can samsung stop the exodus?
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Technology
70 | GlobeAsia September 2014
Samsung has some rough waters ahead. While still the biggest smartphone seller in the world, its last few quarters reveal
an alarming trend. The company’s market share plummeted from 32.6% to 25.2%. If that wasn’t enough, news broke in quick succession that Samsung had lost its crown as top mobile seller in India and China to local manufacturers Micromax and Xiaomi respectively. This is extremely worrying given the fact that these countries represent the greatest potential growth markets for the company.
Samsung, for the record, predictably dismisses the report, citing its own internal figures and those of an outside firm (which it did not name) indicating that Samsung’s market share is at least twice that of its nearest competitor. The fact that this outside firm remains nameless is probably a good indication of its willingness (or lack thereof) to stand by its statements.
Samsung cheerleaders have been quick to point out that the same report seems to indicate that Samsung’s market share in the smartphone category specifically remains strong even as its overall mobile market share took a hit. Unfortunately in August, Fitch Ratings, a US-based credit rating agency, poured cold water over even this thin glimmer of hope. Nitin Soni, director of corporate rating at Fitch, announced that he expects Samsung’s smartphone market share to fall from 31% to 25% in 2015: A decrease mirroring their recent drop in overall mobile market share.
Soni’s view is not isolated either. Bernstein Research analyst Mark Newman also noted that Samsung would likely see some challenges if it does not drastically modify its strategy. Market share is tricky to gauge however, and the numbers are controversial. Cyber Media Research, an India-based research firm, has Samsung’s share at 40.5% but slipping. Whatever figures you choose to believe, none of these numbers add up to a good time for Samsung.
Samsung’s culture does it no favorsSamsung’s Achilles heel is its rigid militaristic culture. While previously the source of its strength and its ability to respond quickly
to threats, it has quickly become a liability. Samsung’s culture does not encourage free expression of ideas. In line with the general culture of the region, the company is heavily influenced by Confucian ideals. These may work great when there is effective leadership at the top, but they can be disastrous when the leadership is young and untested.
Unfortunately, Samsung’s chairman Lee Kun-hee remains hospitalized following a heart attack in May and his son, the Harvard-educated heir apparent Jay Y Lee, has been unable to cure what ails the company. Such little information is sent upstream in these hierarchies that
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management is unable to quickly respond to changing scenarios without better guidance from leadership.
Samsung uncompetitiveExacerbating the issue is Samsung’s abysmal pricing policy. The company has shown little interest in competing with cheaper competitors in countries like India and China with even remotely attractive specs in the mid to low range. While it continues to make more money than its competitors, Samsung protects its margins at great detriment to market share. This myopic strategy has caused a mass exodus of its user
base. Ultimately lower sales will lead to lower margins anyway because Samsung’s will lose the benefit it gleaned from scale, thus invalidating the whole purpose.
This problem has wide implications if one considers that many smartphone users invest in ecosystems and Samsung’s appears to be wasting away on the vine. Marc Newman of Bernstein Research proposed recently that Samsung should consider taking a drastic hit on its margins down to 15.5% from 23% in order to freeze out the cheaper competition.
Newman’s theory is interesting because unlike Samsung’s competitors, the company remains one of the best vertically integrated companies in the world, making many of the components that eventually end up in its products. This gives Samsung an advantage that few Chinese competitors (who have to actually buy components from outside sources) can overcome.
According to Newman, the plan would lead to Samsung’s competitors either going out of business or needing to consolidate to take on the top dog. Either way, it’s an option Samsung should consider before it has to cede the entire low-end and mid-tier segments to competitors.
Samsung must simplify its offeringsWhen Steve Jobs rejoined Apple one of the first things he did was go through the product portfolio and simplify. Yes, this meant axing a few potential products on the way but it was the right thing to do. Samsung needs just this sort of approach.
Samsung’s biggest branding issue is its affinity for naming products so confusingly similar that there is little differentiation, brand-wise, between their mid-tier offerings and higher-end lines. Last year for example we saw the launch of no less than five versions of the Galaxy S4 and this year the trend continues with the S5 Mini, Zoom and Active.
This isn’t an isolated trend. Perhaps you’ve heard of the Galaxy Grand? Or the S Duos, or perhaps the Y Duos or maybe the Galaxy Grand Quattro – for the people who thought Samsung needed just one more Galaxy to round out their universe.
Jason FernandesTech commentator and the founder of SmartKlock.
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Samsung’s Achilles heel is its rigid militaristic culture. While previously the source of its strength and its ability to respond quickly to threats, it has quickly become a liability. Samsung’s culture does not encourage free expression of ideas.
Technology
72 | GlobeAsia August 2014
Some steps in the right directionTo be clear, Samsung has taken some steps toward addressing its culture problem. The company ushered in its “Creative Lab” program where employees can work on ideas they think are worthy both individually and in a group. According to company figures almost 14,000 ideas were worked on in just one year. Programs such as these and Google’s famed “20% time rule”, where employees spend 20% of their time on pet projects, are legend for inspiring excellence and innovation among workers.
Samsung also recently hosted a “Grand Discussion” via its internal message board that generated enormous interest among its staff. More concrete steps are needed and a sustained effort is imperative if Samsung is to buck the present trend. A recent Reuters article on the subject laudingly refers to positive changes Samsung has made in allowing workers on its main campus to wear shorts on weekends and allowing female staff maternity leave without fears about job security.
Samsung will need to do much more. I hate to point out the obvious here, but sartorial choices aside, why are workers slaving through the weekend in the first place? And since when do we count maternity leave without the risk of being fired as a plus? When a company like Samsung has to set the bar this low to find positive spin, its clear something’s not working.
Stemming the bleedingSamsung has occupied the enviable position at the top of the heap among smartphone vendors since its initial foray into the segment. It fought hard for this position but now appears surprisingly disinclined to protect it. Its losses in the Chinese and Indian markets are indicative of the fact that it simply has not taken Chinese manufacturers seriously at all. While Samsung ignores these manufacturers, consumers don’t. Buyers seem decidedly more comfortable making the switch to Chinese low-cost manufacturers now that their devices have improved markedly on quality.
Samsung will need to attack this trend head-on if it is to stop hemorrhaging market share. This may involve taking a hit on margins but if it doesn’t tackle this quickly, it will soon look around and find that when it comes to the smartphone segment, it’s on the margins itself.
Compare this with Motorola’s smartphone portfolio. Motorola has released the high-end Moto X, the Moto G and the low cost Moto E. Motorola consumers know exactly what to expect for their money. Samsung buyers don’t know what to make of the Galaxy S or Galaxy line of phones because there is such great variation in features and capabilities between devices that often bear mostly the same name. The company should pick three levels; high-end, mid-tier and budget and limit their offerings to just three corresponding products.
Given its metal body, some have suggested Samsung’s Galaxy Alpha could be the company’s attempt at launching a premium line of products but I am not hopeful. Given the substandard screen and less-than-stellar specs, it is much more likely that the Alpha line will give birth to many a forgettable device arising from Samsung’s mis-guided strategy to market to everybody all at once.
Samsung has occupied the enviable position at the top of the heap among smartphone vendors since its initial foray into the segment. It fought hard for this position but now appears surprisingly disinclined to protect it. Their losses in the Chinese and Indian markets are indicative of the fact that they simply have not taken Chinese manufacturers seriously at all.
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84 Unfinished legacyMany charge that President Susilo Bambang Yudhoyono did not do enough in his two terms, but forget that Indonesia has made some significant strides in the last decade. Like it or not, it’s where the next leader has to start.
Knowledge at Wharton100 Arianna Huffington on how to ‘Thrive’
Motoring104 Sheer driving pleasure: The new BMW i8German carmaker BMW’s new offering promises to meld top-end sports performance with a green slant.
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Living the Good Life118 Backed by innovationA new Jakarta restaurant, Akira Back, offers Japanese cuisine like you’ve never seen it.
Back Page120 Kalimas Surabaya
Columnists20 Paulius Kuncinas Merger plans set to transform Malaysian banking sector
22 Steve Hanke Europe’s depressing dog day of summer
26 Suryo Sulisto Energy Policy: Do we have one? 28 Jamil Maidan FloresThe UN Alliance of Civilizations: The final legacy of Ali Alatas
66 Wijayanto Samirin and Muhamad IkhsanUncertainty
70 Jason Fernandes Can Samsung stop the exodus?
92 Keith Loveard A new beginning, or a false start?
96 Scott YoungerMini-hydro, geothermal and regional development
contentsVOLUME 8 NUMBER 9 / SEPTEMBER 2014
64 Creating a foothold in pharmaceuticals Like many other world-changing inventions, the industry of specialized glass-making began as a solution to a problem. In Schott’s case, that involved the microscope.
Special report74 Harnessing a brand’s mightBeyond financial performance, Indonesian companies should be keeping an eye on the value of their brands.
78 All about the moneyWith incomes on the rise and many cultivating a taste for the high life, luxury brands are doing brisk business.
80 Up in the cloudA new CEO at the helm, Microsoft is taking a new direction with a mobile-first, cloud-first agenda.
Interview86 Alwi Shihab: Indonesia to witness change Alwi Shihab, a prominent Islamic scholar of Nahdlatul Ulama and former foreign minister under President Abdurrahman Wahid, now advises president-elect Jokowi on religious issues as well as foreign policy.
90 Making things happenIn today’s globalized world, productivity is the name of the game and emerging markets such as Indonesia have to innovate. Kaushik Das, chairman of McKinsey Indonesia says the country must do a few simple things right.
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It has been an exhilarating ride but after the ruling of the Constitutional Court affirming
the Jakarta governor’s victory in the July direct presidential elections, hopefully the focus can now shift once again from politics to business.
Joko Widodo will be sworn in as the nation’s seventh president in October. The president-elect moved swiftly to allay any fears of politi-cal division and paralysis under his administration by declaring that Prabowo Subianto and Hatta Rajasa, the losing presidential pairing, are his “best friends.” That statement may be stretching the truth a little after a bruising election and post-election battle, but Jokowi has laid the grounds for a possible reconcili-ation.
Politics will still be top of mind for the next few months and into the early months of the new administra-tion. The new president will need as many allies in parliament as he can get if he is to pass his ambitious reform program. But given his savvy and willingness to reach out, the signs are optimistic.
Political certainty will be good for business. For the best part of this year, business and the economy have taken a back seat as the country has
focused on the two major elections. Now hopefully it can turn its atten-tion back to business and getting the economy back on a solid growth path.
The new president will have his plate full. He will have to move quickly to address the fuel subsidy issue by rising prices in a controlled manner. There is now wide accep-tance that the country simply can-not afford to continue to subsidize fuel, both for fiscal reasons as well as for social and economic reasons. As such, as argued by the chairman of the Indonesian Chamber of Com-merce and Industry in this issue (see page 26), a new energy policy is ur-gently needed.
The reliance on costly fuel im-ports has to stop before it bankrupts the country and sets it backwards. A new energy policy that focuses on more efficient consumption, greater diversity of energy sources and better distribution will encourage more investments and promote new industries. It will lead to innovation and research, which will ultimately benefit all Indonesians.
President-elect Jokowi has also explicitly noted that he will not en-ter into horse-trading for cabinet positions and that cabinet ministers cannot hold party positions. This will ensure greater professionalism and limit political agendas within the cabinet, leading to better decision-making on critical issues. We hope that he keeps to his word.
The business community is look-ing forward to a possible new era under the next president. He has much work to do and many hurdles to cross but if he can remain true to his campaign promises there is great hope for the future.
Shoeb K. ZainuddinGroup Editor in Chief
Editor’s NoteEditorialGroup Editor in ChiefShoeb K. Zainuddin
Managing Editor Yanto Soegiarto
Deputy Editors Aloysius UndituMuhamad Al Azhari
Editor at LargeJohn Riady
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