Samsung Electronics

The Harvard Business Research of Samsung Electronics case talks about Samsung Electronics company under Kun Hee Lee leadership. In 2005, Kun Hee Lee more worried about mainland Chinese companies (;SMIC) that were beginning to attack Samsung. These Chinese companies who just took design from other firms and made chips based on blueprints could afford selling their products at low prices.

However, Samsung had more competitive advantage than SMIC. We can see that from several perspectives; marketing, products, financial, Research & Development, and Human Resources.

Samsung succeed in marketing new types of cutting-edge memory chips and their R&D support had necessary organization experience and knowledge which are required to master the design and production process. Furthermore, Samsung diversified their production on DDR -16Mbit, 64Mbit, 127Mbit, 256Mbit, 512Mbit, 1Gbit – DDR SDRAM, and Rambus DRAM, while SMIC decided to just produce DRAM 256Mbit and DDR SDRAM 256Mbit. Moreover, Samsung always gained profit in selling their products, while SMIC gained loss. Samsung sold its products with higher price and lower cost, whereas SMIC sold their products with lower price and higher cost.

Based on financial perspective, since 1983 until 2003, Samsung was the most profitable companies compare with the other major memory competitors;

a)      Samsung was the only one company who had positive Net Income and negative Net Debt.

b)      Samsung has Total Asset Turnover which is > 1, while the others < 1. For every dollar in Samsung assets, Samsung generated $1.1 in sales, and it took 0.9 year to turn assets over completely.

c)       From profitability perspectives; Samsung’s profit margin, ROA and ROE were the highest and positive. Samsung generated 13 cents in net income for every dollar in sales. On the other hand, Samsung generated 15 cents in profit for every dollar in assets and so does in equity. So, we can say that Samsung was a good company, not only because of the total asset turnover > 1, but also from their profitability ratio.

Based on operating profit of DRAM in 2003, we can see that Samsung cost was lowest than its major competitors;

a)      lower cost of raw materials. They could cut per unit cost of raw materials because Samsung produced more chips; it means that there were more chips could be cutted at one time.

b)      lower labor cost. Samsung provided project and productivity incentives, and profit sharing program to the employees.

c)       lower depreciation cost. This can be done because multiple product architectures could be produced on each production line (R&D engineers and production engineers). 

d)      lower R&D cost. Samsung main Research and Development and manufacturing plants were at a single site, so that the R&D engineers and production engineers could quickly solve the product design and process engineering products. The communication cost has reduced and they could save time too. 

From above information, nevertheless to say that Samsung gain the biggest profit because Samsung had the lowest cost and sold products 53% more than competitors. However, people want to pay with that high price to Samsung because Samsung brand name and its trusted products. They believed Samsung has good quality with less deficiency than the products from the other DRAM suppliers. The second reason is because of Samsung’s ability to customize products to customer demands. Samsung maintained their quality control very well. One technology development that Samsung used was to see and fix mistakes by stacking method, while the others used trenching method.

However, competitive advantage of SMIC was undeniable; cheap land, increasingly skilled workforce, attractive market, and support from Chinese government.

In my opinion, Kun Hee Lee could make a partnership with SMIC. This partnership would create a new joint-venture company in China.  That means Samsung can access to the government essential resources and engineering talents with lower wages. Furthermore, Samsung can enlarge their domestic market and market share in China.