Understanding Samsung's USP Essay

It is true to say that Samsung is a leader in its field and one of the basic reasons for that can be attributed to it having a low-cost advantage. Over the span of 55 years, since the conception of the company, Samsung has undergone several phases of good and bad products, ultimately emerging as the company with most reliable performance. Samsung boasts of being the company which caters to rival companies simultaneously. The example of this can be the fact that Samsung supplies Flash memory chips to both Sony Ericsson and Nokia, even as both these companies are each others' rivals.
With the advent of Chinese technology and their low cost products into the market, Samsung now faces a lot of competition. It is now become evident that Samsung needs to reconsider its business strategy, whether to continue as a low cost manufacturer or focus on quality products. The fact is that over the past several years, Samsung has managed to develop and extremely valuable organisation culture which has resulted in enabling Samsung to produce low cost products. Some of the factors attributing to Samsung's low cost performance have been --
Samsung has its R&D and fab lines facilities located at a single site, compared to its competitors who have their R&D facilities located worldwide. This helps in collocation and therefore, Samsung saved almost 12% of the costs required in establishing the fab construction.
Further, Samsung also saves a lot in terms of its employee costs. When compared to an average salary of its competitors (Micron offers $54,000 and Infineon offers $72,000), Samsung offers $44,000. Instead of a fat pay package, Samsung has developed a scheme of incentives where on every successful completion of a project, the project members would be awarded cash bonuses. Further, the employees in Samsung are graded from A to D based on their productivity, and only those employees who got two A's in three years would be promoted. These are only few of the programs which ensure that Samsung gets a sincere work force who all have one common motive -- to develop cost-effective and reliable product base for Samsung.
It is a known fact that when production units are customized to produce volume product, the manufacturing costs of the products reduce dramatically (economies of scale). Samsung has fully utilised this philosophy. Amongst its competitors, Samsung is the only one producing mass DRAM products, a total volume of 896.4 million units (according to 2003 data).
The above three factors apart from the visionary leadership of the Samsung management have ensured time and again that Samsung is able to sell its products at a low cost.
While many people may be of the opinion that Samsung has gained its market share solely by leading in the low cost products, the fact is that Samsung was never with the lowest price in its range of products. What Samsung did was to combine cost effective features with the normal products and develop a market product which was reliable and loaded with features. This, combined with a decent costing, helped Samsung maintain its position as the leader in the electronics. Irrespective of the common conception, it may come as a surprise that Samsung has never compromised on its Operating Margin. Other than in 2001, where the last two quarters showcased a negative operating margin, -96% and -45% respectively, all other years have consistently seen a positive operating margin, with an average of 24% in 2003. This is extremely high compared to its main competitor, Micron, which has consistently been operating on a negative operating margin, with an average of -34% in the year 2003. Thus, it is quite evident that Samsung's USP is not just its low cost products, rather, decently priced products offering cost effective features. These products are the point of differentiation for Samsung, even as the pricing of these products provide Samsung with the cost leadership. It may suffice to say that Samsung's competitive advantage, therefore, is its strategy, which has ensured the inclusion of both -- Value position and Cost position.