Spencer Steel (shs257)

Cong Wei (cw759)

Yun Hao (539)
Mingyuan Huang (mh2399)
Samsung Case

Samsung Electronics Company was started as a Korean local low-end electronic devices

manufacturer in the mid 80s. However, with the lead by Kun Hee Lee, the third son of Samsung

Groups founder, Samsung has rapidly transformed to one of worlds largest electronic

companies as well as the world leading semiconductor producer by 2003. Samsungs

semiconductor manufacturing was the companys most profitable business from 1980 to 2003,

and its size and profits has surpassed its Japanese rivals. However, in 2005, Samsungs

semiconductor industry was facing challenges from cyclical downturn as well as the fierce

competitions from the Chinese new entrants. In order to keep Samsungs leading position in the

semiconductor industry, we recommend that Samsung should continually invest on research and

development of their high-end semiconductor products to keep their profits high. In order to

make our recommendation we need to consider carefully the following questions: What is the

competitiveness of the DRAM memory business? What is Samsungs competitive advantage

and is it sustainable? How should Samsung react to the threat of Chinese competition?

Based on the change of the memory industry market and Porters five forces model, the

DRAM industry is becoming extremely competitive. As for the memory industry, DRAM,

SRAM and flash memory accounted for over a half,10% and 32% of industry sales, respectively.

The share of DRAM declined while flash memory became a hot-growth area from 2000 to 2004.

As for the Porters model, the DRAM industry is facing with powerful and concentrated

suppliers with several dominate the equipment market, as well as highly fragmented and price

conscious buyers in an environment where the switching cost of the buyers is low. Apart from

the fierce rivalry, the threat of the new entrants, especially the large-scale entry by Chinese firms,
really worried the existing competitors. Those Chinese entrants are willing to endure years of

losses to gain significant market share. And with the support of the government and the smart

local engineers, those entrants have the ability to build cutting-edge semiconductor facilities.

However the threat of substitutes is low since there were no effective substitutes for DRAM or

flash. On the whole Samsung needs to keep their competitive advantage in the development of

high end memory products.

Samsung seems to have four competitive advantages and they are sustainable. First of all,

it has high brand value. During 2000 to 2004, Samsungs brand value nearly doubled and it had

many business divisions, like semiconductors, computers, cellphones, TVs, and others. With the

globalization trend, Samsungs products are sold all over the world. Secondly, Samsung always

commits itself to develop cutting-edge technology. In the memory industry, Samsung created

fierce competition across global R&D sites and carried on next generation of DRAM. To achieve

its ambitious goal, the company let two product development teams compete with each other.

Therefore, Samsung makes sure that it creates the most satisfactory products to its consumers.

Thirdly, Samsung provides comfortable working environment to the staff which allows engineers

to work more efficiently. While the competitors facilities were split across the whole world,

most of Samsungs R&D facilities and its fab were placed in South Korea and all the engineers

lived together in housing provided by the company. This allows the process of product

development to be accelerated. Finally, the human resource policies of Samsung were open to

foreigners. In the late 1990s, the company started to hire employees from outside Korea who

previously worked for the top-ranked U.S. technology companies. In 2005, Samsung set up

performance-based incentives for the staff, which enhanced the employees enthusiasm to work

harder. Also, it encouraged everyone to participate in decision-making and express his or her
opinions. All these competitive advantages are sustainable because they form a positive and

productive cycle. More specifically, the comfortable working environment and the open human

resource policies contribute to the development of new products, and after its products satisfy the

consumers, the brand value will certainly increase. As Samsung continues this cycle, its

competitive advantages will be sustainable.

As discussed in the case, Samsung has several options moving forward. First, they could

collaborate with a Chinese partner and create a Samsung presence in China. Since China was

expected to become the worlds second-largest purchaser of semiconductors, after the U.S. it

would make sense to enter that market and collect on that opportunity (pg 11). However, because

of property rights issues their intellectual property might not be protected which is a huge cause

for concern. Before entering a new market, they should have all their intellectual property

protected, and if that isnt a possibility it would be wise to not enter that market. Second, they

could simply continue to increase investment on cutting-edge technology for specific markets.

This path of action seems to be promising because Samsung has seen this work in the past for

them. They have been extremely successful by simply being on the cutting-edge of the memory

business. Like discussed in the case, this would potentially leave the low cost market vulnerable

to competitors. However, even if they sell less product because some of the low end market

moves to Chinese competitors, financially they will make more money than lowering their prices

to keep the low end market. After looking at the different options, Samsung should continue

doing what they do best, which is stay on the cutting-edge of memory business by continuing to

offer niche markets solutions and looking to the future and continuing their research and

development with flash memory. If Samsung continues their tradition of high quality reliable
products, their unique company culture, and continue to create new cutting-edge products they

will be able to keep their competitive advantage.