Competitive Advantage Achievement on the Case Study of Samsung Electronics

Competitive Advantage Achievement on the Case Study of Samsung Electronics

Introduction

According to the given case, Samsung Electronics shows considerable success in memory chip market. For instance, Figure 1 presents its dominant average operating margin (44% in average) of DRAM among its major competitors (Micron: -13%, Infineon: 6%, Hynix: 6%). Whereas, five force theory and financial results of competitors indicate that the entire memory industry is actually not very attractive and profitable.

This paper aims to interpret how Samsung achieves competitive advantage to be successful in the unattractive industry. By taking both external and internal factors into account, this paper will respectively examine cost advantage and differentiation advantage of Samsung, and investigate reasons of achieving dual competitive advantages. Finally, this article will draw a clear summary using the value chain model.

Cost Advantage

As can be seen in Figure 1, Samsung offers DRAM chips with lower operating cost (8.5$ in average) than its rivals (Micron: 12.51$, Infineon: 9.9$, Hynix: 10.68$) to obtain competitive advantage. According to PEST and industry analysis, the case implies several key drivers involved with cost advantage of Samsung.

1) Process innovation and economies of scale

• Production increase

In operation process, Samsung puts great efforts on producing as many chips in one production step as possible. High-technology is invented to allow more electronic circuits, use larger wafer size, and make more chips. This process innovation pushes capacity utilization and enlarges production yield so that the average fixed cost of manufacturing reduces, which promotes Samsung to reach economies of scale.

• Waste reduction

To improve operation, Samsung values R&D to not only increase output but minimize defective chips. This activity cuts wasteful expenditure, leading to economics of scale.

• Flexibility

Samsung uses common core design for a wide range of products to ensure standardization and uniformity. This facilitates cost-efficiency and economies of scale as well.

2) Economies of learning

• Skilled workforce

Samsung recruits skilled employees and forces them to work heavily. Because job in high-tech industry has a steep learning curve, Samsung workers with much more experiences than those in other firms promote cost reduction involving labour hour and improve efficient-use of raw materials.

• Incentive system

Samsung adopts effective compensation

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