Samsung Electronics Case Study - What Kind of Advantage Are the Chinese Entrants Seeking?

Case 3: Samsung Electronics

1. What kind of advantage are the Chinese entrants seeking? How close are they to achieving that advantage?

Although Samsung had found much success in the electronics industry, there was an imminent threat from Chinese companies looking to gain a majority of the market share. The Chinese entrants were also willing to sacrifice profits and endure losses for a significant gain in market share.

In order to gain an advantage, the Chinese companies were:

a) Partnering with industry incumbents to learn the best practices from them

b) Licensing designs from incumbents and replicate the chip production through process technology

c) Selling the products at lower prices than competitors to gain market share

d) Attracting billions of dollars in external funding to build state of the art production facilities

e) Benefitting from strong governmental support (cheap credit, land, subsidies, tax incentives etc.

f) Having an easy access to resources, talented engineers and cheap labor

2. How much of Samsung’s performance is based on its reputed low-cost advantage?

Samsung maintained its low-cost advantage by efficaciously utilizing their resources to maximize their outputs and end products. Samsung won many awards and accolades for the performance and reliability of their products and services. The brand equity that Samsung developed also gave them an upper hand while negotiating prices with suppliers. They also set up a centralized R&D facility in South Korea instead of spreading geographically. This allowed them to drive down costs which further gave Samsung a cost-advantage of offering attractive and competitive prices to the consumer.

3. Can Samsung’s low-cost advantage withstand the Chinese threat on costs?

Samsung can withstand the Chinese threat in terms of cost. When we compare the fully loaded costs of Samsung and its competitors, Samsung’s cost is the least with a high operating profit. Thus, in order to match up to Samsung’s cost of production, Chinese companies would have to invest heavily in order to reduce production costs. This would require investment both in terms of money and time. Samsung also has the advantage of a diverse portfolio of technologically advanced products and the capital to invest aggressively in R&D. It would allow for Samsung to develop cutting-edge technology for a niche market segment with a cost-advantage. This would make them a leader in an innovative and dynamic market in the long term. Samsung’s brand equity would also help alleviate the Chinese threat.

4. Does anyone think the numbers mask the fact that Samsung’s differentiation advantage is more important or easier to grow and sustain, or both?

With regards to differentiation, it is important