1. Sources of Samsung’s cost advantage in DRAMs
Samsung’s cost advantage is clearly visible from the comparison of costs (and their elements) that were borne by the company and its competitors in 2003 (Tab. 3): Samsung’s overall cost was 24 per cent lower than the weighted average cost of the other four producers; two most significant elements of the cost structure, i.e. raw materials and labour, were 36 and 27 per cent lower respectively. When expressed by means of a relation of average selling price to costs (“productivity” of cost elements), the differences are even more visible (comp. Tab. 4 ): overall superiority of Samsung over its competitors exceeded 51 per cent!
The cost advantages related to raw materials may be explained by better negotiated agreements with suppliers (perhaps due to the larger volumes of purchases – comp. Fig. 5) and possibly less shipping and distribution costs that stem from the fact that Samsung’s fab facilities are geographically collocated (while competitors’ facilities are spread world-wide). In terms of labour productivity only Chinese SMIC outperformed Samsung, but that came hardly unexpectedly: low labour costs in China had been and were to remain unbeatable for some time yet.
Other possibly meaningful factors that cannot be forgotten include: higher yields (due to process quality and use of more efficient, larger silicon wafers), use of common core design for different products supported by the flexibility of production lines (which enabled cost-efficient production of a wide variety of different semiconductors), and – reportedly – 12 per cent lower investment in capital assets related to the aforementioned strategic decision on fab collocation.
The last but not least element of the Samsung’s “cost puzzle” (which, unfortunately cannot be supported by concrete numbers from the case study, and is rather based on intuition) was the way the firm built and maintained intellectual capital and stimulated innovativeness and creativity among employees. It had established an incentive-based remuneration system, it sponsored employees for PhDs and MBA education, it created a family-friendly working environment in which more of employees’ energy could be devoted to solving problems at work instead of troubles in private lives. In most modern industries, such a long-term approach and investing in human capital eventually pays off resulting in higher productivity and better and cheaper products.
2. Sources of Samsung’s price premium in DRAMs
Samsung achieved an almost 15 per cent price premium over (the weighted average price of) its competitors (comp. Tab.
During his absence, with John Sculley in power, the focus shifted to maximization of profit, and product design suffered. Steve Jobs theorized that is was one of the reasons companies decline. “My passion has been to build an enduring company where people… make great products… the products, not the profits, were the motivation. It’s a subtle difference, but it ends up meaning everything”.
One of the main costs is to manufacture their products. A major reason the companies are moving manufacturing plants to Asia and South America is to lower manufacturing cost. This will lower the cost for the customer and keep each company competitive and allow them to keep a high margin. Another cost is the inventory cost for each company. Each company needs major capital to store their broad catalog of products. This is especially true for Fastenal because one of their niches is time of delivery. Since Fastenal has more distribution plants we as a company are able to get a customer an order in a shorter period of time. The problem for both companies is since the catalog is so broad many products end up staying in inventory for too long raising inventory costs. Also another cost is product development and management. Each company has many products that need to be developed and the customer seems to always want something else. Both companies spend capital to satisfy their customer’s product needs and each company needs to manage product
Historically the personal computer (PC) industry has sold its products at reasonably high prices yet garnered only small profit margins. One reason for this is the high competition in the PC industry which led to competitive pricing among producers. Analyzing the competitive environment of the PC industry, it is evident that there is very little barrier to entry in this market. PC's have very low physical uniqueness and are made of standard components that require very little expertise to assemble.
The first issue, described by Ohmae as the Californization of Need, refers to the convergence of customer needs and preferences and the fact that the national identity of many high-quality products has virtually disappeared. Secondly, companies can no longer maintain a leadership position based solely on superior, advanced technology. This results because of the increasing number of critical technologies embedded in the majority of products, therefore, no one can keep the technology out of the hands of competitors around the globe. Thirdly, Ohmae emphasizes the importance of fixed costs. He believes that companies can no longer compete by keeping their variable costs lower than their competitors. The majority of costs incurred by companies these days are fixed costs, therefore, what matters is maximizing marginal contribution from fixed costs and a logical way to do this through forming strategic alliances. The final issue Ohmae identifies is dangers of equity.
Realizing that fierce price war in China’s color television industry brought them ever-decreasing profit margins hard to bear, in 2000, some core members of the color TV industry formed a price alliance intended to stifle the price war and re-establish their leadership in the value chain of home appliance. Responding to the price control, Gome initiated its powerful strike by lowering the price of Prima’s (a member of the alliance) color televisions to an extent lower than the price laid down by the alliance. The consumers’ response confirmed Gome’s low prices strategy at the beginning, while the allied manufacturer’s once again signal of price control was obviously aimed at Gome’s defiant market strategy.
Besides, they approach by producing innovative product with a wide range of smartphone with various operating systems, shapes, sizes and prices to their customers with attractive prices. With comparative items function, Samsung products cost is constantly lower from 10-15%. Samsung has utilized its interior resources and applied to their production system, as a result, this will decrease the cost of production and offer more option to the customers. Diminishing the cost is another strategy for Samsung to attract customer attention and to increase the sales volume. Pricing strategies consist of several different types such as price skimming, competitive pricing, penetration pricing, discount pricing and product life cycle. Samsung utilize different pricing strategies to different product. Firstly, price skimming. It is higher price had been set ahead, before competitors penetrate the market. Therefore, Samsung applies pricing strategy in selling their products, for example hand phone. Once the company releases new model, they will decrease the price of the previous model to compete with another competitor. Second, Competitive in pricing. Samsung utilize a competitive pricing strategy when other organisations offer similar products and services. Samsung set their total cost of a
The third factor is cut cost in the supply chain. Although the supply chain of Nokia may be the most complex one in the world, it was still the most efficient one. According to the value chain analysis, if the cost decreases, the profit margin increases. Nokia even employed a group of anthropologist to observe the behavior of local people and understand them. By understanding the customers, improving the logistics, sourcing, distribution and mass production, Nokia reduced the price significantly, for example, the price of 1616 model was reduced to one third of its price five years ago (Kevin,
price as the major decision-making tool for customers (“Global Consumer Electronics”, 2013). This lack of
Research and development plays a big role here at Samsung creating the ability towards taking the next step of building a better future. In 2015, Samsung spent $14 billion dollars on research and development alone, so it’s surprise why we are willing to spend $50 million on the first year of the product. We will use our research and development team to improve the quality of our smartphone via updates and discover reasons why consumers are passing up on our new smartphone. From year 1 to year 2 there will be an increase of 16% in the research and development expense and from year 2 to year there will be a 7% increase. Most of our highly praised tech like the Galaxy S7 and S7 Edge are due to are research and development teams. The general / selling/ administrative expenses all include fixed costs, advertisements, and direct and indirect costs. With the percentage nearing the profit margin it represents that we’re are in the competitive smartphone market. The change from year 1 to year 2 for the general / selling / administrative expenses increased by 9% and it increased again but only by 4%. The pie graph at the bottom displays the % that goes to in expense. For General / Selling / Administrative expense, I’ve separated the advertisement budget to its own
Samsung used the “new product development” strategy. According to Kotler/Armstrong new product development is defined as the development of original products, product improvements, product modification, and new brand through the firm’s own product. Samsung also unveiled a new strategy, which is called “new management,” a top- to-bottom strategy for the entire company. Lee Kung Hee, CEO, hired young designers to produce new ideas that could get the company in the direction that he wanted it. New designs .Sleek, bold and beautiful products, so that they could target high-end users to the company. Samsung also was testing new product concepts.
The second way is to achieve low direct and indirect operating costs is gained by offering high volumes of standard products and offering basic no-frills products. Production costs are kept low by using less parts and using standard components. Limiting the number of models produced to ensure larger producti...
During 1998-2003, SEC invested $19 billion into chip factories and $17 billion into manufacturing facilities for TFT-LCDs, which would be a major component for flat screen TVs and computer screens. Even though SEC was focused in the manufacturing process, it didn’t make SEC a rigid company.
What is the best smartphone brand in the world? IPhone or Samsung? It is a question we are often asked. We all know that there are many high- class Smartphones Company in the market except Apple and Samsung, but nowadays people more likely to buy these two companies products and always like to compare them and trying to know which one is the leader of smartphones market. Most of people believe that Apple brought the smartphones revolution to the world and it changed “everything”, and maybe that is why Apple has more royal supporters than Samsung.
Management Efficiency: During the 80s, the company’s refocus to manufacturing quality and technical leadership and profits reinvestments in R&D, state-of-the-art manufacturing, and supply chain activities helped the company to grow in a great extend. This management vision was not only upgraded the company’s products to compete in the high-tech electronics industry but also gave foundations of its global brand awareness.
Currently in the global environment, there is a strong sense of competition that must be achieved through better performance, almost all firms are competing in international markets due to the reduction in barriers for capital and tariffs. With the new changes in both communication and technology, the consequences faced are that production processes are no longer within national boundaries but spread across (Debrah & Smith, 2002).