Executive Summary: After extensive research, S&S consultants have evaluated some of the opportunities that could better position The Samsung Group among their rival competitors in the Memory Industry as well as technological advancement. S&S consulting will help answer some of the questions that Samsung Group may have.
We will analyze the external and internal factors of The Samsung Group, and compare those to their rival competitors in order to reposition their strategies in becoming an even stronger and more powerful Industry in the global market. In order to do so, we have pointed out some of the key issues on which the Samsung Group needs to refocus. To implement these new strategies, S&S consultants need The Samsung Group invest time and money. Key Issues:
•Examine the threat of entrants from China. •Modify products to meet environmental changes. •Relocate The Samsung Group manufacturing facility. •Recruit too many foreign talents.
Industry Analysis With many competitors competing in the memory chip industry, this would force the price of DRAM to decrease. Therefore, more resources are being used but the return in investment is less, which leads to an unprofitable outcome. Many major competitors were unable to survive in the memory chip industry because of the lack of experience as well as financial distressed. The threat of new entrants is relatively high and it is one of the major issues that the Samsung Group faces. The major threat is the Chinese firms competing fiercely within the memory chip industry; the Chinese firms are willing to sacrifice profits for market share.
Another major threat from the Chinese firms is their easy access to outside finance and skillful local engineers; this means that the Chinese firms have the potential to build skills over the next decade. With competition from the Chinese firm and many other companies, the bargaining power of buyers will increase dramatically because of the low price that is being offered by the Chinese.
Furthermore, competitors are trying to takeover some of the market shares. On the other hand, the bargaining power of suppliers is relatively low due to the increase in competition. Since our society changed dramatically, the Samsung Group should substitute products and update services to stay ahead in the competition. Internal Scanning
1. Value: Does it provide competitive advantage? Samsung’s advantage over competitors is their technological advancement. In addition, the Samsung Group believes in quality and reliability, which adds value to their products. Another advantage is that Samsung is able to produce their products at a lower cost than their competitors. (Shown in Exhibit 7b) 2. Rareness: Do other possess it?
Many competitors, especially the experienced Chinese Firms were able to possess the same products as the Samsung Group; the Chinese Firms were able to produce the same products at a lesser quality but for a lower price. 3. Imitability: Is it costly for others to imitate?
The answer to this question is YES and NO. For leading competitors such as the Nanya Technology Corporation and Semiconductor Manufacturing International Corporation, it is not difficult or expensive for those corporations to imitate the products since they have all the required resources to produce and manufacture in the memory industry. However, for the smaller Chinese firms, it can be very difficult because of the lack of organizational experience, tactical, knowledge, and capital investment.
4. Organization: Is the firm organized to exploit the resource? Yes, the Samsung Group had been the dominant player in the memory industry and will continue to develop innovative technology because they have abundant resources. Competitive Growth and Strategy
The Samsung Group’s strategy is to provide the best quality, reliability, and the ability to customize products to consumer demands. What makes the Samsung Group so successful is that they are willing to take risks and to understand the market. One strategy that is being used throughout the Samsung Group is that they value the ideas and opinions of their employees. They also hire skillful employees from different parts of the country. This makes the Samsung Group stand out from their rival competitor. Performances
The financial comparison of the Samsung Group and their rival competitors shown in exhibit 1 illustrates that only Samsung is raking in a positive number of net incomes while the competitors are raking in negative number of net incomes. This shows that Samsung products had out sold those of their competitors.
Also, the net incomes for Samsung is not showing a steady increase in net income, in 2001 there was a dramatic decrease in net income and then another decrease in 2003. This shows that Samsung Group had lost some of their market shares to competitors. Samsung Group was able to sell their products at a higher price than their competitors; in addition, the Samsung Group took advantage of low cost of Labor, raw materials, depreciation, research and development, and general administrative expenses shown in exhibit 7b.
This enables Samsung Group to achieve higher profits than their rival competitors. According to Exhibit 4, Samsung Group produced the highest amount of DRAM compared to their competitors in 2003. Furthermore, the Samsung Group produced a larger amount of 256Mbit DRAM of 695.8 million, which is well above their competitors. Strategic Challenges
This section will help answer some of the key questions that will help Samsung Group make a better and clearer decision for future expansion. 1. Had the competitive environment changed dramatically, and did this change require Samsung to modify its strategy? Over the past year, consumer spending has been changing dramatically because society changed. With today’s advanced technology, life as a consumer has been much easier. For instance, consumers can shop on-line instead of getting out of the house to do the actual shopping.
The consumers are no longer holding the big and bulky cell phone; they are now carrying a small, compact cell phone. Consumers have been spoiled by the innovative products and advancement in technology and are not willing to settle for less. Therefore, the Samsung Group should definitely modify their strategy according to changes in society. 2. Does moving production to China threaten the survival of that unique company culture?
Moving production to China will not only help the Samsung Group better understand the culture and internal strength of their rival competitors, but a future investment in China would be a great opportunity for Samsung Group because of the huge consumer base.
3. How should Chairman Lee and the senior management team at Samsung react to the threat of Chinese competition? The worst thing to do is to let your enemy know that you are afraid of them. The best thing for Chairman Lee to do is to focus on R&D and to keep producing new products innovative and to focus on the quality and performance of the products. On the other hand, the Samsung Group waits to see what the Chinese are doing to compete in the market.
Proposition Since China is the fastest growing county in terms of technology and consumers spending, Samsung Group should build a large manufacturing facility in China. Doing so will help introduce their products to Chinese consumers as well as learn from their rival competitors. The Samsung Group should strictly patents all their products and has it strictly enforced by the Chinese government. Another strategy is to do a joint venture with a well known corporation; such as Apple by producing DRAM or Flash memory chips exclusively for Apple Corporation.
Lastly, because hiring employees from different area of the country requires more training and very time consuming. The Samsung Group should hire skillful employees within their own country or hire employees that can speak different languages especially fluent in Korean language. Overall, Samsung Group will always remain ahead of their competitors because of their great ability and advancement in technology that will generate future potential growth for Samsung Group.
Exhibit 1 Financial Comparison (USD, million)
Exhibit 4 DRAM Production Volume in 2003 (million unit, 256Mbit equiv.)
Exhibit 7b Cost Breakdown in 2003