Samsung has several competitive advantages over potential Chinese competitors seeking to enter the semiconductor market, including its technological leadership, large investments in R&D, diverse product portfolio, strong brand, and efficient production processes. However, Chinese companies may achieve cost advantages from lower costs, government subsidies, and access to engineering talent. Samsung can withstand this threat by continuing to innovate, customizing products, investing in people through merit-based hiring and incentives, and considering strategies like focusing on niche markets or acquiring new entrants.

1. Samsung Electronics Case 3 Discussion, Group 7 Chuck OuGreg WuJuin-Der LeeSamuel Krushnisky

2. Q-1 Competitive advantages Chinese entrants seeking? Lower-costs structure Easier access to the large pools of local engineering talentsLocal marketing Government subsidiesGovernment relations

3. Q-1 How close are they achieving that advantage? China is expected to become the world’s second largest purchaser of semiconductor, Chinese company has already exhibited large-scale entry by 2005Chinese companies had access to low finances

4. Q-2 What is Samsung’s competitive advantage? Technologically driven niche products Strong Infrastructure High investment for R&DWide range of productsHigh brand value Higher economic scale and economic scopeHorizontal and vertical integration (ie. Samsung’s own stores, SRAM for their own mobile phones) Michael Porter’s 5-Force, Samsung is a large buyer and can use that towards their advantageHigher yield than competitorsR&D facility located at one single siteUntraditional Human Resource practices based on meritocracy not on seniority Attractive pay, bonuses and incentivesAllowed employees to fail. Financially strong, large resources at disposal

5. Q-2 Can Samsung withstand Chinese Threat? Yes, so far the results show that they continue to gain market share though their gross profit have decreased Multiple products to sustain itself High brand value

6. Q2-1: Samsung’s Competitive AdvantagesSuperior qualityCompetitive Advantage:Low cost

7. DifferentiationSuperior customer responsivenessSuperior efficiencyLower raw material, labor, depreciation, R&D, SG&A cost (256Mbit DRAM exhibit 7d)

8. Higher selling price

9. Better financial indicators: lower COGS/Sales, SG&A/Sales, R&D/SalesSuperior innovation

10. Q2-1: Financial indicatorsExhibit 7d, 256Mbit DRAM in 2003

11. Q-3 How do Samsung achieve its competitive advantage?Lower-cost structure Located main R&D facility and fabs at a single siteHigh investment in R&D (6%) to maintain technology leadMultiple product segments (LCD, Mobile Phones) Financial Stability Created high brand value Reliability of its products

12. Q-3 How do Samsung achieve its competitive advantage? (2)Created new uses for DRAMS by putting its manufacturing and R&D in support of design firms such as RambusProducts shared a common core designLearn new design rules and then apply new rules towards the production of all product types.Customized products to customer demands

13. Q-3 How do Samsung achieve its competitive advantage? (3)Meritocracy based hiring Performance-based promotion rather than seniority-based promotion Actively recruited foreign talentCreated the Global Strategy Group to attract talent from around the world to SamsungInvested more in employees than competitorsPerformance Based Incentives 3 types of performance-based incentivesProject Incentives, Productivity Incentives, Profit Sharing programCreated entrepreneurial environment that encourages innovation

14. Q-3: Samsung’s Activity MatrixLocated main R&D facility and fabs at a single siteability to customize product to customer demandsReliability of its productsSuperior qualitySuperior customer responsivenessProducts shared a common core designWork with design firms Superior efficiencySuperior innovationusing performance-based promotionRichly reward, Not firing for failure3 types of performance-based incentivesability to learn new design rules and then apply the new rules Invest in employees’ global business skillsActively recruited foreign talentFacilitated debate and encouraged to agree on a final outcomeInvested more in its employees than competitorsRegional Specialist ProgramHigher average salary than HynixGlobal Strategy Group

15. Threats: Increasing Competition Memory Chip (2009)

16. Samsung multiple revenue sources

17. Q-4 How should Samsung deal with the threat of the Chinese entrants?Continue investing in R&DFocus on producing niche-products and releasing them Invest in factories producing lower end chips in China to be closer to Chinese domestic growing market product Attract top Chinese engineersSet technical standards

18. Q-4 Deterring entry of new competitors- Continue to explore and increase market shares of new niche markets, more specifically in the flash segment.Take advantage of lower total costs by decreasing average selling price , thereby forcing price war and drive competitors out of the market.

19. Threaten to increase output and force down prices until market entry would be unprofitable to competitors and entrants (SMIC).

20. Purchase successful new entrants Cost structure of DRAM Industry

21. Samsung SWOT Analysis

22. Questions and Discussion Thanks for listening!