Samsung Electronics

Samsung Electronics

Corporate Overview

Samsung Electronic was found in Suwon, Korea in 1969. Since then, Samsung has expanded into a global information technology giant that manages more than 200 subsidiaries internationally. Samsung’s products extend across a wide variety of consumer and business solutions that include “TVs, monitors, printers, refrigerators, and washing machines as well as key mobile telecommunications products like smartphones and tablets.” The company operates 10 business divisions that can be grouped under three main product classes that are consumer electronics , IT and Mobile Communications and Device Solutions .

Due in large to Samsung’s global presence coupled with current issues in the European business arena, expansion into Europe carries many risks. These risks include both internal and external factors that can pose a serious threat to the operations of Samsung.

Financial Risks

Foreign Exchange

Expanding and operating in Europe would mean Samsung would have to trade and deal in European currency or the Euro (EUR). As Samsung predominantly operates in the Korean Won (KRW) in Asia and in U.S Dollars (USD) in North America, the risk of financial loss arises due to adverse changes in the price of either of these currencies. Over the course of the past year the Korean won has been very volatile in comparison to other major currencies. The won was at a yearly high of 1489.35 per euro on March 20th 2014 and a yearly low of 1325.56 per euro on September 4th 2014. In comparison to the euro, the won has been strengthening. This is likely due to the devaluation of the euro as a result of economic uncertainty in Europe rather than strengthening of the won. Although the won has been strengthening against the euro over the past year, this can still have negative effects on Samsung’s operations. “A stronger won tends to hurt the price competitiveness of Samsung’s products overseas as it competes for sales of consumer electronics with global brands like Apple Inc., and Sony Corp” wrote Min-Jeong Lee of the Wall Street Journal. She goes on to say, “IBK Securities analyst Lee Seung-woo estimates that an average 10 won drop in the dollar-won rate can result in a loss of as much as 600 billion won annually (US$563 million).” Although this statement is in relation to USD it is reasonable to assume an effect very similar to this as the EUR and USD track a similar pattern in comparison to the KRW.

There are many strategies a global corporation like Samsung can use to hedge currency risks. Samsung has done this by rebalancing their currency portfolio. Another way Samsung has mitigated this risk in the past is by moving production to foreign countries such as the United States. This decreases the currency exposure as Samsung aims to deal strictly in USD. “In the last five years, foreign-owned companies have stimulated manufacturing growth in the United States, which has become more attractive because of a Fed-weakened dollar and recovering demand…South Korea’s Samsung Electronics Co is investing $4 billion to boost production at a semiconductor plant in Texas,” writes John Wasik of Reuters. As the European Central Bank adjusted monetary policy to follow that of the US by introducing quantitative easing, similar effects are expected on European economies. This means the euro is expected to devalue over the course of the bond-buying program, which makes foreign direct investment in Europe cheaper and more appealing for Samsung.