Samsung China

SAMSUNG CHINA

September 12, 2002

BUS 610 (Man. Econ.)

J. Suyderhoud, Instr.

Castaways

Alex H.

Brandon M.

Chandra H.

Rajesh B.

Stuart W.

Rural Urban

Low-Med end Barriers to Entry: Barriers to Entry:

Economies of Scale High Economies of Scale High

Product Differentiation Low Product Differentiation Med

Capital Requirements High Capital Requirements High

Access to distribution Channels High Access to distribution Channels High

Cost disadvantages Independent of Scale Med Cost disadvantages Independent of Scale Med

Government Policy Med Government Policy Med

Expected Retaliation High Expected Retaliation High

The Entry Deterring Price Med The Entry Deterring Price High

High-End Barriers to Entry: Barriers to Entry:

Economies of Scale High Economies of Scale High

Product Differentiation High Product Differentiation High

Capital Requirements High Capital Requirements High

Access to distribution Channels High Access to distribution Channels High

Cost disadvantages Independent of Scale High Cost disadvantages Independent of Scale High

Government Policy Med Government Policy Med

Expected Retaliation Low Expected Retaliation High

The Entry Deterring Price Low The Entry Deterring Price Low

I. Threat of Entry

Determinants Rating Significance

Economies of Scale High Necessary to produce high volume in order to be profitable

Product Differentiation High The brand and quality perceived with the brand are important in this market

Capital Requirements High Need significant amount of investment to enter the market

Access to distribution Channels High The Chinese market is structured in a way that makes it difficult to gain access to distribution channels. You need a high distribution rate in order to succeed in this market

Cost disadvantages Independent of Scale High Technology and the learning curve creates high barriers

Government Policy Med Government policy is rated medium, as although they encourage foreign investments, the mandatory five-day workweek would create over-employment.

Expected Retaliation High Sony and Matsushita, controlling 75% of the segment with experience, are expected to retaliate fiercely.

The Entry Deterring Price Low Foreign brands command a premium over the domestic. The entry price is attractive to new entrants because of high profit margins.

Based on the table above, the barriers to entry for the high-end/urban market seem very high. To illustrate, in the table above, the high-end/urban portion of the matrix refers to 29-inch model color TV. In this area, the majority of the determinants are rated as a high entry barrier. Government policy is rated medium, as although they encourage foreign investments, the mandatory five-day workweek would create over-employment. Sony and Matsushita, controlling 75% of the segment with experience, are expected to retaliate fiercely. The only positive, the entry-deterring price, is attractive as foreign brands currently command a premium and the urban dwellers have the necessary income levels. In view of the cons outweighing the pros, we find that the prospects of profitability for making and selling the 29-inch TV in China are low based on Porter's Threat of Entry force. The grid below is a breakdown of the threats to entry for the High-end Urban segment of the market.

Rural Urban

Low-Med end Bargaining Power of Suppliers: Bargaining Power of Suppliers:

Workers Med Workers Med

Capital Low Capital Low

Raw Materials Med Raw Materials Med

High-End Bargaining Power of Suppliers: Bargaining Power of Suppliers:

Workers Med Workers Med

Capital Low Capital Med

Raw Materials Med Raw Materials Low

II. Bargaining Power Suppliers

Our group found that information relating to the bargaining power of Suppliers was limited. However, we assumed that for all segments, the worker's bargaining power, capital and access to raw materials were medium to low. We arrived at this conclusion because labor is relatively cheap and plentiful in China, and without organization. However, the over-employment requirement diminishes the advantages. Capital is available as Samsung announced it would be investing an additional US$4 billion in China by 2000. We assume access to raw materials is readily available from either Korea or through vertical integration. However, the importance and the logistics of the integrated/imported components may be a problem. Based on this data, we concluded that suppliers bargaining power was medium to low. The grid below is a breakdown of the bargaining power of suppliers for the High-end Urban segment of the market.

Bargaining Power of Suppliers: Rating Significance

Workers Med Labor is relatively cheap and plentiful in China, and without organization. However, the over-employment requirement diminishes the advantages.

Capital Med A company can obtain various sources