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.
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:
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.
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