and LCD sets, and lacked its own manufacturing facilities, Naranjo adds. As a result, Sony has to rely more on third-party suppliers to manufacture its TVs. "Sony just didn't have the core competency with LCDs."
Indeed, in Sony's September 22 restructuring announcement, CEO Howard Stringer noted that the company has to generate more television components internally instead of relying on outside sources.
Samsung's success in consumer electronics shows that the leaders increasingly rely on manufacturing prowess, notes Terwiesch, adding that Dell Computer is a good example of how manufacturing skill can be used to beat back rivals. Dell is actively entering markets where Sony used to be dominant, such as digital music players and television sets. After all, if a company like Dell can put a computer together efficiently enough to cut prices and still be more profitable than its peers, it can manufacture and market consumer electronics too. "It's about doing well on one platform and then leveraging it into other areas," says Terwiesch. Being able to expand its manufacturing expertise into new markets could be Samsung's biggest edge, Terwiesch suggests. Manufacturing techniques to make semiconductors and computer screens can be leveraged into making cell phones and television sets, respectively. "Research and development is being focused more on production processes and manufacturing than design."
According to Bajarin, Samsung's strength thus far has been integrating its manufacturing knowledge and sharing it among other areas of the business. A technique that may have boosted efficiency when making LCD displays could be applied to the company's telecommunications business. "Samsung is truly a vertically integrated company."
Leveraging the Internet
While Samsung is now viewed as a peer of Sony, the big question is whether the Korean giant can keep it up. The company faces competition from upstarts in China, fierce price competition from its peers, and profits that are expected to fall off the rapid pace of 2004. Research firms such as iSuppli, based in El Segundo, Calif., are predicting a LCD glut in the fourth quarter that will lead to lower flat-panel television pricing.
However, as a way of solidifying its position, Samsung is planning a global marketing campaign to reinforce the company as a premium electronics company and encourage brand loyalty in a fickle electronics market.
According to Kao, one key development to watch is how Samsung leverages the Internet as access becomes increasingly mobile, and gadgets -- ranging from phones and digital music players to televisions and computers -- become more intertwined. "I'm not sure Sony has shown the world that it is sophisticated on the Internet front," says Kao, adding that Samsung may be able to leverage its home turf to create a lab for global markets. Korea is a wired country that sees how the Internet affects culture and the products consumers use.
Indeed, Samsung recently demonstrated a Korean broadband standard called WiBro, a wireless high-speed Internet access technology that allows a consumer to seamlessly transfer network connections between gadgets, such as a phone or computer. "The Internet is as cultural as it is technological," says Kao. "Samsung understands that and can be out there in front.... It's a juggernaut that, once it makes up its mind, can execute." "
(By Asia Business Consulting)
