Business level strategy SAMSUNG

Transcription

1 Business level strategy SAMSUNG From business-level strategies, a competitive advantage of a business can be created over its rivals. Differentiation vs. cost leadership The company has an experience of pursuing both, cost leadership as well as product differentiation strategies during its lifetime. In 2010, the strategy was mainly cost efficiency prior to Asian Financial Crisis of With Eric Kim becoming chief marketing officer of the company, dramatic changes were bought to the strategy of the company pursuing product differentiation strategy. Target market-broad vs. niche play Samsung, because of the unique ecosystem created around it, has successfully spread its product line across both of these dimensions Low cost Differentiation Broad range low cost provider broad differentiation Strategy of buyers commodity DRAM cutting Edge DRAM Narrow buyer focused low-cost Target Market focused differentiation segment or niche Low cost flash Memory Rambus DRAM Best low cost provider strategy Samsung s strategy

2 Samsung s Combined Low-cost/Differentiated Strategy Difficult to implement Firms aiming to do this are often stuck in the middle Firm s products are too costly to compete with low costs provider s product, and too undifferentiated to command the price premium gained by the differentiated firm A variety of internal and external factors have helped Samsung achieve this desirable position Samsung s success has been due to a variety of factors: Successfully customize products around a core design Large product portfolio (occupy the entire spectrum for a broad market play) Collocation of fab and R&D facilities (internal conversation among engineers to decrease time to market) Easy access to Asian market Combination of educated guessing and pure luck (e.g. stack design vs trench design) Talent pool strategy: Access to local talents, sponsoring employees for PhD and MBA education) Availability of capital: E.g. from 1983 to 1985 during recession of semiconductor industry, Samsung allocated significant capital to build capacity Differentiation Faced with the challenge that the DRAM industry might fall into a commodity trap and therefore be subject to cutthroat price competition and price fluctuations, Samsung developed the below classification of broad product differentiation. Frontier: Cutting edge products with the highest margins Legacy: Current products, potentially manufactured using technology used to develop the frontier products resulting in cost savings Specialty: Products to target niche markets Cost advantage Samsung was able to command better operating margins as compared to its competitors because of Cheap labor: 35% cheaper as compared to non-chinese manufacturers

3 Use of new design rules: This allowed Samsung to produce more chips per wafer (the key raw material in chip manufacturing). Better sourcing: Raw materials cost 37% less than its competitors probably due to volume discounts and better bargaining power Better manufacturing processes - Yield rates were are at 80%, as compared to 50-67% for the competitors - Samsung was able to get 2.4 times the amount of die s by using 12-inch wafers as compared to 8-inch wafers, at 90% of the costs per chip leading to better gross margins Lower depreciation costs: By collocating and scaling its fab investments, Samsung saved an average of 12% of the fab construction costs Price advantage Samsung was able to command a higher average selling price as compared to its competitors because of its 1. Ability to offer customized memory chips that no other manufacturer could offer allowed them to command premium pricing on these products 2. Better quality control that lead to reliability enabled Samsung to obtain an average price premium of 1% average price Aggressive investments in R&D The memory chip industry is technology driven. A significant investment is required in R&D at the product design stage. As illustrated in exhibit 1 Samsung Electronics had maintained its technology leadership by outspending its rivals in R&D by over 1.5 to 20 times from 1998 to 2003, which was possible thanks to the Samsung group s diversified portfolio that allowed it to take calculated financial risks. Since Samsung was able to create and maintain technology leadership it was able to earn a very high premium at the initial stages of a new product to recover its initial investment and if competitors began producing the same product it could aggressively lower prices to make it difficult for followers to stay in the competition.

4 Samsung has pursued its differentiation strategy in a way that it has allowed to lower their cost structure at the same time. This may pose serious threats to both the cost leaders and differentiators over time Two dimensions of competitive strategy Competitive advantage - low cost vs. differentiated play Target Market - broad vs. niche play

5 Samsung, because of the unique ecosystem created around it, has successfully spread its product line across both of these dimensions From business-level strategies, a competitive advantage of a business can be created over its rivals. DRAM The world's number one chipmaker, Korea's Samsung Electronics, announced Thursday that it became the first in the world to start mass producing the 20-nanometer class Dynamic Random Access Memory flash chips. The leading chipmaker says the latest DRAM has the same capacity as the 30-nanometer class DRAM introduced in July last year but the latest technology offers a 50 percent improvement in productivity and reduces energy consumption by 40 percent. This has placed Samsung's technology around six to 18 months ahead of its Taiwanese and Japanese rivals which still produces 30 or 40-nanometer class chips. The industry's second-largest chipmaker, Hynix Semiconductor also based in Korea is trying to catch up as it plans to develop and start producing 20-nanometer class chips by the end of this year. Meanwhile, the world's number three DRAM maker, Japan's Elpida Memory announced earlier this year that it will start producing 25- nanometer DRAMs but that still hasn't happened yet. Meanwhile, Samsung also began operations of the world's biggest memory fabrication facility, the Line-16 which is producing NAND flash memory devices and boasts a size equivalent to 28 soccer fields. Experts predict Samsung's recent success of producing the 20-nano class DRAMs will redeem the company's slowed-down sales during the second quarter of this year by boosting its mobile and semiconductor sectors. Moreover, the company's Chairman Lee Kun-hee vowed to maintain its leadership in the global memory chip sector on Thusday. Echoing the Chairman's words, Samsung continues to stay ambitious and says it will begin production of more advanced flash chips using a 10-nanometer process next year.