Samsung Strategy
Preface
This report investigates how Samsung was able to build a competitive advantage in the global memory chip industry and what steps it should take to sustain its advantage in the face of the imminent threat of Chinese competition.
Analysis of Samsung’s business strategy and competitive advantage
Porter’s 5 forces model in Exhibit 1 is used to analyze the global memory chip industry and Samsung’s strategy to date. Samsung had become the dominant player in the global memory chip industry and was able to increase the gap from other competitors in terms of technology and market share by following the below strategy.
1. Aggressive investments in R&D
The memory chip industry is technology driven. A significant investment is required in R&D at the product design stage. As illustrated in exhibit 1 Samsung Electronics had maintained its technology leadership by outspending its rivals in R&D by over 1.5 to 20 times from 1998 to 2003 (Exhibit 3), which was possible thanks to the Samsung group’s diversified portfolio that allowed it the take calculated financial risks.
Since Samsung was able to create and maintain technology leadership it was able to earn a very high premium at the initial stages of a new product to recover its initial investment and if competitors began producing the same product it could aggressively lower prices to make it difficult for followers to stay in the competition.
2. Differentiation
Faced with the challenge that the DRAM industry might fall into a commodity trap and therefore be subject to cutthroat price competition and price fluctuations, Samsung developed the below classification of broad product differentiation.
• Frontier: Cutting edge products with the highest margins
• Legacy: Current products, potentially manufactured using technology used to develop the frontier products resulting in cost savings
• Specialty: Products to target niche markets
3. Cost advantage
Samsung was able to command better
This report investigates how Samsung was able to build a competitive advantage in the global memory chip industry and what steps it should take to sustain its advantage in the face of the imminent threat of Chinese competition.
Analysis of Samsung’s business strategy and competitive advantage
Porter’s 5 forces model in Exhibit 1 is used to analyze the global memory chip industry and Samsung’s strategy to date. Samsung had become the dominant player in the global memory chip industry and was able to increase the gap from other competitors in terms of technology and market share by following the below strategy.
1. Aggressive investments in R&D
The memory chip industry is technology driven. A significant investment is required in R&D at the product design stage. As illustrated in exhibit 1 Samsung Electronics had maintained its technology leadership by outspending its rivals in R&D by over 1.5 to 20 times from 1998 to 2003 (Exhibit 3), which was possible thanks to the Samsung group’s diversified portfolio that allowed it the take calculated financial risks.
Since Samsung was able to create and maintain technology leadership it was able to earn a very high premium at the initial stages of a new product to recover its initial investment and if competitors began producing the same product it could aggressively lower prices to make it difficult for followers to stay in the competition.
2. Differentiation
Faced with the challenge that the DRAM industry might fall into a commodity trap and therefore be subject to cutthroat price competition and price fluctuations, Samsung developed the below classification of broad product differentiation.
• Frontier: Cutting edge products with the highest margins
• Legacy: Current products, potentially manufactured using technology used to develop the frontier products resulting in cost savings
• Specialty: Products to target niche markets
3. Cost advantage
Samsung was able to command better