Value Chain Analysis of Samsung

Michael E Porter introduced the concept of the value chain in 1985. The idea of the value chain has gained immense popularity since then.  For more than 30 years, business managers have used the value chain model for strategy formulation and strengthening their competitive advantage.  

“The value chain is a powerful tool for disaggregating a company into its strategically relevant activities in order to focus on the sources of competitive advantage, that is, the specific activities that result in higher prices or lower costs.”

Institute for Strategy & Competitiveness. HBS.edu

According to Michael E Porter, a firm’s value chain is typically the part of a more extensive value system, including companies either upstream (suppliers) or downstream (distributors), or both. This perspective of value creation forces the managers to consider each of the steps involved in the value chain as a crucial step that adds an increment of value to the final product or service and not as a cost.

There are four key concepts involved in the value chain – activities, competitive advantage, and set of choices. The value chain itself is a set of activities involved in delivering value to customers. The activities, including the entire value chain in which they are embedded, are the basic units of competitive advantage. The firm’s strategy is reflected in the set of choices about how the activities in the value chain are configured and interlinked.

The value chain includes two types of activities – primary and support activities. The primary activities are the set of activities related directly to value creation. On the other hand, the support activities are secondary activities that lend support tothe primary activities in the value chain.

Now let’s discuss the value chain of Samsung.

Primary Activities in the Value Chain of Samsung Electronics

Inbound logistics:

Inbound logistics refers to the inflow of goods and services into business operations. Every large business  in the tech industry works with thousands of suppliers around the world. It needs to source material from various corners of the world. Samsung Electronics is a multinational conglomerate that  has more than 2500 supply chain partners. For a  large company with global sales presence, it is essential to manage logistics strategically, since logistics forms the backbone of their supply chain. Samsung’s supply chain is mostly located in Asia. Apart from that, its suppliers are also located in the US and the UK.

Samsung has a very strong logistics arm. Its inbound as well as outbound logistics are managed by its integrated logistics subsidiaries like Samsung SDS and Samsung Electronics Logitech (SELC). Samsung SDS was founded as the ICT arm of the Samsung group in 1985. On the other hand, SELC is an integrated logistics management agent that separated from the logistics arm of Samsung Electronics in 1998.

Samsung sources raw materials from its suppliers located in Asia and other regions. Its logistics subsidiaries bring the raw material to its manufacturing and R&D locations. Both the firms mentioned above use their strong logistics and digital capabilities to manage inbound logistics for Samsung. Samsung’s logistics subsidiaries have strong logistics as well as digital capabilities that allow them to cater to the firm’s logistics and supply chain management as well as distribution related needs efficiently.

Operations:

Samsung started its business in 1938 as a trading company. It has found growth through continuous diversification.  It has  kept entering new areas of business throughout its history to find growth. Clearly, diversification has remained a core business strategy for the firm. It entered the television industry in 1970 when it introduced its first black and white television. Later, in 1980, it entered the telecommunications hardware industry. Samsung is a South Korean conglomerate that has its headquarters in Seoul, South Korea.  The company has expanded its operations to various parts of the globe, from its home market to the US and several more regions. 

Samsung runs seven manufacturing centers that are located at:

• Giheung
• Hwaseong
• Pyeongtaek
• Onyang
• Xi’an
• Suzhou
• Austin

Apart from these, the company has R&D centers at following locations:

• Hwaseong
• SanJose
• Bengaluru
• Xian
• Suzhou
• Hangzhou
• Hsinchu
• Austin
• TelAviv
• Cambridge
• Aalborg

Samsung also has seven regional offices in countries including Korea, China, the USA, Germany, Japan, and Singapore. It has two regional offices in Korea alone.

The firm has divided its business operations into four main business divisions that operate independently: CE (Consumer Electronics), IM (Information Technology & Mobile Communications), DS (Device Solutions); and Harman (Harman International Industries, Inc. and its subsidiaries). Harman produces automotive electronics components.

Outbound logistics:

Outbound logistics refers to the outward flow of goods and services from the company or simply put it is the movement of goods and services from the company to the market. Samsung is South Korea’s largest company. It makes and sells a wide range of products from smartphones to consumer electronics, semiconductors, NAND flash memory and television as well as displays.

It has established seven manufacturing centers in various corners of the globe where it manufactures the products it sells. Since Samsung is a global brand, the products manufactured in its manufacturing and assembly locations are delivered from there to different markets throughout the world.

Samsung has integrated subsidiaries to take care of the entire logistics function including inbound and outbound logistics. Apart from bringing raw materials from the suppliers, these subsidiaries also take care of the outbound logistics. They  transport the finished goods to distributors and resellers throughout the world.

The two leading logistics subsidiaries of Samsung are Samsung Electronics Logitech (SELC) and Samsung SDC both of which were initially a part of the core Samsung group. Samsung Electronics logitech alone transports products made by Samsung Electronics to around 120 countries throughout the world. Apart from that, it also provides distribution and sales support to Samsung Electronics for the sales and distribution of its products to customers worldwide.

Marketing and Sales:

Marketing is a vital driver of demand in the smartphone and consumer electronics industries. These industries experience intense competition. Samsung is competing against some of the leading smartphone brands like Apple and Huawei. As a result, a focus on marketing is crucial to maintain demand and sales worldwide. 

Moreover, brand image is before everything else now. Customers consider things like brand image and sustainability among other things to select which brand they should buy from. Companies want to build a stronger and long lasting relationship with their customers. They want to build an image that their customers trust. However, it requires the firm to maintain its focus on the firm’s reputation among the public.

Samsung has maintained a strong brand image as a technology brand. (It is among the largest technology brands based on net revenue.) The core pillar that Samsung’s brand image are its product quality and focus on technological innovation. The smartphones by Samsung are popular mainly because of their solid design and performance. The role of marketing in the context of Samsung’s business is limited compared to research and development. Still, the company has managed to strengthen its market positions and brand image through continuous dedication to product quality and innovation.

In terms of marketing, Apple is ahead of Samsung or any other brand in the smartphone industry. However, Samsung is also investing in marketing to grow its market  influence. It mainly uses digital marketing channels for the promotion of its products. However, the company also uses in store promotions and other traditional channels like print media for marketing and promotions. Apart from paid online promotions, the company uses social media to run marketing campaigns and to promote its smartphones before the public. The company also invests in CSR and sustainability to maintain a strong social image and solid reputation. 

Samsung has also established a strong global distribution network. It utilizes both online and offline channels for the sales of its smartphones and other electronics products. With time as e-commerce trends have continued to grow stronger, more and more people are buying through online channels. Samsung has also grown its dependence on e-commerce channels for the sales and distribution of its products worldwide. 

Service:

Samsung has a global network of distributors and resellers that apart from sales and marketing also provides after-sales support to the customers. After-sales support is now also a crucial part of marketing for the most physical hardware and consumer electronics brands. It is because the quality of customer service also has a direct effect on the brand image. Apart from that, if a company wants to create a superior image, it must focus on providing superior customer service. Customer service impacts customer satisfaction and is crucial for maximizing sales and revenue.

Samsung has maintained an excellent focus on customer service in all the market regions where it operates. Apart from its large network of service centers, the company is also using online channels to provide after-sales support to its customers. The company has established a large number of service centers in each of its leading markets. For example, India alone has more than 3000 Samsung service centers. Apart from personally visiting these service centers, customers can use toll-free numbers to reach out to customer service representatives from Samsung electronics. There are now several channels to schedule a service appointment. The company is also using chat tools to offer round the clock support to its customers needing help with their smartphone devices or other products..

Support Activities in the Value Chain of Samsung Electronics

Procurement:

A continuous supply of good quality raw materials is essential to maintaining a continuous supply of products. Samsung has managed a global supply chain but most of it is in the Asian region. However, the company has managed strong relationships with its suppliers to ensure a continuous supply of raw material. 

Samsung Electronics maintains 216 global bases in 74 countries. These offices employ the services of 2,389 suppliers. The company has established an International Procurement center (IPC) that acts as the central hub for managing supplier relationships.  The IPC together with the Global Supplier Relationship Management System accepts submissions from the companies that want to become a part of Samsung’s supplier management program.

Apart from the main International Procurement Center of Samsung, its IPCs are also present globally in various strategic locations.They monitor the latest technology trends and also identify potential suppliers from these locations. While on the one hand, it ensures that the supply chain of Samsung is competitive, on the other it also ensures a continuous and uninterrupted supply of good quality raw material. Samsung also maintains an integrated procurement system to manage procurement operations.

HRM:

For every large technology brand, it is essential to maintain a strategic focus on human resource management. It is because running a global technology brand requires talented engineers and managers. People are a core source of competitive advantage for any technology brand, and apart from attracting talented people, the company needs to invest in them for their career growth and job satisfaction.  

The company, apart from offering training and other critical resources that  are necessary to help the employees find faster career growth and higher job satisfaction, also offers competitive salaries as well as other benefits for its employees. Samsung notes in its 2020 Sustainability Report,

“The human resources team at our headquarters and the diversity and inclusion managers at each division have implemented a variety of initiatives, including those with a focus on women, people with disabilities, generational gap, culture, education, and more.”

Samsung Sustainability Report 2020.

The company has focussed heavily on bringing higher equity and encouraging women in its organization to find faster growth through training and empowerment.

Technology :

Technology is the most critical driver of business growth in the smartphone and consumer electronics industry. Every leading smartphone business invests heavily in research and development to find faster growth and drive its sales higher. Samsung has also made technological innovation a key focus since most of its growth in recent years was driven by technology-based differentiation. 

Apart from establishing modern and best in class R&D centers, the company invests a large sum in research and development. During 2019, the company invested more than 20 Trillion KRW in research and development.

Infrastructure :

The company has divided its business operations into four main divisions that operate independently of each other. Ki Nam Kim, who is the Vice President and CEO of Samsung, also heads the Device Solutions, Semiconductor, and Memory businesses of Samsung. Hyun Suk Kim is the President and CEO of Samsung and also directs the consumer electronics business of Samsung. Apart from that, he is the head of the visual display business as well as the product strategy team. Dong Jin Koh, who is the president and head of the IT & Mobile Communications business, is also the head of Mobile research and development as well as the technology strategy team.