Joo Seok Lee Vanessa Merino Massiel Reyes Christopher Herlihy Jonathan Savadogo

A Case Study on:Samsung Electronics

Samsung Electronics Seoul, Korea

DRAM = dynamic random access memory◦ Definition- DRAM is the most common kind of

random access memory (RAM) for personal computers and workstations

R&D = Research and Development OEM = Original Equipment Manufacturer

◦ Definition- OEM, manufactures products or components that are purchased by a company and retailed under the purchasing company’s brand name

Fab – a manufacturing plant that makes semiconductor devices

Acronyms & Definitions

Samsung Electronics Company, henceforth called “Samsung” in this case, was established in 1969 to manufacture black-and-white TV sets.

Samsung Electronics is the chief subsidiary of South Korea’s giant Samsung Group◦ The company was Founded by Byung-Chul Lee

Samsung Electronics Overview

As stated in its new motto, Samsung Electronics’ vision for the new decade is, “Inspire the World, Create the future.”

As part of this vision, Samsung has mapped out a specific plan of reaching $400 billion in revenue and becoming one of the worlds top five brands by 2020

Samsung also established three strategic approaches in its management: “Creativity,” “Partnership,” and “Talent.”

2020 Vision

“To devote our talent and technology to creating superior products and services that contribute to a better global society.”

Mission Statement

Samsung Electronic itself was a producer of low end consumer electronics, just like China is currently.

The company used to rely on labor intensive assembly lines, importing semiconductors and other advanced products from abroad.

Originally, Samsung believed that market growth would vindicate its investment strategies, and so losing money the first several years didn’t discourage the group from making further investments.

Organizational Culture (Risk Takers)

In the past, Korean companies hired employees because they came from the right region and the right schools

Samsung tried to eliminate this practice by giving prospective employees an ability test covering language skills, mathematical knowledge, reasoning, and space perception.

Samsung also tried to break the mold of traditional seniority-based employment, which was still a widespread in Asia.

Organizational Culture (Innovated)

Samsung offers over 1,200 different variations of DRAM product. Given that DRAM products were conventionally thought of commodities, the ability to produced 1,200 different varieties was exceptional in the memory industry.

Samsung also sought to create the same advantage in flash memory that it enjoyed in DRAM. ◦ The flash memory market was expected to grow at a

double-digit rate for at least another five years.

Organizational Culture (Internally focused)

The first semiconductor developed by the young company was the “watch chip,” used in wristwatches

Samsung’s 4-megabit chip had made it the leading global producer of DRAM chips by 1995

Samsung plans to be the first to create the 20TB (terabyte) memory card by 2015

The company’s excellent method of quality control is what makes it successful in providing only the best products to the whole world

Samsung Key Facts

Samsung’s core values lay in it’s ability to push the boundaries in new thinking and innovation

Samsung’s innovative spirit is driven by 17 R&D centers and 6 design centers worldwide.

Organizational Structure

ChairmanKun Hee Lee

Vice Chairman & CEO Jong

Yong Yun

CTOYoon Woo Lee

CFODoh Seok

Choi

Semi-ConductorBusiness

-memory-system LSI-hard diskdrive-optical storage

PresidentChang Gyu

Hwang

Digital Media

Business• TV• AV• monitors• DVD

players

PresidentGee Sung

Choi

Telecom Business

• mobile handset

• PDA• networkequipment

PresidentKi Tae Lee

LCDBusiness

-LCD panels for notebook computers &HDTV

PresidentSang Wan

Lee

Digital ApplianceBusiness

-refrigerators-air conditioners-washing machines

PresidentHyun Bong

Lee

Samsung became the first Korean manufacturer of low-cost, relatively low tech, 64-kilobit (DRAM chips)

Samsung paralayed knowledge from the venture to become a significant supplier of the low-cost, commodity-like DRAM chips to computer and electronics manufacturers throughout the world

Byung-Chul Lee (Founder of Samsung Group)

Lee introduced various initiatives designed to improve employee motivation and product quality

Lee efforts, put Samsung at the forefront of the semiconductor Industry

Under the leadership of Lee, Samsung drew from potential profit gains to endorse their R&D facilities. (innovative products)

Kun-Hee Lee(Chairman of Samsung Electronics)

Samsung’s main R&D facility and all of its fab lines were located at a single site just south of Seoul, South Korea

At Samsung’s primary campus, the R&D engineers and production engineers lived together in the same company-provided housing

On a daily basis, they shared meals and their worksites were placed near one another’s, so that the engineers could quickly solve design and process engineering problems together

Samsung’s Research & Development

Samsung proudly claimed that it invested more in its employees than almost any other competitor in its industry

In Lee’s inauguration speech he stated, "What do our salaried workers worry about as soon as they open the door from their house to work? Probably over 90% will think about their family and their own health, their children’s education, and their retirement.

Human Resource Policies

People:◦ We value our people with a strong belief in “A

company is its people” philosophy & provide opportunities to perform their full potential

Excellence:◦ We give our best efforts with endless passion &

challenge spirit to become world best in every ways

Change:◦ We rapidly take the initiative in executing change

& innovation with a sense of crisis: we can not survive if we do not constantly strive to innovate

Values

1971: The company exports its first black-and-white television to Panama

1978: Samsung Group enters the semiconductor market by forming Samsung Semiconductor and Telecommunications Co.

1983: The company enters the personal computer market

Time-Line

1984: The firm officially adopts the name Samsung Electronics

1988: Samsung Electronics & Samsung Semiconductor

1992: The company develops the world’s first 64M DRAM

1994: Sales increase after the 4-megabit DRAM chip is developed

Continued Time-Line

1995: Exports reach $10 billion

1997: The company battles the Asian economic crisis

1999: The firm undergoes a major restructuring, and profits reach $2.4 billion

2000: Sales reach $26 billion and net profits climb to $4.7 billion

Continued Time-Line

General Environment

SamsungElectronic

Economic DimensionFluctuating Market.High unemployment rate

Political-Legal Dimension-U.S. Department of Justice regulating market prices-Environmental Regulations

International Dimension-Nine regional headquarters in major countries - Increase in the Chinese and Indian market.

Sociocultural Dimension-Consumer expectations are sub-ject to change.(smaller, faster, cheaper, technology-Customers expect companies to care for the global community by putting an emphasize on (CSR)

Technological Dimension-Converting to nanotech-nology.- Samsung president pro-posed a new Hwang Law was set to passed Moore's law

Planning Premises

By converting to nanotechnology, Samsung will be applying a version of differentiation

Nanotechnology can make production more efficient & effective

The new technology will help Samsung sustain their overall cost leadership strategy

Technological Dimension

By Samsung implementing a defender strategy it can protect its market from new competitors

Implementing a defender strategy tends to decrease creativity and innovation and focuses its efforts on lowering costs and improving the performance of current products.

Samsung also can find ways to create jobs increasing the unemployment rate

Economic Dimension

Weaknesses ◦ Fluctuating operating and net profit ◦ Slow Start Up (early development)◦ Had lost track of quality (early development) ◦ Originally Samsung scarified profits for market

share (risk taker)◦ Low brand awareness and loyalty ◦ Slow adaption of globalizing its brand◦ R&D facilities and all of its Fab were located at a

single site.

SWOT Analysis Internal Environment

Strengths ◦ Robust top line growth◦ Strong market position (competitors have to steal

market share) ◦ Collection of fab and R&D facilities ◦ Easy access to Asian market ◦ Fast & efficient product life cycle◦

SWOT Analysis Internal Environment

◦ Management efficiency ◦ Quality Control ◦ Incentivized Workers◦ Innovative Products◦ Currently holds #1 global market share in three

major memory products, such as DRAM, SRAM and NAND Flash

◦ They invested more in its employee than almost any other competitors.

SWOT Analysis Internal Environment

continued…

Opportunities◦ Growing Indian Market◦ Positive outlook for semiconductors◦ Maintaining the minimum capital expenditure

needed to maintain smooth business operation during the cycling decline of the DRAM market.

◦ In 1997, the Asian financial crisis happened, it affected Samsung but they utilized resources, saving profits

SWOT Analysis External Environmental

Threats ◦ Intense competition ◦ Government regulations ◦ Product substitution◦ Chinese competitors willing to sacrifice profits for

market share, just like Samsung did ◦ Unpredictable market ◦ Consumer expectations are likely to change (e.g.

smaller, faster, cheaper technology) ◦ Chinese government were helping chinese firm

create their infrastructure.

SWOT Analysis External Environmental

The Task Environment

Customers are price-conscious. OEM Purchasers PC Producers Many customers, even rivals of one another,

named Samsung their supplier of choice For example, Samsung developed Flash

memory chips for Sony Ericsson The company also developed Flash memory

chips customized for Nokia

Customers

The U.S department of Justice (DOJ) Environmental Protection Agency (EPA) Federal Communications Commission (FCC) Department of Commerce (DOC)

Regulators

Applied Materials Tokyo Electron ASML

Suppliers

IBM Infineon Technologies AG Freescale Semiconductor Chartered Semiconductor Common Platform ™

Partners

Major CompetitorsIn 2005

Micron was the sole U.S. producer remaining in this industry, and it had expanded its memory business primarily through acquisitions

In September 2003, Micron received a $500 million investment from Intel, and Micron agreed to use the money to invest in next-generation DRAM technology

Micron Technology (United States)

SMIC, established in 2000 and headquartered in Shanghai, was China’s largest foundry, manufacturing logic and memory products including DRAM.

Foundries did not design chips as Samsung did, but rather, took designs from other firms and produced chips based off blueprints.

While SMIC was the only Chinese DRAM producer, other Chinese producers had already entered other semiconductor markets for logic chips

Semiconductor Manufacturing International Corporation

(China)

Elpida—Japan’s only remaining DRAM producer—was established as a joint venture between NEC and Hitachi in December 1999

Elpida announced that it would start construction on its second 12-inch wafer fab next to its current manufacturing facility in Hiroshima.

The cost of the new facility was $4.5 billion, and Elpida partially financed the new facility through a $100 million investment form Intel along with a public equity issue.

Elpida Memory incorporated (Japan)

South Korea-based Hynix was founded in 1983 as Hyundai Electronics, and it changed its name in 2001 while separating from the financially distressed Hyundai Group

In April 2005 Hynix paid $185 million to settle charges by the U.S. Department of justice (DOJ) that it and the other memory manufacturers had conspired to control prices in the U.S.

Hynix Semiconductor Incorporated (South Korea)

The Global Strategy Group was a corporate resource that helped to solve business problems at the business-unit level and prepared global managers for important positions

Samsung’s competitive advantage had come from creating a unique culture at the main R&D production site

Business-Level Strategies

Differentiation Focus

-Unlike its competitors, Samsung tried to create new uses for DRAMs by putting its manufacturing and R&D in support of design firms such as Rambus-To develop frontier technology for the next generation of DRAM, Samsung created what was, at the time, an unusual internal competition across global R&D sites

-During the 1980s, Kun Hee Lee convinced his father that semiconductors represented the future of Samsung Group, and so the Group made Samsung Electronics its star affiliate and gave it most of the Group’s resources. -The Group wanted to get into DRAMs, the high-growth memory segment in the 1980s and 1990s

Porter’s Generic Strategies

Overall Cost Leadership Samsung 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 Average

Average Selling Price ($) 7.58 5.76 5.27 5.79 5.90 6.15 15.25Operating Cost ($) 5.33 4.77 4.6 4.00 3.82 3.92 8.5Operating Margain 30% 17% 13% 31% 35% 36% 44%

Micron Average Selling Price ($) 4.99 5.1 4.33 4.97 5.32 4.51 11.09Operating Cost ($) 7.25 7.96 6.65 6.06 5.57 4.75 12.51Operating Margain -45% -56% -53% -22% -5% -5% -13%

Infineon Average Selling Price ($) 5.9 4.89 4.69 5.41 5.21 4.95 10.58Operating Cost ($) 7.96 5.62 5.1 4.69 4.69 4.75 9.90%Operating Margain -35% -15% -9% 13% 10% 4% 6%

HynixAverage Selling Price ($) 4.92 4.57 4.5 5.46 5.36 5.16 11.42Operating Cost ($) 6.56 6.16 5.61 4.82 4.37 3.89 10.68Operating Margain -33% 35% -24% 12% 18% 25% 6%

Worldwide Average Selling Price ($) 6.14 5.12 4.62 5.47 5.37 5.06 12.63ASP Qyarterly Change -1% -17% -10% 19% -2% -6% -5%

Strategic Plan

Improve operating efficiency Improve enterprise financial health Samsung seeks to increase the return on

equity by 12% Enhance market share by 5%

Financial Strategy

Service excellence Trusted business partners Empathy Learn what the customers want and deliver

based on that request Increase sales kiosks by 8%

Customer Strategy

Develop new products Understand consumer segments Reduce cycle time Provide rapid response Cross the product line Reduce defects from workmanship by 10%

Business Process Strategy

Hire key technical talent Implement cross-training Provide access to transaction information Align business objectives Increase employee productivity and

motivation Instill leadership aptitudes at all levels Become a customer centric culture

Learning and Growth Strategy

Recruit regardless of their schools or regions of origins

Evaluations given to employees Meritocratic-based promotions instead of

seniority-based promotions Employees betterment special programs Employees incentives Foreign talents recruitment

Employee Strategy

Addressing climate change Realizing green convergence Maintain a clean organizational culture To care for the environment, health and

citizens safety To be respectful towards, customers,

shareholders, and employees To comply with laws and ethical standards

Corporate Social Responsibility (CSR)

Question Review

International affairs

Large market share

Government subsidize

Lower cost structure

High productivity

What advantages are the Chinese firm entrants seeking?

Chinese's firm were attracting billions of dollar in outside financing. Using that revenue to build state of the art production facilities.

Like Samsung in the mid 80’s, Chinese firm had patience to endure years of loses to gain a significant market share.

Chinese government was able to provide Chinese firm's with cheap credit, abundant land, cheap utilities, engineering talent, and tax incentives.

How close are they to achieving that advantage?

Samsung is able to charge lower prices and are able to achieve superior profitable

As for China, competitors may lower their cost structures, they may imitate the cost leadership methods but they can’t duplicate Samsung’s low-cost advantage

Can Samsung's low cost advantage withstand the Chinese threat in low cost?

Can Samsung's low cost advantage withstand the Chinese threat in low cost?

Referring to the overall cost leadership chart Samsung has the lowest operating cost, and the highest operating margin percentage.

How much of Samsung’s performance is based on its reputed low cost leadership

advantage?

Samsung 4Q02 1Q03 2Q03 3Q03 4Q03 1Q04 Average Average Selling Price ($) 7.58 5.76 5.27 5.79 5.90 6.15 15.25Operating Cost ($) 5.33 4.77 4.6 4.00 3.82 3.92 8.5Operating Margain 30% 17% 13% 31% 35% 36% 44%

Micron Average Selling Price ($) 4.99 5.1 4.33 4.97 5.32 4.51 11.09Operating Cost ($) 7.25 7.96 6.65 6.06 5.57 4.75 12.51Operating Margain -45% -56% -53% -22% -5% -5% -13%

Infineon Average Selling Price ($) 5.9 4.89 4.69 5.41 5.21 4.95 10.58Operating Cost ($) 7.96 5.62 5.1 4.69 4.69 4.75 9.90%Operating Margain -35% -15% -9% 13% 10% 4% 6%

HynixAverage Selling Price ($) 4.92 4.57 4.5 5.46 5.36 5.16 11.42Operating Cost ($) 6.56 6.16 5.61 4.82 4.37 3.89 10.68Operating Margain -33% 35% -24% 12% 18% 25% 6%

Worldwide Average Selling Price ($) 6.14 5.12 4.62 5.47 5.37 5.06 12.63ASP Qyarterly Change -1% -17% -10% 19% -2% -6% -5%

Samsung integrated R&D facilities to make their products more innovative. Thus, emphasizing differentiation.

Samsung invested millions of dollars a year to their R&D facilities.

Quality, Customizability, and Legacy products

2000: 1603$ 2001: 1824$ 2002: 2451$ 2003: 2947$

Does Samsung also have a differentiation advantage?

Samsung R&D facilities actively sought to customize its products around a core design, allowing them to sustain growth.

Is That Differentiation Easier To Grow or Sustain?

Is That Differentiation Easier To Grow or Sustain?

Samsung prided itself on the reliability of its products and its ability to customize products to customer demands. Samsung can be low-cost while making their products differentiated

Can Samsung be both low cost and differentiated?

If Samsung was the market leader in terms of low cost and productivity, then Samsung should not be teaching Chinese competitors how to become more low-cost and productive.

Instead, Samsung should potentially yield but not give away the lower end of the market to the Chinese while trying to develop more high-value niche products.

How should Samsung respond to the Chinese threat?

Samsung’s mission statement relates to the nation of South Korea by creating superior products and services that contribute to a better global society. Samsung is basically implying that they will care for the community and contribute assets to help South Korea grow as a country

How does Samsung mission related to the nation of South Korea?