Case Study of Samsungs Mobile Phone Business

Boon-Young Lee
aliceboon@kdischool.ac .kr

and Seung-Joo Lee

sjl@kdischool.ac. kr

Abstract: This paper examines Samsung Electronics successful growth strategy in the mobile phone business. It examines its early efforts at developing a competitive product in the domestic market, its globalization strategies, and some of the key challenges it faces today. The paper provide insights into how a late comer to an industry can overcome certain disadvantages and successfully position itself as a widely respected and successful brand. JEL classification: ! "#, $%& Key ords: Samsung, mobile phone, strategy

$'( student, )*I School of +ublic +olicy and $anagement +rofessor, )*I School of +ublic +olicy and $anagement

I. Introduction
,or Samsung Electronics, -&&# was a watershed year. It successfully positioned itself as one of the world.s best mobile phone manufacturers and its products were featured all over the media. $any were calling its mobile phones as /the best gift for 0hristmas1 or /the $ercedes of mobile phones.1
%

Samsung.s achievements were particularly remarkable considering that its primary focus had previously been in semiconductors and home appliances. Indeed, when it first made the decision to enter the mobile phone business, industry observers viewed the move as foolhardy and reckless. 'ut, much to their surprise, Samsung.s foray into the market turned out to be a great success, contributing significantly to the company.s profit growth and brand reputation. In -&&#, Samsung posted net profits of " trillion won 234 billion5 on annual sales of 6#." trillion won 23#7.8 billion5. (s of (pril -&&6, its market capitalization stood at around %&& trillion won 2397.6 billion5. It had also surpassed Sony, which had been a benchmark for Samsung, in terms of revenues and market capitalization. !E"hibit #$ Samsung.s exports currently account for two thirds 278:5 of total sales. In addition, Samsung has built its brand around the world; in -&&#, the <Samsung. brand was ranked -4 in the annual 'usiness=eek>Interbrand study of the world.s most valuable brands, having grown from 39.#% billion in -&&- to 3%&.94 billion in -&&#. !E"hibit %$ ,ew would deny the claim that Samsung has achieved remarkable success in the global market. (s such, it could be worthwhile to take a closer look to find out which factors have contributed most to its success. In particular, we should focus our attention on the company.s emerging mobile phone business, which has achieved some of the most outstanding gains of any of Samsung.s business lines. The ob?ective of this study is to gain helpful insights into how a late comer to an industry can overcome certain disadvantages and successfully position itself as a widely respected and successful brand.
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II. Company Background: Samsung Electronics

Samsung Electronics was established in %8"8 in order to provide an engine of future growth for the Samsung @roup. Though the electronics industry seemed promising in the %8"&s, none of the )orean firms had advanced technology. Samsung began by producing low end blackAand white televisions in a ?oint venture with Sanyo, a Bapanese electronics company. =ith
% -

( @erman magazine, /0onnect1 ( Corwegian newspaper, /(ftenposten1

CE0, another Bapanese firm, it produced 'raun tubes and kinescope tubes. (fter three years, it began to produce black and white televisions under its own name, /Samsung.1 In the %87&s, it began producing other home appliances, including washing machines, refrigerators, color televisions and microwave ovens. *uring the %89&s, it expanded its business lines to personal computers 2%89#5, semiconductors, and telecommunication networks and devices 2%8995. ,or years, Samsung was regarded as a low end product manufacturer that made cheaper alternatives to the high end Bapanese products. Its products were not considered to be very reliable, and it did not have a very strong reputation amongst consumers. 'y the end of %88-, however, the company emerged as a leading semiconductor manufacturer in the *D($ 2*ynamic Dandom (ccess $emory5 market. It was the first case in )orea that Samsung, a domestic latecomer, successfully caught up incumbents and even became better than them in the world market. 'ehind their success was the management.s strong drive to develop the semiconductor business into a truly world class business and the company.s future growth engine. Samsung.s system of group wide coordination and governance enabled Samsung to concentrate its resources in the semiconductor business, which reEuired enormous investment. ,or technology transfer, Samsung relied on technology licensing, established an DF* center in Silicon Galley and invited Bapanese engineers to )orea on weekends to instruct )orean engineers in semiconductors. To secure human resources, Samsung recruited many )orean (merican engineers with semiconductors expertise, offering them attractive compensation and benefits. *espite a ma?or surge in its semiconductor business, Samsung was losing money in its appliance business during the mid %88&s, as it had not managed to improve the Euality and image of its products. $oreover, the (sian financial crisis of late %887 deteriorated the situation further, causing profits to drop from 3%86 million in %88" to 397 million in %887. To cope with its difficulties, Samsung launched a bold restructuring initiative in %887. The initiative aimed to restructure the company in accordance with /global standards.1 The company laid off %",&&& employees during the first year, and it sold or spun off unprofitable business units and manufacturing facilities. It also shifted more of its resources to the !0* 2!iEuid 0rystal *isplay5 and mobile phone businesses in order to diversify its revenue sources, which had previously relied on the semiconductor business. The emphasis on profitability and shareholder value was not typical of )orean firms at that time. The company.s unyielding emphasis on Euality, innovation, and globalization resulted in significant changes within the organization, and galvanized its foundation for future growth. (s the result of many years of reorganization, Samsung now has four ma?or divisionsH *igital $edia Cetwork, *igital (ppliance Cetwork, Telecommunications, and *evice Solution Cetwork. !E"hibit &' ($ It holds market leadership in several product categories I*D($,
-

SD($ , T,T !0* , 0*$( mobile phone, etc. !E"hibit )$ ,urthermore, the four divisions are closely connected to one another and in line with the company.s pursuit of /digital convergence,1 the company.s vision of its future. Samsung currently has -4 production>sales subsidiaries, #8 sales subsidiaries, and -branch offices all over the world. !E"hibit *$

III. Samsungs Mobile Phone Business

A +umble ,ecade !#-.(/#--&$
In %89#, Samsung initiated its mobile telecommunications business, which it hoped would become the company.s future growth engine. ,orty engineers, each of whom had previously worked either in the wireless telephone division or facsimile machine division, were assigned to a new unit named the /=ireless *evelopment Team.1 The engineers had no idea what to do first. In desperation, they decided to obtain a rough picture of a Bapanese made mobile phone. Then they asked the Samsung branch in Bapan to send them a Bapanese car phone. (fter disassembling and reassembling the sample car phone hundreds of times, the engineers roughly understood how a mobile phone works. In %89", Samsung was able to release its first built in car phone, the S0 %&&. 'ut the result was disastrous. The Euality was so poor that many customers filed complaints, and the company ended up cutting the number of engineers in the development team from forty to ten. )i Tae !ee, the then head of the =ireless *evelopment Team and the current president of the Telecommunications division, found himself in a ma?or Euandary in deciding whether or not to continue the mobile business. )i Tae !ee decided to stay on track. Je asked the company to buy ten $otorola mobile phones for benchmarking. It was a big expenditure for the company at the moment. Each unit cost about - million won, while the expected return on investment was uncertain. Jis engineers then went to work on analyzing them. $any of the phones were disassembled, and many were dropped or thrown away. They tested several aspects such as product design, Euality, durability, and optimal environment for communications. ,inally, in %899, Samsung developed its first mobile phone 2or /hand phone1 in )orea5, the SJ %&&. It was the first hand phone to be designed and manufactured in )orea. Jowever, customers still thought only of $otorola when they thought of mobile phones, and the Euality of
# 6 4

Static Dandom (ccess $emory Thin ,ilm Transistor A !iEuid 0rystal *isplay 0ode *ivision $ultiple (ccess

the Samsung phone was not good enough to break the customers. pre?udice. (lthough Samsung introduced new models every year, each model sold only one or two thousand units. =ith such disappointing sales, talks of dropping the mobile phone line arose once again. 'y the early %88&s, the worldwide mobile telecom market was growing rapidly, and many new players were entering the market. In )orea, $otorola accounted for "& 7&: of the market, and Samsung accounted for only %&:. Jowever, the engineers who participated in DF* for Samsung.s mobile phones had a strong desire that they would be able to succeed in their endeavor, based on the process of trial and error that they had already been through. The decision was made to continue with the mobile phone business. Jowever, the pro?ect leaders felt that a more deliberate strategy was needed.

A 0emar1able 2urnaround: 34e Management5 !#--&/#--*$

In %88#, an important event that resulted in a breakthrough for the development team occurred on a mountain one weekend. ( member of the marketing team was hiking in the mountains when he saw a man calling someone with his $otorola mobile phone. Je tried to make a call with his Samsung mobile phone too, but was unsuccessful. It was then that he realized that increasing connectivity would be a crucial factor. Je knew it would be especially important in )orea, since more than two thirds of )orea.s land is mountainous, and the radio waves do not transmit as far in mountainous areas as in flatter areas. It was decided that the development team would focus on improving connectivity. They found the optimal length of a mobile phone antenna and developed a method of using gold to connect the point between the antenna and the communication circuits, thus significantly reducing resistance and enabling steadier wave conductivity. They also developed the wave searching software that was specially designed for )orea.s topography. (nother event triggered Samsung.s mobile phone business. Kn Bune 6, %88#, )un Jee !ee, the then chairman of the Samsung @roup, presided over a meeting in Tokyo with his top executives and advisors to discuss future technology development in the company. Dight after the meeting, !ee asked several Bapanese advisors to have an additional private meeting. In this meeting, ,ukuda Shigeo, who was a design advisor, handed over a report titled /$anagement and *esign.1 The report criticized Samsung.s problems in design practices and offered recommendations on management. The report, the so called /,ukuda Deport,1 came as a shock to 0hairman !ee, and forced him to reexamine his efforts to improve the company.s system of Euality management, which he had worked hard at strengthening since he had become the chairman in %897. Je felt that he had
"

"

appropriate

technologies,

development

procedures,

and

design

)un Jee !ee, the third son of the founder 'yung 0hul !ee, took over the business and was appointed the chairman of Samsung @roup and Samsung Electronics.

to take action at that critical moment. Kn Bune 7, %88#, in ,rankfurt, !ee gathered -&& Samsung executives and pointed out every problem that Samsung had and emphasized that Samsung needed a turnaround and declared a new management initiative I /Samsung Cew $anagement.1 The /Cew $anagement1 is a management philosophy that conveys 0hairman !ee.s strong drive for change, particularly in the area of Euality improvement. Jis famous comment, /0hange everything except your wife and children,1 revealed how seriously he took the situation. The /Cew $anagement1 reached to the mobile phone business as well, and 0hairman !ee gave the division an ultimatumH /+roduce mobile phones comparable to $otorola.s by %886, or Samsung would disengage itself from the mobile phone business.1 )yung Bun 0heon, the then head of the product development team, was confident that his team could achieve the goal. (t that time, the development team had already come up with twenty ideas for improvement, from its hundreds of comparison tests on voice Euality, connectability and durability with $otorola.s products, and had been working on the development of solutions. Every weekend, the executives and engineers teamed up and traveled to the mountains all over the country. They tested connection Euality on the mountains, which the company had decided to focus on as the key differentiator against $otorola. Since the members were carrying heavy telecom eEuipment, sometimes they were mistaken as spies hiding in the mountains. In Covember %88#, the development team finally unveiled a new model, the SJ 7&&. =hen )i Tae !ee first got the phone from the development team, he threw it on the floor and stepped on it. Then he picked it up and tried making a call. Surprisingly, it worked. Since many people carry mobile phones in their rear pockets, !ee had reEuested that his team make a very sturdy phone. The phone could endure 97& kg of pressure, due to a special integration technology 2inserting many support pillars in the circuit body5. This model was Euite remarkable. It weighed less than any other company.s models, the design was compact, and its Euality was substantially improved over previous models. Each product manufactured was tested piece by piece to assure perfect Euality. +hones with any kind of defect were burned openly for all employees to see. 2The products that had been burned were worth %4 billion won, or 3%99 million.5 The burning ceremony ingrained the motto <Luality is +ride,. the essence of Cew $anagement, in every employee.s mind. In Kctober %886, the SJ 77& was introduced under the brand name /Anycall.1 It was a result of the marketing team.s effort at brand building. The model was an upgraded version of the SJ 7&&, with a few changes in design and improvements in product Euality. Samsung expected that branding would change customers. perception of Samsung.s mobile phone and build up their trust. (ggressive marketing campaigns started as well. (t the initial stage, the most important ob?ective of the company.s marketing strategy was to break customers. preconception that
4

Samsung.s phone would be inferior to $otorola.s. To market this idea of Euality, Samsung developed the slogan, Strong in Koreas unique topography. This slogan helped persuade customers that Samsung.s mobile phone was best fitted for )orea and its mountainous topography. It emphasized the fact that foreign products had been tested more in flat areas rather than in mountainous ones. In addition, the company launched a marketing campaign known as /0heon wang bong 2$t. 0heon wang5 +ro?ect.1 (s part of the campaign, the company held free trial events in famous mountain areas and on islands. Kn holidays, the events were held at highway rest areas. $any celebrities participated in the events. The company also focused on building good relationship with distributors, since consumer choice was largely influenced by the sales agents. product recommendations. Samsung employees visited about #,&&& distributors in the country and held new product launching sessions. Some employees gave the distributors gifts of oriental health supplements to let them feel that they were being taken care of. Samsung also began an agent referral program, in which distributors tested the Euality of Samsung mobile phones and permitted their names and pictures to be used in Samsung.s newspaper advertisements. ( full blown advertising campaign was run as well. 'y casting some of the most famous and respected actors in )orea in it ads, Samsung was able to create a strong association between the Samsung brand and Euality, credibility and patriotic feelings. 0ustomer testimonials also worked in a positive way. $any customers called Samsung to provide their opinions of the Samsung mobile phone. Kne customer reported that the phone was still working even after a car ran over it. (nother said the phone saved his life because he was still able to call the fire department even after his Anycall phone had been half burned. These stories were used in a series of television commercials, thus strengthening the connection between Samsung and Euality in consumers. minds. (s a result of all the extensive marketing efforts, the market share of Samsung mobile phones soared from -4.9 percent in Kctober %886, to 4%.4 percent in (ugust %884. In the same period, $otorola.s market share dropped from 4-.4 percent to 6-.% percent. Some people compared Samsung.s success to the story of *avid against @oliath. Co one but the development members had expected that Samsung would be able to beat $otorola.

Pioneering the C,MA Era !#--*/#--.$

0*$( service in )orea began in (pril %88", under the service of two mobile telecom carriers A S)Telecom and Shinsegi Telecom 2ST) merged with Shinsegi in -&&&5. In Kctober %887, three new mobile carriers, all +0S 2+ersonal 0ommunication Services5 providers, entered the market. Thanks to heavy investment and aggressive marketing by these new carriers as well as government subsidies for +0S phone purchases, the total number of mobile phone service
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subscribers grew rapidly during this time. In $ay %889, the mobile phone penetration rate had been %&:. 'y (ugust %888, it had reached 6-.7:. Samsung developed its first 0*$( mobile phone in $arch %88", to coincide with the launch of 0*$( service. The first digital handset, the S0J %&&, was extra light and slim, and enabled clear voice communication. In the digital era, voice Euality was not as important as it used to be. Dather, the focus of competition shifted to additional features such as design, weight, and the capture of delicate sounds. Samsung also developed a voice recognition function and embedded it into its handsets. 'efore long, Samsung became the leader in the +0S market. It partnered with )T,reetel and Jansol +0S to provide +0S phones. Its first +0S phone, the S0J %%&&, entered the market with innovative features, including a lightweight body, enhanced battery life, and the ability to capture delicate sounds. The design was targeted at the young generation because the young generation had emerged as a large and growing customer base . It also shifted its marketing communications strategy. ,or the 0*$( cellular market, it emphasized the phone.s new functions, for example, its voice recognition feature. ,or the +0S market, the company coined a new slogan, Strong in small sounds, to emphasize the mobile phone.s capability to capture delicate sounds. The slogan spread rapidly via the appearance of young idol stars in the +0S commercials and the execution of various I$0 2Integrated $arketing 0ommunication5 strategies. 'y the end of %887, one year after the 0*$( service was first launched, Samsung had achieved a 47: market share in the 0*$( cellular market and 49: in the +0S market. (lso, in (pril %887, it achieved sales of one million 0*$( phone units.
9 7

6lobali7ation !#--./ 8resent$

Samsung made its first foray into the global market in %88", when it exported its +0S phones to Sprint, an (merican 0*$( carrier. Sprint had been supplied with its +0S phones from Sony, but as it sought out more advanced phones, it realized that Samsung was one of only a few companies that offered such phones. Sprint signed a 3"&& million contract with Samsung, under which Samsung would provide its +0S phones to Sprint for three years under the co branded name /Sprint Samsung.1 Samsung worked with Sprint.s engineers to develop customized phones that would work uniEuely on Sprint.s network. This effort differentiated Samsung in the market, and the deal
8

To stimulate the +0S market, the )orean government provided subsidies to service providers, enabling them to provide customers with +0S handsets very cheaply or even for free. This enabled many young people to buy mobile phones. (ggressive marketing targeted to the young generation also helped increase demand. 9 The lower freEuency band 29&&$Jz5 service is called the <cellular. market to distinguish it from the +0S market, which uses the higher freEuency band 2%.9@Jz5. 3Samsung @ains @round on $otorola in 0ell +hone Sales, Chicago Tribune, $arch 7, -&&#

ended up a great success. (fter this first export success, Samsung expanded into Jong )ong 2Juchinson, 0*$(5 in %887, and 'razil 2TE!ES+ and TE!EDB, 0*$(5 in %889. (fter successfully exporting to 'razil, Samsung built a mobile phone production facility in 'razil in %889, in the hopes of expanding into !atin (merica. Samsung.s leading position in 0*$( technology and its significant domestic market share gave it the confidence and momentum to go abroad. Samsung targeted countries that use the 0*$( technology for mobile communication. In %888, Samsung secured the number one position in the worldwide 0*$( market where it accounted for more than 4&: of market share. Jowever, the worldwide 0*$( market was far smaller than the @S$ market, which accounted for 7&: of the total worldwide mobile communications market. $oreover, the domestic market was approaching saturation, and competition was becoming more intense. $otorola tried to reposition itself in the )orean market, and emerging domestic players, which were supported by exclusive distribution partnerships with service providers, actively launched new mobile phones. Thus, to achieve further growth, Samsung had to penetrate the @S$ market. The first @S$ model was the S@J -&&, which was made for European customers. 'ut it was not as good as the company.s 0*$( phone. It was difficult to hurdle the high entry barrier, which the then /'ig #1ICokia, $otorola, and EricssonIhad built for years. The company.s next few models didn.t attract Europeans, either. The development team realized that a simple change in the circuit system wouldn.t work in the European market. Thus, it decided to look more closely at the customer.s point of view. They found that Europeans preferred geometric, balanced, and simple designs. Msing this information, Samsung adopted <simple. as the design concept, then developed a new design to suit the tastes of Europeans. The S@J "&& was born in September %889. To market this model, Samsung changed its market entry strategy by adopting a high end strategy. Samsung needed to escape from its low end image. It figured that its new mobile phone, with its sophisticated design and distinguished functionality, would help it do ?ust that. 'efore the S@J "&& was launched, Samsung exhibited the model at many trade shows to build up a premium image. (fter the first stop in @ermany, many members of the press commented favorably to the Euality of the product. Taking this as encouragement, Samsung entered into Italy, +ortugal, ,rance, and England. (lthough the price was higher than that of competitors, the sales of the S@J "&& reached %& million units in the European market. The @S$ market accelerated Samsung.s growth, providing new opportunities. Samsung.s high end positioning, along with its Euality product, helped raise the prestige of Samsung.s mobile phones to that of a luxury good. In 0hina, for example, Samsung dominates the high end market. Though the average price of @S$ phones in 0hina is about %,"&& D$', Samsung mobile phones sell for about
9

#,&&&N6,&&& D$'. Even $otorola or Cokia, the first and the second players in 0hina, sell for -,&&&N#,&&& D$'. Though Samsung.s overall market share in 0hina is in third place, its share in the high end market 2over 6,&&&N4,&&& D$'5 is around 4&:. In the 0*$( market in 0hina, Samsung beat $otorola and became the number one player in terms of market share in -&&#. ,or most 0hinese people, a 0*$( phone is regarded as <cheap. or <free,. because the 0hinese government provides subsidies for the 0*$( phone purchases. Cevertheless, Samsung mobile phones are sold at prices 4&&N%,&&& D$' higher than average. In the M), Samsung.s market share has been growing rapidly since its entry in %888. Its market share in -&&& was -.":, but grew to 6.8: in -&&%, then to 8.8: in -&&-. Its estimated market share in -&&# was %4:. Thanks to such growth, Samsung was granted the /'est $anufacturer1 award twice by the $obile Cews (ward, an award that was previously given to Cokia and Ericsson. $oreover, the localization strategy has paid off in Europe. ,or instance, in @ermany, where service providers mainly compete in mobile contents, Samsung launched an online community called the /,unclub.1 Cot only does the /,unclub1 bring in customer.s attachment for Samsung, it strengthens Samsung.s relationship with its service providers. Through the /,unclub,1 Samsung proved that it is able to provide popular mobile contents, in addition to the handset itself. In ,rance, Samsung tries to connect technology and culture through what is called /culture marketing.1 ,or instance, in $ay -&&%, Samsung had an exhibition titled Samsung, going together with culture at the @uimet $useum and displayed its products, including its mobile phones. It was a provocative trial for a famous ,rench museum to display a company.s products rather than historical relics. (lso, it invited ,rench artists to the new product launching session in the 0hamps OlysPes. In 0*$( and @S$ markets combined, Samsung ranked 6 in the worldwide mobile phone sales in -&&-. In -&&#, the company firmly held the number three rank in terms of unit sales and number two in terms of revenues. !E"hibit .$
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IV. Samsungs

lobal Management
6lobal 09, !0esearch 9 ,e:elo8ment$

In -&&#, Samsung invested #.4 trillion won 23# billion5 or 9: of total revenues in DF*. It acEuired %,#%# MS patents in -&&#, ranking it %%
th

in the world in MS patent awarded.

!E"hibit -$ Samsung has about %8,7&& researchers working in DF*. Desearchers account for
8

approximately #6: of its total employees. Every year, DF* engineers developed about %&& new technologies and they work on the development of core technologies in the fourth generation 26@5 mobile communications and in next generation memory chips. Samsung.s Information and Telecommunication DF* 0enter is in Suwon, where the company.s headEuarters are located. This DF* 0enter was designed to incorporate all of its business specialtiesIsemiconductors, electronic components, multimedia, and telecommuni cationsIto maximize technological synergies among them. The Suwon DF* 0enter also interconnects with other DF* centers, both in )orea and in other countries. !E"hibit #;$ In the mobile business, Samsung has applied for %-,&&& patents in )orea and -4,&&& patents overseas since %889. The main focus of DF* is the development of new technology standards for 6@ communications and the mobile Internet. Samsung holds approximately one hundred patents related to #@ and 6@ technologies. Decently, Samsung sold its cdma-&&& %x EG *K
%&

system to Bapan and Southeast (sian countries.

6lobal Mar1eting
Samsung.s clever marketing strategies played an important role in lifting Samsung.s image from that of a low end manufacturer to that of a global digital technology leader. ,or effective global marketing and branding, Samsung established a new organization to deal with its integrated global marketing activities. Eric ' )im, who used to work at I'$, was recruited to lead the @lobal $arketing *epartment. Kne of his most important decisions was to cease all existing contracts with 44 advertising agencies and to sign a 36&& million contract with one ad agency, ,0' =orldwide. Since then, Samsung has unveiled a series of corporate branding campaigns and the slogan, Samsung !"!Tall# $%eryones in%ited. Kne of Samsung.s ma?or global branding strategies is Klympic sponsorship. In %88", Samsung was an unofficial sponsor of the (tlanta %88" Klympics, having sponsored the Samsung Expo in the +avilion of the $ain Stadium. In the same year, )un Jee !ee was selected as an IK0 member, and Samsung received an opportunity to participate in TK+ 2The Klympic +artners5. The IK0 proposed that Samsung participate in sponsoring the home appliance category for the Klympics. Jowever, Samsung wanted to utilize the opportunity to promote a high tech image, and felt that the home appliance category was not enough to emphasize Samsung.s technological advances. Samsung set its sights on the telecommunications category and believed that, through the Klympic sponsorship, it could shed its image as a low end home appliance maker and reposition itself as a high tech mobile communications company. To win the sponsorship negotiations, Samsung concentrated its marketing resources on the mobile
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cdma-&&& %x EG *K2Evolution *ata Kptimized5 is an advanced version of cdma-&&&, which upgraded the data transfer speed to maximum -.6$bps, from the cdma-&&&.s %66kbps.

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phone business. In %889, Samsung participated in the Cagano =inter Klympics as an official sponsor, and assumed the responsibility of providing all the mobile technologies needed for the Klympics. ,or this, Samsung allocated most of its corporate resources to the mobile telecommunications business. Samsung also participated in the mobile telecommunication eEuipment category in the Sydney -&&& Klympics and in the Salt !ake -&&- Klympic =inter @ames. Samsung.s Klympic sponsorship is planned to continue in (thens 2-&&65, Torino 2-&&", winter5, and 'ei?ing 2-&&95. In addition to its Klympic sponsorship, Samsung has been very active in sports marketing through the support of sporting events and athletes worldwide. It sponsored several eEuestrian gamesIfor instance, the ,EI 2,ederal EEuestrian International5 Samsung Cation.s 0up and the SS! 2Samsung Super !eague5 in ,rance. Samsung.s sponsorships in the world of golf also contributed to its global branding. Samsung thought a great golfer would increase brand value and the reputation of the sponsor, so it decided to sponsor Seri +ark ?ust as her career was taking off in the MS(. In addition, Samsung became an official sponsor of the S($SMC@ !+@( 2!adies +rofessional @olfer (ssociation5 =orld 0hampionship. $ovies have also taken on a significant role in Samsung.s marketing. ,or example, Samsung has shown its products A such as its monitors, TGs, mobile phones, etc. A through product placements in many Jollywood movies. (nd for the popular movie <$atrixH Deloaded,. Samsung actively participated in developing the /$atrix +hone.1 In -&&-, =arner 'rothers, the Jollywood studio that made the movie /$atrix,1 reEuested the three top mobile phone manufacturersICokia, $otorola, and SamsungIto develop a new /$atrix +hone1 for /$atrix Deloaded,1 the /$atrix1 seEuel. The studio specified that the phone should be highly usable, and that its design should be uniEue and suitable to the $atrix concept. It was a highly challenging design and engineering task. Samsung.s engineers and designers labored for six months to deliver a prototype. Mpon seeing the prototype, =arner 'rothers selected Samsung over Cokia, the company whose phone had appeared in the first $atrix series. The Samsung phone appeared in the seEuel, and 4&& units were produced for sales. Thanks to the popularity of the movie, Samsung.s $atrix +hone received a great deal of attention and acclaim. In )orea, Samsung ran an advertising campaign that included scenes from the movie. In this way, Samsung.s co marketing effort with the most hyped movie of the year contributed significantly to Samsung.s brand value. In evidence, Samsung won the /Super Deggie (ward1
%%

for its successful $atrix marketing in -&&6.

%%

The Deggie (ward is a prize given to the companies that have executed the most successful promotional campaigns. The +romotion $arketing (ssociation and the 'rand=eek are the co granters of the Deggie (ward.

%%

<nno:ati:e ,esigns and Products

Kne of the success factors of Samsung mobile phones is their innovative designs and functionality. The company developed uniEue but user friendly designs that were closely integrated with innovative product concepts, allowing it to launch many &irst'in'the'world mobile phones. The importance of design had risen to the fore with the release of the /,ukuda Deport.1 Then, in %88", the 0EK reemphasized the design issue and declared the year to be the /Qear of *esign Devolution.1 The ob?ective of the declaration was to reposition design, which had been regarded as a support function into the core of the firm.s product>market strategies. *esign was to be cohesively aligned to the Samsung.s brand strategy and managed so as to build up the corporate identity. In -&&%, this newfound focus on design was built into the organizational structure. The design organization in the company has been upgraded, becoming the *esign $anagement 0enter, which is under direct control of the 0EK. (nd a new executive position, the 0*K 20hief *esign Kfficer5, was created to manage the firm.s overall design strategy. ,rom then on, designers became directly involved in the entire product development process, from the very beginning, ?ust as were DF* engineers. Samsung also built a worldwide design network, establishing four overseas design centers, in San ,rancisco, !os (ngeles, !ondon, and Tokyo. The overseas centers are responsible for developing customized designs for international markets while maintaining a consistent Samsung brand identity. Kne uniEue practice in the *esign $anagement 0enter is the /precedent design system,1 Samsung.s design'dri%en strategy. The /precedent design system1 mandates the designing of products before the actual product is developed. Through customer research and lifestyle segmentation, the designers develop design samples in advance. These samples are then stored in a database called the /*esign 'ank1 for future development and shared among other designers. Throughout its history, Samsung has introduced a number of uniEue design features that have distinguished its mobile phones. Early on in its mobile phone business efforts, Samsung changed the location of the <SEC*. and <EC*. buttons. The two buttons had been located on the lower side of the phone, but the arrangement was inconvenient because one had to hold the phone with one hand and push <SEC*. or <EC*. button using the other hand. 'y relocating the buttons ?ust below the display window, it became easy for a user to push either <SEC*. or <EC*. with the same hand that was holding the phone. Samsung also fostered the development of /clamshell1 type phones, and it was Samsung that first designed a <dual folder. phone, which added an external display window to the clamshell type phones. (lso, Samsung.s Smart +hone 2a mobile phone>+*( handset5, the $+#
%-

+hone 2with integrated $+# player5, and the =atch +hone 2which was wearable on one.s wrist5 were all the first products of their kind in the world. !E"hibit ##$ Decently, Samsung introduced the /Intenna1 phone, which has an antenna embedded within the phone body, making the phone slimmer. It has also released a phone with a touch screen for playing mobile games, and one eEuipped with a remote control function. $any authoritative design awards have already recognized Samsung.s excellence in design. Samsung has been awarded the I*E(.s 2Industrial *esign Excellence (wards5 many times. $ost recently, it won the /i, *esign (ward -&&6,1 one of Europe.s most prestigious design awards, for eight products, including one +*( phone and two mobile phones. @uk Jyun 0hung, the director of the *esign Strategy Team, commented, /Kur basic goal is to make customers recognize Samsung.s products even when there is no logo attached.1
%-

V. Industry !utlook and "ey Challenges

<ndustry and Com8etition
The worldwide mobile phone industry achieved 47.# percent average annual growth from %88" to -&&-. In -&&-, however, the growth rate dropped to a " percent, due to several factorsI recession in the MS economy, sluggishness in the global IT industry, and delay in the rollout of the #@ services. 'ut the industry experienced increased activity again in -&&#, showing -&.4 percent annual growth. The forces contributing to the growth included increased demand from first time buyers in emerging markets 20hina, 'razil, India, Eastern Europe, etc.5, the introduction of function rich phones such as camera phones, and replacement demand in mature markets 2MS, =estern Europe, and some parts of (sia>+acific5. Total mobile phone unit sales reached about 4-& million units in -&&#, and are expected to exceed "&& million units in -&&6. !E"hibits #%' #&$ (t present, Cokia, $otorola, and Samsung are in the first tier group, and Siemens, Sony Ericsson, and !@ Electronics in the second tier. Jowever, the top three players have a hold on more than half of the total market, totaling 44.-: and "&: market shares in -&&- and -&&#, respectively. The mobile phone market leaders have achieved competitive advantages, based on technology leadership, economies of scales, brand power, and superior negotiation power over suppliers and mobile service providers. They have invested heavily in DF* to keep their technology leadership and to make their core technology into the industry standard.

%-

!ee et al., /Dising Samsung,1 Korea $conomic aily, p.%64, -&&%#

Jowever, as technologies and components are becoming standardized and modularized, the technology gap among the industry players is narrowing. Decently, new mobile phone manufacturers have begun outsourcing core technologies and product modules; in other words, the market entry barrier is getting lowered. (s the number of market players increases, those players are increasingly competing on price. !E"hibit #($ (lso, as the mobile phone market gets saturated, the demand for replacement will lead market growth. To stimulate the replacement demand, introduction of new mobile communications technologies and services will be reEuired, resulting in a shorter lifecycle for mobile phones. In addition, the market is diversifying at an increasingly rapid pace, embracing new technologies, features and applications. 0olor screens, Bava, multimedia messaging, consumer applications and enterprise applications now characterize the market that only recently was defined simply by high, middle and low tiers. 0onseEuently, product development leadership, i.e. the ability to develop innovative, new products that match well defined customer segments in a timely manner, will become a crucial capability.

,igital Con:ergence
/*igital convergence1
%#

is a key word in the -% century world of information technology.

st

Since the early %88&s, the concept of /convergence1 of media content, otherwise known as /multimedia,1 has become an important buzzword. Since the mid %88&s, many companies have been actively pursuing convergence in devices 2computing, appliances, communications, etc.5 and networks 2wired and wireless communications5. $any companies expect that digital convergence will provide great opportunities because convergence devices and services will cover larger market segments. Jowever, at the same time, those companies will have to compete with an increasing number of competitors. ,or example, $icrosoft 2a software company5 is competing with Sony 2an electronics company5 in the game industry. To succeed in the convergence era, a company must develop a core technology and make it the industry standard. *oing so will give the company a first mover advantage and additional revenue streams from its proprietary technology. ,or this reason, strategic alliances among companies have become more prevalent. ,or instance, Cokia recently introduced an enterprise smart phone in alliance with I'$, while $otorola launched a smart phone with $icrosoft. Kf the many digital products available, mobile phones are one of the most suitable

%#

/*igital convergence1 is a technology trend that drives convergence of various devices, services, and networks by means of digital technology.

%6

platforms for achieving a /ubiEuitous1 network . $obile phones have already become a part of people.s everyday lives, and people carry mobile phones anytime and anywhere. +lus, mobile phones have become more multi functional, integrated with digital cameras, +*(.s, camcorders, TGs and the Internet. $a?or mobile phone manufacturers, including Samsung, have focused on developing convergence technologies and products. In Kctober, -&&#, Cokia launched the C @age phone, which embedded online games, an ,$ radio, a digital music player, and $$S 2$ultimedia $essaging Service5. The C @age phone was sold 6&&,&&& units only in two weeks since its launch. (nd Cokia places top DF* priority on the standardized platform that is applicable to all of its mobile handsets and mobile software.

%6

Samsungs Key <ssues

Though Samsung has continued its success in the mobile phone business, it faces a number of challenges to keep the growth momentum in the future. ,irst, competition in the mobile phone market will become more intense. !ower entry barriers will bring in more competitors to the market, and the /digital convergence1 will accelerate the competition even further. 0ompanies from other industries such as +0s or network services will compete directly with Samsung. (s such, it will have to devise more creative win win strategies in the highly uncertain digital convergence landscape. Second, the sustainability of Samsung.s high end strategy, which was attributed to Samsung.s brand building, may be in Euestion. Samsung has achieved high profit margin, which is comparable to that of Cokia, mainly based on its high price, while Cokia has done so based on its cost dynamics. In terms of per unit cost, Cokia spends less on DF* and marketing. Kne might doubt whether the high end strategy can really be sustainable. !E"hibit #)/#=$ (s the mobile communications market becomes saturated, future revenue sources will come mainly from emerging markets 20hina, 'razil, India, Eastern Europe, etc.5. ,irst time buyers in emerging markets tend to prefer affordable phones. This could hurt Samsung unless it begins to cover the low and middle end markets. Cokia and $otorola, as well as many newcomers from 0hina, have already targeted those emerging markets. Jow to compete in the low and middle end markets, while preserving its premium brand image, will be important Euestions in Samsung.s future growth. Third, Samsung is highly dependent on foreign companies for core technologies and modules. ,or example, it sources core 0*$( base band chips from Lualcomm and sophisticated camera phone modules from Bapanese firms.
%6

%4

0onseEuently, the proportion of

( ubiEuitous network refers to the communication environment that enables a person to get connected to the Internet anytime, anywhere, and with any device. %4 In the case of the advanced camera phone modules, five Bapanese firms 2Sony, $atsushita, Sharp, Sanyo, and ,u?i

%4

royalty payment in total manufacturing cost is likely to increase unless Samsung develops its own technologies. Some industry experts argue that most of Samsung.s patents are on applied technologies, which are developed based on others. patent protected core technologies. Decently, Samsung experienced a shortage in the supply of Lualcomm chips and camera phone modules. This suggests that Samsung.s high dependency on core technologies and product modules would threaten not only its future profitability but also its competitive position. ,ourth, Samsung needs to strengthen its product portfolio in next generation phones. In the smart phone segment, Cokia has shown a great start, shipping 4.6 million units in -&&#, which accounted for 46: of the world market.
%"

In contrast, Samsung shipped only &.# million units,

and the shipment is even less than that of Sony Ericsson, which shipped &.9 million units.

,ilm5 dominate the world market. %" (oney Today, (pril 8, -&&6

%"

0eferences
0hang, S. and +odolny, B., /Samsung Electronics. Semiconductor *ivision 2(5,1 Stanford @raduate School of 'usiness 0ase I' -6(, -&&%

0ho, B., /Evolution of $obile Telecommunications *evices,1 !@EDI 2!@ Economic Desearch Institute5 Economy =eekly Gol."8&, -&&-

0hung, B., /The Secrets of the (nycall $yth,1 Jit +roduct Desearch Gol. -9", %888

Jyun, S., Jan, $., and Qeh, B., /(nycallH 'uilding a +owerful 'rand,1 )orea $arketing Bournal Gol. 4265, -&&6

Boo, T., /Samsung Electronics 0o., !T*.H *igital 0onvergence in the M.S. $obile +hone $arket 2(5, *arden @raduate School of 'usiness 0ase, MG( S &%&", -&&#

)im, B. et al., /,uture of IT industryH Technology and *irection,1 SEDI 2Samsung Economic Desearch Institute5 0EK Information, $arch -&, -&&)im, BJ., /Success Strategy of (dvertisementH Samsung (nycall,1 (dvertisement Information, Gol. -4&, -&&)im, B=. et al., /*igital Devolution and (dvances of )orean 0ompanies,1 SEDI 0EK Information, Buly -#, -&&# )im, $. and )won, B., /Strategies and Insights of $a?or $obile +hone $anufacturers,1 )IS*I IT ,K0MS, Gol. %42%65, -&&#

)im, S. and =oo, I., /)un Jee !ee, %& Qears of Deformation,1 The )im Qoung +ress, -&&# !ee, '. et al., /Samsung Dising,1 The )orea Economic *aily +ress, -&&-

Ca, B., /Three +aradox in the *igital 0onvergence Era,1 !@EDI Economy =eekly Gol."8&, -&&Ca, B., /0amera +hones, a Cew @rowth Engine in the $obile +hone Industry,1 !@EDI Economy =eekly Gol.7##, -&&#

%7

Ca, B., /0ritical (ssessment of @rowing $obile +hone Industry,1 !@EDI Economy =eekly Gol.7"7, -&&6

Cam, *., /Securing 0ompetitive (dvantage in the $obile 0onvergence Era,1 !@EDI Economy =eekly Gol.74", -&&#

/The #& Qear Jistory of Samsung Electronics,1 Samsung Electronics +ublication, %888 /Samsung ElectronicsH $r. Qun.s Efforts for Mpscale Image,1 I0,(I 'usiness School 0ase #&# %78 %, -&&# /*avid 'eat @oliathH The $yth of Samsung $obile,1 )'S, *ecember %-, -&&# 2'roadcasting material5

%9

E"hibit #

0omparison among ma?or IT companies to Samsung Electronics

#$B%

&'' ()' (*' (+' (&' ('' )' *' +' &' ' Sam s ung Intel 0okia
),.+ (,-.'

.).-

/,.. *./

/'.( ,.-

/+.*.'

/,.. /,.) './

Sony

SourceH Each company.s annual report 2-&&#5

E"hibit % 'usiness=eek> Interbrand.s @lobal 'rand Scoreboard

Brand Value ($B) &''/ ,'.+*-.(, -(.,, +&./+ /(.(( &..++ (/.(10.85 /.(' &''& *..*+ *+.'. -(.(. +(./( /'.)* &..., (/..' 8. 1 /.+&

Rank ( & / + * &' 25 )(

Company Coca1Cola Microso3t IBM E Intel 0okia Sony Samsung Motorola

% Change 2( 2& 2( 2& 2( 1& 1! 1 1.

SourceH 'usiness=eek /The 'est @lobal 'rands,1 (ugust 6, -&&#

%8

E"hibit & Samsung Electronics. Krganizational 0hart

C"#

C$#

%&g&'al (ed&a )e'*ork

8isplay

%&g&'al +ppl&an,e )e'*ork

System ;ppliance :i<ing

$ele,ommun&,a'&on )e'*ork
0et4ork

%e-&,e Solu'&on )e'*ork

Memory

(anagemen' Suppor'
Sales

8igital Video

Mobile

S9S1:SI

Center lobal Marketing 8esign Management Center CS Management Center

Computer System

!ptics

;M1:C8

Storage

umi Support Center 5elecom 678

8igital Printing !MS

Su4on Support Center

8igital Media 678

8igital Solution Center

SourceH 0ompany.s business report 2-&&#5

-&

E"hibit ( Samsung.s sales and profits by division 2-&&#5

%&-&s&on 8e<ice Solutions 5elecommunication? 8igital Media 8igital ;ppliance !thers $o'al Sales (,=.'+ (+=&'& ,=,+/=+'* /-& 0 1203 (%) +(.(> /&.*> (,.)> ,.)> '.)> 100.0% #pera'&ng .ro/&' +=-', &=,'/ (+1((( 1-( 4113 (%) *&.,> /,.*> &.'> 1(.-> 1'.,> 100.0%

R Telecommunications division deals with network eEuipment as well as mobile phones. Jowever, mobile phone business accounts for 8&: of total sales of Telecommunications division. Source H 0ompany.s website 2www.sec.co.kr5

S*ivision *escriptionT *evice Solution Cetwork H $emory, T,T !0*, SQSTE$ !SI Telecommunication H 0*$(, @S$ mobile phone *igital $edia Cetwork H *igital TG, !0* $onitor, !aptop, *G*, *igital 0amcorder, +rinter *igital (ppliance Cetwork H (ir conditioner, Defrigerator, =ashing machine, $icrowave Kven, Jome Cetworking

E"hibit ) Samsung.s world best products by division 2-&&#5

%&-&s&on
8e<ice Solution

.rodu,'
86;M S6;M 5@51:C8 @lash Memory

(arke' share
/&.&> &,.*> (,.*> (-.+> &/.'> ('.'> ('.'> &&.'> &-.(> (+.)> (-.(> &-.(>

Rank&ng
( ( ( & ( / ( ( ( & / (

5elecommunication 8igital Media

C8M; mobile phone Mobile phone 5V Monitor VC6 8V8P Camcorder

8igital ;ppliance

Micro4a<e o<en

SourceH 0ompany.s website 2www.sec.co.kr5

-%

E"hibit * Samsung.s @lobal Cetwork

Reg&on C o3 location 6egion 0orth ;merica :atin ;merica DS; BraEil= MeBico #&% .rodu,'&on Su5s&d&ary &Sales Su5s&d&ary /. Country #C o3 location% DS;#*%= Canada MeBico= ;rgentina= Colombia= Chile= 6epublic o3 Panama D"#/%= ermany#&%= @rance= Italy= S4eden= Poland= Portugal= 0etherlands#/% BraEil= Colombia= Peru= Chile Bran,h #//&,e &&

Europe

D"= Spain= Fungary

;ustria D;E= Iran= Egypt= Gordan= Saudi ;rabia= 5urkey= Morocco= ;lgeria= 5unisia= "enya 6ussia= "aEakhstan= DEbekistan China #/% Malaysia

Middle East and ;3rica CIS China Southeast ;sia and Gapan !ceania SourceH 0ompany.s website 2www.sec.co.kr5 China #('% Indonesia= 5hailand= Malaysia#&%= India#&%= Vietnam= Philippines=

South ;3rica= D;E 6ussia= Dkraine China #-%= 5ai4an Philippines= Gapan ;ustralia #&%

E"hibit = The *evelopment of $obile 0ommunications Technology

&''* &''&''+ &''/ &''&

AC8M;

(BEV18V cdma&''' (B655 EV18!

AC8M;

6
;ssume &''1/'' "bps

E8 E P6S

E8 E P6S

2.56
;ssume )'1('' "bps #E8 E% &'1+' "bps # P6S%

26 58M; C8M; SM
;ssume ..*1(..* "bps

&''(

(.)'s

;MPS DS base

SM Europe base

16
;nalog

Source H @artner *ataEuest, reproduced by case writer

--

E"hibit . The =orldwide $obile +hone Sales by $anufacturer 2%,&&& units5

200 Rank ( & / + * , ) (anu/a,'urer 0okia Motorola Samsung Siemens Sony Ericsson : Panasonic 0EC !thers $o'al Sales ()'=*,& ,-=(,, -+=+,+/=,-+ &*=*)* &*=&(+ (*=)'. (/=+))&=,(* 5131383 2002 (anu/a,'urer 0okia Motorola Samsung Siemens Sony Ericsson : Panasonic 0EC !thers Sales (-(=+&& ,&=)-/ +(=*)+ /+=*() &/=((/ (/=,.) ('=,*, )='),-=&.& 0 112 1 0okia Motorola Siemens Samsung Ericsson Panasonic 0EC ;lcatel !thers 2001 (anu/a,'urer Sales (/.=*&, -.='.& &.=,/&)=&/+ &*=.-* (-=**. (&=',((=,+,-=/), 381520

SourceH @artner *ataEuest 2-&&65

E"hibit - Samsung Electronics. DF* Expenditures 2-&&% -&&#5

)um5er o/ Resear,her (.=,'' (,=''' (-=''' 8n-es'men'
(5&ll&on 9R:)

7ear &''/ &''& &''(

% o/ Sales ).'> ,./> ,.+>

)um5er o/ ;S pa'en's (/(/ (/&. (=+-(

;S .a'en' Rank&ng . (( -

/=-'' &=.'' &=+''

SourceH 0ompany.s website 2www.sec.co.kr5

E"hibit #; Samsung Electronics. DF* Krganization

C"#

%&g&'al %&g&'al (ed&a (ed&a )e'*ork )e'*ork

Synthetic Research Lab Computer System Lab Multimedia Lab DVS Lab Digital Imaging Lab Display Lab rinting Lab !DD Lab "elecom System Lab #DC Lab

%&g&'al +ppl&an,e )e'*ork

Appliance Lab 1

$ele,ommun&,a'&on )e'*ork
C$C Lab

%e-&,e Solu'&on )e'*ork

Semiconductor Lab LSI Lab

Syn'hes&s $e,hnology 8ns'&'u'e 8ns'&'u'e

+ase "echnology Lab

In3ormation 7Media

8esign Appliance Lab 2 !A Communications Lab "elecom Lab In%ormation Computer Lab Daedu( Lab Manu3acturing 5ech

Living Lab

M!S Lab

+io,tech Lab

AMLCD Lab recedent "echnology Lab Memory Lab

+io,engineering Lab

;pplied In3ormation

&et'or( Lab

F88 Storage

Mobile "elecom Lab #) Lab !ptical material Lab hotoelectron Lab LCD Manu%acturing "ech* Lab LCD Development Lab

Credibility

SourceH 0ompany.s business report 2-&&#5

-6

E"hibit ## +roduct Doadmap

(.)*

(.))

(..+

(..*

(..,

(..)

(...

&'''

&''&

&''+

SourceH (nycall !and 2www. anycall.co.kr5, reproduced by casewriter

E"hibit #% End user Spending on $obile +hone Estimation, by Degion 23$5

C+6R 2002<2004 '.)> ('.'> 1&.,> 1/.&> 1-.'> (./> 1&./> /.-> 1'.&>

Reg&on Dnited States Canada :atin ;merica Aestern Europe Central and Eastern Europe Middle East and ;3rica Gapan ;siaHPaci3ic

2002 &+=+)& (=)-( +=-'&-=*(/ *=&*' +=&/. .=',) ()=*()

200 &-=/.. &=(-/ +=-'* &*=')/ -=,)) +=(,* .='*( &'='./

2000 &,='/, &=+&+=*-) &*=&+& -=.*& +=.'* .=*-( &&='++

2005 &*=,,/ &=+-' +=--, &+=)'-=-., +=,/) ('='/) &&=-'-

2002 &*=-&( &=+)( +=/'' &/=(/* -=/)' +=,,.=(*&&=*** .)=+&+

2004 &-=+.( &=.)& /=./) &(=,&, +=)// +=-&. )=',/ &&=(-* ./=,&.

Aorld4ide total .+=*+* .,=&-. ('&=.&('(=+*/ SourceH @artner *ataEuest $arket *atabook 2*ecember -&&# update5, reproduced by casewriter

E"hibit #& =orldwide $obile +hone $arket Estimation, by Technology 2%,&&& units5
$e,hnology C8M; 58M; SM AC8M; !thers 5otal 2002 ,/=&-+ &&=),+ &,+=(+& &=,.( +/=.(' +(*=.,( 200 .&=-'* /(=++* /'&=()' -='*+ &)=-'+ +-.=,'' 2000 ('+=')) &/=/-' /')=/&, (*=,.( /'=).+)/=+-( 2005 (&*=&/+ &+=.). +'*=).& &&=+-* &.=*,) *('=&+. 2002 (++=&&, (.=-(+/&=-'( &/=*.. &*=+), *+*=+&. C+6R 2002<2002 ().-> 1/..> (&.(> ,'.,> 1((..> ((.*>

SourceH 0ahners In Stat @roup 2-&&-. 65

E"hibit #( Trend of (S+ 2(verage Selling +rice5 2%88"N-&&65

$ +-' +'' /-' /'' &-' &'' (-' ('' -' ' (..* (.., (..) (... &''' &''( &''& &''/ &''+#E% 9ear

SourceH )IS*I 2)orea Information Strategy *evelopment Institute5, ad?usted by casewriter

E"hibit #) +erformance Decord of $a?or @lobal $obile +hone $anufacturers

Company 0okia #ED6m% &''& &/=&(( -&'( &&.+> ((=(,+ -'/ +.-> ('=*(* &=,'&-.-> &=/*( ./ /..> /=/-, +/+ ('.&> &''/ &/=*() -=+)* &/.&> ((=''. +,. +.+> (&=))( &*'' &'.&> +=*-( /) '.)> -=((. &-' +..>

6e<enues !perating Pro3it Pro3it margin #>% 6e<enues !perating Pro3it Pro3it margin #>% 6e<enues !perating Pro3it Pro3it margin #>% 6e<enues !perating Pro3it Pro3it margin #>% 6e<enues !perating Pro3it Pro3it margin #>%

Motorola

#$M%

Samsung #"6Ab%

Siemens

#ED6m%

#"6Ab%

SourceH (nalyst.s Deport, *aishin Economic Desearch Institute 2$arch #, -&&65

-7

E"hibit #* (verage Selling +rices of $a?or @lobal $obile +hone $anufacturer 235
Company 0okia Motorola Samsung Siemens : 2002 (+* (*/ &'* ((* (*& 200 (+. (+/ (.+ (&+ (-/ 2000(") (*+ (++ &'' (((*(

Source H (nalyst.s report, Tong Qang Investment 'ank Desearch 0enter, ,ebruary %&, -&&6

E"hibit #= 0omparison on DF* and $arketing Expenses

678 in Mobile Phone Business Samsung Motorola 0okia 0okia 0okia 0okia Motorola 678 eBpense per unit Samsung

Estimated 678 EBpenses #$M% Estimated 678 EBpenses #$M%

$ $

Sales 7 Marketing in Mobile Phone Business Samsung Motorola Motorola 0okia 0okia

Sales 7 Marketing eBpense per unit Samsung Samsung Motorola Motorola 0okia 0okia

Estimated Sales 7 Marketing #$M% Estimated Sales 7 Marketing EBpenses EBpenses #$M%

$ $

Source H Strategic (nalytics, reorganized by )IS*I 2)orea Information Strategy *evelopment Institute5