Is Samsung Both Low Cost and Differentiated? If Yes, How Does It Do Both?

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Samsung is low cost and differentiated. According to exhibit 7a-7i, it can be seen that Samsung has a lower operating cost of $8.50 as compared to industry average of $11.03 as well as higher profit margin 6.6 times that of its competitors. This reflects Samsung ability to deliver desired value to customers using lean and effective design and production. Samsung is able to maintain the low cost largely because of lower labor, R&D and raw material cost. Samsung has a relatively lower labor cost for each production unit because its meritocratic hiring and evaluation system, reward policies, employees’ welfare and benefits to employees’ family allow employees to focus on innovation and productivity. Hardworking employees are always ready to work overtime, thereby eliminating wastage of resources needed to source for additional help or last minute hire. Also, its strategic location in Korea translates into some savings in labor cost compared to companies that operate in Japan and US. Samsung’s collocation of its main R&D facility and fab lines is estimated to have saved an average of 12% on fab construction costs. Living together at the Samsung’s primary campus, R&D and production engineers solve design and production engineering problems together and, indirectly encouraged good rapport. This may explain the lower R&D cost that Samsung incurs. Samsung’s innovative technology contributed to lower raw material costs and higher yield rate. Samsung currently uses the smallest process technology of 0.11µm which enables them to have a higher net dice per wafer compared to their peers who uses 0.13µm. Samsung needs less materials than others to produce the same product, reducing overall production cost. Its innovation not only reduced cost, but also formed its differentiated core competency. Noticeably, its innovation has reduced defects in its product also help to lower wastage and hence lower cost of production. Samsung is also innovative in customizing to their...
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