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STRATEGIC MARKETING & PLANNING

Our abilities and efforts did play a role in our success, but we must realize that most of it came from the leading companies negligence, pure luck, and our predecessors sacrifice.

1987:

Samsung a bit player, years behind its key Japanese rivals. Samsungs memory division BIGGER THAN Japanese rivals in size & profits.

2003:

Cyclical downturn in memory chip industry in 2005;

Samsung had survived TWO previous downturns; Threat of Chinese entry: could radically change industry conditions.

Strong growth over previous five decades;


Logic chips for processing information/ control processes, Memory chips - DRAM (Dynamic Random Access Memory), SRAM (Static RAM), & Flash to store information. DRAMs half of the market (2003).

DRAMs previously used in PCs but share declined from 80% (1990) to 67% (2003). Telecom & consumer electronics became growing consumers of DRAMs.
Communications products (mobile phones, switches, & hubs) share expected to double by 2008.

TVs, set-top boxes, game devices (Playstation) 7% of global market in 2003;

SRAM 10% share (buffer memory used in computer processing & mobile phone); Flash memory 32% share (used in. .digital cameras & mobile phones) could continue to store data without power source.

Market price conscious;


Technology available with 2-3 main players;

Suppliers of memory raw materials offered volume discounts of up to 5%; Customers fragmented - no single OEM with more than 20% of global PC market (2005).

Microprocessor cost 4-12% of total PC cost, or 4-7% of mobile phone cost. Intense competition in market but 1% premium possible for quality. Entry Chinese competition in 2005 with older technology. Samsung cutting-edge technology. Samsung reduced prices end2004WHY?

due to economies of scale/ capacity utilization.

Strength of Chinese competitors: Easy access to finance, Trained manpower.


Weaknesses: Organizational skills lacking, & Old technology.

Design blueprint > Transferred to mask;


Silicon ingot diameter 12 inches (2005) > Cut into Wafers (250350 microns thinner than human hair) > Memory Chips. Billions of electronic circuits within individual chips (dice). Challenge: Minimizing defective chips. Increasing wafer size for economical production.

1. Elpida Memory Inc (Japan): JV with

NEC produced memory products for mobile devices & consumer electronics goods. Going into 12 inch wafer production.
previously Hyundai Electronics. Financially troubled. Unable to raise capital. Lost ground to Samsung. LG Semiconductor takeover > more debt > verge of collapse. JV with ST Electronics.

2. Hynix Semiconductor, Inc. (S. Korea):

3. Infineon Technologies AG: Germany-

based, spun off from Siemens. Product purchase & capacity agreement with Taiwan-based DRAM manufacturer Winbond. JV with Nanya Technology to build a new plant in Taiwan.
4. Micron Technology: Idaho- USA:

Acquired Texas Instruments, plants in Texas, Italy, Japan, &Singapore. Purchased Dominion Semiconductor from Toshiba. Backed by Intel.

5. Nanya Technology Corporation: fifth-

largest DRAM manufacturer, Taiwanbased. DRAM technology from IBM. Nanya and Infineon JV Inotera producing 256Mbit DRAM.
6. Semiconductor Manufacturing

International Corp. (SMIC): HQ in Shanghai, China. Took blueprints from other firms & produced chips. 2003: SMIC signed agreement with Infineon & Elpida to license technology. Bought production facility from Motorola.

Producers of logic chips:

Advanced Semiconductor Manufacturing Corp. (ASMC) of Shanghai, Grace Semiconductor Manufacturing Corp., HeJian Technology (Suzhou) Co., and Shanghai Hua Hong NEC Electronics Co.

Combined sales: $771 million.

Largest conglomerate (called Chaebol) in South Korea.

Total Group sales: $135 billion in 2004.

337 overseas operations in 58 countries.

Employed 212,000 people worldwide.


Three core business sectors Electronics, Finance, and Trade & Services.

Samsung Electronics: $78.5 billion net sales, $66 billion in assets, 113,000 employees. Brand equity/ value (2004): $12.6 billion (21st in the world). Five business divisions: 1) Digital Media - TV, AV, Computers; 2) Telecom; 3) HDTV; 4) Digital Appliances (Refrigerators, AC, Washing Machines) & 5) Semiconductor Business.

Kun Hee Lee, third son of Samsung Groups founder Byung Chull Lee bought Korea Semiconductor Company, when others were investing in steel & other heavy industries;

Samsung Electronics was a producer of low-end consumer electronics goods.


Kun Hee Lee merged the two companies. First semiconductor produced was the watch chip, used in wristwatches.

1983 -1985: Even as global semiconductor market went into a recession & Intel left the DRAM business, Samsung allocated more than $100 million to DRAM development. Cost to produce 64K DRAM: $1.30, market price below $1.00.

Mid-1980s Samsung built its first large manufacturing facility.

Fast-paced construction: 4-

kilometer road built in ONE DAY to receive production equipment.


Kun Hee Lee made Chairman when father retired.

Since 1992: semiconductors largest export from S. Korea; 2004: Exports totaled $25.1 billion 10.4% of the countrys export volume. Samsung Group export 22% of Koreas exports. Group represented 23% of total market value at the Korea Stock Exchange.

First 64K DRAMs (1980s) with outside help; cash payment to Micron in the US; To develop frontier technology/ next generation DRAM, Samsung used internal competition; One team: Korean-Americans with experience in semiconductor industry located team in California.

Second team: Similar Korean-Americans team located team in S. Korea. Compete & collaborate!

California team won competition for designing 256K DRAM;


Korean team won competition for next generation 1Mbit technology.

Making the 4 Mbit DRAM. Options: construction design with an apartment building-like structure of cells. (Matsushita, Fujitsu & Hitachi style).

1. Stacking: replacing one-level

2. Trenching: digging below the surface of

the chip & creating floors below. (IBM, Toshiba & NEC style).

Making the 4 Mbit DRAM - Decision:

Stacking.
WHY? Easier to fix if anything went haywire! IBM, Toshiba, & NEC later discovered problems with trenching!

Hitachi took the lead Samsung at its tail!

Early 1990s: Increased size of wafers used to cut the DRAM chips to eight inches. First to do so. Invested $1 billion towards mastering the new technology. Became #1 in 1992 retained leadership for 13 years.

2003: Samsung offered 1,200 different variations of DRAM products. From frontier products (512Mbit DRAM) at the cutting edge of technology to legacy products (64Mbit DRAM). Within each product generation there were specialty products as well.

Prices for new-generation products high for a few quarters before crashing. Legacy products became high-value niche products. 2004: Moving ahead with Flash memory for digital cameras & camera phones. WHY? Market expected to grow at doubledigit for another five years. Flash price high relative to DRAM.

Gordon Moores theory (1965): Semiconductor density would DOUBLE every 18 months; Hwangs Law: Flash memory density would DOUBLE every 12 months.

Unlike competitors, Samsung created new uses for DRAMs. Launched new DRAM products with product-specific applications, for laptops, personal game players etc. Many shared a common core design. DDR DRAM & Rambus DRAM with different architectures but same core design.

Samsung main R&D facility and fab lines located at a single site near Seoul.

Competitors facilities scattered across the globe. Advantage: SCALE!


At Samsungs primary campus, R&D engineers & production engineers lived in the same company-provided housing.

Samsung prided itself on the reliability of its products & ability to customize products. Back in 1980s & early 1990s: Samsung was producing poor quality products. 1994: Lees book delivered to all employees, explained how the Group had lost sight of quality & argued that employees must think of quality first.

By the late 1990s, Samsung was routinely winning key industry competitions for reliability and performance.

Samsung developed new Flash memory chip for Sony Ericsson & chip customized for Nokia.

Taboo at Samsung to ask a co-worker about his or her university or place of origin. Employees given aptitude test covering language skills, mathematical knowledge, reasoning & space perception. More meritocratic evaluation system, younger, high-potential, Englishspeaking managers quickly promoted.

Hired westerners & other foreign talent. A corporate resource helped solve business problems at the business-unit level and prepared global managers for important positions. Chairman: At Samsung, we reward outstanding performance; we do not punish failure. This is my personal philosophy and belief.

2005: Chinese entrants attacking the DRAM market (the way Samsung did before); Companies in partnerships with Infineon & Elpida with billions of dollars in outside financing; Capacity to endure years of losses to gain significant market share; BUT, China lacked critical infrastructure for cutting-edge semiconductor industry.

1. Fight Chinese competition in all

categories;
2. Collaborate actively with Chinese partner

for low-end products. Risk????

A) Poor IPR record & B) Cultural differences;


3. Give up low end market and increase

investment in cutting-edge memory products.

How should Chairman Lee and the

senior management team at Samsung react to the threat of Chinese competition?

1. How did Samsung gain entry into the

semiconductor business? What strategy did the company adopt? a) Kun Hee Lee (the Chairmans third son) decided to purchase Korea Semiconductor with his own personal savings; b) First semiconductor developed by the company was a watch chip, used in wristwatches. c) Mid-1980s Samsung built its first large manufacturing facility.

d) Samsung required outside technology

found Micron to design/produce its first 64K DRAMs in the 1980s, e) To develop frontier technology Samsung created two teams one in California & the second in Seoul led by KoreanAmericans. f) California won competition for 256K DRAM, Korea for the next generation 1Mbit DRAM.

2. What design option did Samsung choose

for 4Mbit DRAM? Why? Was that a good decision? a) Kun Hee Lee chose the stacking method. b) In a trench-style chip, one couldnt look inside in case anything went wrong with the chip. c) IBM, Toshiba, & NEC also discovered problems with trenching, after having made investments.

3. Samsung was able to sell its DRAMs at a a) b)

c)

d)

premium. Why? Legacy products: 64Mbit DRAM FIRST IN! Specialty niche products: SDRAM, Rambus DRAM using customized architectures; Frontier/Advanced-generation products: at the cutting edge of technology: 512Mbit DRAM; & Reputation for reliability.

4. With cell-phone & smart-phones growing

fast should Samsung have shifted focus away from computer-chips? What advantages, what risk? Advantages: Greater market potential in unit terms. Faster growth in business. Opportunity to grow Samsung phones business. Risks: More stiff competition. Fate linked with smart-phones (all eggs in one basket). Further shift in technology back to square one!

5. What strategy should Samsung adopt to

fight off Chinese companies entering the business? a) Partner with a Chinese manufacturer? Advantages: Passing on legacy products to new markets. Lowering cost Risks: IPR issue on blue-prints. Operational control issues.

5. What strategy should Samsung adopt b) Preserve its proprietary know-how and

keep competition at bay? Advantages: Maintain top market dominance. Strengthen premium hightech image. Risks: Substitution. Slower growth. c) Put more money in developing specialty & frontier products & stay ahead of market? Advantages: Sustain competitive advantage. Risk: Paradigm shift in technology.

6. Should Samsung retain its hold on the

premium market segment as well as the low-price segment? Advantages & risks? Advantages: Consolidate market dominance. Pioneer market development. Grow profit with more control on pricing & profitability. Risks: Cost of protecting market share prohibitive. Polarized brand image.

How

Do Firms Use Innovation in the Strategic Marketing Planning process?

According

to Merriam-Webster, innovation is: Main Entry: innovation Pronunciation: "i-n&-'vA-sh&n Function: noun 1 : the introduction of something new 2 : a new idea, method or device

The future of many businesses depends upon their ability to innovate. Why? Competition is fierce. Knowledge spreads quickly. The ability of a company TO exceed its customers expectations are critical to survival. Innovation is critical for survival of a business.

1. Incremental 2. Breakthrough or Disruptive 3. Open source

ASSIGNMENT: WRITE A PIECE ON INNOVATION.