Milestone 1
Andrea Lewis
Regent University
ECON 230 (02): Macroeconomics
Professor Dr. Bajah
March 27, 2022
Milestone 1
Samsung [Samsung Electronics Co., Ltd. (SEC)] is a multinational public manufacturing company (the largest in South Korea, and one of the largest on earth), leading the global digital market. The company was founded on 13 January 1969 by Lee Byung-Chul in Suwon, South Korea, and is headquartered in Samsung Digital City, Suwon-si, South Korea. Its subsidiaries include Samsung Telecommunications and Smart Things. Samsung’s parent company and Korean chaebol, The Samsung Group (founded 1938), is headquartered in Seoul, South Korea, and is a large private multinational conglomerate with many other subsidiaries. Samsung’s products and services include mobile devices, computer hardware, home appliances, electronic materials, robotics, artificial intelligence, automation, medical equipment, and mobile communications. This paper examines Samsung’s comparative advantage, supply and demand, and GDP.
Comparative Advantage
“The theory of comparative advantage says that when people or nations specialize in goods in which they have a low opportunity cost, they can trade to mutual advantage” (Cowen & Tabarrok, 2021, p. xxxii). Samsung’s comparative advantage over its rivals lies in its high-end technology, design, innovation, and efficiency – including resource waste reduction (which lowers both raw material and manufacturing costs, also lowering production cost and the product price points more than competitors).
According to its website history, “with the success of its electronics business, Samsung has been recognized globally as an industry leader in technology and now ranked as a top 10 global brand” (Samsung, 2022). Samsung’s leading rivals/competitors include Apple Inc. and Sony which are among the largest and key clients of Samsung’s products [including (Global Smartphone AP (application processor), AMOLED display, DRAM chips, NAND flash – for Apple) and (DRAM chip, NAND flash, LCD display, etc. – for Sony)]. Samsung “developed new products like Rambus DRAM and Nand flash memory rather than increasing the accumulation rate of semiconductors” (Jang et al., 2019, p. 6). Its rivals greatly depend on these Samsung products while Samsung or its sister companies make most of its own needed components, however, the company does use Sony camera parts in some of their phones.
Supply and Demand
Samsung is a powerful company with a huge global presence, customer loyalty (over 1.2 million customers), and a great pricing strategy, and, along with Apple, commands 95% of market share profits with their smartphones and other products. The company’s NAND flash and DRAM chip are among the key products for the company. Reuters states, “The world's largest memory chip and smartphone maker forecast a recovery in global tech device demand on Thursday after reporting its best fourth-quarter profit in four years, although it cautioned about ongoing challenges from supply chain issues and COVID-19” (Lee & Yang, 2022, p. 1).
Samsung increased efficiency (including reduction of wasted raw materials, and customer responsiveness with production frequency of feature-rich devices), offering mobile phones with the most features below competitor’s prices. Samsung keeps increasing the quality and stability of its products while keeping prices down, so the supply and demand of these products are constantly increasing globally. The article states, “We believe that Samsung will ship more than 15 million units of the Galaxy S22 family in the first half of 2022. If the initial sell-through is good we can expect it to reach 30 million units in 2022” (Lee, 2022, p. 1).
Gross Domestic Product (GDP)
Samsung generates wealth and improves the GDP for all the countries it produces and or retails in. It has three major markets - electronics, engineering, and chemicals. It is number one and 30% of Russia’s smartphone (electronics) market, and about 70% of Samsung’s smartphones are sold in the American market. The International Trade Administration (2021) states:
Korea’s Gross Domestic Product (GDP) in 2020 was $1.63 trillion, ranking 12th in the world and third in East Asia (IMF estimates) Korea’s national debt reached 1,985 trillion won ($1.78 trillion), surpassing its annual gross domestic product for the first time ever … the country’s leaders are looking to more technology-intensive industries to drive future growth. The industries targeted by the Korean Government include healthcare (medical devices, pharmaceuticals, and biotechnology), industrial chemicals, information technology (IT) components … Korea remains one of the world’s most export-dependent industrialized nations, with exports valued at 40 percent of GDP. (p. 1)
International Monetary Fund reported that Korea’s “real GDP growth (Annual percent change) 3.3” (IMF, 2021). According to BEA (Bureau of Economic Analysis: US Department of Commerce), the US “real GDP increased 5.7 percent in 2021 (from the 2020 annual level to the 2021 annual level), in contrast to a decrease of 3.4 percent in 2020. The increase in real GDP in 2021 reflected increases in all major subcomponents, led by PCE, nonresidential fixed investment, exports, residential fixed investment, and private inventory investment. Imports increased.” (BEA, 2022, p. 1).
Yahoo Finance reported that in 2021 Samsung (SEC) had a total revenue of 279,604,799,000,000 [quadrillion KRW (Korean Won) equivalent to 228,259,068,447 trillion USD]. Statista reported that the United States’ 2021 GDP is 22,939.58 billion (22.94 trillion) USD, and South Korea’s 2021 GDP is 1,823.85 billion (1.8 trillion) USD (O’Neill, 2021).
Fluctuations (GDP, Economic Growth, Investments, Patents) and Profitability
The article states, “Samsung said in March that shipments to Russia had stopped after the invasion of Ukraine, although services such as Samsung Pay continue to be offered in Russia according to social media messages … Samsung shares have fallen about 12% year-to-date, hurt by worries over the impact of the Ukraine crisis on global tech device demand and concerns about low production yields at its cutting-edge contract chip manufacturing operation” (Lee, 2022, p. 1). According to Lee & Yang, Samsung said falling memory chip prices were not a huge cause of concern because the chips are now used in a wider variety of devices than just personal computers, making cyclical price fluctuations weaker and shorter than in the past. Chipmakers were also carrying lean inventory levels, leaving room for a build-up without being forced to sell at a low price (2021). Lee & Yang (2021) also stated:
Samsung Electronics Co Ltd said on Thursday it expects component shortages to affect chip demand from some customers in the final three months of the year, after reporting its highest quarterly profit in three years … "A longer-than-expected component supply issue may need to be monitored" for potential impact on devices that use memory chips, Samsung said, although it added there was "strong fundamental demand" for server chips … Samsung said demand for server DRAM chips, which temporarily save data, and NAND flash chips that serve the data storage market, is expected to stay robust in the fourth quarter due to expansion of data centre investments, while personal computer manufacturing growth is expected to hold in line with the previous quarter” (p. 1).
Conclusion
Samsung holds most of the patents in wireless communication. They have expanded to countries including Canada, the UK, India, France, Australia, China, Italy, the US, and the continent of Africa. They employ over half-million workers and are affiliated/partnered with BestBuy and others. Samsung is a well-known, trusted, and reliable brand/company. This company accounts for the majority of the group’s (The Samsung Group) revenue. The company fosters creativity and innovation among its employees; they continue to expand and increase profit in many areas, rising each country’s GDP. Demand is great and their supply is meeting that demand despite shortages and the COVID pandemic.
References
BEA. (2022). Gross domestic product, fourth quarter and year 2021 (advance estimate). Bureau of Economic Analysis: US Department of Commerce. https://www.bea.gov/news/2022/gross-domestic-product-fourth-quarter-and-year-2021-advance-estimate#:~:text=Current-dollar%20GDP%20increased%2010.0,(tables%201%20and%203)
Cowen, T., & Tabarrok, A. (2021). Modern principles of economics (5th ed.). Worth Publishers.
IMF. (2021, October). International monetary fund: Republic of Korea. https://www.imf.org/en/Countries/KOR
International Trade Administration. (2021, August 13). South Korea - country commercial guide: Market overview. https://www.trade.gov/country-commercial-guides/south-korea-market-overview
Jang, S. H., Lee, S. M., Kim, T., & Choi, D. (2019). Planting and harvesting innovation - an analysis of Samsung electronics. International Journal of Quality Innovation, 5(1), 1-16. https://doi.org/10.1186/s40887-019-0032-x
Lee, J. (2022, April 4). Samsung Elec likely to report highest Q1 profit since 2018 on chips. Reuters. https://www.reuters.com/business/samsung-elec-likely-report-highest-q1-profit-since-2018-chips-2022-04-04/
Lee, J. (2022, February 10). Samsung's newest Galaxy S smartphones have enhanced camera, faster chip. Reuters. https://www.reuters.com/technology/samsungs-newest-galaxy-s-smartphones-have-enhanced-camera-faster-chip-2022-02-09/
Lee, J., & Yang, H. (2021, October 28). Samsung warns supply chain upsets may hit chip demand, profit at 3-year high. Reuters. https://www.reuters.com/business/samsung-elec-q3-profit-rises-3-year-high-chip-sales-2021-10-28/
Lee, J., & Yang, H. (2022, January 27). Samsung Elec targets smartphone growth in 2022, sees solid chip demand. Reuters. https://www.reuters.com/business/samsung-elec-q4-profit-jumps-53-solid-chip-profits-2022-01-27/
O’Neill, A. (2021, November 2). Gross domestic product (GDP) in South Korea 2026. Statista. https://www.statista.com/statistics/263579/gross-domestic-product-gdp-in-south-korea/
O’Neill, A. (2021, November 23). Gross domestic product (GDP) of the United States 2026. Statista. https://www.statista.com/statistics/263591/gross-domestic-product-gdp-of-the-united-states/
Samsung. (2022). About us. https://www.samsung.com/levant/about-us/company-info/
Yahoo Finance. (2021). Samsung Electronics Co., Ltd. (BC94.L): Income statement. https://finance.yahoo.com/quote/BC94.L/financials?p=BC94.L