Samsung Electronics case study

Samsung Electronics Case Study a. Discuss the global, national and company-level factors which contributed to the evolving competitive position of DRAM manufacturers during the 1980-2005 period? (From U.S. German, Japanese to Samsung, Korea).

Global factors. Global demand in the semiconductor industry has increased exponentially over the past 4 decades, with DRAMs representing more than 50% of the memory chip market in 2003, with a minor decline in the percentage of such chips being devoted to personal computers alone (Siegel & Chang). According to the case study authors, "The memory industry contained powerful suppliers and price-conscious customers. With each generation of semiconductor equipment, the technology grew more complex and the number of suppliers became more concentrated" (Siegel & Chang, p. 2).

National factors. South Korea was faced with some profound challenges following the cessation of fighting with its neighbor to the north by virtue of the Armistice in 1953. The nation's leadership recognized the need to modernize the country and companies such as Samsung were in a good position to take advantage of the situation to move from their original product line of black-and-white televisions into the design and manufacturing of advanced technologies. As a result, the entire country was motivated to pull South Korea up by its technological bootstraps to join the international community as quickly as possible.

3. Company-level factors. The company recognized in the 1980s that semiconductors were the "product of the future" and devoted an enormous amount of resources into their development, foregoing profitability for several years in the process. Japanese competitors have been forced to play "catch-up" with Samsung ever since. The company's employees at all levels were also highly motivated to help the company achieve its organizational goals. The company used innovative approaches to the development and manufacture of its DRAM product lines to fuel improvements and speed production. For instance, Siegel and Chang report that, "To develop frontier technology for the next generation of DRAM, Samsung created what was, at the time, an unusual internal competition across global R&D sites" (p. 7). This "unusual internal competition" consisted of two research and development teams with comparable experience who were tasked with cooperating with each other, but with a goal of developing their own product solution (Siegel & Chang). Finally, the company's chairman's decision to use the "stacking" approach over the "trenching" approach in chip manufacture and other innovative approaches to production appear to have been a major contributor to the company's long-term success in the DRAM manufacturing industry.

b. Do you consider that the Chinese companies are in a position to erode in a similar way Samsung's position?

Absolutely. In fact, many Chinese manufacturers are being forced to outsource their labor-intensive work to other developing neighboring nations such as Vietnam.

How serious is this threat?

In the short-term, the threat of position erosion is relatively modest; however, over the long-term, the same forces that affected Chinese companies will ultimately impact such increasingly affluent nations as well as wages rise and staff demand better working conditions, pay and benefits.

In this discussion please identify:

1. Sources of Samsung's competitive advantage.

a. One major source of competitive advantage for the company was its emphasis on producing superior products that are well designed and engineered for performance. b. Another major source of competitive advantage for Samsung was the amount of resources and expertise available to the company in recent years. The case study notes that in 2005, the Samsung Group (including Samsung Electronics Company), was the largest conglomerate in South Korea with net sales of $135 billion in 2004, 337 overseas operations in 58 countries and approximately 212,000 staff employed around the world in its far-flung operations.

c. Samsung had already weathered and survived two previous cyclical downturns in the memory chip industry by virtue of delivering the best performance in the industry.

d. In 2000, Samsung's brand value was $5.2 billion (43rd in the world), and increased to $12.6 billion (21st in the world) in 2004. According to Siegel and Chang, "In 2004, Samsung stood ahead of many brands such as Philips, Kodak, and Panasonic. Sony ranked 20th by comparison" (p. 6).

Sources of the Chinese entrants' competitive advantage.