Samsung Electronics case - Article Example

(3) They had attracted a lot of resources from foreign investors which allow them to sell the chips at lower prices in order to gain a market share. The production methods used are cost effective. 2. Samsung’s business-level strategy. a. The sources of Samsung’s cost advantage in DRAMs in 2003 are a result of the fact that it invested heavily in technology which made mass production at a relatively lower cost possible. For instance, the cost breakdown of producing a 256 Mbit DRAM in 2003 was: Average selling price is $5.

08 while the fully loaded costs are $4.15. Thus $5.08 - $4.15 = $0.93. This entails that it has an operating profit of $0.93. on the other hand, it can be noted that Micron’s costs for the same DRAM are: Average selling price $4. 48 while the total costs are $6.52. This means that Micron is operating at a profit of -$2.04 since the total production costs are higher than the selling price. b. The source of Samsung’s ability to charge a price premium in DRAMs in 2003 includes the following: It has a health financial position in the market.

For example, the operating costs of the company are lower than the average selling price of the 256Mbit. Data in the case shows that the average Price premium for Samsung is 34 % compared to the operating margins of 53 % of the other competitors. This puts the company in a position charge price premiums since it has little operating costs compared to other competitors. The other reason is that it customizes its product to suit the needs and interests of the customers. c. Samsung’s business-level strategy is based on a competitive advantage in cost leadership.

Evidence to support this view includes: (1) The total production costs are lower than the average selling price which is cost effective. (2) The company can produce a large volume of DRAMS at a relatively lower cost. (3). The company can cut a large quantity of chips at the same time at the same cost. d. Identify the characteristics of the industry that hinder the successful use of an integrated business-level strategy. The main challenge is that the company can operate at a loss if the other product line fails to perform to the anticipated expectations.

This integrated business level strategy can involve a scenario where a company integrates more than two product lines. The main challenge is that the other product may not be that competitive in the market which entails that it can also affect the performance of the other product. 3. Recommendations a. To strengthen the company’s competitive position in light of the threat of large-scale entry by the Chinese companies, Chairman Lee could: (1) Differentiate the products (2) He can also diversify the products where two or more product lines can be offered under the same brand name. (3) He can also lower the prices of the products in order to gain a large market share through attracting a lot of people to its products.

Of these options, differentiation is the most viable because it makes the company and its products unique from the other players and products offered in the market. Through differentiation strategy, the organization is in a better position to attract more customers through offering products that are valued by the buyers through their uniqueness. However, a potential problem with this approach is it may be costly to acquire sophisticated equipment that can be used to produce unique and state-of-the-art products that are