Samsung Electronics Strategy Has Successfully Achieved Both Low-Cost Advantages and Differentiated Products

Q1. Samsung Electronics strategy has successfully achieved both low-cost advantages and differentiated products.

Samsung is able to achieve and maintain its low cost position due to various factors. Samsung has always emphasized on process and production efficiency. The company places all its fab lines and R&D facility at a single site, so that engineers from various departments can come together to resolve any process or design issues as soon as possible. Benefiting from the collocation, Samsung achieved an average of 12% construction costs savings. Also, as seen in Exhibit 7a, Samsung is able to keep its fully loaded costs below that of competitors. The lower cost is mainly attributed to lower raw materials cost, perhaps due to better relationships with suppliers. Moreover, Samsung, in its design and production of DRAMs, has always sought to design them around a core design. This enables Samsung to save cost since it does not have to invest additional capital for every new product that it develops. Lastly, as other competitors were reluctant to invest in larger wafers for DRAM production, Samsung went ahead to develop and master the new technology, and has stayed as a leader ever since. As seen in Exhibit 3, this has allowed Samsung to reap the benefits of the experience curve that comes early in the product life cycle, lowering their costs for DRAM production over time.

In differentiating its products, Samsung prides itself on its product reliability. To achieve high quality in its products, Samsung invests heavily on R&D and constantly achieves design innovation. In addition, the firm also set up competing product development teams to create healthy competition so as to ensure the production of premium products in terms of quality and design. Samsung also has the ability to customize its products to customer demands. Such unique ability to bridge technical knowledge with consumer experience has enabled Samsung to command average 34% price premium over its competitors (Exhibit 3). Furthermore, Samsung values its human resource, invests heavily on its employees and base rewards on meritocracy. They, in return, gave their dedication to the firm, promising high productivity and innovation. This gives the firm its competitive advantage in terms of speed of new product development and superior product quality and design, which translates into brand value.

All in all, it is the interaction of the various activities and people of the firm as well as the visionary leadership of Chairman Lee that brought success to Samsung's strategy.

Q2. Samsung needs to examine if the firm is able to sustain its low cost advantage in view of the Chinese's entry into the memory industry. Evidently, the Chinese are leveraging on low costs, its engineering talent and government subsidy for entry, delivering on prices which are valued by consumers, and in turn gain market share in the industry.

One option is for Samsung to collaborate with a Chinese partner. No doubt, expanding