Samsung Electronics is today a household name in India. But it began operations in the country as long ago as December 1995. The Korean giant notched up sales worth $1 billion in just a decade.
One of the reasons for Samsung’s success is that it has focused consistently on the quality of products that it is a leading provider of in the Indian market — consumer electronics, IT and telecom products.
Samsung is spending significantly on marketing. A critical strategy that Samsung uses to respond to the highly uncertain business environment and the increasingly competitive marketplace is to spend at least 9 per cent of its sales revenue on R&D. The company tries to lead technology standardisation and secure intellectual property rights on every product manufactured.
Samsung recorded a 41.6 per cent market share by value in the smartphone segment in August and is currently leading the market in overall mobile phones and in smartphones. The company spent large amounts on marketing mobile devices like the Galaxy S series to convert more iPhone and iPad users loyal to arch rival Apple.
The firm doesn’t provide marketing and R&D spending forecasts. Some analysts say they expect Samsung to continue spending more on its marketing campaigns than on R&D as it fights the next wave of products from Apple. Globally, Samsung spent a record $13 billion on marketing in 2013. That was $1.3 billion more than what it poured into R&D.
Samsung’s trump card was not cheaper products, but new technology and better features in same products. This should be a lesson for all new entrants to the Indian market. Indian consumers don’t just vie for cheap products. Usually new companies try to attract consumers by offering products or services with a wafer-thin margin or even at a loss or through hefty margin to dealers.
Samsung had a first-mover advantage as it was one of the first companies to offer smartphones and touchscreen in India. In a sense, it nurtured the 3G phone market in the country. While other companies showcased cheaper products, Samsung stuck to its high price positioning. As demand picked up, Samsung introduced cheaper versions of some phones. The company is also responsible for the spread of Android both globally and in India. Without Samsung, Google may not have seen the market share it did for the operating system as it does presently. Today, Samsung’s mobile phones are available from Rs 5,000 to Rs 60,000. This way, it is able to cater to the entire market.
Even Samsung India, which has increased sales by 30-40 per cent in the past few years, has halved the growth rate target this year to 15-20 per cent. This is because Chinese companies introducing budget phones have been eating into Samsung’s market share while Apple’s iPhone has been giving the company stiff competition for the flagship Galaxy phones.
Samsung has already restructured its television and white goods business twice in the past four months and recently divided the business regionally from the earlier channel-led format. The changes were aimed at triggering growth, since the consumer electronics market had slowed from May, affecting total sales. Samsung is competing with Sony in the market for television sets and is trailing LG in home appliances.
In January 2015, the company announced top management changes in its Indian arm, following the retirement of its deputy MD, Ravinder Zutshi, who exited after serving the company for 19 years. Sanjay Bali, senior vice-president, HR has been transferred to manage relations with different departments and ministries, including human resources, education, environment, women, child development and culture.
Samsung India is the regional headquarters for the company’s South West Asia operations which provides employment to over 45,000 employees with around 11,500 employees being involved in R&D. It is likely to lay off almost 5 per cent of its staff in India across managerial-level executives and factory and blue-collar workers as the Korean giant takes steps to become leaner and reduce costs amid slowing sales, five senior industry officials said.
Recently, 200 or more employees were asked to put in their papers across all verticals. The remainder will likely be laid off in phases by December and March, with a total of 750 to 1,000 employees set to lose their jobs unless their performance improves. At present, there are about 22,000 employees in Samsung India, including workers at the company’s two factories.
Globally, however, Samsung’s smartphone business is struggling, the company is losing customers and facing falling profits. Samsung is now reportedly planning to cut 10 per cent of its staff at its South Korean headquarters. With a workforce of 98,999, that suggests in the region of 10,000 job losses.
It’s a remarkable decline for the company, which just a few years ago was the undisputed leader of the global smartphone business globally. And all the more unusually, it comes during a massive boom in smartphone ownership: Global sales are predicted to jump by more than 10 per cent this year — and yet Samsung’s are declining.
monica@businessworld.in; @MonicaBehura
(This story was published in BW | Businessworld Issue Dated 11-01-2016)
