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American International Journal of Contemporary Research

Vol
...
9; September 2012

Samsung Electronics and Apple, Inc
...
Vergara
Assistant Professor
Ramon V
...
, two of the largest technology firms in today’s world, provides a new
paradigm on how vertically integrated firms today operate
...
While
both Samsung and Apple control much of their value chains, they, too, outsource some of the chains to other
...

Keywords: Apple, Samsung, Vertical Integration, technology,

1
...
Ultimately, a firm’s bottom line is to maximize its
profit—which is why firms carefully choose which structure to undertake
...
Traditionally, firms have been seen to either choose to perform all or most of the processes—
thereby making it vertically integrated, or to specialize on certain processes only and outsource the other value
chains to other firms
...
These risks include (1) the difficulties in enforcing contracts with
many different parties;(2) the challenges of ensuring the quality of raw materials, component parts and/or service
reach the required level of standards; and (3) the risks of asymmetric information and opportunistic behavior
aimed against the firm
...
The problem with these
assumptions is that they rarely exist in the real world today
...
Vertical integration in the 21st century
Technology, for example, has changed how value chains work and blurred the lines separating these segments
...
But while this may be
an argument supporting the need for firm specialization, Cacciatori and Jacobides (2005) points out that, in some
sectors, particularly in the services industry, this specialization of segments results in the creation of new products
and services that also result in the final buyer abandoning “procurement from a host of specialized suppliers,” and
instead purchasing a “packaged solution” from an integrated player
...
”This type of structure became necessary, particularly for the British building industry, where too much
specialization contributed to project delays and cost inefficiencies
...
aijcrnet
...
They argue that firms re-integrate for three reasons: for firms (1) to protect their position,
(2) to enter new and related markets, and (3) to find new ways of leveraging their capabilities
...

This unique integration and specialization within a firm is recognizable in the structures and relationship between
two technology giants: Apple Inc
...
While both firms are considered vertically integrated,
they manifest this structure very differently
...


3
...
It “operates using a
vertical integration model which leverages all aspects of the manufacturing process from raw materials to
electronics components to fully-assembled products” (Eisenberger, Li, Mitrenko, Vajrapu and Xu, 2003)
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See Figure 1
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The company has also joined the
market for mobile devices when it introduced the Samsung Galaxy S series of smartphones and the Samsung
Galaxy Tab, both of which compete head on with Apple’s iPhone and iPad
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See Table 1
...
Apple Inc
...
, according to Bajarin (2011), is vertically integrated because it is essentially four companies in one,
thereby controlling “all the major critical parts of the chain used to make and sell products
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See Figure 2
...
Apple is not a manufacturing firm—it is a design firm
...
In fact, one of Apple’s most important suppliers is Samsung, which supplies the iPhone’s
flash memory, DRAM and applications processor (AP)—together, these parts make up 26% of the component
parts of the iPhone (P
...
, 2011)
...
See Figure 3
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Apple and Samsung: the Cacciatori and Jacobides Paradigm
While close competitors in the smartphone sector, both Samsung and Apple profit from this unique structure and
relationship (P
...
, 2011)
...
By reintegrating some of its vertical chains,
both Samsung and Apply are able to (1) protect their position, (3) enter new and related markets, and (3) find new
ways of leveraging capabilities
...

78

American International Journal of Contemporary Research

Vol
...
9; September 2012
9

Further, it is able to move to adjacent markets and compete heavily in high growth sectors, particularly in the
smartphone market
...
5% year
year-on-year in the first quarter of 2012, is currently
year
2012
dominated by Samsung, dubbed as the wo
world’s largest smartphone vendor(Graziano, 2012)
...
That it is able to outsource some of its
vertical chains, while at the same time maintaining control over its design and development process, allowed
Apple to move from one market (personal computers and portable multimedia devices) into another (the highhigh
growth smartphone market)
...


6
...
Technology has changed the way value chains work, or how they
ogy
are defined
...
As both Apple and Samsung have both shown, firms can cont
continue to be
vertically integrated, but still able to specialize and leverage on their core competencies
...

Figure 1
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Samsung’s Largest Clients, Q1 2010
Rank

Company

Parts Supplied

1
2
3
4
5

Sony
Apple Inc
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AP (mobile processor), DRAM, NAND flash, etc
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DRAM, flat
flat-panels, lithium-ion batteries, etc
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% of Total
Sales
3
...
6
2
...
2
1
...


1
...
org (http://en
...
org/wiki/Samsung_Electronics#Products), quoting Yoo
Yoo-chul (2010)

79

© Centre for Promoting Ideas, USA

www
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com
Figure 2
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Apple iPhone’s Component Parts

Source: http://www
...
com/node/21525685
80

American International Journal of Contemporary Research

Vol
...
9; September 2012

References
Bajarin, B
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Why Competing with Apple Is So Difficult
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Retrieved from
http://techland
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com/2011/07/01/why-competing-with-apple-is-so-difficult/
Cacciatori, E
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G (2005)
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Organization Studies, 26(12),1851–1883
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london
...
pdf
Eisenberger, C
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, Mitrenko, A
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and Xu, L
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Samsung Electronics Company
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craigeisenberger
...
pdf
Graziano, D
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IDC: Samsung passes Apple to become No
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BGR
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bgr
...
K
...
Slicing an Apple
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Retrieved from
http://www
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com/node/21525685
Ramstad, E
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Samsung's Swelling Size Brings New Challenges
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Retrieved from http://online
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com/article/SB10001424052748704402404574529522795269450
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(2012, February 3)
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Technorati
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com/technology/article/apple-samsung-top-profit-and-sales/
Yoo-chul, K
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Sony, Apple, Dell are Samsungs big buyers
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Retrieved from
http://www
...
co
...
html

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