Samsung Five Forces Analysis

Samsung is the world’s leading smartphone brand. The company offers a more diversified product portfolio that also includes chips, consumer electronics and other products. However, its two main sources of revenue are smartphones and semiconductors. The company is a dominant player in the smartphone sector enjoying the largest market share globally based on number of shipments. In the semiconductor market also, Samsung is among the two largest players and a rival of another semiconductor brand Intel.

Samsung is operating in a highly competitive business environment. In the smartphone sector, it competes against Apple, Lenovo, LG and the other players. A number of Chinese brands have also entered the smartphone sector leading to higher competition in the Asian markets. However, Samsung is also among the top two smartphone brands in the American market based on market share. Samsung is a highly innovative brand that invests a huge sum in research and development each year. Its focus on innovation has helped the company grow its business globally faster. It has maintained a solid presence in 74 countries of the world through its regional offices, production sites and sales offices.

In this five forces analysis, we will analyse the competitive position of Samsung and how well the company is positioned for future growth.

Bargaining power of suppliers:- Low

Samsung deals with more than 2000 suppliers globally. It has managed its supply chain smartly. The bargaining power of Samsung suppliers is low due to several factors. The supp;liers have higher bargaining power in cases when the number of suppliers is low, the level of differentiation is high and the size of the suppliers is large.

Another key factor that can drive the bargaining power of suppliers higher is the threat of forward integration from them. However, in the case of Samsung, the threat of forward integration from suppliers is low in most cases or there are very few suppliers that also compete with Samsung in one or the other business.

Samsung suppliers are mostly smaller firms that supply parts for its electronics and other businesses. However, since Samsung is also a chip producer, the threat of backward integration from Samsung is high for the suppliers which reduces their bargaining power.

Samsung is a financially strong brand that spends a major sum each year on research and development. Its financial strength is also a key factor that gives it higher bargaining power with respect to its suppliers. Moreover, Samsung can switch to new suppliers if any of its existing suppliers does not meet its quality criteria.

Overall, the bargaining power of Samsung suppliers is low and they face high threat of backward integration from Samsung.

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Bargaining power of buyers: Moderate

There are several factors that have increased the bargaining power of customers in the 21st century. Apart from higher availability of substitutes and increased awareness related to products and their features, increased competition and low switching costs also affect the bargaining power of buyers. Samsung sells its products to individual buyers as well as small and large businesses. The large businesses hold extra bargaining power because of their financial strength and their ability to switch to the other brands.

In such a scenario, there are some factors that help businesses moderate the bargaining power of customers. For example, one of the leading factor that moderates the bargaining power of customers is innovation. A more innovative business enjoys higher bargaining power. It is because customers including individual customers and small and large businesses want innovative solutions for their needs. Whether it is regarding smartphones, chips or electronics products, innovation is the key to maintaining demand, market leadership, customer loyalty and bargaining strength. Samsung is a highly innovative brand and has brought a large range of innovative products to the market in various price ranges. Its focus on innovation, product quality and customer experience have helped the company moderate the bargaining power of customers and grow its influence in the market.

Overall, the bargaining power of Samsung customers is moderate and it is moderated by factors like innovation, product quality, marketing and brand image.

Threat of substitute products:- Moderately High

The threat of substitute products for Samsung is high in some areas and low in some. It depends to a significant extent on the number of competitors in various industry sectors. In the smartphone sector, the threat of substitute products is higher because of the presence of several smartphone brands like Apple, Lenovo, LG and other Korean and Chinese brands. Both in the higher end and the lower end segment, the threat of substitute products for Samsung in the smartphone sector is quite high.

However, compared to that the threat of substitute products is lower in the chip market where a major competitor of Samsung is Intel. However, the threat is growing in this sector also as other players are also innovating to make their products better. Other businesses like AMD, NVIDIA, TSMC and so on also make and sell chips. In the consumer electronics segment also Samsung faces a very high threat of substitute products from several leading Japanese, Korean, American and Chinese brands. Brands like SONY, Toshiba, Panasonic and LG are also very popular in several corners of the world.

There are some factors that help companies like Samsung moderate the threat from substitute products. Making good quality and innovative products and differentiating a brand from the others in the market also helps businesses overcome the threat from substitutes to some extent. Samsung invests in innovation and product quality to maintain demand. While these factors moderate the threat from substitute products, switch costs also affect the threat from substitute products to some extent. Overall, the threat of substitute products is moderately high for Samsung.

Threat of new entrants:- Low

The threat of new entrants is generally higher in the sectors where the barriers to entry are lower. In such a scenario companies can easily enter the market with a small investment and compete with existing players. However, in the industry sectors where the barriers to entry are higher, the threat of entry of new players is generally lower. Samsung faces a low threat of entry of new players. Whether in the smartphone sector or semiconductor market, the barriers to entry are high. Apart from the significant capital investment, there are other barriers too that prevent the entry of new players into the market. Companies need a large capital investment to grow into a significant player in the global market. There is also the requirement of considerable focus on innovation and technological knowhow in these industry sectors. The legal and regulatory barriers in various markets also prevent new entrants.

Another important factor that prevents the entry of new players into smartphone, semiconductor or consumer electronics businesses is the high level of competition in these sectors. The smartphone industry is dominated by leading players like Apple, Lenovo and Samsung. These players are highly aggressive about protecting their market share and leadership position. They invest aggressively in research and development and marketing to protect their market share. All these factors reduce the threat of new entrants for Samsung. Overall, Samsung faces a very low threat of new entrants.

Intensity of competitive rivalry:- High

The intensity of competitive rivalry faced by Samsung is high. The smartphone sector is dominated by global leaders like Apple and Samsung. Other significant players include Lenovo, LG, Motorola, Redmi, and so on. Apple is the largest player in the smartphone industry based on revenue generated. However, based on the number of shipments Samsung is the dominant player in this sector.

The presence of a formidable player like Apple in an industry sector automatically magnifies the intensity of competitive rivalry in that sector. Apple is known for its high level of differentiation. The other leading players in this sector are also intensely focused on innovation and spend considerably on marketing to maintain their products’ demand and market share. In the other sectors too including semiconductors and consumer electronics, Samsung faces heavy competition from players including American firms, Japanese and Korean brands and some China based businesses. Several of these players sell products at competitive prices compared to Samsung.
To moderate the competitive pressure, Samsung has released a vast range of smartphones in various price categories. It also sells a nice range of competitively priced smartphones. The company invests a huge sum in research and development each year to maintain its market leadership and grow its market share. It also maintains an intense focus on product quality and customer experience as well as marketing. While these factors moderate the competitive pressure to some extent, the overall intensity of competitive rivalry faced by Samsung still remains high, particularly because of the presence of aggressive players in the respective industry sectors.