Samsung vs. Asian DRAM producers competitive analysis.

1. Samsung Electronics Case 3 Discussion, Group 7 Chuck Ou Greg Wu Juin-Der Lee Samuel Krushnisky

2. Q-1 Competitive advantages Chinese entrants seeking? Lower-costs structure Easier access to the large pools of local engineering talents Local marketing Government subsidies Government relations

3. Q-1 How close are they achieving that advantage? China is expected to become the world’s second largest purchaser of semiconductor, Chinese company has already exhibited large-scale entry by 2005 Chinese companies had access to low finances

4. Q-2 What is Samsung’s competitive advantage? Technologically driven niche products Strong Infrastructure High investment for R&D Wide range of products High brand value Higher economic scale and economic scope Horizontal and vertical integration (ie. Samsung’s own stores, SRAM for their own mobile phones) Michael Porter’s 5-Force, Samsung is a large buyer and can use that towards their advantage Higher yield than competitors R&D facility located at one single site Untraditional Human Resource practices based on meritocracy not on seniority Attractive pay, bonuses and incentives Allowed employees to fail. Financially strong, large resources at disposal

5. Q-2 Can Samsung withstand Chinese Threat? Yes, so far the results show that they continue to gain market share though their gross profit have decreased Multiple products to sustain itself High brand value

8. Higher selling price

9. Better financial indicators: lower COGS/Sales, SG&A/Sales, R&D/SalesSuperior innovation

10. Q2-1: Financial indicators Exhibit 7d, 256Mbit DRAM in 2003

11. Q-3 How do Samsung achieve its competitive advantage? Lower-cost structure Located main R&D facility and fabs at a single site High investment in R&D (6%) to maintain technology lead Multiple product segments (LCD, Mobile Phones) Financial Stability Created high brand value Reliability of its products

12. Q-3 How do Samsung achieve its competitive advantage? (2) Created new uses for DRAMS by putting its manufacturing and R&D in support of design firms such as Rambus Products shared a common core design Learn new design rules and then apply new rules towards the production of all product types. Customized products to customer demands

13. Q-3 How do Samsung achieve its competitive advantage? (3) Meritocracy based hiring Performance-based promotion rather than seniority-based promotion Actively recruited foreign talent Created the Global Strategy Group to attract talent from around the world to Samsung Invested more in employees than competitors Performance Based Incentives 3 types of performance-based incentives Project Incentives, Productivity Incentives, Profit Sharing program Created entrepreneurial environment that encourages innovation

14. Q-3: Samsung’s Activity Matrix Located main R&D facility and fabs at a single site ability to customize product to customer demands Reliability of its products Superior quality Superior customer responsiveness Products shared a common core design Work with design firms Superior efficiency Superior innovation using performance-based promotion Richly reward, Not firing for failure 3 types of performance-based incentives ability to learn new design rules and then apply the new rules Invest in employees’ global business skills Actively recruited foreign talent Facilitated debate and encouraged to agree on a final outcome Invested more in its employees than competitors Regional Specialist Program Higher average salary than Hynix Global Strategy Group

15. Threats: Increasing Competition Memory Chip (2009)

16. Samsung multiple revenue sources

17. Q-4 How should Samsung deal with the threat of the Chinese entrants? Continue investing in R&D Focus on producing niche-products and releasing them Invest in factories producing lower end chips in China to be closer to Chinese domestic growing market product Attract top Chinese engineers Set technical standards

19. Threaten to increase output and force down prices until market entry would be unprofitable to competitors and entrants (SMIC).

21. Samsung SWOT Analysis

22. Questions and Discussion Thanks for listening!