Does Samsung have a competitive advantage? If so, how are they creating added- value compared to industry competitors? Make sure to quantify your claims. (In answering this question, you will find helpful information in exhibits 6-k (but not only there)). A. Compare Samsung stick” to that of an “industry average” competitor and briefly Justify any differences. (Remember that willingness-to-pay and willingness-to- supply are generally unobservable, but you can still engage in informed speculation. ) b.
Propose potential explanations for the higher WET/P and/or lower CAWS of Samsung. (Recall that with Walter we discussed the squeezing of suppliers vs… More efficient operations as potential sources of their low cost advantage, while with Ezra, we noted how the WET advantage arose through faster response and thus fewer fashion misses rather than because Sara’s clothes have great cachet visa-Г¤-visa those of competitors. ) Based on your analysis of the activities of the firm, and data from the case, what are the most important drivers of Samsung WET/P and/or C/ WTLS advantage, if any?
ANSWER 1 Samsung does have competitive advantage on both ends of the stick”. At the top, Samsung is able to demand higher prices for its products, while also driving lower production costs by using various innovations and efficiencies. WET – Customers have an increased WET for a reliable supplier. By 1995, after a period of producing “shoddy products”, Samsung has put quality first and started winning various awards for “reliability and performance”.
Samsung because the preferred supplier for most of its customers due to the reliability of their products. Mr… Lee has urged all employees to put quality first at all times, launched mass burnings of flawed products, and admonished its employees about their quality control. The firm’s culture for excellence and quality control helped Samsung capture 1% average price premium that the customers were willing to pay for a reliable supplier. Price – Exhibit 3 illustrates that Samsung was able to ask for a higher price as compared with its competitors.
From 2000 to 2004, Samsung price premium was on average 34% over its competitors and it never went under 10%, illustrating that Samsung was roving additional value add compared with its competitors. In terms of product diversity, Samsung offered 1,200 different variations of the DRAM products which provided its customers flexibility and also showcased Samsung innovations in various products and markets. In many of these products Samsung had a clear advantage, as illustrated in Exhibit 5. For example, Samsung was the leader by product volume for DRY SODAS with 40. MM units, while competitors like Micron and Hindi produced MOM and Infinite produced 1. MM units. Even for the more tankard DIR SODAS, Samsung produces 585. MM unites while Micron, Infinite and Hindi produces 475. MM, 437. MM, 401. Mm respectively, which represents approximately 34% higher unit production. This production advantage allowed Samsung to charge a premium price for many of its products as there were limited price point in general, skewing the average price higher overall, as illustrated in Exhibit 6.
Cost – Samsung was able to afford the lowest cost structure in the industry across most products, as illustrated in Exhibits b, c, ad, e, 7], and k. For example we can pick another one], for the ambit DRAM in 2003, Samsung fully loaded cost was 26% less than the competitors’ weighted average cost, as illustrated in Exhibit ad. The major drivers of this exceptional cost difference are raw materials costs (35% lower), labor costs (27% lower), SO&A (25% lower) and R&D (10% lower). There are many factors which allowed Samsung to be able to sustain these lower costs.
First, Samsung invested into manufacturing technologies and centralized the production facilities in South Korea as compared with its competitors who had production catered all over the world. This “collocation” impacted the time-to-market and saved an average of 12% in construction costs. Samsung efficiency was also driven by the quality of its employees. All R&D and production engineers lived together in the same company-provided housing, which lead to quick design, resolve and process any issues in design or production which in turn led to quick turnaround time, lower idle times and increased productivity.
Also, the site was located in the mountains where the air was fresh and clean, which meant lower maintenance costs since most chicanery was highly sensitive to dust and other particles Second, the Human Resources promotion policies have shifted from their more traditional structure (seniority) towards a meritocracy system where highly skilled managers can be promoted as soon as eligible. Samsung has also heavily invested in employees’ global business skills through various internal mobility and specializing programs.
All these employee centric advancements ultimately drove innovation in product design and process efficiency higher than its competitors. Third, Samsung created new uses or DRAM by outing its manufacturing and R&D in support of design firms (I. E. , Rumbas). Over the years, new DRAM products were launched which shared a common core design. This way, more DRAM chips were produced and sold, helping the company, not only to achieve larger economies of scale, but also to learn more about the market and its preferences. Fourth, the production was also such that it helped Samsung achieve a lower cost.
Its ability to control the mix of products and outputs is one of the ways the company was able to survive the past downturns while imitators experienced net losses and increased cost structures. Samsung always choose to manufacture multiple products on each production line, maximizing production time for each plant and for each production line. Fifth , Samsung focus on quality, led to lower defect rates which in turn lead to fewer defective returns and lower costs, as illustrated by the raw materials costs in the various Exhibit as. Moreover, Samsung had the highest yield rate in the industry as illustrated in Exhibit loc.
Lastly, Samsung devised a plan to increase the size of the wafers so that more chips loud be cut at the same time, while its competitors were not willing to invest and mass produce larger DRAM chips. With the larger wafers Samsung was able to more than double the number of the chips produced in a single wager and increased its yield rate by more than 20% than its next competitor as illustrated in Exhibit loc. Pricing levels, inferring that the pricing levels are already at the lowest possible level. While they did offer discounts for up to 5% for high-volume buyers, Samsung and likely its competitors received some sort of discount.