October 11, 2007
Samsung is one of the biggest conglomerates in the world with businesses established in shipbuilding, contracting, and electronics. Global revenues in 2005 alone reach over 56.7 billion (Secrets of Samsung's innovation success, 2006) and brand tracking firm Interband ranked Samsung as the 20th most valuable brand in the world (As Sony gets a tune-up, Samsung Zooms Ahead, 2005). Samsung was not really recognized as an international powerhouse until the 1990s where before it was largely considered only a household name in Korea. So what lead to the success of Samsung in the 1990s? While there is no one deciding factor or event that lead to Samsung's success, many would agree that their entrance and their efficiency in to the semiconductor market and innovative adaptation of the six sigma supply chain management has lead them to be one of the best managed firms in the world.
Samsung's semiconductor business accounted for nearly a third of the 56.7 billions dollars of revenue generated in 2005 (Secrets of Samsung's innovation success, 2006). Despite entering the semiconductor business late in 1983, Samsung is now the world's 2nd largest semiconductor distributor behind Intel. The turning point in the company's history was in February of 1983 when Lee Byung Chul, the CEO of Samsung Group made a push towards a large investment in memory chips and was determined to break into the semiconductor market (Kim, 1998). Lee Byung Chul recognized that there would be a need in the future for more memory chips and he identified that this was going to be the trend. I believe that Samsung realized that the semiconductor business was only in its initial stage of Foster's S-curve and that with careful planning and the right product, they can still capture market share from established companies. The only question now is what kind of memory chip did they want to investment in? Memory chips like SRAM were considered but quickly dropped mostly due to their small market size (Kim, 1998). They finally decided to go with DRAM as their main memory chip. Factors that lead to the decision were the relatively large market for DRAM chips at the time and they also saw how newcomers like the Japanese firms had successfully caught up with well-established firms in a short amount of time (Kim, 1998). Another important factor was the simple design structure of the DRAM chips compared to the design-intensive structure of microprocessors and application specific Ics (Kim, 1998). Samsung realize with the simple design structure of the DRAM chip, they had a competitive advantage because they could just concentrate on the manufacturing process and they have had lots of experience with incremental process innovation so they knew they could be very efficient. Samsung knew they were not yet capable of making design-intensive structures yet, but they knew they could take advantage of their efficient manufacturing process. Lee Byung Chul and his management group made a great strategic choice of product because Samsung is now the largest distributor of DRAM chips in the world for the 11th consecutive year (Samsung Austin Semiconductor, 2004).
While there are many imitators trying to enter the DRAM market in the 1980s, Samsung was able to outlast them because they had the resources and were able to fund the R & D portion and support the capital-intensive structure of the semiconductor industry. Even though Samsung experience large losses in the first 5 years of existence, other profitable sectors of the Samsung group funded the semiconductor sector. This was one of the major advantages Samsung had over other competitors, even if their semiconductor sector is failing, they have other establishments elsewhere that can keep them going. Samsung's first big break came in 1987 when the U.S. restricted the Japanese 256KB DRAM because they accused them of price dumping (Kim,...