Every profit-making company desires to grow and gain more returns. As a result, businesses develop strategies that will help profit-making firms grow and expand. Diversification, which occurs when a company expands into new markets or creates a new product, is one of the strategies that enhance business growth. Often, this strategy helps businesses to manage their risks by minimizing potential harm during economic downturns. Business integration is another strategy for business expansion. Firms use this technique to optimize, automate, and integrate key business processes. Business integration helps a firm to reduce costs, improve efficiency, and control its operations. Both Apple and Samsung, world-leading producers of smartphones, have established their brand globally. Although these two companies may seem to have a similar success rate, they differ in their diversification and vertical integration strategies.
The Extent in Which Apple Engage in Related and Unrelated Diversification
Related diversification refers to the addition of new activities in a business that has some connection with the current business activities. Although to a small extent, Apple Company has engaged in related diversification. For instance, the company has expanded its operating systems product line to contain macOS and iOS, which are in the business line of smartphone production (Hund et al., 2012). Additionally, Apple has continued to produce various iPhone products, including iPhone X, iPhone 8, iPhone 7 Plus, iPhone 7, etc. The production is a clear demonstration of Apple's related diversification.
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However, the Apple Inc. has demonstrated high engagement in unrelated diversification. Unrelated diversification refers to the business introduces a new line of product, market, or service that is not related to its existing line of markets, service or product (Stengel, 2012). Apple Inc. has continued to introduce new business lines to its existing ones. It offers different types of online consumer services, consumer electronics, and computer software products (Hund et al., 2012). The primary product line for Apple Inc. included computer software and consumer electronics, including iPads, iPhone smartphones, macOS, and iOS. The company's high engagement in unrelated diversification has enabled it to expand its business in other areas.
The Extent at Which Samsung Engage in Related and Unrelated Diversification
Unlike Apple Inc. Samsung Electronics has demonstrated high engagement in related diversification. Most of the items produced by Samsung Electronics, including smartphones and TVs, are in the same business line. However, Samsung has highly expanded its mobile phone business to include wearable products, accessories, tablets, and smartphones, thus demonstrating related diversification (Lee & He, 2009). Additionally, Samsung Electronics produces different but related types of TV products, which further shows its engagement in related diversification.
Samsung Electronics also engage in unrelated diversification, though at a low rate. Some of the company's products include Home Appliances, TVs, and mobile phones. However, Samsung focuses more on expanding its major lines to satisfy their client's wants. For instance, there are various Samsung smartphone series, including the J series, S series, and C series, targeted for different markets (Lee & He, 2009). The company's expansion in specific major product lines demonstrates a high engagement in related diversification.
The Extent at Which Apple Engage in Backward and Forward Vertical Integration
Backward vertical integration is when a firm expands backward in the path of production. For example, a retailer company may buy the company that manufactures the items they sell. Conversely, forward integration refers to when a firm expands forward in the production path (Holden, 2011). For example, a company may expand by buying and controlling supplying direct distribution.
Apple Inc. is one of the companies that boast of backward vertical integration. Unlike most smartphone companies, Apple Inc. develops its iOS operating system. Also, the company produces a wide range of apps for their smartphones, including iCloud and iTunes (Wharton University, 2012). The production of such apps demonstrates the company's backward vertical integration. However, Apple Inc. also engages in forward vertical integration, though at a low rate. The firm has an online Apple Store through which it sells most of its apps and other products. So, Apple Inc. engages in both backward and forward vertical integration.
The Extent at Which Samsung Engage in Backward and Forward Vertical Integration
Similar to Apple, backward vertical integration is the primary development strategy for Samsung. The company implements LED lighting in its products, which is a significant factor in its astronomical success (Yang, 2017). Backward vertical integration strategy has facilitated most of the products that Samsung has produced over the years.
Conversely, Samsung rarely applies forward vertical integration strategy for its business. Although the company used this strategy in laptop manufacturing, it is not their primary focus (Yang, 2017). Since the Samsung Company is established in backward vertical integration already, it does not require using forward integration for its success.
Significant Differences or Similarities between Samsung and Apple's Diversification and Vertical Integration Strategies
Similarly, both companies, Samsung and Apple, have been in the technology field for an extended period. The two companies have gained a substantial brand value in electronics production and selling due to related diversification. However, Samsung has mainly focused on related diversification, while Apple engages highly in unrelated diversification.
Backward vertical integration is the primary development strategy for both companies. Apple Inc. develops its iOS operating system and some of its smartphone apps. Likewise, Samsung develops LED lighting for their products. Additionally, both Apple and Samsung lowly engage in forward vertical integration.
References
Holden, P. (2011). Business integration - vertical, horizontal and conglomerate. https://www.youtube.com/watch?v=gG9xNElFzRk
Hund, J., Monk, D., & Tice, S. (2012). Apples to apples: The economic benefit of corporate diversification. SSRN Electronic Journal . https://doi.org/10.2139/ssrn.2023786
Lee, K., & He, X. (2009). The capability of the Samsung group in project execution and vertical integration: Created in Korea, replicated in China. Asian Business & Management, 8(3), 277-299. https://doi.org/10.1057/abm.2009.9
Stengel, D. (2012). Economics of organization. managerial economics principles. Flat World Education http://saylordotorg.github.io/text_principles-of-managerial-economics/s05-economics-of-organization.html
Wharton University (2012). Vertical integration works for Apple - But it won’t for everyone - Knowledge@Wharton . https://knowledge.wharton.upenn.edu/article/vertical-integration-works-for-apple-but-it-wont-for-everyone/
Yang, C. (2017). Could vertical integration increase innovation? SSRN Electronic Journal. https://doi.org/10.2139/ssrn.2930780
