In my continual analysis of Samsung for many in the industry, I have frequently pointed out the fundamental issues that have led to their current struggles. I had a friend remind me that, over two years ago, I gave a presentation to his VC firm where I pointed out Samsung would face struggles. He reminded me that, at the time, it sounded crazy but in the end I was right. Through our discussion, the topic came up on how to turn Samsung around. I decided I would write up my thoughts.
The Heart of the Matter
Ultimately, Samsung’s fall was fully predictable. In modular ecosystems (ones where you ship a core part of your product or experience which belongs to someone else) will always be susceptible to text book disruption. Samsung wanted to compete with Apple, and they did for a brief time, but ultimately Apple was never really their competition. Other players in the Android ecosystem were, and unfortunately for them, other vendors created good enough hardware that is continuing to eat into their market share.
I highlight this reality in my post on the regionalization of the smartphone market. If you recall that post and the charts that accompany it, you recall in every market but their own in South Korea, Samsung is losing share to the local player who has home field advantage. In China, it is Xiaomi and a host of other Chinese vendors. In India, it is Micromax, XOLO, Lava, and a few others. In the US, they have never led in quarterly sales.
The culprit is the Shenzen ecosystem. This is a radically efficient and rapidly scaling ecosystem of groups of manufacturers who can take a product from nothing to time to market in less than a month. A leading SoC provider from China told me they can get a new customer up and running and in the market with new smartphones and tablets in less than two weeks. Any company can enter this ecosystem, and build “good enough” products to be extremely disruptive.
As an aside, I had a colleague mention, as we spoke about the Shenzen ecosystem, that all this ecosystem needed was a good idea. Now they have Kickstarter for ideas. The key point is product coming out of this region is getting really good.
The Shenzen ecosystem is enabling local manufacturers to build high quality, good enough products and challenge the foreign brands. We are hearing about new smartphone companies coming out of China, Brazil, Vietnam, Europe and more. Local vendors’ home field advantage fueled by a Shenzen ecosystem is starting to rival Samsung with scale and is the thorn in their side.
So what can Samsung do? The obvious answer is chase the low end. However, I think a more interesting alternative may exist.
Procter and Gamble
Why am I bringing up Procter and Gamble in a tech article about Samsung? It is because, as we connect the planet with consumer electronics at extremely affordable prices, I believe we will see similar dynamics to consumer packaged goods come to the consumer electronics industry.
What makes Procter and Gamble successful in global markets is how they regionalize their products and brands. P&G spends a great deal of time researching local markets, understanding consumers needs in those markets, and then creating solutions that meet the unique needs of a region. Often, they use a brand unique to those regions and they market these products differently everywhere. Consumer packaged goods is both commodity but also a continual fight for differentiation. As smartphones reach $10, and as tablets reach $25 it seems inevitable nearly all the dynamics of regionally focused brands, products, and solutions found in consumer packaged goods will come to the tech landscape.
For Samsung, it is essential they get scale. They are oriented in a way many of their core business components depends on the product groups to move significant volume. For the last decade or so, Samsung has achieved their scale by employing a fast follower strategy and executing that strategy at scale. I’m not sure any tech company on the planet is capable of doing this the way Samsung can. This is why they are the most interesting to follow a model like Procter and Gamble’s.
Samsung can ultimately combat the regional brands, who are eating their lunch, by creating regionally focused brands, product, services, and marketing of their own. This would require some significantly different ways of thinking within Samsung to actually do what I suggest. Yet other than just chasing the low end, I’m not sure how else they can recover their former scale. Following Apple is no longer a viable option for growth.
Ultimately, it can be argued the best thing that could happen to Samsung is for Apple to do something truly innovative. The problem is, by being modular, anything they do will be copied and at much more aggressive prices. Apple’s monopoly on iOS allows them to sustain a premium strategy. Samsung doesn’t have such a luxury.