What are the strategic issues that Samsung faces

  1. Does Samsung have a cost advantage, a differentiation advantage, or both a cost and differentiation advantage over its rivals?


From the year 2003 to 2007 Samsung has had a lower average operating cost than its rivals Micron, Hynix and Infineon. This cost advantage enabled Samsung to achieve a high operating profit as seen in Exhibit 1 of the case study which illustrates Samsung to be the only company to record positive net income from 2001 to 2003. Although Samsung is a Chinese company, it does not derive this advantage due to cheap financing because the company is largely self financed.

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Many of Samsung’s decisions early on helped solidify its cost advantage. For instance, by concentrating its functions in its R&D facility in Seoul, Samsung experienced fab construction cost savings at an estimated 12%. Engineers were able to alter production technology in order to produce multiple product lines which eliminated the need for specific equipment for various lines of Samsung’s products.

Despite Samsung’s annual wage being higher than its rivals’ average, they still had a lower average labor cost per unit of $0.54 than its competitors as demonstrated in Exhibit 7a. In addition to that, Samsung also has a lower average raw materials cost per unit than its rivals.

Samsung’s differentiation advantage is derived from its technological innovation. Its differentiation advantage came from creating a unique culture at the main R&D site in Seoul unlike its rivals whose facilities were scattered across the globe. Samsungs heavy investment in R&D enables it to respond quickly to changing demand and customer trends. Samsung enjoys a higher price premium than its rivals as shown in Exhibit 7.

Following both strategies has allowed Samsung to achieve relative lower costs than its rivals and create uniqueness valuables to its buyers, which has proven to be the key to its success.

2: What are the resources and capabilities that form the basis of Samsung’s cost or differentiation advantage(s)?


Samsung’s resources and capabilities are:


  • Strategic Pricing: Samsung offers reliable memory chips at low cost.  In addition, the company decreased cost in other areas. For example, it saved an estimated 12% of fab construction cost by having all its fab lines and R&D main facility in a single site.


  • Product Innovation and Development: Samsung produces different types of memories to meet customer’s demands: “As of 2003, Samsung offered over 1,200 variations of DRAM products” (Siegel, 8)


  • Experience in other products: Samsung attempted to obtain a competitive advantage in other products such as the Flash Memory.


  • Knowledge, Expertise, and Reputation: Samsung has been in the industry since 1938. In addition, Samsung attracts global talent that allows the company to keep up with the challenges that globalization brings to the industry.


  • Effective Human Resources Policies: For Samsung, employees are key for success. The company provides various compensation programs to increase job satisfaction, attract global talent, and boost productivity.


  • Effective Leadership Practices and Organizational Culture: Throughout the years, Samsung had efficient leaders that had made the right decision at the right times. In addition, The company values and considers feedback from all its employees while working on the design and production of a new product.


  • Strong R&D team: Samsung invests in innovation and new technologies to provide high quality products. “Unlike its competitors, Samsung tried to create new uses for DRAMS” (Siegel, 8).



  1. How difficult is it for competitors to replicate these resources and capabilities and thus how sustainable are Samsung’s competitive advantage(s)?

It is not difficult to replicate some tangible resources that Samsung consists of such as, the actual semiconductor equipment. However, it can be difficult to replicate sources such as global talent acquired, the extensive industry knowledge acquired through experience by all managers, and the organizational culture built by diverse employees in South Korea. The culture of putting quality first and investment in its employees’ lives can be difficult to replicate by competitors. The Human Resource policies of taking care of employees’ 90% of their problem allows them to increase innovation and productivity. The incentive programs can be difficult to replicate as well depending on a competitor’s financial budgets.


  1. What are the strategic issues that Samsung faces? Specifically, how big of a threat does the emergence of Chinese competitor (SMIC) pose to Samsung’s continued success?


  1. What changes to Samsung’s strategy needs to be made to address the potential threat posed by SMIC?


  1. Why would you believe that your recommended strategy will address the potential threat posed by SMIC effectively?


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