Samsung Global Supply Chain Management

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Regarding investment decisions, Samsung uses discounted cash flow analysis to determine whether an investment is worthwhile by estimating its future returns adjusted for the time value of money. This has manifested in many locations within countries with investment incentives like Vietnam and Africa.

Similarly, Samsung electronics is operating a cobweb of more than 100 offshore subsidiaries across the world, generating more than 90% of its revenues abroad. As a result, it has been accused of doing transfer pricing manipulation. More than half of the sales in the recent years were made through corporate inside transactions between headquarters and subsidiaries or affiliates. In 2016, Samsung was alleged to export some of its products at a price lower than normal to overseas subsidiaries in low tax countries of South Asia, Africa and South America allowing the offshore corporations to generate more profits than the Seoul headquarters, but pay lower corporate taxes on profits. This is what some literature is stressing arguing that Samsung has been manipulating their accounting books to reduce their corporate tax bills in what they call transfer pricing manipulation.

Current actions at Samsung electronics show that it is more important to deal with supply chain management and, in consequence, with the associated supply chain risk management. In recent years, between 2014 and 2016, Samsung’s marketing and production processes were characterized by a turbulent environment with the latest being the technical failure of the Samsung Note 7 mobile phone battery that saw the supply of a battery that would overheat and explode. In a globalized world, the situation has gotten even more complicated as Samsung electronics has geographically spread all over the world. Following Ziegenbein (2007), the success of a company increasingly depends on its suppliers and its ability to integrate into supply networks. Additionally, Like Ziegenbein (2007) argues, Samsung electronics is faced with a fast moving and unpredictable economic environment. Intensified competition due to globalization, rising customer expectations along with declining customer loyalty, shorter product life cycles, and a supply shortage of raw materials and energy bring companies under growing competitive pressure.

Much of Samsung’s success in the electronics can be attributed to its vertical integration. Originally a components manufacturer, the company designs and manufactures not only its gadgets, but many of the individual parts inside them. According to ManMohan and Seongha (2007), this approach may help mitigate some traditional supply chain risks at Samusung, but it also creates significant exposure to less obvious risks inherent in vertical integration itself, making the crisis a valuable case study for entities in other sectors as well. As companies become their own suppliers and assume responsibility for the foundational elements of their products, they reduce their ability to find relief in the event of a recall. Without a supplier, the vertically integrated company has no other entity to which to turn to offset either the reputational or financial damage caused by defective products.

Contracts with suppliers or manufacturers typically hinge on limitation of liability, and as liabilities have grown more damaging and products more complex, companies are increasingly specific in constructing terms to assign suppliers full responsibility for the consequential damages should a given component cause the final product to fail. Broadly speaking, a company that serves as its own supplier may find recovery options significantly limited and both financial and reputational risk amplified in the event of a recall. This does simplify the insurance recovery process, but as that stems from the restricted number of parties to a claim, that comes at the expense of added risk to the manufacturer, which will have to foot far more of the bill.

Until recently, Korean company Samsung was said to be slightly behind its competitors in terms of researching and developing modern technology, but the company’s recent strategy suggests that it’s committed to closing the gap and even competing for the top spot. Since 70 percent of the world’s data is produced and stored on Samsung’s products, the company is the leading provider of data storage products in the world. By revenue, Samsung is the largest consumer electronics company in the world as it sells 500 million connected devices a year.

Samsung has combined all smart programs into a new Smart Things app that makes it easier to connect and control all devices. Not only will all Samsung devices be Internet of Things ready, they will also have AI by 2020 (Samsung, 2018). This means that AI capabilities would be a part of every device it manufacturers by 2020.

Bixby, Samsung’s artificial intelligence system designed to make device interaction easier, debuted with the Galaxy S8 smartphone. Bixby 2.0 allows the AI system to be available on all devices including TVs, refrigerators, washers, smartphones and other connected devices (Samsung, 2018). It’s also open to developers so that it will be more likely to integrate with other products and services. Bixby is contextually aware and understands natural language to help users interact with increasingly complex devices. Samsung plans to introduce a Bixby speaker.

From the above study, it can be summed that Samsung Electronics’ global supply chain management was developed basing on the new management that started 1993. The study further concludes that the Samsung Electronics’ global supply chain management has been bringing new solutions regarding sustaining its market penetration. This implies that supply chain management can achieve something that is beyond maximum profitability and create a shared value to accomplish sustainable growth. To remain competent in sustainable growth, a company should provide opportunities and collaborate, so as to evolve to an advanced level of supplier partnership.

The study also concludes that Samsung is an international corporation with operations scattered in over 80 countries world over. This had made Samsung products reach every corner of the world. Where production has not been domesticated, Samsung has employed transfer pricing which has helped in reducing duty costs by shipping goods into countries with high tariff rates at minimal transfer prices so that the duty base of such transactions is fairly low. Reducing income and corporate taxes in high tax countries by overpricing goods that are transferred to countries with lower tax rates has also helped Samsung to obtain higher profit margins.

The study also concludes that with Samsung’s reputation in data analytics and success with Android, appliances and home electronics and its earlier lessons with AI and a resolute strategy toward internet of things and excellence, the future looks promising for Samsung to close the gap between itself and competitors in the race to be prepared for the 4thindustrial revolution and innovations from big data, artificial intelligence and robotics.

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