1. Samsung and Apple's battlefields Samsung Electronics, the world's largest IT company as measured by 2011 revenues,...
Question:
1. Samsung and Apple's battlefields Samsung Electronics, the world's largest IT company as measured by 2011 revenues, is a subsidiary of Samsung Group, a South Korean multinational conglomerate. Its product range is large and includes mobile phones (the world's largest mobile phone maker), semiconductor chips (the secondlargest manufacturer, after Intel), televisions (the largest television manufacturer), Liquid-crystal display (LCD) panels (the largest manufacturer), memory chips (with the largest market share of any manufacturer), and tablet computers. Apple, named as the most-admired company in the world from 2008 to 2012 by Fortune magazine, is a leading American multinational corporation that designs and sells consumer electronics, computer software and personal computers. In recent years, these two companies have been competing in several business battlefields. First, the smartphone space is perhaps the fiercest marketplace in which the two companies compete. While Samsung has made millions of its Galaxy phones, powered by Google's Android operating system, Apple has sold millions of its iPhones. In the first quarter of 2012, Samsung had bested Nokia, the previous number one in the global mobile phone market, and had also bested Apple in the smartphone market. Second, the two companies compete in the tablet computer space, albeit with less competition. The sales figures for Apple's iPads are still far larger than those for Samsung's Android-based Galaxy tablets. Third, Samsung has begun to build a standard Samsung user interface even though it uses Google's operating system, and these efforts are now being seen as a threat to Apple's software. Apple, meanwhile, is exploring the potential of entering the television market and other fields which Samsung has traditionally dominated. 2. Competency battle Samsung and Apple have built different competencies (Table). First, the price of Samsung's offerings is typically lower, not just for customers but for service carriers, as well. Although the current situation is safe for Apple, since they operate in different market segments, Samsung can compete more effectively on price in the future if it uses its revenues from the lowerend market to subsidize the R&D of its higher-end products. Second, Samsung offers a wider variety of phones than does Apple, which takes "simplicity" as a core philosophy in providing fewer options to the market. Third, generally speaking, the perceived quality of Apple is regarded as being higher. Finally, while Apple would often make its fans wait for new products during Steve Jobs' time as CEO, the speed with which Samsung is able to deliver products to market is greatly improved due to their in-house manufacturing and the stronger control the possess over their supply chain. The speed with which Apple realized the global launch of the iPhone 5, however, astounded observers in 2012, as new CEO Tim Cook took on the unglamorous task of global supply chain management. 3. Value chain battle Samsung versus Apple is a competition not between two companies, but between two supply chains. Figure shows the primary supply chains for the Samsung Galaxy phone and the Apple iPhone, respectively. Note that the supply chains are dynamic and their supply chain networks may be more complicated than is represented in Fig. Software design Apple has maintained its status as the technology and innovation leader in the market. In terms of software design, the Apple iPhone uses a mobile operating system, iOS, which has a 23 % share of all smartphone operating system units sold in the first quarter of 2012; Apple does not license iOS for installation on non-Apple hardware. Apple is strong in software and Apple's App Store contained more than 700,000 iOS-compatible applications as of September 12, 2012. The Samsung Galaxy relies primarily on Google's Android operating system, which has the largest market share of any smartphone operating system. Hardware design Apple is the hardware leader for all six generations of its iPhone. The GSM iPhone created the original design which has persisted through all subsequent models. The iPhone design follows the Apple style philosophy of uniqueness and simplicity. In order to retain the feature of having only a single "home" button, for example, the newer iterations of the iPhone have a sleep button at the top, volume buttons on the side and have removed the physical keyboard. Apple added 3G cellular network capabilities with the iPhone 3G, added a faster, more powerful processor and a higher-resolution camera with the iPhone 3GS, a higher-resolution "retina display" with the iPhone 4, an 8- megapixel camera, dualcore processor and "Siri" natural language voicecontrol system with the iPhone 4S, and the new A6 processor as well as a 4-in. "retina display" with the iPhone 5. The Galaxy is predominantly plastic and offers customers two colors, Marble White and Titanium Gray. Surrounding the edges and the rounded corners is a chromed bezel. Its rivals and IT reviewers claim Samsung is adopting a "plastic design philosophy". During a lawsuit heard in 2012, Apple's attorneys introduced a Samsung internal memo since released to the public in which the president of Samsung Mobile, JK Shin, expressed outrage that Samsung was suffering from a "crisis of design", and told designers "not to create a plastic feeling and instead create a metallic feel". Manufacturing Hi-tech parts in the mobile phone industry often become bottlenecks in the supply chain, and parts manufacturing can be a company's most important strategic activity. In 2012, for example, Apple was unable to keep up with iPhone 5 orders and customers were forced to wait months because Apple's suppliers had difficulties producing two components for the iPhone 5: the incell display screen and the long-term evolution (LTE) chip. The screen is produced by Apple's longterm partner, Korea's LG Display, as well as by Japan Display. Apple also contracted with Sharp, Japan's largest manufacturer of LCDs, but even Sharp failed to produce the screens at a sufficient pace prior to the launch of the iPhone 5. These parts require such high levels of technology that suppliers think it unfeasible to produce enough on time. Prior to 2012, the bottleneck of parts manufacturing was even more serious when Apple released the iPhone 4 under Steve Jobs, who placed a greater emphasis on design and marketing than on supply chain management. Samsung, with its in-house parts manufacturing capacity, possesses a clear strategic advantage in this regard. The parts used in the Samsung Galaxy S III, for example, from the screen to the quad-core processor to the RAM to the NAND flash memory, are all made in-house. In component manufacturing, Samsung takes advantage of the fact that it is a primary supplier of chips, displays and flash memory to Apple. This is also the reason that Samsung can make smartphones at lower costs. With the iPhone 5, Apple has made attempts to contract with other component suppliers to avoid operational risks. Apple outsources iPhone assembly to Foxconn in China. After several workers committed suicide at Foxconn's facility, Apple has been exposed to ethics risks in recent years. The Fair Labor Association (FLA) has identified issues with the work conditions at Foxconn, including excess overtime and low wages. Foxconn has agreed with the FLA to reduce employees' work time and increase pay. Samsung has its own assembly plants in Korea and China, which allow it to control outsourcing risks. Marketing and service The marketing strategies of Apple and Samsung are different: while Apple focuses on generating the most profit, Samsung ships the most phones in an effort to win the largest share of the stillgrowing smartphone market. Apple's strategy revolves around the high subsidies it charges to carriers who wish to offer the iPhone and allow it to achieve astonishing margins of 49-58 % on iPhone sales from 2010 to 2012. Apple can maintain these high carrier subsidies and high margins only if consumer demand for the iPhone remains strong. While carriers of the iPhone are limited (e.g., at first limited to only AT&T, then Sprint, then Verizon in the US), Samsung makes a point of selling the Galaxy on all major carriers, including US regional carriers. Samsung has generally been willing to cut the price it charges carriers, which allows the company to maintain good working relationships with the service carriers. This is critical to allowing Samsung to build marketing channels through which they can compete with Apple. The strategic focus of Samsung is on the cumulative volume of sales, not the margins. Customers Due to its long-term success and reputation, Apple has earned highly loyal fans, many of whom are willing to wait in long queues for new products, while Samsung can only conduct promotional activities to attract customers. Samsung has the advantage of a far broader customer base, however, and can attract customers from all areas of consumer electronics since it makes a huge range of products, including HDTVs, DVRs and Bluray disc players, laptops, camcorders and refrigerators. Furthermore, Samsung can draw in customers from other markets of the Samsung Group, which includes Samsung Heavy Industries (the world's leading shipbuilder), Samsung Engineering and Samsung Life Insurance. 4. Lawsuit battle Since the spring of 2011, when Apple began litigating against Samsung in patent infringement suits, Apple and Samsung Electronics have been locked in a series of lawsuits pertaining to their smartphone and tablet computer design and the related patents. The mobile device patent wars highlight the fierce competition in the global consumer mobile communications market. As of July 2012, the two companies were still embroiled in more than 50 lawsuits worldwide. While Apple won recent cases in the US, Samsung won in South Korea and Japan. In Europe, the lawsuit battle is more complicated and fiercer, and neither company has registered a complete victory in either the German, Dutch, French or British courts.
Case questions:
1. Is quality the most important competency of Apple? If yes, how has Apple achieved it?
2. What is Samsung's most important competency? How does it achieve it?
3. What is the competitive advantage offered by Apple's supply chain?
4. What is the primary competitive advantage of Samsung's supply chain? In its supply chain, what is the most important activity in strategic leverage?
5. Are the lawsuits filed by both companies being used as strategic weapons?