How to create a flexible operating model to take advantage of a politically unstable scenario.
This is a story of how one company took advantage of an unstable political scenario and build up a strong leadership on every category of its portfolio.
In February 2010, Argentinean president, Mrs. Cristina Fernandez de Kirchner, announced that the imports from all products would need a special authorization (called DJAI) and imports were virtually closed for many products (including electronics). The approval of the import can vary from only a few days to three months or more, what made the process unpredictable. With this scenario, many companies like Dell or Sony (two market leaders in different segments) needed to change their operating models to adjust their business to the regulation. On the other side, Samsung was already working with local factories that assembled electronic goods, which gave them a huge advantage to take over the market.
Samsung Electronics sells electronic goods in several different categories (TV, Mobile, Refrigerators, Washing Machines, etc). The business is focused on an important investment in R&D and a strong marketing budget to take dominance of a particular market. In the Argentinean offices, from where the company also controls the business in Uruguay and Paraguay, Samsung only had around 100 employees by 2011, who mainly covered Marketing, Sales and Logistics positions.
Samsung imports all its products from its factories located mainly in Asia. Before 2011, the imports were mainly CBU (complete built units) and only a small quantity of CKD (complete knock down) that was assembled in local factories. After the DJAI announcement, CBU products were almost banned, unless a substantial part of the imports were CKD. While the competitors were lobbying with the government to keep on importing CBUs, Samsung was building strong partnerships with the main factories, located in Rio Grande, 3,000 km away from Buenos Aires, and quickly took the lead in the market share war in almost all of the categories.
With these new partnerships, the local factories now import CKD products from Samsung Asian factories, and assemble them under the watch of Samsung local engineers to ensure the quality. The operating process can be described in six steps:
- Sales order is registered by Sales department in Argentina.
- China factory prepares the kit order (3~4 weeks).
- Order is shipped to Buenos Aires (5~6 weeks).
- Order is transported by truck to Rio Grande factory (1~2 weeks).
- Products are assembled (6~7 weeks).
- Products are transported back to Buenos Aires (1~2 weeks).
This whole process takes a minimum of 18 weeks, so planning and forecasting are two of the most important jobs for the business. The company rewards forecasting accuracy and continuously pushes to improve it.
The long logistics process, from production to retail stores, demands employees to focus on three main areas: logistics, planning and factory control. The company established several incentive rules and goal measurements to ensure that its model remain advantageous over its competitors. The KPIs were reviewed weekly and adjusted constantly to give more accurate information to Asian factories, so they could prepare the kits faster and easier. The local and Asian teams worked closely to improve Asian planning, shipping times, packaging and parts design.
The Expansion Era
By 2007, Samsung was only another player in the electronics industry, where Sony, Dell, Hewllet Packard and Nokia were the main leaders in several categories. At that time, Samsung was initiating its CKD assembly business in Rio Grande, a model that expanded from a small quantity of laptops assembly, to cellphones, TVs and air conditioners by 2011.
When the imports were closed in 2011, all the retailers saw how the shelves in their stores were quickly becoming empty. Samsung sales boosted and the company expanded its operations, partnering with even more local factories. In each of these factories, there was at least one Samsung engineer that controlled the process and managed the forecasting of products going to the market.
The planning of incoming parts was done meticulously between the Demand Planner and Sales Reprecentatives. The input they gave to the factory in Asia was crucial to get first to the market with every new products, either the newest smart TV or the latest Galaxy phone.
The planning, the partnership with local factories, appealing products and an important investment in marketing, led Samsung to the leading position in air conditioners, TVs, mobile phones and other products. Obviously, after seeing that the imports were going to remain closed, the competitors started developing plans to assemble their products in local factories as well. But Samsung had already partnered with the most important factories, which also owned the main retailers in Argentina, so the barrier of entry was not easy.
The main reason of success in this era of expansion was the Korean culture of Samsung. Headquarters always sent the message of moving fast and go for all. Argentinean management saw the opportunity and moved fast to become the most important consumer electronics company in the region.
Now, after the election of the new president, Argentina’s new administration is very likely to revert this closed import policy, which means that new players may come in. It’s too soon to predict what will happen in the near future with Samsung, but its strong brand, and the relationship with main distributors and retailers, will probably give them the advantage to keep on being the winning team.