Strategy Presentation on Countering Threat from Chinese Company BBackground ackground • Samsung founded in 1938 by Byung-Chull Lee. • 1950’s Economic Stabilization – Korean War - Samsung lost all assets – aimed to help rebuild Korean economy; entered the manufacturing industry (sugar, fabrics) – became a leader in modern business practices (recruiting from outside) • 1960’s Expansion of Key Industries – entered electronics and chemical industries – 1969 established Samsung Electronics Co. as a division of the Samsung Group. In 1970s, Samsung's entry into the semiconductors business was pivotal for the company, to that end, creation of Samsung's semiconductors and telecommunication Co. in 1978. – – – laid the groundwork for electronics in Korea helped the domestic economy grow paved the way for exports • 1980’s: Samsung was manufacturing, shipping, and selling a wide range of appliances and electronic products throughout the world. – – – A more comprehensive electronics company established Semiconductor and Communication corporation began memory chip business • Early 90’s: Integration and Globalization – – Sales at Samsung Group grew more than 2. times between 1987 and 1992. Mid-Late 90’s: Implementing new management strategies Samsung Product Range Some of Samsung products Home Multimedia Mobile Multimedia Personal Multimedia Core Components Core-Competencies Samsung- Core Competencies High Quality Standards Superior Efficiency Innovation Drive Customer Responsiveness Reliable Products • Reliable Products • Work with design firms • Located main R&D • Learning new design • Employee welfare facility and fabs at rules and application • Active Recruitment a single site • A common design of foreign Talent • Performance platform with • Global Strategy ased promotion customization as per Group • Reward but requirement • Employees global no Firing business skills Policy Ability to customize product to • Regional Specialist • Debate based customer demands program agreements Increasing Competition Rank Company Market Share 1 Samsung 34% 2 Hynix 22% 3 Micron Technology 15% 4 Elpida Memory 14% 5 Qimoda 5% Industry Analysis: Porter’s Five Forces • Fierce Rivalry due to increase in capacity & cyclical downturn Industry • Entry of new Chinese companies Rivalry • Suppliers are likely to becomes more concentrated and offer about 5% discount on bulk purchase
Supplier • Buyers are largely OEM with no one controlling more than 20% of the market. Buyers • Buyers are likely to negotiate hard for prices. Entry Barrier Substitute • High entry barriers due to requirement of capital investment and complex • Chinese firms going for joint ventures and access to foreign investment. • Memory chips did not have any substitutes but old technology is likely to be replaced by more advanced technology. SWOT Analysis Strength Weakness Opportunity Threats • Diversified product line to cover all customer needs • High market share in Mobiles, Memory Chips and LCD High Brand value from multiple sponsorships • High investment on research and development • Customers place question on durability of products • Lack of focus on niche market • Low Average salary in the market • Strong and growing customer demand for high-end products • Young population gives a chance to develop customer base for future • Intensifying competition • Low cost Chinese products • May lose advantage of DRAM technology to new Nana Tech Competitive Advantages of Chinese Firms • Access to cheap labour and local engineering talent • Government subsidies • Easy access to local & international financial capital Lower cost structure • Willing to endure years of losses to gain market share Competitive Advantages of Samsung • Dedicated workforce of manual labourers and engineers • Strong product portfolio • SDRAM, DDR SDRAM, DDR2 SDRAM, RDRAM, other DRAMs • Early mover advantage in increasing wafer-size • Sustained levels of high operating margins • Adoption of “stacking” method for fabrication Competitive Advantages of Samsung • Strategic co-location of R&D and fabrication facilities • Enabling an efficient cost-structure • Favourable environmental conditions • In-house competitions for new product developments Active involvement of junior staff and engineers in discussions regarding new products leading to innovation Competitive Advantages of Samsung • Strong HR Policies • • • • Investment in employees’ higher education Active recruitment of foreign talent Goodwill towards employees 3 levels of Performance-based incentives • Project-based incentive • Productivity-based incentive • Profit-based incentive Strong Financials Samsung Micron Infineon Hynix SMIC COGS/Sales 23% 44% 33% 44% 32% SG&A/Sales 12% 26% 9% 16% 8% R&D/Sales 11% 13% 14% 13% 18% Labor/Sales 11% 21% 16% 11% 8% Sales 5. 08 4. 48 4. 73 4. 58 4. 3 COGS 1. 19 1. 98 1. 57 2. 01 1. 84 SG&A 0. 59 1. 18 0. 44 0. 74 0. 34 R&D 0. 56 0. 56 0. 67 0. 61 0. 8 Labor 0. 54 0. 94 0. 75 0. 51 0. 34 Lower Raw material, Labour, Depreciation, R&D costs. Higher Selling Price! Resulting in better financial indicators: Lower COGS/Sales Lower SG&A/Sales Lower R&D/Sales (Exhibit 7d) The Big Question Can Samsung weather the Chinese Threat? Yes, Samsung continues to retain and gain market share. Samsung has a high brand value- Can leverage on Brand Equity. Wide Range of Product Offerings for sustenance. Deterring New Entrants Strategies to deter new entrants Strategy
Niche Products Price Cut Cut down on price and Innovate on niche force a price war and products and drive competitors out explore new of the market markets Excess Capacity Acquisition Increase output and Acquire small force down prices to entrants with good make market entry potential to perform unprofitable Way Forward • Keep Innovating and Invest heavily in R&D • Focus on New Niche Products • Maintain Reliability and Quality of Product • Focus on More Foreign talent including talent from China as well • Invest in lower end chip factories in china • May look towards increasing the average salary Thank You
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