Samsung Electronics Company, henceforth called “Samsung” in this case, was established in 1969 to manufacture black-and-white TV sets. In 1974, Samsung, which was a producer of low-end consumer electronics, purchased Korea Semiconductor Company and began its semiconductor industry. Under the leadership of the chairman of Samsung Group, Kun He Lee, Samsung has risen, with a remarkable speed, to become the world’s leading memory producer, ranking 2nd just behind Intel. Meanwhile, Samsung used the earnings from memory division to invest in various technology products like mobile phones, liquid crystal displays and so on. These businesses made Samsung generate the second-largest net profit of any electronic company outside the US. In spite the current success, Samsung was facing the competition from Chinese producer that would sacrifice profits for market share by providing cheap DRAM products. So what should Samsung do? There are 3 potential options: 1. Directly confront the competition from Chinese companies, perhaps by driving down DRAM prices, offer favorable service or coalescing with other memory producers. 2. Cede the DRAM market and shift to other businesses.
3. Collaborate actively with Chinese companies, maybe by expanding joint investment in China. And at the same time, increase its investment in cutting-edge products, particularly for new niche markets. The following paragraphs will first focus on analyzing memory market of the time, the advantage and weak point of the incoming Chinese produces. Then, we deep into the 3 potential options and give a detailed explanation why we choose the third option for Samsung. Finally, a conclusion for this article will be drawn.
2. Market analyzing based on Potter’s model of generic competitive strategies Potter’s model was proposed in 1980s. It has had an extremely deep impact on enterprise strategies and has been widely used in analyzing the firms’ competitive environment. In light of Porter’s analysis, the competitive environment has a common structure, consisting of five competitive forces. These forces, which are viewed as the determinants of the industry’s overall competitiveness and profitability, are: * Bargaining power of suppliers
* Bargaining power of buyers
* Intensity of rivalry among existing firms
* Pressure from substitute products
* Threat of new entry
We now look through the 5 forces and combine them with DRAM memory business: 1. Bargaining power of suppliers
Supplier bargaining power refers to the ability of providers to determine the price and terms of supply. Suppliers can exert power over the market by raising prices or reducing the quality of purchased goods and services, so reducing profitability. Semiconductor market is dominated by a small number of companies, including Samsung. These companies firmly control the market and make it difficult to enter. As a basic part of a variety of electronic products, DRAM is indispensable for buyer’s business, putting the buyers in an inferior situation in drawing price. As of 2003, Samsung offered over 1200 different varieties of DRAM product. This could satisfy the need of various buyers and thus covered the market comprehensively. The possibility that major companies forward integration further made the semiconductor market difficult to access. Thus, the bargaining power of suppliers in this industry is very strong. 2. Bargaining power of buyers
Buyer bargaining power refers to the pressure consumers can exert on businesses to get them to provide higher quality products, better customer service, and lower prices. It is a normal occasion that bargaining power of buyers and suppliers is sort of the reverse relation to some extent. DRAM is required by many firms of electronic producers. These buyers are less concentrated than suppliers and give the large number of buyers; threat of backward integration of buyers is low. Since DRAM is the major...