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Business level strategy SAMSUNG

From business-level strategies, a competitive advantage of a business can be created

over its rivals.
Differentiation vs. cost leadership
The company has an experience of pursuing both, cost leadership as well as
product differentiation strategies during its lifetime.
In 2010, the strategy was mainly cost efficiency prior to Asian Financial Crisis
of 1997.
With Eric Kim becoming chief marketing officer of the company, dramatic
changes were bought to the strategy of the company pursuing product
differentiation strategy.
Target market-broad vs. niche play
Samsung, because of the unique ecosystem created around it, has successfully
spread its product line across both of these dimensions

Low cost


Broad range

low cost provider

of buyers

commodity DRAM

broad differentiation
cutting Edge DRAM

Target Market
segment or niche

Narrow buyer
focused low-cost
focused differentiation

Low cost flash

Best low cost


Rambus DRAM

Samsungs Combined Low-cost/Differentiated Strategy

Difficult to implement
Firms aiming to do this are often stuck in the middle
Firms products are too costly to compete with low costs providers product,
and too undifferentiated to command the price premium gained by the
differentiated firm
A variety of internal and external factors have helped Samsung achieve this
desirable position
Samsungs success has been due to a variety of factors:
Successfully customize products around a core design
Large product portfolio (occupy the entire spectrum for a broad market play)
Collocation of fab and R&D facilities (internal conversation among engineers
to decrease time to market)

Easy access to Asian market

Combination of educated guessing and pure luck (e.g. stack design vs trench
Talent pool strategy: Access to local talents, sponsoring employees for PhD
and MBA education)
Availability of capital: E.g. from 1983 to 1985 during recession of
semiconductor industry, Samsung allocated significant capital to build
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
Cost advantage
Samsung was able to command better operating margins as compared to its
competitors because of

Cheap labor: 35% cheaper as compared to non-Chinese manufacturers

Use of new design rules: This allowed Samsung to produce more chips per
wafer (the key raw material in chip manufacturing).

Better sourcing: Raw materials cost 37% less than its competitors probably
due to volume discounts and better bargaining power
Better manufacturing processes
- Yield rates were are at 80%, as compared to 50-67% for the competitors
- Samsung was able to get 2.4 times the amount of dies by using 12-inch wafers as
compared to 8-inch wafers, at 90% of the costs per chip leading to better gross
Lower depreciation costs: By collocating and scaling its fab investments,
Samsung saved an average of 12% of the fab construction costs

Price advantage
Samsung was able to command a higher average selling price as compared to its
competitors because of its
1. Ability to offer customized memory chips that no other manufacturer could offer
allowed them to command premium pricing on these products
2. Better quality control that lead to reliability enabled Samsung to obtain an average
price premium of 1% average price

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, which was possible thanks to the Samsung groups
diversified portfolio that allowed it to 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.

Samsung has pursued its differentiation strategy in a way that it has allowed to lower
their cost structure at the same time. This may pose serious threats to both the cost
leaders and differentiators over time.
Two dimensions of competitive strategy
Competitive advantage - low cost vs. differentiated play
Target Market - broad vs. niche play

Samsung, because of the unique ecosystem created around it, has successfully spread
its product line across both of these dimensions
From business-level strategies, a competitive advantage of a business can be created
over its rivals.

The world's number one chipmaker, Korea's Samsung Electronics,
announced Thursday that it became the first in the world to start
mass producing the 20-nanometer class Dynamic Random Access
Memory flash chips.
The leading chipmaker says the latest DRAM has the same capacity
as the 30-nanometer class DRAM introduced in July last year but the
latest technology offers a 50 percent improvement in productivity
and reduces energy consumption by 40 percent.
This has placed Samsung's technology around six to 18 months
ahead of its Taiwanese and Japanese rivals which still produces 30 or
40-nanometer class chips.
The industry's second-largest chipmaker, Hynix Semiconductor also
based in Korea is trying to catch up as it plans to develop and start
producing 20-nanometer class chips by the end of this year.
Meanwhile, the world's number three DRAM maker, Japan's Elpida
Memory announced earlier this year that it will start producing 25nanometer DRAMs but that still hasn't happened yet.
Meanwhile, Samsung also began operations of the world's biggest
memory fabrication facility, the Line-16 which is producing NAND
flash memory devices and boasts a size equivalent to 28 soccer
Experts predict Samsung's recent success of producing the 20-nano
class DRAMs will redeem the company's slowed-down sales during
the second quarter of this year by boosting its mobile and
semiconductor sectors.
Moreover, the company's Chairman Lee Kun-hee vowed to maintain
its leadership in the global memory chip sector on Thusday.
Echoing the Chairman's words, Samsung continues to stay
ambitious and says it will begin production of more advanced flash
chips using a 10-nanometer process next year.