Samsung’s case study
Samsung’s case study offers insights into how the company has grown over the decades to become the leading semiconductor manufacturer in the world. In particular, the case study highlights Samsung’s entry timing strategy, its business-level strategy, and its options to address the threat of Chinese competitors.
Samsung was one of the first movers in the DRAM market back in the 1980s. Under the stewardship of Kun Hee Lee, Samsung timed its capital investments to take advantage of market developments. According to Siegel and Chang, Samsung allocated $100 million to DRAM development while the global semiconductor market went into recession (6). However, when the semiconductor market rebounded, Samsung’s investments paid off through the company’s first 64K DRAMs. Kun Hee Lee observed the market growth and the potential high returns of the memory industry and decided to increase investment in the manufacturing of DRAM memories (Siegel & Chang 6). The DRAM market is characterized by powerful suppliers and price-conscious customers. Siegel and Chang explain that suppliers of memory raw materials. Additionally, technology in the DRAM industry evolves at a high rate (5). Therefore companies must be quick to react to the technological shifts in the memory market. Accordingly, a company seeking to take market leadership must accept the risk of building new fabs that produce frontier products. A company must invest in acquitting tacit knowledge about the design and production process of cutting-edge memory.
Samsung’s business-level strategy in the semiconductor industry consists of both differentiation and cost strategies. Foremost, Siegel and Chang observe that Samsung offered over one thousand different variations of DRAM products as of 2003 (8). Having an extensive product range allows Samsung to provide specialty products such as DDR2 and Rambus DRAM to niche markets. Samsung is effective in implementing a differentiation strategy because it has a robust R&D department that continuously innovates the company’s products. Secondly, Siegel and Chang observe that Samsung saved twelve percent on fab construction costs by locating its fab lines at a single site in Seoul, South Korea (9). In contrast, Samsung’s competitors had their fab sites scattered across the globe. Siegel and Chang note that Samsung’s fully loaded cost to manufacture 128Mbit DRAM was $3.89 compared to the competitors’ average of $5.40 (17). Samsung is effective in implementing its cost strategies by improving efficiency in its production line. Accordingly, Samsung can maintain its competitive advantage in its production line by developing new design rules for its products.
Chinese entrants into the DRAM industry pose a significant threat to Samsung’s market share of the DRAM industry. Samsung should react to the threat of Chinese competitors through product differentiation. Samsung can leverage its thirty-year experience to maintain a competitive advantage in the semiconductor market while the Chinese entrants face the same challenges Samsung faced in 1980. Secondly, Siegel and Chang observe that China lacks the critical infrastructure to support the next frontier of semiconductor manufacturing. In contrast, Samsung has extensive experience in semiconductor manufacturing, which it can leverage to create newer types of memory. Samsung should use its research and development department to develop cutting-edge memory made of nanotechnology. Finally, Samsung should not move its production of R&D facilities to China because China does not provide intellectual property rights. Therefore, Samsung runs the risk of losing its intellectual property of designing semiconductors to its competitors. Finally, as suggested by Siegel and Chang, Samsung should cede or at least shift its focus from the lower end of the memory market and concentrate on developing high-value niche products