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How to build a market leader

The first thing to say is that Samsung is different from other tech companies because of its huge industrial base, extending across a whole range of consumer categories. Historically, Samsung has been regarded as a fast follower, identifying what’s doing well in the market and developing products that suit. As it’s become a market leader, this strategy has changed: now it is willing to throw products at the market and see what sticks. Phones with 5.5″ screens? Despite received wisdom, it turns out there’s a market for them. And the other part of industrial scale and expertise is that their technical execution has been first-rate.

In sharp contrast to Apple’s minimalist product strategy, this has meant that they have been willing to push products into all parts of the market. As Nokia discovered, this can eventually create consumer confusion. But Samsung has also built product diversification around a coherent long-term brand strategy.

And marketing works. Samsung’s marketing budget last year was $4bln, dwarfing the rest of the sector, and even outspending Coke. It turns out that good products plus intensive marketing and advertising does shift units.

It’s not all rosy. The large majority of Samsung’s phones ship with a version of Google’s Android software, and pundits wonder if Google will become irritated that Samsung makes more money than it does from Android. (Samsung has other operating systems on its phones, but none are best-sellers). Apple’s margins will remain higher, even if consumer desire is fading, partly because its ecology of devices and services works better. Samsung hasn’t really cracked this yet, perhaps because it is, at heart, an industrial producer.

But there are some innovation lessons from Samsung.

• Market proximity still matters. The centre of gravity of the mobile industry is moving from Europe to Asia. As China and India become the largest markets, Asian manufacturers are becoming more influential.

• Taking a long view has value. Asian companies generally take a longer view than American ones, and in Samsung’s case it is protected from the market by its role as the largest of South Korea’s chaebol conglomerates. (This helps in other ways as well). Indeed, McKinsey has argued that this philosophical difference between West and East could be a fundamental source of competitive advantage.

• Fast followers can become market leaders. The capabilities largely overlap. The difference is a change in mindset.

There are some warnings from recent history. In some ways Samsung seems like a South Korean Sony, showing the world the value and quality of the country’s engineering base. Sony lost its way once it achieved its early vision, “to become the company most known for changing the worldwide poor-quality image of Japanese products.” Samsung Electronics’ Vision – “Inspire the World, Create the Future” – seems less likely to be overtaken by its success.

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