4.

7 Other Competencies 1

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 4.6). 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 lower-end
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
4.7 Other Competencies 2

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 4.8 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. 4.8.
4.7 Other Competencies 3

Table 4.6 Competencies of Samsung and Apple

Category Items Samsung Apple Winner
Competency Cost Low price Accessible-affluent price Samsung
Flexibility A wide variety of phones Intentionally fewer options Samsung
with a wide array of to keep focus on simplicity
features at a wide array of
price points
Quality High quality allows the High primary performance, Apple
successful capturing of low- focus on aesthetics, special
end customers and leaves features, perceived quality,
potential for upgrades conformance and
serviceability
Time Delivery on time, strong iPhone fans often wait Samsung
supply chain management
Value chain Software Relies on Google’s iOS; applications availableApple
activities design Android operating system through proprietary app store
Hardware “Crisis of design” Hardware leader for all six Apple
design generations of iPhone
Components Made in-house by From Samsung, LG, and Samsung
Samsung Japan Display; often at risk
of supply shortage
Assembly Samsung-operated Outsourced to Foxconn, Samsung
assembly plant allows for introducing risks and various
risks to be controlled ethical concerns
Distribution Charges low subsidies to Charges high subsidies to
and all carriers, to deliver the S/A limited number of
channels most phones carriers, to make the most profit
Customers Far broader customer base High loyalty of Apple fans S/A
which expands beyond
mobile devices
• 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.
4.7 Other Competencies 4

Google software Apple software

design (Android) design (iOS)

Samsung hardware design Apple hardware design

Samsung parts Samsung, LG, Japan Dis-

manufacturing play part manufacturing

Supply chain of Supply chain of

Samsung assembly VS. Foxconn assembly
Samsung Galaxy Apple iPhone
Distribution with Distribution with
most carriers limited carriers

Samsung sales Apple sales

Service in carriers
Service in carriers and App Store

Android or Samsung fans Apple and iOS fans

Fig. 4.8 “X” comparison framework for supply chains of Samsung Galaxy and Apple iPhone

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 8megapixel camera, dual-core 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 long-term 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 still-growing smartphone
market. Apple’s strategy revolves around the high subsidies it charges to carriers who wish to offer the
4.7 Other Competencies 5

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 Blu-ray 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.

1. Is quality the most important competency of Apple? If yes, how has Appleachieved 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 itssupply chain, what is the most
important activity in strategic leverage?
5. Are the lawsuits filed by both companies being used as strategic weapons?
6. Optional question: Using the “smile curve” (see Chap. 6), analyze these two supply chains.