Business
2016-03-24
The current paper is devoted to the company Samsung Electronics and its functioning in the 1990s-2000s. Samsung Electronics Company is a part of the Samsung Group that it the largest conglomerate in South Korea (Official Site of Samsung, 2016). The main business directions of the Samsung Group were electronics, trade and services, finance. There were five directions of Samsung Electronics at those years. One of them is the Semiconductor Business. Let’s analyze this sector and its competitive environment in the 1990s-2000s in more detail, analyze data and evaluate the advantages of Samsung Electronics (Ellet, 2007).
Chinese Firms on the Market of Semiconductor Products
A lot of Chinese firms enter on the market of semiconductor products (Siegel & Chang, 2009, 2). Samsung developed new types of memory chips at that time. In this case, the Chinese entrants had a great opportunity to produce older products. Thus, the Chinese entrants seek the advantage: lower prices of the products, bigger market share instead profitability. For example, the Chinese producers, which specialize on logic chips, use older technologies. Huge amount of resources and lower prices are the main advantages of such producers. Thanks to them, the Chinese companies can grow their market share. It provided a doubling of total sales in 2003 in comparison with the previous year (Siegel & Chang, 2009, 5).
At the same time, the costs of building new fabrics increased rapidly and the achievement of the above mentioned advantages needed more resources. The Chinese companies had problems with further financing. It should be noted that the Chinese companies did not produce frontier products due to the lack of necessary experience and knowledge to organize the production process (Siegel & Chang, 2009, 2). Thus, these companies had a potential to develop and grow over the next decade.
Samsung’s Advantages
The company Samsung Electronics pays a great attention to its reputation. At the same time, the low-cost advantage is that Samsung has a large-scale production and has huge discounts, when buys memory raw materials from suppliers. The last ones offered discounts of up to 5% for such buyers as Samsung. The average selling price of all types of memory chips, which were produced by Samsung, was higher than its competitors in 2003. At the same time, Samsung was characterized by lower operating costs and higher operating margin. The main tendency of 2000-2004 was the declining in average selling price.
The Chinese Cost Threat
The company SMIC was the largest foundry in China in the 2000s. It manufactured memory products, including DRAM. The production volume of Samsung was thirteen times more than SMIC produced, but the prices, which SMIC offered, were lowest. In this case, Samsung increased the production of more expensive products. Another way was to collaborate with the Chinese partners. The last way was the most appropriate for Samsung. Thus, Samsung could withstand the Chinese cost threat through collaboration with the Chinese partners.
The Porte’s Five Forces
The Porte’s Five Forces are the useful tool to identify key advantages of Samsung Electronics. Using this tool, it is possible to identify the threat of substitutes, new companies, market power of suppliers and consumers, the overall competition level of the whole industry.
According to the Porte’s Five Forces, the key advantages of Samsung Electronics were the following:
limited number of competitors;
quite comprehensive conditions for market entry of new players;
high differentiation level of products, which Samsung offered on the market;
the big priority of the high-volume buyer for supplier: for example, Samsung had huge discounts, when bought raw materials (as a result, this part of the costs was less than those of competitors).
the significant role of R&D department and its productivity in producing memory chips (for example, Samsung formed a unique culture at the main R&D department near Seoul);
demand for memory chips increased due to the active growth in producing mobile phones, PC and other consumer electronics.
Samsung offered more than one hundred variations of DRAM products in 2003. Such products accounted around a half of all memory chips on the market in 2003. Samsung’s sources for a price Premium in DRAMS in 2003 were lower operating costs, which resulted in higher operating margin (Siegel & Chang, 2009). The huge R&D department provided quick solving of all process engineering problems and it saved an average of 12% construction costs.
Cost and Differentiation Advantage
There are two main advantages of Samsung: cost and differentiation. The first one concerns the lower construction costs in comparison with competitors. It is explained by high productivity of R&D department, comprehensive hiring process and effective human resource policy.
Samsung concentrated main R&D facilities near all its fabric lines in South Korea (Samsung Semiconductor, 2016). It positively impacted on the productivity and decreased the construction costs. At the same time, Samsung practiced the technique of doubling the product development teams. They competed with each other and it influenced on their productivity in a positive way.
Another part of the operating costs is labor remuneration. The base salary that is offered by Samsung in 2003 was lower than competitors. There was also a bonus part of the salary. It strongly motivated employees to work better with higher productivity. Unlike other companies, Samsung actively hired foreign talented specialists and raised strong managers from them.
Another advantage of Samsung was connected with its production mix. Samsung produces around 1200 variations of DRAM in 2003. Products ranged from frontier products to legacy ones. Such differentiation allowed using customized architecture for niche markets. Thus, the company Samsung Electronics can maintain both cost and differentiation advantages.
The main result for the company Samsung Electronics is a large market share (for example, the 1st place in sales of smartphones) in today’s market of consumer electronics and high profitability. At the same time, such Chinese competitors as Huawei and Xiaomi grow rapidly in our days. Their market share increases gradually (especially, in smartphone segment). In this case, strategy of Samsung will be changed in accordance with the market situation.
Conclusion
In conclusion one can say that nowadays, Samsung Electronics is one of the largest companies on the market of electronics and differs by effective production. The current key business principles of Samsung Electronics are the following:
As we can see, the reputation is on the first place for the company Samsung Electronics. And it continues to be the most important its advantage on the market of electronics.
References
Ellet, W. (2007). The case study handbook: How to read, discuss and write persuasively about cases. Boston: Harvard Business School.
Official Site of Samsung,. (2016). Samsung Global Strategy Group. Sgsg.samsung.com. Retrieved 24 March 2016, from http://sgsg.samsung.com/samsung/value.do
Samsung Semiconductor,. (2016). Factsheet. Samsung Semiconductor Global. Samsung Semiconductor. Retrieved 24 March 2016, from http://www.samsung.com/semiconductor/about-us/factsheet/
Siegel, J., & Chang, J. (2009). Samsung Electronics. HBS., No 705508-PDF-ENG. Boston, MA: Harvard business School Publishing.
