Crisis Management
Samsung Electronics has declared the goal of crisis management for the latter half of this year, and decided to push forward with three strategies. The three measures are aimed at maintaining profitability even with a strong won, reducing costs, and revising business strategies. The decision was made with the belief that it is necessary for the company to take some preemptive action to quell concern about its poor performance stemming from an economic recession.
According to industry sources on July 7, Samsung hosted executive meetings on global management strategies for the latter half at its offices in Giheung and Suwon, Gyeonggi Province from June 25 to 27. A total of 500 executives and heads of overseas subsidiaries attended meetings held by the business unit, including Vice Chairman Kwon Oh-hyun, Yoon Boo-Keun, president of the consumer electronics (CE) division, and Shin Jong-kyun, president of the IT & Mobile (IM) division. Participants agreed to start a crisis management system and move forward with three strategies to overcome the crisis. After each business division devises a plan to implement the strategies, all the business units at home and abroad will push them ahead, starting in mid-July.
The tech giant intends to achieve its sales target of 250 trillion won (US$257 billion) this year by concentrating on its development capabilities.
The first strategy is to defend profitability in the face of a decline in the won-dollar rate. Last year, Samsung's profits decreased by more than 700 billion won (US$692 million) owing to a drop in the exchange rate. The firm is likely to find itself in the same disadvantageous situation this year. The exchange rate recently fell to below 1,070 won to 1 dollar, which is lower than the optimal exchange rate to raise profitability. Hence, the strong won is expected to have an adverse effect on results for the second quarter. On top of that, a downward trend in the exchange rate is more likely to continue after the third quarter, which may cause the firm to lose 1 trillion won (US$988 million) in profits.
Samsung is planning to establish various measures, led by the IM division, which comprises the largest proportion of the company's operating profits. For example, the company is willing to pay with foreign currencies for business with companies based in other countries, and to encourage business partners to pay with won.
Next, the firm is planning to cut additional costs. Early this year, marketing costs were already reduced by over 30 percent compared to 2013, but the expenses are going to be cut further. Samsung is considering whether or not it should also reduce advertising costs by considering smartphones' poor performance.
Finally, Samsung is aiming at sharpening its competitiveness through cost cuts and revised business strategies. The prime example is to make the IM division more profitable, even with its lowered sales target of 500 billion smartphones and 100 billion tablets. As for the Device Solution (DS) area, the company is going to increase profitability through restructuring of uncompetitive and unprofitable businesses, as showen by its consideration of selling its integrated circuit (IC) unit.