Samsung The No.1 Smartphone Vendor

         The success story of Samsung begins from its inception as a small export business in Daegu, Korea in 1938 by its founder Lee Byung Chul with just a startup capital of 30,000 won (Anon., 2013). From that moment onwards, Samsung began to grow and the company gets bigger day by day. Then, in 1969 Samsung Electric was establish as a subsidiary of Samsung Group. The name of the company is then changed to Samsung Electronics Co., Ltd in 1988 (Anon., 2013). Samsung is currently the world’s leading smart phones manufacturer since 2011 overthrowing Apple of its throne due to the birth of its Samsung Galaxy line of devices (Albanesius, 2012).  Other than that, Samsung is also famous for its tablet computers especially the Samsung Galaxy Tabs that are powered by the Android and not forgetting its phablet collection that is the Samsung Galaxy Note (Anon., 2013). As of today, Samsung is very well known for its smart phones in the United Sates. Results of a survey conducted by American Customer Satisfaction Index (ASCI) shows US consumers prefer Samsung smart phone with a score of 84 out of 100 rather that the Apple iPhones (Cox, 2013). Thus, this is the main concentration of this study.   

            

          In the past, smart phones are luxury good for most people but in today’s world it has become a great necessity. The need for having smart phones and even mobile phones is vital for everyone since it is very important for communicating with each other. Usually, the demand for smart phones increases when there is a launch of a new upcoming model. For example, when Samsung unveiled the S4 to the world, a lot of people in the US pre-ordered the device even before it was released in late April 2013 (Moritz & Lee, 2013). The S4 began selling like hotcakes upon its released and Samsung sold 20 million units worldwide in just two months (Anon., 2013). As of the end of third quarter in 2013, Samsung made a profit of $4.7 billion on smart phones sales only (Kim, 2013). As shown in the graph below, the number of people who plan to buy the Samsung Galaxy smart phones over the next 90 days are increasing as the Samsung launch its newer galaxy models (Etherington, 2013). From the graph, the release of Galaxy S increases the demand from 1% to 6% then it decreases to 4% in December 2010 till March 2011 and then it increases again to 5% in Jun 2011. When the Galaxy S2 is released the demand increases from 5% to 13% in December 2011 and it remain constant till March 2012. So, when the Galaxy S3 is released the percentage increases to 19% then decrease to 13% in September 2012 and increase to 21% in December 2012. 

          On the other hand, the law of demand states, the quantity demanded of a good falls when the prices of the good rises while other factors remains constant (Mankiw, et al., 2011). Since, Samsung is a very large smart phone vendor that has many ranges of smart phones they can cater people from many level of income. They have the Samsung Galaxy Pocket that sells at $130 and Samsung Galaxy Y at $140 (T., 2012). Then, of course the Samsung also have the ones that are above the average price tag such as the Samsung Galaxy series and the Note series. However, the prices of these phones will drop if there is a new model released and many people are eager to buy at this time since they know the good qualities of the product since it has been in a the market for quite some time (Dolcourt, 2013).

Figure 1: Movement along the demand curve of Samsung smart phones

          Figure 1 shows the movement along the demand curve for the Samsung smart phones. As the price of the smart phones falls from P to P1 due to the release of new smart phone models, the quantity demanded for that the older smart phone will increase from Q to Q1. There is a downward movement from point A to point B as demand increases for older smart phones. 

Figure 2: Shift of demand curve of Samsung smart phones         

         Based on Figure 2, the demand curve shift to the right from D1 to D2 while the price remain constant. The quantity demanded increases from Q1 to Q2. The shift happens due to changes in determinants. In reality, the determinants of demand such as income, prices of related goods, tastes, expectations and so on do not remain constant and keep on affecting demand. As a result, when one of the factors affecting demand changes, the demand curve will shift either to the left or right.      

   

            In Figure 2 it shows the increase in demand for Samsung smart phones as the demand curve shifts to right due to a few determinants. In income factor is where the income of a person affects his or her expenditure. For example, a person who obtains a higher income would want to buy the latest Samsung smart phone rather than buying other simple and cheaper smart phone. Thus, the Samsung smart phone is considered as a normal good whereby it is a good for which other things is kept constant, increase in consumer income leads to an increase in demand (Mankiw, et al., 2011). Another factor affecting demand is the price of related goods. For example, Samsung and Apple are both in the competitive smart phone market. The new S4 and the iPhone5 are two smart phones that can satisfy similar desires of every consumer. When the price of one of the two goods falls, the demand for the other good is reduced hence, the two goods are substitutes. So, when the price of the Apple iPhone5 increases, the demand for the Samsung S4 will increase too as more people will now buy the Samsung S4. The image below shows the battle between Apple and Samsung in the US in sales (Arthur, 2013). From this image, we can tell that Samsung smart phones have inelastic demand since people will still buy it at any given price because smart phones has become a necessity in today’s world.

          Consequently, the supply of Samsung smart phones is increasing to cope with its increasing demand especially during the release of new smart phones models. The law of supply states that the quantity supplied of a good rises when the price of the good rises while other things remain constant (Mankiw, 2009). So, as the price of the Samsung smart phones increases, the quantity supplied also increases. For example, the supply of Samsung S4 shipped worldwide is about 60 million units (Lilly, 2013).

Figure 3: Movement along supply curve of Samsung smart phone

Based on Figure 3, the price of the smart phones is increasing from P to P1 thus the quantity supplied increases to from Q to Q1 and there is an upward movement from point A to point B indicating the increase in supply.

Figure 4: Shift of supply curve

Figure 4 shows the shift of the supply curve to the right of the Samsung smart phones from S1 to S2 while the price remain constant. The supply curve shifts due to the changes in determinants of supply. The main factor that is related to the shift of the supply curve of the Samsung is technology. Samsung was named the best supply chain in Asia in 2013 due to the usage of advance technology and segmentation, Samsung was able to improve the supply of its smart phones and reduced cost (Donati, 2013).

            Upon releasing its new smart phone models, Samsung has encountered shortage of supplies in the US. This happens recently to the S4 (Anon., 2013) and also to its predecessor the S3 in 2012 (Sadewo, 2012). A shortage occurs when there are too many buyers in the market pursuing goods that has low supplies.   

Figure 5: Market not in equilibrium

As illustrated in Figure 5, there is a shortage of Samsung smart phones because P is below the equilibrium price, Pe. At P, shortage occurs because the quantity supplied is lower than the quantity demanded. This may happen upon the release of a new model whereby the price of the smart phone has not been announced yet so there will be many speculations (Johnson, 2013). As the price of the smart phones rises, the quantity demanded falls, and the quantity supplied increases, the market will once again move towards equilibrium.

            Recently, the US government has made the decision to ban some of Samsung mobile technology due to the company’s violation of patents owned by Apple (Anon., 2013). The US International Trade Commission has rejected Samsung’s effort to overturn its ban on some older model of Samsung smart phones and tablets for patent infringement (Anon., 2013). The result of the government intervention is a $1billion loss for Samsung shares on the stock market and Apple gets the opportunity to capitalize in their settlement talks with Samsung about its pending patent disputes (Kale, 2013).

            In conclusion, as the No.1 company in smart phones manufacturing Samsung is definitely in its own elite league as the company is able to produce a line of smart phones that is one of a kind and also serve the needs of the consumers. In no doubt, Samsung will continue to strive to make more advanced and high tech smart phones that can make people’s lives easier, simpler and more interactive.  

(1584 words) 

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