Samsung Case
Q.2 Articulate three alternative strategies for Samsung going forward, i.e. state which products/markets and
which competitive advantages Samsung should emphasize, with particular emphasis on the threat from China.
Compare and contrast three strategies, and choose one as a strategic recommendation.
-----------------------------------------------------------------------------Now that we have identified Samsung’s competitive advantage we turn to strategies for Samsung moving
forward. Given the eminent entry of China, we believe Chairman Lee has three potential strategies. They are:
1) Move production to China, 2) Partner with Complimentary Industries, such as Nokia and 3) Continue to
invest in R&D and focus on new technology, such as Flash. We will discuss each strategy and ultimately
recommend the strategy that we feel will give Samsung a competitive advantage moving forward.
1) Move production to China
Knowing that China poses a threat, an obvious strategy is to move production to China. Although China is
selling their DRAM chips at the lowest price, approximately $4.43 for a 256Mbit DRAM in 2003, their costs are
much higher than Samsung. However, for SMIC, labor costs and SG&A are much lower. By decreasing labor
and SG&A costs Samsung’s operating profit would increase from $0.94 to $1.49, a 58% increase from their
current state (See Chart 1 below with price changes and variance). Therefore, moving production to China
could help Samsung offset costs that they could then use to invest in new technologies, such as Flash.
Chart 1: Samsung Labor/SG&A Cost Changes. Based on cost Breakdown of 256Mbit DRAM in 2003
On the other hand, this strategy poses more threats than benefits. Samsung’s culture is a big component
of their competitive advantage and moving to China could potentially disrupt their cultural atmosphere.
Similarly, Samsung’s advanced technology is keeping them ahead of the curve and by moving to China, they
could expose their intellectual property and hence give China a competitive advantage. Lastly, Samsung’s
reputation hinges on quality products. In moving production to China they are compromising on their quality
control, which has given them an advantage over their competitors and essentially a higher WTP from their
customers. The most likely outcome from this change will be a lower WTP from their customers (See Figure 1
for Value Stick Analysis). Thereby decreasing the customer’s added-value and decreasing Samsung’s market
share. A complete breakdown of this strategy and how it affects other core constituents can be in Chart 2.
Figure 1: Samsung Value Stick after moving to China
Chart 2: Five Core Constituent Analysis on Strategy 1
Affected Party
Reaction
Rivals
Gain access IP
Complements
No effect
Suppliers
No effect
Substitutes
No effect
Customers
Decrease WTP
2) Partner with Complimentary Industries
Another strategy that Samsung could explore is partnering with complementary industries such as Nokia
and Intel. It was stated that Intel had invested in other competitors in the past, so it seems a viable option for
Samsung. We believe partnering with complementary industries would mitigate Samsung’s risk and allow
them to invest in technologies that are compatible with new, upcoming products. Similarly, Samsung could
partner with not just one but several OEMs/mobile phone companies. These partnerships would give Samsung
market share security and essentially block competitors from entering the market. Also, since Samsung
currently has the competitive advantage, OEMs will feel comfortable forming an alliance with Samsung. Lastly,
by partnering with a complementary company and not a competitor they don’t compromise their work culture
or the quality of their products. Therefore, WTP would stay the same if not increase due to forming strong
partnerships.
In contrast, by partnering with complementary products, Samsung could lose some of their flexibility. If a
new competitor were to emerge they may be slower to react with a partner than if they were working on their
own. This slower speed to market may impact their first mover’s advantage. Similarly, by partnering with an
OEM, Samsung may become much narrower in the depth of their products thus prohibiting them from
satisfying other customer’s demands. In addition, OEMs are known to hedge their bets and often times will
partner with more than one supplier. As a result, Samsung’s intellectual property may be more readily
accessible to competitors via OEMs. Lastly, different constituents may adversely react to Samsung’s
partnerships thus causing them to react negatively. For example, other competitors may decide to partner
with China to create more mass and attempt to undercut Samsung’s partnerships with lower costs to OEMs.
Below please find a chart that shows the effects of this strategy on our 5 core constituents (See Chart 3 for
breakdown).
Chart 3: Five Core Constituent Analysis on Strategy 2
Affected Party
Reaction
Rivals
Backlash by partnering with other
rivals/competitors to form mass
Complements
Create more synergies
Suppliers
Small effect
Substitutes
Some substitutes may go away
Customers
Strong synergies
3) Continue to invest in R&D and focus on new technology
Although the first two alternatives were appealing, we feel Samsung’s strongest strategy would be to
continue to be a solo player. We believe Samsung is already cost efficient, therefore, there is no need to move
production to China. We also know that Samsung’s culture is key and moving or partnering would compromise
their cultural environment. Since Samsung is already the key player and has a significant amount invested in
R&D, their primary focus should be on new technology. They can do this more efficiently on their own and
also allow for greater customization of their products. The effects of this continued investment in R&D will
give Samsung superior IP production, which neither China nor any other competitor will be able to match.
Lastly, we believe that Samsung’s agility will allow them to anticipate new trends and make strategic
acquisitions. We realize that China is still an eminent threat; however, if Samsung goes with this high-risk
strategy their rewards would be equally high. Chart 4 shows our core constituents reactions.
Chart 4: Five Core Constituent Analysis on Strategy 3
Affected Party
Reaction
Rivals
Will continue to lag behind in IP
production
Complements
No effect
Suppliers
No effect
Substitutes
No effect
Customers
Will look to Samsung for new
technology