Smothering the Chinese Threat

Team 1
2/24/2013
A. Anand Menon Abhishek Nandan Amal S Pilla Anand S Murali K Nayanika Pawan Thakare Pranav Mehta aam16@iimk.ac.in abhishekn16@iimk.ac.in amalsp16@iimk.ac.in anands16@iimk.ac.in muralik16@iimk.ac.in nayanika16@iimk.ac.in pawannt16@iimk.ac.in pranavm16@iimk.ac.in 8281257280 9048408858 9496469560 8943686133 9946047670 8943408788 9645114254 8943690956

Strategic management

Features of memory industry

The industry was estimated to be worth $250 billion in 2006 The industry segmentation can be represented as:
Memory

DRAM (over 50% market share)

SRAM (10% market share

Flash (32% Market share)

This is a cyclic industry, with massive swings Requires large R&D investments to make technological progress Only two or three dominating players Customers are very price conscious
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Advantages of Samsung

We have technologically driven niche products Strong investments in R&D Great economic scale and economic scope Being a big buyer from suppliers, we get discounts Human resource practices that emphasizes on meritocracy instead of seniority Financially stable and has large amount of resources at its disposal Brand value of being reliable, which is an important aspect for the buyers Have strong presence in related an supported industries such as LCD, Mobile phone and PC industry Flexible production lines and variety of products
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Chinese threat
Chinese firms have access to a large pool of financing China enjoys low cost of labor and administration Chinese government promotes the industry through:
Zero tariff rate for importing semi-conductors Cheap credit Cheap and abundant land and utilities Tax incentives to anyone who was willing to partner with a Chinese company

With the help of joint venture and agreements, the Chinese firms are in a position to get manufacturing license and technology These firms are sacrificing their profitability to cut prices and gain market share

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Strategic management

Suggestions
Samsung has always identified new markets early and moved into it even before many of its competitors thought of the option, and hence creating an entry barrier So we have always banked on finding the Blue ocean rather than fighting price wars with competitors Another factor we can bank on is our brand value

Options available for us: 1. Collaborate with Chinese partners 2. Invest in cutting edge products and niche markets

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Strategic management

Analyzing alternatives

Collaboration
Pros: - Access to rapidly growing Chinese market Cons: - Loss of unique culture - Lack of IPR protection
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Investing for differentiation

Pros: - Avoid price war - Capture new markets Cons: - Large investment into R&D
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Strategic management

Double ended sword strategy

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Strategic management

Edge 1

Focus on R&D
Attract top engineers and invest in R&D facilities Focus on cutting edge technologies like ZRAM, TTRAM and PRAM to avoid competition and enter a Blue Ocean Differentiated products will help us in commanding price premium Chinese firms would find it very difficult to replicate the new technology and compete with us on price

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Strategic management

Edge 2
Cutting cost on low end DRAMs
Since we have expertise in production of DRAMs, try to cut down prices with better operational efficiency Trap the Chinese competitors in a price war at this end of the market The Chinese firms are sacrificing profits in hopes of gaining market share. This move from us would prevent or delay their advances in market share. Slowly, their losses would mount and they would have to fold Lower margins in one segment (DRAMs) can be offset by profits from our other businesses

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Strategic management

Other supplementing actions

Enter into long term contracts with large buyers such as Nokia, Sony and others Introduce new memory technology in the firms other products such as computer, mobile phones or cameras to advertise their superiority, which would create demand for the new technology products from other products

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Strategic management

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