Period 2: 2002-2005

Period 2 corresponds to the years from the beginning of 2002 to the end of 2005.

During this time SEC’s ROA rose from 10.56% in 2001 to 20.48% in 2002, then fell to 15.20% in 2003, and rose again to 24.62% in 2004. At the end of the period in 2005, ROA

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again fell to 15.12%. SEC’s ROE followed a similar path, rising from 15.13% in 2001 to 29.01% in 2002, then falling to 20.26% in 2003, and rising to 31.32% in 2004. It ended the period falling again in 2005 to 19.27%. Unlike in Period 1, in which SEC’s changes followed the general trend of the industry average, in Period 2 SEC experienced more variation in Period 2. While the industry average sloped steadily upward from the end of 2001 to 2005, SEC’s profitability had peaks in 2002 and 2004, and low points in 2003 and 2005. The fact that SEC’s profitability remained higher than the industry average, even in its low points, is an indication that it was effective in dealing with the environmental shocks that affected the entire industry.

Sensing opportunities: premium product demand.

One opportunity that SEC sensed in Period 2 was the demand for premium products, which is evident in the statement “We drive competitiveness through bringing premium products to global markets” (SEC, 2003). In its statement that “[c]onvergence Samsung-style begins with figuring out what consumers want before they know they want it” (SEC, 2004), SEC clearly shows that it is in touch with both who its customers are and what they want. In 2003 SEC showed that they sensed the opportunity to meet the demand for premium products when it stated that their “success depends on a continual stream of stylish, innovative

products that deliver unexpected delight” (SEC, 2003).The demand for premium products was made clear when “[d]espite the unfavorable business environment, Samsung Electronics posted a second record-breaking year in a row” and the exceptional financial results “were driven by sales of premium products” (SEC, 2003).

Making timely and market-oriented decisions: premium product demand.

SEC’s decisions for dealing with competition have evolved as the company has grown and expanded into new areas. Initially, SEC made the decision to enter into low-end

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consumer products (TVs and microwave ovens, for example) at the declining end of their product lifecycles. The decision to enter these particular markets was made to present the

“least threatening profile to the industry leaders who were supplying the technology” (R. Kim, 2007). According to Kim (2007), “After acquiring technological competence and

competitiveness,” SEC made the decision to transform itself “from commodity product supplier of mass production for export market to supplier of brand name high-end products, supported by advanced in-house R&D.” In this way it began to diversity its product mix.

According to Lee, “Entering the 2000s, Samsung Electronics aimed at a ‘digital convergence’ strategy where it diversified product mix to provide full-range products from memory chips to high-end state-of-the-art consumer products” and it “would aim for convergence through continuous innovation in product lines” (J. Lee & Slater, 2007).

Changing resource base: premium product demand.

In order to support their decision to meet the demand for premium products, SEC diversified its product mix by adding new high-end state-of-the-art products to its portfolio.

Some of the products include “high-value mobile handsets, flash memory chips used in digital cameras and MP3 players, and LCDs for notebook PCs, desktop monitors and televisions” (SEC, 2003). In 2005 SEC “achieved yet another milestone in the data storage industry by expanding the scope of high density NAND flash memory application to products such as MP3 players” and it saw further opportunities in the commercial launch of its new broad services such as DMB (Digital Multimedia Broadcasting) and WiBro (Wireless Broadband) in 2005 (SEC, 2005).

Sensing threats: rapidly changing competitive environment.

Some of the greatest threats facing a firm in a dynamic industry like that of SEC come from a firm’s competitors. In order to compete effectively, a firm must predict where the

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industry is going, and how its competitors will respond to changes. It must then attempt to stay ahead of its competitors by reacting more quickly and effectively than they do. SEC has proven itself to be very good at doing just that in an industry characterized by rapid changes and uncertainty. In the 2002 annual report Jong-Yong Yun said, ““With continued

uncertainty, now a permanent feature in our lives, our Digital-E Company is more important than ever” referring to the firm’s strategy for addressing the digital and networking revolution (SEC, 2002), and in 2003 he reiterated that the rapidly changing environment is one of the firm’s biggest challenges (SEC, 2003). The following year he went on to say that there was

“no room for complacency” because “every day competition grows tougher” as competitors vie for leadership and “up-and-coming manufacturers rapidly close the gap as they learn how to tap the power of the digital revolution” (SEC, 2004).

SEC also found itself in new territory as it moved from a follower playing catch up, to an industry leader. It could no longer sit back and watch the leaders to see what it had to do.

As a new leader, SEC realized that it must define own path as opposed to being able to just follow the leaders (SEC, 2005).

Making timely and market-oriented decisions: rapidly changing competitive environment.

In response to the changing competitive environment, SEC decided to use its Digital-E company to increase value in its supply chain as well as by the setting of a goal to

“complement and encourage innovation [on cost] to increase market impact worldwide”

(SEC, 2002). This has been accomplished in part by the implementation of an Enterprise Resource Planning (ERP) system, (SEC, 2002).

As part of the changing environment, price came up again in 2004 when, in the message from the CEO, Jong-Yong Yun pointed out that, “Margins in the semiconductor and LCD businesses—the key drivers behind our strong profitability in recent years—are under

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pressure as supply outruns demand” (SEC, 2004). In the face of this threat, SEC responded by cutting costs by striving for “greater efficiency across the entire supply chain” (SEC, 2004).

Another way that SEC decided to respond to the rapidly changing environment was through innovation on products, technology, marketing, cost, global management, and organizational culture (SEC, 2003).

Changing resource base: rapidly changing competitive environment.

To meet its goal of bringing increased value to its supply chain, SEC changed its resource base to “use E-Processes connecting R&D, production, and marketing to customers and partners—a disciplined approach that brings value to every part of our supply chain,”

which has been accomplished in part by the implementation of an Enterprise Resource Planning (ERP) system, (SEC, 2002) and supply chain management system (SEC, 2005).

In terms of changing its resource base to meet the challenges of a rapidly changing competitive environment through innovation, SEC introduced a “stream of stylish, innovative products,” made large investments in R&D “to develop and retain key technologies and core technological manpower,” invested in brand building, worked to control costs in “ways that complement and encourage innovation to increase market impact worldwide,” developed

“highly localized product strategies to meet each market’s unique needs, while making changes to shorten and accelerate the decision making process worldwide,” and created “a work environment where communication is active and issues and inspirations are raised without hesitation, and where everyone shares the freedom to learn from mistakes and succeed” (SEC, 2003).

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