Modern technologies have presented both software and hardware resources that continue to support the business models of many companies. Apple Incorporation and Samsung are some of the leading rivals in the smartphone sector. These companies produce superior devices that resonate with the changing demands of the targeted customers. They engage in continuous research and development (R&D) in order to produce and deliver quality products to all clients. This paper gives a detailed analysis of these companies’ diversification and vertical integration strategies.
Related and Unrelated Diversification
The concept of diversification takes place when firms manufacture new products for additional markets and customers. Related diversification occurs when an organization expands its offerings within its value networks and capabilities (Ketchen & Short, 2012). Both Samsung and Apple have understood how to pursue this aspect of strategy development. For example, Apple’s mainstream products include the iPhone, Apple TV, iPod, and Macintosh (Rawlinson, 2017).
Its decision to produce the Apple Watch amounts to related diversification. This is the case since the product uses existing software and R&D practices. It has gone further to create powerful applications that run on its leading devices. Similarly, Samsung develops and markets additional products for emerging markets. For instance, it offers television sets, smartphones, computers, semiconductors, integrated systems, and memory chips. It innovates and improves these devices depending on the changing demands of the targeted customers. These aspects show clearly that these companies engage in related diversification to a large extent.
Unrelated diversification is a powerful initiative that companies undertake to minimize overreliance of a specific market segment or product. It revolves around the development of services or goods beyond exiting value network or capabilities (Stengel, 2012).
Apple has not taken this concept seriously. Instead, it has only focused on its leading products since they deliver positive results and make it profitable. For Samsung, unrelated diversification is an evidence-based strategy that supports its business model. Within the past decade, Samsung has identified different market segments to improve its competitiveness, including hardware, software, Internet, smartphone, refrigeration, television, and electronics. To a larger extent, this company’s R&D teams identify emerging markets and produce devices that are competitive in the market.
Backward and Forward Integration
Backward (upstream) vertical integration refers to a situation whereby a given company establishes or acquires most of the existing suppliers. This kind of practice is usually aimed at streamlining the process at which raw materials are acquired to improve production (Holden, 2011). At Apple, this strategy has been pursued to a greater extent to deliver positive results. For example, it has numerous facilities for developing the required software and operating systems (Oss) for its devices.
It also has plants that produce hardware components for different devices. This corporation also uses its Apple Store to market different apps. This model has made it possible for Apple to advance it products continuously and minimize suppliers’ bargaining power. On the other hand, Samsung has not taken this concept seriously. It relies on suppliers for different software and hardware components. For instance, its superior devices use Android OS from Google Incorporation.
Forward (downstream) vertical integration is a business strategy aimed at strengthening the retailing and distribution processes of a given company. Apple Incorporation has engaged in this kind of strategy to a larger extent. According to Rawlinson (2017), it uses its outlets and stores to market different products and apps to the targeted customers. It also has an online-based platform that supports the diverse needs of different customers.
Best Buy is the only external distributor and marketer of Apple’s products. However, Samsung has not taken the issue of downstream vertical integration seriously. It liaises with retailers and distributors to deliver different devices to the targeted customers. It has partnered with leading hypermarkets and communication companies to market its products. It has a website that informs customers about the available products and devices. This is a clear indication that it has engaged in this kind of integration to a smaller extent.
Differences and Similarities
The success of these two organizations is attributable to various initiatives aimed at improving performance. Firstly, they both pursue diversification procedures to produce various products and services. Secondly, they take the issue of vertical integration seriously to acquire raw materials and streamline internal operations. These initiatives have made it possible for the rivals to succeed in the global technology industry. However, there are specific differences that inform these companies’ corporate strategies. The first one is that Apple pursues related diversification initiatives while Samsung focuses on both unrelated and related diversification practices.
The second difference is that Samsung has not engaged in vertical integration to a larger extent (Ying, 2016). This is the case since it uses Google’s Android in its devices and collaborates with different companies to market different products. For Apple, backward and forward vertical integration processes are critical to streamline production.
Conclusion
The above discussion has revealed that companies can consider various diversification and vertical integration strategies to pursue their aims. Managers should appreciate the disadvantages and pros of each approach in order to deliver positive results. The success of both Apple and Samsung can become a powerful model for corporation that want to reduce the bargaining power of suppliers and meet the demands of the targeted customers.
References
Holden, P. (2011). Business integration – Vertical, horizontal and conglomerate integration – Why businesses do it! [Video file]. Web.
Ketchen, D., & Short, J. (2012). Selecting corporate-level strategies. In Strategic management: Evaluation and execution v. 1.0 (Chapter 8). Web.
Rawlinson, N. (2017). History of Apple: The story of Steve Jobs and the company he founded. Web.
Stengel, D. (2012). Economics of organization. In Managerial Economics Principles (Chapter 5). Web.
Ying, F. (2016). Samsung’s international strategy. An analysis. Munich, DE: GRIN Publishing.