Samsung Case Study Essay Example

than the weighted average price of its competitors. Another competitive advantage for Samsung is their concentration of all industrial and R;D activities in a single site, resulting in lower costs.

Samsung benefited from collocation and scale of fab investment, which resulted in an estimated 12% savings on fab construction costs. This approach proved highly effective as it allowed engineers from various areas to collaborate daily, enabling faster resolutions for production and product design issues. Unlike its competitors with scattered facilities, Samsung was the only company implementing this strategy, making it more efficient. Additionally, Samsung had a noteworthy employee incentive model that successfully boosted productivity.

In 2003, Samsung had the lowest average salary compared to its competitors. The average salary at Samsung was $44,000, while Micron, Infineon, Hynix, and SMIC had average salaries of $54,000, $72,400, $24,600, and $10,800 respectively. Despite the lower salary at Samsung, employees received higher rewards. These rewards were based on performance at the division level such as the Memory Division. However, incentives could be adjusted for each department or team within the division according to their individual performance and contribution. These Productivity Incentives had the potential to pay up to 300% of the annual base salary. By implementing these strategies effectively across all product lines in comparison to its competitors in 2003 (Exhibit 7d), Samsung managed to achieve lower costs. For example, when analyzing the cost breakdown of a 256Mbit DRAM in that year; Samsung's cost was $4.5 while competitors had an average cost of $5.

61. Samsung gained a competitive advantage by being able to provide lower prices while still maintaining the highest price in the industry. They achieved

this by operating with a significantly higher operating margin than their competitors. For the 256Mbit DRAM, Samsung's operating profit reached 18.

Chairman Lee should consider a recommendation for Samsung's response to the threat of large-scale Chinese entry. However, it is important to first discuss what actions he shouldn't take. Joining forces with a Chinese partner is not advisable for various reasons. Past cases have shown that this strategy often leads to unexpected outcomes contrary to initial expectations.

Just to provide an example, a Brazilian company known as Marcopolo, one of the world's largest bus manufacturers, faced similar challenges to Samsung. In 2005, they established a joint-venture with a local Chinese player. However, after sharing their technological secrets with their Chinese partner, the Chinese decided to terminate the partnership and compete against Marcopolo. If Samsung chooses to employ this strategy, they could face a similar outcome. Another reason is that shifting production entirely to China or establishing a new factory there could pose a threat to Samsung's business model, which relies on concentrating activities in Seoul - a crucial source of competitive advantage.

My suggestion for Samsung is to utilize their expertise and tradition to provide high-quality products for valuable niche markets, while maintaining a competitive strategy centered on innovation and quality. This will create a distinctiveness that is difficult for Chinese companies to imitate. Such a strategy would enable Samsung to target customers with a high willingness to pay, resulting in a positive impact on the profit margin. By adopting this approach, Samsung would allow its Chinese competitors to focus on segments that do not require a high level of distinctiveness and have lower entry barriers. Consequently, Samsung

will avoid engaging in a price war with Chinese companies in the lower-end market segment, while continuing to dominate profitable segments of the market.